Wednesday, April 30, 2014

Wrap Up April '14

April - a month of warmer weather (here, at least), pleasant wildflowers and...unpleasant taxes, argh. One of the seemingly endless debates, is that of corporate tax rates in the U.S. as higher than much of the developed world. Given the free market rhetoric of the U.S. (compared to some nations) that statistic seems odd: how did it happen, anyway? Just the same, hope springs eternal. Thus, there are still proposals to change some aspects of the tax system.

Tax reform is a daunting political challenge, and the present circumstances which require heavy taxation seem as though "baked in the cake". It may be that the U.S. has to try different systems on small levels, to find what works better for those already on the losing end of redistribution. Of course, healthcare still plays a starring role, in the fiscal obligations of the U.S., which doesn't help. It's weird that even Walgreens considers a move to Switzerland, because they've been around since 1901 and are the largest drugstore chain in the country.

Too bad Washington didn't tend to hidden aspects of entrenched welfare for special interests, before corporations started getting such itchy feet. One can hand out goodies all day but when everyone else also gets goodies from the same government pile...Only consider the obligations of Medicaid which are paid directly to healthcare workers, even though this is part of the safety net. As Natalie Scholl of AEI indicated, (point 6) "Combined federal and state spending on Medicaid ($31 billion in 2012) is more than 5 times the amount on food stamps, and more than 25 times the spending on the federal cash welfare program."

Unfortunately, Obamacare does not change an existing knowledge use gridlock in the healthcare system, hence the whole mess should be broken down and begun anew. Since that isn't likely to happen soon, I simply recommend that lower to middle income levels be allowed to create marketplaces for themselves, with healthcare options as a centerpiece. Some regions would be glad to start fresh in this regard, especially if their existing healthcare comes up short compared to more prosperous regions. At the very least, some doctors are bypassing insurance payments and Medicare requirements altogether. Even so, this mostly provides more choices for middle to upper income levels.

A post from James Pethokoukis, "Thinking about government as a creator of platforms that allow citizens to solve their own problems", is also a reminder of potential for domestic summits. Would all that "big data" actually help at local levels? I still believe that much of what is needed for further growth, isn't being caught in any data, yet. Skills arbitrage could allow local "small data" to be encouraged and maintained. What's more, local activity would gain impetus from ideas in the cloud. These ideas - in turn - could be locally "adopted" by both educational entrepreneurs and the community as a whole. That would allow "free agents" in the cloud (no affiliation with existing institutions) to have real, geographic "homes" for their work. Through such a process, local communities could become natural "schools" for thought in numerous capacities.

Local knowledge use collections could benefit those in search of homes for their work, as well as the communities which gain further identity from the process of adoption. Local digital "libraries" would also include the skills based activities of local participants as they develop. Plenty of aspects regarding Internet "holdings" remain uncertain, and a geographic representative approach is one possibility for the preservation of knowledge and information. The above linked Pethokoukis post encouraged me to "think out loud" about some of these ideas. Let's substitute the word "problems" in his post title, with "aspirations", in regard to domestic summit proposals.

Apologies if my recent post regarding plenitude and scarcity, seemed unnecessarily pessimistic towards the end! I ended that post with the negative quote which "got my goat" in the first place. Those who emphasize plenitude, are right to stress where standards of living have dramatically improved from those of the past. It's just that there are so many ways plenitude can be more effectively managed, without having to constantly fill holes which developed primarily to catch the extra wealth.

Speaking of filling holes, some do need to be filled, but aren't getting any attention! There was a story in the news today of a 69 year old who - when the city didn't respond to weeks of calls regarding one pothole, got a shovel and proceeded to fill the hole, himself. Not only was he doing the work free of charge, but with a surgically repaired knee. That's inspiring.

P.S. I do feel that I owe Scott Sumner an apology, for the times I chided him about frequently referencing Paul Krugman. After all the ruckus over Piketty, and the fact he's already been mentioned plenty of times here, I can only say to Scott...now I get it!

Midweek Market Monetarist Links and Summaries - 4/30/14

Mark Sadowski ran some Granger causality tests to help out (heh)...(David Beckworth)
A New Monetary Policy Target: Per Capita Alcohol Consumption
Good example for maintaining (coordinating) velocity in the nick of time: http://macromarketmusings.blogspot.com/2014/04/observational-equivalence.html
Neo-Fisherism? Three strikes and...http://macromarketmusings.blogspot.com/2014/04/the-cure-for-neo-fisherism-history.html

"this debate is not about the Fisher relation. It's about what happens outside of the steady state." (Evan Soltas) http://esoltas.blogspot.com/2014/04/the-fishermen.html

"Retirement is weird, when you think about it." (Nick Rowe) Secular Stagnation and the End of Retirement
How does mobility matter in all of this? A question worth thinking about: http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/04/meritocracy-mobility-and-optimal-taxation.html

How did the ECB target become the forecast? (Marcus Nunes)
http://thefaintofheart.wordpress.com/2014/04/23/when-medium-term-becomes-open-ended/
Presently we have stable growth, but not the earlier level path: http://thefaintofheart.wordpress.com/2014/04/24/markets-are-telling-where-ngdp-growth-is-heading-an-update/ 
Quite close to trend. How much luck was involved? http://thefaintofheart.wordpress.com/2014/04/25/sometimes-you-get-lucky-the-case-of-israel/
"Trust us." Populist parties. Hmmm...http://thefaintofheart.wordpress.com/2014/04/25/jurgen-stark-is-starkly-ignorant-about-monetary-policy/
Traders appear to be less optimistic as time goes by: http://thefaintofheart.wordpress.com/2014/04/26/how-to-make-a-great-stagnation-come-true/
What will Jeremy Stein's legacy be? http://thefaintofheart.wordpress.com/2014/04/28/using-interest-rates-to-get-in-all-the-cracks/

"The central bank can either adopt the rate of money growth consistent with the interest rate peg or they cannot maintain the interest rate peg". (Josh Hendrickson) https://everydayecon.wordpress.com/2014/04/28/on-pegging-the-interest-rate/

Good responses from David Glasner - it would have been frustrating to read Sargent's list, otherwise.
http://uneasymoney.com/2014/04/25/memo-to-tom-sargent-economics-is-more-than-just-common-sense/

Lars Christensen notes how close Israel has remained, to the original trend level: http://marketmonetarist.com/2014/04/24/how-stan-fischer-predicted-the-crisis-and-saved-israel-from-it/
Inflation targeting makes it more difficult for central banks to maintain floating exchange rates: http://marketmonetarist.com/2014/04/29/monetary-sovereignty-is-incompatible-with-inflation-targeting/

Scott Sumner's Econlog post, There's only one sensible way to measure economic inequality includes a follow up post at The Money Illusion, Capital income is taxed more heavily than wage income
Some tax theory cognitive illusions: Pandering to the public's ignorance
What happens when monetarist ideas are translated into Keynesian language? Noah Smith on the Neo-Fisherites
Some clarification is in order: If the Fed had a meeting, how would that affect inflation?
Among other things...it always helps to remember that the system is rigged! The case for 80% tax rates on the rich

Also, more Scott at Econlog:
http://econlog.econlib.org/archives/2014/04/a_pragmatic_vie.html
"The forces of both supply and demand explain real wages." Is it okay to reason from a (aggregate) wage change?

The UK had a productivity shock, starting in late 2007...(Britmouse) http://uneconomical.wordpress.com/2014/04/30/what-happens-if-we-screw-up-again/

"There is a big, giant wet blanket of a non-bubble." (Kevin Erdmann) http://idiosyncraticwhisk.blogspot.com/2014/04/a-very-basic-housing-post.html
The bad guy narrative is quite prevalent in financial contexts: http://idiosyncraticwhisk.blogspot.com/2014/04/the-peculiarities-of-mortgage-market.html
"I am considering being more bearish than Bill McBride on one factor, and that is the projected quantity of new home sales" (I agree) http://idiosyncraticwhisk.blogspot.com/2014/04/new-home-sales-and-prices.html

Also of interest:

The same mistake gets made over and over again (Deirdre McCloskey) Cafe Hayek, Quotations of the Day

"...is Piketty writing down a complete markets model or one in which there are incomplete markets for skill formation?" (Matthew Kahn) http://greeneconomics.blogspot.com/2014/04/human-capital-formation-and-capital.html

Monday, April 28, 2014

How Did Plenitude Overcome Scarcity?

