How to ensure that time use and resource use remain in balance with one another? For decades, some have been concerned about resource use imbalance in sustainability terms. Say's Law also grapples with this issue of resource balance, although it does so in terminology which takes economic time use into account. What is sometimes missed in these debates: many resources can only be utilized in sustainable ways, when economic time use also benefits from a similar approach. Limits to growth dialogue is the wrong approach, in that it is a mirror reflection of austerity measures in general - albeit in different ideological terms. Growth more naturally follows when the time use of all participants is considered.
Otherwise, resources can be lost or squandered, in the effort to compensate for what has become an incomplete and inefficient services marketplace. This issue becomes all the more important, considering the centrality of economic time representation in nominal targeting. The fact that time use and resource use have gradually taken different trajectories in recent decades, accounts for a considerable degree of economic instability in the present. Interest rate targeting by central banks only serves to make the divide grow further, as collateral formation takes precedence over innate ability.
While the context is different, these thoughts also follow my previous post. Plus I'll try to further address a dialogue with Tom Brown, which took place here and at a recent post from David Glasner as well. Tom was instrumental, in making Say's Law one of the highlighted online topics this week! For one thing I should clarify my thoughts regarding time use as a microeconomic component, as opposed to macroeconomic. For someone who believes in time use as a central component of a nominal target, how can that be? I will try to explain as best as possible, here.
For one thing, some economic time use is clearly augmented by resources separate from time. But for many participants, resource augmentation for income is not a realistic option, at least in the present. Increasingly time use in a macro sense has become defined by resource augmented terms. Even so, it helps to remember: that definition only represents the capacity of a partial equilibrium - important though it may be in both local and global structures. The fact that assets and pricing structures increasingly reflect resourced augmented income, further distorts pricing mechanisms in the marketplace. Over time, pricing structures have become "hidden" in that they react to income capacity or government support, rather than open market conditions. And in turn, a lack of marketplace efficiency impacts unemployment in ways that are only partially amenable to the efforts of central banks.
Even though our economic time use is local in nature, it remains central to the degree that resource use plays out both locally and globally. The problem comes in when we envision time use in strictly macro terms. Why so? That assumption in turn implies that time use is infinitely elastic, in regard to resources that are highly random in both availability and utility. For understandable reasons, it seemed that incredible resource availability could make up for time deficiencies, but this is only true up to a limited point. In other words, it is not possible to wish this so for entire populations, try as anyone might.
This is more important now, in that the spread between resource augmented income and time use income has grown. For some among the self employed, one's time use may not even be as significant monetarily, as paid wages. Yet this spread is not the same thing as inequality rationale, which may not account for differences in fixed time use and random resource wealth gains.
All of this is exacerbated by the ongoing problem of interest rate targeting. For obvious reasons, interest rate targeting seeks to primarily represent the consumption potential of resource augmented income. Whenever that particular capacity appears to be missing, the possibility of austerity exists - even though entire markets have yet to be tapped. If that were not enough, the medium of account attempts to represent the entire equilibrium as a single entity, even though the marketplace needs to be expressed in terms which recognize the difference in income potential. That in turn leaves the medium of exchange caught in discrepancies between time use limitations, and the the open nature of random resource use.
Think about the seeming elasticity of time potential, when it is further augmented by resource use. First, a qualifier. Technology in a strict (non-monetary) sense, does provide considerable time elasticity, in that we need to spend less time on vital activities than in the past. That is the true economic gain of productivity. Importantly though, that particular aspect of progress does not yet apply for monetary representation to income potential in the aggregate. How so? Only so many participants can be a step "ahead" of the marketplace so as to utilize money to save further time. Those with resource augmented income gain further time elasticity, by hiring services from others.
However, even though many service needs are quite basic, their pricing structure has mostly aligned with the category of resource augmented income. In part that is a natural result of location costs for access. In turn, that leaves income (which relies primarily on one's actual time use) deficient in purchasing power for needed services. This sets up the scenario of a deficient marketplace, for both supply and demand in services. The same deficient marketplace is reflected in assets which consequently do not have the necessity of innovation, in order to reach a larger market. .
A simple way to think about this process is that of a starting line. Everyone is "off to the races" in economic terms. Indeed the 20th century was quite a run. Only, some of the runners not only fall further behind, but eventually fall out, prematurely. What's more, they exit the race in terms of which unemployment is only a small representative measure. Perhaps this would not be such a problem, if not for the fact that sometimes it becomes necessary for them to rejoin the race when they least expect it. That's one of the trickier elements of the income with resource augmentation equilibrium. From the vantage point of plentitude, it becomes too easy to reason that work is not even necessary in today's world.
And yet, some form of economic engagement is needed at all points in life, for both identity and survival reasons. Group sorting for intellectual capacity, unfortunately increases the income equilibrium divide even further, so that natural differences in intellectual capacity are increasingly magnified over time. As this happens, not only does money representation become a smaller component for aggregate time use, it can lose representation for knowledge use as well. Without adequate representation for time use as needed by all participants, supply and demand are negatively affected across the spectrum, as primary equilibrium shifts further to income augmented by elements other than time.
When I think of Say's Law, I also think of these divisions in nominal income which can complicate the picture. For many, economic time use is microeconomic in that it primarily gains compensation locally. Whereas resource augmented income has an additional macro (or monetary) component which represents global wealth. Perhaps macroeconomic dialogue - as it shifted towards non monetary terminology in the 20th century - was one way to sideline this discrepancy. Meanwhile, production and consumption at all levels follow paths which remain a bit muddled - especially in terms of true capacity in services production potential.
If economic time use is not strictly macroeconomic in nature, how can it be rationalized as having a primary role in a nominal target? In spite of present time use uncertainties, no resource or asset remains stable, unless time use has overarching purpose for both resources and assets. Time use can be returned to its central role, by allowing centralized and decentralized systems to work more closely together.
Hence time use can remain compensated in ways that actively contribute to wealth creation. That is certainly preferable, to the alternative of being left behind in an uninspiring role of passive demand. What's more, such compensation can make a nominal target far more effective, as a contributor to economic stability. It is always better to leave room for compensated voluntary participation, than trying to determine need on one size fits all terms. As indicated in my last post, not every house is in need of "heat" (paying work) for reasons that tend to be macroeconomic and related to other realities.
Clearly, I've got a lot more to learn about Say's Law, and wherever possible I intend to seek out source material. David Glasner posted "Who's Afraid of Say's Law" while I was working on this post, and now I need to return to his for a reread. When I read Krugman's response to David Glasner, Krugman seemed to be taking a zero sum approach to the Say's Law concept. And while I believe in the capacity of Say's Law for fixed time use (through compensation for skills arbitrage), perhaps the zero sum aspect is what concerns others. Yet it seems the zero sum aspect could be overcome. How so? Governments could encourage missing supply and demand components with micro level economic coordination. As best as possible, I will continue to think through these issues in further posts.