Thursday, December 14, 2017

Technology Will Affect Skills Compensation

In a recent McKinsey Institute report, "What the future of work will mean for jobs, skills, and wages", the authors write:
Our key finding is that while there may be enough work to maintain full employment to 2030 under most scenarios, the transitions will be very challenging - matching or even exceeding the scale of shifts out of agriculture and manufacturing we have seen in the past.
They highlight in particular that "Automation will have a far reaching impact on the global workforce." It also helps to consider what is being defined as "full employment" in this context, which is recent statistics and employment gains. Nevertheless, current employment levels don't account for what have been gradual losses in labour force participation, which were exacerbated by the downward monetary adjustments of the Great Recession. In other words, the oft stated challenge is mostly to maintain, what are already less than ideal levels of labour force participation.

Until recently, technology - more often than not - gradually led to increased output which meant further employment opportunities. But non tradable sectors tend to apply technology somewhat differently. Over time, intangible forms of input and product measure have become sheltered from general public view - perhaps for political and other reasons. As a result, it's difficult to ascertain how a wide range of resources are being measured and utilized, or how compensation is actually taking place. And when the relationship between aggregate input and output for services production becomes murky, human capital investment for specific skills use is less certain as well.

Fortunately, even though the extent of future skills compensation is in doubt, we can respond by assigning greater economic value to the use of our mutually held time priorities. Despite the uncertainties of technological change, our personal time preferences for getting things done, are important to us and for others as well. While it would be slow going at first - learning to measure and ascertain mutual time preferences - the eventual result would be organizational work patterns that are more spontaneous and transparent, than the institutional skills use patterns of the twentieth century.

Indeed, the subjective values of our work challenges and other personal commitments, would play out quite differently from the time commitments of institutional skill requirements. When we focus on time value and priorities, time management includes not just the higher skill levels our institutions seek, but also the full range of skill levels which we seek to coordinate with others in multiple aspects of our lives. And unlike the skills that our institutions sought - yet technology is now able to replace - we can still prioritize our time preferences, even as the skills we utilize, are more likely to be those ones we deem most important.

A marketplace for time value, would give voice to our time priorities. Another benefit of time arbitrage: By utilizing the time that individuals and groups actually have at their disposal, the price taking mechanisms which prevailed during times of tradable sector dominance (when resource use was more transparent), once again become possible. When individuals coordinate the time they actually have for daily activities, each hour in aggregate functions as a pricing mechanism for local group settings. Even though our time is rival (one cannot be in two places at once), the rival time/place limits of various skills functions would gradually become evident, allowing individuals to plan for what is already being provided, versus what might still be added to the overall mix of service generation.

Even though technology will continue changing the structure of present day workplaces, we all have more options for the work that matters most to us, than is currently recognized. Some of this work is complex, and some of it is simple. What's most important, is that all the work we find worthwhile, has value. A marketplace for time value, could also restore the value of our own personal priorities, in relation to others. Even though technology will affect skills compensation, it need not get in the way of the patterns we ultimately choose for out time commitments, in terms of mutual responsibilities and aspirations. Technology may pose a threat to today's skills arbitrage status quo, but it need not pose a threat to the potential of time arbitrage.

Tuesday, December 12, 2017

Broad Tightening Ahead, and The Phillips Curve Problem

Is it a lack of faith in high labour force participation levels for the near future, which encourages central bankers to continue tightening monetary policy? Or - instead - are central bankers inclined to believe that employment for all who seek it, is strong and will remain so? Something about actual employment and cumulative output gains, isn't quite adding up. According to Bloomberg:
Wall Street economists are telling investors to brace for the biggest tightening of monetary policy in more than a decade.
And it isn't just Wall Street, because other central bankers will be following the lead of the U.S. in this regard. Much of the rationale for doing so, has been based on the Phillips curve as an indicator of an "overheating" economy. But what, exactly, is overheating? Plus: Given an undue emphasis on the Phillips curve - even though its reliability is dubious for mature economies with services dominance - central bankers are likely to continue tightening monetary conditions in the near future. They appear determined to do so, even though dependence on the Phillips curve relationship between employment and inflation, has become problematic.

What makes the Phillips curve an ill suited economic indicator? Among the possible reasons, is a strong institutional trend away from price taking toward price making, in recent decades. Price making occurs at so many levels of product formation, that it negatively impacts overall productivity and investment. In particular, the employment losses which accrue from price making, aren't just a problem for societal coordination. They also make it difficult, to correlate today's supposed "full" employment levels with inflation expectations.

When tradable sector activity was still dominant, so too was price taking, as a coordination factor among many firms. The once natural tendencies of price taking, also meant firms had more options for hiring, based on the optimal resource capacity at their disposal. But as non tradable sector activity came to the fore, its organizational capacity contained numerous incentives for price making, which meant a certain degree of employment potential would be left on the sidelines.

This lost employment potential is doubtless a factor, in the gradual (long term) decline of labour force participation. Unfortunately, the Fed is paying closer attention to recent employment statistics for decision making, instead of what has occurred to aggregate employment levels over time. Indeed, gradual employment losses are reminiscent of the nominal level target losses which were incurred in the onset of the Great Recession, even though those losses took place within a single time frame.

Some are well aware of what the Fed has not considered, regarding aggregate employment circumstance and the nominal income losses of the Great Recession which were never fully regained. Even though market growth presently appears strong, investors are not quite as bullish as economists, this time around. And perhaps for good reason.

Sunday, December 10, 2017

Can General Equilibrium Wealth Become "Overfished"?

Oddly enough, yes. Over time, non tradable sectors which are secondary markets (because of their wealth or revenue dependence), can pose problems at a macroeconomic level in a mature equilibrium. Even though equilibrium imbalance is exacerbated by government subsidies, secondary market dominance can also affect the structural patterns of tradable sector activity, in ways which extend well beyond government debt obligations.

Nevertheless, secondary market dependencies on general equilibrium wealth, are presently believed to be benign, in terms of equilibrium growth capacity. Meanwhile some continue to debate whether a certain amount of government debt is reasonable, but secondary market dominance makes debt stability a moving target. When secondary markets are dominant, they continue to crowd the sectors which generate wealth as points of origination (and function like natural fish stock regeneration in the oceans). This process - in turn - further lowers the amount of government debt which could be sustainable over the long run.

Even though sectoral interdependence contributes to economic strength and complexity during periods of tradable sector dominance, this dynamic can go into reverse, once tradable sectors no longer dominate. So long as general equilibrium continues to recognizably expand output, the "common resource" of its wealth is generally available to those who participate. In these circumstance, more "fish" (points of completed wealth origination or reciprocity) are being born, than are being pulled from the oceans. But once secondary market wealth claims reach a certain point, the common resource of general equilibrium revenue becomes "overfished", and aggregate coordination begins to falter.

High skill providers of (non tradable) time based product in particular, are like "fishermen" who compete to draw from the same "ocean" of general equilibrium, or point of origin wealth. While it's problematic enough when governments become compelled to reduce their "catch", it's even more problematic when central bankers try to do so by arbitrarily reducing the size of the ocean's monetary representation. I found the image of an overfished commons helpful, for it provides clues how sectoral imbalances can affect macroeconomic outcomes. In " Natural Fisheries Overtaken by Aquaculture", Timothy Taylor writes:
Fisheries are a standard example for economists of the "tragedy of the commons". For any individual fisherman, it makes sense to catch as many fish as possible. However, if all fishermen act in this way and if the number of fisherman grows steadily over time, the underlying common resource can become depleted and unable to renew itself. In fact, this scenario has actually taken place with the world's natural fisheries, where production peaked a couple of decades ago and has been stagnant or declining since then...
There are two ways out of this box. One way is to figure out a method of limiting what fishermen catch, which would over time allow natural fishing stocks to rebuild so that the total catch could be greater in the medium- and long-run...The obvious difficulty is while it would be in the broad interest of a fishing industry to have limits on what can be caught, the practical issues of determining who should be allowed to catch how much and enforcing such decisions can be difficult.
The other approach is to have the fish-production migrate away from wild catch, and move toward "aquaculture", in which a certain body of water is no longer a common resource, but instead is owned by a fish producer. Aquaculture appears to be on its way to surpassing natural catch.
When services are generated via redistribution from other sources, for any product that is still directly connected to time value, its providers must still "fish" from the common "ocean". Hence recent healthcare mergers, while they may be able to contain costs to a certain extent, would not be able to expand the marketplace, except for where they do so without labour as a part of final product.