Short answer: it hasn't actually accomplished this feat. At least, not in the broad sense of the term. Indeed, some "get" that scarcity is still real. After all, considerable poverty remains entrenched - even in places where it is least expected. Even so, some along the right of the political spectrum, imagine plenitude as endless digital options for consumers. Others envision plenitude as finance "magic" or fiscal "power", i.e. all it takes is for government to do the "right thing" and spread the wealth around. Even though fiscal activity is only one of many random elements, the plenitude it implies, can overwhelm the reality of economics as people based.

In the classroom of course, economics continues to be taught with scarcity as a basic tenet, to the dismay of those who are more than ready to implement the plenitude programs of their choice. While I'm not ready to jump on board with those plans, readers may suspect that I have a beef nonetheless, with the way mainstream economics approaches scarcity.

Why so? The scarcity of finite time has not been adequately considered, in the seeming plenitude of random resources. Even though the intersection of time and resource use provides an indicator of economic stability, this intriguing focal point has yet to be explored for the answers it might hold. Neither Keynesian or Austrian has real use for the consideration of economic time. A mistaken attribution of time as a side factor could explain this, especially given the ways in which labor became defined in the 20th century. It's easier to understand specific wages for instance, than how farmers, the self employed and entrepreneurs interact with their environments to generate additional spending flows.

The lack of consideration for finite time use in a context of random resources, also creates problems at the heart of tax and redistribution systems as noted in a recent post. In other words, the resource of our finite time, gets mixed in with everything from the minimal to the infinite - like so many scrambled eggs in a skillet. No wonder too many factors just aren't adding up.

By no means is this the first time that the idea of plenitude appears to be gaining ground. But acquiring wealth in the present does not hold the same meanings it once held, in material terms. Unfortunately, "extra" savings can be confused as economic security or even inappropriate behavior. Growing payouts to shareholders fit this category, and on first consideration, may make little sense. Let's think for a minute - in spite of J.W. Mason's ability to persuade in his New Inquiry article - about the fact that many companies are currently sitting on piles of cash. Sure it's easy to get indignant...how dare shareholders decrease productive activity on the part of a company! But would companies really be enthusiastic about this approach, if there were more reasonable ways to interact in the marketplace?

After all, most individuals would rather be doing something a lot more stimulating than money sitting, if and when there are ways to do so without undue risk. And if uncertainty holds back many undertakings, why isn't there more discussion how to change these circumstances? This is not the cozy and secure position that many might imagine. Ongoing economic flows are far more important than any "results" - which will remain in transition under any circumstance.

Just the same, Chris Dillow notes a growing belief that distribution of surplus is now the order of the day, and the quote he highlighted is worth repeating:
The central problem of economics is the distribution of the surplus, rather than the allocation of scarce resources.
Suffice to say, I don't agree. Before we know how far we can run, we need to know the starting line.

Saturday, April 26, 2014

Taxation Can Fail in a Merit Based Equilibrium

Why might this be the case? Merit in the economic sense of knowledge based work, is not widely distributed enough for taxation to smooth (almost) empty valuation points. What's more, holders of knowledge use also do not have the ability to provide market density to the degree their salaries imply, unless they do so through association with product separate from time. However, overall equilibrium adjusts in valuation, as if those with exclusive knowledge use rights are able to provide full market density just the same.

This has bearing as to why redistribution ends up benefiting special interests, and further exacerbating inequalities. Too little balance exists, in terms of what vital forms of time use are now able to accomplish at aggregate levels. As a result, recent knowledge use investments remain caught in uncertain holding patterns. Unfortunately, the marketplace for knowledge use which should have evolved, is simply not there.

Given this scenario, further taxation cannot accomplish what is needed to repair economic inequalities and generate new growth. Calls for further taxation would mostly burden the existing consumer based scaffolding, which supports today's limited wealth formations. What's more, the scaffolding which supports a delicate merit equilibrium, represents consumer limits in several contexts. Indeed, housing faces lower valuations than rent, in part because it already carries an extra burden as a primary wealth designation (or supporting wall). While I have written about problems associated with merit, a recent post by Nick Rowe gives me a chance to put these thoughts into a more focused perspective.

Even prior to Nick's post, I had already planned a related response this morning, as to Piketty's assertion (page 244 of "Capital") that capital is always more unequally distributed than labor. In monetary terms, capital and related assets are nevertheless random supply side elements, in spite of the wealth they represent. To be sure, resources of all kinds contribute to sustainability. However, the capacity in which we are able to use our time effectively, is the finite and central component.

What matters is not where certain resources happen to exist or even what we may do with them in consumption terms, but the degree to which we can utilize our time to make resources matter in an overall capacity. However, when our time gets "cancelled out" by merit compensation which is far greater than our own, no amount of random resource compensation - or government redistribution - can make the difference at lower to middle income levels. Indeed, the attempt to do so within the confines of sticky markets, is like trying to fill a leaky bucket.

Merit "failures" (in compensation terms) mean losing more of our already finite time quantity. One could compare this to starting out with forty acres to farm (average workweek), only to end up utilizing one or two acres of land with something left for the marketplace. That leaves anyone with less "merit" or supposed intelligence, unable to contribute to the infrastructures and environments everyone relies upon. When everyone waits in line for the person or institution which dispenses the "appropriate" knowledge, too much of vital importance cannot happen at all. This is why high valuations inadvertently become time theft, especially given the fact monetary systems depend on aggregate time use to maintain equilibrium settings.

However, if our income is insufficient for expected consumption patterns, one way to compensate is by working and living in an arbitraged time use equilibrium. Coordination of resources with time use can not only smooth time value variations, but consumption preferences as well. Of course this is a long term solution, which requires focused learning and coordination patterns. However, comprehensive remedies are needed, because merit compensation distorts aggregate economic equilibrium so thoroughly, that taxation to remedy the differences in time use valuation, doesn't get at the underlying problems of aggregate time use.

These distortions would not pose such problems for societies if more participants were actually compensated for merit and knowledge use in relative terms. Instead, knowledge which applies for given situations, is too frequently applied for circumstance which deserve more thought and time than is generally provided. Even so, some income smoothing in aggregate remains possible for those who have relatively high valuations in merit based terms. Therefore, these groups might still gain compensation from the redistribution which is a result of taxation systems.

But as it presently stands, the higher valuations of the few, continues to subtract time use value for many into negative territory. Even the lower valuations of the many would be far more manageable in redistribution terms, if the sticky market equilibrium of upper incomes had not being imposed on all populations, regardless of merit valuations or compensation. As it is, sticky markets accurately reflect the consumption capacity of the upper levels, and expect the lower levels to adjust.

Increasingly, the missing component of the marketplace has been parked (by the Fed) in the interest on reserves. This policy decision was enacted, in lieu of maintaining the former growth trajectory which had been in place for well over a century. These reserves have their purpose in maintaining the delicate valuations which high merit created: I get that. What I don't get is that anyone imagines this to be a long term solution. The fact these severe structural problems have yet to be addressed, is why I have such problems with rationale for further taxation. It is also why I try to do an end run around present day taxation for lower income levels, in that redistribution for this group is massively inefficient for all concerned.

Fortunately, merit based time use problems can be approached head on, through time coordination and arbitrage for services of all kinds - including those of the highest nature. After all, many an individual needs to seek lifesaving measures in the course of a lifetime, even though few are presently authorized to provide them. What's more, local education for full services provisioning, would prevent intelligence from becoming even further fragmented among populations than it already is.

Part of why production has been so successful in recent centuries, is the fact that resources have been utilized as interchangeable components as needed. This allowed populations to adapt whenever some resources became limited, and it allowed society to accomplish more with less - time and again. If we gain the capacity to arbitrage our time use as an interchangeable component within social systems, the progress which seems to have fallen away, would have a chance to continue. It is primarily because of the limitations of merit, that no one imagined skills sets as a master key which could unlock the door of a brighter destiny.

Friday, April 25, 2014

The Life of a Community...

...depends on a number of things. How is a given community able to support itself? And yes, this is very important. Every community needs to be able to integrate knowledge use with 1) coordinated time use of one's citizens for services and production 2) local resource transformation and 3) resource transformation from elsewhere, through local production and infrastructural arrangements. All of this can begin in simple ways and gradually progress to more comprehensive platforms.

It helps to remember that K-12 in terms of formal education, is not knowledge use in a wealth based sense. Some small U.S. communities still have local schools, yet little else in local work opportunities. Formal education is mostly the hope any community holds, to utilize knowledge in meaningful ways. Structured as it currently is, education is a public obligation instead of an inspiring source of wealth creation in its own right. High school should not have to consist of contained environments which students often wish to escape. Make the grass greener for economic life wherever we already happen to be, because "escapes" of all kinds are now harder to come by.

