Friday, February 28, 2014

Blogging Note

My intention was to begin a monthly wrap up feature for the blog, and I have been looking forward to doing so. However, my mind has been moving a bit "sluggishly" (so to speak), as of late. Perhaps one could say it's now in the shop "for repairs"! Hopefully I will have a monthly wrap up prepared for the end of March, along with some overall adjustments in blog presentation in the days ahead.

Wednesday, February 26, 2014

Needed: The Right to Hire Anyone Worthy of One's Trust

In a sense, this post is just another illustration, how voluntary economic activity could make life a lot easier. After finding a company he could trust for appliance issues, Dad discovered he wouldn't be able to hire them to install a new stovetop range. As it turns out, by law he is required to hire someone with the proper installer's license from the place he bought the stove. However, the last time Dad relied upon on the retailer's contract labor for a built in oven installation, they left behind not only a job improperly done (and with the wrong parts), but with a gas leak to rectify. Anytime someone came to visit afterward, they got a bit nervous - at least the house didn't blow up in the meantime.

That improper installation left Dad responsible for the resultant issues, thus he hired the appliance repair company who reinstalled the oven for him properly. Sears had not only refused to tend to the gas leak that resulted from their faulty job, they also refused to assist Dad by recommending someone who could. As a result, it took quite a while to find someone who would willingly take care of the matter.

Through laws which require additional licensing and consequent labor affiliation with retailers, those who are willing to jump through the extra hoops (let alone less than optimal compensation) are not always the trusted locals who gained their reputations from previous service provisions to the public. Thus the customer is now expected - upon the purchase of new appliances - to pay for unquantifiable skills sets from people they don't know. That is, the customer is expected to rely on the integrity of strangers for a proper job.

Wait, what? To be sure, such expectations are normally considered a good thing. That is, we continue to rely on trust networks which capitalism can still make possible when it works properly. But there has been a subtle shift, as to how the process plays out. Skills set intermediation can also happen in ways that distort personal and social relationships. And contract work may differ from some kinds of self employment, in that personal integrity might be the "last incentive standing" to provide good work. Specifically, this might hold true in random environments which contract labor travels to only once, with no supervision by the employer - i.e. the homes of customers.

Apparently in the passing of these recent licensing laws, appliance retailers must have been absolved of responsibility for botched jobs, along with their contracted installers. Perhaps they needed such absolution because of the limited profit that is possible, for moving thousands of appliances into homes on a regular basis. I get that. But if this was the case, why not just just leave intact a marketplace of skills capacity, which can already safeguard local reputations? As a result, those who had built up local trust and known ability, don't have the ability to take part in installations. That in turn, leaves rural areas more dependent on city services than they had been. And in some cases, retailers pocket the monetary incentive which repair and maintenance people might otherwise have, to provide a topnotch job.

Hence there can be greater temptation for contract laborers to use wrong parts for installation jobs - to save time or extra trips - and be fairly certain they will never hear about the matter again. The appliance repair company even had to order a part from Sears to replace the wrong part that the contract labor had used. And - of course - Dad had to pay for the new part as well. For further context, readers can refer to two earlier posts I wrote which explain the prior circumstance here and here.

My libertarian tendencies came from my Dad, and neither of us is "over the top" or aggressive in that regard. Not only is Dad soft spoken and generally accepting of whatever life dishes out, he is one of the easiest people to get along with I've ever known. Even so, in a moment of frustration the other day, he exclaimed, It's getting so you have to have a government permit to go to the outhouse!" (Dad is in his nineties) Then he continued, "...And they talk about free enterprise!"

Many of us are used to the idea of government acting as an intermediary between us and the skills sets we seek out: such as a doctor's care, for instance. But the reality is that a growing lack of skills set negotiations is not just government's doing, even if some private interests insist it is so. Too many private interests also gain by using government power, to set themselves up as intermediaries between the public and needed services, as well.

In other words, some private interests create further marketplace distortions and inefficiencies with impunity. It concerns me in part because of constant political TV commercials which place the entire onus on government in this regard. Much of this distortion in efficiency falls under countless categories of licensing, in terms of what is actually allowed for skills use. Sometimes it's not difficult to do one's job reasonably with licenses in the marketplace. Other times, licenses only get in the way of what actually needs to be done. Or, long story short, maybe licensing doesn't really "protect" the consumer or anyone else for that matter. Perhaps licensing doesn't really work as advertised, at all.

P.S. The stovetop installation job - more complex than I expected - is finally done and I also got some interesting information. A couple of installation companies are starting to form in the city, and these individuals were part of one of those small companies. That allows them to negotiate somewhat with the retailers in wage based terms, although it was telling that they were not doing any work for Sears. I'm sure that a central point for multiple workers helps in terms of coordination and needed supplies for the job. After all things need to be done right the first time, for these are not local repair people - in this case their trip back would take one hour and fifteen minutes.

Midweek Market Monetarist Links and Summaries - 2/26/14

Marcus Nunes considers the jobless recovery aspect of Ryan Avent's recent post on labor issues: http://thefaintofheart.wordpress.com/2014/02/19/ryan-avents-a-theory-of-troubles-from-a-mm-perspective/
Sometimes, inheritance just isn't all that great: http://thefaintofheart.wordpress.com/2014/02/20/janets-inflation-inheritance/
Greenspan reacted a bit more rationally, to an oil shock which occurred on his watch: http://thefaintofheart.wordpress.com/2014/02/21/the-2008-transcripts-confirm-the-feds-obsession-with-inflation-crashed-the-economy/
Not even a shadow rate is capable of accounting for substantial drops in spending capacity: http://thefaintofheart.wordpress.com/2014/02/23/if-you-think-a-tiger-is-a-cat-youll-get-into-trouble-just-as-if-you-think-interest-rates-define-the-stance-of-monetary-policy/
Mishkin's last FOMC meeting:  http://thefaintofheart.wordpress.com/2014/02/24/august-september-2008-fomc-meetings-the-latch-was-lifted-and-the-horses-bolted/
A helpful history, or a "winning" history? http://thefaintofheart.wordpress.com/2014/02/25/how-much-money-will-bernanke-receive-as-advance-for-his-book/
Some charts just aren't all that helpful.

