Saturday, June 24, 2017

Preserve Knowledge Through Books and Time Value

Those of a certain age, remember knowledge as a tempting marketplace housed in books, in second hand bookstores filled to overflowing with every imaginable subject just "begging" to be read. This morning I recalled one Houston bookstore from three decades earlier, which had a good sized room solely dedicated to history books. Just history books!

Today, knowledge has become even more important in the marketplace. Nevertheless, our basic time scarcity has not changed one iota, even as digital information further expands the choices for our focused attention. Hence making room in one's life for the pleasures of the printed page, not to mention pursuing intellectual challenges with others on personal terms, means even more difficult choices are involved.

Perhaps these claims on our time, help to explain the occasional struggles re what "should" be included in high school history books, for instance. Some worry: might required exposure to a subject be the only storyline some students encounter, especially if their interests lie elsewhere? As to that requirement aspect of learning: It's one thing to argue for or against interpretations, via one's own written format which others can support as they wish. But what happens when these arguments instead become part of a roster of educational expectations?

Consequently, multiple threads of interpretation and persuasion end up mercilessly jumbled, in a single, somewhat incoherent source. Among other problems, these combinations don't readily tell convincing stories, which students can later recall. For Texas in particular, many subjects tend to end up as ideological battles. Recently, the local news asked in their "question of the day": should LGBTQ history, be taught in Houston public schools? Indeed: Doing so could be difficult, since Texas has laws on the books which prevent teachers from "discussing gay and transgender issues in a positive light".

Jumbling multiple fragments of history together in a single required book, is in many respects a disservice to all concerned. The integrity of historical thought is lost, for different historical strands need to be discovered via personal means. The marketplace for intellectual challenges, needs better representation on terms that are far more spontaneous than what is occurring today. Yesterday's local bookstores once provided the story lines that contributed to critical thinking - not to mention lasting connections to individual authors who could made subjects far more interesting than the ways they were often presented in classrooms.

Indeed, many classrooms are experiencing limits, in their ability to make knowledge vital for the course of our daily lives. Even the subjects which do make their way into today's history books, may be passed over by teachers who are already pressed for time. When education is expected to be take place mostly through the efforts of credentialed teachers, the preservation of knowledge as challenge and shared critical thought, can be lost.

Unfortunately, the association of formal education with the value of books, is also not as strong as one might suppose. Over the course of my lifetime, the homes I've visited which contained a wide range of books, sometimes belonged to individuals without college degrees. And while visiting homes of those with college degrees, often they contained no books in places which were obvious to their visitors.

Credentialed teachers cannot be expected to serve as a sole knowledge source for students, who need economic opportunities to explore subjects on more personal terms. Yet it's not the credential which is the problem, but rather, the misplaced expectations of many educational settings. Students especially should not be limited to subject matter which has become part of a societal minefield. And while much can be discovered or achieved online, it's shared dialogue that gives subject matter its most meaningful context. This is when it becomes possible, to pass the torch of knowledge to others in ways that can be measured and quantified.

In a recent and more spontaneous past, brick and mortar booksellers contributed to the marketplace of knowledge, even on the back roads and hidden places. Many a non fiction writer was discovered, and consequently supported, by those who simply loved to wander about far flung towns and communities to see what they could discover. And it wasn't just independent booksellers (often without college degrees) who offered options such as these. Many other store keepers who sold second hand goods, also maintained broad book selections to tempt the student of life.

Students need the ability to share their own subject interests with others, in settings that are also reinforced at an economic level. So many ideas and concepts which contribute to critical thinking, are the result of spontaneous interaction. Time arbitrage would provide new opportunities for experiential education, instead of a required format for economic access. Presently, the latter doesn't quite serve the purpose which it was built for. Everyone has the potential to be a torch for knowledge. It's time to free our desire to learn about the world, from the struggles over the curriculum of formal education.

Thursday, June 22, 2017

Healthcare: Societal Burden, or Wealth Potential?

According to Reuters, "Most Americans Say Republican Healthcare Plan Will Be Harmful":
When U.S. Senate Republicans unveil their plan to overhaul America's healthcare system, they will face a skeptical public that already does not buy the justification for an earlier version that passed the House of Representatives...a majority of the country thinks the American Health Care Act would be harmful for low-income Americans, people with pre-existing health conditions and Medicaid recipients.
Among those polled, even a Trump supporter said, "It'll make people's deductibles skyrocket. So I'm not for this healthcare act. I'm for insurance for everyone." And Joseph Antos, a healthcare expert for AEI, said of the still rising costs, "It would be great if a politician had the nerve to be brutally honest. None of them seem to."

How to think about the fact, so many are "giving up" on healthcare as even having the potential of positive outcomes? Whichever way one slices it, the news does not appear good. While policy makers will likely reduce healthcare access wherever possible in the foreseeable future, these reductions still don't get at the root circumstance today's healthcare has generated, regarding long term federal budget obligations. Indeed, that would still hold true, even without the added consideration of aging demographics.

As healthcare (in its present organizational capacity) continues to become a larger part of GDP, relatively less revenue from other sources remains available, to fund its growing costs. As a dependent equilibirum component, healthcare's present requirements for (excessive) input in relation to total output of time based product, contribute to the present low productivity patterns of economic stagnation. This unfortunate reality leaves policy makers on both sides of the aisle, with few choices or long term solutions.

Plus: Even as more healthcare cuts inevitably take place, more senior citizens will seek access to healthcare in the years ahead. Since today's healthcare is still equilibrium dependent rather than capable of providing equilibrium growth, it slowly - but surely - reduces the same economic growth which so many had hoped would be able to reverse its growing burdens. Paradoxically, the way healthcare is currently organized, contributes to its dependent equilibrium status. What is needed, are ways that healthcare could actually contribute to wealth creation, instead of detracting from wealth creation.

In the meantime, the crowding out effects of healthcare are also exacerbated by monetary policy. The Keynesian 20th century approach to inflation, was an approach which had little means to respond to the crowding effects of relative inflation or deflation, depending on sector. Healthcare has become a major source of supply side inflation. Yet when central bankers attempt to compensate, they inadvertently make the situation much worse, by leaving less money for the representation of other vitally important marketplace obligations.

There are ways out of this dilemma, but they include thinking about today's healthcare burdens somewhat differently. Ultimately, populations could internally coordinate healthcare alongside other important time based services. There are wide swathes of knowledge which could can be tapped, that have been available for centuries and are not subject to the same knowledge use protections, as present day "cutting edge" procedures. New wealth could be incrementally built by focusing on everyone's skills capacity, and healthcare could function with other knowledge as components of tangible, time based product. This increased quantification could do much to restore productivity.

Eventually, healthcare would become part of a broader marketplace where - until now - productive agglomeration has largely been missing. These new service generated marketplaces would relieve considerable pressure on policy makers, not to mention the pressures for services which have been borne by taxpayers, governments and employers alike. Human capital investment would be compensated as a continuous part of educational processes. This is all the more important, since the normal investment burdens of today's physicians make it difficult for them to practice in rural areas of the U.S. By making organizational capacity for healthcare less equilibrium dependent, the healthcare of the future would no longer have to present such a societal burden.

Tuesday, June 20, 2017

Time Based Product: The Same Results Via "Less" Effort?

What if we were to think about achieving the same (aggregate) result with less effort, in terms of time based product, at a macroeconomic level? The productivity of time based product, includes some hidden factors which have yet to be explored. Individual firms often reduce time input via automation for time based product, in order to reduce budgetary burdens. Nevertheless, potential losses of time based product, need to be understood, in relation to the inputs that society already expects for human capital investment, as one's personal responsibility.

Time value needs better representation as aggregate supply potential. Today's managed pools for aggregate demand, are resulting in arbitrary input reductions at the level of the firm, in spite of ongoing input expectations of human capital investment, outside the firm. This result also suggests problems for Solow Residual effects in time based product. Not so much because of firm specific input limits, but in terms of broader limits to output potential. It means that due to externalized investment expectations for human capital, there are far more investment inputs than are actually being utilized by today's knowledge use organizational patterns. Some human capital investment never gains economic compensation, while other investment processes for human capital end up reimbursed many times over; by consumers, governments, businesses and taxpayers alike.