In what capacity is a community most dependent on the outside world? Dependence on outside resources or commodities can add greatly to local wealth creation, so long as those resources are treated primarily as windfalls or bonuses to existing patterns. The same is true for most available monies, outside of provisions for local (measured) time use. Local calendared time use is a focal point from which local work, educational efforts, social congregation and entertainment can begin. Community wide coordinated time use would eventually have the capacity to take the place of taxation for most services. Local production efforts could be held incrementally by all citizens, in various wealth instruments. By combining local maintenance with local production measures, this would further eliminate the need to tax for municipal operating expenses. All of which places one's later years into a more manageable framework, in that services needs are being locally coordinated.

By recognizing local infrastructure, production arrangements, and most monies as resource windfalls, flexibility is possible when availability changes. After all, ongoing windfalls in product choice are what allows the interdependence which capitalism fostered. Unmet service needs and unaccounted for economic time access, are what destabilize capitalism the most. By stabilizing monetary systems with time use as the central component, citizens learn to make the most of their time and resources. Dependence on the outside world for services only works against local communities, and prevents their sustainability. Too many communities don't have the ability to transform viable knowledge capital, for their own goals and needs.

Recent arguments are getting somewhat bogged down in taxation and income inequalities. As a result, they can miss the vital point, as to whether individuals and communities are able to support themselves and regain the growth trajectory which existed prior to the Great Recession. I believe that if communities find ways to do so, current arguments as to taxation and inequality will not have to remain on center stage.

Should nothing be done to create more wealth at local levels, existing tax systems will only continue to eat into the seed corn that is intended for future harvests, especially in the U.S. If there is a central problem I have with Piketty, this is probably it. He has not looked hard enough to define the wealth components which are actually missing - indeed his charts showed this in rather dramatic fashion. There is not enough existing wealth left to tax further in real terms, except what exists in the primary economic regions of the world. And these regions cannot continue to hold up the regions which have fallen behind.

Even so, non primary and lower income regions bear the same tax burdens which are intended to capture the wealth of more vital regions. For instance, housing in vast rural areas cannot continue to carry large redistribution burdens, especially as occupants grow older. How can communities envision better forms of production and consumption that ensure the possibility of carrying on? That is what I will try to remain focused on, in the confusion of the present.

Production is especially about the forms and varieties of consumption which communities have the capacity to embrace. Consumption is part and parcel of production itself, especially in work based terms. After all, we harvest where the very act of harvesting, energizes us the most. When we approach these two economic elements together, the consumption that we bring back to the table is real wealth in every sense of the word.

However, since services have been structured as obligation instead of desired commodities, many services elements have defaulted into what happens in rescue mode. By doing so, much of the practical - let alone social maintenance mode, has been tossed by the wayside in the resulting valuations. Service default positions then become last ditch efforts and sinkholes for redistribution structures. That has only taken away needed redistribution monies for both infrastructure and ongoing operations.

What we consume in the 21st century, will greatly depend on what we are permitted to produce and represent in knowledge based terms for one another. This is not important just economically - it is a vital concern in a social sense, especially as we grow older. The longer we live, the more we need access to both production and consumption of knowledge based activity. What's more we need it in the communities where we live, not elsewhere.

Today, there are not well established options for neighbors to have reason to come together. This matters because it often makes family the primary fall back position, especially if one's (remaining) work is no longer an integral part of one's social life. Washington, in it's focus on bigger matters, sometimes misses the smaller components of economic integration. The life of any community could be greatly improved, if the community itself becomes a safety net by which its members can come to rely on one another.

For communities to thrive, they need to recreate consumption and production options which have a social base to them. While these locally created choices would not be "perfect", coordination by individuals for wants and needs is far better, than dictates which only limit personal services because no money exists for them.

While creating community calendars to match time use, only think how many individuals would jump at the chance to take part in social forms of services production and consumption - even if time matching doesn't appear substantial in investment terms. Today, companies such as Facebook take advantage of social factors. Some decades earlier, companies such as Avon and Tupperware did the same thing - that is, they profited by the fact that neighbors wanted reasons to come together and socialize. After all, the act of being social is one of the most important components of production and consumption that we have. And the act of coming together with new purpose, leads to new formations of investment as well.

Done right, no one needs a fortune, to ensure that they can remain in the presence of others for the full course of their lives. What we do for one in this regard is real wealth and real capital which matters in a monetary sense. It is up to us to create the forms of wealth we want, because our governments cannot do this for us. To be sure, some of these ideas are not yet fully formed. But I need a real counter now, to the sinkhole that is quickly becoming discussion as to inequality and redistribution.

Update: David Glasner's response to a point made by Tom Sargent, works well here.
Sargent: Individuals and communities face tradeoffs.
Glasner: Tradeoffs don't necessarily exist in situations when individuals or communities are not optimizing. Even though every individual is optimizing, the community may not be.

Wednesday, April 23, 2014

Desk Notes with no Reasonable Title Whatsoever

...but not for lack of trying. Nothing worked. Hence, some thoughts in this post are even more "work in progress" than usual, and I've got to clear a growing pile of notes somehow! First, equal time use for services production and consumption is not for everyone - nor need it be. Anyone who accesses the lifestyle they desire from present day consumption options, can (hopefully) maintain those systems in thriving economic centers. After all, these centers include the best part of today's capital, and the best part of employment which our institution defined capital makes possible.

Creation of coordinated time use marketplaces need not detract from "alpha" markets, which gain higher valuations (particularly in real estate) from globalization. In some respects, there is also capacity for integration between alpha and beta markets - especially over time. This would especially be true as beta markets learn to "grow" their potential for wealth creation. Plus alpha markets would not be where "all the fun is". After all, NIMBY anything likes to settle down with "farmer" characteristics, in spite of the movement of international monetary flows. Beta markets can represent hunter gatherer flexibility and instincts. That would provide more stability overall, than may appear at first glance.

And why not "settle down" if one's chosen field allows a way to do so? Upper middle incomes allow services access without need of conscious coordination, on one's part. Access to international monetary flows (where they exist) allows exclusive and complete focus, in terms of skills and knowledge use. Indeed, this is one of the more positive attributes of an earlier capitalism, which gradually sorted divisions of labor at all levels of society. For centuries, many individuals remained in work which did not consist of specific incomes or designated wages.

Thus, endogenous wage adjustment also meant it took a long time for services inflation to enter the picture. No one had to closely consider how monetary flows took place between production and services, until designated wages became a larger component of the entire mix of economic activity. In general, how much inflation actually occurred - for instance - before people moved to the cities to find the work which paid wages? According to Thomas Piketty, not very much.

So long as plenty of options existed in agriculture and then manufacturing, those who sought knowledge use and service related options instead, were practically guaranteed economic entry - on what has turned out to be twentieth century terms. But even though the "bloom is off the rose", the rosebush is still viable...right? For instance, consider that Thomas Piketty has a more positive take on capitalism, than Karl Marx. There's good reason: a limited equilibrium is still in effect, for knowledge workers in the present exclusive designation.

However, if Piketty imagines declining growth over time, chances are he does not envision more space for aspiring knowledge workers. Might some measure of guilt exist (re closed doors), behind new calls for greater income equality? Unfortunately, potential flows from existing wealth are not as automatic, as Piketty imagines in "Capital". Among other things, discussion of income inequality serves to circumvent public discussion from the greater loss which has occurred: dashed hopes of participation in the economy, on the knowledge based terms which the 20th century seemed to promise.

Those "once upon a time" flows which used to neatly designate labor, aren't reliable. What's more, this earlier equilibrium has been shifting since it reached its heights in the seventies. Only look at Piketty's graphs of national wealth and ponder...what the hell really took the place of agriculture?? Out here in the real world, some of the "working" capital which Piketty hopes is productively producing away, is instead gathering dust in storage units across the U.S. (now there's some valuable rent!) In some instances a bonfire might be more efficient...Meanwhile, valuable educational investments of recent decades remain cut off, with no marketplace to represent them. How can the rate of return on any capital remain significant, if the capital which matters most is not recognized and set free?

While more repetitious and exhausting forms of labor divisions have been replaced by technology, some of the more challenging and knowledge based forms of labor divisions remain. Even as they decline in quantity, the competition for what remains, has intensified. What might still be replaced by technology? So long as knowledge use depends on production remains of the day, possibly as much as 90 percent. Anyone who invested in their skills as though they represented real capital, is uneasy about these prospects.

