Wednesday, August 16, 2017

A Level Target is Representative, Not Interventionist

John Tamny of Forbes, insists that the intentions of market monetarists are interventionist. He writes:
While they surely mean well, "Market Monetarists" like David Beckworth and Ramesh Ponnuru ascribe to the Federal Reserve an ability to centrally plan money supply which is no different from the Soviet era conceit that governments could plan production. And that's exactly what the economist and pundit are calling for, a planning of production. Their commentary is very explicit that specific rates of money growth from the Fed will lead to specific GDP outcomes.
He continues:
Where there's production, there's always money to facilitate the exchange of what's produced.  
If only the latter assertion were actually true. Just one of the unfortunate results of a slow but steady monetary tightening, is the decline in brick and mortar retail. Despite the recent prevalence of online shopping, this retail "substitute" only represents a portion of brick and mortar losses.

And so far as "planning" goes, no market monetarist predicts - nor would they want to - that a level target would lead to "specific" GDP outcomes. A level target rule would be put into place, to encourage free markets to the greatest extent possible. If anything, a level target could be thought of as the most obvious means by which to protect production which already exists.

Tamny's interventionist argument, while leveled at market monetarists, is also reflective of further interventionist arguments against the Fed itself. Nevertheless, the role of the Fed is complex, in that the use of fiat monetary representation is essentially quite new. Presently, a level target could help to smooth the process by which which the dynamics of tradable and non tradable sector activity interact with each another. Services generation has meant substantial changes to the real economy, as both fiscal and credit based relationships have become more complex.

Nevertheless, those who attack the Fed more directly, also have issues with the fact that both governmental and financial intentions for Fed policy are by no means benign. Money is vital as an institutional path, and its marketplace role needs to be more broadly understood, so as not to be continually hijacked by competing interests.

To the degree a central bank may be thought of as interventionist, also depends on how policy makers approach monetary representation. Why, for instance, do some policy makers downplay the role of money, in an institution purportedly created to provide monetary representation for a nation's citizens?

There are three competing factions within the same institution that are attributed to interventionist intentions: monetary representation, government (fiscal) activity, and financial activity. Yet the market monetarist goal, which is a further adaptation of earlier monetarist roles, is to promote economic stability. This monetary "well being" for the greatest number possible, by forming an accurate representation of all economic components, is different from the fiscal and financial activities which are always partial income claims on a given set of equilibrium conditions. Interest rates in particular, tell stories about those claims. The Fed may be complicit in such claims to the degree that it chooses to give priority to governments and/'or financial interests, for whatever reason. Of course when central bankers do so, the result can be lost monetary equivalence for society as a whole.

Fortunately, many have moved past the simplistic rhetoric of individuals such as John Tamny, but the arguments he employs can still be misleading. In short, it helps to consider context. Some groups may consider a level nominal target to be "interventionist", should it appear to prevent further spending for the preferred programs of one's constituency. Likewise, a level target might frustrate the preferences of financial interests in terms of central bank actions. When it comes to charges of interventionism, context matters.

Monday, August 14, 2017

Economics as Means to Confront Isolation

One of the main reasons I continue to promote a marketplace for time value, is to confront the social isolation which results from the restricted marketplace patterns of today's developed nations. And "solutions" such as basic income, would only add to the isolation that already exists, essentially, by paying people to give up on real societal participation - in some instances for the full duration of their lives. It's difficult for me to see how families or individuals with no economic connections, could even appreciate a guaranteed income "consolation prize". "Give it up" money mostly serves as a reminder that what one seeks to contribute to the world, is supposedly not necessary, now or ever.

Imagine how much better it would be, to monetarily compensate individuals for helping one another, and do so with our full societal blessing. What if the youth who live in areas with limited economic opportunity, could generate new wealth via the time they exchange for assisting peers and neighbors with life's daily challenges? Is this not better than standing on a street corner, selling drugs? Would it not be better than an economically imposed isolation which breeds hate, fear, violence, and resignation?

Somehow, if people were raised in a mutual assistance culture, the ever present drive by shootings that I hear about on the daily news, would surely diminish. Last night, an older gentleman only a few years younger than myself, lost his life to crossfire in the street, when all he was doing was sitting in his garage, talking with a friend. It's difficult to imagine that with a culture which considers mutual assistance as genuine wealth, how anyone would instead find need to turn to divisive identity groups, gangs and identity politics.

For centuries, people didn't need the formal economic interaction of compensated time based services. After all, there were numerous means by which to coordinate resource use patterns, which ensured that people would come together to get things done. Only as earlier coordination patterns give way to automation and technology, are we faced with the reality of a society which is quickly forgetting how to work, negotiate and reciprocate for mutual wants and desires. No dialogue regarding the future is complete, if it doesn't include a profound determination to reduce the growing isolation of our era.

Even though some still dismiss isolation as a first world problem, it's well past time to quit doing so. No one can afford to ignore that the domestic integrity of developed nations is slowly unraveling. We can overcome isolation by recognizing why free markets were such a civilizing factor in the first place. Free markets allowed people to discover commonly held interests, mutual trust, and lifelong opportunities. The non tradable sectors which have intentionally denied people similar free market options such as these, are proving to be a slow motion train wreck.

Let's don't allow the centuries long free market gains of our tradable sectors, to slip away. Let's not retreat into anti-growth dogma and the exclusionary visions of tribal identity politics. We can overcome all this craziness. Together, we can rebuild a stronger economy, one fully capable of overcoming hate and isolation.

From the America I still remember:
This is For All The Lonely People

Saturday, August 12, 2017

Some Notes on Equilibrium Corporation Rationale

Might the gig economy include a positive "endgame" for many of us in the years to come? There's at least one problem, for anyone who gains employment on these terms. Today's gig economies don't provide the forms of economic continuity, that are capable of assisting individuals with their personal responsibilities and aspirations over time.

Yet government dialogue to date regarding gig economy "shortfalls", doesn't quite capture this thorny issue. Tim Harford was supportive of a government approach in a recent post, but the "essential" government benefits he highlighted, aren't the same as the economic connections which matter for citizens in a knowledge centered economy. Plus, should governments take a benefits oriented approach (to address what employers can't provide), more imbalance would result, in terms of what I recently described as equilibrium flows. We need a new institutional approach which contributes to the total stock of equilibrium, instead of making ever more demands on the circulating revenue we still have.

Equilibrium stock growth is particularly needed, to address the looming problem of government debt. Without a proactive response in the near future, as Timothy Taylor stressed, "Pretty much everyone agrees that the US fiscal outlook for the long run--a few decades into the future--looks grim unless changes are made."

Fortunately, a better utilization of human capital, would address the ongoing budget dilemmas of the present. No one can expect taxation to redistribute wealth to everyone, when only the skill sets of a relative few are even being tapped on economic terms. Even now, the wealth of human capital potential, is still being subtracted from the total equation. A better approach is needed, which can ultimately return human capital to the total wealth equation.

Today's non tradable sectors have limited both production and consumption, through a process that can be described of as making the "perfect" the "enemy of the good". One needs highly regulated "perfect" homes and skill sets, increasingly, just to live a normal life. Alas, this "perfect as the enemy of the good" scenario, is the very definition of economic stagnation.

Budgetary entitlement costs, for instance, are being squandered on time centered services markets which were never designed for full inclusion to begin with. Yet by the time many individuals realize the underlying problems for these markets, they are already well past the age when one might normally choose a career path, to focus on structural solutions for these areas.

Hence there is a complete lack of market design that would allow older individuals to negotiate for simpler time based market options, instead of the high cost default positions of the present (such as ambulances, life flights, hospitals, and nursing homes). These default scenarios can hardly be considered markets in the true sense of the word. And since there's little formal economic definition for simple assistance, people often "go without" until their situations become dire. I found myself wishing that Noah Smith could be put into a time machine, when he recently argued that we didn't need more markets, How would he feel if he grew old, with no family or friends nearby, and had insufficient formal economic means by which to feel comfortable in negotiating with neighbors for assistance?

This is what happens in too many local communities, in which citizens are inexplicably expected to run to the nearest city (or further), every time a problem arises. We would all benefit from simpler market patterns close to home: casual, but still formal economic arrangements, by which we could negotiate for the simple desires and needs that make a life. We live in a world where our family and friends either live elsewhere, or have the kinds of obligations that make it difficult to provide such measures. Yet without a marketplace for mutual assistance, people needlessly go without, so as not to unduly "impose" on others.