We could also have knowledge use production which preserves labour, yet does so by migrating away from the spontaneous "wild catch" that is increasingly limited to higher income levels and causing many groups to doubt the efficacy of formal education. Time arbitrage, since it would generate new resource capacity from within, could be likened to aquaculture in the above example. Where one's time can purchase the time of others, the process is equivalent to setting up new "pools" from which the use of knowledge and valuable skill can emerge.

Indeed, such a system would be similar to the conceptual gains of aquaculture settings, for knowledge, research and mutually valued employment. With time value as a reciprocal measure, knowledge use could be organized on wealth creating terms. And like the aquaculture example, which (hopefully) replenishes ocean capacity over time, so too, the defined equilibrium which could work to stabilize the greater capacity of general equilibrium.

Friday, December 8, 2017

Baumol Effects are Different From Productivity Gains

Why so? Baumol effects act as another form of wealth capture (or at the very least, redistribution), for the wealth of existing local equilibrium patterns. Whereas, productivity gains translate into overall additional output, for existing equilibrium in aggregate. One way to think about this: Productivity is more about gains in output, than gains in wages - particularly when and where service markets have come to dominate mature economies.

Baumol effects in prosperous communities and regions can lead to higher wages for workers in general. However: since many of these workers aren't (yet) positioned to directly contribute to local wealth origination, their local access - regardless of skill level - could be priced out of reach. Especially so, if their input potential isn't connected to a primary market or wealth origination position.

These thoughts are my response to the local wage differentials which Arnold Kling addressed in a recent post, "Are locational wage differentials also productivity differentials?" One of the issues that was debated in comments, was whether specific wages were valued more highly, because of the level of wealth they were associated with.

However, mobility factors are also important, because when local employment at any skill level ends up defined as wealth capture or redistribution functions (for existing local equilibrium), local housing markets automatically act to reduce additional access. Otherwise, local coordination could take place at a reduced aggregate time price point, along a full range of skill levels (only remember for instance that supply side limits for physicians are based on urban - rather than rural - demand and associated constraint). Again, the Baumol effect expresses the time based coordination that appears locally "reasonable" among different skills groups, once the equilibrium dimensions of primary market formation are established.

Importantly, many forms of high skill employment also act as a form of wealth capture in local equilibrium, whereby local providers gain additional monetary advantages beyond what were already established via state and national levels. In other words, it's not just low skill workers who benefit from Baumol effects, but also high skill workers, whose "complete" monetary compensation takes place in a socially or politically sanctioned secondary market capacity.

Time arbitrage could reduce the necessity of today's excessive reliance on Baumol effects, as a form of economic access. One of the potential benefits of time arbitrage, is that by acting in a primary marketplace capacity, it wouldn't detract from the primary marketplace wealth distribution of local equilibrium which is already in effect.

New options for primary wealth formation are vitally important. Otherwise, it is becoming more difficult for citizens to access - particularly via social mobility - the already existing wealth of primary market points of origination. All the more so, when much of this general equilibrium capacity is already claimed via services dominant organizational  patterns. If time could purchase time, with skill and knowledge use as part of the package, knowledge use and service generation could begin to organize as new primary market capacity. Eventually entire attitudes toward skills potential on the part of all citizens, could change for the better.

Processes such as these could occur alongside existing prosperity, and in places where relatively little prosperity exists. Granted, few have taken seriously thus far, the concept of improving economic conditions where people already live. But when so many regions and mature economies are intent on closing their doors to those who still seek access, social mobility faces multiple constraints. A newly created economy at the margin, could be the best response.

Wednesday, December 6, 2017

Notes on Productivity, Mark-Ups, and a Bold Response

This post will hopefully illuminate some common threads in my recent reading and writing. In "Productivity Growth and Real Interest Rates in the Long Run", Kurt Lunsford of the Cleveland Fed, considers negative interest rates in a context of long term productivity growth. He writes:
The results of this Commentary suggest that low productivity growth is not driving persistently negative real interest rates. The results also indicate that an upward shift in productivity growth will not necessarily lead to higher real interest rates. Finally, the results suggest that low productivity growth does not condemn the economy to low or negative real interest rates.
Even though low productivity growth doesn't necessarily condemn the economy to lower interest rates, the Fed's best approach to productivity issues, is to make certain its commitments for monetary representation are fully honoured, for all participants. Otherwise, central bankers can inadvertently contribute to needless destruction in wealth generating potential. In particular, today's (unfortunate) interest rate targeting shouldn't include Fed second guessing, as to whether existing marketplace circumstance could diminish aggregate capacity. (Especially if private sector participants become anxious to take action, which I'll explain towards the end of this post.)

Indeed, a level nominal target would not only prevent such second guessing, it would lessen the Fed's arbitrary impact on economic forecasts, and make it more likely that the natural interest rate finally turns positive. Interest rate targeting of late, includes too many judgement calls, as to whether real economy factors will worsen productivity by generating less aggregate output, in relation to aggregate input.

I've written frequently regarding services as a drag on productivity, but in some respects, services are nonetheless associated with productivity gains. For instance, Stephen Broadberry has documented services productivity in terms of organizational capacity changes:
The key to achieving high productivity was the "industrialisation" of market services, which involved the adoption of high-volume, low-margin methods to produce industrialised or mass market services.  The uneven spread of industrialised services across sectors and across countries explains the shifting comparative productivity performance of Britain, the United States and Germany.
"The Social Transformation of American Medicine" was - in many respects - a documentation of the numerous occasions when physicians resisted services industrialisation. Did the physicians' preferences for autonomy, stand in the way of productivity gains?

Our desire for personal autonomy is not the real problem for productivity, because this preference is intricately connected to how we perceive our relationships with others in all aspects of our lives. Time based product is experiential, in ways which go beyond the practical necessities of knowledge based product. However, personal autonomy can unfortunately encourage widespread price making, as opposed to the price taking that is (informally and spontaneously) suggested by the marketplace for group coordination. Only recall that price making, from a production standpoint, increases the amount of input that is necessary, before output is possible. Which means it's lousy both in terms of economic progress, and the ways in which societies coordinate mutually desired activities over the long run.