With the "bad news" now out of the way, it's a good time to acknowledge that all of my suggestions are somewhat of a letdown, in any short term sense. Why? It would take a lot of time to get started, and learn to do things differently. Indeed, optimizing gains from time use coordination could take decades, in order to generate comparable wealth such as populations are used to. And in many respects, those newer forms of wealth would feel and look quite different. Even so, starting points (beta communities) would offer simple clarification as to growth and production potential.

Part of the good news, is the fact that time use coordination on equal terms would alleviate services related inflation. While much of this would affect local settings, lessening demand on primary areas would greatly assist their services systems. It also helps to remember that lower to middle income groups have little access to international monetary flows. That is a primary reason time coordination is needed, so that a different services equilibrium can be generated.  Measurements of productivity gains all around, would become easier to determine than they presently are. How so?

Equal time access would allow well defined knowledge and services tracking, in local aggregates. By pooling knowledge use in measurable ways at local levels, all services activity can be recorded as it progresses through time. That would allow each community to form ongoing records of the ways in which their services evolve, which would also create unique footprints for knowledge use and services in general. The fact that this occurs within aggregated sets of time options, illustrates the gains. Whereas institutional gains for knowledge use have an ebb and flow which is not as readily measurable as a whole - let alone accessible or cumulative over time.

Another positive aspect of this scenario, is that time use would once again become the central component for economic activity. In other words, knowledge based communities would become active illustrations of time centered economic activity, rather than finance centered. How so? Citizens would be able to make their time use primary, through inclusive and ongoing adaptability. For example, resource use would be secondary in the sense that when any resource creates negative supply shocks, time centered methods would seek resource use options which alleviate pressure on time use. Whereas finance and all of its best buddies, prefer to treat given resource settings as though handed down on a tablet from above.

For instance, versatile building components of all kinds would be associated with community goals of leaving time use as free as possible: in terms of unnecessary expense, maintenance and silly complexities. That means more time left for both leisure and desirable forms of work, which one could then choose over difficult maintenance or "dull work" which accomplishes little more than paying rent or mortgage. Or - let's use technology where it frees our time for the work that counts - at all levels of scale. I like to think of these kinds of life options as hunter gatherer ownership, where people elect to hunt and gather the "harvests" they collectively agree upon in small groups. Knowledge use especially needs the basic monetary anchor of time, in order to flourish.

Another aspect: equal time use in services would make it possible for a nominal monetary target to achieve full employment in multiple areas. That would put a stop to the gradually rising natural rate of unemployment. And when citizens share what was once government sponsored services work, governments don't have to worry so, about fiscal constraints and operating budgets. With a nominal level target for monetary policy, it would come down to higher income levels maintaining the asset inflation they can "live with", in the globalized environments of primary cities.

How to sum up this admittedly wishful thinking, in growth level terms? First, this new marketplace could become a substantial part of what was never "filled in", re the massive hole that was the Great Recession. What's more, adding in these missing hours represents a one time bump in growth, in terms of societal economic participation.

In other words that would be the point or plateau, from which a longer term growth level target could ultimately be determined. The degree to which different groups interact with resource use in innovative ways, would determine future growth patterns. When innovation is placed into groupings which maximize multiple resource use options, production and innovations can once again be dispersed through entire populations. That alone, would promote a higher growth trajectory than might otherwise be possible.

Midweek Market Monetarist Links and Summaries - 4/23/14

All parts of the U.S. are affected by the same monetary shocks (Scott Sumner):
Aggregate demand and regional demand shocks
Unfortunately, success came at Sweden's expense: Swedish central bankers and Korean ferryboat captains
Disentangling financial crisis from monetary crisis: Reply to Delong smackdown
"...macro is not a zero sum game; all countries can simultaneously increase employment and output."
Let's all be Germans

Econlog posts from Scott:
An interesting contrast, between Scott's views and those of Larry Summers:
http://econlog.econlib.org/archives/2014/04/larry_summers_s.html
Industrial production looks good, however...
http://econlog.econlib.org/archives/2014/04/bad_news_indust.html
Some highlights from a George Soros interview:
http://econlog.econlib.org/archives/2014/04/quantum_finance.html
Even if the EMH is only approximately true, it is useful:
http://econlog.econlib.org/archives/2014/04/why_the_emh_is.html
Is German labor market policy success an "inconvenient truth"?http://econlog.econlib.org/archives/2014/04/german_success.html

Even though the S&P didn't drop, it flatlined...(Lars Christensen)
http://marketmonetarist.com/2014/04/17/the-cuban-missile-crisis-never-happened-or-at-least-the-stock-markets-didnt-care/
Lars presents a paper by Clark Johnson
http://marketmonetarist.com/2014/04/19/conventional-thinking-at-the-brink-by-clark-johnson/
Free banking discussions are back on the agenda:
http://marketmonetarist.com/2014/04/20/conference-free-banking-systems-diversity-in-financial-and-economic-growth/
Some highlights re Milton Friedman
http://marketmonetarist.com/2014/04/21/mark-perry-on-the-collected-works-of-milton-friedman-project/

The Fed never intended to fully offset the collapse in AD (David Beckworth)
http://macromarketmusings.blogspot.com/2014/04/this-one-figure-shows-why-fed-policy.html
"...Bernanke saw the crisis as a financial intermediation crisis where Friedman would have viewed it as a medium of exchange crisis." http://macromarketmusings.blogspot.com/2014/04/bernanke-vs-friedman-financial.html

Today's "moderation" is not like the other (Marcus Nunes) http://thefaintofheart.wordpress.com/2014/04/16/there-is-scientology-and-theres-also-great-stagnationism/
Why can't a stronger economy assist today's long term unemployed? http://thefaintofheart.wordpress.com/2014/04/18/the-easter-bunny-once-again-will-not-be-visiting-the-long-term-unemployed/
A response to Lar's Cuban missile crisis post: http://thefaintofheart.wordpress.com/2014/04/18/words-beat-weapons/
Banks fail after the monetary fact..http://thefaintofheart.wordpress.com/2014/04/22/the-anatomy-of-a-monetary-collapse/

Kevin Erdmann takes a closer look at minimum wage issues:
http://idiosyncraticwhisk.blogspot.com/2014/04/minimum-wage-hikes-hurt-job-keepers.html

Ravi Varghese offers highlights from a book by Bernard Connolly:
http://insecurityanalyst.blogspot.com/2014/04/the-rotten-heart-of-europe.html

What can I say...David Glasner, feisty as always!
http://uneasymoney.com/2014/04/18/ok-tell-me-please-tell-me-why-bitcoins-arent-a-bubble/

Also of interest:

I like Tyler Cowen's article title: "Why a Global Tax on Wealth Won't End Inequality"

The "burning issue of complimentary toy distribution", indeed! (Ryan Long)
What are we teaching our youth?

Monday, April 21, 2014

Domestic Summits and the Tiebout Example

Why put these concepts into the same post title? Basically, because of what they both suggest as to living options, in terms of services and lifestyle in general. When Charles Tiebout introduced his model in the fifties, his theorizing of population sorting as naturally occurring, made a lot of sense - for U.S. populations in particular. Hence, no political solution was needed for free rider problems and local governance. In that spirit, I suggest that no political "solutions" are needed, in order for domestic summits and their follow up workshops to occur.

What's more, Tiebout's portrayal of limited moving costs was fairly accurate for those times. However, service definitions were quite different in the mid twentieth century U.S., which somewhat limits the effectiveness of his example today. Moving from one place to another has become quite risky, as well. This is why some individuals need to look deeply into living options before making the leap, as one was once able to do. How could all of this be considered, in a context of domestic summit discussions?

I like that Tiebout presented population sorting as a naturally occurring phenomenon. For some income levels, this example works as well as before. Still - as my readers already know...yep, it doesn't work quite as well for the lower to middle classes, as it does for everyone else. In my last post I spoke of the need for infrastructure planning, but I didn't designate services separately into public or private context. There's a reason for that, because the lines would be blurred in any economy which utilizes knowledge use more inclusively and effectively than the present. In order to thrive, services need to move well beyond their late twentieth century definition, into a more coordinated and inclusive context.

One of the positive aspects of domestic summits, is that they have the capacity to be non political ways in which society might move forward. After all, they would not be imposing blanket solutions on the country as a whole. Indeed, what they would be capable of, is exploratory economic scenarios. What's more, they could provide momentum at local levels which can be measured and gauged. When something does not work, not only would it be replaced with other options, but the fact that it did not work well for local citizens could be openly discussed in non political terms. What's more "discarded" options could still be utilized at later points in time, or tried elsewhere. The point is not to rule things out, arbitrarily or unnecessarily, with needless legislation which is often just a hidden way to protect special interests.

