Thursday, February 26, 2015

More Musings on Human Capital

Recently I wrote about the importance of human capital from a value in use perspective. It's not enough to think about human capital strictly in value in exchange terms, for this is only part of the mechanism by which individuals - given the chance - make use of knowledge and resources in their environments. Why is value in use activity so important? This (applied) form of human capital allows endogenous or internal social formation. In turn, these social structures have the potential to augment the (necessarily limited) skills and knowledge sets sought by today's institutions.

For instance, value in use contributions are beneficial in that they allow young and old to maintain strong identity formation. Both groups have complained (in their own way) for decades, of the often patronizing consumer functions now assigned to them by an adult based, value in exchange work world. And yet who has heard? Instead, police have been called into the schools, medications are prescribed to keep students "in line", and senior citizens are simply handed more papers to sign, particularly when they are sick.

Of course, senior citizens get their "calming" medications, too. Yet how can any senior citizen be expected to "behave", when already they may not have not been expected to fully reciprocate or participate with others, for decades? Unfortunately, the value in exchange perspective, capable of rewarding primarily "the best" in the workplace, has gradually led to belittlement of old and young alike. What's more, this not only limits identity and potential economic contribution, the process places unnecessary burdens on adult populations, to care for both.

Value in use functions have a practical nature, and can provide needed services at informal levels on time based terms. The time value we assign individuals for human capital value, need not be the same as what institutions assign individuals who gain time value from set educational standards. Given the chance, people would seek one another out for topics and activities which encompass all walks of life. This shouldn't be any surprise, for anyone who remembers the earlier diversity and complexity of subject matter once held in libraries and bookstores across the U.S.

Time use quality has an endogenous nature which is different for all individuals, which is why investment and income strategies need to be different for everyone concerned. Value in exchange understandably focuses on those who utilize time most productively with a short time frame. However, knowledge value also comes from those who take ten times longer to produce a (knowledge based) product than the norm, for instance. That product might hold considerable value which exists independently of the time investment involved.

One aspect of self employment is the fact no one knows ahead of time whether investment in any form of capital will pay off, from a value in exchange perspective. For individuals with little wealth, it is sometimes better to attempt value in exchange investment which also holds value in the fallback terms of value in use. Once, homes provided fallback in this capacity, in that they could offer both value in use and also space for much needed value from personal exchange with others.

A major problem with present day zoning - for instance - is that it has become more difficult for people to invest in value in exchange endeavor which also holds a personal value in use component as a fallback measure. By way of example, if forced to choose between owning a business and a house, some would gladly choose the business, and yet they can't live on the business premises (how many have slept there at night anyway?). Too many people - especially those who may not have been self employed - automatically assume investment of any kind as some boring and reliable function. Indeed, sometimes this gets expressed in ways that make me want to pull my hair out. (Minskyites I'm looking at you...)

Uncertainty of investment for lower income levels in value in exchange terms, is one of the reasons I question investment and savings models which attempt to delineate what "specifically" happens for investment. No one knows until they try! Even activities which may appear as little more than simple consumption represent personal investment to some degree, particularly after one experiences major setbacks. Why? Because there are multiple forms of consumption one becomes less willing to sacrifice for, if it doesn't appear those consumption decisions can still meaningfully contribute to ongoing goals. Automobiles are but one major example.

Value in use environments offer more diverse complexity for human capital and time use, than what has become possible in too many value in exchange settings. For instance, individuals once coordinated time in ways that they could accomplish multiple activities at the same time, particularly when different generations lived and worked in closer quarters. This wasn't multitasking, this was just normal life!

Perhaps knowledge use systems and the time value in use they hold, might even be thought of in numerical terms. Recently, Brad Delong pointed to the fact that only three workers out of ten are needed to produce the goods we consume. When one considers that fiscal activity became a natural flow of monetary activity, it becomes evident that - if government is particularly efficient - they may expect to generate another three workers to match the initial (production) three which Delong spoke of. Basically, knowledge use value for production value, right? Unfortunately, this mostly works for middle to upper income level services.

What about the remaining four positions which are needed to generate a complete services marketplace? It is not reasonable or possible to expect business to give up profits to create work for those four as well, especially given the fact business paved the way for efficient governments to match three for three. Plus, business creates profit by selecting the "best" human capital...ahh, oh well. That leaves four working positions of every ten, which could generate a starting point for a directly compensated, value in use economy. Value in exchange investment and consumption for the formerly excluded, can then go a long way to make the difference for long term growth. There is no single time investment ratio to other forms of capital investment ratio, because no one knows in advance how much time will be required for the product they want most to present to the public.

Brad Delong suggested "Making Do With More", for Project Syndicate. Why not go much further than "making do", by making time aggregates truly optimal? Value in exchange needs value in use, in order to remain whole and viable. No one need be diminished, just because their perceived (exogenous) value isn't as "great" as those whose knowledge gains augmentation from economies of scale.

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