The lack of a local marketplace for services diversity, means problems which go well beyond what people such as myself experience as we age. These are the local economic options that could benefit young people, in the years when they are preparing resource capacity for adulthood responsibilities. Yet these are also the local economic options people need, when they wish to spend their prime working years in the communities where they can maintain close ties with family and friends.

Not everyone can chase after the desired jobs of the cities, as centralized productive agglomeration drives up the costs of economic access. When societies don't remain proactive to economic circumstance as they (inevitably) change, informal economies spring up in their place, such as has unfortunately occurred in Mexico. And not every informal economic activity is conducive to civility and progress. Lest anyone think informal economic devolution couldn't occur here, it's still an eventual likelihood for economies that are too taken for granted, as if the golden goose will never cease to lay its golden eggs. It may be that the process of devolution begins with illegibility.

Adaptation in the present, would include a thorough reexamination, as to how a safety net might strengthen and maintain our stamina to remain economically and socially engaged. Among the most important qualifications of any safety net, is that it gives individuals a reasonable chance to maintain constancy in their routines and organizational patterns. Any time in life we end up with little choice but to set aside the economic patterns we rely upon, often the skills sets we are working on in these time periods may be temporarily set aside, if not completely abandoned. One of the most important functions an equilibrium corporation could provide, would be communities which serve as platforms for economic constancy, through the mutual employment of broad services diversity.

Without economic consistency in our lifetime efforts, many of us experience episodes when it proves difficult to maintain logic and consistency - either for ourselves or for others. In spite of what each of us endures, what others remember most, is how we react to unfortunate circumstance. In other words, it doesn't matter what life throws our way, others will remember how our response impacts them. Indeed, I've been trying to move my blog towards a more positive stance, in part to compensate for the negative impressions I inadvertently left on others over the years. Without a strong economic foundation, it only becomes more difficult for people to keep the promises which are so important for personal integrity. Perhaps we can build a new institutional economic foundation, which could make the preservation of a logical and rational society, a more realistic possibility.

Thursday, August 10, 2017

Say's Law Musings and Equilibrium Effects

The much maligned law of markets may still have useful applications for equilibrium dynamics. Often, discussion revolving around Say's Law has been an attempt either to affirm, or negate, its existence. But what if there are subtleties involved, in which this classical construct functions, at a certain, critical point? Do the supply and demand relationships that exist between tradable and non tradable sectors, hold important clues for output potential?

After mulling this over the past few years, I thought of a way to frame how Say's Law appears to function: via what I'll call "equilibrium stock" and "equilibrium flow". These terms differ from the normal usage of stock and flow, which is also important since in traditional definition, stock lacks a recognizable alignment with flow at a macro level.

In GDP measure, as far as I can tell (please someone correct me if I'm wrong) we don't yet have a way to conceptualize how differences between stock and flow affect output. Why? Because traditional stock accumulation has little definitive active economic context. Plus I'm still crazy enough to imagine that a better macroeconomics can keep our society from falling off the edge of a cliff, given events of late. Here's Wikipedia:
A stock variable is measured at one specific time, and represents a quantity existing at that time (say, December 31, 2004) which may have accumulated in the past. A flow variable is measured over an interval of time. Therefore, a flow would be measured per unit of time (say a year). Flow is roughly analogous to rate or speed in this sense.
For example, U.S. nominal gross domestic product refers to a total number of dollars spent over a time period, such as a year. Therefore it is a flow variable, and has units of dollars/year. In contrast, the U.S. nominal capital stock is the total value, in dollars, of equipment, buildings, inventories, and other real assets in the U.S. economy, and has units of dollars.
Whereas, equilibrium stock would consist of product which is derived via internalized costs, for product which has not been previously sold (the time arbitrage I've suggested would function this way as well). Theses costs can be readily discerned, and while they generally take place within one institution, in some instances they may be coordinated with other institutions, so long as product costs are met as product enters the marketplace.

Product which takes place in these circumstance, establishes the perimeters of a given marketplace equilibrium, whereby additional flows take place. In other words, output gains for this "first marketplace" position, is when increased equilibrium supply can meet (the overgeneralized Say's Law interpretation of) increased equilibrium demand.

Unlike equilibrium stock, equilibrium flow is externalized, so that cost and output patterns cannot be readily discerned at the time of marketplace entry. While I've emphasized the example of government compensation for time based product, even government expense for tradable sector product is subject to this equilibrium constraint, in terms of already existing aggregate spending capacity. Distinctions such as these could apply to endless debates re government restrictions on growth potential, since plenty of private activity is also further riffs on equilibrium flow.

For purposes of GDP, equilibrium stock would categorize what is internally or recognizably purchased at the time of marketplace entry in the previous year, because this holds important clues about existing flows, which are important for monetary representation as the currently existing agreements which economic participants seek to uphold. Why return Say's Law to ongoing dialogue? It's not enough to explain that new income generates new income (arguments which essentially "replaced" Say's Law), without considering whether income derives as a source of equilibrium stock or flow, in the previous year.

One reason why a "natural" interest rate can appear as though negative: far more economic activity may take place in terms of equilibrium flow, instead of as equilibrium stock. Nevertheless, there are important reasons why some prefer less output, if that is necessary to control what derives from a dependent, or secondary, market position. Importantly, supply side factors which control how knowledge is utilized in the marketplace, carry more ongoing responsibility for employment limitations, than the missteps of fiscal and monetary policy.

Consider that the only equilibrium stock component of real estate, is new building construction. So far as real estate is concerned, mortgages, "reused" land, and rent are all components of equilibrium flow, since they function as claims on already existing income and/or resources. Yet even the equilibrium flow element of land costs, simply tells a value story about scarcities in productive agglomeration. Indeed, this is why I have doubted the efficacy of land taxation as a reliable revenue source.

Also note that incentives for the entrepreneurs of non tradable sector activity in a dependent market position, are not the same as incentives for tradable sector entrepreneurs, who gain from output expansion. In part since a dependent market position only encourages non tradable sectors to limit both supply and employment, those earlier supply and demand structures appeared less relevant, as non tradable sector activity began to dominate the marketplace.

Fortunately, a marketplace for time value, or time arbitrage, could restore entrepreneurial incentive for both output and employment. I believe that time arbitrage could give Say's Law greater validity in the future, than what has been possible since the secondary market dominance of the 20th century.

Tuesday, August 8, 2017

Thoughts on Wage Stagnation and Resistance to Inflation

Just as many pundits and policy makers became intolerant of any inflation, so too, have plenty of citizens. Even though the Fed acknowledges these concerns (via gradual monetary tightening as far as the eye can see), far too many observers still describe monetary policy as inflationary. What some individuals recognize as necessary monetary accommodation for mutual obligations in the marketplace, others conflate with Fed recklessness and asset bubbles.

Why have populations become so intolerant of even small amounts of inflation? One reason is the lack of wage growth in recent decades, which in turn makes the prices for some of life's most basic necessities, more difficult for lower income levels. Unfortunately, much of this lack of wage growth, results from lower aggregate output levels, due to the required inputs for the non tradable sector activity which is responsible for much of today's marketplace bottlenecks.

It is not emphasized enough, how the rising output of tradable sector activity in particular, contributed to rising wages for centuries. The fact we cannot rely on this dynamic in the present, means that many related relationships for monetary flows have also changed. Even though non tradable sector activity cannot be expected to achieve output on the exponential terms of tradable sectors, substantial output gains are still possible for non tradable sector activity, which could bring these sectors back into a better balance for output and long term growth.

Much of today's non tradable sector activity could be organized so that it does not generate a constant level of internal inflation. If populations were actually able to benefit from good deflation in housing, healthcare and education, no one would even have cause to worry about inflation. In the meantime, non tradable sector prices are exacerbated by Fed tightening, since today's organizational structure only leads to further scarcities in basic consumption necessities such as housing and time centered services.

Due to the structural nature of the present day economy - in which non tradable sector activity remains dependent on tradable sector activity - there are real problems, when overall growth stalls and inflation is discouraged at the same time. In particular, government debt - which has become responsible for much of today's high skill knowledge use - remains dependent on a level of growth which is no longer occurring, and citizens are understandably resistant to any further taxation, since their wages remain stagnant.