How would free rider problems be avoided? One reason they can be such a problem in the first place, is that many local citizens have few means to translate their skills sets into viable monetary options. A sufficient marketplace for those choice sets does not yet exist. People need services and assistance. Yet they have not been able to offer their own skills capacities in return, unless they are actually needed by the public or private employee options currently in place. By translating skills sets into a more direct marketplace between individuals, new forms of economic - hence monetary activity - become possible.

One of the most important aspects of domestic summits, is that they would not be asking either for fiscal solutions or ongoing subsidies. Instead, what has previously been designated as public or private activities, would be taken on at individual levels. Individual time management would be utilized in the same capacity (equal use of time) to tend to activities which governments have struggled to provide for their lesser endowed citizens. Two matched hours "collapse" into a single hour of newly measured wealth. This can put our time use back into the heart of economic activity, where it belongs. In effect, by creating services product at the matched hour, these coordinated, matched and measured activities would be monetized in a direct sense.

Still, that raises another important issue. This represents directly created economic time use, which needs to be recognized as such. There is a remaining problem in this regard, in that the Fed has not yet adopted nominal level targeting as a rule. In other words, the Fed has not purposefully acknowledged the value of hourly time and aggregate spending capacity in its own models.

However, the Fed would have much to gain, by recognizing the new marketplace that domestic summits have the capacity to generate. It would become possible to place solutions directly into the hands of the public, where it is simply not possible for political parties to do so. These potential communities could also show the Fed, how central our time is, to economic processes as a whole. The dialogue of domestic summits could also show the importance of expectations, for economic outcomes.

All of this is a somewhat different scenario than total "exit" or splitting off, which I do not feel is helpful or constructive for any nation. At this point, how much difference really exists between our national leaders? What these newly energized communities could do is provide hope for people, if not political parties, which remain hopelessly caught in their own defensive positions. Rather than insisting on solutions at national or state levels, informal solution sets can be tried at local levels on a "game board" where the regulatory clutter has been cleared away, to see what can work in its stead. As Michael Munger aptly stated,
Poverty is what happens when groups of people fail to cooperate, or are prevented from finding ways to cooperate.
Therefore, local explorations and economic examples would provide incentive for our presently sticky marketplace, in terms of how it might rationally proceed. That is, instead of depending on consumer feedback, they would be more reliant on citizen suggestions as to how the marketplace might be redefined. In the aggregate, this would be far more effective for private industry than ties to Washington, because new product formations would come into existence which previously had not been possible.

These exploratory communities could show governments what presently works, yet still keep the capacity for flexibility if it appears some options don't "work". Just because something works right now, does not necessarily mean infrastructure laws or regulations are needed! Resource use changes, and so does life in general. Liberty is not just about freedom, it is about recognizing the fact that we need to be free to adapt to resource availability at all times - in terms of both skills use and commodity options. In the same way that a nominal target makes time use a central economic component, the energized  community would also make time use the focal point from which other resource options can be more readily understood.

The fact that these undertakings could be carried out with flexible and lightweight building components, would allow material risks to be held by the entire groups which undertake these economic projects. Rather than the risky component of exit alone, these summits and their follow up workshops, would provide far better options of exit and voice.

Why do we need these kinds of choice sets in the first place? We are moving into economic environments which increasingly feel wishful, yet passive aggressive at the same time. Some want to move money around more, so as to "increase" equality. And some imagine that technology will sort it all out with little help from the public, while others just throw up their hands and become resigned to bad endings. It does not have to be any of this. Economies can still be purposeful and innovative, especially given that the underlying resource base still exists to make it so. Let's make the best of the options we have.

P.S. Follow up workshops (for domestic summits) would allow like minded individuals with similar consumption patterns to organize and look into coordinated services creation, before making relocation decisions.

Sunday, April 20, 2014

Infrastructure Balance is Consumption Balance

In order for economic and social infrastructures to work effectively, they need a reasonable amount of balance so that expected consumption patterns (i.e. what are considered socially "necessary" for ongoing activities) remain within reach. A reasonable "consumption basket" balance for goods and services already exists, among middle upper to upper income levels. In most instances, these groups remain able to meet their consumption needs when they delegate their time use in responsible ways.

However, consumption balances between services and needed goods, are presently distorted for lower to middle income levels. This is made worse, by the fact these individuals are expected to access the same forms of infrastructure for services and goods, that exist for upper income levels. In turn, the marketplace discrepancies generate further imbalances in the budgets of governments. These present day imbalances impact the marketplace as a whole, and unnecessarily limit what it is actually capable of.

Worse, these imbalances do not respect the careful decision making processes which many consumers are capable of, in their time use commitments. As a result, one gains the impression of  "irresponsibility" through statistics, which may not necessarily be the case. Only consider that 88 percent of auto loans in the U.S. were recently declared subprime (I'd forgotten that debate, till I was reminded on the evening news). Are we to believe that all of these are actually irresponsible consumers? It doesn't seem very likely. When infrastructure options are inadequate, one can readily be perceived by banks as a poor credit risk, in spite of frugality and careful purchasing decisions.

A primary goal for any coordinated infrastructure proposals (domestic summits), would be to bring time use for consumption needs into better balance. Consider for instance, how a primary consumption choice - in infrastructure terms - has been impacted in the present. Everyone needs some form of transportation, just as everyone needs some form of healthcare. But because infrastructure in regards to both is still designed for a higher degree of economic access, the choice often has to be one or the other, if both are needed.

Can we buy a car if we have healthcare bills? Maybe not. In infrastructure terms, this means lower income levels need more walkable communities for work and living. Or would we rather buy a car, and skip the long and expensive hospital stay? For example, what Medicare can't cover for chronic illness, can be significant in the U.S. Any time longer than a week in a hospital, may mean no car can be purchased - in spite of a lifetime of frugality and careful consumption decisions. That means we need more communities where multiple forms of healthcare are locally coordinated and provided outside the realm of hospitals.

Clearly, infrastructure is about more than just building bridges, improving roads and government "grand plans". These are but a small part, of how people need to be able to get out in the world and relate to others. It's time to recognize how many infrastructure pathways are actually broken. By doing something about them, we might finally reach a point where there aren't as many sad (and confusing) stories on the evening news, of people who did not follow through on the expected societal norms of the time. Many people feel a lot of shame, when they are incapable of following through on the expectations of others. Everyone needs a wider array of infrastructure options, so that they can remain engaged and glad to be a part of the world around them.

Saturday, April 19, 2014

Which Matters More - The Flow or the Result?

While there are some of course who disagree, I believe the flow matters most. Admittedly, I'm astonished at the vast numbers who are now willing to believe it is the results of previous flows, which are paramount. In and of themselves, results are inert, thus not capable of creating further economic dynamism on their own. All valuations on preexisting capital and assets, depend on the economic inclusion that keeps flows possible.

If people don't have sufficient infrastructure to generate economic motion, they cannot make full use of existing results - i.e. assets and other forms of capital. What's more, not just any (politically won) infrastructure is capable of generating further motion for multiple income levels. Often, infrastructure involves different sets of economic and pragmatic values, and can be specially designed to meet those needs.

Infrastructures need to be designed and implemented, with full knowledge of existing income "handicaps" in social and economic movement, so that those handicaps can be overcome. What's more, some of the most important infrastructure is social, rather than monetary. Domestic summits would be a good way to start such processes. In these environments, infrastructure options can be discussed not by "experts", but the actual participants who would seek to align infrastructure with their own economic potential.

Economic flows matter not just for measurement or for considerations as to inequalities, but for the maintenance of productive and innovative activity over time. Even though economics might not have much in common with physics, basic ideas as to ongoing movement - or lack of it - certainly apply. The fact that present day results have left us "stuck" with less vitality, really hurts: no question about it. But we have the option of moving past the results of (crony) public private wealth gridlock, to create a better future. Unfortunately, the focus on moral "redistribution" of previous results, is no way to get there. If only it were!

Indeed, history shows that whenever society gets caught up in results over flows, the whole process tends to unwind. Many on both the left and the right are far too nonchalant about the possibly of economic breakdown - as if economic apocalypse could somehow make society "clean". In his book "Capital", Piketty noted that war broke down capital formations, but he seemed oddly okay with that, given the greater "equality" which followed. Why does society prefer war, over the work of creating economic inclusion? Is it really better to break things just because we don't believe they can be fixed? Recently at Cafe Hayek, Don Boudreaux also noted Piketty's use of language, which emphasizes economic results over flow, throughout the book.