Mark-ups are just one example of the problems which arise re price making. George Lundberg, M.D. (and editor of JAMA) in "Severed Trust: Why American Medicine Hasn't Been Fixed" (2000), noted the problem of mark-ups when he wrote:
I had to do one test at a time, and the cost was passed on at a fairly high rate for those days. The hospital charged five dollars for one blood sugar analysis. Then automation entered the laboratories in the late 1950s and early 1960s. The first major instrument was the Autoanalyzer...This instrument revolutionized the chemical lab business by making it possible to load multiple serum samples from patients into the machine and to run through one after another without any handling by humans. So what happened to the price? It stayed the same. The hospital continued to charge five dollars per test even though one person, running the machine, could do fifty in the time it used to take to do one. Why did the hospital continue to charge five dollars? Because it could get it.
Standard practice now may require blood sample analysis every hour, and sometimes instantaneously. I knew many pathologists who received a percentage of all the income coming into hospital labs...Many other medical procedures have a similar pricing history. Changes are initially high because of the labor-intensive nature of developing new procedures. The coronary artery bypass operation provides a perfect example. The surgeons who pioneered the procedure spent a lot of time and money on research and development. They spent many hours in laboratories, working with animal models, to perfect the technique. The time they spent with their first patients also was intensive. Everything was new, and it all required close monitoring and attention. The total cost for the new procedure exceeded $60,000 - a reasonable price considering the investment that had gone into it.
But then more and more surgeons learned the procedure, often in the course of their regular residency training. They had no research and development costs, and their patients did not need to be so intensively monitored. In fact, the bypass operation now is the most common in hospitals, but the charges haven't moderated in many places...Over and over again in the medical marketplace, a new commodity is introduced, high prices are charged because the commodity is rare, but the prices are maintained even when the commodity is commonplace. Why does this happen? Because the patients do not know any better, the insurance companies let it happen, and the purchasers do not care or are hoodwinked. This is how the costs of care in this country have gotten out of control.
Consider these markups in a context of aggregate productivity, where input demands in excess of output potential, have macroeconomic effects. In "Aggregate productivity and the rise of mark-ups", the authors note that average mark-ups in the U.S. have been increasing over the last 20 years, which in turn has coincided with slowing productivity. They add:
Mark-ups increase firm's prices and reduces their production. A high average mark-up reduces output and depresses the demand for labour and capital, generating low aggregate employment and low aggregate investment. It reduces the aggregate labour and capital shares, and increases the aggregate profit share. In fact, increasing average mark-ups has been proposed as an important cause for the declining participation rate, the slow recovery, the weakness of investment, the decline in interest rates, and the declining labour share in the US economy.
However, the level of average mark-up does not, by itself, affect aggregate productivity. Instead, aggregate productivity depends on the heterogeneity of mark-ups across firms. From a social perspective, low-mark-up firms are too large and high mark-up firms are too small. This inefficiency in the allocation of resources across firms, reduces aggregate productivity.
Baqaee and Farhi expressed that "low-mark-up firms are too large". Might this mean that recent healthcare mergers will choose the option of lower mark-ups, as political intransigence is unexpectedly being parlayed into private action? This is what healthcare providers have actively fought off for as long as many can remember. Perhaps autonomy would not have been lost to hierarchy, had individuals and institutions not turned the gains of high-volume low-margin methods among providers, into high-margin final product for healthcare consumers.

Mark-ups. Who could resist them, while they were there for the taking, and so many individuals and organizations had the autonomy to do so. Of course the cumulative effects of countless "lucky" price makers, has doubtless contributed to recent government cutbacks in healthcare. Yet it remains to be seen how these mergers on the part of healthcare providers, will affect actual marketplace dimensions. Will we get more output, with less input - meaning, more productivity? Only time will tell.

Sunday, December 3, 2017

Medicare Cutbacks? No Rationale for Monetary Tightening

Clearly, there's problems with organizational patterns for healthcare, when losses in government support lead policy makers to assume the marketplace as a whole will be somewhat diminished as a result. Especially given basic structural reasoning, that private industry remains responsible for the dimensions of the real economy.

How many elites are giving up on economic dynamism, hence urging the Fed to adjust monetary representation downward, accordingly? In "What's Down With Inflation?", Tim Mahedy and Adam Shapiro argue that (expected) slow growth in healthcare prices is likely to remain a drag on inflation, and write:
We show that the key driver holding down acyclical inflation, and hence core PCE inflation over the past few years has been persistent changes to the health-care sector that began after the end of the recession. Specifically cuts to Medicare payment growth rates - which can affect prices throughout the health-care sector - have restrained health-care services inflation...Because health-care makes up a large share of PCE, price changes within this sector can have sizable effects on overall PCE inflation. We estimate that low inflation from this sector is currently subtracting about 0.3 percentage point from core PCE inflation, that is the measure that excludes food and energy prices. While health-care services inflation is expected to pick up in the coming years, it appears unlikely to return to its pre-recession level, which could restrain core PCE inflation for the foreseeable future.
Note first that "slow growth in healthcare prices" refers to expectations for aggregate or overall levels. However, my primary concern for this post, is with how the Fed is responding to cutbacks in fiscal support for healthcare. Given this rationale, the Fed is effectively allowing political curtailments for specific aspects of knowledge use, to be a drag for the monetary support of all economic activity. Why should political considerations for healthcare provision, be treated by the Fed as a negative supply side shock - particularly a fiscal adjustment that could prove relatively permanent? Where is the standard monetary offset to such a circumstance?

As Jeffrey Rogers Hummel indicated in a recent interview with Dave Beckworth (episode #83), "Inflation targeting doesn't do well with supply side shocks." Consider why this matters. If a nominal level target were in place, the loss in government spending for healthcare would be offset by monetary spending in other parts of the economy. As things stand, reactions to political healthcare constraints as negative supply side shocks, could make monetary policy directly responsible for the arbitrary reduction of long term growth potential.

Alas, this policy response, which does not take aggregate spending capacity into account, is an unwarranted judgement call about "necessarily" reduced output in general equilibrium. Nevertheless: When central bankers react by reducing monetary representation due to specific sectors, other areas of aggregate spending are affected.

Indeed, this central banker response could be likened to a form of unnecessary or artificial austerity, via the assumption that private interests can't maintain economic dynamism, when Washington is reluctant to maintain fiscal spending in any capacity. Are our private sectors prepared for the political fallout, should taxpayers become convinced this is the case? Already, the problems of healthcare organizational capacity, have contributed to further attacks on capitalism, in general.

P.S. Again: It's important to emphasize overall market reductions as responsible for "lower" (?) inflation in this instance. Consider the illusion of "lost" inflation in an insured family context. From JAMA, "Challenges in Measuring the Affordability of US Health Care":
The average employer plan had a premium equal to 9.2% of the median income in 1999 and increased to 18.4% in 2014.
Lane Kenworthy also recently noted marketplace limits in healthcare, when he stressed that "The share of wages going to benefits has been flat since the seventies (even though healthcare costs more), since - in aggregate - fewer employees receive healthcare benefits."

Friday, December 1, 2017

Does Education "Get in the Way" of Productivity?

Once, such a question wouldn't have even been necessary, since education has consistently added to tradable sector output gains in the past. Now however, the answer isn't as simple. One could say "it depends", since education often contributes to input requirements for final forms of time based product which are limited by their very nature. In these instances, education can contribute to excessive input, in relation to output.

How important are time based products to us as citizens, and what makes them important? Today's quality time based product, often comes with societal taxpayer obligations - many of which materialized when a larger percentage of the population held full time work with benefits. Decades earlier, extra taxpayer obligations didn't seem as burdensome as they do now. But since less work today is remunerative on those earlier terms, we'll need to reconsider in the near future, how we create the experiences and applications we desire from time based product.

After all, it's not possible to duplicate the nature of our time, and today's demands for time based product include excessively exacting terms. Still, the cumulative gains of education and productivity, play into knowledge based activities in numerous ways. Consider why a better understanding of the trade offs in education and productivity options is so important, given what these choices imply, for potentially more equitable divisions of knowledge based labour.

Recall that aggregate output of high skill time based product, depends in part on what consumers and service producers want. However, some high skill providers are better positioned than others, to protect (politically speaking) their particular divisions of labour from institutional adjustments to the status quo. Consequently, high skill knowledge providers who are well compensated, may elect not to implement technology (such as "digital cloud" spread of knowledge from one machine to another), in part because of how it would affect the nature of their human capital investments and educational institutions.

Hence education can "get in the way" of productivity, but there is also a dedicated consumer base for the practice of high skill knowledge, on these quality signalling terms. For instance: We recognize that the services of physicians are greatly valued by many individuals, in spite of any perceived shortcomings on their part. Consequently, finding more productive organizational patterns for human capital, will also involve shifts in perspective, regarding the nature of product quality and definition. When time based product is at stake, by no means is educational need a matter of simple linear extrapolation, in terms of productivity trade offs. Yet it's not so much that one's scarce time obligations are "required", or not. Ultimately, what's at stake is how we could potentially make room for both technology and human preferences, to better represent the experiences and applications we seek through direct involvement with others.

That said, what about time based product which could already be replaced by robots? In other words: To what degree would otherwise existing personal interaction, actually be missed by producers and consumers? This question isn't just a part of abstract discourse, for the elites of our institutions. It's a vitally important concern for all of us, as we need to make room in our economic circumstance for our most basic preferences and aspirations. Nevertheless: Where time based product doesn't provide useful experiential content, here's where automated replication can especially contribute to productivity and greater output, on the familiar terms of the status quo.

