Sunday, April 30, 2017

Wrap Up for April 2017, & Notes on Freedom

Recently, Adam Ozimek argued that libertarians should become more "realistic". How much compromise does such an argument suggest? As a libertarian, I've argued for decentralized settings which encourage greater economic and social freedom, rather than imposing a single set of conditions on any political constituency.

A couple of points: Much emphasis on greater freedom, is primarily the dialogue of those who already prosper. Meanwhile, millions lack the kinds of economic settings which would contribute to greater freedom and long term prosperity. Why has economic freedom not been promoted, for multiple income levels? In particular: where populations now have the least freedom of all: the welfare state. Libertarians could lessen today's political polarization, by generating better free market options which actually tempt individuals to leave the limited security promises of the state.

Perhaps libertarians have found themselves on the losing end time and again, because everyone imagines themselves as though stuck with the same set of economic circumstance. Unfortunately, the same set of economic rules for all concerned, is turning welfare states into debt burdens, in which income levels vary too much for a single system to work property.

Of course, the hardest part, is the natural inclination on the part of governments and their populations, to solve extreme income differences as a single equilibrium problem. Is it just me, or do people really become more strident and authoritarian, when a single equilibrium no longer responds to reason and common sense. Nevertheless, there is no longer sufficient room in today's general equilibrium conditions, for everyone to fully participate.

Consequently, too much human capital and knowledge potential is being squandered on a daily basis. Why not consider an alternative equilibrium option, which would be more fair for all concerned, given the constraints of monetary and time value as differently apportioned. It's better to create alternative welfare systems for alternative income levels, than to destroy a system which cannot be expected to work for everyone.

In "No More Roads", Henry Grabar writes:
The rural population, after three decades of declining growth, started shrinking in 2010. In America's metro areas, where more than 4 in 5 Americans live, the road network has been expanding faster than population growth since 1980...In and around cities, road mileage has grown at exactly twice the rate of population. 
David Beckworth for U.S. News, "Never before has the Fed had to shrink its balance sheet. It is effectively flying blind and the stakes are high."

Some counties have more problems regarding lack of mobility, than others.

Steven Durlauf at Vox, provides a summary of Kenneth Arrow's achievements.

Job growth has been underwhelming.

What is already happening, due to the impact of robots?

Money and Banking looks at "The Fed's Balance Sheet and the Stance of Monetary Policy"

Ricardo Reis: Is Something Really Wrong With Macroeconomics?

George Selgin explains his interpretation of aggregate spending capacity.

David Beckworth's interview with Tyler Cowen and a response from Scott Sumner, "Is the public opposed to NGDP Targeting?"

Even if the whole group acts like one individual, don't treat it as if that were actually the case.
(Arthur Brooks) http://www.aei.org/publication/protests-fact-life/

What did the Fed do wrong? Scott Sumner gets really specific.

Nick Rowe:
..."capital" is the time-structure of production. Whenever you start a production process that has present costs and future benefits, you have capital. And the innovation itself is a capital project.
Ed Dolan: What is the role of "big government" in prosperity?

Alice Rivlin: mutual support for budget matters in turbulent times.

Josh Hendrickson addresses "Some Myths About Interest on Reserves".

The economic consequences of partisanship in a polarized era.

Cashier or Consultant? Entry Labor Market Conditions, Field of Study, and Career Success

Is it realistic to attribute Rust Belt decline, to China and Mexico? The real changes took place before these countries became a substantial part of the economic equation.

Some interesting comparisons: http://www.investmentzen.com/news/this-map-ranks-the-affordability-of-houses-in-major-u-s-cities-relative-to-income/

Edward Glaeser: "Reforming land use regulations"

Friday, April 28, 2017

Does Credit Origination Still Contribute to Long Term Growth?

Is the mechanism of credit creation, still capable of moving society forward? Much depends on whether credit origination is mostly used to tap already existing income (housing and other consumption), or whether credit provides additional means for output gains. Increasingly, credit origination is associated with the wealth capture of already existing income, rather than capital which builds new wealth. Yet the loan origination which contributed to output gains in recent centuries, played the vital role for long term growth and prosperity.

As many traditional economies of scale were tapped in recent decades, central bankers began to move credit origination into holding patterns - a process they also believed could maintain important asset values. These holding patterns included a growing emphasis on income based wealth capture, as possibilities for wealth creation appeared less certain. While wealth capture roles for credit origination might prove capable of maintaining economic stability, this development is nonetheless a dramatic shift. In the meantime, the role of central banks as central to sustained prosperity, has become less certain. Can this institution continue to thrive, if it does not remain actively involved in long term growth potential?

Here, a bit of clarification is perhaps in order: I've described tradable sector activity as holding a first mover position in terms of wealth creation, However, central banks hold what is also termed a first mover position for monetary aggregates. A nation's central bank provides the context for the money which is available at any given time in a national economy, in relation to other banks within the system. In other words, even though individual banks appear to "create money" with the stroke of a pen (new loans), this money exists in terms of what has already been established as feasible. Individual banks thus holds a secondary position, in relation to the first mover monetary position provided by central banks.

Yet even though today's central banks are the first mover for monetary origination, they still follow another lead: one established by the exchange of resources which define real economy output. For example, if central bankers do not adhere to this representation in terms of aggregate spending capacity, individual banks are limited by the same circumstance. If monetary representation is insufficient, this can negatively affect the scope of real economy production capacity, as well.

Envision the secondary action of an originating loan, as the defined monetary setting which individual banks can draw from. Expansion in growth is feasible, should year over year loan origination aggregates contribute to greater production output. In this sense, individual banks can help to "grow the pie". Whereas mortgage loans and credit card expenses are more closely related to claims on prior income. The latter is also wealth capture, since it stakes a claim, on an already finite amount of time value. In other words, one cannot duplicate personal time commitments, so as to engage in other economic activity. While consumption loans have their place in terms of aggregate demand, they are not a direct means of contribution for long term growth potential.

Imagine the wealth creation process as beginning with mutual exchange, which in turn gains the further representation of money and credit systems. In all of this, one also needs caution when debating fiscal policy and other processes which downplay or even leave out the actual element of exchange. Like loan origination, any multiplier potential on the part of fiscal policy, depends on whether it reinforces wealth capture, or wealth creation.

Time arbitrage could provide new long term growth, by bringing a new element of exchange to the marketplace on real economy terms. The use of time value via incremental units, could provide a building block structure with greater strength and less risk for sparse or sporadic income, than traditional loans. By building wealth slowly and incrementally, both skills acquisition and asset formation can accumulate gradually. Hence time arbitrage could contribute to long term growth patterns, at a time when traditional credit structure is increasingly oriented towards the spending patterns of upper level incomes.