One of the ways it's easy to tell that economic flows are breaking down, is the degree of focus on society's results, in any number of respects. Some of today's NIMBYs are a good example of this. For instance, the evening news highlighted an industrial area which - even though it had limited housing - was raising an uproar because it was about to get an influx of people with a criminal record. Pray tell, if someone with a criminal background is not allowed to live in an industrial area after getting out of prison, where might they live? It's becoming harder for people to imagine others being able to improve their lot, and with good reason. Whether good or bad, results matter more than ever: hence have become more of a challenge to overcome.

Scott Sumner provided an apt example of results focused reasoning, in a recent post that touched on regional effects. Supposedly, people felt richer because the value of their house "rose". Just the same, I have to believe the reality was different. Prior to the Great Recession, more aggregate demand existed and along with that demand, greater expectations overall. Hence the level of aggregate spending also meant that there were more simultaneous flows occurring at the same time, among different income levels. In other words, people were especially encouraged by the activity that was in motion - rather than arbitrary valuations on their home which were a result of additional monetary flows. Those additional flows - which were quite obvious - gave individuals more confidence for their own consumption and investment patterns.

Local economies can adapt for greater economic sustainability, by working with present flows of the moment and recognizing their changing nature in resource based terms. To be sure, it is up to monetary policy to maintain economic flows in a macroeconomic sense, and back societal efforts with a nominal level target. However, there are multiple aspects of microeconomic activity which need to be understood and actively worked with, in order to make sure that flows are not broken down unnecessarily.

Fortunately, there's a simple way to think about this process. Imagine both existing infrastructures and potential infrastructures which local areas or regions might elect to utilize. How much economic flow is lost, when some portions of the public don't have the resources to use existing infrastructures? If one envisions this as a mobility handicap, only think of the recent adaptations to handicaps which have become possible in a physical sense. In many instances, people have been able to regenerate movement where before, movement seemed impossible. These same possibilities exist for newly envisioned and interrelated infrastructures. This is an exciting challenge which could make economic mobility possible, once again.

Thursday, April 17, 2014

Time to Think Inside the Box

Wait, what? I say this, because too much thinking "outside the box" has become a bit tiresome. The decision making processes which pass for solutions at the margins - more often than not - contain few positives for the overall economy. Indeed, much of today's vaunted "progress" becomes an actual burden for populations, because of additional costs incurred from closely held knowledge use formations.

The end result of these limitations on our direct involvement, are governments which make it harder - rather than easier - for citizens to coordinate their lives with one another. Too many actions and policy prescriptions in the past few years, have felt like shuffling deck chairs on the Titanic. What really matters is that so far, no approach has changed the fundamental structure of present day economic realities towards a more positive direction.

Today's excuse for an "inclusive" economy, depends mostly on our abilities to consume and to be taxed - or not. Even our housing comprises a far greater component of overall measured wealth, than makes any sense. We pay the bills for our housing and its upkeep. Consequently: how is housing - as wealth - supposed to tend to our daily needs? Does government imagine it can do so, because our housing tends to so many of government's needs? How does anyone imagine more taxation out of an already lopsided definition of wealth?

Too often, it matters not how hard one works, because even the basics of life sometimes have to be set aside just to pay the tax bill. And yet, everyone knows that our governments aren't setting anything aside, in terms of their own lifestyle options. Even as policymakers continue to express concern for the middle classes, our governments have resorted to harassing many amongst the poor for what money they have - and in some cases - money they don't have. After all, it's become too easy to do so, and simply get away with it.

Recently our monetary policies have followed a similar principle, in terms of obsessing over asset margins instead of the core representation of the participants involved. For instance, plenty of tinkering around the edges has already occurred to make the monetary numbers "add up". As a result, policy makers are refusing to address the underlying issues which greatly contributed to the Great Recession. For instance, inflation targeting on the part of the Fed, is little more than a chance to "play hero" and create unnecessary drama. Meanwhile, aggregate spending capacity continues to be shorted, as governments lose the ability to envision their own citizens as a part of vital economic activity in the near future. When knowledge use is severely limited, what is the point in more education and training?

Hence while there's been quite a bit of action at the margins (coloring "outside the lines" if you will), the center holds firm, in its insistence to maintain life as it appears now. That matters at a fundamental level. Indeed, wouldn't it would be great if everything inside the boxes of our lives could stay the same! (NIMBYs unite!) Except there's only one problem with this wish which so many hold. In the near future, on this present trajectory of production exclusion in knowledge use, approximately 20 percent would be expected to set the stage for all economic activity, leaving 80 percent to beg for a few crumbs. What kind of world is that? Not one that makes any rational sense, at all. It would be like people being told they can't own land, even though they still need to eat.

In fact, a dramatic shift could be coming sooner than Tyler Cowen predicted, according to Colin Lewis at RobotEnomics in this post "Study Indicates Robots Could Replace 80% of Jobs". What's more, of the recent jobs which have been created, 73 percent of "new" jobs are at the lower end of the scale - which includes temporary positions. If we don't start thinking inside the boxes of our lives, a lot of us aren't going to have much to do in the near future that matters economically. And when our activities don't matter economically...

That's not exactly what many of today's municipalities - let alone numerous regions - are prepared for. Many of them prefer to signal (zoning, etc.) in much the same way as the regional "winners". Except, the winners in these scenarios depend on international monetary flows which don't always exist locally - even though abundant local resources can make it appear otherwise. Some municipalities have already discovered that just trying to look "rich", doesn't necessarily make it so - a lesson that more cities and towns should heed.

What's more, if they faced reality in that regard so as to create good second options, one would not see so many defaults and tawdry results, when the expensive signals fail. Unfortunately, the same building and construction issues which created tremendous marketplace rigidities, still exist. So far, the real lessons from the Great Recession have yet to be learned. In some instances, the boxes which most of us are still expected to live in, are the prime factor which holds back real progress.

Of course, some members among the elite are now insisting that governments "do something". But most of the "do something" so far, isn't connected to what citizens actually need. Indeed, the marketplace has become too rigged for the important work of economic rebalancing to even begin, for long term growth. In the meantime, many who once were such avid supporters of "free market" growth potential, have grown strangely silent.This has considerable bearing, as to why so much thinking "outside the box" was mostly wasted on finding ways to maintain the status quo, on the backs of consumers and taxpayers.

All of this is why I suggest throwing out the idea of thinking outside the box. At least for now at any rate, until a better equilibrium is established inside the box for multiple income levels. Sure, people are scared out of their wits at the idea of real change. But it's coming whether we want it or not, and we're going to be living in a very divided world if we don't examine the very core of how we live. Expectations for the future are based on what our realities are, inside the boxes of our lives. And no society can ever afford to forget what it wants to achieve now, if it is to maintain hope in keeping what it has already achieved.

Wednesday, April 16, 2014

Midweek Market Monetarist Links and Summaries - 4/16/14

Too many students in the last 30 years have been encouraged to "ignore money" (Marcus Nunes)  http://thefaintofheart.wordpress.com/2014/04/09/smile-youve-been-secularly-stagnated/
A formal inflation target has not succeeded in coordinating expectations: http://thefaintofheart.wordpress.com/2014/04/09/the-target-has-become-a-barrier/
One recession is not like the other...http://thefaintofheart.wordpress.com/2014/04/10/on-breaking-bones/
"The United States economy had an unemployment rate of 4.5 percent..." (Benjamin Cole) http://thefaintofheart.wordpress.com/2014/04/11/i-had-a-dream/
Like Mark Sadowski, I prefer a more holistic and gentler approach: Re-breaking bones is the opposite of what should be done
Time to break out the bubbly, already? http://thefaintofheart.wordpress.com/2014/04/11/jason-furman-head-of-the-cea-also-falls-into-the-only-growth-matters-trap-forgetting-the-importance-of-the-level-path/
The trend charts are most helpful: http://thefaintofheart.wordpress.com/2014/04/12/technique-without-history/ 
If the job is really done...maybe Gavin Davies can retire! http://thefaintofheart.wordpress.com/2014/04/15/missing-the-forest-for-the-trees/
Until mid 2010 they were following in Australia's footprints: http://thefaintofheart.wordpress.com/2014/04/15/svensson-is-disgusted-with-the-riksbank/

Even the press is starting to highlight this (Scott Sumner): 20% of Americans are in the top 2%
What might a third option have been? Paul Krugman on monetary policy options
Labor income as a share of NGDP did better in Germany, than in the U.S. - The British Jobs Recovery
Marcus Nunes responds to Scott - Germany remained close to the nominal trend line: http://thefaintofheart.wordpress.com/2014/04/14/there-was-no-breakdown-in-the-musical-chairs-model/
Abenomics is a reminder that growth is still possible even in a declining population: Doing more with less