Fortunately, there are proactive ways to respond to today's economic impasse. However, doing so, means addressing wage stagnation in ways that increase the consumption potential of real wages, instead of succumbing to money illusion. If non tradable sector activity can be generated which borrows from the long term good deflation patterns of tradable sector activity, much of the social and political pressure of the present, would be alleviated. Since wage stagnation is not going away any time soon, the best anti-inflation approach we have, is one that is capable of producing real gains in wages, through the innovation of our non tradable sectors.

Sunday, August 6, 2017

Is a Natural Rate of Interest No Longer Relevant?

Perhaps the concept of a natural interest rate, is a less important consideration than it once was. After all, much has changed since Wicksell made this contribution to monetary theory. For instance: In a recent interview with David Beckworth, Scott Sumner mused whether the new economy - services dominated as it is - might also affect variations in what appeared as though a natural rate. At Econlog, he writes:
Economists define the natural rate of interest as the interest rate that is expected to deliver a level of aggregate demand which is conducive to macroeconomic stability. Wicksell thought of macro stability in terms of price stability. So he defined the natural rate as the interest rate likely to lead to price stability. But there are as many natural rates as there are theories of macroeconomic stability.
Of Wicksell's interest theory, Henry William Spiegel ("The Growth of Economic Thought") explains:
In his explanation of changes in the price level Wicksell fell back on the rate of interest, in itself not a startling idea since there was a tradition of long standing, extending from Ricardo to Marshall, which recognized, besides the direct influence of the quantity of money on prices, an indirect one which operated via the rate of interest. If the quantity of money increased, so this argument ran, low interest rates would be accompanied by an expansion of credit, and borrowers would bid up prices when putting their new financial resources to use. High and low rates are relative terms, however, and the argument did not provide a standard that could serve as a criterion whether the interest rate was high or low. Such a criterion Wicksell made available by distinguishing between the "natural" rate of interest and the loan rate. The natural rate was the expected rate of return from newly constructed capital, whereas the loan rate was that which borrowers were charged by the banks. As the two rates diverged, for example, if the natural rate exceeded the loan rate, a "cumulative" process ensued in which prospective investors, eager to maximize profit, bid up the prices of productive resources, causing in turn money incomes and the prices of consumer goods to rise. In the case of an excess of the loan rate over the natural rate, the cumulative process would move in the opposite direction.
Note especially the "expected rate of return from newly constructed capital" in the above quote. This approximation of economic activity held important clues for optimal business investment, hence served as a precursor to today's marketplace expectations.

Nevertheless, much of the earlier contribution of bank loans to aggregate output gains, has diminished. Today's banking plays a smaller role in wealth creation (via traditional manufacture in particular) than before. Consumer based loans - much like the present organizational capacity of time based services - have instead become part of the institutional apparatus which makes further demands on already existing income. While banking activity remains an important part of monetary flows, loan formation is less likely to contribute to the most dynamic sectors of the economy. Consequently, the financial role of banks in investment decisions, aggregate output potential, and long term growth, tends to be overemphasized.

How might the relative dominance of service sectors (since the twentieth century), also affect this scenario? While some non tradable sectors use automation to reduce the costs of - hence "need" for - time based product, this approach doesn't necessarily increase total output. In other words, despite what can appear as though productivity gains because of firm profits, automation for time based services will in some instances play a role in diminished aggregate output levels. Again, like consumer loans, time based services as a secondary market, is institutionalized demand for already existing income - rather than additional output - in a general equilibrium construct.

Another way to reflect on the importance of these structural shifts: remember the importance which Keynes attributed to the role of investment in connection with interest rates, in his arguments for "The General Theory". Today's investment is less driven by a commonly understood interest rate environment for capitalists, than was previously the case. In any instance, lending interest rates have always been the cost of credit, not of money. Why else would individual rates vary so widely, according to perceived consumer risk?

There are other problems with the rationale of Keyne's time, as well. It has gradually become more difficult - especially due to the crowding effects of non tradable sector requirements on demand - for fiscal policy to contribute to economic dynamism. Further, these consumption demands have created a greater "propensity to spend" across most levels of income. While these circumstance hold multiple implications, they also suggest why a level nominal target is more likely to contribute to economic stability, than the interest and inflation based indicators of the present past.

Friday, August 4, 2017

More Rationale for Formalized Time Value

Could some of today's lost labour value - which manifests in low workplace participation - become more closely associated with economic time value? Since the turn of the century, evidence is growing, which suggests a change in perspective might be helpful, regarding our economic interactions with others. For instance, a working paper from the IMF, offers further quantification of a declining U.S. labour share. From the summary:
The U.S. labor share of income has been on a secular downward trajectory since the beginning of the new millennium...We show the decline in the labor share is broad-based but the extent of the fall varies greatly...We find that in addition to labor institutions, technological change and different forms of trade integration lowered the labor share. In particular, the fall was largest, on average, in industries that saw a high initial intensity of "routinizable" occupations: steep declines in unionization; a high level of competition from imports; and a high intensity of foreign import usage. Quantitatively, we find that the bulk of the effect comes from changes in technology, that are linked to the automation of routine tasks, followed by trade globalization.
Due to their internalized revenue structure, tradable sector institutions are the first to respond to the pressures of employment costs, in order to remain competitive at a global level. Nevertheless, even local forms of non tradable sector activity, face external revenue pressures in the form of political wrangling over budgets. Often, instead of moving towards the automation which tradable sectors employ, non tradable institutions will sort (the publicly sought after) personal time based product into peripheral employment categories. In other words, administration is more likely to remain the fully compensated non tradable sector core, in response to budget pressure.

Clearly: In all of this, some aspects of the old formula for land, labour and capital are beginning to shift. Even though human capital is vitally important in the 21st century, both the specific skill emphasis and the dependent status of today's non tradable time based product, make it increasingly difficult to fully optimize human capital in a general equilibrium setting.

In alternative equilibrium settings, a marketplace for time value, would also coordinate for mutually desired time priorities. The need for such options only became evident recently, due to earlier widespread assumptions that institutional employment mostly "replaced" personally managed time priorities for many employees. For instance, personally defined labour utility was previously explored by W.S. Jevons, and Henry William Spiegel also explains in this passage (re real time costs), why personal time preferences were not given careful consideration:
He visualized work as initially irksome but becoming pleasurable over a certain range of hours of moderate length. After this range was passed, labor would again become irksome and increasingly so with a longer number of house. Work would come to a stop when the falling marginal utility of the worker's product or of his wages was exactly offset by the increasing marginal disutility of effort. If work ceased later, the marginal utility of the product would fall short of the marginal disutility of labor, and total utility could be increased by a reduction of working hours. Jevon's analysis, ingenious as it is, has exerted little influence on modern economic thought because it is grounded in the unrealistic assumption that hours of work are under the control of the individual worker.
Even though our ability to personally manage time is important for total factor productivity, today's institutions are not designed to capture many of the time preferences which could be aligned between individuals and groups. Also closely related to choice factors such as these, are the wide income disparities which affect personal time choices for the production and consumption of practical and experiential product. Whether or not one chooses life enhancing active experiential roles, largely depends on the already existing economic claims on one's personal time. Society is already beginning to question more costly forms of experiential product which are presently framed as economic access.

While a total factor productivity framing for time management didn't appear necessary in the economic settings of Jevon's lifetime, much has changed since then. Only consider that given the fact people now invest in human capital for future work as a desirable product, one's ability to coordinate time effectively, can greatly contribute to a productive outcome. Indeed, some have forgotten how business leaders such as Charles Handy were already stressing before the turn of the century, how we would all need to become more responsible for the personal management of our time and economic contributions to society.

Human capital has the ability to become a more substantial component of wealth, than is presently the case. How to think about human capital as a central production feature? While many have described production processes as the utilization of land, labour and capital, time centered services production can be thought of place, time and applied human capital - all of which function as a vessel for knowledge dispersal.

Building mutually desirable sets of time value, involves a process of discovery which would initially appear as though inefficient. Nevertheless, this is the way that any new organizational process begins, and what's important in this regard, is that the kinds of productivity gains that are possible, can be thought of somewhat differently from those which are externally defined. Gains in economic time value, also have considerable bearing on one's personal requirement for a reservation wage. As Tim Harford notes in a recent post: the work we do in the future, needs to be sufficiently lucrative to compete with today's gaming realities.

There's another benefit for a time centered marketplace which goes beyond the gains of personal well being: The ability of matched time value to relieve the often unnecessary pressure of knowledge valuation, thereby bringing knowledge dispersal out of a (too) dependent non tradable sector position. Since matched time value is a self contained input and output mechanism, it allows the varied dynamics of both experiential and pragmatic value, to be captured and recorded in a single unit of measure.