Wednesday, April 26, 2017

Economic Time Value is a Logical "Next" Step

One reason it is difficult to address the growing issue of technology driven unemployment, is the fact some of this problem remains in the future - even if that future is no longer in the far distance. Meanwhile, the present backdrop of "apparent" full employment (by traditional measure), encourages many to believe the issue can be safely dismissed for now.

Yet this "do nothing" response is hardly as safe, as it may appear. Perhaps the fact no "Plan B" exists, accounts for why basic income as concept, gets a fair amount of traction, in spite of growing long term budget issues for nations in general. Already a simple example of potential economic fallout in the U.S. is on the horizon: a wide range of drivers could be replaced in coming decades with autonomous or self driving vehicles. If options for widespread continued economic participation are not already in place should this occur, there's a risk that production capacity could be lost, on a scale at least equal to what occurred in the Great Recession, when central bankers neglected to maintain a stable nominal income level.

Whenever technology driven unemployment is debated, it helps to take a long range view, about the societal options which actually exist for product potential in the marketplace. It's not really feasible to think about future work options, if we don't also consider other important characteristics in our environment at the same time. Plus, what we collectively believe to be valuable as marketplace product, directly influences the work options we actually have. Indeed, while educational product as economic access has turned out somewhat dubious; educational product as experiential good, turned out to be a positive result of the 20th century progressive movement. This, even though formal education wasn't exactly promoted in a traditional marketplace context.

Despite the fact excessive secondary market structure now limits the participation template (and growth potential) for developed nations, some of its initial 20th century framing for marketplace expansion, proved to be a positive on a number of levels. The initial useful impact of formal education on wealth creation and employment potential, cannot be dismissed. Might the promotion of a more complete context for economic time value, provide a logical "next step" in this progression?

Ideally, the next step could restore the primary market function as a major component of long term growth, for developed nations. Why does time value - as commodity - hold potential for providing this role? Through the (monetarily) reinforced purchase of time value for time value, everything from time based maintenance activity to research and development activity, would contribute wealth generation from a primary market position.

How was formal education able to contribute to overall growth capacity, from a secondary market position in the 20th century? The advent of extensive formal education for populations as a whole, mean more customers for product which directly benefited from this increased level of knowledge dispersion. Formal education contributed to the mass production of tradable sector product which did not need a direct time based link. In other words: initially, formal education led to additional employment not just in terms of the discipline itself (further provision of education) but served as a multiplier for the kinds of tradable sector product which in turn could consequently be generated in the marketplace.

Nevertheless, secondary markets such as formal education (and healthcare), now face constraints which mean real limits in the template for economic participation which is presently possible. One important aspect of this constraint, is that it contributes to class divisions as well. Even though property zoning is problematic in terms of social and economic exclusion; presently, the "zoning" of knowledge use would continue to divide populations, even if property zoning were to be eased in the near future.

It is difficult to directly observe the dependent role (in terms of wealth creation) for non tradable sector activity as contrast with tradable sector activity, since non tradable sector activity assumes dominance in terms of monetary requirements. However, over the long term, resource capacity for non tradable sector activity also needs to be well organized at internal levels, just as what occurs for tradable sector activity. For time based services of all skill levels, maintaining these vital functions of society may sometimes require decentralized processes - especially when tradable sector activity becomes highly automated and in less need of paid employment.

Otherwise, nations may experience too much difficulty, in their efforts to continue the first mover wealth creation positions which set the possibilities for monetary velocity. By matching time value internally for a wide skill range of knowledge and maintenance functions; resource capacity for time value, would ultimately function as efficiently as has been possible in tradable sector activity.

Economic time value in the marketplace is the next logical step. Initially, in the 20th century, formal education greatly contributed to time value. However, since individuals did not have economic means to purchase the incremental time of others through their own, only a limited number of specific skill sets could be directly rewarded in the marketplace. Consequently, too much human capital investment could not be directly tapped, and went underutilized. Today, as labor force participation declines, people do not have good options outside the marketplace to assist others in ways capable of promoting economic stability.

Even though 20th century education suggested great promise for time value early on, marketplace growth momentum was lost, as the secondary market position of knowledge use drifted towards centralization. In recent decades, centralization of high level skills use, has diminished the platform of economic participation which is possible. A marketplace for time value, could once again expand the template of economic participation, through decentralized settings for productive levels of knowledge use.

Monday, April 24, 2017

Be Careful When Designating Scarcity

Economics is sometimes said to be - more than anything - studies in scarcity. When something is designated as scarce, it becomes more valuable. Yet how do we know that the scarcity in question, is actually a natural constraint?

Often, the products of tradable and non tradable sectors are subjected to artificial scarcities, so as to ensure greater profits. While artificial scarcity in tradable sector product may translate into limits for discretionary income, this scarcity result isn't necessarily problematic. Alas, artificial scarcity results are not always so benign, when they apply for time based product. In recent decades, the artificial scarcities of healthcare time based product, have become a major contributor to growing protectionist and nationalist government tendencies. Indeed: perhaps one reason why libertarianism has not proven as popular with the public as one might expect, is that too few economists have highlighted the problems which artificial scarcities can create, for participation in today's economy.

Perhaps we need more studies which illustrate how artificially derived product scarcity can affect redistributional flows over time, especially as resource capacity is gradually reallocated to different forms of sector output. There is a particularly good example (the Great Compression), how Washington benefited in terms of fiscal policy discretion in the mid 20th century, during a historical period when wealth creation was closely associated with tradable sector output. Was it the fact this additional fiscal revenue was not yet required for extensive entitlement benefits, which made it easier to address inequality via fiscal means?

Nevertheless, given the reality of non tradable sector supply side limits; governments are slowly, but surely, losing the ability to use fiscal policy to assist the coordination of time based product. Unfortunately, the wealth of time based product is not available for redistribution, in the same manner as tangible product which exists separately from time value. As it becomes more difficult for governments to shoulder the costs of time based product, the artificial scarcities of knowledge use will need to be reevaluated.

The fact that governments can have additional leverage via fiscal discretion during historical periods of tradable sector dominance, but not necessarily at other times, certainly deserves attention. Because once non tradable sector activity begins to dominate, different resource use options come into play. Some of these options include greater knowledge use permissions than are now possible. If governments take on extensive entitlements during the "good years" they will eventually need to look beyond money driven strategies for the benefit of their own citizens.

Fortunately, there are ways to make knowledge product a more tangible form of good. Even though allowing for this would not provide the same investment gains as traditional tradable sector output, the process would still provide output gains which help to rebalance aggregate output towards tangible output gains. Better management of aggregate time value, would eventually mean greater clarity in terms of actual output. This, in turn, would gradually make government budget reductions more feasible.