However, we are also concerned with achieving productivity gains via the non traditional lens of personal production and consumption preferences. Even though we can't duplicate the scarce time we already have, we can make better economic use of all our time in defined equilibrium context. In order to generate new wealth based on human capital, it's necessary to organize mutual time priorities internally, as basic economic units. Otherwise, it would be difficult for a wider range of workers to gain options for sharing the technological gains that have become integral to to time based product. Presently, those gains mostly accrue to knowledge providers with extensive human capital investment via traditional educational routes.

Education also gets in the way of productivity, due to the fact that we can't measure the input of human capital investment, in relation to the output of time based product. Taxpayer support and fiscal tools have been able to cover these gaps up to a point, but no one should not expect this coordination process to work efficiently for a full range of income levels. Even though no one can reasonably expect to measure the actual skill involved in each time product interaction, we would still be able to accurately measure the time by which lower income groups could coordinate for knowledge use settings.

At an aggregate level, the greatest productivity gains would gradually accrue, as time value and preferences "purchase" the time value and preferences of others. Since this new wealth is compensated through human capital investment cycles (economically linked educational connections), no debt or fiscal formation is necessary for what was previously part of public goods. Education in these instances would not need revenue from other existing productivity, because "learning while doing" can create its own wealth - much as what occurred on non economic terms in the past.

Today, distinctions between desired final product in which time scarcities can be safely removed, and final product where personal time is important, are being missed. Consequently, discussions regarding income inequality and lost productivity are more difficult to follow as well. This post actually began as a response to a Brookings op-ed from Jay Shambaugh and Ryan Nunn, "Why Wages Aren't Growing in America", where they write:
For wages to grow on a sustained basis, workers productivity must rise, meaning they must steadily produce more per hour, often with the help of new technology or capital. Further, workers must receive a consistent share of those productivity gains, rather than seeing their share decline. Finally, for the typical worker to see a raise, it is important that workers' gains are spread across the income distribution. If wages are rising but the increases are all going to the best paid workers, the typical worker doesn't see a gain. Two of these conditions have not been met, which explains the fact that productivity has risen while the median wage has barely changed.
Already I have written, how we will not always have the option in the future of ("suitably") rising aggregate wages via increased output, because of the ways in which a services dominant marketplace in turn limits output - especially in relation to output potential during tradable sector dominance. This is why I also suggest that instead of worrying about stagnant wages, we can do a better job of structuring non tradable sector activity in ways that more closely match the monetary potential - and the time potential - that we actually have in the present.

Thursday, November 30, 2017

Wrap Up for November 2017

"Almost two-thirds of Americans, or 63 percent, report being stressed out about the future of the nation..."

Tyler Cowen interviews Steven Teles and Brink Lindsey for their book, "The Captured Economy".

The revenue for state pension funds is continuing to dwindle. And people want to work longer to make up differences such as these, but health issues can get in the way.

A series of slides from Jason Furman, "Can Tax Reform Get Us to 3 Percent Growth?", includes many of the more commonly voiced arguments.

"...beyond sports, entertainment, and finance, growth in product market size probably can't account for much of the rise in top-end income inequality." (Lane Kenworthy, "America's Great Decoupling")
From page 25: The share of wages going to benefits has been flat since the seventies (even though healthcare costs more), since - in aggregate - fewer employees receive healthcare benefits.

Discussions re real interest rates, generally lack a long term context.

Timothy Taylor responds to some recent trade papers.

Brink Lindsey and Steven Teles on medical access:
"From 1980 till around 2005, the number of medical school slots was frozen at around 16,000 first year students, but since then expansion has brought the number above 20,000...Meanwhile, by historical accident the vast bulk of residency slots is provided by Medicare, and for cost-saving reasons the number of slots has been frozen since 1997."

Many homes that were built after 1985 remained dry.

"Machines are unexpectedly disrupting upper-echelon workers."

Perhaps specific infrastructure for autonomous vehicles isn't a good idea...

There's a problem, when retirement supposedly means we're can't produce anything, anymore.
https://granolashotgun.com/2017/10/11/a-death-of-household-productivity/ And he writes:
The majority of the American population currently lives in some version of the suburbs. This will remain true for the foreseeable future. The real question is how ever more people with increasingly limited resources under considerably more stress will occupy them - particularly as failing institutions squeeze them for revenue. This is an extraordinarily fragile and vulnerable set of living arrangements and it isn't going to end well.
Income inequality is consistent with high skill, not high scale.

What could happen when cities end up serving the interests of a privileged few?

Timothy Taylor on regional price parities.

Health issues in rural areas contribute to lower labor force participation.

Noah Smith responds to Dani Rodrik's essay regarding neoliberalism.

"The U.S. economy is digitalizing at an extremely rapid pace."

Flexibility is key for working as we get older.

A closer look at declining labour force participation for prime age men.

Were it not for domestic service industries (finance, healthcare, legal), the U.S. would be similar to Canada or Germany in terms of top income shares. Is the government putting a "fat thumb" on the scale?

Again, the top one percent are turning out to be different from the capitalists of Piketty's imagination.

We're about to enter a new chapter of the digital era. Cloud robotics is one example, where one machine can simply send knowledge, ideas and skills to other machines, via the cloud. Nevertheless, I have to square this particular advance with the fact that physicians still use fax machines to get information to other offices.

"After rising for more than three decades, the overall labor force participation rate peaked in early 2000 and subsequently trended down." Also, from Brookings on the declining labour force participation rate.

Who are the largest employers of the U.S.? (a visual)

"More than half of people caring for the elderly are foreign medical graduates." Foreign medical students are now shying away from (those Medicare "frozen") U.S. hospital residencies. One wonders, will the residencies be filled by (the recent student expansion of) U.S. born physicians who have little interest in practicing in rural areas, or for the elderly? And to what extent do our healthcare providers actively seek immigration restrictions?

Tim Harford
"Companies still invest heavily in innovation, but the focus is on practical applications rather than basic science, and research is often outsourced to smaller outfits whose intellectual property can easily be bought and sold."

AT&T had to earn the right to be a monopolist.

The average American lives 18 miles from Mom. U.S. Migration remains low, but millennial migration is finally reviving.

Too many obligations elsewhere, for government revenue to maintain the Sixth Amendment.

On central bank anonymity, JP Koning writes:
"Not only have they blundered into their role of monopoly provider of anonymity and uncensored payments, they are trying their best to pretend the role isn't theirs."

Midwives were mostly eliminated in the U.S. However, there's a problem: Less than half of U.S. counties have OB-GYNs.

Miles Kimball perceives neoliberalism as sets of specifics. He particularly highlights the Washington Consensus.

Liberty Street: What makes an asset safe?

Mass transit is looking less sustainable as time goes on.

When you've got hypothermia, so the doctor turns up the air conditioner...

Thankfully, she didn't equivocate re interest on reserves this time.

Tuesday, November 28, 2017

We Have Met the Enemy...

...but why is it us?

Regular readers won't be surprised that I define the "enemy" in this post, as non tradable or localized sectors of the economy. These sectors often have incentives to obfuscate additional growth, since current organizational patterns mean additional growth tends to dilute their own power base. What's more, the line between public and private can be thin in these sectors, since they are closely intertwined with governmental and financial activity.

Indeed, lack of transparency in terms of product output, appears as though a feature - not a bug - when it comes to time based knowledge product. The lack of services output quantification in particular, restricts the capacity of monetary and fiscal policy to meet their desired objectives. The consequent income gains, limits, and divisions for applied knowledge use, are closely reflected in the conditions of our housing markets.

Lack of transparency in turn negatively affects productivity, and worries about productivity wear on the patience of those whose endeavour doesn't personally depend on productivity gains. One consequently hears arguments from progressives and conservatives alike that "No matter, growth in output isn't all that important anymore". I disagree. Closely related to this reasoning, is the notion that transparency isn't a necessary goal. Meanwhile, some on the right seek to reduce transparency by whatever means, if only for budgetary reasons.