If one were to consider the production of input requirements (formal education) in a total or aggregate input/output context, the ongoing losses for wealth potential and marketplace formation, would become more obvious. When extensive human capital investment (input) is required before output ever becomes possible, multiple institutions and populations are held responsible for the balance. Individuals bear ultimate responsibility for building time value, and the consequent human capital losses for knowledge use production primarily as institutional aggregate demand, have not been well understood.

One can only imagine, how an incomplete production process such as this would impact tradable sectors. It would be as though multiple suppliers were making tangible product, of which only a small portion would finally be sold as final product. Few companies in such a position would last very long. Yet this has been the institutional process for time based product, thus far. We are fortunate indeed, that so much lost human capital potential in the twentieth century, did not have the negative effects which are beginning to accrue in the present.

A more rational approach is more output via better use of already existing input, for time based product. Time based product needs to be understood as a macroeconomic variant, to the normal institutional application of the Solow Residual. By internalizing input and output for services generation, more educational inputs would result in matched time use outputs, for all concerned. Through time arbitrage, one's human capital investment would begin to receive compensation much earlier than is presently possible, by making services output an integral part of the process. Whereas now, formal education has little room for output formation, until the participant has spent years completing input requirements.

Historically: So long as tradable sector activity remains dominant over non tradable sector activity, management of time value as pools of institutional aggregate demand, need not be problematic. But once non tradable sector activity and its associated knowledge use comes to the fore, it is no longer enough to treat time value as institutional demand. The introduction of time value as an aggregate supply function, could restore the productivity patterns which move growth forward. Managed pools of human capital supply, would bring greater transparency to the input to output ratios that are currently required for human capital.

In summary, if we consider educational inputs as part of the reality of aggregate input, the entire picture for aggregate input in relation to aggregate output (for time based product) takes on a whole new meaning. Yet the current dependence of today's time based product on other existing wealth, has obscured this important fact. Instead of creating more uncertainty for human capital investment through arbitrary reductions of time value, better results could be achieved by reinforcing educational input as continuous output. At issue is not so much a further reduction in input as contrast with output, but instead, allowing aggregate output in time based product, to gain greater quantification and representation, throughout the entire process.

Friday, June 16, 2017

How Common are Non Compete Settings? Or, You Don't "Own" That!

Now that I think about it, there seem to be examples everywhere I look. For instance: Why does it bother some schools, when their teachers gain additional work related income beyond salaries? Consider the framing, in "Teachers are Making Millions Selling Their Lesson Plans Online". From the article:
Some legal experts argue that the resources teachers produce while working for a school district may actually be the property of the school district.
Yet behind the stories of a handful of millionaire educators, is a different reality of low cost provision, for time savers that include the teachers' ingenuity. Marketable lesson plans are certainly practical, given the fact schools don't compensate teachers for the hours in which they prepare for classes. In yesterday's post, I noted time saving mechanisms such as these as a useful form of fixed (human) capital, which contrasts with the working capital employers often expect employees to provide via their own time and resources.

Alas, public institutions appear to be following the lead of closely held knowledge use in private sectors - much of which takes place as non compete agreements. Even as policy makers become aware of consequent limits to long term growth, many such restrictions are local in nature, which also factors into the difficulty of a broad based response. The growing atmosphere of closely held ownership - regardless of subject or object - has become so widespread, it even translates into cultural appropriation outrage, something I never expected to witness in my own lifetime.

Apparently, cultural appropriation has become the latest version of you don't "own" that, so you can't use it! Some of this ownership hoarding, which is just as impractical as money hoarding, has been around for a long time. In the seventies, a friend made improvements in lab work which were appropriated by the company, but with no recognition of his contribution. Almost two decades later, while preparing to open a bookstore, I found myself unexpectedly making certain no legalities stood in the way of doing so. That's when I first became aware of non compete agreements.

Miles Kimball recently touched on an anti-growth aspect of non compete settings in storified tweets with Dan Abrams. Kimball wrote:
To do better at state level, Dems should push pro-growth occupational licensing reform as Obama Administration did.
To which Abrams explained that while this would be good policy, it would unfortunately be poor politics, because
There's an organized block of current licensed hairdressers. No block of future hairdressers.
Again, helping those who lack economic access, remains a thousand battles in a thousand places - and many places lack a sufficient organized block, on the part of those who seek entry. However, even though national governments are in no position to force greater competition on anyone, they do have the option of backing new settings in which people have sufficient production rights to recreate non tradable sector growth. This is an important reason why I've suggested alternative equilibrium settings, as a single organized productive response to the closely held ownership which stifles economic dynamism.

Such settings would be clearly delineated to a degree that all concerned, understand the potential of the knowledge which could be shared, and the new forms of construction which could take place. In the future, communities might once again be willing to embrace competition, if they see how it in fact can contribute to long term growth. If we are able to create economic settings where the use of knowledge is more widespread, perhaps some of the present day cultural backlash will fade away as well.

Thursday, June 15, 2017

The Lifestyle Illusion of Working Capital Requirements

How might one contrast the productivity gains of fixed capital, with the expectations and requirements for personal time as working capital? Prior to the Industrial Revolution, working capital was far more widespread than fixed capital. Consequently, populations expended tremendous efforts, for levels of aggregate output that were not always enough for survival.

Even though widespread abundance is now taken for granted (since the Industrial Revolution), extensive requirements for personal working capital, are beginning to eat into the gains made possible in recent centuries through fixed capital. While these shifting ratios may not be obvious at high income levels, lower income levels - in spite of post Industrial Revolution abundance - face working human capital requirements which - once again - don't always take care of basic needs.

What this boils down to, are ratios of aggregate input, in relation to aggregate output. Remember that time based product includes human capital as both input and output. Product formation for the latter - due to intangible quantification - also makes extensive hidden demands on output. Even though automation ultimately strikes at the heart of skills based requirement expectations, automation cannot address the necessity of maintaining humanity as integral to supply and demand processes.

As luck would have it, automation versus time based economic effort, is a decision making process which populations will need to address via their own unique sets of terms. Whether or not we can experience gains in productivity in the near future, comes down to all of us. Otherwise, time based product - in times of economic stagnation - could claim such so much revenue in the form of required input, that lower income levels lose the ability to successfully coordinate for services, via the monetary representation of other existing output.

Input requirements for human capital investment, lead to substantial lifestyle illusion. This, in turn limits both discretionary time and income for broad swathes of the population. While reading the first edition of "Before the Industrial Revolution: European Society and Economy, 1000-1700", by Carlo M. Cipolla, I've thought about the relationships between fixed/working capital and aggregate input/output. He has an interesting perspective on economic processes which encouraged me to consider various contexts for fixed and working capital in macro/micro settings. How might fixed capital reduce the need for time or resource capacity? Cipolla writes:
Fixed capital consists of those economic goods produced by man which are repeatedly used in the course of a number of productive cycles.
While technological innovation quickly comes to mind, Cipolla stresses that technology is not the only form of fixed capital, and I would also add that time replication patterns have the capacity to contribute to output gains. He discusses how prior to the Industrial Revolution, the greater abundance of working capital in relation to fixed capital, accounted for the fact that no matter how hard people worked, they struggled to meet even basic consumption needs. As the British economist John Hicks also noted, it was when fixed capital assumed a central position in production "that the revolution occurs". Finally, progress spread far and wide, once societies gained enough confidence in fixed capital constructs, to stabilize and increase output gains.

Despite the tremendous gains of the Industrial Revolution, we have inadvertently lost some of that additional capacity, by requiring ever larger components of working human capital (in relation to fixed aspects of human capital) for time based services production. Consequently, for a substantial part of the population, many of the forward steps of progress via tradable sector production, have been followed by the backward protectionism of our non tradable sectors. Not only have these sectors required unnecessary working capital in services generation, but also in multiple aspects of building and infrastructure requirements.

Without a marketplace for time value, the working capital costs of time based services product, could eventually limit time based services to higher income levels. Lest anyone hasn't noticed, services generation for middle income levels has been counted one of the greater achievements of our age. How would policy makers and economists successfully defend free markets, should this capacity be lost?