Fortunately, it's not necessary in every instance to conceive of the full value of what is contributed and received in each instance of knowledge or skill use, especially insofar as recipients only need increments of skill and knowledge in any given moment. Too much coordination potential has been lost to extensive human capital preparation, with no personal ability to economically reciprocate during the entire process. By making use of time as prioritized measure and personal management, real gains in services generation and personal time preferences, are possible.

Wednesday, August 2, 2017

The Democracy That is (Still) Possible

Might democracy as a concept, ultimately fail us? Only remember how the more recent historical version of democracy began, when citizens largely held the means of personal production potential. Scarce attention has been paid to the slow but steady loss of this capacity. Nevertheless, it's a loss which could still be reversed, so that democracy might once again be associated with means, instead of outcomes. After all: As outcomes are increasingly called into question, so too, the fiercely contested revenue of identity politics.

Readers are familiar with my arguments that where real democracy is possible, it includes our direct participation, alongside new wealth creation via time as measure. Hence I was dismayed with "The Sovereign Myth", where Jacob Levy argues that we never had democratic control of our lives, to begin with. He concludes:
Those of us, hoping to see decent liberal democratic constitutionalism in the future have to proceed differently. Yes, there has to be hope for a better future, but hope is not the same as autartik, nationalist or democratic sovereign control. There are hard questions about how we psychologically coexist with large-scale, impersonal social, cultural, and economic forces that are genuinely outside of anyone's ability to just decide. Indeed, I've recently argued elsewhere that we need to think of politics itself as a result of human action but not human design and decision, which even those who understand spontaneous and emergent orders in economics and society have been reluctant to do. It's difficult to come to terms with. But however we are to manage the difficult psychological task of navigating currents that we didn't decide into being, the first step will be understanding and admitting we didn't decide them.
What concerns me most about his assessment, is it seems to suggest all would be well, without a proactive response from the public, regarding economic circumstance. This is particularly misguided, in a time when people need to be part of the decision making processes that arise as automation becomes a more substantial part of the workplace. While he is right (if inelegantly stated) about the impersonal effects of tradable sector activity on economic outcomes, this does not change the fact that non tradable sector activity - if it is ever to gain the fortuitous status of a free marketplace - needs the direct democracy of our own participation and decision making processes.

The ultimate mistake is an assumption that all individuals need not carry through meaningful economic roles at the daily level of their lives, because this is the core of civility and a strong civilization. Even though tradable sector roles lie beyond the control of individuals and governments alike, it is our non tradable sectors that could provide the real hope for the future, especially as decades of wage stagnation point to the need to design an equilibrium template which can lead to substantial gains in real wage potential. This is a level of planning and design that lies within the grasp of the individual, where decision making processes for asset formation and time based knowledge use, need closer alignment with the self interest of each individual involved.

Without meaningful means of mutual cooperation in the functions that correspond to time and place, citizens will only become more disinclined to support the institutional roles of the present which are necessarily impersonal. The freedom of our tradable sectors, and the dynamism they have made possible, have yet to be reflected in non tradable sectors which have not only turned the citizens of nations into hostages, but have left them with too few means to tend to their own ability to thrive.

Democracy is still possible, but its possibility is nothing less than the potential for free markets in the use and aspirations of our own time. These are the platforms for freedom which have yet to be designed, and the spontaneity which has yet to be discovered. Each of us has the ability to become an entrepreneur of our own human capital and time management potential, if our governments can only trust us to successfully make the transition.

Monday, July 31, 2017

Wrap Up for July 2017

Sometimes it takes more than confidence to improve an economy. In "Confidence Boomed After the Election. The Economy Hasn't", Neil Irwin asserts that psychology is only loosely connected to actual growth.

James Pethokoukis interviews Richard Reeves, author of "Dream Hoarders"

Douglas Campbell suggests that Ben Bernanke could be "in a bit of denial" regarding slower GDP growth.

The "gap model" just doesn't work.

Congress and the Fed need to have an "intelligent conversation on monetary policy".

"...about two-thirds of world trade now is involved in value chains that cross borders during the production process."

How the Fed changes the size of its balance sheet.

Pseudoerasmus discusses pro-social institutions

Bill Woolsey explores the possibilities of NGDP targeting in a small open economy

As more funding for social programs reverts from Washington to the states, disability insurance has increased in some states even as funding for other programs has shrunk in the past decade.

Let's not forget the direction he took in 2008...
"The moment before the patient needed emergency surgery, Warsh and a few of his colleagues were getting ready to discharge the patient from the hospital."
And a response from Douglas Campbell

When required qualifications really start to get in the way of societal coordination...
"Our economy needs more alternative career pathways that don't require piling up more academic degrees as a  starting point."

Job creation could be as much as 23% below the long-run trend.

From a growth accounting perspective, weak total factor productivity is the major issue.

Nick Rowe imagines monetary policy for a central bank with no balance sheet

David Beckworth:
Due to the knowledge problem, Fed officials may not know in real time, what kind of shock (supply or demand) is causing changes in inflation.

The inspiration of trial and error

Scott Sumner says goodbye to Boston and shares memories of the cross country journey

Timothy Taylor looks at the cycles of cities

Hayek mistakenly thought that deflation would have structural benefits

Neoliberalism has something for everyone

Poorly thought through legislation can be reminiscent of the damage tight money inflicts on populations: Dismantling extensive services production - without the creative destruction of service production alternatives - would presently leave a diminished marketplace

In "The Growth of Economic Thought", Henry William Spiegel stressed "There can be no measurement without theory". I was glad to note Roger Farmer emphasize the same in a recent post, "Post-Keynesians and New-Keynesians: A Lesson From Evolutionary Biology"

Timothy Taylor highlights a recent paper, "Total Factor Productivity in Advanced Countries: A Long-term Perspective"

How extensive is Venezuela's economic catastrophe?

Sunday, July 30, 2017

Maintaining Strong Tradable Sector Connections

By tradable sector connections, I'm referring to the need for individuals and groups which take part in knowledge use systems, to support as many tradable sector activities as possible.

Plus: An important aspect of discretionary income for these participants, is ownership in the building and infrastructure components which are integral to equilibrium corporate structure. Not only does this ownership supplement the base commodity (time arbitrage) wage, it is flexible and need not be specific to a single (tradable or non tradable) sector application. Options include shares in company manufacture (also for markets beyond knowledge use communities), and the ways in which components and infrastructure are locally applied.

While time arbitrage does not compete on the open market in general equilibrium settings, the building components of equilibrium corporate activity, would function as a part of any markets which permit the necessary regulatory adjustments for their use. These products don't pose a direct threat to other markets, because their function and purpose is quite different from dense and heavy building materials which are designed solely for specific settings. Knowledge use systems would also align with traditional forms of tradable sector activity, to provide as many lifestyle and traditional employment options for its residents as possible.

Why are tradable sector links so important? Even though time arbitrage creates a platform for mutually sought skills and challenges, this form of wealth generation is nonetheless limited by the finite nature of the time at our disposal. There are good reasons, why economic thought has emphasized tradable sector activity over services. Even though personal services have always been important, were it not for the spread of tradable sector activity, the path to opportunity for so many, would have been exceedingly difficult. Tradable sector wealth led to centuries of gains in living standards, and generated positive global connections. When local communities did not have sufficient room even for the inclusion of their own, the spreading wealth of tradable sector activity, often meant the possibilities of new horizons for these individuals.

Tradable sectors would benefit, from the use of knowledge as an interdependent role. Time value as new wealth, allows for the dispersal of knowledge in ways which are no longer dependent on availability of tradable sector revenue, in order to take place. Importantly, this would allow both employment and output to develop via more natural means, without the crowding out effects that often occur between tradable and non tradable sector activity. Presently, no one really knows the level of output that is possible, because of the ways these dynamics play out in general equilibrium conditions.

To sum up: while our time links to other individuals provide discretionary choice for services generation, our tradable sector links provide discretionary choice for the resource capacity which has so contributed to the progress of recent centuries. No one can afford to confuse goods coordination, with the coordination of time based services. These forms of resource capacity, are different in every way imaginable.

Governments in particular have stumbled, by trying to mix the dynamics of non random time with random resource capacity, in centralized settings. Governments lose entirely too much fiscal policy potential from tradable sector revenue, given their extensive requirements for non tradable sector participation. It is vital to understand how the output of time and place might be encouraged locally, so as to prevent unnecessary output losses in tradable sector activity at global levels.