Our localized non tradable sectors are setting up long term problems for today's macroeconomic theories, for the revenue requirements of governments and special interests are increasingly out of balance, with the ways in which society organizes for equilibrium defining or originating wealth. Equally problematic: The knowledge based component of our non tradable sector activities is too closely connected to government marketplace activity (via private enterprise connections), to fully understand how this imbalance ultimately affects macroeconomic outcomes. Only consider how Treasury secretary Steve Mnuchin recently told CBS News "Face the Nation" that reducing government spending is "not an issue we're focused on right now." If not now, when - especially since reductions of government spending were deemed important for decades??

If anyone needs further indications that structural concerns re monetary and macroeconomic policy are being relegated to the back burner, Tyler Cowen writes about job market papers in a recent post:
The number of money and macro papers is way down. Development economics is still flourishing and expanding, even relative to a few years ago, though I worry I am not seeing many generalizable results...I'm seeing Turkish, Korean and Chinese graduate students working on the big picture institutional and political economy questions.
Small wonder that both Wall Street and enterprising graduate students reach for the economic dynamism of developing nations, as the local spending of developed nations becomes mired in the limits to growth (via production definition) agendas of today's non tradable sectors. At the very least, other countries are still fortunate enough to be able to focus on the big picture. But where might this lead, for developed nations where internal resistance to progress is quickly translating into populist confusion?

In all of this, we face increasing political uncertainty, by refusing to back away from the processes which continue to raise the bar on the local requirements of human necessity. Our politicians on either side of the aisle are increasingly unable to find any path back to common sense in this regard. If this weren't enough, the current political "solution" is reduced to finding ways for the poor to foot the bill. If the poor aren't citizens, the authorities rush to deport them. If the poor are native born but cause any sort of problem (for themselves or others), people find ways to put them in prison where their taxpayer related costs are presumably easier to contain. The War on Drugs, irrational though it has been, has become means to isolate or else deport the poor, so as to reduce budget burdens. Alas, we have met the enemy, yet we are no closer to a productive or rational response.

Sunday, November 26, 2017

Time Value as a Core Economic Principle

When asked to define basic economic principles, one of the first things that might come to mind for an economist, is efficiency in resource use. According to Investopedia:
Economic efficiency implies an economic state in which every resource is optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency. When an economy is economically efficient, any changes made to assist one entity would harm another. In terms of production, goods are produced at their lowest possible cost, as are the variable inputs of production.
Given this rationale, why has the resource of our time been exempted, in so many instances? In contrast with other resource capacity, the time of many citizens is poorly utilized - given what is manifestly possible. Perhaps the fact economics is still such a young science, accounts for the fact that our time management efforts in the workplace have yet to fully adapt to the time use preferences of others. After all, the time at our disposal for interaction with the world, is the most important resource we hold in common.

Presently, we are not even close to full coordination and effective time management for all concerned. Even though some of us are able to successfully manage our own time, we need opportunities to do so which take the optimal time management of others into account as well. The struggles that many face in coordinating mutual efforts for mutual obligations, has generated substantial political burdens. Even so, too many policy discussions take place as if the marketplace were operating efficiently for time based services provision.

Consider the Investopedia argument re efficiency, for instance. Some physicians will reason that "changes made to assist one entity would harm another", specifically referring to how changes to help patients would burden a doctor's time priorities and create additional monetary burdens for taxpayers. While this argument is superficially correct, there's more involved, since the time value of physicians and citizens was not generated via a common time resource equilibrium. Granted: It's not logical for anyone to insist that government "force" others to provide special skills on their behalf. We simply can't insist on "rights" to the time or skills capacity that others possess. But likewise, no knowledge provider should insist of government that certain skills be exempted from the possibilities that individuals might pursue via their own time and resource capacity. 

Governmental impartiality for personal freedom and skills production needs to extend to all citizens, if valuable knowledge and skills are to be sustained and preserved for the future. When production and consumption provision are confused in any supply and demand model, the result is lost efficiency, for governments and citizens alike.

Nevertheless, the efficiency that individuals seek via time based product, is essentially different from the divisions of labour in which efficiencies are management driven. When final product includes personal interaction, time compensation need not be solely an institutional cost. When time purchases time, the nature of its use becomes more effective as a cost that individuals elect to personally manage, through mutually agreed upon divisions of labour. For the time based product of time arbitrage, time efficiency would derive internally and organically, from shifting preferences on the part of all involved. Time based product is multifaceted, and its efficiency is not so much a specific product outcome, as an experiential voluntary exchange between individuals.

Friday, November 24, 2017

Growth, Output, and the Fiscal Control Factor

Recently, in "The Perennial Problem of Predicting Potential", John C. Williams of the San Francisco Fed wrote:
Potential output - the maximum amount an economy can produce over the long run - is an important indicator policy makers use to gauge a country's current economic health and expectations for future growth. However, potential growth can't be observed directly, and estimating it is difficult, even with modern, sophisticated methods. Modern policymakers are well advised to account for the perennial problems of uncertainty surrounding these estimates.
He adds:
Potential output depends on the supply side of the economy, that is, the number of willing and able workers and the amount that each can produce.
While this is true in a larger sense, regular readers are familiar with my arguments that primary or secondary marketplace positioning is also important for output and long term growth. Not only is too much secondary market positioning a long term threat, the Fed never accounted for the large drop in aggregate spending capacity at the onset of the Great Recession. What - specifically - about the supply side, might have contributed to the Fed's loss of faith in economic dynamism?

A considerable amount of growth potential is undermined because of fiscal control factors. Not only do these control elements ultimately show up as new Fed fiscal and monetary "tools", they also place further constraints on knowledge use and economic access. Meanwhile, citizens in developed nations are still being unnecessarily marginalized, due to constant revenue claims on output as it occurs. While some wealth "set asides" take place as government fiscal priorities and obligations, the existing revenue claims of the private sector are also extensive in two areas: high skill time based services, and finance.

Indeed: The recent dominance of time based services includes double uncertainties in this regard. Human capital investment is experiencing diminishing returns, as fiscal support of high skill product only enhances long term skill use differences, among citizens. Worse, policy makers attempt to hide who - and what - bears the greatest responsibility, for the human capital deemed "more capable" than the majority of the population as a whole.

Too much of the supply side now wants limits to growth, in the form of direct control over non tradable sector preferences for fiscal policy over monetary policy. Whereas monetary policy has the potential to contribute to reliable marketplace expansion and output gain, non tradable sector providers are sometimes uncomfortable with the dilution of marketplace domination which "easy" monetary policy may imply. In the past, some non tradable sector providers may have asked for fiscal assistance in part because such revenue was easier to control at local levels, than monies ("easy" monetary policy) which of course are not specifically directed towards special interests.

In all of this, what has often remained hidden, is the means by which fiscal policy has allowed some supply side participants to limit the marketplace growth they do not actually want. We need to move beyond the fiscal controls which stand in the way of long term growth and output gains. Fortunately, it would be possible to do so, by allowing high skill time based services to directly contribute to wealth creation. Even though aggregate time value as an economic unit would mean some loss of marketplace control on the part of special interests, it's worth taking the chance on renewed economic dynamism, if only to ease the political burdens of the present.

Tuesday, November 21, 2017

Musings on the Preservation of Knowledge Use

Given the vast dispersal of knowledge that became possible in the 20th century, it's paradoxical that many rights to the use of knowledge are associated with personal stamina. Today's formal education resembles a marathon race, which most individuals are expected to "run" while still young! In part, my own lack of physical stamina (not to mention fear of debt), stood in the way of completing a college degree in my twenties or thirties, since it was necessary to work full time.

Nevertheless, many baby boomers were able to complete their studies while carrying full time workloads. Who would have thought those earlier options for avoiding student debt, would become a sore spot for college students today? Not only does college now involve higher risk for human capital investment, a decade or more of student debt or extra years of study may be necessary. As one commenter noted at the linked Marketwatch article, once debt becomes a requirement for consumption, you're no longer working with a sustainable model.