Ultimately, the object is to seek fewer restraints on the product of knowledge and time value, so that income variance need not be so problematic for those who lack access to knowledge product in today's marketplace. In the mid twentieth century, greater equality was possible because of the prevailing degree of tradable sector output in relation to other forms of output. Even though it is not possible to restore this circumstance to a services dominated economy, it is imminently possible to restructure portions of services economies so that those who participate, also have the option to do so in settings that provide a role for the egalitarian use of time value.

Sunday, April 23, 2017

Knowledge Wealth vs the "Protection" Option

Is the product of knowledge still capable of contributing to long term growth prosperity - given the degree to which it is now "protected"? While some protection of knowledge product is warranted, copyrights and patents can still diminish the dispersal and competitive options of knowledge in the marketplace. Only consider for instance, how knowledge as primarily rival in use, now threatens the demise of extensive undertakings such as Google's database containing 25 million books.

One might describe knowledge product as "coming into its own" in the 20th century, as a primary contributor to wealth creation. Copyrights, patents, and of course public and private high skill employment, meant quantification and clarification for intellect as monetary value. These protections became more important as economies grew more complex, and were perceived as necessary in order to secure institutional advantage.

However, the loss of non rival knowledge for marketplace purposes, has proven a higher cost than once may have been imagined. Today, important non rival marketplace knowledge is mostly limited to "special" zones, where productive agglomeration at least makes some degree of knowledge sharing a reasonable proposition. What's more, the sharing of non rival knowledge for private tradable sector activity, could be more prevalent than the closely held knowledge of non tradable sector activity, as associated with government and non profit funding.

Once, intellect and personal ability were not so protected as marketplace functions. Until the 20th century, personal ability was associated with individuals who created autonomous and personalized spaces for the work of their choice. Gradually, that autonomy gave way to the asymmetric compensation of paid employment, for the externalized challenges of public and private enterprise. Might intellect have a chance to return to its autonomous roots in the near future? In the meantime, populations grow more compelled to march in the streets, so that the world will not fail to take note of the funding losses which might only be just getting started.

Perhaps "protection" was not such a safe bet, after all. Yet the asymmetric compensation of paid employment for high levels of skill, established a precedent which - until only recently - appeared secure as an organizational economic tool. Nevertheless, institutional skills capture, given its erratic nature, has come to mean increasing risks, for the human capital investment that is required for this organizational approach.

Further: where autonomous knowledge use was often non rival in nature, the knowledge capture of both public and private endeavour, meant little choice but to use knowledge as rival to other existing knowledge. The result? An uncertain supply side mechanism for knowledge use, which can't be relied on to provide a strong framework for knowledge gains as an integrated and ongoing process.

A different form of social cohesion is needed, which would allow the seekers of knowledge related endeavour to pursue their craft alongside more mundane responsibilities of life - with or without the traditional markers of success. The mutual self employment of knowledge use systems, would exist alongside innovative non tradable sector environments. The greatly reduced costs of these environments, would make it possible to pursue intellectual challenges without the exhaustive expenses which are required in the present. Plus, mutual self employment could also provide a safety net for a full range of skill functions, which would allow more individuals to pursue the challenges of knowledge over the course of a lifetime.

Increasingly, it is becoming difficult for governments to fund a wide range of taxpayer supported projects. This would not be such a problem, were there sufficient means to continue these vital challenges on private terms. Knowledge use systems could make it possible to pursue life's higher challenges via more secure footing in the future. What's more, this organizational method could do so, in ways which return non rival knowledge use to its natural wealth creation role.

Friday, April 21, 2017

Notes on the Changing Nature of Land Use

Does land have a discernible or specific economic role? For centuries, land gained value in accordance with its contribution to traditional forms of production. However, land use for production purposes has diminished somewhat, in relation to other roles which continue to grow in importance. In particular, land use roles figure prominently in experiential settings; and a growing association as well, with what is often termed "productive agglomeration".

Among the most obvious and long lived experiential land settings, are those which benefit from tourism and travelers in general. From the spiritual and historical beginnings of centuries earlier as starting points; the twentieth century introduced more ephemeral forms of experiential land use, with examples in the U.S. such as Disney and Las Vegas. For many travelers such as myself, the preservation of land with prominent natural features, is possibly the most valued experiential land use of all.

Sometimes, experiential elements of land value come into play when land loses some of its earlier productive associations. Today, if one wants to own a vineyard for instance, it helps to already be wealthy, first! Surprisingly, today's most important land values are a result of productive agglomeration. One might also describe this phenomenon as the "pinnacle" of economic access, or success. Where land value is highest, so too is human capital as measured fully in terms of monetary value, rather than the (potential) value of one's time.

While land occasionally suffers devaluation due to structural legal issues, property value variance for developed nations is nonetheless closely linked to perceived differences in (local) human capital value. This dearth of human capital value, is also expressed as broad variation in what might otherwise be average land values for developed nations. To some degree, human capital is being shorted, since it has yet to be framed on terms which make possible a full range of economic value. Consequently, land which otherwise holds normal life supporting capacity, remains undervalued alongside its existing relation to human capital.

Today's greatest land values exist in places which especially benefit from the serendipity of productive agglomeration. Human capital is in need of stronger economic representation, as the limits of asymmetric compensation have begun to impose supply side limits which also affect the costs of land in places of productive agglomeration.

Tuesday, April 18, 2017

Innovation Potential: More Abundant Than It May Seem

The good news? Innovation is not composed solely of major economic events. Nor is it simply the latest high tech advances. Likewise, wealth creation need not be limited to what occurs along the frontiers of knowledge in major universities or corporations. Fortunately, much of the "outside the box" thinking which could lead to eventual progress, is so incremental in nature, as to scarcely be noticed at first. Still: whether or not incremental gains can translate into larger economic gains, depends on whether innovation is believed to an economic option for all of society, and not just the few.

In recent years, I've been learning to describe the incremental patterns of time arbitrage as a potential template for economic interaction. Time arbitrage is a representational tool which would allow individuals to explore more meaningful contexts for services formation, one incremental matched hour at a time.

Presently, economic progress is mostly pursued in ways which leave little room for the contributions of average citizens. Yet policy makers are hardly alone, in believing innovation is mostly a matter of cutting edge technology and efforts from the most skilled members of society. However, this approach ensures that most of the innovation which takes place, is compensated and intended for specific purposes and outcomes.

Indeed, many earlier innovators whose contributions benefited all members of society, were not necessarily compensated by either governments or firms. Instead, innovators were similar to other individuals who were pursuing personal challenges and journeys of discovery, through their own means. It's time to reclaim the average citizen, as a part of the networks which include personal challenges and journeys of discovery.

A new book from Kevin Laland, "Darwin's Unfinished Symphony", appears to provide some interesting context for the role of innovation as well. As Arnold Kling notes, "The book is focused on the co-evolution of brain capabilities and culture in humans". Laland's description of culture is apt: "The extensive accumulation of shared, learned knowledge, and iterative improvements in technology over time".