Spoiler alert: Nick Rowe sketches out the answer to this New Keynesian puzzle at 6:20 a.m. on Feb 20th: http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/a-simple-new-keynesian-brain-teaser.html
For those who believe that an increase in the minimum wage will increase employment: http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/the-anti-nk-model.html
If the outcome were certain, switching targets wouldn't matter: http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/principal-agent-and-the-assignment-of-targets-to-instruments.html

In an Alphaville post, Karl notes the lag in nominal GDP which was never made up, after 2008 (Scott Sumner) Karl Smith on the importance of NGDP
Even though forward guidance was adopted, it was extremely weak: From the comment section
Why the lack of curiosity as to falling oil prices and falling long term interest rates? NGDP fell off a cliff in the June to December period: Transcripts post #1: Reasoning from price changes
Mickey Levy almost "gets it", then ends up confused: The beatings will continue until morale improves
Spending matters, lending doesn't: Channels to nowhere

Scott Sumner's Econlog posts this week:
http://econlog.econlib.org/archives/2014/02/the_2008_transc.html#
http://econlog.econlib.org/archives/2014/02/krugman_is_stil.html
http://econlog.econlib.org/archives/2014/02/was_mishkin_the.html
http://econlog.econlib.org/archives/2014/02/australias_auto.html

The UK did not see productivity rise in the recession (Britmouse)
http://uneconomical.wordpress.com/2014/02/20/that-2013-q4-productivity-recovery-one-graph-version/
Why are unelected technocrats getting away with this?
http://uneconomical.wordpress.com/2014/02/21/depression-is-a-policy-choice-riksbank-edition/
The UK needs more reliable measurement for hourly wages
http://uneconomical.wordpress.com/2014/02/24/whats-happening-to-uk-hourly-wages/

The ECB says that Europe isn't the Japan of the 90s. No, it's worse (Lars Christensen)
http://marketmonetarist.com/2014/02/24/wolfgang-is-right-bold-action-needed-in-the-euro-zone-to-avoid-deflation/
We are all Ukranian:  http://marketmonetarist.com/2014/02/20/i-am-an-ukrainian/

There's a lot to digest in this informative post (David Glasner) http://uneasymoney.com/2014/02/20/whos-afraid-of-says-law/ 

The real tragedy of central banking - ten million still out of work. (Ryan Avent)
http://www.economist.com/blogs/freeexchange/2014/02/federal-reserve-transcripts

"It was the worst Fed decision since the Great Depression" (James Pethokoukis)
The Fed really feared inflation in September 2008 as a deflationary depression loomed.

George Selgin discusses good and bad deflation, or as the TV show "Boom and Bust" describes, price and debt deflation. He comes in around the halfway mark.

Sunday, February 23, 2014

Who Does The World Economy "Belong" To, Anyway?

Perhaps that seems like an odd question. And yet, it would be interesting to know what percentage of the population still takes an active interest in economic matters in the U.S. - in spite of continued interest in the blogosphere. Perhaps the real issue is that economies are increasingly designed for the use of governments and special interests.

Thus, any problems which might arise, mostly appear as their problems...right? At least this holds true, in terms of what anyone actually expects to be dealt with. Hence, why should citizens even be concerned about any of it - at least beyond political attempts to secure one's own piece of the pie? How can any economy belong to real flesh and blood people it supposedly exists for, when it has largely been separated from their purposes and intentions? Rant day? You bet. Who knows, I might even feel better afterward.

What was once an active economic dialogue in general populations, has retreated to mainly academic or financial frameworks. If the elite can't figure out how to tend to the lives of everyday people, well "that's just too bad" I suppose. Or else, issues are ensconced in political framing, which therefore distorts any practical economic meaning in the message. For the better part of my adult life, one could readily find books on economic issues in bookstores and libraries around the U.S. Most importantly, those issues had still been actively discussed, by people from all walks of life.

To a large degree that is no longer true. Instead of finding economic issues to be worthwhile discussion, people are more likely to dismiss economic dialogue out of hand, as something which has nothing to do with them. My response to that current set of affairs is this: what good is a global economy, that thrives by sucking the life out of needed local economic activity?

The effects on local economies are sometimes obvious, and sometimes subtle. For instance, many important non fiction books (especially by subject) are online only, and library management struggles just to meet the computer needs of their clientele. At least a marketplace still exists for romance novels and everyday fiction, one supposes. But serious or practical reading? It really helps to live in major cities, where bookstores can still keep their doors open to the public.

This week I tried to find economics books from two county wide library systems - one of those comprising a major U.S. metropolitan area - yet was unable to find anything that would assist my present research. Or, if anything in their limited offering addressed my concerns, the book was already in my collection. I know, this is a lot of complaining about books. But for this book lover and former bookseller; a completely insufficient book marketplace at local levels, represents a dangerous degree of declining knowledge use. And K through 12 just repeats the same basic information, over and over, in a very expensive, dull and unsustainable format. Most knowledge use potential is not even on the radar of either public or privately provided formal education.

It's easy to assume that since so much knowledge exists online, knowledge in general must be getting along just fine. But those two things - i.e. knowledge online and local knowledge use participation - are not at all the same. Online knowledge - in just a limited example - is no means to bridge a still growing economic divide between classes. Not unless digital means can manifest into wealth, by personal commitment to create local knowledge use markets.

Lost in the demise of good local non fiction by subject, are important social aspects of economic discussions. I miss them greatly, for they existed throughout the better part of my adulthood. While some may not even be aware of this aspect of the knowledge marketplace, some do notice what appears as a return to traditionalism from modernity, since the seventies. My parents, aunts and uncles experienced the modern version of life which Edmund Phelps referred to, as they came of age in the post WWII years. But is this recent change really a return of traditionalism? Younger generations more likely do not move away from hometowns for a most important reason: it feels quite dangerous economically to do so. Some of us Baby Boomers were so insistent anyway about moving in a changed economic environment, that we finally paid the price in terms of lost autonomy.

So how does my book tirade relate to governments and their hold on world economies? After all, nations can be quite confident about their ability to tend to important matters, especially the U.S. Until one day, the leaders of nations wake up and realize they can't do so anymore, by themselves. Then the mad dash ensues to find someone to "help", since one's own citizens were likely not even sought out. The most recent example of course is Ukraine. Their unfortunate circumstance weighs heavily on my mind, and serves as the latest reminder that contractual arrangements of governments with their populations do break down without warning.

Hence, the main point of this post: remember all those economic discussions, which gravitated to the experts once populations couldn't understand them anymore? Oh my. Suddenly, populations find themselves in dire need of real economic logic. But because they don't have it, now they gingerly patch up what remains of earlier economic realities with duct tape. As warily hopeful citizens peer through (what had been) sheltered doors of  frightened elite, what are they even thinking? What course of beneficial action do they have at the ready, which could possibly make up for the unrest, turmoil, death and destruction which has already occurred? In their darkest hour, populations find themselves - over and over again - in the unexpected position of becoming responsible for the very logic they had gradually learned to scorn and dismiss. All because too few elites wanted to hear their take on options and solutions, when those opinions mattered most and could have done some good.

Got citizens? Got education?? It is not enough to teach the same tired history lessons every couple of years and then say to the students, see all the stupid things all these people did? Surely none of you would want  to see such stupid things happen again! Surely! But what the hell, people go and do them all over again anyway. After all, how far did religion ever get with that "don't be stupid" rationale? Religion has tried to convince people not to kill one another for reasons that were profoundly moral. And look how much good that has done so far. Nations hold up okay I suppose, by refusing to show students how to use logic and reasoning for real life circumstance, until they don't.