Some Econlog posts from Scott:
The focus should be on "jobs, jobs, jobs", not compensation for labor: http://econlog.econlib.org/archives/2014/04/germanys_myster.html
"The highest-paid 2 percent of doctors received almost one-fourth of Medicare payments: Inequality Among Doctors

"More generally, the problem is interest rate smoothing." (Bill Woolsey) - Interest Rate Targeting and Financial Instability

Why are the long term unemployed being stigmatized? (Bonnie Carr)
http://dajeeps.wordpress.com/2014/04/13/contributing-to-the-debate-about-the-long-term-unemployed-and-taking-a-walk-on-the-wild-side/

There's a world of opportunity under all that bias...(Ravi Varghese)
http://insecurityanalyst.blogspot.com/2014/04/you-can-profit-from-other-peoples-bias.html

Why have wealth effects become smaller? (James Pethokoukis)
The Fed, NGDP targeting, and the incredible shrinking wealth effect
Questions for Scott Sumner and John Makin: How to think about inflation and deflation

"What is it with you townies?" (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/04/on-forgetting-land-in-models-of-secular-stagnation.html

Even Soltas notes that interest payments are set to grow faster in the next decade, than either mandatory or discretionary spending: http://esoltas.blogspot.com/2014/04/interest-to-deficit-to-debt.html 

Also of (Piketty) interest:

A post by Karl Smith back in February, which some of my readers may find a useful point of reference now: Piketty and the case for land capital  I only got through this FT paywall once, and I really miss reading Karl Smith, since he went to Alphaville.

Diane Coyle also provides a link to the lecture notes which Karl Smith used:
http://www.enlightenmenteconomics.com/blog/?p=3677

Speaking of reference points, Brad Delong breaks down the four r's.
http://equitablegrowth.org/2014/04/12/notes-finger-exercises-thomas-pikettys-capital-twenty-first-century-honest-broker-week-april-12-2014/

Piketty isn't measuring physical volumes, which presents a problem...(James K. Galbraith)
http://www.dissentmagazine.org/article/kapital-for-the-twenty-first-century

Tuesday, April 15, 2014

Is Obligation "Economic"?

Three words by Emile Chartier particularly intrigued me when I came across them, recently. "Obligation spoils everything." Wow, the stories that just three words can tell, especially about our economic realities! In particular, there are negative psychological components to obligation in economic activity, which deserve to be more widely recognized. Political animals sometimes die painful deaths in these rationale sinkholes.

Consider for instance, how family obligations aren't economic, and for good reason. Thankfully, housework is not a part of GDP. If it had been, how much work in familial "duty" would have been insisted upon as "necessary"? What if someone was negligent in their duties? I might have never heard the end of it on days I wanted to just enjoy myself. Or...might a house be too "hard" to keep clean for some reason? When do one's time choices and decisions simply become moral statements of preference?

Even though housework was left out of the GDP equation in the 20th century, other obligatory aspects of production and consumption have crept in to take its place. Earlier forms of economic activity tended not be so obligatory as the present, unless special interests (defined differently back then!) captured vital processes early on. Clearly, some forms of obligations also have their positive qualities. But anyone knows that when all of life starts to feel like one big obligation, some days aren't much fun anymore. Economies are no different in this regard, and public obligations aren't much more significant than some of the private ones which continue to emerge in the marketplace. One can rationalize private toll roads all they want, but I still don't like them - despite some obvious reasons they seem to have become necessary.

Some of the first economic gains, which encouraged individuals to explore life beyond one's personal circles, emerged for no better reason than they were interesting. Only think - for instance - how everyone needs time with others outside of family and "tribe", because that time doesn't require the same structure and demands of home. When economies are healthy and active, they take on a similar rejuvenating aspect. Just getting out and about in a vibrant marketplace, often goes hand in hand with the "getting out for a good time" that anyone enjoys with their friends.

But once certain forms of public and private obligations come into marketplace environments, the gains of spontaneity - let alone more positive elements of surprise and delight - can be lost. The reason this matters is that an increasing amount of production and consumption has become regimented and categorized. In other words, there is less about the marketplace of the present which is fun to participate in, than the marketplace of earlier decades. It may be tempting to shrug it off, when we hear others respond, "why even bother?" But when ever greater numbers opt out and stay  home, that eventually translates into fewer economic options as well - hence fewer social and lifestyle possibilities - in every aspect of life.

What's more, problems in this regard tend to build up slowly. Anytime a public or private interest captures a set amount of the marketplace, that cancels out other production and consumption possibilities. Economic choices eventually feel like little more than drudgery, with mere survival the prime incentive. Faced with obligations at home and in the marketplace, what is any sane person eventually going to develop a preference for? Which would be fine, perhaps, if it were possible to maintain a full economic life in a familial context. But by the most natural of economic definitions, it is not. Unfortunately, it is the choices, options and much needed innovations beyond one's personal life, which create a stronger base to return to, in one's own home and "tribe". Every NIMBY wannabee needs to take note of this reality.

Hence, some like myself miss a marketplace which once held plenty of room for all, regardless of income or social status. When I hear policymakers speak of future stagnation, I have a strong suspicion they would just as soon keep today's limited and obligatory marketplace for themselves. Even though far too much obligation was built into service environments in the 20th century, it has also slowly become a part of other product offerings as well. In particular, clothing once held vast variety. That finally disappeared and was replaced by "bargain" clothing or status signalling options -  neither of which seemed practical or interesting in the least. Indeed, this is why some with the income to do otherwise, seek out thrift stores for interesting clothing. After all, how much "thrill" is really involved, in the boring purchase of a status signal?

Once obligation comes into the picture, there is little remaining incentive to innovate or improve the overall context of the environment in positive ways. True innovative technology in our environments never had a chance, because obligations had already been targeted and defined by realtors, developers, local financiers, construction unions and finally the governments that shared the largesse. Does anyone really wonder why a full income is required to pay bills, in a business environment which now mostly prefers to offer part time work? How many special interests painted themselves into this ridiculous corner?

Obligations do have their place in life, but that place certainly is not in the heart of the marketplace. Long term growth could indeed be lost, if governments remain obliged to allow the present holders of power to define the marketplace on their terms. The question is why anyone would willingly allow that to happen.

Sunday, April 13, 2014

Land in a Whole Economy

Nick Rowe grapples with a question: how can a negative interest rate be possible in models which should include land? This provides an opportunity to explain how - at least to me - the issue of forgotten land capacity, contributes to economic problems in a number of ways. How so? For one thing, regions which are less than dynamic, tend to also correlate with individuals who often have no representation in the formal economy.

Or at the very least, such individuals are inadequately represented. These people - and this land - is part of a whole system. Therefore, both need to be accounted for in the total equation, through far more than just consumer definition or the limited resource definition of the area. While less than dynamic regions are often areas (in the U.S.) which are more "affordable" for retirees and those with disabilities, many who live here are over reliant on passive wealth holding in the form of housing and land, as the primary source of wealth.

Property holdings alone are not enough to create additional flows for the services, which these areas especially need to be able to access internally. What's more, neither are the local resource definitions which these areas rely upon. Hence, people here tend to be dependent on the service formations of more dynamic areas and handouts from national government, much as underdeveloped nations were once more dependent on developed nations. Also, youth from these areas have fewer options in the present, for moving to areas where jobs can be more readily found.

In a time frame when knowledge use is a primary economic activity, any location which remains limited to utilizing knowledge mostly for K-12 education, is going to have problems in terms of economic sustainability. Presently, these communities are forced to rely on taxation for what services they may be able to provide for one another, thus they are not able to take advantage of knowledge use for local wealth creation in a larger sense.

And yet those who live in these "forgotten" places, still have consumer roles in the areas which surround them. As retail operations now tend to cluster in more dynamic regions and automobile use continues to slow, so have these consumer roles - which consequently are also in dire need of new pathways and provisioning. If we think of land components as a complete whole, dynamic regions are but a small part, of what need to be more fully represented in wealth based terms. While aspects of healing are often portrayed holistically, this is also true of unmet capacity in a less than healthy economy. Wholeness refers both to the larger equilibrium, and the potential vitality which smaller, decentralized wholes could add, to equilibrium.

Thus,the negative equilibrium real interest rate is - in one sense - an unhealthy result of lower density land use, in which the primary optimization has become that of the most obvious local resources. Late in the 20th century, people who lived in these areas become excessively reliant on more dynamic regions for both service and retail needs. What's more, the kinds of self sufficiency these areas need to create in the present, is quite different from the more materially focused self sufficiency of an earlier era .