It's time to include human capital as a fixed capital component in relation to working capital, so that low income levels are not overcome by working capital requirements which in some ways resemble those of earlier eras. I believe that time arbitrage could provide a useful form of fixed capital. As applied human capital, service generation would finally be recognizable as a tangible good. Best, this version of fixed capital would allow knowledge application to occur within a broader economic context.

Tuesday, June 13, 2017

Aggregate Time Value: Demand, Supply, or Both?

System imbalance between today's tradable and non tradable sector activity, is exacerbated by the lack of aggregate time value for supply, in the latter. An apt example of untapped labour abundance - given a demand dominated role for time value - is the consequent restrictions in housing supply.

Unless time value also serves as an active source of supply, individuals can gradually lose their ability to contribute to economic progress. Such an occurrence is more likely, if governments and special interests choose to limit the economic freedom of time value, as a potential supply function. While time representation as demand remains sufficient in tradable sector activity (via output gains for a full range of product), human capital supply potential is being lost, in today's non tradable sectors.

When human capital is mostly tapped via institutional demand terms, it can become incapable of contributing to full marketplace participation. Even though tradable sector activity achieves production gains via reduced time contributions (the Solow residual), non tradable sector activity inadvertently diminishes the marketplace, with this approach.

In order for time based services to contribute to a more complete marketplace, aggregate time value needs to move beyond the demand management functions it is presently assigned. While managed demand pools for institutional needs are quite valuable, they lose the ability to move economic progress forward, in historical time frames when secondary (wealth dependent) market activity is dominant.

The twentieth century offered ample opportunities to grow the marketplace through pooling for demand management of human capital - both in educational and workplace context. The main reason human capital was able to contribute to long term growth in this arrangement, was its association with tradable sectors which continued to expand output in relation to the increments of time involved. As output has come to be more closely associated with human capital than with tradable sectors, it becomes increasingly important to consider how growth can be achieved on human capital terms. A recent post from Tyler Cowen regarding the compound interest of learning, provides helpful ways to think about the process. He writes:
Compound learning occurs when your new learning, and your new analysis, builds steadily upon the old. Over time, learning is a bit like compound interest and it accumulates. When compound learning is possible, you wish to keep a relatively well-defined set of analytic pieces on the table. It is fine and indeed essential to add to those pieces, but then the new piece should be one that you may learn with it. Furthermore, it should be readily shared with other people...
I was glad to see Cowen highlight the fact that knowledge use accumulates as wealth capacity, through active sharing. However, it can be difficult to secure knowledge gains - even when individuals commit to steady work habits and schedules, when their personal circumstance becomes subject to stresses that make it difficult to maintain or share earlier time investment gains. An institutional framework is needed, which makes a productive knowledge continuum more likely for all who commit to human capital investment, in the course of their lifetimes.

It would be easier to recognize learning as economic processes capable of compound interest, if time were used as a vessel (economic increments) to create a knowledge continuum for individual and group participation. Time value works as a supply side component when the time of one person can build new wealth, through the purchase of time on the part of others - especially to reinforce education and learning as a part of workplace structure.

A time continuum of pooled supply management, much as the learning space of a given individual, gives opportunities for human capital compound interest which are not yet being tapped. Aggregate time as demand, gives opportunities for compound interest in the form of social capital for the group. Nevertheless, this process is associated with individuals who experience only a partial knowledge continuum with today's organizations.

For instance, formal schooling thus far has been a cut off point for an otherwise organized continuum of human capital. It stops precisely when individuals and groups need to start taking advantage of mutual learning gains with one another. Likewise, when firms require non compete clauses, they restrict the compound interest potential of knowledge gains in society - especially when firms can't fully utilize the capacity inherent in any given employee, beyond what takes place in normal workplace hours.

Even though today's institutions contain important elements of compound interest for learning, their present organizational capacity is too thin, to preserve knowledge use in the event of catastrophic events or political setbacks which often disturb important organizational patterns. Fortunately, knowledge use can be preserved via managed pooling for supply functions, to move progress forward, when human capital demand aggregates face the limits of secondary market dominance.

Saturday, June 10, 2017

Notes on the Economic Core and Periphery

One feature of present day economic stagnation, is interfirm inequality, which has become more pronounced in recent decades. Much of this has been driven by changes in core and peripheral economic activities which were once included in the same institutional settings. As the economic core of economic activity becomes closely aligned with high skill levels, lesser skills are spun off into separate firms, which consequently feature lower income levels. And since populations now prefer to cluster according to income commonalities, employees of peripheral firms aren't always able to generate common spaces with core firms, where those spaces would still prove beneficial to all concerned.

Much of the separation of core and periphery can be correlated with a growing prominence of non tradable sector activity, in relation to tradable sector activity. Nevertheless, automation in word processing, is one factor which contributed to a substantial amount of firm division, regardless of sector. For instance: In the seventies, I was one of many others who took a chance on office work providing income similar to what a four year college degree could offer. Indeed, in the seventies and early eighties, this was still the case. Hence when baby boomers such as myself lost access to office work with traditional benefits, the new option was periphery firms, in which workers were closely packed in small spaces, with work largely bereft of benefits or reliable full time schedules.

Granted, traditional secretarial and administrative assistant positions, still exist alongside core economic activities. Nevertheless, these jobs are now mostly reserved for individuals with college degrees. Prior to the separation of core and peripheral work, secretaries and other office workers once shared office space, local neighborhoods, and other cultural attributes, with firm management.

Why might the separation of core and periphery be more prominent in non tradable sector institutions? While tradable sector activity separates many production processes prior to final product, non tradable sectors may not need to separate core production processes as frequently. In other words, a wider range of tradable sector firms have more "skin in the game" for wealth creation, since product components are built at multiple locations. Spreading production responsibilities more equally, means the possibility of less income divergence, across tradable sector firms.

Unfortunately, wealth redistribution isn't so simple, when product is more closely defined as knowledge or skill. When final product value is closely held, firms are more likely to keep the most important (core) activity in single settings, while contracting for work not essential to final product. Hence wide income differentials become segmented by company definition and job function.

Decades earlier - once opportunities for secure office work diminished - it was an easy decision for me to abandon peripheral office work for more lucrative options. Today, however, potential employees may refuse peripheral work for different reasons entirely. Again, geographic income clustering presents a coordination problem, since low income clusters usually travel further to reach work locations. Hence transportation issues figure prominently, in the personal reservation wage of potential employees.

More peripheral functions are likely to be automated over time, for firms which find it difficult to hire and retain workers close nearby. Consider also, why the revenue dependence of non tradable sectors makes it more difficult to redistribute income, given the level of compensation necessary for employees who committed to extensive human capital investment via their own means. Only remember that this form of organizational capacity has to reimburse human capital input which is not internally generated.

When firms can't find the skills they need, it helps to consider the overall economic circumstances. Demand for specific human capital has shifted over time, to what is not as widely available via formal education, by definition. In other words, the skills these institutions still need, are not broadly represented by existing educational institutions for good reason. To prepare for skills in current demand, is to suggest more educational provision of these skills, which in turn makes the effort less of a strategic advantage, over competitors.

Problems such as these in both core and peripheral organization, also suggest a level of system fragility. Too little skills capacity is actively being sought, for nations to feel confident about their economic futures. The separation of core and periphery, while an understandable response to general equilibrium demands, no longer offers system wide possibilities for full employment.

Tradable sector activity has been able to share income and benefits more broadly, in part because integral parts of production have been divided among different participants in the process. Also important, is the degree to which resource capacity for inputs and outputs alike, is internalized. Fortunately, time arbitrage could also internalize inputs and outputs for time based services, so that more participants would ultimately be able to share in the benefits of the entire process. Given how populations prefer to cluster in similar income groups, it is becoming increasingly important, to generate non tradable sector organizational patterns which are aligned for a full range of local skills capacity.