Maybe I'm completely off base for believing economic thought and ideas could help to alleviate human strife. But what else at this point are we going to try? Economic activities started out by allowing people to engage in productive and useful activity with one another. Centuries of progress ensued because people finally learned to do so, fairly well. Not so much hope for continued growth however, after the Great Recession. And governments of all stripes are doomed, if they do not wake up and realize that they can't take economic vitality and freedom away from their citizens, without serious repercussions.

But in the meantime, economic thought mostly gets used as sparring matches for armchair enthusiasts as they watch the battles rage..always always elsewhere. Or, economics gets skewed to provide partial logic for those who have just a moment for "simple answers", please thank you. Thus, the average individual has little clue how economic understanding might actually help personally and socially, locally and globally, until it is too late. Then, those who regain power after the fact and do know why economics  matters, don't always bother to write the crucial details into those "winning" histories afterward.

A qualifier for this post: my rant was not intended to demean the efforts of academics who seek to reach beyond academia - who hold concerns for the well being of all citizens and not just their power base. These concerned individuals are among us, and I am most grateful for their efforts. Rather, my post was intended to point out that when it is left solely to the experts to define and tend to economic conditions, they simply can't do everything that others imagine they can. Not even close. Not even if they want to. Especially if, and when, a nation faces its own economic point of no return.

Friday, February 21, 2014

Balance, Time Use and Say's Law Musings

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.

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.

Midweek Market Monetarist Links and Summaries - 2/19/14

(Nick Rowe) Only a subset of assets is acceptable as collateral by central banks That can put a restraint on the supply of money, which in turn leads to loss in output: http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/colateral-and-the-money-supply.html
What happens when firms are aware of shocks at different times?
http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/relative-price-shocks-price-level-shocks-and-who-moves-first.html
Chris House makes Scott Sumner's point, with microfoundations:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/chris-house-is-a-market-monetarist.html
Nick provides three examples how capital income can respond to a recession:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/capital-income-in-a-recession.html

Marcus Nunes highlights Doug Irwin's Article, "Who Anticipated the Great Depression?"  Mark Sadowski provides additional commentary, and James Hamilton also highlighted Irwin's article here.
Australia has safely run a CA deficit almost continuously for more than a hundred years:
http://thefaintofheart.wordpress.com/2014/02/13/the-fragile-5-among-the-developed-economies/
Nominal targeting is replacing discussion re price targeting:
http://thefaintofheart.wordpress.com/2014/02/15/i-certainly-hope-time-will-tell/
It's too easy to distort the representation for productivity and real hourly compensation:
http://thefaintofheart.wordpress.com/2014/02/15/spinning-tales/
Why monetary policy was not too easy in 2003-06, in graphs:
http://thefaintofheart.wordpress.com/2014/02/16/some-questions-do-have-answers/
Monetary policy prevented a domino effect, but not the run up to the crisis:
http://thefaintofheart.wordpress.com/2014/02/16/old-wars-and-debates-rekindled/

Benjamin Cole: Labor costs have become deflationary

An illuminating post from David Glasner:  http://uneasymoney.com/2014/02/13/what-does-keynesian-mean/

Bill Woolsey's recent response to Miles Kimball inspired several Market Monetarist posts this week:
More on Negative Interest Rates

Surely the Australian housing bubble would burst (Scott Sumner):
I predict that Steve Keen will eventually look correct
Scott explains the intuition behind his futures paper from two decades ago:
Optimal policy rules and close substitutes
It helps to have the chief economist from Goldman Sachs suggest the Fed target wage growth:
Jan Hatzius touts wage growth as a policy indicator
What matters most regarding CA deficits? The Growing Value of Sandy Countries

Scott's posts this week at Econlog:
http://econlog.econlib.org/archives/2014/02/immaculate_infl.html
As commenter Jon Murphy noted, "Price and quantity are not the determinants (they are the results): it's supply and demand that are the determinants:  http://econlog.econlib.org/archives/2014/02/never_reason_fr.html
http://econlog.econlib.org/archives/2014/02/in_the_1930s_it.html
Kevin Erdmann responds to the above link, here
These two are not the same - Obama and "brighter economic picture":  http://econlog.econlib.org/archives/2014/02/bastiat_just_ro.html

Lars Christensen provides positive news regarding Kazakhstan:
http://marketmonetarist.com/2014/02/13/kazakhstans-wise-devaluation/
Monetary conditions have become too tight for China:
http://marketmonetarist.com/2014/02/17/the-risk-of-chinese-monetary-policy-failure/

"The lesson of the last five years is that the CPI rate is not a good proxy for aggregate demand" (Britmouse)
http://uneconomical.wordpress.com/2014/02/18/holy-disinflation-batman/

It doesn't seem like two years (already!) since Bonnie Carr started her blog:
http://dajeeps.wordpress.com/2014/02/16/the-2nd-anniversary-of-my-word-press-blog-is-today/

(Justin Irving) "How is it that Cassel is nearly forgotten while the long winded (and incomprehensible) von Mises gets his own internet cult, to say nothing of Lord Keynes sainthood?"
http://economicsophisms.com/2014/02/17/i-think-you-should-read-irwins-article-on-gustav-cassel/

James Caton:  http://moneymarketsandmisperceptions.blogspot.com/2014/02/were-all-mostly-monetarists-now-not-new.html

Also of interest:

"Work finally begins...when the fear of doing nothing exceeds the fear of doing it badly." So true! (Megan McCardle) http://www.theatlantic.com/business/archive/2014/02/why-writers-are-the-worst-procrastinators/283773/

Monday, February 17, 2014

Even the Best Anchor Contains Shifting Unknowns

Some accuse Market Monetarists as being too "certain", with ready answers. Yet those who keep up with the dialogue long enough, realize that even Market Monetarists question the ability of nominal targeting to do all that is needed for economic stability. Still, price targeting in particular seems vulnerable to supply shocks, in ways that would not be so problematic through NGDPLT. A recent post by Bill Woolsey left lingering questions in my mind as to supply shocks and price levels. Also, the title I chose here, refers to nominal targeting as the "least bad" in an array of possible rules or targets a central bank would choose from. In that regard I'm convinced: If nominal income with its time representation is not a suitable anchor in aggregate spending...what is?

One normally thinks about important aspects of the economy in monetary terms. However, supply shocks are real factors in that they affect how we go about our daily lives. Even so, central bankers tend to forget the centrality of time participation, thus can be swayed by changes in resource availability which intersect with our time use. We've already had the recent illustration of the Great Recession, when Ben Bernanke (and company) mistook moving oil prices as being a more important component than nominal income.