His book also highlights a social learning strategies tournament. The three moves available to players in this game, are reminiscent of the ways we choose to respond to our environments: exploitation, observation, or innovation. When a given environment is stable, exploitation is often a reasonable option, for one can simply take advantage of available opportunities. Observation, on the other hand, includes the additional effort of verifying existing economic patterns, before taking action. Whereas innovation may become necessary to some extent, if the normal adaptations of exploitation or observation have become less well suited for replication.

Nevertheless: some readers are aware, that I hesitate to attribute cultural patterns to major differences in economic outcomes. The danger lies in assuming it is impossible - or at least not worth the effort - to encourage some groups to overcome ingrained habits and patterns which lead to negative economic consequence. Likewise, Hernando de Soto was skeptical, regarding the importance of culture as essential to economic progress. In "The Mystery of Capital", he wrote:
Throughout history people have confused the efficiency of the representational tools they have inherited to create surplus value with the inherent values of their culture. They forget that often what gives an edge to a particular group of people is the innovative use they make of a representational system developed by other cultures.
Regarding the three environment options described above: consider de Soto's emphasis of the importance of observation. He implored governments to closely observe the activities of their own citizens, to discover where the clues of economic dynamism were already in abundance. If governments wanted better economic representation for all their citizens, much depended on acknowledging how citizens were already adapting, and reinforcing those ongoing efforts through legal validity.

Since developing nations also imply developing general equilibrium conditions, the observation role has added importance for equilibrium outcome. But what of developed nations which consist of more mature equilibrium formation? Exploitation or observation may not be enough, which suggests a larger role for innovation than a society is sometime inclined to allow. But when innovation remains disallowed, the fact the "low hanging fruit" has mostly been picked, comes to mind.

If only the "high hanging fruit" were being discussed more often! I have no qualms suggesting time arbitrage as a "high hanging fruit" available for the "picking", in terms of innovation potential. Time arbitrage is a representational system which could augment human capital, and allow people to participate more fully in the daily functions, habits and patterns of knowledge use.

And the groups which implement time arbitrage would not have to resort to extensive funding or compensation from outside sources. They would not have to rely on other institutions which already have extensive commitments elsewhere. Instead, research and development would be a natural outcome of the ways these environments are internally structured, so as to leave ample room for the challenges of innovation and discovery.

Sunday, April 16, 2017

Human Capital (Potential) as a Solow Residual Issue

Do firms need to rethink their organizational patterns? Last month, the Stigler Center at the University of Chicago (with Harvard Business School and Oxford University) hosted a conference in Chicago, and these were the primary questions they sought to answer:
Should the economic theory of the firm be modified? And if so, how?
Since then, the ProMarket blog has highlighted numerous elements from the ensuing discussion, and the most recent post was titled "The Sense that the System is Rigged Relates Directly to Government's Failure to Address Inequality and Concentration". Concerns about declining labour share of income are also driving discussions such as these. But how does one blame inequality and business concentration on government - insofar as a failure to address the problem?

While governments can certainly be held responsible for the extensive requirements of economic entry; the limits of employment potential in the subsequent institutions which operate in these environments are a rational institutional response, given the budgetary demands involved. In other words, if costs are not "concentrated" in the areas they are absolutely essential, bills may not get paid. Time value as an intangible contribution is also an important concentration element. Employment in such enterprise is not just limited by Solow Residual factors, but administrative requirements which separate classes of work and income out of budgetary necessity.

Again let's take a brief look at the Solow Residual description, from Wikipedia:
The Solow Residual is a number describing empirical productivity growth in an economy from year to year and decade to decade. Robert Solow defined rising productivity as rising output with constant capital and labor input.
Of course, the Solow Residual contributes to greater productivity in specific institutions through a gradual reduction of labour force participation. Whereas assumptions of constant labour input (alongside capital) exist at aggregate levels.

In earlier posts I've noted how aggregate output has been increasingly maintained with less labour. More concerning, nonetheless, is the possibility these circumstance may gradually lead to less output as well, over time. In particular: as services assumed economic dominance, their secondary formation (dependence on other revenue) could also compel these sectors to reduce ongoing participation with technology, wherever it is possible to do so.

Does any of this suggest the economic theory of the firm should be modified? I would argue instead, that the definition of the firm needs to be expanded, so as to address the growing problem of a lack of human capital representation. That said, the full management of human capital potential runs counter to the mechanism by which progress thus far has evolved. Hence an evolved example of a new firm, needs to clearly designate itself as a separate entity in multiple respects, from what currently exists. Particularly since today's institutions appear to utilize "additional" capital which in reality tends to be either "hidden" human capital, or human capital in replicated form.

Still, this latest arrangement is neither right or wrong. It is simply the latest designation of organizational patterns which - for the most part - have contributed to progress through the careful management of resource capacity.

Whereas in the equilibrium corporation, the resource capacity that is the focus of management, is the actual environment of human capital potential. In this setting, human capital is not just a matter of aggregate input, but also the most active resource component of aggregate output. The equilibrium corporate designation, would distinguish both product output and labour force participation, somewhat differently from the normal functions represented by the Solow Residual.

Hence the object is not to change what continues to work, but to build an institutional function which relies on a different mechanism for long term progress than the Solow Residual is now able to provide. For instance: when input and output are recognized as part of the same mechanism, it becomes possible to envision the benefit of reduced costs for mutual self employment, because they apply to all parties involved.

We cannot know the monetary consequence of this relationship presently, because it must first exist in a context of direct association with tradable production capacity and asset formation. What we do have, is an understanding of human capital as the capital component of input, as represented in time units. Nevertheless, quality gains in time based product could be measured as a ongoing story line, that might hold equal importance with the monetary factors involved.

The Solow Residual proved an apt explanation of progress for the Industrial Revolution and well beyond, as previous forms of labour input could be applied elsewhere as economies continued to diversify and grow. Yet as production capacity was gradually reduced at local levels, the potential of better management for local human capital, went unrecognized for too long. It's time to provide that recognition, and build a new relationship for aggregate input and output in terms of time based product.

Friday, April 14, 2017

Notes on Centralization, Decentralization and Property Reform

In "The Mystery of Capital", Hernando de Soto emphasized government roles in maintaining legal systems of private property for all income levels. Property reforms allow real estate to gain additional market value which extends well beyond the basic idea of property. However, common consensus on the part of everyone involved, is no simple matter. After all, efforts to find common ground, also require centralized factors to come into play as crucial connection points. The representational template which finally emerges, takes time and careful consideration.