But why is this the case? There's no simple answer, for there are many interconnected factors which have raised the bar not just for those who seek entry, but also for the institutions involved. For example, much as healthcare institutions in the U.S. have done, our educational institutions reach for revenue beyond national borders in ways that citizens increasingly question.

We are in need of broader economic platforms for knowledge use, which could provide more room for both practical and experiential endeavour. The current impasse is about more than excessive government control, since many knowledge use roadblocks come with the blessing of private interests, who have incentives to control the supply of knowledge based product.

Similar problems regarding knowledge limits occur with school curricula, which too often offer the same basic formats instead of a full array of learning options for individual challenges. How many valuable books have unnecessarily fallen by the wayside, as a result? In a recent blog post, Tyler Cowen noted that some of his "hidden" book influences weren't available through his formal school system. That was certainly true for me as well. When schools dismiss the value of books, authors find it more difficult to reach their intended audiences, and everyone finds it more difficult for learning to be shared and experienced with others over the course of a lifetime.

The intersection between formal education and the workplace has become so dysfunctional, that many have even become skeptical of those with a love for learning. Were we expected to sacrifice our passion for learning to the modern day czars of knowledge? Sure, it's one thing to be thankful at Thanksgiving that we don't have turkey czars. But most of us don't eat turkey very often, and yet our knowledge czars know that we imbibe knowledge in some capacity, every single day.

Sunday, November 19, 2017

The (Platform) Future is What We Make It

According to Tim O'Reilly's new book, "WTF: What's the Future, and Why It's Up To Us", that future could either bring amazement or dismay, depending on how we respond. In his interview with James Pethokoukis of AEI, O'Reilly notes that - to some extent - platforms are "designed economies", then adds:
And we have been coming out of a period in which we kind of act as if the market is a natural phenomenon.
Platforms "optimize" for different purposes. For instance, O'Reilly explains:
We understand Google says optimize for relevance, Facebook says optimize for engagement, our financial markets - what do we tell them to optimize for? - optimize for corporate profits, that treat people as a cost, to be eliminated. So, are we surprised at what's happened in the economy? What if we made different rules for that algorithm? 
For one, I'd suggest that eliminating for unnecessary labour costs isn't necessarily as personal as his quote might be interpreted. After all: Labour costs are connected to organizational patterns in ways which go well beyond specific algorithms. What's more, these patterns are essential components for centuries of progress, in the tradable sectors where labour is recognizably secondary, to the ultimate or final product.

However, the dictates of our non tradable sectors need to be reexamined - particularly where time based (or centered) product is at stake. Is it possible to use knowledge in a context where we optimize for time value? Should we seek economic environments which need not subtract human capital due to budgetary constraints, we can do so by giving an economic dimension to the time value that matches our personal priorities and preferences. Since this time value would be defined via its own (mutually determined) resource capacity, it could generate a decentralized equilibrium that responds to the "different rules" O'Reilly suggests.

Time value that coordinates for time based product in relation to existing capacity, would also provide a new organizational algorithm - one that doesn't need to subtract labour costs for economic outcomes. Meanwhile, where skills capacity is deemed most important, those most likely to preserve their workplace participation in spite of costs, will be the ones with sufficient societal prominence so as to do so. And even these groups would only be able to preserve their skills capacity for a limited marketplace in terms of time based product.

How might one think about the creation of platforms that could generate new wealth via different means? Shane Parrish of Farnam Street, brought to my attention a Rolling Stone article including Elon Musk, and Parrish highlighted this quote:
In other words, if you want to create or innovate, start from a clean slate. Don't accept any ideas, practices, or standards just because everyone else is doing them. For instance, if you want to make a truck, then it must be able to reliably move cargo from one location to another, and you must follow existing laws of physics. Everything else is negotiable, including government regulations. As long as you remember that the goal isn't to reinvent the truck, but to create the best one, whether or not it's similar to other trucks.
Similar suggestions might apply for knowledge use system platforms, from their physical constructs to their digital dimensions. Again, it's not necessary to reinvent the practical or experiential use of knowledge, but to encourage new patterns that are more accessible, for those who are currently caught in the "do or die" circumstance of limited knowledge use access. Knowledge use organizational patterns which mostly select for the "best of the best", are scarcely enough for the wealth potential of human capital. The platform future is what we make it.

Friday, November 17, 2017

Democracy's Recipe: Consumption as a Privilege, Production as a Right

I decided to state the main point of this post upfront, to make certain it wouldn't be missed. Among the many concerns of this nation's founders, was the possibility that citizens' rights to produce basic necessities and services - which they were still free to provide - might eventually be undermined through legislation. Indeed, the ability of those early citizens to work directly with a wide range of resource capacity, was a major consideration, re why a (fledgling) democracy proved viable in the first place.

Many production rights have been lost so slowly and imperceptibly, that it's no simple matter to trace the histories of what has taken place in this regard. For that matter, many believe that regulations matter insofar as they affect the options of private industry, rather than the economic and social choices of private individuals. Nevertheless: The regulatory requirements of today's building codes - not to mention the extensive requirements for knowledge use - stand in the way of much that individuals could otherwise provide for themselves and others, since special interests now encourage local marketplaces which mostly cater to higher income levels.

Equally problematic: Many individual production rights were undermined in ways which can lead to an unfortunate rationale of lost consumption rights (think "rights" to healthcare). What's more, should anyone insist on rights to healthcare, others will view this as an unfair imposition on taxpayers as a whole. From here it's a quick slippery slope to arguments that democracy isn't a suitable form of government, as Will Wilkinson highlighted in "How Libertarian Democracy Skepticism Infected the American Right".

Before the current emphasis on cost containment in healthcare, many groups made efforts to increase marketplace capacity for all concerned, but these efforts mostly turned out to be additional resources for supply side capacity as it was already structured. These efforts also led to more firmly entrenched fiscal roles to subsidize healthcare - a burden which can only be (presently) relieved through gradual reductions in marketplace capacity.

It has been tempting for governments to make production rights a privilege for special interests, particularly since this also allows them to tap into the wealth capacity of these groups at local levels. However, government indebtedness for healthcare - in part because of retirement obligations - now means little room is left for discretionary responses in other circumstance.

While it could be tempting for some to do away with democracy, disallowing the poor to vote would hardly reduce the government debt loads which still lack long term budgetary solutions. Regular readers are already familiar with my suggestion for long term debt reduction: restore production rights to citizens. Not only could a supply side response remove the confusion about consumption rights, it would reduce the chances of debt becoming democracy's downfall.

Tuesday, November 14, 2017

Skills are Merely Subsets of Aggregate Time Value

Why should it matter? When we focus solely on specific skills, we miss the potential of aggregate time value as an adaptive response to the shifting economic circumstance of the present. And while specific skills tend to reflect specialization as well, non specific skill sets are more applicable to generalization, yet both can "exist on the same continuum". Indeed, the "generalized specialist" may be one practical approach.

Aggregate (or complete) time value - given the diverse options it suggests - contains the potential of adaptive responses for individuals and groups alike. The more flexibility we allow ourselves for personal time management, the less economic risk we ultimately face. Nevertheless, it's one thing to take on diverse monetary investments to reduce risk, and another to make diverse commitments for our time priorities. For more than a century, the majority of us have learned to dismiss skills and time use diversity as a reasonable option. But is it still rational to do so?

When we accept compensation for specific skills sets over a long duration, other valuable parts of our lives can slip away from us. Employment on these terms has never been as flexible - for instance - as the schedules of the farmer, the small business owner or CEO of a corporation, or even the varied routines of those who work from home. And when highly valued skills take precedence over a wide range of practical skills, the result is societal imbalance, between our most useful versus our most highly valued functions. As individuals and groups lose the ability to coordinate time based priorities, they eventually lose the ability to adapt and thrive, as well.

In the twentieth century, the opportunity costs were often minimal, when we gave up our personal time preferences for the skills priorities sought by our institutions. Nevertheless, this scenario is already changing, as automation and technology begin to substitute for what have often been extensive skill commitments on our part. Fortunately, defining the value of our time preferences in economic terms, is a good way to frame our personal priorities in a context not unlike employer priorities, as firms continue to replace labour with automation and technology.