A primary shifting unknown is the present dilemma of services capacity, which affects both product formation and income levels. It's probably not too far off the mark, to suggest that central bankers view services as being subjected to a long and slow tightening due to budgetary constraints, in decades to come. A potential response by central bankers of assigning more relative weight to assets to make up the nominal difference, is part of what I want to explore in this post. Bill Woolsey saw a problem with price movements in areas besides the supply shock (change), if price targeting were the preferred norm. From his response to Miles Kimball:
However I am really more concerned with the following scenario. Peace breaks out in the Persian Gulf. Oil prices drop significantly. The CPI in the U.S. falls significantly. The natural real interest rate is little impacted, but the deflation is greater than the real interest rate. To keep the CPI stable, it is necessary to generate increases in the prices of other goods and services, including nominal wages. The nominal interest rate is pushed below zero to cause the real interest rate to fall below the natural rate, generate a boom, increase the prices of goods and services other than oil, and create a sufficient shortage of labor to raise the growth path of nominal wages. What a bad idea.
In particular, I honed in on "increases in the prices of goods and services" in the above quote. How much price shifting might that actually entail, in some circumstance? What's more, might some of that already exist, given the possibility of informal price targeting in the "let's try this" mix of the present? At first, I didn't have this potential scenario figured out correctly; hence I compared the present slow tightening of services provisioning in the economy to the tightening of oil supplies in the seventies, i.e. a negative shock. Only then I realize I had it backwards. Eeyow. Let me explain.

Believe it or not, supply services tightening (especially for education and healthcare) would supposedly create a (needed) positive shock in the sense of aggregate price reduction over time. Or would it...really? For aggregate reduced costs are normally associated with improvements in production, which is also something that services providers have also emphasized, i.e. their ability to slay Baumol's disease...worry not.

Of course, the disease would be getting a "cure" by simply cutting out some of the disease "carriers" - that is people in general. Tech to the rescue! Except there's a real problem in this fake cure. Even as services represent product in a consumption sense, they also represent a considerable degree of nominal income. In other words, services have the capacity to provide economic "double duty". If they were left to natural human inclination, services provision could also be inclusive in nature. What's more, if so many of them didn't exist on the negative side of the (government) ledger, they would be valued as highly as gold right now.

Unfortunately as things presently stand, budgetary matters imply striking at the heart of a considerable portion of today's nominal income, should governments continue provisioning services through indirect taxation. If indeed this "positive" shock were to occur with a price target, the lowered aggregate costs of service product, just mean raising prices elsewhere to smooth spending on output. Small wonder that more economists and journalists are starting to push for basic income guarantees. While basic income could help the overall problem of price smoothing, it would do so with a decreased effectiveness in services provision - or product potential in the marketplace - just the same.

Services are the ultimate societal transmission of monetary assets into economic life. Money without services is simply back and forth trade, but introduce services into the picture, and civilizations come into being. But civilizations also come undone when societal expectations push beyond the means that brought services and their corresponding knowledge use, to the fore.

What is needed is not to pull back on services but to expand them. The problem is the degree to which they are associated with governments, let alone supposedly "secondary" activities. Those power plays and reasonings have left them on the cost side of the ledger, instead of the wealth side. As a result, a lot of job creation and knowledge use are now threatened by the singularity. This whole set of affairs also illustrates the paradox of Obamacare's removal of jobs from the marketplace. For instance, consider this quote from John Wilbanks:
Knowledge is a public good that increases in value as the number of people possessing it increases.
Doesn't it work out this way? Unfortunately no, (at least since the year 2000) because knowledge use largely landed on the wrong side of the (fiscal/debt) ledger, as indirect provisioning for services. Hence the innate desire of people to possess and utilize knowledge has become both a financial and economic burden, especially since the Great Recession.

Even though service provisioning represents product: in this setup, the representative job has been perceived as more useful than the product, which became secondary as a result. If that weren't enough, this perspective makes it difficult to ascertain an "appropriate" aggregate wage level. If the service offering existed on the wealth (positive) side of the ledger as product, the idea of appropriate wage might not be so problematic, outside of simple need for better alignment with resource use.

The fact that services and production measurement still fall on different sides of the ledger, also accounts for the difficulty in their reconciliation in GDP terms. Even though the nominal income which is direct production residual remains somewhat problematic, it is still far more understandable than the indirect nature of services based income. Nominal income on the production side makes more sense, in that it is a direct add into aggregate wealth. Thus, production income does not receive a cancelling wealth effect, such as services as structured by government intermediaries.

This blogger of course believes these problems could be alleviated to a considerable degree. Services can be locally coordinated and voluntarily matched, so as to provide a more understandable income anchor. Doing so would not only make them direct economic activity, they would become a new source of wealth in their own right. Even though they would also provide the same value as knowledge based fiscal activity, they would not carry the same fiscal burden. That would allow multiple participants back into the workplace with no burden on governments as well. The best part is that product (of mutually agreed upon action sets) can be generated and measured directly, without the unnecessary use of outside resources or commodities as an initial starter or requirement.

To be sure, services as expressed in local formation would still exist as fiscal identities, especially because of social coordination involved. However, they could represent an amalgam of informal private to public organization, which would not suffer the effects of special interest contractual relationships. Were this possible, not only would guaranteed income formations be unnecessary for economic stability, but new wealth would also be brought into the system. That, in turn, could stabilize pricing across the spectrum of asset structures, so as to keep prices within reach of the average consumer.

Saturday, February 15, 2014

Intelligent Tech Can Coexist With Human Intelligence

That's my positive take for the day...now I just need to stick with it! Even so, I am compelled to begin by highlighting a quote from Timothy Taylor which Arnold Kling also noted:
We have now returned to an economy where those who leave their jobs are more likely to have done by quitting voluntarily than by being laid off or discharged involuntarily.
Yikes, so full recovery is here. Do I hear a collective groan? Seems like a few "duhs" being voiced as well. Taylor's observation implies any number of economic factoids, so to speak. As the workplace increasingly appears normal, there's another aspect to this development which - while it would be no surprise in singularity terms, doesn't often get the statistical spin that Kling also noted last month. From the NY Fed:
...the broader V-shaped pattern in the unemployment rate over the past two decades is consistent with new research arguing that there has been a reversal in the demand for cognitive skills since 2000.
Observant readers want to know - why only now, a nearly month old link from me, on something as important as knowledge use reversal in the workplace? As is sometimes the case, I reacted to the (apparent) approaching singularity, in an earlier draft response with too much negative emotion. Which in turn leads to the kind of language use that even offends me afterward - let alone some of my readers. Hence I deleted out last month's post draft, along with its useful links. Fortunately, the above quote stayed in my mind thus I was able to fish it out of January postings.