Friday, July 28, 2017

Time vs Labour Value: The Differences are Important

If we are to successfully transition to a 21st century economy, a  better understanding of our time value, could contribute of the process. A marketplace for time value, would especially assist those whose time value is otherwise insufficient, to coordinate with others for the time based services that contribute to the fulfillment of one's own goals.

A marketplace for time value could also help fill the void, which results whenever high level skills compensation becomes reduced through automation. One problem with a declining labour force participation rate, is that individuals caught in this process, can lose the ability to meaningfully reciprocate with others. By visualizing time value on more formal economic terms, not only would individuals become better able to preserve their personal agency, but also their ability to contribute to a high(er) level of societal cohesion.

No matter how our employment is defined, good time management has always been essential - not just for our personal aspirations, but also our obligations to others. For some, however, optimal time management gets sidelined, due to the necessities of job schedules which offer little flexibility. Even though time centered service settings mean "sacrifice" in terms of skills compensation, a major positive is that these settings provide means to structure daily routines so as to be conducive to both personal life, and a more spontaneous workplace.

While many (not all) of our time preferences at home revolve around personal consumption choices, the assistance we seek from others beyond these settings, involves production and consumption preferences which we don't want to pose as a burden, to family and friends. As automation continues to reduce the need for labour, people gain the option of seeking new forms of shared time value with other individuals, on mutually sustainable and formal economic terms.

Two aspects of time value in particular stand out, for what they could contribute to future GDP measure: social welfare, and happiness. The practical and experiential nature of time based product is associated with a full range of social welfare. Recently, the purchase of time based product was also associated with gains in happiness. From a study by researchers at the University of British Columbia, which
suggests that using money to buy free time--such as paying to delegate household chores like cleaning and cooking--is linked to greater life satisfaction.
Ashley Whilians adds:
our results suggest that buying time has similar benefits for happiness as having more money.
Nevertheless, when individuals are not well compensated in traditional workplaces, they may have more time on their hands than is actively being sought by others. Hence people who are already inclined to be sociable and agreeable, don't always get the chance to share these attributes. A marketplace for time value, would encourage the inclusion of individuals who are naturally inclined to be supportive and caring. Personality traits such as these can become sidelined (both economically and socially), when employers mostly need labour in the form of highly specialized skills sets.

Consider some settings, in which personal time management, as opposed to specific labour functions, has always been important. The household production which first defined economic settings (centuries earlier) involved mutual coordination and time management. Later, enterprise such as homesteading and small mom and pop businesses, included the time management of small groups. More recently, time management has been a vital aspect of entrepreneurial activity, from business leaders to the daily routines and productive habits of self employed individuals.

What settings would benefit from a broader distribution of mutually defined time management, in the present? The time and place specificity of non tradable sector activity, could ultimately lead to total factor productivity gains with such an approach. A marketplace for time value could make it possible to recreate non tradable sector activity at local levels, where communities now suffer from a lack of economic complexity. Measures such as these may become increasingly important, as it becomes more difficult for centralized governments to maintain services production in rural regions. Indeed, the potential cuts to Medicaid in the U.S. healthcare system - which could lead to the closure of rural hospitals, clinics and nursing homes across the nation - is just one example.

Wednesday, July 26, 2017

Could Theoretical Economics Benefit Political Dialogue?

Perhaps a good theoretical discussion is needed: One which takes a closer look, at how today's service sector dominance affects macroeconomic outcomes. After all, the last significant theoretical debates, took place while tradable sector activity was still dominant, and much has changed since then.

For decades, theoretical economics has taken a back seat to empirical economics. While this is understandable in many respects, empirical work lacks the broader framing which could help citizens rediscover a common ground for the challenges of the 21st century. Small wonder that citizens are losing trust in their governmental institutions, as policy makers and others have too much incentive to further polarize their constituents, instead.

Even though economics as a discipline was severely questioned during the Great Recession, little was changed, and no real broader understandings were reached. But if corporate entities and economic thought in general are doing "just fine", why, then, is politics the world over in such turmoil? Why such a dramatic disconnect between political and corporate realities?

In a recent Bloomberg post, Tyler Cowen questioned why so many political problems exist, given the fact corporate America is quite healthy. He reasons that even though politics is weird, the fact that business firms are functioning normally, means there should be little cause for concern. Oddly, his post made me think of numerous posts from Noah Smith, who insists that theoretical economics is no longer important. Nevertheless, monetary policy is one of our best indicators that something is wrong, as central bankers move ever closer to a deflationary era. Without current takes on theoretical thought, we scarcely have means to describe what we are witnessing.

Meanwhile, much of the national discussion is too disjointed, to deal effectively with rapidly changing equilibrium conditions. What's more, the economic dialogue which is more theoretical than empirical, is largely focused on the nature of equilibrium expectations before they became dominated by service sector activity.

To be sure, a similar set of outdated expectations is true of Keynesian thought. Only consider how fiscal stimulus was once more effective, before non tradable sector dominance meant diminishing returns for this approach. When Keynesian thought gained prominence in the twentieth century, tradable sector activity was still dominant, which meant government redistribution had a much greater likelihood of contributing - albeit indirectly - to increased marketplace output. Before non tradabable sector requirements became so extensive, basic living costs left more discretionary income for all income levels.

Hence those 20th century multiplier effects once contributed to thriving Main Streets, even in small towns. Whether or not Baby Boomers "spent too much" in those earlier times - as some now believe - isn't quite the issue. A "good time out" could be had by frugal shoppers, as well. Indeed, most shopping was a minimal expense, compared with the non tradable sector requirements of the present. Little about the "marketplace" of the latter could be considered fun, right now.

How to think about these changes, which have unfortunately meant diminishing returns for fiscal stimulus? Again, consider how distribution patterns for tradable sector product, contrast with those of non tradable sector product. Non only is non tradable sector activity (still) dependent on the direct wealth formation of tradable sector activity, it has limited incentive for marketplace expansion, since its producers and consumers are both time and place dependent. In other words: unlike tradable sector product which is produced and consumed with little regard to time and place restraints, marketplace expansion for non tradable sector product, can mean diluted profits.

Given this instance, higher costs are sometimes understandable. The problem is that when fiscal policy addresses high costs through subsidies for non tradable sector activity, the natural limits of time and place only encourage costs to continue in the same direction. Whereas 20th century government fiscal policies once contributed to tradable sector markets which could ready expand without losses in profits. Consequently, cutting costs was not illogical for tradable sector self preservation.

Wait: If tradable sector activity is being crowded by non tradable sector dominance, why does business activity appears as though normal and flourishing? Tradable sector activity is thriving because of global production and consumption. These firms remain successful in spite of a limited marketplace "at home" in advanced economies, because of growing levels of discretionary income in developing economies, even as discretionary income is still being lost at home.

And even though it is understood that government subsidies can make tradable sectors lose their competitive edge in a global environment, non tradable sectors - with their local customers who may have few other choices - again, don't have the same incentive for innovation. Consequently, low productivity can be seen as both a cause (non tradable sectors), and a result, when tradable sectors are compelled to reduce production at home, due to the income crowding of non tradable sectors.

Protectionism begins at home, and it is the protectionism of non tradable sector activity, which could ultimately affect tradable sector activity across the globe. Hopefully, citizens will gain a better understanding of what is at stake, before the effects of a tight money and protectionist environment, spread too far. Let's take a closer look at economic issues in a broader light.

Sunday, July 23, 2017

Is Today's Economy Viable as a "Stationary State"?

Not likely: Due in large part to today's non tradable sectors, which can no longer be maintained across diverse income levels, as they are currently structured. However, I'm using "stationary state" as a relative term in this post. Complex economies could either evolve or devolve more quickly, than the stationary settings in existence just prior to the Industrial Revolution, for instance.

Some presently hold high hopes for a positive stationary state, in response to economic stagnation. Yet the main problem for such expectations, lies in what this particular stagnation consists of. High skilled time based services as revenue dependent activity, are beginning to crowd out other important elements of GDP. Fortunately, non tradable sector time based services are only part of the picture, for tradable sector services rely on internal resource flows. It's the time based services of non tradable sectors, which rely on the system wide flows at the heart of general equilibrium dynamics.