Indeed, much of the earlier era - if regenerated on those terms - runs counter to productivity gains. Yet lack of access to recent gains in organizational capacity, pushes people back into these lower productivity roles. Even as these underrepresented areas need better access to existing retail, they need to generate their own services, and also generate material needs with resources which exist beyond local borders. While Dani Rodrik discusses this lack of integration in terms of developing economies, the same dynamic exists between more and less developed regions in the developed world. There's just not a lot of difference sometimes, between rural tourist destinations in the U.S. and those of a developing country, in economic terms.

Once productivity came to agriculture in particular, city migration occurred. And for decades afterward a partial migration ensued as well, in that some residents eventually returned to (relatively) rural areas for their retirement years. But city migration at all stages of life has recently slowed in developed nations, as surely as migration to developed economies has also slowed. All of this plays a role in the slowing of overall growth, which some have - in my view - prematurely called an inevitable stagnation.

Still, this is an aspect of twentieth century economic life which was never effectively resolved. Rural residents fully compensated for their lack of economic access, as long as they were able. Some of today's lower numbers in labor participation, reflect an increasing lack of ability to live where work has already been generated.

Therefore, it is long past time to assist less dynamic regions in wealth creation, so that these individuals can contribute to their own stability and that of the global economy as well. What's more, this needs to happen in fluid knowledge use terms throughout populations, not just more buildings and structures to be maintained. Not only will doing so make many regions more fully engaged, the negative wealth equilibrium of the present can be resolved. It is tempting to look at land and say, look at what it is capable of producing! Indeed, this is often the case, particularly when fossil fuel production is involved. In fact, some aspects of rural production can rival what is produced in the cities.

But the fact remains: these material aspects of production, now occur with a small degree of human involvement. This is why people moved to the cities, as long as they could reasonably do so with minimum risks. Many such as myself, were once able to do so with little more than a full tank of gas and lots of motivation, because that's were the action was. Now, in a world which seems to become more NIMBY by the day, all of us need to do a better job of creating our work, where we can gain the options of living out our lives. That also means wresting the false limitations of knowledge use, from the cities where it has especially flourished.

The fact that it is not economically feasible for everyone to live in what have become extremely desirable locations, has to be resolved so that the negative interest rates of the present can also be resolved. The knowledge diffusion which Piketty spoke of, needs to also occur in low population density areas: something which has not even begun yet. Until this happens, the value of (the most desired) urban areas will only continue to rise against rural areas, as indicated by this example from New Geography. Indeed, the creation of smaller lots cannot resolve the lack of city access, because knowledge use limitation has created artificial limitations in overall land access as well.

Populations in low density areas need to become part of the organizational capacity of resource use at multiple levels, just as they were, early in the 20th century. One reason that recent focus on the growth path has become a false assurance (look, it's the return of the Great Moderation! Where's the "bubbly"?) is that the disconnect between low density and high density economic environments has yet to be addressed. Without a reconciliation of economic activity between those densities, policy makers will only continue to discount the value of economic time which - of absolute necessity - lives in all these realms in a per capita sense.

In an odd sense, static economies with a growing dependence on inherited wealth (such as Piketty imagines) could happen...it's just that this is not a desirable "dead end" for any economy. I thought about this in regard to Krugman's review of Piketty's "Capital". Krugman pointed out the fact that inequality appears to have more to do with compensation of incomes, than capital accumulation. An apt point, indeed. However, where one lives cannot help but play into one's personal perceptions in this regard. To what degree is Paris, where Piketty has spent the best part of his life, dynamic in the same income based sense as either the D.C. area or New York, which are more familiar territory for Krugman?

Why this matters for the U.S. is that a similar process could still occur in lower density and lower economic access areas of the U.S, as may have happened in France. Should that happen - a greater reliance on familial wealth, could back the assertion Piketty made. If such a reliance seems shocking to anyone who lives in dynamic regions - believe me, it was an extreme shock as well, the first time I encountered family dynamics in this regard.

These dynamics, which have a strong landholding aspect, aim to protect family members at all costs against the "intruders" of marriage formations, even though it may not be obvious to those who marry into the family until it is too late. In general, desirable land in rural areas is also protected against the "intruders" from other areas as well. When all individuals are able to rely on their own skills sets and knowledge use for wealth creation, these kinds of family and land protection, don't have to be so necessary for survival of family and community. Partly as a result of what I have encountered in less dynamic regions of the U.S., I firmly believe that freedom in knowledge use is the only way to keep freedom in economic mobility, for rural and city regions alike. What's more, when entire nations become less economically dynamic, this "protection" process starts to scale up...

For economies to remain whole, healthy and viable, land wherever people actually live, needs to be accessible to the knowledge use which came to define the wealth of the 20th century. Otherwise, desirable locations which appear scarce now in terms of potential comers, become even more scarce, when the most significant knowledge use happens within their borders.

Friday, April 11, 2014

How Fragile are Our Governments?

Since beginning this project eleven years earlier, I have especially been focused on macroeconomic concerns. What's more, the Great Recession made monetary policy a primary part of public debate, where it has remained. And - in spite of the recovery - macroeconomic issues surrounding the onset of the recession, are far from being resolved. Just the same, there are days when an ongoing emphasis on the bigger picture, presents a problem for this blogger.

Numerous times, I have started posts with the intention of detailing more specific local options, only to end up - once again - writing about the broader version of the issues involved! Let alone the fact that these are also the posts which are most interesting to my readers.

Just the same, there are times when I need to delve further into frameworks which suggest ideas for better resource coordination, locally. These frameworks already need to be a part of active and ongoing discussion - hence widely understood - if and whenever larger systems falter. And a couple of posts this morning, made me wonder a bit more than usual, about impending fragility on the part of national government. The fact remains: when governments stumble, people need to figure out better means of social and economic coordination in a hurry. This is one of those moments when the micro and macro definitions people rely on, need to intersect through better application in the marketplace.

Today's most telling example of something gone wrong, comes from the Washington Post. Seriously, did Social Security and the IRS really have to resort to making the younger generations responsible, for decades old debts of their elders? It seems unthinkable that they resorted to this, yet amazing that this odd situation has only now come to light. I used to think it was crazy - how many second hand items had to be sold, before hospital thrift store volunteers could pay for some needed technology for the local hospital. How many low income people have to be bilked for old unpaid Social Security bills, just to pay for one Washington event? Optimization FAIL.

One of the things that was once touted as a major achievement for civilization, was the fact that people were no longer held responsible for debts or deeds of family members. Indeed, I remember well my sense of relief at a young age, that humanity had progressed to that degree. Fast forward to the recent present, and a circumstance which feels oddly related to the above link. Several individuals at Social Security couldn't seem to get the facts quite right, when my mother died last year.

In recent months they have taken further cuts from Dad's Social Security, and upset him needlessly by claiming the problems were his fault - when they were the ones making the mistakes! Until recently, the issue of stopping payments upon someone's death, was readily being tended to through the banks which deposited Social Security checks. Hence, no one at the bank could not understand why they were putting Dad through the ringer, unnecessarily. He's hard of hearing anyway, and has trouble making out conversation on the phone.

Did a Social Security employee decide to bypass the normal bank procedure for reasons I'd rather not have to think about? Were employees at Social Security taking advantage of the fact that elderly customers can't possibly know, if the procedure isn't done properly? It's little things like this that are really making people leery of government... minor aggravations which nonetheless add up over time. And the fact that it took five months to deal with a straightforward and simple matter, made me uneasy. Writ large, what is really going on? I was surprised, to see the Washington Post story also highlighted on the evening news.

Is Social Security the tip of the iceberg? Let's consider another chunk of that iceberg for a moment, which is the 73,954 pages of the tax code for 2013. Growth in this behemoth has slowed in the last couple of years - thank goodness for small favors. The other link which prompted today's post was a question which Timothy Taylor asked: Is the IRS Unraveling? Over time, already complicated tasks on the part of the IRS are becoming even more complex and difficult to carry out at the speed of the modern economy.

Part of what is so difficult is that we are fighting our post recessionary economic battles on two major fronts at the same time - macro and micro. Worse, so is the Fed - which makes little sense. That is, until we remember that there is no other organized dialogue to coordinate micro and supply side issues into what are still major macroeconomic concerns. This is why I have suggested domestic summits, to fill missing gaps for coordinated supply side efforts.

To be sure, a lot of voices need to be heard and considered, before a new consensus emerges for continued prosperity. Just as there are aspects of macroeconomics which look to what can be, microeconomic considerations can be future oriented as well. And both are needed, when governments falter.