Wednesday, February 19, 2014

Life Without Work is Like a House Without Heat

In other words, how to determine if what appears as the "cold weather" of no job, is unfortunate? It depends on one's environment! One may live somewhere "tropical", where no "heat" is even needed for the house. Of course for purposes of this post, think of a paying job as "heat", which one may or may not need in normal daily circumstance. If heat isn't generally needed, a warm house is taken for granted and one's equilibrium - so to speak - is fine. But if the temperature unexpectedly dips for any length of time (or life circumstances and weather system northers "go south"), the lack of heat becomes quite an issue.

Hence, need for heat is unpredictable and relative in numerous instances. When such a need arises yet goes unfilled in a critical juncture (i.e.quickly), personal and/or local equilibrium can fall to a different trajectory afterward. Homes in the southern U.S. can feel quite cold, when they only have space heaters for mild winters yet the Arctic vortex decides to repeatedly knock at the door. Perception and equilibrium from winter effects can change pretty fast. If a person stays cold all day for several months, it matters not if they are 500 hundred miles south of what a cold winter is normally expected to deliver. After all, the house 500 miles to the north is more likely to have the necessary heat provision in place. Thus, what one experiences as chilly, is relative to the degree it can actually be controlled locally.

A similar principle applies for the person who does not have a "paying" job. That is, they have adequate "heat" if they rely on someone who either has work or is otherwise financially stable. Of course, all bets are off in a warm "house" that becomes unexpectedly cold. Thus the best means of survival is to have access to a personal "thermostat" of one's own, even if it is not needed in every instance. While the analogy of work and heat probably seem like common sense, that reality can nonetheless thwart the significance of unemployment statistics. Much depends on circumstances and factors that are not necessarily in one's control. Therefore, local and non local circumstances define a person's true degree of economic separation, at any given moment.

So one may not have a job, and yet it remains possible to live life on middle class terms, for example. This could also be the individual who provides "early retirement" as explanation, when asked. While there may not be a strong correlation in reality, it is still one of the easiest ways to express such a decision in societal terms in the U.S. Also, a substantial degree of economic interaction with others is becoming more lucrative in terms of challenge and incentive, on terms which are not well compensated in the present. Oddly enough, prior to the Great Recession, one could say they retired early, and many would consider them fortunate. Only after the (relatively) forced early retirements of the Great Recession, did such individuals more often receive initial responses of sympathy from others - even if such a response wasn't actually warranted.

Of course, life in a cold house which is in ongoing need of heat, changes the entire equilibrium which one might normally rely upon. What seems as though common sense strategies, often refuse to work "as advertised", such as they would in a house that stays warm on a regular basis.

Some readers may have noticed the macroeconomics label at the bottom, and are wondering what this post has to do with macro. A colder winter than usual left me thinking about contrasting perceptions as to ongoing circumstance. However, it was a recent post from David Glasner which struck a chord, and made me want to organize these thoughts further. From David's post:
...Say's Law is a description of what happens in an economy when trading takes place at disequilibrium prices. At disequilibrium prices, potential gains from trade are left on the table. Not only are they left on the table, but the effects can be cumulative, because the failure to supply implies a further failure to demand...even infinite wage and price flexibility may not help an economy in which a lot of trade is occurring at disequilibrium prices...microeconomics rests on a macroeconomic foundation, and that is why it is illusory to imagine that macroeconomics can be logically derived from microfoundations. Microfoundations...are themselves founded on the existence of a macroeconomic equilibrium.
If I follow his logic correctly: whether or not "heat" is needed in a local environment also depends on macroeconomic factors. Is the locale already "warm" (adequate societal coordination for economic access) or is it "cold", i.e. deficient of economic access and coordination at local levels.

Also consider the job seeker (in aggregate) whose less than ideal options made him or her decide to opt out of employment. Even though the decision is "voluntary", something substantial still remains left on the table by that opt out, in terms of production, consumption, and nominal balance (By balance, I mean relative costs of consumption relative to nominal income). Let alone the things that one would purchase through compensated time use, that have ceased to be defined in marketplace terms. What's more, something is definitely left on the table in the cold house, which just makes its occupant want to stay under the covers too long.

Hopefully this local versus not local interaction of circumstance, provides a small illustration of the ways micro and macro factors change the outcome of the other. As Bill Woolsey said recently, the numeraire is arbitrary. Both local and not local affect the daily existence of what one ultimately decides to do. Neither micro or macro can be insisted upon as a primary starting point, for they both have bearing on the world around them. Hence, daily existence reflects what one does, and what the rest of the world does as well.


  1. Becky, what do you think of the following quote?:

    “…the goal of good monetary policy is to try to make Say’s Law true.”

    I’m sure what is meant here is not to make Say’s Law literally true, but to produce circumstances in which it appears to be true.

    How about this one?

    "As I have stressed before all the different models of the business cycle are basically about different assumptions about the monetary policy rule. Hence, we would in fact be in something, which looked like a Real Business Cycle world if the central bank targets nominal GDP. So if the central bank had got it “perfectly right” then Prescott would have been sort of right, but we of course know that central banks tend to get it horribly wrong."

    Do you see any relation between the two?


    1. Tom,
      Thanks for your comment. Where I must be a bit closer to David Glasner in this regard is that I don't think monetary policy can completely fulfill Say's Law, so long as the finite nature of time is pushed into a full macro environment. I am starting to realize that (optimal) time use is local or micro, in the sense of possible compensation. In other words, time is not macro as other resources are. Worth a post and I'll be thinking about it.

    2. Yes, a post would be good. Because I don't follow you. But thanks! (I'm doing an informal survey). In case you didn't see it elsewhere the 1st quote above is from Nick Rowe and the second one (about RBC) is from Lars Christensen. Nick was pretty sure he got the quote from Brad DeLong, and it appears that he did: Brad says something very similar on a quasi-regular basis. Sumner says he agrees with Nick, and I think Sadowski does too. It's not clear to me though if I can say that Lars agrees with Nick based on his RBC comment. What do you think? My guess is that he's likely to agree with Nick, but not necessarily.

      I'm glad that David Glasner now has a bit more company regarding that quote. For a while I thought it was only going to be him.

    3. A post: looks like David beat you to it: :D

    4. Thanks for the link, Tom! Looks like there will be even more discussion about Say's Law going on in the blogosphere, for a while.

    5. ... you did see where Krugman has referred to David's article now, right?

  2. Becky, the part of your comment that loses me is this:

    "so long as the finite nature of time is pushed into a full macro environment. I am starting to realize that (optimal) time use is local or micro, in the sense of possible compensation. In other words, time is not macro as other resources are."

    Does that tie into the idea that money is long term neutral but not short term neutral (i.e. that sticky wages and prices exist)?

    1. Tom,
      I did a quick read of Krugman's post and while I could be wrong, it seems that Krugman is concerned about what appears to be a zero sum environment for Say's Law conditions.

      Speaking as someone who is still learning, long term neutrality makes sense in the context you described.
      I apologize that it has taken me so long to put a follow up post together, and I should have it ready in a couple of hours!