Personally defined time value could also serve as a valuable economic unit. After all, it is much easier to quantify what we want to provide for others, and what we seek in terms of time commitments from others, than it is to quantify the actual interchange of skill capacity in a wide range of current service contexts. Even though it's difficult to define the level or value of skill we need from others in specific instances, we can readily quantify the time we exchange with others. Given the fact today's services have become so difficult to quantify in terms of output, a simple quantification of time commitments would be a considerable step forward. A better understanding of the true potential for services output, is no small matter.

Sunday, November 12, 2017

When Signalling Becomes the Main Economic Option

Is education "overrated" as a social and economic signal? Even though college comes with a high cost, there's few other valid platforms for knowledge use, across a wide spectrum of economic activity. The fact so many choose the signal of a college degree, is also a reminder that not everyone can successfully opt for self employment, as well. One of the more unsettling aspects of economic stagnation, is that so many need to compete for what has become limited versions of a knowledge use platform in developed nations, especially given the monetary tightening that took hold with the onset of the Great Recession.

If more substantial economic options were already in place - options which could also make signalling less important - I wouldn't need to question the premise of Bryan Caplan's latest book, "The Case Against Education: Why the Education System is a Waste of Time and Money". The Amazon book review details "why we need to stop wasting public funds on education", and concludes:
Romantic notions about education being "good for the soul" must yield to careful research and common sense - The Case Against Education points the way.
Apparently his book is timely, if in fact some states are already contemplating dismantling their public universities. Given the fact Caplan supports free markets, however, his reasoning appears incomplete in a larger context. Has he considered the extent to which valuable human capital could be lost, without concerted efforts on the part of private industry to bring more knowledge and participants to 21st century workplaces?

And this is just a consideration of knowledge use in its most pragmatic forms. What about learning for the love of learning? Is not education which is "good for the soul", also good for our economic health - not to mention the real wealth of experiential product? By dismissing public education out of hand, Caplan must believe that economic progress would continue as before, only with less government support. Nevertheless, the best way to ensure continued economic dynamism, would be to generate better private means for economic access and participation. In other words, instead of taking something away, create something better. If private industry creates viable options which integrate informal education as part of their structure, populations would then have less reason to expect public education as a mandated requirement.

By itself, an argument to cease governmental support for education is a closed argument, which would quickly result in a more stratified society than we are already experiencing. I believe that thinkers on the right would gain more positive traction with citizens, by arguing for new and better platforms of economic and social engagement, which could ultimately reduce the incentive to maintain expensive forms of economic access. After all: Just as it is better to have a job in place before leaving an old job, it is better for a society to have new economic plans in place, before assuming the old plans deserve a stick of dynamite.

Friday, November 10, 2017

Are Non Tradable Sectors Capable of Exponential Growth?

In a sense the answer is yes, if one takes into account the potential long term gains for knowledge use and asset ownership which are linked to time and place. Nevertheless, these growth possibilities aren't exponential in the direct (measurable output) sense of tradable sector activity, since some of these technological and organizational gains would not need to be expressed as monetary expansion. In any instance, non tradable sector growth potential, as contrast with more obvious output from tradable sector growth, is relative by comparison. It is also this relative nature that has allowed knowledge providers to obscure the amount of input that has been necessary thus far, to achieve final product or output.

Also important are the "unseen" technological gains that are currently discussed, although with insufficient emphasis on the sectors involved. These gains particularly matter insofar as their non monetary nature should not be rationalized to reduce monetary representation, given the actual responsibilities that economic participants hold. And the same rationale of economic growth from "unseen" technological gains in today's consumption, would hold for future production gains, once they are finally able to accrue to individual production choices. One could also emphasize that technological production gains for all potential producers, are more important (economically) than the current "quality of life" consumption gains for consumers.

Consider why this matters. Today's economy remains stagnant in part because technological support for production capacity is being held back, in relation to technological support for discretionary consumer gain. Yet it is discretionary production gains, which allow individuals to bear responsibility for their own economic participation and access.

The monetary aspect of these supply side circumstance is important as well. Just as we don't need to subtract monetary representation from GDP for the non monetary consumption which results from today's technological advances, neither would we want to add or subtract from GDP, the non monetary technological production gains which could potentially accrue to citizens. Why? Again, the primary stabilizing purpose of GDP is to express the full nature of our monetary commitments to one another. Those economic commitments are for the time and product we either produce or consume, which comes with a financial cost.

Now I need to get more specific, as I wanted to highlight some incremental growth possibilities for the near future. Housing potential is the best and also most accessible example. Even though mass production of housing components is an example of exponential growth possibility over the long term, component production would nonetheless be limited (relatively speaking) in the short term by the actual physical locations in which people can live and work. However, there are a number of ways in which flexible housing components could contribute to economic growth at a higher rate than ownership of traditional buildings.

Replacement capacity is a major source of potential marketplace expansion, because inexpensive flexible housing components would allow individuals with limited income potential to replace older components which no longer function properly. They could be constructed so as to easily snap together, and they would include basic central units which already contain mass produced electrical and plumbing. Building component innovation such as this, would make it much easier for individuals with limited income to replace poorly functioning component units during times in their life when their resource capacity is particularly limited.

Indeed, one of the main problems for traditional housing, is that the fixed and solid nature of houses makes it difficult - for many on fixed incomes - to replace plumbing and electrical elements which have outlived their usefulness. Only recall this occurs too often for many who have long owned their homes, but now rely on social security as a sole source of income.

Component flexibility is important to maintain dynamic and responsive retail or workplace settings as well. Much of today's capital risk involves decision making processes regarding consumer wants and needs, which have become more difficult to "pin down" in recent decades. All too often, business ownership involves unnecessarily high risks, due to the fixed nature of building requirements. Flexible building components would reduce ownership risks so that more aggregate income can remain in play for shifts in business and educational endeavour at local levels.

What about the growth potential of knowledge use? Technology's best long run potential for non tradable sectors, would be in the form of decentralized organizational patterns, where economic time value can overcome the normal constraints of supply side knowledge use capacity. By way of example, knowledge as value in use with time value as the primary economic unit, would allow young students to participate in educational platforms which are wealth building, instead of wealth demanding. Time arbitrage would allow students to turn learning experiences into sources of (gradual) economic stability and human capital investment.

As economies grow, non tradable sectors generally follow the equilibrium creating dynamics of tradable sector activity, which are the primary movers of exponential growth. Recently, however, tradable sector activity has not had the chance to build additional wealth capacity in developed nations. Non tradable sector activity - by using resource capacity to generate wealth directly - could provide the additional impetus to tradable sector capacity which would allow it to resume a stronger growth trajectory. By reducing dependence on tradable sector wealth as a source of revenue, non tradable sectors could eventually reverse the trend of economic stagnation which has been with us since the Great Recession.

Wednesday, November 8, 2017

What Do We Want Taxes to Accomplish?

Perhaps this question hasn't been asked often enough. Yet it seems pertinent now, given the fact Republicans struggle to implement tax changes, given differences in preferences which make it difficult to reach consensus. What happened to all those discussions about the dynamism of a limited government?

From an outsider's perspective, Republicans often appear to be united in their desire for free markets, especially as they acknowledge anti-market forces among Democrats. Yet the internal divisions among Republicans in this regard, have actually existed for some time. In "The Social Transformation of American Medicine", Paul Starr wrote (page 419):
But conservatives, like liberals, have trouble carrying out an ideologically faithful policy; they too have interest groups to worry about. The insurance companies and medical profession have shown relatively little enthusiasm for the conservative program of intensified competition. And while the doctors and hospitals welcomed relief from regulation, they could not be entirely happy about plans to reduce the federal aid they were now accustomed to receiving. Cutbacks bring constraint, and competition does too; strong organizations take over the weak. And, as one president of a county medical society said at an AMA meeting soon after Reagan took office, "Our mentor has always been Hippocrates, not Adam Smith."
A similar subsidy "logic" seems to be in place for mortgage interest deductions as well. One almost has to wonder, given the continued relevance of the above quote: Could institutional ambivalence be part of a slippery slope which leads to authoritanism?