This equilibrium dependent status, means an uncertain future for vital time based services which are deprived of direct resource matching capacity. The aggregate value of (dependent) non tradable sector time based services, cannot long exceed the sum of tradable sector nominal income, asset revenue flows, and the rents that accrue from productive agglomeration - especially when monetary tightening is occurring at a global level.

I might not have had sufficient context to respond to Adair Turner's hopes for a stationary state, in "Is Productivity Growth Becoming Irrelevant?", were it not for an interesting discussion regarding the stationary state in "The Growth of Economic Thought" by Henry William Spiegel. First, from Turner:
The growth of "zero-sum" activities may, however, be even more important. Look around the economy, and it's striking how much high-talent manpower is devoted to activities that cannot possibly increase human welfare , but entail competition for the available economic pie. Such activities have become ubiquitous: legal services, policing, and prisons, cybercrime and the army of experts defending organizations against it...the huge resources dedicated to US election campaigns...
Adair Turner  provides an apt description of unproductive activity. Indeed, I give him credit for using this term, since some have attacked it as derogatory. It makes more sense to think of unproductive activity as a descriptive term - one fully capable of being positively addressed.

Unfortunately, however, I have to disagree with Turner's assessment that productivity - as an organizing principle - may not even matter. As far as that goes, the possibility of a stationary state would become even less likely, if accounting balances were substituted for the factors that contribute to accurate monetary representation and the revenue origination for time based product. Instead of assuming accurate representation of GDP isn't important, we need to know how different components of services generation might contribute to a stationary state, should societies actually prefer limits to growth.

Whatever happens, no one can afford to take for granted, that society will continue to embrace knowledge complexity, if new means and organization for the measure of knowledge use aren't adapted. After all, knowledge as resource is quite different, from the scarcities which occupied the minds of economic thinkers in an earlier era. Henry William Spiegel explains how John Stuart Mill viewed the possibility of a stationary state:
In the absence of countervailing tendencies, Mill believed, profits would within a short time be so low that the further accumulation of capital would cease and the stationary state would ensue. But with these tendencies in operation, the stationary state would in all likelihood not soon be reached in any of the great countries in Europe. When Mill comes to the assessment of the stationary state itself, he takes a position explicitly at variance with his predecessors. To Ricardo, the imminence of the stationary state was an alternative to the removal of agricultural protection, and since he favored such a removal he had no incentive to look for redeeming features of the stationary state. The picture that Mill unfolds of the stationary state is by no means displeasing. Provided always that the further growth of population is kept in check, it will be a boon rather than a bane for mankind to be relieved of the relentless pressure for increased production.
Of course, Mill's thought was greatly influenced by Malthus, and the majority of agricultural gains were yet to be realized. How to think about these earlier circumstance in relation to the present, and the worries of "relentless pressure for increased production"?

Perhaps "Why do we produce?" is the best way to pose the question. Do we produce because the government has bills to pay and scarce enough revenue to pay them, or do we produce because we perceive a societal want or need, for what is generated? If we produce because we desire to fulfill societal wants and needs, it would help to orient the non tradable sectors in our midst toward what we actually want, instead of them having to depend on the "produce as much as possible" mentality, of government revenue "necessity".

Before anyone reasons that a stationary state is inevitable or even desirable, we need organizational capacity which provides economic access to those who previously placed their hopes on a strong growth trajectory. In the meantime, too much non tradable sector activity is still organized, as if though the revenue capacity of the twentieth century were still in effect. It's not, but there is still plenty of wealth creation potential, which could take place on 21st century terms.

Friday, July 21, 2017

Nirvana Fallacies and the "Enemy of the Good"

As NIMBY preferences make inclusive communities less likely, nirvana fallacies also lessen the chances of new productive agglomeration, due to "one size fits all" infrastructure requirements. Stated another way: not only is it difficult to make room for more of us in the productive agglomeration we already have. It is costly and cumbersome, to establish new settings where additional productive agglomeration could occur.

Among other problems, nirvana fallacies don't consider the decades old reality of wage stagnation. Yet how much stagnation was truly necessary? Non tradable sector production reform, would have meant substantial real wage gains for all concerned. What's more, many aspects of production reform, should not have to be complicated - especially those which make it simpler for individuals to coordinate their lives in closer proximity to one another.

With production reform, millions would be able to embrace simple transportation options that could be designed for local community levels. Meanwhile, too much transportation dialogue centers around "perfect solutions" such as autonomous vehicles. Such a reality might also be imposed on communities which don't particularly want them. Worse, it might become difficult to build new, wage responsive communities, should all regions be expected to bear the infrastructure costs of autonomous transportation as the "perfect" solution.

Why are non tradable sectors so reluctant, to respond to the shifting wage distributions and lifestyle preferences of the present? Had these sectors been open to technological innovation all along, worries about wage stagnation would never have been necessary. Proactive measures would have resulted in real wage gains, which reduced the need for government revenue at the same time. Of the nirvana fallacy, Wikipedia wrote:
The nirvana fallacy is the informal fallacy of comparing actual things with unrealistic idealized alternatives...It can also refer to the tendency to assume that there is a perfect solution to a particular problem...By creating a false dichotomy that presents one option which is obviously advantageous - which at the same time being completely implausible - a person using the nirvana fallacy can attack any opposing idea because it is imperfect.
Doesn't the reality of real wage losses, especially given the consequent effects on city budgets, deserve a more practical approach? Nevertheless, cities become flummoxed when citizens take matters into their own hands. For example, Toronto residents had already experienced mishaps on a steep trail in a community park, before a citizen went ahead and built a $550 stairway. Since a stairway which met city standards would cost approximately $65,000, the privately provided stairway may be torn down.

In this instance, the city should have little difficulty funding a stairway built to bureaucracy code. But what happens when existing regulations make it difficult for populations whose income levels are better suited for less costly options? Also consider how Wikipedia describes perfect, as the enemy of the good:
A widely accepted interpretation of "The perfect is the enemy of the good" is that one might never complete a task if one has decided not to stop until it is perfect. Completing the project well is made impossible by striving to complete it perfectly. Closely related is the nirvana fallacy, in which people never even begin an important task because they feel reaching perfection is too hard.
Non tradable sectors are particularly exposed to both of these problems. While the human capital investment requirements for time based services of healthcare and education are affected by the "enemy of the good", physical infrastructure suffers from the nirvana fallacy. The "perfect as the enemy of the good" has also become a problem, for matching potential between employees and employers. When jobs dialogue is caught in the polarization of employee obligations versus employee costs, much of the underlying rationale for high reservation wage requirements - on the part of the potential employee - is missed. To what degree does the nirvana fallacy in present day infrastructure, contribute to one's personal high reservation wage?

The one size fits all "perfect" solutions of many a rule and regulation, leave little room for the incremental growth and ownership that would strengthen the hand of those with limited income. I have suggested time arbitrage as a form of incremental growth, which could make good use of skills as they are being developed.

Likewise, incremental ownership would be possible in time arbitrage settings, through the flexible arrangements of building components which can be reconfigured as lifestyle needs change. No one's "perfect" dream would have to be shattered, every time a personal commitment or investment doesn't work according to plan. At the very least, we can make room for flexibility at the margins, where millions await their own chance for full economic participation and productive lives.

Wednesday, July 19, 2017

Of Deficits and Economic Participation

Which is the real problem for economic participation: domestic budget deficits, or national current account deficits? In part due to the fact the first issue remains unaddressed (even as revenue falls short), policy makers are ramping up the rhetoric, of the latter. Of current account deficits, Scott Sumner recently wrote that "we do borrow too much (due to the tax advantage of doing so) but that has nothing to do with the current account deficit", and added:
I have a solution. Treat international trade the way we treat trade between American states. Stop collecting records on important and exports. We don't have data on the CA deficit of Texas or the CA surplus of Massachusetts, and that lack of data doesn't seem to cause any problems. So stop doing so for the US as a whole.
In a sense, blaming national current account deficits for economic problems, is akin to putting the blame for economic problems on someone isn't "in the room". Except this assessment falls short. The wealth of a nation's trade role, can be represented in many national rooms. It also figures in the ways the participating rooms are constructed.

Consider how nations have improved their standard of living, over time. This has been made possible to the extent governments embrace economic activity beyond their own borders, via both tradable and non tradable sector activity. While the financial sector brings these international connections together, there are positive effects closer to home, as well. International monetary flows particularly contribute to the composition of productive agglomeration, in prosperous regions.