Production reform could bring new wealth to all nations, by allowing the properties of knowledge, skill, and human empathy to function as a representational template for time value. Time value as private property, would unleash much of the human capital which remains untapped in the requirements of general equilibrium. Even though ongoing knowledge use management would take place at local (decentralized) levels, getting started is still very much a centralized process.

That doesn't mean governments can't still play a major centralized role, given the global reserves of resource capacity. So long as nations prosper, they can continue to promote tradable sector activity via centralized organizational patterns. The vast mobility of tradable sector activity, and the benefits of scale which still accrue to these organizational patterns, make this a reasonable option.

The Meiji Restoration in Japan included interesting stories about earlier property reforms - especially given their relation to the rapidly increasing tradable sector production of the time. Ronald P. Dore takes a closer look at this changing world, in "Shinohata: A Portrait of a Japanese Village" (1978):
The new government claimed to be re-establishing the centralized government system of the pre-feudal age. The Emperor Meiji was both to reign and rule as none of his ancestors had actually done for the eight centuries of their ritual seclusion in Tokyo. But their more important goal was to make Japan strong...
The pace of change quickened in Shinohata. Farmers were declared owners of the land they tilled - or the land that tenants tilled for them. They were declared free to sell it, free to change their occupation at will. They were given the right to have surnames and to ride horses. Bowler hats and soap and pocket watches and the habit of eating beef; beer, lemonade, steel pens, glass bottles and leather saddles; hops and tomatoes that were called 'send-you-mad-aubergines'; green peppers and grapes and Irish potatoes - the new world was full of all kinds of curious new objects to buy and new crops to try. Farmers were exhorted to grow more mulberry; the market for silk exports to America was expanding. They were exhorted to plant their rice in straight rows so that they could weed the fields with simple rotary weeding machines...to try new rice varieties; to select their seed, to try new fertilizers. And if they could make money in some trading adventure, or some new cottage industry, that was no longer in any way a reprehensible failure to observe the duties of their proper station. That was now called 'productive enterprise' and being a 'success'.
Centralization in the above instance took place by peaceful means. The Meiji Restoration brought real economic advantages: not just to areas of high population density but to rural outposts as well.

One could certainly hope that production reform might eventually take place through similarly peaceful means, as automation further defines the traditional workplace. It is possible to move beyond the restrictions of general equilibrium conditions, so that a greater degree of sufficiency and economic opportunity is restored to areas which have suffered since the Great Recession.

Despite the fact government transfers to populations and private interests can't be sustained in the long run, these subsidies were understandable initially, in the face of a quickly changing economic landscape. Now, it is time to act. Instead of the extensive tax commitments of schools as hopeful economic access, make learning part of the mutual assistance that people provide for one another through the course of a lifetime. The idea of education needs to be restored to recognizable local systems in which learning has specific economic and social context, to participate in community.

Mutual employment as locally managed, would make it possible for citizens to hold the idea of local and global as both capable of providing beneficial outcomes. Civilizations thrive, when open economies thrive. But in order for this state of affairs to continue, policy makers can never afford to forget, how important it is for all citizens to remain connected to the entire process.

Wednesday, April 12, 2017

Does Government Redistribution Affect Output?

While government redistribution can supplement aggregate demand to a degree, it's an approach which could eventually mean cumulative detrimental effects on aggregate output. This post title question is also another take on secondary market imbalance, in relation to the wealth creation of primary markets.

When the historical context is right, fiscal policy can contribute to the growth of a given equilibrium. Indeed, vast improvements in twentieth century living conditions for the southern U.S. provide an apt example. However, these improvements can be attributed to what were fiscal purchases in the form of new infrastructure commitments.

One might liken those earlier fiscal purchases to citizens getting "a leg up" from government. It was especially a boost for those who had previously lacked economic access, who now could put their own economic energy into motion. Their subsequent inclusion in the formal economy also translated into vast supply side gains.

However, fiscal contributions such as this and the multipliers they may include, are different from the ongoing maintenance of government redistribution. While the fiscal purchase approach contributed to local self sufficiency, ongoing fiscal redistribution detracts from the potential of local self sufficiency. Once people lose the economic means and ability to productively engage with others, it's easy for society to fall into the trap of believing they are not able to do so.

This 20th century fiscal contribution was also possible, because of the extent to which the economy was still defined by ongoing gains in scale and output. Unfortunately, fiscal transfers became more prominent as the 20th century equilibrium structure gradually matured. When populations become too reliant on redistribution, these government transfers can slowly diminish or even reverse the mechanisms of wealth creation. In particular, too many activities are being subsidized from pools of revenue which have already experienced redistribution from earlier wealth creation. Even in the best of circumstance, a certain amount of nominal spending is liable to be lost, when patterns for new wealth creation are not carefully nurtured and maintained.

Much of today's dominant services sector activity is already exposed to recirculating monetary flows. Even a century earlier, government purchases were a simple matter of tapping the abundant output of wealth from tradable sector activity. Today, when more revenue sources are sought, chances are those potential sources have already been exposed to redistribution dilution at least once.

Plus: while increased output has been a logical revenue source in recent centuries, time based services product doesn't yield comparable output gains - a factor which is only exacerbated by costs which include subsidized access. Yet the different nature of government purchases versus today's subsidy related government transfers, has yet to be discerned. In a recent essay titled "Is something really wrong with macroeconomics?" Ricardo Reis expressed his concern re fiscal policy:
I could have pleaded for research on fiscal policy to move away from the over-study of what was the spending of the past (purchases) and to focus instead on the spending that actually dominates the government budget today (transfers). 
Perhaps this research can still take place.

Sunday, April 9, 2017

Confronting the Private Incentives of Fiscal Illusions

Sometimes when I consider the intricacies of public and private debt formation, I am reminded of a game we used to play in the street as children. Each of us assumed our positions at the end of the block, where the goal was to move ahead step by step and be the first to cross a chalked line. Of course sometimes we'd gain a step, only to have to move two steps back.

Oddly, those lost steps are not unlike today's public and private debt burdens, given a growing imbalance between secondary market formation to primary market formation. The commitments of our debt fueled personal investments can easily end up as "two steps back", for these high costs reflect what is a limited knowledge use platform, to begin with. Sadly, some are willing to accept the losses of growth potential, to maintain control over forms of property which are now closely held.

Yet governments cannot always afford to take two steps back. It is not possible to indefinitely seek debt fueled revenue for fiscal policy support, instead of encouraging the greater use of existing resource capacity. While the high costs of today's economic access creates profit for public and private institutions alike, those debt fueled expenses don't necessarily translate into greater output or total factor productivity. How can the costs of access contribute to growth and output, if knowledge based output is artificially constricted?