Another passage in the same chapter of Starr's book is still relevant today, given renewed hopes of encouraging economic dynamism by reducing licensing requirements. While many of us admire Milton Friedman's courage to encourage broader use of knowledge in the marketplace, Starr nonetheless wrote, "Although a few devotees of the free market, notably Milton Friedman, criticized the medical profession as a cartel and called for the abolition of licensing, this was primarily an intellectual amusement. No one seriously tried to carry it out."  Alas, this quote serves as a reminder, how many aspects of non free markets will likely remain firmly entrenched, in the economic realities of middle to upper income levels in the years to come.

Hence more than government size appears to be involved, when it comes to economic dynamism. What we want taxes to accomplish, and what they often end up accomplishing instead, tend to be two different things. If this weren't enough, gaining the revenue from taxation is pretty much an open ended game, depending on which party is in power. Why would anyone want to define optimal taxation, given those circumstances? And since few but the most diehard of libertarians has really explored what taxation might best accomplish, most anything is up for grabs in terms of the revenue sources that governments might seek. Why lose sleep over the craziness of the latest government grabs, when we've basically tuned out the craziness which came before? One is reminded of the old saying:
Don't tax you. Don't tax me. Tax the fellow behind the tree.
Among the quoted newspapers in the above linked article, one noted the issue was "solved" by Congress, when they taxed the tree as well. I had to laugh when I read it, since such an approach sounds suspiciously like present day proposals to tax robots! Oddly, these unusually honest quotes - which readily bring to mind a child's game - also speak to the fact many groups wouldn't be happy with tax simplicity, since "deserving" special exemptions would no longer be possible.

Even though it is mostly an intellectual exercise to consider what we want taxation to accomplish at state and national levels (given the various vested interests at stake) it's a perfectly valid question for economic dynamism at the margin, via defined local equilibrium for non tradable sectors. Yet time value as a new point of wealth origination, could build what is normally generated via tax support, into local ownership structures. This would be a more rational approach for individuals whose limited resource capacity means representative taxation is an expensive luxury, in the open ended nature of general equilibrium.

Consider why general equilibrium representative taxation (for lower income levels) has become such a luxury, in recent decades. Unlike the earlier forms of government subsidies which reinforced marketplace growth and greater economic inclusion, today's government subsidies of time based product - by their very nature - reinforce growth limits and the dominance of economic exclusion, instead.

These twentieth century arrangements stemmed in large part from a public desire to subsidize markets for the greater use of knowledge. However, knowledge can't be subsidized as a dependent marketplace, without turning a considerable percentage of high level skill into an exclusive commodity. Indeed, the incentives of knowledge providers to limit knowledge use in these circumstance, aren't "evil". These individuals are simply working with the constraints - or the limited revenue sources - of their secondary marketplace dynamics.

It's also important to understand this rationale, given regulations which have also originated as sources of cost containment. For instance: In a recent Econtalk on "permissionless innovation", Russ Roberts and Michael Munger wondered why something as illogical as a certificate of need should be "necessary" to get things done. Decades earlier, however, establishing certificates of need was often the only "solution" that everyone in Washington (and consequently the states) could agree upon, for cost containment. Again, Paul Starr wrote about certificates of need in "The Social Transformation of American Medicine" (pages 398-99):
The interest of state legislatures was plainly cost control. However, the main inspiration for certificate-of-need came from the American Hospital Association and its state affiliates. The hospitals, anxious to avoid other forms of control, stood to benefit from the limits on competition that this sort of regulation would create. Opposed were profit-making hospitals and nursing homes and some state medical societies, which objected to anyone but doctors regulating medical services. However, state officials, labor, and business accepted the argument that capital regulation would be an effective means of cost control.
Before the decades when healthcare became such a substantial proportion of our nation's GDP, there had been considerable hope that the marketplace could be expanded to serve not just upper and middle class citizens, but lower income citizens as well. However, had physicians and hospitals taken the approach of an expanded marketplace which relied on oft limited revenue sources, these groups would have inadvertently watered down their sources of general equilibrium revenue.

Ultimately, taxation can subsidize knowledge use up to a point, such as what the twentieth century made possible. Unfortunately however, these knowledge use subsidies are mostly available for the (possibly 25%) level of core employment groups which can effectively reciprocate for the mutual societal commitments involved. My concern is with the growing numbers who will not be a part of this core level of employment in the foreseeable future, which might come to represent as much as three quarters of the population in the U.S. For these groups, a different approach will be needed, to redefine how the redistribution of resource capacity that taxation was supposed to achieve, might actually be possible.

Monday, November 6, 2017

What Capitalism is Most Worthy of Defense?

The capitalism most worthy of defense, broadly speaking, generates useful product which otherwise would not have materialized on its own - especially when output has the potential to scale exponentially. For instance, I find it difficult to be critical of a wide range of tradable sector product, which clearly requires more coordination and detail than could readily be provided by individuals or small groups.

Whereas, one reason I question much of today's organizational capacity - especially for education and healthcare - is that reasonably equal value could be generated via small groups and in many instances, between two individuals. Organizational capacity matters, and too many knowledge based activities occur in ways which end up selling access, instead of quantifiable attention on the part of a provider for a customer.

For me, Google is a clear example of capitalism that is worthwhile. Consequently, I was concerned about Barry Lynn's disappointment with Google, although he's hardly alone. For anyone such as myself who is tech challenged, Google has supported simple platforms for online activities which I otherwise might not have been able to master, on my own. And while Amazon provides a platform for shopping, and Facebook a platform for those who are socially inclined, it's Google's intellectual emphasis which means I no longer have to rely soley on the news or my own personal library - extensive though it may be - to connect with the world.

Perhaps Barry Lynn hasn't realized, how Google has improved the lives of so many individuals such as myself who have limited resources at their disposal. Just the same, I'm glad for the times he's singled out corporations whose territorial ambitions often resulted in diminished marketplace choice. As a former grocery store employee, I personally encountered one of Barry Lynn's examples, re small businesses who lost much (already scarce) shelf space for their product, when larger corporations convinced retailers to give it to them for further product expansion. And often, when I've sampled what large corporations have to offer on grocery shelves, it turns out they're more ambivalent and less committed to new product, than the small providers whose shelf space had been lost.

However, a post from Chris Dillow, "How to Defend Capitalism" is what actually prompted my own, today. He writes:
Capitalism hasn't come into doubt because people woke up stupid one morning. It's in question because it has stopped delivering the goods. Productivity has flatlined for ten years - something that hasn't happened since the early days of the industrial revolution. That's why real wages have fallen...
Is capitalism "indefensible"? Or is too much of what has not worked well (in terms of productivity and otherwise) actually something quite different from the organizational capacity which has brought us centuries of progress?

Again, real wages have fallen not because capitalism has somehow "lost its way", but because of a rising dominance of non tradable sector activity, much of which lacks both the incentive and scaling capacity to generate growing levels of output. How can we continue broadly rising wages, given such a shift in overall output trajectories?

Nevertheless, we could still have more output than is presently occurring in our non tradable sectors, even though it would not take place at the same earlier exponential levels. But there's a more important issue at stake: We don't necessarily have to have constantly rising wages to generate further progress. The problem, however, is too much energy expended either blaming capitalism, or confidently defending it while not considering how the present state of economic affairs is coming up short.

This post wouldn't be complete if I didn't also touch on a point made by Miles Kimball, who again cites John Locke in "John Locke on Diminishing Marginal Utility as a Limit to Legitimately Claiming Works of Nature as Property". I was particularly struck that Kimball made a connection between land ownership, and the ownership of ideas. Only consider that the "ownership" of all healthcare related medical ideas, is supposed to rest with physicians. Unfortunately, what this means, is that their ownership is so extensive, they have diminishing marginal utility for the healthcare resources and ideas they don't primarily favour, which results in less marketplace choice for consumers. Indeed, the same might be said for the diminishing marginal utility of grocery shelf space for big business, as well.