Nevertheless, non tradable sector activity needs alternatives which don't require using the resource flows of open economies to define asset and service costs. Why? The spread of today's income levels became too extensive around the turn of the century, for some nations to successfully maintain complete economic participation. Protectionism is the threatened response of isolation at a general equilibrium level, to this circumstance.

Yet fortunately, it's not necessary to take such a draconian step. Alternate equilibrium could be used to isolate coordination factors between assets and services for lower income levels, and yet remain completely open to global tradable sector activity. Doing so, could also reduce the domestic budget burdens which do represent a true threat.

The problems of economic participation and societal coordination, are hardly just an issue for lower income levels and their fragile connections along the margins. Consider the earlier ambivalence of Fed remarks, regarding high skill service providers and seemingly everyone else, in a most telling FOMC transcript from September 2008 - the infamous meeting which put "Great" in the Great Recession:
MS YELLEN. I agree with the Greenbooks' assessment that the strength we saw in the upwardly revised real GDP growth in the second quarter will not hold up. Despite the tax rebates, real personal consumption expenditures declined in both June and July, and retail sales were down in August. My contacts report that cutbacks in spending are widespread, especially for discretionary income. For example, East Bay plastic surgeons and dentists note that patients are deferring elective procedures. [Laughter].
Inexplicably, these worrisome developments elicited laughter from the group. Might it have been nervous laughter? Nevertheless, her report didn't stop the misplaced determination to "fight" inflation, even as deflation was knocking at the door.

Though today's monetary tightening is nothing like what occurred in all too recent memory, it serves as a reminder that nations have yet to address the source of their real problems, at home. When economies don't have a chance to evolve, neither do they stand still. What else could explain the return of mercantile thought - much of which hasn't been taken seriously, since nations were only beginning to emerge in the global spotlight?

Meanwhile, policy makers confuse global trade and aggregate demand, and hope to "bring jobs back home". Yet this approach would not bring greater wealth, or broader economic participation, At worst, it could possibly undermine much of the progress which open economies have achieved. Instead of undermining the conditions of general equilibrium in an ill fated attempt to restore long term growth, why not make room for alternate equilibrium scenarios, so as not to destabilize open economies. Budget deficits are indicative of a lack of balance between the aggregate supply and demand of domestic non tradable sector activity - not the supposed trade "imbalances" of nations.

Monday, July 17, 2017

The Productivity Potential of Time Based Product

At first glance, time based services don't even appear capable of generating meaningful productivity gains. In contrast with the comparatively exponential output of tradable sectors, time based product is limited to the possibility of contributing to new time based product, one hour at a time. So why bother? Especially since today's time based product, is constructed in ways which are notoriously difficult to measure or understand.

Some would even find this reality, reason enough to replace our personal participation with automation, wherever possible. Before others end up making these decisions on our behalf: Are there better ways for us to conceptualize time based productivity, in relation to the productivity of other economic activity? After all, if we don't reconsider the worth and organizational capacity of time based product, ultimately there may not be enough consumers, for all that recently acquired automated product capacity.

Consider two reasons, why thinking about service based organizational patterns has not been a straightforward process:

First: Even though services contribute to equilibrium flow, they are not organized, so as to recognizably add to its output formation. This is also why Say's Law of markets - given the earlier prevalence of tradable goods, - held more relevance (for defined output gains) than Keyne's interpretation that "everyone's income is someone else's expenditure". In particular, Adam Smith was among the first to note, that time based services are dependent on other revenue. Consequently, time based services output (as currently constructed) is not capable of generating new income streams on direct terms.

Second, and equally important: Time based product is person specific. In other words, this particular product - even though it is not often enough expressed as such - is connected to an individual whose actual time constraints cannot be waved away. While this time constraint factor isn't a problem for institutions which hire individuals based on their skills capacity, it's a problem for marketplaces where the personal attention (time) of individuals is deemed an important product component, by other individuals.

Again: What are standard ways of thinking about potential productivity gains? One approach is to cause the same amount of output to yield a larger output. The other approach, is to produce the same output via less input. For centuries, the first approach was most commonly observed. Yet more recently, developed nations are gradually generating the same amount of output, via less input.

The reason this is a problem, however, is that less input currently means reductions in personal participation, in relation to aggregate output. Which translates into fewer buyers, for roughly a constant amount of output. Unfortunately, central bankers are reflecting this real economy development, as they seldom speak of the importance of nominal income, in relation to aggregate output. In a sense, IOR is little more than a representation of those who currently stand on the sidelines.

Could time arbitrage address the second productivity option, of generating the same output (for time based product) via less input, without further reductions in human participation? One way to do so, which could also preserve the economic participation of millions, is to organize education as a direct component of wealth creating functions.

Even though general equilibrium has formal requirements that consequently make the "education as workplace" approach untenable, this approach could feature in alternate equilibrium scenarios. And while matched time arbitrage units can't "multiply" the time of their unique providers, these units are capable of contributing more units of time overall (due to increasing levels of economic participation), than what presently occurs today, via the Solow Residual. Also, even a single set of matched time, is a recognizable contribution to aggregate output and consequent exchange potential, much as Say described the tradable sector markets he observed, centuries earlier.

Presently, quality gains for time based product, have substituted for quantity in a merit based workplace. Merit based participation has gradually come to require increased levels of input (or personal educational requirements), for the amount of person specific time based output which is possible, in aggregate. These merit based requirements also run counter to traditional production expectations to such an extent, that widespread cultural skirmishes are now taking place, for the knowledge based access which is still possible, given budgetary constraints.

Fortunately, achieving the same output via less input, is also possible without subtracting humanity from the economic equation. Until now, it wasn't necessary to focus on the difficulties of extensive input requirements in relation to outputs, for time based product. As more constituencies question the validity of education, it helps to remember that education is not the problem. After all, the experiential value of education, is one of the most important aspects of being human. Education is - and will continue to be - among the most useful and highly valued products of our era. The challenge is to expand the definition of what education actually consists of, rather than restricting learning processes in the belief that meritocracy - with its associated cultural limits - is the only valid educational approach.

Nonetheless, formal education has become problematic, due in part to special interests which gain from the process of increasing input requirement levels. Alas, everyone's knowledge use requirements have become everyone's burdens, as well. Education could more directly contribute to productivity, when our efforts provide a torch of knowledge which can be passed to others, at the outset. Since our personal efforts would no longer exist in isolation, they would contribute to additional income streams. Time arbitrage moves the criterion of inputs to outputs towards a recognizable outcome - one which provides a continuum, for the dispersal of knowledge based wealth.

Saturday, July 15, 2017

Knowledge Enclosure as Limits to Growth

The land enclosures which took place centuries earlier, posed hardships for many, who faced the challenges of generating new livelihoods elsewhere. Yet fortunately, this form of enclosure led to long term economic benefits. Ownership of property, made it reasonable for individuals to commit to better production methods, which gradually increased total output. The result? A dynamic marketplace, which includes a rising global standard of living that continues to this day. Why, then, hasn't the more recent enclosure of knowledge, provided similar benefits?

When knowledge is utilized in the context of a specific individual's time, that unit of time cannot be multiplied. In recent decades, time based services have partially supplanted forms of economic activity which were capable of higher output levels. Initially, the artificial knowledge scarcities involved in this process, weren't so problematic. Many institutional claims for time based knowledge use went unnoticed, since populations had numerous opportunities to produce other goods and commodities. As the marketplace continued to expand and diversify, automation in one sector would eventually lead to new opportunities in other areas.

Yet automation could have different results this time. Even as many individuals continue to prepare for what is essentially knowledge based work, much of what currently exists in this regard, is not structured to benefit from the full inclusion of human capital. In recent years, these limits are finally making themselves known. As people begin to question the benefits of formal education, one can't help but wonder: Will we end up with a future, where millions are born, only to discover there's little if any room for the contributions they seek to provide?

Decades earlier, when tradable sector activity was still dominant, staying connected mostly meant being willing to relocate and start over, when necessary. Access to work today is a more complicated matter. The knowledge enclosure of today's time based services, means years of personal commitment and sacrifice, before one can even help anyone for the first time, on economic terms. Consequently, the marketplace for time based services, is not as extensive as commonly assumed, given its costs.