Thursday, June 8, 2017

Labour Abundance is Impacting Middle Class Dynamics

Even though the reality of labour abundance has been noted in recent years, this problem has yet to be productively addressed. For the most part, full time employees are doing well, with sufficient salaries for both basic needs and discretionary consumption. However, employees working on contract - especially in firms that are subsidiary to core activity - sometimes lack the salaries to purchase basic needs on today's non tradable sector terms.

The growing use of contract labour in the 21st century, with its associated lack of benefits or job certainty, is one of the more prominent examples of labour abundance. While one can point to earlier examples of labour abundance, some societal developments (at least in the U.S.) are becoming more obvious as unemployment related, in retrospect. Until recently, unemployment was closely associated with one's personal shortcomings - whether perceived or real. Indeed, the correlation of many societal burdens with a declining labour force participation rate, is one of the few economic associations that is obvious.

And the U.S. in particular, benefited from relatively low unemployment statistics for decades, in part due to the ramped up use of imprisonment. Another institutional response has been disability assistance, which individuals with health issues sometimes turn to, after a protracted struggle to maintain steady employment. More recently, zoning restrictions and the costs of scarce productive agglomeration, have contributed to both reduced internal migration and long term unemployment. Excessive labour abundance can also be traced to homelessness, drug overdose deaths, and the black markets which include slave and sex trafficking. Often, the latter is perpetuated through dubious enticements, for what the victims believe to be legitimate jobs.

In "The Wealth of Humans", Ryan Avent stressed the fact that labour abundance would continue impacting middle class dynamics, well into the foreseeable future. He noted that while formal education was once an appropriate response to labour abundance (when people left the farms for the cities), education could no longer be expected to to work the same magic, in the 21st century. Even if everyone "miraculously" gained a college degree, today's institutions would not be able to hire everyone, on the same middle class income terms.

Nevertheless, policy discussions have yet to truly focus on Avent's warnings. Instead, policy makers tend to double down on the earlier recommendations of "more education" and additional income support. Alas, in his book, Avent explained how responses such as these were insufficient for the present.

Fortunately, there are strategies to counter labour abundance, which could prove more productive than preparing ever more skills for the institutions which presently need less of our skills, in aggregate. Education in particular, needs a strong reorientation. Educational input, as human capital investment, could become part of an institutional process which measures both input and output for mutually desired time based services. Both local infrastructure and building components need extensive improvements in the decades ahead. This last measure is especially important, if citizens are to regain their confidence in the capacity of their own income potential.

Granted, it's not easy to focus on the need for institutional adjustment and structural reform. But labour abundance needs to become a positive in the marketplace, so that already existing skills sets and investments will not be lost. It's important to face up to the reality of labour abundance, before the labour force participation rate trends even further downward. As Avent emphasized in "The Wealth of Humans, history is not always kind, when labour is abundant. It's time to put our present day abundance to good use.

Tuesday, June 6, 2017

Time Value as an Alternate Equilibrium Lever

In the economic conditions of general equilibrium, time based product lacks the economic leverage, which local group management could otherwise provide for service creation. Presently, personal time preferences are not a marketplace consideration. In other words, time - the one resource we all share via the same provision - still lacks the economic representation, which would allow it to contribute to aggregate skills preferences.

When skills are not coordinated within an understandable time continuum, skills product cannot be readily stored for either current or future use. Since would-be providers don't know the actual time product preferences of would-be consumers, considerable skill potential and human capital investment slips away. If time value were a valid marketplace construct, perhaps it could be considered a power law form of leverage. As Shane Parrish (of Farnam Street) writes:
A power law is a relationship between two things when a change in one can lead to a large change in the other, regardless of the initial quantities. In the case of leverage, a power law relationship exists between the effort exerted on the lever (actual or metaphorical) and the outcome.
Notice his emphasis on quantities, which in this instance applies to both skill and knowledge. Plus, consider how much easier it can be to measure the time context for skill and knowledge use, than to measure the actual skill or knowledge which is applied to individual circumstance. Parrish also highlights the book "Decision Making", in which Alan C. McLucas discusses the importance of leverage:
Leverage is built on the notion that small, well-focused actions can sometimes produce significant, enduring improvements if they are applied in the right place. Tackling a difficult problem is often a matter of seeing where the leverage lies.
...a leverage point is where a small difference can make a large difference. Leverage points provide kernel ideas and procedures for formulating solutions. Identifying leverage points helps us create new courses of action...
With time preference as a lever, knowledge use and skills capacity could coalesce around a common supply and demand structure for time based product. When time coordination is applied in a continuum to both human capital investment and output measure, it becomes possible to manage services creation, so as to mimic the internal wealth creation processes of tradable sector production. Even though time based product can only be "stored" for the future to the degree that participants are simultaneously available, the system works to make these possibilities a greater likelihood, than is the case when time based product is approached via the external coordination of general equlibrium.

The ways in which we wish to apply our economic time with others, are just as important as what we ultimately apply our time to provide on their behalf. We gain personal leverage, for instance, when we mutually coordinate for both leisure time and what we know to be our most productive moments of the day. By allowing individual and group time preferences to act in concert, as a lever for skills actualization, we gain more productive means to manage skill capacity. Indeed, far too much skills capacity has been lost, given the limited human capital investment which is actually tapped by today's institutions.

Sunday, June 4, 2017

Voter "Stupidity"? Or Poor Democratic Options?

What ever happened to the reasoned logic of professionalism, given the rise of populism? Hmm, what indeed. Even though I have my own concerns about growing populism, it's hard to remain convinced that elites have the "answers". After all, the groups which hold the most power, are responsible for a now lingering economic stagnation. Does anyone wonder why the populists are in full revolt?

The uncertainties of populism, make it easy for some to blame "too much democracy" and "stupid voters" for society's ills. In a recent Brookings essay from Benjamin Wittes and Jonathan Rauch, they complain that people only want more direct democracy over time, even though these processes have not worked out well. They argue that "the best way forward is to rebalance the reform agenda away from direct participation and toward intermediation and institutions."

Ilya Somin responds, and notes that he agrees with much of their analysis. He writes:
In particular, they are right to conclude that political ignorance and irrationality are dangerous menaces that are unlikely to be cured by increasing political participation, greater access to information, or other conventional remedies.
Even though Somin wasn't convinced that empowering political professionals could counter voter ignorance (not to mention the strong incentive to exploit ignorance), he lacked a clear alternative, other than the ability of citizens to vote with their feet in the marketplace.

Yet poor voter options for the resource capacity that matters most, is precisely the problem. Political professionals and the elite have slowly, but surely, diminished marketplace vitality and economic progress. Given this unfortunate reality, voting with one's feet, too often means walking away from basically all the choices on offer. For instance, consider how many individuals are now held in jail for not paying their medical bills. How, exactly, does that "public service" help anyone? Seeking a doctor when health circumstance gives one cause for fear, isn't exactly on the scale of robbing a bank. Yet in some states it is treated as such. Hence the main lesson for many rational folks, is to think twice before opting for healthcare services.

Given how the "non stupid" have made a travesty of what were once free markets, I'm not ready to call voters stupid - regardless of the conspiracy theories that are encouraged - while irrational force is used to maintain today's marketplace structure. When the validity of the voting process is questioned, this gives professionals more reasons to double down, on mistakes that have already been made. Again, I blame arbitrary limits to knowledge use for much of our present political problems, more than any supposed stupidity on the part of the average voter.

It's time to quit pretending that the supply of healthcare was somehow handed down on a stone tablet, for doing so makes all of us appear far more stupid than we actually are. At root of today's political turmoil, lies the artificially restricted supply of knowledge use. In the meantime, instead of having democracy as a valued tool to coordinate healthcare provision and consumption, we are reduced to political shouting matches and aggressive threats against the "wrong" constituency.

None of these potential issues for production rights were lost on our country's founders, either. They were greatly concerned about the tyranny of the minorities who could effectively reduce the production rights of citizens, over time. Let's not forget what they understood. There is still time to generate production reform, on behalf of the average citizen. Nothing less than the prosperity of nations, is at stake. Everyone deserves a better framing in which to cast their votes. A framing which doesn't require making stupid decisions, such as who supposedly doesn't "deserve" the useful skills of others.