What brought me back to the thoughts in that discarded post draft was this book review from The Capital Spectator, "Mindless: Why Smarter Machines are Making Dumber Humans" by Simon Head. Today I am happy to allow a summary from the esteemed publisher Basic Books, do the complaining for me!
We live in the age of Computer Business Systems (CBSs) - the highly complex, computer-intensive management programs on which large organizations increasingly rely. In "Mindless", Simon Head argues that these systems have come to trump human expertise, dictating the goals and strategies of a wide array of businesses, and de-skilling the jobs of middle class workers in the process. CBSs are especially dysfunctional, Head argues, when they apply their disembodied expertise to transactions between humans, as in health care, education, customer relations, and human resources management. And yet there are industries with more human approaches, as Head illustrates with specific examples whose lead we must follow and extend to the mainstream American economy. 
To be fair, I've been in hospital environments where patients were not only treated with respect and dignity by healthcare staff, but received a reasonable amount of their time. But I've also been in hospital environments where practically the only reason a healthcare provider ever came into the patient's room, was to interact in some capacity with a wide array of high tech devices and instruments. Said high tech devices also take up an increasing amount of the room's space, in recent years. Environments where healthcare employees didn't even glance at room occupants as they arrived and left, were a bit unnerving. Those were the places one sensed a palpable fear on the part of management, that if staff spent any "unstructured" time with patients, the organization might quickly lose their ability to pay the bills.

What to make of widespread singularity trends which are becoming more difficult to discount? Consider workplaces that are returning to normal, both in business and economic terms. They rely on fewer people not only for those earlier middle class skills sets; but also fewer knowledge based capacities in general. Even though some workplaces maintain a "human touch", the volunteers who are eager to provide that in healthcare environments are stymied by insurance related regulations. That often prevents them from assisting patients when healthcare providers are not available. Unfortunately, many people will not realize how impersonal the singularity feels, until they need to spend a couple of weeks or months in a hospital or other assisted care environment.

In order for intelligent tech to coexist with human intelligence, knowledge use and skills sets need to be reintegrated and coordinated at local levels. People can then become partners with technology, rather than being subjected to social destruction by technology through the centralized services formations of the present. Otherwise, healthcare providers which care about patients and spend time with them, could be "undone" by organizations which realize more profit by cutting out "unnecessary" social or personal time. That circumstance alone should give proponents of centralized services systems reason for pause. Knowledge use as dictated by decisions from elsewhere - hence reliant on minimal social interaction, cannot help but be dehumanizing.

Another aspect of lost social relationships in the workplace, is that people rely on those social aspects to bring positive structure home, and into their personal lives. Some with higher incomes still benefit from adequate social structure in the workplaces they inhabit. However, the loss of workplace social structure for lower income levels, also means these individuals have little social interaction to positively emulate in their own personal circumstance. By decentralizing services so that knowledge use is a part of all workplaces and income levels, the present threat of polarization between classes could be greatly diminished in the process.

Friday, February 14, 2014

A Quick Blogging Update

...That is, just a couple of notes to pass on to my readers. First, I will start putting together an end of month wrap-up of posts and links which felt particularly noteworthy in some respect. It will not be a long series of links such as the midweek posting. Instead, perhaps a way of honing in on specific and important details to assist this forgetful, multitasking blogger. Many choices will come from Midweek Market Monetarist links, alongside some of the posts I've put together during the course of the month. And sometimes I don't have a chance to give MM posts the reading they deserve, when they are first published.

So the monthly blog addition will allow me to organize my thoughts somewhat, and hopefully provide some useful memory "jogs" for readers as well. Until now I've not had much time to review earlier posts, and I need to spend more time going back to earlier entries for the blog.

After all, there is a reason I need to become a bit more organized. It appears I am going to "give in" to the desire to start working on a book project, somewhat sooner than I had anticipated. Of course the possibility of doing so existed all along, but I really wanted to keep it on the back burner until I had become more efficient about using my time for blogging. However the older we get, the less certain we can be as to how much open time actually exists, for first priority aspirations!

Almost ten months of blogging have really helped me to adhere to regular writing deadlines - a skill of which I had previously been in short supply! I'm counting on those months of almost daily postings - which also allowed me to highlight a lot of writing material from recent years - to help me with reasonably regular posting in the days ahead, alongside the book project.

An issue for me is that I do a lot of second guessing and rethinking as to writing material in general. That is, as addictive as writing can be, for some of us it takes an inordinate amount of time. And I don't want the (yes, long term) writing project to get in the way of blogging any more than it has to. Particularly since I missed almost two weeks at the end of the year with tech issues. So I will try to make certain that no long intervals between posts happens anytime soon (which means I probably need to purchase a second laptop). The book project is too new right now to get into details, but at some point I'll do some related posts.

Thursday, February 13, 2014

Skills Use - The Missing Collateral

Today's post is inspired by a recent one from Nick Rowe, "Collateral and the Money Supply". Limits as to what banks accept as collateral, continue to affect the quantities of money printed by central banks, in spite of income and spending realities. For the most part, that constraint had not been overly problematic since the days of the Great Depression. Unfortunately, it does present a growing degree of difficulty since the Great Recession ended. As a result, time use liquidity in an aggregate sense has become low indeed - since neither time use nor skills sets provide an adequate source of collateral.

Significantly, governments have tried to make up for a lack of skills collateral through redistribution - a strategy which was successful for a long time. In the U.S., many services remain defined and compensated at the national level. However, more responsibility for services is being transferred to the state level, in that "...federal debt held by the public will equal 74 percent of GDP at the end of this year and 79 percent in 2024" according to a CBO estimate. While such estimates may be far from accurate, they nonetheless indicate the importance of restructuring services before they become more problematic than they already are.

Of course, one noteworthy aspect of the ongoing national to state services shift, is that the states which appear most healthy economically, are those such as Texas which do not place a high emphasis on services provision in the first place. Fortunately, Texas has a fair amount of "breathing room", with a reasonably good job market in the present. Just the same, that does not mean that Texas - or any other state for that matter - would not benefit from a more direct association of skills provision in compensation and collateral based terms.

We need for skills use to become real collateral for multiple reasons. Consider for a moment, how the main way people maintain respect, is to not become a burden on their community...wait, what? In present day terms, the individual who takes care of one's own needs out of necessity or desire, is also an unknown economic element in the social fabric. That is, there's little significance in the fact they are part of the environment they exist in. Especially in that they have either limited resources or incentive to contribute to the social fabric or take from it.

Low income areas in particular have become extremely and unnecessarily services deficient, save the occasional patronizing government service "intervention". While DIY services provisioning is a way to preserve one's integrity and self worth, it can nonetheless exist as a profoundly anti-economic and also anti-social mechanism. When economies are structured so that the best anyone can do is avoid becoming a burden to others, vital economic elements are missing.