Revenue dependence contributes to the problems of non tradable sectors which rely on knowledge enclosure. Whereas much of tradable sector innovation accrues to customers, healthcare's revenue dependence may translate into innovation which doesn't reduce costs or increase output. Often, tradable sector activity can centralize, yet maintain marketplace output. But when healthcare providers centralize so as to reduce costs, the result is less time based product, which means fewer opportunities for knowledge use to respond to specific circumstance. While centralization is a understandable response to budgetary pressures, ultimately this approach leave societies less able to utilize knowledge effectively.

Restrictions on the use of knowledge, can't be lightly dismissed. We shouldn't wait too long, before taking new approaches to improve the organizational capacity for knowledge based wealth. Already, asset formation and human capital investments have suffered, as many cities and communities lose the productive agglomeration which has become a 21st century requirement. Granted, no one should expect today's knowledge providers to abandon their present day organizational structure. Still these individuals need to reach out to the people and places that are falling behind, so that knowledge use might be better harnessed for the wealth of the future.

Thursday, July 13, 2017

Does Money Still Function Well as "Half of Every Exchange"?

So long as money is mostly representative of tradable sector activity, prices serve as a fairly good measure of societal coordination. However, when time is arbitraged in the marketplace with no direct relationship to its existing aggregates, and time based services become more prominent in relation to tradable goods, total societal coordination eventually becomes less effective.

While listening to a podcast between David Beckworth and Steve Horwitz re monetary disequilibrium, I was reminded of some of the implications, when Horwitz stated that money is "half of every exchange". Even though this representation is perfectly suited for tradable sector activity; alas, it has only proven a partial solution for the introduction (and consequent dispersal) of knowledge use in the marketplace. A different set of dynamics comes into play, for money as representative of the non random nature, of economic time.

Since human capital investment makes additional claims on (all) existing resource capacity, the result in total factor productivity terms, has been additional input requirements in relation to aggregate output. These demand requirements translate into additional claims on existing revenue, such as what also occurs in recessions. As a result, monetary disequilibrium is no longer limited to recognizable recessionary conditions.

Which means today's increased dominance of time based service activity, includes disequilibrium effects which extend beyond the recession conditions Horwitz referred to in his podcast with David Beckworth. Recent recessions are increasingly a result of monetary tightening on the part of central bankers. This almost imperceptible tightening, may also represent an attempt to manage a gap which continues to grow, between the monetary value of finite time, versus that of "infinite" resource capacity. Presently, monetary tightening continues at an almost imperceptible level, even though economies may appear as normal or in recovery.

Inflation targeting in particular, is a blunt tool for central bankers to respond to the Baumol effect, which adjusts the value of time based services to to tradable sector income, in prosperous areas. The Baumol effect helps to explain the difficulties of adopting a productivity norm (as explained by George Selgin), which could take the good deflation of tradable sector activity, into account. The inability to do so, helps to explain the constituencies which oppose today's fiat monetary systems.

Yet interestingly enough, consider why the Baumol effect is actually a natural outcome, of the fact that money has functioned as half of every economic exchange! Since money has to coordinate for both "infinite" resource capacity and "finite" or limited time, policy makers are increasingly faced with a need to adjust nominal income as if time aggregates could somehow remain in a constant relationship with other resource aggregates. Yet this is not possible in general equilibrium settings. Fortunately, however, it is possible to account for time constraints in relation to other resource capacity, in alternative equilibrium scenarios.

Decades earlier, the monetary expectations of non tradable sectors, weren't so problematic. After all, tradable sector dominance included a domestic (national) monetary framework which was easier to understand. For centuries, time based product demands could readily be coordinated via the expanding revenues of tradable sector output. Whereas now, the production norm which would have worked well for a tradable sector dominant economy, is difficult to implement at general equilibrium levels, given the revenue requirements of non tradable sector dominant economies.

Meanwhile, aggregate output as measured by all resource capacity, continues to pull away from the finite limits of time aggregates - not to mention their representative asset formation, as banks become anxious to unwind balance sheets. When money has no choice but to "stand in" for more direct forms of coordination for time based product, the random and growing nature of total resource capacity, introduces elements of political and social uncertainty, for the continuation of knowledge use throughout the marketplace.

Even though spontaneous coordination of time based product (at national levels) remains desirable, limits to growth in this form of knowledge use dispersal, are becoming evident. It's important to maintain fiat money for spontaneous national coordination of time and knowledge value, but with a caveat: make room for local coordination of time based product, in which a unit of time functions as half of every time based exchange.To make this possible, a new institution would allow money to further back these transactions, as newly generated commodity wealth. Time value would finally receive the formal recognition that it deserves, as a basic economic activity.

Indeed, time arbitrage could gradually contribute to a productivity norm for time based services at equilibrium margin. Margin equilibrium adjustments would gradually decrease total factor productivity imbalances. This would allow the gap to grow - undisturbed by monetary tightening - between the valuations of total resource capacity, versus aggregate time value.

By allowing money to reinforce time value in relation to itself as a commodity good, no policy maker need be compelled to shorten (or tighten) the gap between time aggregates and other resource aggregates, in order to fight the Baumol effect. Doing so, is only unnecessary constraints on long term growth. Instead of attempting to manage the distance between finite time value and "infinite" resource value, it would be more conducive to allow money to assume an additional function, as commodity wealth for economic time value.

Tuesday, July 11, 2017

Notes for Time as (Formalized) Value in Use

This summer I've been enjoying "The Growth of Economic Thought", by Henry William Spiegel. The text begins in biblical times, and covers some basics for history of economic thought, up to the latter part of the 20th century. Surprisingly, I was nearly 200 pages in, before coming across an interesting passage which compelled me to follow through with my own thoughts.

John Law lived from 1671 to 1729. While he is oft remembered for his financial misadventures, his contributions to economic thought, weren't quite so controversial. Spiegel explains John Law's analysis of economic value:
Aristotle had distinguished between the use and the exchange of a good. This distinction Law expands, and like the classical economists later, he distinguishes between value in use and value in exchange. The classics, however, who adhered to a labor theory of value, developed only the theory of exchange value and discarded the concept of use value as soon as they had mentioned it. Law, on the other hand, combined both use and exchange value in a subjective theory that explains the exchange value of a good in terms of its usefulness and scarcity. Goods have value because they are useful, but how much value they have is determined by "the greater or lesser quantity [supply] of them in proportion to the demand of them. " In the same manner, changes in demand and supply account for changes in the value of goods...To Law, all economic values are subjective and in this sense imaginary, derived as they are from use.
Of course, today we live in a value in exchange world, in which knowledge/time based product is presented to the public via costs that aren't subjective or imaginary! Since time based service product has been indirectly coordinated thus far (price coordination initially takes place between total monetary representation, not finite time aggregates) utility for time based product remains externally defined. Whereas "staying in the game" for tradable goods manufacture, includes - at minimum - a response to subjective opinions.

Firm pricing for time based product, while understandable - given the broader spontaneous coordination it makes possible - leaves little room for subjective appraisals to contribute to economic outcomes. Yet this is not just a problem for one's pragmatic or experiential preferences. After all, the present tight money circumstance of general equilibrium conditions, can only extend "concrete" exchange valuations, so far. How does all of society commit to a value in exchange framework, if its asset formation and terms of participation are limited at the outset?

Fortunately, time arbitrage could provide as a value in use option, for those who need a more subjective approach to time value. Just as the productive value of work has become more subjective than the labour expectations of recent centuries, so too, the preferences of time commitments in the workplace.

A new institution is needed, which can restore and formalize the value in use function for personal and group time priorities. By allowing time to function in a recognizable supply and demand framework (for dispersal of knowledge and skill), all concerned could make more realistic appraisals of their time preferences in all areas of life. Time arbitrage could allow a different focus on time preferences, than what skills arbitrage often makes possible. In order to function as a true price (true supply and demand) for services , time would serve as a unit of measure, exchange, and account for the participating groups. Money also represents this time value, as a basic commodity and source of new wealth.

There are also legal contractual considerations, for knowledge, time and skill as a formalized value in use designation. Since time is the coordination point instead of money, these services would not have a recognizable market price. Consequently, this form of arbitrage would not be confused as "being on offer" for populations in general. After all, these services are not value in exchange, but instead represent an option to maintain a wider range of human capital potential, via sustainable means.

Again, what is being arbitraged in these instances is not skill, but time. This approach could also preserve the integrity and monetary value, of the "value in exchange" professionals who might choose to assist these groups - especially in their startup efforts. Last but certainly not least: it's important to have time arbitrage as an option - not something to be imposed on anyone who does not find this a well suited approach for their preferred work habits and aspirations.