Thursday, June 1, 2017

Preserve Economic Time Value, Not "Guaranteed Jobs"

In response to a proposal to address job creation from the Center for American Progress (HT Marginal Revolution), Adam Ozimek notes that "Guaranteeing Everyone a Job is Harder Than it Sounds". He writes:
The plan lists several jobs that apparently are a good fit for the currently non-working and also in high demand: home care workers to aid the aged and disabled, affordable child care, teacher's aides and EMTs. So the basic plan, if I understand it correctly, is that the federal government will pay for jobs for people to work in the public or private sector, and the government will pay for training as needed.
Crowd out is obviously a big problem here. Will the employers being paid to create these "guaranteed jobs" actually create new jobs or just replace existing ones? Or perhaps they will "create new jobs" that were going to be created anyway...The incentive to crowd out is strong for local government especially. The CAP piece justifies the demand by pointing out that many local governments are "cash strapped".
There are delicate equilibrium balance issues at stake. Consider also, the fact local governments have already scaled back hiring out of necessity, in response to existing local pension obligations. Again, we are faced with what could be considered a"mature" general equilibrium which does not have room for all comers on the same sets of terms. The basic template of this equilibrium for economic participation has many interconnected features, which presently lack the flexibility to respond to major shifts in existing resource capacity.

It has proven difficult to discuss new economic possibilities, in part because economic access in general needs better framing. Alas, for populations to maintain the social cohesion that was (largely) possible in the twentieth century, we need continual efforts to improve the production and consumption potential of our non tradable sectors. This, instead of ever more calls for income gains which can only stretch so far, when basic resource flow patterns have long since been committed.

When economies were primarily based on expanding tradable sector output, the drumbeat for ever more income gains perhaps made more sense. But once economies become increasingly focused on time based services, everything about the basic structure of output begins to change. Ultimately, that also translates into less of the traditional output which once meant broad wage gains. An important aspect of this historically recent development, is the fact not everyone can productively engage, on today's government/private sector dictated terms.

Yesterday's middle class was built on strong tradable sector output. If that prosperity is to be continued, most aspects of output potential for non tradable sector activity, will need close examination. Meanwhile, the recent article from the Center of American Progress ("Toward a Marshall Plan for America: Rebuilding Our Towns, Cities and the Middle Class"), almost feels as though an audible sigh and wish, that people who didn't complete their college degrees (such as myself, though I didn't vote for Trump), didn't have these problems to begin with. The authors wrote:
The truth is, progressives should be as concerned about the declining fortunes of those who do not go to college as any other group. Not because they are disrupting politics - though they are - but because they are our brothers and sisters too.
Once, long ago when Obama was voted into office, I wrote letters to him, detailing the plight of rural America. There was no response. Sometimes I wonder, had I finished the college degrees I so wanted, would I be a progressive, today? The answer really isn't important. But degrees would have meant having the option of city life in these later years, and progressive friends as well.

We need to preserve economic time value for all concerned, instead of trying to guarantee jobs to the ones who have been left behind. Fortunately, even though jobs are a cost, it is not necessary to define all costs on what have become expensive technocratic terms. Once we step outside the weak tea of "make work" and artificial service roles, we can remember the concerted efforts people have always been willing to assume - either because those work efforts are perceived as necessary, desirable, or possibly, both.

Both constructs suggest a world of worthwhile work, which because there is a lack of suitable framing for economic time value, ends up defined as not feasible or possibly just "unimportant". Yet understanding the difference between personally initiated versus externally mandated work, is important, for time value to gain economic legimitacy. People want to be responsible for themselves and for others, in ways that matter at a personal level. Why not approach a revitalized economy on these terms?

Wednesday, May 31, 2017

Wrap Up for May 2017

The very fact that workers aren't keen on returning to construction work (which is not well suited for employment stability to begin with), highlights a long awaited opportunity for building construction innovation. Perhaps the situation would be different, if we were talking about automating jobs which people actually wanted. Apparently, the hard labour required for manual home building would scarcely be missed as a job option. Why are we waiting for the cost of living benefits, boosts to discretionary income, and the total factor productivity gains, that mass manufacture could bring to housing components and related infrastructure?

"...regions that are susceptible to automation are those that already have a high share of low-wage jobs."

Miles Kimball notes in a recent talk, how fifty years have passed with essentially no improvements in building construction. Even though housing bears the additional scarcity costs of today's productive agglomeration, lack of innovation contributes to this now approximate 41%, of budget allocation.

RIP William Baumol, one of the "greats":
Dietz Vollrath highlights an early paper from William Baumol, along with further musings on the cost disease.

Outside of information technology, American society has become less hospitable to innovation. Timothy Taylor provides highlights of a recent article from Edmund Phelps.

Strategies for managing density could use some improvement, given existing infrastructure burdens:

David Beckworth and Scott Sumner remember Allan Meltzer

"The Fall of the Labor Share and the Rise of Superstar Firms"

Brookings takes a closer look at declining labour force participation

How much has the job market for college grads improved since the Great Recession?

More Democrat physicians may be running for office in the near future

Labour force participation rate for men 25-54, by county

Noncompete clauses are unexpectedly becoming more problematic Additional sources below:
Non-Compete Contracts: Economic Effects and Policy Implications

Some of these people should not be having such a difficult time getting work.

Senate Republicans disagree on the future trajectory of Medicaid

How much has labour force participation changed, state to state?

"America's Schools are Built for Tomorrow's Followers"

David Beckworth recently highlighted several articles which I also want to note here:
"Current Growth, Inflation and Price Level Developments in the U.S." - James Bullard
"It's Time for the Bloated Fed to Go On a Diet" - George Selgin
"What Can We Learn from the FOMC's Debate" - Peter Ireland

"Workers are capturing more than their share of the spoils from a growing economy. And that, as it happens, is the reverse of a decades-long trend."

To what degree is selfishness actually a problem?

"There is no such thing as decreasing returns to scale" - Miles Kimball

Monday, May 29, 2017

Matched Time: New Wealth, Complete Debt Obligation, or Both?

Matched time - or time arbitrage - can be likened to a debt obligation, in the sense that a completed time obligation resembles a completed loan. However, unlike the completed loan which solidifies a given state of resource capacity (often in the form of income capture), matched time arbitrage incrementally moves growth forward. Even though traditional loan formation can still generate a similar process; at root it remains technically stationary, or dependent on real economy conditions. On the other hand, matched time could generate new wealth which moves beyond traditional resource shifting functions.

Unlike the nominal representation of money in a loan process, time arbitrage is resource capacity, with real economy or supply side potential. Where a traditional loan is one unit of transferred real economy activity, matched time would generate two units - both of which are capable of expanding the marketplace outward or "forward". Only recall that money is not an actual wealth component, to understand why matched time (as matched loan) is different from the monetary obligations which are gradually reduced on ledgers. Should matched time become part of a recording process, it would tell stories of voluntary economic commitments - each capable of wealth generation and the contribution of real activity to the economic landscape.

In time arbitrage, the mutual employment of time commitments is no longer a system cost, but rather, a cost in terms of personal time choice. Whereas one's time is normally sold as skill demand in the system costs of asymmetric compensation, and skill providers in these circumstance tend to have limited bargaining power for personal time management. Knowledge use systems which organize for symmetric compensation, allow personal time value to become a functional consideration in decision making for skill supply. Via this method, time arbitrage becomes an integral supply side tool, for services generation and mutual coordination.

Some of the confusion about finance as wealth generation, stems from the notion of money as actual wealth. Nevertheless, Adam Smith and many others have emphasized money as merely a representative tool, of the real economy wealth already taking place. While money is the nominal measure of all economic activity, its most vital role is economic stability, in a faithful mirroring of the aggregate spending capacity which occurs along an economic continuum.

Only consider that when central bankers fail to represent real economy circumstance "on the ground", production losses can ensue which aren't readily recouped in the short run, or possibly longer. Perhaps it's the fact monetary policy is fully capable of destroying real economy growth, which sometimes lead to the confusion that money somehow creates growth - independent of real economy circumstance.