Fortunately, economic access for today's developed nations has not always been so uncertain. As Hernando de Soto wrote in "The Mystery of Capital" (2000),
The genius of the West was to have created a system that allowed people to grasp with the mind values that human eyes could never see and to manipulate things that hands could never touch.
In particular, de Soto praised what had become a well integrated legal property system. Where once the poor had been excluded, policy makers gradually developed legal means to include them in the formal economy. Only recently, has that earlier inclusion been tested, as a growing lack of access to the properties of knowledge use translates into mortgage exclusion for lower income levels.

Even though lower income levels have greatly benefited from the use of credit, this tool is far more useful when it can be applied to further wealth creation. Yet all too often it is now applied to the extensive commitments required for economic access, instead of broader property frameworks for knowledge use. Unfortunately, governments and special interests alike have gained from their extensive requirements. Yet these costs stand in the way of what governments are now able to provide for their citizens, which only means further fiscal pressures as well. Of property, de Soto writes:
Property, then, is not mere paper but a mediating device that captures and stores most of the stuff required to make a market economy run. Property seeds the system by making people accountable and assets fungible, by tracking transactions, and so providing all the mechanisms required for the monetary and banking system to function. The connection between capital and modern money runs through property.
Alas, the accountability of our real estate is not yet reflected in the recording of our knowledge and time based product. Small wonder that the normal activity of money is distorted, when time based product lacks transparency and clarity. Also remember that the wealth of physical property is a result of our own active engagement in the economy. As technology assumes more of the production responsibilities for our physical goods (meaning less labour force participation in traditional areas), citizens will need greater responsibility for knowledge use across the spectrum, just to maintain the earlier connection with physical property. Already, this connection is being threatened, as central bankers retreat from mortgage access to lower income levels - even while reducing existing mortgage responsibility on their balance sheets.

One step forward, two steps back. Again, consider Adam Smith's warnings from centuries earlier, how nations experience setbacks in progress if excess revenue is allocated for "unproductive" endeavour. Even though some recognize this problem; what is not widely recognized, is how the high skill sets Adam Smith labeled unproductive, need organization on terms by which time based product becomes productive. Otherwise, goods production alone will hardly be enough, to sustain the growth capacity of nations in the years ahead.

Still: for fiscal policy, a certain degree of non productive funding is always possible. After all, it is reasonable to expect government revenue for skill sets which further the purposes of government. The problem in the present, is that subsidies for time value have been carried well beyond the skills sets which contribute directly to government functions. Nevertheless, the normal "maker" and "taker" arguments only distort what is actually at stake. These arguments become meaningless, as important "takers" (i.e. not building product output) receive subsidies which completely distort any assistance which governments might otherwise provide for citizens in need.

Even in the best of circumstance, governments cannot cross the "finish line" first via fiscal measures. As technology continues its substitutes for labour force participation across the economy, much of that participation can be turned towards the building of knowledge use capacity for entire populations. But in order to do so, knowledge properties will need the same legal care and attention, that physical properties received, centuries earlier. It's time to make debt formation less about wealth capture, and more about wealth creation, once again.

Saturday, April 8, 2017

Knowledge Use and the Equilibrium Option

Populism is becoming a problem for many governments, as they struggle to maintain the coordination of vital knowledge application processes in the marketplace. Consequently, some believe the democratic nature of welfare states could become vulnerable to disruption. How to respond?

Communities that lack economic complexity, could create a unique, time coordinated equilibrium which would preserve both knowledge use and employment. Eventually, this process would help to relieve much of the pressure on today's welfare states. The equilibrium option would feature matched time value at its center, whereby new wealth would be generated from the locally cancelled debts of mutual time assistance obligations.

Each group starts with simple sets of time product categories. The internal educational structure - which borrows freely from a full range of possibility - means local time use options gradually gain a diverse range of skill and complexity. The structure identity of time based product is validated by provider and recipient: first after the initial match, and then the follow on match.

Once this match series is recorded by the community, new money enters the system to reflect the mutual purchase of time value. Even though this new money only represents the purchase of time as a commodity, the system provides support for social capital in a long term time based continuum. One could think of it as using monetary policy and personal initiative, to build a new form of welfare state.

As knowledge complexity grows within each community, groups would split off and form new groups, once they lack sufficient local space for the production/consumption coordination of locally desired skill and knowledge sets. Over time, the knowledge use patterns of individual groups would take on unique identities. Gradually, these communities would appear quite different from one another, as variation in the democratic "voting" process for coordinated time use is expressed somewhat differently in each group.

The knowledge complexity of this economic system, might eventually be greater than what presently exists in general equilibrium conditions. Some would find symmetric compensation too restrictive and migrate (with their skill sets) to general equilibrium. Others would find fewer constraints, due in part to the personal management of time preferences which symmetric compensation makes possible. Nevertheless, asymmetric compensation must adhere to the knowledge use patterns which can be accommodated via the revenue available for redistribution from primary market formation. The alternative equilibrium option overcomes the growth limits problem, by the alignment of its own unique form of primary market organizational capacity.

By making more wealth creation possible through new primary market formation, governments may finally be less inclined to close off their borders to others, as they become more confident in their ability to generate full employment alongside the productive use of knowledge for all citizens. It is especially important to provide new opportunities for wealth creation, since current efforts to limit general equilibrium access to "natives only" doesn't translate into meaningful knowledge use preservation.

In summary: consider why it matters to have equilibrium options. When economic time value only has a skill equivalent in the marketplace, the income results are so skewed that a democratic system becomes unwieldy for citizens whose economic time value is too varied for full participation. Democracy is further constricted in the U.S. because of the cross subsidy problem. No one can calculate the dollars which go to those who can't pay for time based product, versus the dollars which go to the ones who provide what is sought.

Indeed, voting processes can be difficult in any circumstance, as Arrow's impossibility theorem made clear. Yet nations would not have as much cause for concern, if they adopted economic systems which make room for the full utilization of aggregate time value. The limits of general equilibrium are a place where skills take precedence over time value, but this need not be the only equilibrium option for the nations of the future.

Thursday, April 6, 2017

Knowledge as Seed, Time as Soil

Social capital is often described as a 21st century version of wealth creation. Yet the role of social capital appears uncertain in some respects. Even though knowledge use is vital, too much of it exists in a secondary role, where it can't readily contribute to marketplace formation or growth. Meanwhile, the knowledge use patterns which are associated with today's social capital, are increasingly exposed to the limitations of what are now mature general equilibrium conditions.

Imagine a garden in which knowledge provides the seeds, and time value, the soil. In the last century, skill sets were increasingly culled in ways which came to define how knowledge "should" be used. Even though many knowledge "seeds" of infinite variety have been purchased, often it is unclear, whether they can even be planted, if an institutional "plot" does not already have room for their growth potential. As a result, too much potential time value has been set aside.