Sometimes DIY provisioning is a reasonable solution or option: certainly it works out great for companies which save costs when customers take on part of the workload for free. DIY provisioning can also be suitable for most who have resources to take care of problems, if they so desire. But does DIY provisioning continue to work well when people are paying the bills, yet no longer have family or friends nearby? Sure, someone may be close who can help out to a degree. Just the same, far too many circumstance find people cash "rich", yet "skills poor" in liquidity terms. And these are the ones who have adequate monetary means.

As people get older, they tend to have increasing sets of needs which appear as though non-market related. Immediate friends and family may also be overwhelmed by skills needs which are not necessarily their forte. Understandably, time spent with family and friends is time when people need to be able to unwind. A fully functioning skills marketplace means not having to feel either helpless or overly dependent, for that matter.

Often we hear that future economic growth needs to be considered in non-market goals and terms. I would suggest that the reasoning in this Project Syndicate link is backwards: we need to bring multiple skills sets into the economy that were previously considered non economic. What's more, we certainly don't need to be struggling to pay for services costs with pollution control incentives and the like. It's already become difficult enough to pay for services with the redistribution that still applies. In other words, skills use possibilities need to become a fully represented component of the marketplace, in their own right.

Such a measure would also go a long way to address the recent drop in the labor force participation rate - let alone give people renewed incentive to leave one's abode for the more stimulating realm of economic life. The LFPR has especially been hit hard, by the rationale that many skills no longer matter in the workplace. How do we know for certain, that a vast multitude of skills sets are supposedly not necessary or desirable? Are we going to take the word of a handful of company representatives, over the unvoiced concerns of populations? Are we going to assume that a few among the elite can actually give voice to skills related supply and demand needs, for millions? Why not take a chance on finding out for ourselves what people might find useful at individual levels, instead of depending on economic intermediaries who have gotten such economic cold feet since the Great Recession.

However, I need to consider the problem which was giving Nick Rowe a "headache" in the above mentioned post (First commenter "louis" sums up the gist of Nick's efforts fairly well). What to do about much needed public collateral, which banks don't really have a way to accept? There are of course constitutional issues with the way labor provisioning became defined, which stemmed from the end of slavery in the U.S. However, there are missing components for skills use collateral in the marketplace, which can still leave people vulnerable to circumstance not unlike the past.

Since most of us (at any rate) are not "slaves" in the earlier sense of the word, we're not the kind of collateral that the bank can take back, whenever financial obligations go unmet...hence the problem. But unfortunately, that contributes to the fact that our skills sets have a lower liquidity (or economic velocity) than they need in the marketplace to fulfill responsibilities - quite the conundrum. What's more, people who could benefit from our service offerings do not have a recognizable marketplace in which to negotiate for them.

Thus the task for us is to tweak the marketplace so as to provide greater liquidity or economic possibility, for more than a subset of skills we can utilize in any given moment. Yep, easier said than done. But the biggest task of all is simply one of providing context. That's where ongoing services calendars for skills arbitrage come in, alongside compensation which is capable of matching up with resource use that fits basic living needs.

Until we do this, some have considerable incentive to hoard all the assets and money they can, to provide for an eventual unknown quantity of skills needs. That's just the thing. On government terms, skills sets for services remain out of reach of many who actually need them the most. And making certain that skills become collateral which others find valuable, means getting the permission of government in order to do so. That means opening the marketplace to more than just the money "hoarders".

Consider services for the direct product formations they actually represent. It's not easy to think this way - granted - because we are used to supporting or hiring the services time of others when other tangible assets are already in the picture. That is, we are conditioned to believe something has to be brought up from the ground or built first - which someone in turn then benefits from - before services creation becomes an option. Except for limited government services provisioning of course, which is even further down the resource line of transference. But all this indirect effort misses the true product capacity, which actually exists in services formations. Because direct coordination for services was factored out by monetary exchange, the liquidity of skills capacity - in many instances - gradually diminished over time.

Presently there are a number of reasons, why our skills sets don't provide the kind of liquidity that is possible through fixed assets collateral. Even though we are capable of many things, the workplace tends to hone in on a subset of those skills options on our part. Thus, we may indeed end up with a marketplace "mismatch", for a skill set which demanded a major part of our quality time commitment.

And therein lies the problem. Chances are our relatively scarce quality time commitment was a single investment, in a world that requires multiple investments for sustainable continuity. After all, the most common advice in other forms of investment is to diversity. Yet, we need the ability to regularly arbitrage our time use, in order to make skills investment diversity work for us at a personal level.

Another issue is that the marketplace does not always ask us for skills diversity in economic terms. To be sure, we are expected to have multiple skills sets to get through the day but not for reasons that accrue to us financially. We need to create a skills marketplace capable of growth due to skills diversity, rather than struggle with a marketplace which cannot use skills. Local skills coordination expands the definition of acceptable collateral.

Even at a decentralized level, stills arbitrage compensation still has what could be considered both fiscal and "financial" characteristics. How so? Think of the two loan components. Skills match coordination works like a time loan, in the sense of two components becoming one component of measured wealth. The first part of the match is the "loan" which is then "paid" with the other coordinated time hour - which cancels to the single hour base of newly measured services wealth. The fiscal resemblance is reminiscent of the government debt obligation which requires payment. The main commitment on everyone's part is time, but unlike government fiscal obligation, becomes a completed transaction in short order - no "juggling" necessary.

These comparative aspects of debt/ fiscal and skills arbitrage stand in contrast, to the monetary activity representing new commodities and product separate from the use of our time. Also, skills arbitrage becomes an economic fiscal component which is arrived at directly. That also makes a considerable amount of taxation - let alone special interest subsidizing - unnecessary.

Think how it feels, to have multiple skill sets and yet still be expected to have "all the others" as well just to get things done. No matter what skills we have: we're told they're the "wrong" ones! Essentially we now have to be ready for all contingencies - personal and business related - even though it is not possible for anyone to do so. Stop and think for a moment how profoundly uneconomic that reality actually is. The whole idea of the marketplace was supposed to provide voluntary divisions of labor which meant we shouldn't have to do every single thing on our own. It is up to us to regain the kind of marketplace that once was capable of allowing us to pick and choose from meaningful skills sets. It is up to us to regain the missing collateral, of our own abilities.