Money's representative role is not the only confusion, in terms of wealth creation. Indeed, there were times when it was easy to confuse finance with wealth creation, since broad gains in scale have correlated with a wide range of financial innovations, for centuries. The growth "potential" of fiscal policy, has been caught up in some of these same resource realignment - versus resource multiplication - strategies. And today, many financial tools are not utilized so much for real economy growth, as for holding patterns in already existing wealth. As many earlier gains in scale have moderated, so too the ability of finance, to assist real economy wealth creation functions.

Time arbitrage could help to restore the kinds of long term growth which benefit from incremental time use gains, among populations as a whole. Time value as a supply side function, could eventually contribute to total factor productivity, for it encourages new services generation which does not make demands on the revenue of other productive enterprise. Indeed, today's governments have a limited ability to achieve growth through tax reductions, since so much important economic activity includes budgets in need of those very taxes. In other words, too much knowledge use in the marketplace, remains dependent on the very government revenue, which citizens have become increasingly reluctant, to provide.

Saturday, May 27, 2017

Build a Better, Market Facing Safety Net

If it were not already obvious, attempts to expand access to today's knowledge and time based services provision, are no longer a practical option. For instance, public reactions to lost access in healthcare, may even be met with the reality of body slams in the new economic "normal".

Like many, I'm not particularly fond of this state of affairs. Nevertheless, wishful thinking is not going to change the fact that freedom of choice for producers and consumers alike, was never really a valid position in the construction of our services based safety net. It's time to think outside the box, for the entire supply side structure of time based services. Many would be relieved (except possibly the most adamant knowledge use NIMBY factions), if time based services and their related product, could be rebuilt via new, non confrontational means.

A better social safety net is possible, on terms not only capable of expanding wealth, but decreasing the extensive debt loads held by today's governments. A market facing safety net, which gradually builds up from the time value of each individual, could restore long term growth and civility alike. Presently, what stands in the way of progress, is the fact some of most important elements of our time based safety net, are held between our governments and the elite. How is it possible for citizens to take part in these vitally important social interactions, given this set of circumstance?

Consider how free trade has reversed in some important respects, as its most beneficial features were created once locally, and had to be encouraged both nationally and internationally. Today, it is just the opposite, for there is precious little free trade in many of our own communities. In "Adam Smith: In His Time And Ours", Jerry Z. Muller writes:
Compared to the classical philosophers or even the early modern humanists, Smith was less concerned with the welfare of the social and political elite, than with the welfare - both material and moral - of the vast majority of society. He believed that the proper yardstick of the material wealth of the nation is not the government's economic resources or the wealth of its elites, but the purchasing power of the nation's consumers. Commercial society, he believed, made it possible for the mass of the populace to escape the demeaning relations of dependence characteristic of the past.
When governments and special interests hold the most important keys to wealth creation, citizens once again become helpless dependents, as they lose their ability to remain socially and economically viable. Before authoritarian governments become an entrenched part of the landscape, and all civility is lost, we need to reclaim the ability to build better markets for safety nets, lest more economic freedoms are lost. Otherwise, citizens and the media will continue to either fight or belittle one another, alongside politicians and members of our own extended families.

We can't afford to lose faith in the civility of the commercial society, which Adam Smith promoted so extensively. Just as the communities of his time came together in the trade of goods, the communities of our time now need to come together, via the trade of services. The free markets which improved the lives of so many, could readily be adapted to our own knowledge use potential, for time based service creation. Without the wealth creating option of more extensive knowledge use, the thuggery that is such a part of the daily news, could become more prominent than ever.

Thursday, May 25, 2017

Why is Input/Output Measure So Important?

In my last post, I briefly explained how - alongside time arbitrage (a different form of productivity quantification) - the Solow residual could be further accounted for, as two distinct conceptual relationships for determinate and indeterminate product. Even though it's not possible to accurately portray output for indeterminate time based product, only remember how its total wealth capacity reflects determinate product aggregates. If economies are to grow, more determinate product is needed, to offset the growing uncertainties of indeterminate product formation.

To this end, I have suggested time arbitrage as determinate product service formation, and as a direct wealth source to help stabilize the output of indeterminate time based services. Doing so becomes all the more important, as governments become less able to secure healthcare for a growing percentage of their populations. A new form of productivity measure, could help to quantify time value in relation to itself, as a complete (decentralized) resource aggregate.

Normally, money provides complete coordination patterns for other forms of resources, but today's nominal income aggregates only partially fulfill this function for time value - in spite of very real time scarcities by which we fulfill our obligations. Skills sets, thus far, have remained isolated and tapped in limited institutional settings. While this isolation is understandable, the growing efficiency of tradable sector activity, means that too much potential time value has been externalized and left on the economic sidelines.

What makes the Solow residual so important, for the continuation of economic progress? Determinate product, which presently consists mostly of tradable sector output, shows when output gains move ahead of the total investments required to generate new product. This is progress in a nutshell, in that it makes room for more producers, more consumers, and a larger pie.

Part of the present day confusion, revolves around the fact that even though tradable sector activity (due to increased output) translates into wage increases, the "more output for less labour hours" approach, does not necessarily work the same way for other sectors. High skill levels may mean more human capital input for less human capital output, when the desired output is time based product. For indeterminate time based services, expecting substantial compensation can translate into claims on already existing wealth capacity, which diminishes the pie in terms of monetary representation for output, and personal participation.

Hence progress is not a certainty, for the marketplace of indeterminate time based services product. In times of economic stagnation, this circumstance can make the widespread use of knowledge, increasingly fragile. What's more: Institutional time reductions to reduce input in relation to output for time based product, are not desirable in every instance. In what I have termed asymmetric work, the input for high skill time based product involves extensive human capital investment, which is externalized in separate institutions. Yet the resulting high wage compensation, moves the input to output equation even further in the wrong direction. Consequently, human capital as investment for indeterminate time based product, cannot help but detract from total factor productivity gains. It's useful to be able to pay for valuable skills as one desires, but there are trade-offs to be had, when the educational costs for doing so cannot be aligned within the the same institutional settings which generate output.

Nevertheless, use of the Solow residual can still assist indeterminate time based services product, insofar as meeting the budget requirements of non tradable sector secondary markets. But there's at least two problems with this approach. When does automation conflict with, or even negate, an already extensive personal obligation to fulfill the required human capital investment? Also: When do institutional reductions of time value, result in the loss of personal interaction which matters most for provider and recipient alike?

By capturing input and output in the same institutional setting, time arbitrage would register ongoing productivity gains for time increments as a whole, with time aggregates as a relative constant for quality service gains. This determinate time arbitrage measure, could help to maintain the delicate balance which exists between today's indeterminate time based services, alongside the wealth of tradable sector activity. In particular, the balancing act of knowledge use has become more difficult for larger nations, which tend to experience too great a divergence in income levels to successfully manage social safety nets.

It's important to make certain that secondary market formation, does not eventually drag down the stability of primary market wealth. However, there is an important cultural context. Following the Solow residual, only means less employment is needed for the production of tangible goods. This is why it is vitally important, to define knowledge use as part of a tangible and measurable time based product, for broader societal participation. Yet today, it is believed that only a certain, small percentage of the population is intelligent enough to utilize knowledge on economic terms. That's a perception that will have to be overcome, in order to successfully move forward. Otherwise, there are few means by which to bridge the growing divide between loss and opportunity.

Sunday, May 21, 2017

Notes on the Solow Residual and Aggregate Supply

A recent post from the Institute for New Economic Thinking, entitled "The New Normal: Demand, Secular Stagnation and the Vanishing Middle Class", deserves more responses from other bloggers than it is likely to receive in a time of political volatility. First, a point of agreement, with Servaas Storm's assessment that the U.S. is becoming a dual economy:
...two countries, each with vastly different resources, expectations and potentials...
Nevertheless, I have little choice but to pour "cold water" on his hopes that a divided whole can somehow be reunited, via what would essentially be the same "dressed up" equilibrium (more income for all) model - albeit with a drastic retake on monetary policy. Fortunately, that does not mean there are no good alternatives. In a way, I can understand why some would hope that modern monetary theory could address both budgets and income divides, when presently, precious few other options are on offer. Just the same, I'm afraid this approach would only disappoint, were it ever given a serious chance in Washington.