Alas, this shallow skills based approach is proving detrimental to long term growth capacity. Many a well tended garden - in spite of considerable investment and attention - has been deemed unsuitable for an economically defined harvest. Even though a sizable portion of knowledge investment thrived in the "hothouse" conditions of the 20th century, there are so many more places in the world, where the soil of time potential is just waiting for a chance to generate a better harvest.

For at least a century, important facets of knowledge application have been compensated through the occasionally circumscribed terms of asymmetric compensation. Individuals who once took on intellectual challenges in their own environs, gradually became enticed to seek employment for their ambitions.

Still, there was a price to pay, for the compensation of knowledge use on asymmetric terms. Where people once managed their own time and resources to create new forms of product, employers were bound by a different investment approach. Consequently, there would be times when the costs of research and development would mean hard marketplace limits for those personal journeys of discovery. Whereas before, useful innovations remained part of a dynamic and ongoing process, of marketplace discovery and transformation.

Equally important, is that much of today's asymmetrically compensated time based product remains dependent on preexisting wealth flows. Today, policy makers need to give a green light to new platforms for knowledge based wealth, so that long term growth potential is not lost. Until more knowledge seeds can be planted, tended and harvested, future growth remains in doubt.

Meanwhile, the political backlash to welfare state redistribution, continues apace. If governments are to overcome their budgetary problems, knowledge use cannot simply be limited to the seeds that are grown in hothouse cities and regions. Today's extensive debt levels can eventually be tamed, through the growth of new knowledge based wealth. But first, those who have benefited from knowledge use limits, need the courage to plant anew, the economic gift which brought such meaning to their own lives.

Tuesday, April 4, 2017

New "Deal", or New Template for Growth?

James Pethokoukis in a recent post, highlights an article from Rob LoCascio at Tech Crunch, "We need a New Deal to address the economic risks of automation". Pethokoukis explains the basic premise of LoCascio's suggestions:
Rather than taxing robots or giving everyone a basic income, the author, LivePerson CEO Rob LoCascio, wants a "new New Deal" to deal with automation. He has two suggestions. First, "government should fund education and retraining programs that provide an opportunity for at-risk employees to learn new skills, geared towards those industries that will be around longer term." Uncle Sam could also work with business, in raising public awareness since his company's research found that "88 percent of Americans reported not being worried about losing their jobs"...
In addition to investing in people, "LoCascio thinks government should invest in companies or startups creating platforms that use "human labor" to do uniquely human activities...
Pethokoukis was more inclined to agree with the first suggestion. My initial reaction is one of relief, if future employment conversations such as these can safely set aside robot taxation or basic income. Determining what is not realistic (on any number of levels), makes it easier to consider more feasible possibilities. That said, I still have concerns about both suggestions, much as Pethokoukis noted his reservations regarding the second suggestion. I'll briefly explain why.

1) Government retraining programs for "left behind" employees would still have placement problems, given the monetary and supply side cutbacks which decreased overall capacity after the Great Recession. Higher education has already experienced its own difficulties in graduate placement, given a fairly rigid template for high skill participation in the workplace. Even though today's high skills capacity can still be monetarily compensated on generous terms, its high wage structure can only be extended so far. This factors into the struggle college graduates may experience, for employment which matches their extensive personal commitments and human capital investments.

2) As to the second suggestion, it could be difficult for goverments to invest in startup platforms. Why so? In order to be feasible, governments would need to tap into production and consumption design which varies extensively from the template already established with the "blessings" of private enterprise. Even though all concerned seek continued long term growth, it could be confusing for private interests, should start ups become government supported in ways which detract from already established terms of general equilibrium engagement.

Nevertheless, the difficulties in approaching a "New Deal" on the above terms, doesn't mean new growth is impossible to achieve. A new template for growth - one which incorporates personal effort in the form of measurable time - would make room for economic participation on broader terms.

A new template for growth would not have to make further demands on already existing revenue. Instead, human capital would serve as a starting point: one in which time value would be tapped, so that knowledge can contribute to a new social safety net of time based product. Even though it's difficult to create a new deal from the tightly defined limits of general equilibrium, a new template is still possible on alternative equilibrium terms. With a little luck, society can build a new labour force participation template for the 21st century.

Monday, April 3, 2017

Time Arbitrage, and Three Levels of Skill Potential

As present day production methods gradually become more efficient, mid level skills are beginning to "pay the price". Technology continues to sort divisions of labour in ways which highlight high skill, while "default" low skill levels often remain in use as well. Meanwhile, skills polarization is also reflected in income levels. Is it possible to address this reality, especially since so many have considerable skills aptitude in a moderate range? In some respects, future labour force participation may depend on how society answers this question.

Even though asymmetric compensation is becoming more difficult to maintain at mid level income levels, the symmetric compensation of time arbitrage could provide another option. Since symmetric compensation uses time value on equal terms, it can generate economic growth (via the "cancelled debt" of time based product matching), where asymmetric compensation sometimes faces the limits of a given general equilibrium setting. Today, equilibrium limits are also being exacerbated by monetary tightening, from central bankers who don't appear to have much confidence in the return of higher labour force participation levels.

Time arbitrage would also provide a new nominal income production and consumption range - one which more closely reflects middle class environments before the present limits of productive agglomeration. One important element of this process would be shared skill level matching, in which the participants of local groups would be encouraged to contribute along a full skills spectrum.

Many individuals alternate between a wide range of skill levels in their daily lives. However: for the most part, doing so is often captured (economically) along a single range of spectrum potential. For instance, if one is compensated for high skill sets in the workplace, lower skill levels either tend to be apportioned to others, or else pursued in one's personal life for family and friends on voluntarily terms. Granted, the point would not be to change the voluntary settings individuals prefer. Rather, populations would benefit from a range of economic skills match options, so as to eventually reduce the need for today's struggling welfare states.

Consider for instance, how the time based product that welfare states came to rely on in the 20th century, exists along a full range of skills utilization. Yet it has became increasingly difficult for all concerned, to coordinate these activities - either through money or variance in skill level. I've little doubt how today's school environments invoke fear, since students quickly recognize how the skills sorting process begins early in life, via one's grades and the judgments of others. Had I understood at a young age, how workplace skills options and challenges could economically devolve to lower levels across the course of one's life, I would have been afraid as well. Indeed, I may not have had the audacity to engage in the extensive life "sampling" and challenges my restless nature still craved, before health concerns intervened.

When the "losers" lose access to knowledge based challenges in the workplace, the default remaining low skill positions can sometimes wear down one's physical stamina, a full decade or more before the retirement age in the U.S. Does anyone wonder why some refuse to accept low skill work positions - which leave insufficient room for the medical circumstance they may exacerbate - as a matter of self preservation? These thoughts were on my mind earlier in the day when I took a walk and passed someone along the path I didn't know. He may have been an "early retiree" like me. At any rate, he must have suspected I wouldn't judge him too harshly for he smiled and said, "You look like you're working as hard as I am. Hey, I'm trying."