Wednesday, February 12, 2014

Midweek Market Monetarist Links and Summaries - 2/12/14

Bill Woolsey - in response to Miles Kimball - asks, can electronic money end recessions? Kimball on Ending Recessions and Inflation
Miles' reply for Bill: http://blog.supplysideliberal.com/post/76196184332/reply-to-bill-woolsey-on-the-possibility-of-ending

How did a defining characteristic of Keynesian theory arise from an assumption which Keynes downplayed as important? (David Glasner)  http://uneasymoney.com/2014/02/06/why-are-wages-sticky/
Roger Farmer highlights, and adds to posts which picked up on David's discussion: http://rogerfarmerblog.blogspot.com/2014/02/keynes-and-sticky-pricestime-to-think.html
Sometimes, bipartisanship isn't all it's cracked up to be: http://uneasymoney.com/2014/02/07/now-we-know-ethanol-caused-the-2008-financial-crisis-and-the-little-depression/
Glasner responds to Krugman and Farmer: http://uneasymoney.com/2014/02/10/paul-krugman-and-roger-farmer-on-sticky-wages/

Fortunately, not too many countries have taken this path (Lars Christensen) http://marketmonetarist.com/2014/02/06/the-cedi-panic-when-prayers-dont-work-you-go-for-currency-controls/

Is red money backed by "garbage"? (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/negative-money.html
Would flexible NGDPLT beat strict NGDPLT? http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/tiff-macklem-retail-competition-flexible-it-vs-ngdplt.html

Are emerging markets being hurt by the Fed's high long term interest rates? (Scott Sumner) About those high interest rates
"The fit seems better than ever" The musical chairs model updated
Scott responds to Nick Rowe's recent post on interest rates  An old monetarist interpretation of interest on money (money isn't credit)
A response to this recent post by Arnold Kling: If it's an identity does that mean I'm right?
Scott remembers a time when the St. Louis Fed had monetarist leanings: Daniel Thornton on QE

Some recent Econlog posts from Scott Sumner:
http://econlog.econlib.org/archives/2014/02/the_ecb_is_stee.html
http://econlog.econlib.org/archives/2014/02/ok_now_im_reall.html
Don't miss this thoughtful post:
http://econlog.econlib.org/archives/2014/02/why_do_booms_fe.html

What might we think when we read articles that suggest global growth has peaked...but there's no need to worry? (Marcus Nunes)
http://thefaintofheart.wordpress.com/2014/02/05/9587/
This tongue-in-cheek post (with graphs) also inspired a post by Lorenzo from Oz:
http://thefaintofheart.wordpress.com/2014/02/05/north-dakota-germany/
The ECB doesn't want to simply say that it is targeting very low inflation: http://thefaintofheart.wordpress.com/2014/02/06/the-ecb-decision-was-not-surprising-but-nevertheless-remained-the-sickest-joke/
As commenter James in London remarked, the "champagne bottle" of 66-81 inflation is great:
http://thefaintofheart.wordpress.com/2014/02/06/maybe-an-ngdp-level-target-will-happen-sooner-than-expected/
When "solid" simply isn't enough: http://thefaintofheart.wordpress.com/2014/02/06/the-meaning-of-solid-report-has-drastically-changed/
Two posts on the "longhorn" shaped economy here and here.
Interest rate targeting and forward guidance with thresholds, no longer works
The graphs from 1870 to 2013 will especially remain on my mind:
http://thefaintofheart.wordpress.com/2014/02/10/if-this-is-as-good-as-it-gets-have-mercy-on-us/
Asset purchases and forward guidance have not put downward pressure on long term interest rates: http://thefaintofheart.wordpress.com/2014/02/11/the-loony-principle-of-monetary-policy/
Benjamin Cole considers whether Janet Yellen can make the most of remaining QE

Bonnie Carr has concerns what Yellen can do, as well:
http://dajeeps.wordpress.com/2014/02/12/how-many-times-can-yellen-contradict-herself/

James Pethokoukis: There are still 4 million fewer full-time jobs in America than before the Great Recession

George Selgin has an interesting identity crisis! (Or, being lonely isn't fun) http://www.freebanking.org/2014/02/10/economic-schools-of-thought/

Yichuan Wang: Why Monetary Policy Should Ignore Financial Stability

Representative stories also include time and micro-level interaction (James Caton):  http://moneymarketsandmisperceptions.blogspot.com/2014/02/away-from-equilibrium-approach-to.html

Also of interest:

Tim Worstall (Adam Smith Institute): Why this insistence that things that need to be collectively done must be centrally done?

Finance has created problems for emerging markets (Dani Rodrik): http://www.project-syndicate.org/commentary/dani-rodrik-reviews-the-fundamental-lessons-about-emerging-economies-that-economists-have-refused-to-learn

Is it a stretch to suggest that governments cause homelessness?
http://www.pamplinmedia.com/pt/9-news/209817-66668-high-cost-of-affordable

Tuesday, February 11, 2014

City Keynesians, Rural Austrians

To be sure, such a conjecture is a broad generalization. Of course there are Keynesians in the countryside and Austrians in the city! Even so, voting maps for the U.S. point to more distinct political and ideological divides in recent elections, than has always been the case. I, for one, still remember when cities and rural areas seemed better able to "understand" one another.

When I was in high school (early seventies), non fiction books with a political or social bent (in this relatively rural county) were still available along a wide spectrum of choice. However I've noticed in recent years that bookstore offerings - in smaller cities close to rural areas - cater more to customers who are sometimes referred to as "crude" Austrians. Was that a response to pro government literature promotion in the public schools? Thankfully those ideological struggles were not so prominent in a rural public school environment when I was young.

Admittedly I am using the term "Keynesian" somewhat loosely in this post as well. Even though other areas of economic thought compete with these two, Keynesianism and Austrianism are far better represented amongst the public in both simple and widespread terminology. While economists debate greater complexities and consider these representations a small part of the larger conversation, that would be news to many political junkies and local arenas. A gross over simplification of Keynes/Hayek debate material from a few years back - for instance - still plays out regularly in the public sphere. Instead of real life government as a matter of degree and formation, arguments end up reduced to all or nothing scenarios - where government supposedly becomes "nonexistent" or "wins the day".

Anyone who has spent a fair amount of time in both city and country has observed the contrasts in outlook, alongside some surprising similarities as well. Both the conservative Austrian and the progressive Keynesian may take the role of finance for granted, in spite of limitations which the financial elite now seek to impose. In particular, one unsettling aspect of common ground between these two groups is that neither faction can envision continued economic growth. It's not always easy for the progressive to embrace economic development which isn't government backed. If that weren't enough, conservatives are well aware of multiple lines "drawn in the sand" which now stand in the way of progress. In the attempt to cancel one another out, neither side can envision positive alternatives for a way forward.

That also accounts for the fact that many who now accept monetarist explanations for the Great Depression, are not necessarily convinced as to monetarist interpretations for the recent Great Recession. Plus, the Great Depression was just far enough back in time for many to forget which responses were helpful, and which ones were not. Indeed, arguments as to some of those earlier responses on the part of government, remain unsettled in public dialogue. The present impasse also illustrates how the political divide works somewhat differently for the Fed, than it does for government in general. Whether an economist is Democrat or Republican for instance, may make little difference in monetary policy terms.