One interesting aspect of Storm's post, was the suggestion that the Solow residual could simply be disregarded in the future. He feels it serves little purpose - even to the extent of standing in the way of long term growth:
The task looks Herculean because, as most economists would argue, the U.S. is riding a slow-moving turtle and there is little politicians can do about it. This view is founded on the evidence of a secular decline in aggregate total-factor-productivity (TFP) growth - a widely used indicator of technological progress, fondly known as and measured by the "Solow residual". Dwindling TFP growth, which is in this view taken to reflect a general malaise in exogenous "technology-push" innovation, reduces the rate of growth of potential U.S. output... 
The U.S. is suffering from two interrelated diseases: the secular stagnation of its potential growth, and the polarization of jobs and incomes. The two disorders have a common root in the demand shortfall, originating from the "unbalanced growth" between technologically "dynamic" and "stagnant" sectors, which - crucially - is bringing down potential growth. To understand how the short-run demand shortfall carries over into the long run, we must first rethink the Solow residual, which economics textbooks define as the best available measure of the underlying pace of exogenous innovation...But it can be shown, using national-income accounting, that there is no such thing as a Solow residual, because it must equal - as a matter of accounting identity - either "weighted-factor-payments" growth or "weighted-factor productivities growth".
First: Those who read his post in its entirety, will note that Servaas Storm also has a different perception of what William Baumol's equilibrium imbalance implies, than what I recently stressed. As far as I know - and someone please correct me if I'm wrong -  Baumol never suggested that wage equalization in stagnant sectors would make them more "dynamic". After all, wage equalization in non dynamic sectors would mean both higher wages and higher costs as well. When Baumol said time based services could eventually impede growth, it was because income gains in these sectors translate into increased costs for others, displacing more efficient dynamic sectors.

However, real gains come from making income go "much further" via innovation in basic equilibrium settings (consumption gains), rather than trying to "stretch" income levels to fit a given equilibrium pattern. While equilibrium imbalance may appear as an income problem, the underlying problem is an imbalance in resource utilization, or in terms of the input (investment for economic access) that is now required for the output of time based product.

At the very least, present levels of indeterminate output are being held in check, relative to the wealth creation that is determinate output. Why should this matter? We are still adding to the input requirements of time based product, even as we gradually come to expect less output from the actual process. Indeterminate time product output, translates into more economic uncertainty. Why save every extra dollar in one's working years, to wait and travel in retirement, if doctor's bills only end up requiring retirement savings? Consequently: In aggregate, we keep trying to pay for time based services with time we don't actually have, which leaves everyone perpetually behind the starting line of opportunity, with a negative Wicksellian interest rate.

If we were to deny the Solow residual and turn modern monetary theory into fiscal "monetary" policy, this cost/input process would be exacerbated - both by the loss of measure for tradable sector activity, and the extent to which automation does affect non tradable sector services generation. Accounting identities do not recognize the validity or differential of aggregate input, in relation to aggregate output. As time based product becomes more prevalent in relation to tangible goods, product indeterminacy means taking the chance that more individuals will become inclined to disregard the value of knowledge based product. Presently, aggregate time value does not have a reliable relationship, with knowledge use and other forms of resource capacity. Discarding the Solow residual concept would only make this situation worse.

While we have greatly benefited from indeterminate knowledge based product in recent centuries, taxpayers are only inclined to tolerate service product indeterminacy, up to a point. One only hopes that we will not abuse the trust of today's knowledge use patterns which fiat monetary policy makes possible, via spontaneous coordination at a national level. Few taxpayers question the output gains of tradable sector output, because this determinate output is an obvious indicator of progress. Whereas even though non tradable sector time based product holds tremendous value, all along we've have to take the vital connections between labour hours and aggregate supply, on faith.

What can be done? Instead of doubting the integrity of the Solow residual - and traditional monetary theory for that matter - create real space for new long term growth. Generate time based services growth, as a form of determinate output. While aggregate time value would remain relatively constant, ongoing management in knowledge use, would mean an entirely new way to capture productivity gains.

Today's indeterminate services product may stand a better chance of retaining its nominal income value, with the addition of time based services creation as a determinate form of output. By creating space for services that can be readily be measured, everyone's time would gain additional value in the marketplace. One way to think about the process is that determinate time based service product, or time arbitrage, would be measured differently than the Solow residual, because of time constancy in employment for time based product. However, it is the new ability to measure service creation at the margin, which ultimately helps to preserve the measurement integrity of the Solow residual, for both tradable sector production, and the technology gains of today's indeterminate services product as well.

Fiat monetary formation, thus far, has allowed indeterminate services product to generate a secondary marketplace which reflects the wealth creation of today's primary markets. What is particularly important, is that the second group exists in relation to the first, in terms of aggregate resource capacity. One of the main problems with modern monetary theory, is that it would not be able to faithfully represent this relationship, a fact which could put a considerable amount of knowledge based product in jeopardy. Let's hope that doesn't happen.

Saturday, May 20, 2017

Social Capital Requires A Primary Economic Context

Compared to other aspects of our lives, the forms of economic association which contribute to social capital, are not always considered. Yet in order to remain viable, both formal and informal association require a strong economic context. In cities, many aspects of this process appear as though spontaneous, for a diverse economic core has room for both profit and non profit efforts in this regard. But when communities lack a primary economic core, their citizens tend to lose common purpose, and may revert to more tribal forms of association which - instead of encouraging trust and mutual cooperation - become more authoritarian in nature.

Indeed, it is difficult for people to effectively engage with one another, without an economic context which reinforces social capital. Fortunately, the encouragement of social capital is not always beyond the realm of corporate possibility, as I'll explain shortly. In recent years, my main "beef" with some free market defenders, is the fact too many appear to believe economic prosperity occurs so spontaneously, it requires little forethought or planning preparation. How, exactly, does one set about utilizing resource capacity in more productive settings, without careful preparation?

Meanwhile, this free market "hands off" approach, continues to be encouraged. Nevertheless, a word of caution: that same hands off approach on the part of private enterprise, likely contributed - alongside the monetary mistakes of the Fed - to the severity of the Great Depression. And "do nothing" crony capitalism, has meant more governmental control over the economy, by default. Over time, that centralized control has lead to less economic dynamism at local levels.

A recent OECD paper asks "What is social capital?", to which Timothy Taylor responds:
The concept of "social capital" is slippery to measure or analyze, but the OECD, for example, defines it as "networks together with shared norms, values and understandings that facilitate co-operation within or among groups."
And he muses:
...while I can easily believe that social capital is generally important, the specific processes by which it is created and reinforced are not clear to me. It would be peculiar and anachronistic to yearn after the good old days of 1840. If the people of 1840 had radio, television and the internet, not to mention the ability to hop in a car or plane and travel, then the "associations" observed by Tocqueville would have looked rather different. 
Taylor goes on to describe changes (and losses) in association, in a post which is well worth the reader's time. Is there a simple way to think about what has happened, over the years?

For one, consider the earlier associations of rural life, which revolved around agriculture. Even though many interpersonal relationships were of an informal nature, they shared a common economic (seasonal) core of mutual coordination. This interconnected context, provided means for citizens to observe the behaviors and habits of their neighbors, which provided important clues for trust and mutual commitments.

Part of the reduced trust of the present, results from the fact many citizens no longer have a shared local economic core, by which to observe one another and build trust. And the "trust" mechanisms provided by big data are increasingly coming up short, so far as the mutual trust which is possible between individuals. K-12 schooling is the main partial coordination mechanism, that many small communities still have. Yet even this important social context is largely lost, upon graduation. While local retail still provides limited settings for community social capital, much of this has dwindled further, with the advent of online retail.

Associations aren't as simple as they once seemed. Looking back, I realize how fortunate I was, to spend my youth in an environment which greatly benefited from the intentional efforts of a corporation. I grew up in a neighborhood that felt a lot more real than many of the neighborhoods I've experienced, since.