Tendencies towards monetary tightening are not simply a "given" for one side or the other of the ideological divide. Cities continue to proceed with slow but steady cutbacks on services and entitlement compensation out of necessity. Rural Americans may have had their "fill" of government, so to speak at least in terms of rhetoric. Even so, they don't always have enough local economic activity to believe that monetary policy can "come to the rescue", when other options seem to be off the table.

And the fact that neither side is aware of the importance of monetary policy, leaves both the Keynesian and Austrian vulnerable to the desires of governments and finance elites to keep firm control over economic essentials. Whereas crude forms of Austrian ideology remain anti-government almost to an extreme, the pro government Keynesian may have difficulty imagining any economic recovery that involves local coordination and personal efforts.

Perhaps the labels may not seem that important. Even so, just these two categories can be loosely applied to a wide percentage of the U.S population as a whole. In turn, they become the popular opinions of news outlets, workplaces, churches, schools and public places. They continue to play into the options the Fed actually has for monetary policy. Much of the population engages in these discussions at such a superficial level, that journalists can repeat common misinterpretations with little outcry or questioning. All of this makes it evident, why the efforts of Market Monetarists to affect monetary policy in the present, remain thwarted. There's still plenty of work to be done.

Monday, February 10, 2014

Skills Arbitrage: The Point of Agreement is the Point of Reference

Before they "get away" from me, I want to address some follow up thoughts for a recent skills arbitrage post. The idea of monetary compensation for what remains inadequate services provided through government assistance, needs a bit more clarification. The government component of monetary compensation, would simply be government backing of direct economic coordination on the part of individuals. What's more, people would engage in knowledge and skills use, based on what they can teach themselves with the informal assistance of others and the digital realm. The point of agreement is where those processes are set up to take place, among service providers of all kinds. Instead of "choosing one's boss" as in one guaranteed work plan, the idea would be to match one's desired economic destination with others.

These skills arbitration systems would provide meaningful employment and economic engagement for millions. What's more, they could also bypass special interest networks which skim too much of productive exchange in the present, for lower income levels to be able to access either services or workplaces adequately. Governments could provide regulation free zones (free from special interest limitations, that is) so that renewed negotiations and social arrangements among individuals might begin. New wealth creation would also be possible, for many who have little hope otherwise of participating in present day work environments.

Such systems would not just subsidize labor or provide monetary "life support" in any normal sense. Nor would they be last ditch efforts to hire the unemployed. Instead, skills arbitrage systems could provide services beyond the present U.S. governmental budgetary impasse which eventually threatens education, healthcare and much more. Local coordination could also prevent local services offerings from becoming the zero sum battles of competing interests. How would wide diversity in skills sets be compensated?

The point of agreement is also the main point of reference on a number of levels, for skills arbitrage. What people agree upon individually and in groups for services (in short and ongoing time segments) is also the economic activity which gets recorded. Generally, these ongoing agreements would also be more knowledge based, than one might normally associate with basic income arrangements for the unemployed. In effect, much more than additional consumer demand could be met through such compensation. After all, this exponential amount of added services wealth over time would not be possible, otherwise.

People would guarantee their ongoing "employment", by regular engagement and matching efforts with others through local services calendars. That is, they would ultimately be reimbursed for seeking out how they might tend to the needs others have. What's more, endless discussions about skills mismatches in the marketplace would be over and done with, as skills set possibilities are worked out and negotiated individually. Skills arbitrage would allow people to regain self respect through their own efforts, and dispense with a lot of political b.s. in the process. And oftentimes, rather than random bids for employment in group settings, it is one's personal concerns and connections to ongoing projects that create bids for economic inclusion in a defined sense.

Through skills arbitrage, participants would seek to match their desired economic "destinations" as best as possible with one another. These environments would also allow the two way nature of services which is presently missing in so many settings. While some guaranteed income envisions compensation for these efforts with no match, it's not the same outcome for the economy, let alone one's spirit. Even though not every match would seem "significant" to the outsider or participant, neither do multiple product formulations for that matter. The point is to create a real space where significant transactions can be found and imagined. In the aggregate, multiple points of agreement and reference have the capacity to move people back into productive economic activity - at far more than a basic level.

Skills arbitrage could provide ways to reintroduce knowledge use which is now quickly falling away from monetary compensation in the marketplace. Knowledge use is by no means just a default position for "after the fact" solutions or "before the fact" (of hiring) investments. Knowledge use should be primary through all economic processes. Even so, knowledge use is marginalized in many marketplaces. What's more, much knowledge use infrastructure that contributes to present wealth has fallen away from economic compensation.

A primary component of skills arbitrage is that it would attempt to recreate many services which are presently endangered in today's economy. After all, this is especially the work that people want and need. It presently represents 80 percent of economic activity in the U.S. and without such work, millions of people literally would not know what to do with themselves. To be sure, it is not easy for any government to contemplate handing over the keys of the knowledge realm to its citizens. Nevertheless, economic stability could depend on doing so; at least where it is not possible to successfully provide for populations otherwise.

For in the meantime, governments are turning vital aspects of services and knowledge use into a hollow shell, where "one size fits all" is supposed to work for the snowflake realities of our existence. When healthcare services such as Obamacare are subjected to the tragedy of the commons, people also become less responsive to individual initiative and compassion. Jonathan Finegold recently highlighted this quote from Aristotle:
What is common to the greatest number gets the least amount of care. Men pay most attention to what is their own; they care less for what is common or at any rate they care for it only to the extent to which each is individually concerned. Even when there is no other cause for inattention, men are much more prone to neglect their duty when they think that another is attending to it.
How superfluous do many of us feel? Think of our time use, grasp of knowledge, and actual ability to contribute. All have been treated as superfluous commodities for so long, that many now not only question their own worth, they don't see how it is possible to be responsible for anything that matters. This is the circumstance that must be changed - not just to preserve democracy, but to preserve humanity as we were led to believe it exists. Somehow we knew that governments were able to take away the value of civilizations in the past, we just didn't quite know how they managed to do it. It's not that we don't want government. But government cannot survive if it is not responsive to us, and if it doesn't give us the keys back to our own knowledge domains.

One way to bring coordinated services under community umbrellas successfully is to recognize the value of competing interests. That is, simply refuse to allow "winning" interests to turn the playing field into a zero sum game. Clearly, governments have had plenty of difficulty doing so as of late, thus they could learn much from their own citizens who allow competing economic interests to thrive together. While "co-opetition" has been recognized as a business concept, it is equally applicable in local economies which would be capable of providing "homes" for wide diversity of knowledge use functions that otherwise could not take place.

Monetary compensation of service and knowledge use could clearly go beyond the workplace and resource use limitations of the present. There is simply no need to treat skills and knowledge use as though they were lottery tickets. By approaching knowledge and skill in decentralized and sustainable ways, populations can once again make full use of their actual capacities.