Normally, one would expect a community with a population in the hundreds, to have little to offer. Hence how could an oil refinery tempt people with reasonably good skill levels, from more prosperous regions? Yes, planning was involved, and some of it long term, because they knew they would eventually need to expand into the areas where they would provide accommodations for the medium term. Hence the housing they built for their employees in the forties, would be sufficient to last four decades. Further, rent was set so low, most employees had little trouble saving for home ownership - often without need of a mortgage.

Of course, the rental houses were just the beginning, as the local refinery also built a club house for employees and their families, along with a pool and playgrounds for the children. These areas served as places where the whole community could meet. The club house hosted everything from barbecues, dances, bingo games and of course the annual Fourth of July fireworks.

Even though the population of this little town was only in the hundreds, all the amenities provided by the local refinery went a long way to encourage locals to spend quality time with one another. Certainly, no one "owed their soul" to a company store, as the local grocery stores were privately owned and run. Alas, it is the latter aspect of corporate rural life which is more likely to be remembered in history books, which is quite a contrast to the positive memories of my youth.

Despite the fact it isn't practical for traditional corporations go the extra mile to generate social capital in the present, a new corporate structure could focus on a different form of resource capacity, altogether. The intentional community of my childhood, still serves as inspiration in the present. Given today's abundance of human capital, why not "process" this skills potential, in the form of value added time based product. Doing so, would mean much needed primary economic context, and a solid core from which to build new community. While this approach could help many locales, it would especially mean a new start for rural communities, where so much earlier economic coordination and social capital, remains all but forgotten.

Wednesday, May 17, 2017

William Baumol and Equilibrium Imbalance

Among the more notable economists from the 20th century, William Baumol is at the top of the list. It's a shame Baumol didn't win a Nobel prize, and he will be greatly missed. In recent years, I've come to realize how the "cost disease" which bears his name, is important for my own "work path", as well. Could purposeful activity along the margins of general equilibrium, help to overcome economic stagnation?

Yet perhaps it is fitting, how Baumol's confidence in the present day economy, prevented him from dwelling too extensively on this "unsolvable" problem. He highlighted the intractable nature of the cost disease fifty years ago, in Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis. Here, I'll borrow Dietrich Vollrath's version of a quote from Baumol's paper, as it neatly condenses some of what I wish to emphasize:
If productivity per man hour rises cumulatively in one sector relative to its rate of growth elsewhere in the economy, while wages rise commensurately in all areas, then relative costs in the nonprogressive sectors must inevitably rise, and these costs will rise cumulatively and without limit...Thus, the very progress of the technologically progressive sectors inevitably adds to the costs of the technologically unchanging sectors of the economy, unless somehow the labor markets in these areas can be sealed off and wages held absolutely constant, a most unlikely possibility. We then see that costs in many sectors of the economy will rise relentlessly, and do so for reasons that are for all practical purposes beyond the control of those involved...If their relative outputs are maintained, an ever increasingly proportion of the labor force must be channeled into these activities and the rate of growth must be slowed correspondingly.
First, it's probably a good idea to note some variations in language use. Baumol refers to services (which include time as final product) as nonprogressive sectors, versus the labour included in tradable sectors as progressive sectors. Recall that Adam Smith, for instance, simply referred to the labour output of services (with no tangible product) as unproductive labour, as opposed to the productive labour of tradable product. However, common designations in these discussions, tend to focus on tradable sector versus non tradable sector outcomes, rather than emphasizing aspects of labour such as quantity or purpose. Regarding tradable and non tradable sector activity in this context, Dietrich Vollrath noted in (the above linked) "Understanding the Cost Disease of Services", the Balassa/Samuelson effect, where he writes:
For my money, the biggest insight Baumol had was to notice the differential in how labor matters to production in goods and services. The subsequent logic, by itself, is not a major breakthrough. The Balassa/Samuelson effect - developed by those authors in articles published in 1964 - is the same idea. They distinguish between tradable and non-tradable goods, rather than goods and services per se, and they are thinking about a cross-sectional comparison of countries, rather than one country in time, but the outcome is identical. Countries that are very productive in tradable goods will tend to have high aggregate price levels (an empirical regularity known as the "Penn effect"), as that productivity drives up costs in their non tradable sectors.
Vollrath added that labels matter, because after all, Baumol's cost disease is a result of incredible affluence. He reasons that given this reality, affluence as such doesn't need a "cure". So far as labels are concerned, it also helps to distinguish the aspects of non tradable sector activity which are more closely correlated with time based product. To this end, I've included primary and secondary market categories, by which to further distinguish labour functions in their wealth creation roles. Among the reasons this distinction helps me, is that real estate as a "nonproductive" feature, occurs for different reasons and includes different sets of dynamics, than the time based productivity issues of healthcare and education.

Real estate in the form of land and housing, tends to capture the nominal income of both tradable and non tradable sectors. Indeed, real estate (as a primary cost of economic access) likely bears considerable responsibility for the diffusion of productive tradable sector income across other categories. In this sense, housing and land provide a strong correlation for nominal income, even though they are not its entire representation. Today, central bankers are reluctant to encourage additional growth in nominal income, and equilibrium imbalance might be one of the reasons. This is one reason why I've experimented with an alternative equilibrium scenario, which could provide a representation between local income, real estate and land use which need not depend on the standard wage requirements of general equilibrium conditions.

Reading Baumol's paper from 50 years earlier, one is struck by what has changed, and what remains the same. While he was particularly concerned with imbalances at local levels and the problems they posed for municipalities, those imbalances have gradually become more problematic for nations as well. Doubtless, some of this is related to misguided efforts to coordinate time based healthcare product via centralized and national terms, particularly in the U.S. Nevertheless, Baumol fully understood the eventual possibility of economic stagnation - even then - for he writes:
Our model tells us that manufactures are likely to decline in relative cost and, unless the income elasticity of demand for manufactured goods is very large, they may absorb an ever smaller proportion of the labor force, which if it transpires, may make it more difficult for our economy to maintain its overall rate of output growth.

Monday, May 15, 2017

Become the Change We Want to See

How to do so? Create new means for marketplace choice. After all, people gain the ability to voluntarily move away from negative circumstance, once more promising and productive paths are actually forged. Granted, there's still a place for moral arguments in economic discussions. Nevertheless, moral arguments alone, won't build a stronger society. Sometimes, it does little good to criticize institutions, particularly those which evolved during periods when resource capacity was differently aligned. The world can't be changed, institutions can't be expected to change, just because some groups find them offensive.

Of course, this post is an economic version of "becoming the change we want to see in the world". The main economic institutions we rely on today, originated in historical settings when resource use concentrated on tradable sector output gains, rather than applied human capital gains. It's time to focus on the latter. Once a given equilibrium matures, economic institutional design needs to highlight the resource capacity which remains underdeveloped and underutilized, for this is where new growth is possible.

For instance: Instead of complaining that today's corporations don't meet the needs of citizens, emphasize new corporate design that can do so, via focusing on human capital potential. Since organizational patterns for wealth creation have often been structured to profit from exclusivity and the best skill sets, generate new institutional settings which profit from inclusive participation, and a wider range of skill sets.

And rather than focus on the lack of sustainability for some of the world's primary resources, why not create sustainable patterns for mutual employment, so that the bulk of the world's resource capacity does not have to also support the entire costs of experiential and applied knowledge. If the use of knowledge can be organized so as to directly generate wealth, more of the world's commodities can be used to the extent they are naturally sought for their own benefits.

Instead of decrying the "overuse" of fossil fuels, create settings for living and working in which fossil fuel use is less necessary for these daily functions. Indeed, the primary benefit of fossil fuels for humankind has been an increased ability to explore the world. Yet we still have not designed communities for all income levels, in which the use of fossil fuel infrastructure is primarily intended for the weekends, while walkable communities (campuses for time based services) provide the weekday balance which so many individuals actually need. Why not also create paths dedicated to bicycling, to connect time based service campuses (for all ages) and commercial areas?

It's better to create marketplace options such as these, instead of insisting everyone live and work by the same marketplace conditions. Not only does such insistence translate into unnecessary limits on others, it also means unnecessary limits on our own abilities and aspirations. The best way to maintain prosperity, well into the foreseeable future, is to make certain that marketplace choice has a chance to endure.