Yet if these low skill default positions were shared by high skill work providers, low skill work would gain much more respect than it presently commands in society. Equally important, is that low skill work allows one's mind to concentrate on the challenges of high skill work, via regular routines. Shane Parrish highlights a Scientific America interview quote from Alex Soojung-Kim Pang which touches on this subject:
The critical thing to recognize is that when we are letting our minds wander, when our minds don't have any particular thing they have to focus on, our brains are pretty darn active. When you do things like go for a long walk, your subconscious mind keeps working on problems. The experience of having the mind slightly relaxed allows it to explore different combinations of ideas, to test out different solutions. And then once it has arrived at one that looks promising, that is what pops into your head as an aha! moment. The people I looked at are able to construct daily schedules that allow them to draw on that process in little increments.
It's those daily schedules that allow moments for reflective thinking, that time arbitrage would especially seek to encourage through the ongoing matching of varying levels of skill. While it would not always be necessary to match the same skills level each time, skills level balance could nonetheless be achieved by educational planning which makes certain that education contributes to actual supply side formation of time based product.

Imagine how relieved the average high school student might be, to discover that the process of skills selection would not have to devolve early on, to hard judgment re one's eventual potential to take part in knowledge based challenges. Indeed, school systems sometimes feel like an inevitable process of arbitrary decision making. It is unfortunate that low skill work has become associated with a form of societal punishment, instead of something worthy of the respect it deserves.

Friday, March 31, 2017

Wrap Up for March 2017

With self driving vehicles on the way - even as twenty percent of males in the U.S. currently make a living driving vehicles - perhaps the coming automation deserves a more proactive approach.

On the impact of India's demonetization.

Three maps that show how U.S. metros are doing.

Healthcare groups were opposed as well.

James Alexander: Productivity is both obvious and a mystery.

Income, versus the superstar firm.

Mark Buchanan highlights the equilibrium coordination problem, which contains a degree of complexity the late Kenneth Arrow took into account. I also appreciate the "Out of Equilibrium" picture in this Bloomberg article. Occasionally I have that "out of equilibrium" sensation, while taking walks in an area where most people use motorized vehicles.

Marcus Nunes explains that too many still subscribe to the unemployment-inflation nexus.

"Going upstream" to better address the causes of poor health.

Why did the Fed start paying IOR?

From David Beckworth: Monetary Policy Analysis is Hard: Inflation Edition

Ricardo Hausmann reminds us how the use of knowledge does not disperse as readily as other aspects of wealth.

Timothy Taylor takes a look at the value of household production.

"The proportion of respondents who applied and were granted credit over the last 12 months continued to decline..."

A lack of self employment is likely associated with the decline in labour market mobility.

"...global authoritarianism is probably poisoning our political climate more than many people recognize."

Is "purple America" a thing of the past?

Complex systems could benefit from a new mathematics.

Another reminder, how valuable the Institute for Justice has been.

Scott Sumner started some conversations with "My Vision of Macro"

The automation challenge is only beginning.

The dangerous obsession of inflation.

Metrocosm nicely illustrates a history of U.S. government spending, revenue and debt.

The CBO report for The 2017 Long-Term Budget Outlook

Thursday, March 30, 2017

When Coordination Becomes "Too" Efficient

Two posts from earlier today were otherwise different in nature, but I noticed an interesting connection between them in regard to this post title. One could say today's institutions are doing such a good job sorting for preferred characteristics, they pose further externalities which are gradually becoming more difficult for societies to manage, over time. Specifically, when those externalities are people.

First, Timothy Taylor in "How Between-Firm Inequality Drives Economic and Social Inequality", highlights quotes from an essay by Nicholas Bloom:
The real engine fueling rising income inequality is 'firm inequality'...the best educated and most skilled employees cluster inside the most successful companies, their incomes rising dramatically compared with those of outsiders. This corporate segregation is accelerated by the relentless outsourcing and automation of noncore activities and by growing investment in technology.
However, firms aren't alone, in their contributions to inequality through closer coordination for similarly aligned resource use. As it turns out, municipalities sometimes benefit from similar strategies. In "Restrict Supply, Subsidize Demand", Arnold Kling quotes the Los Angeles Times:
Home builders are not keeping up with demand for homes in California. 
Hence the proposed supply side "solution": subsidized demand. Again, from the Los Angeles Times:
a lot of local municipalities have first-time home buyer-assistance programs and people should look at those programs in their area. You also may be able to qualify for additional assistance as a first-time home buyer based on your occupation, for folks like teachers, firefighters and law enforcement. 
What's interesting is that the listed occupations are necessary components of any thriving community. Yet while private firms increasingly sort for high or low income levels, public sector incomes tend to be a moderate income range - one which ends up competing with lower income levels for an already limited market in "affordable" housing. So if local home prices are mostly well above a given national average, municipalities need to find ways to "make room" for important service functions. The subsidy mostly works as a sorting mechanism. Hence locals "solve" for the services coordination problem, but the result doesn't look like a free market solution.

Yet consider what local public and private interests are attempting to accomplish. Much local real estate becomes closely associated with the core elements (or "core" employee ownership) of today's prosperous firms. Nevertheless, many firms now outsource for non core employees. And the lower levels of compensation these employees receive, mean they'll be searching for affordable housing as well.

While between-firm inequality may not be "fair", or public employee housing preferences on the part of municipalities "free market", these dynamics are different from earlier forms of rent control. Public and private institutions likely resort to these methods because they find them necessary to fulfill their own societal obligations. If public and private interests find it simpler to maintain coordination structures within a similar income range of income, why not strive to broaden this approach so as to make more such clusters possible along a wide range of income potential. Without such efforts, too much knowledge would instead end up clustering along a higher income range, where it becomes increasingly difficult to reach a wide range of markets.

In many respects, a services based economy is different from the spontaneous mobility of an earlier period when it was simpler for a wide range of income groups to live and work in close proximity to one another. Much of this was due to the greater flexibility of tradable sector activity, in which both output and marketplace definition was often subject to continual change in definition. The earlier prominence of tradable sector activity was not only more conducive for physical mobility across regions, but also the mobility of differing income levels among local groups.

That mobility is particularly missed now, as society slowly adjusts to different patterns of wealth creation. It is no longer a simple matter of redistributing wealth or knowledge based skill, from tradable sector output. However, with a little luck, redistribution can take place via time value, and its associated potential for knowledge dispersal. Greater mobility might once again become a possibility. Even better, coordination would no longer be "too efficient". After all, time value could once again pick up the thread that was dropped, when employment in relation to an ever expanding output, finally completed its logical course.

Tuesday, March 28, 2017

The "New Normal" as Exclusive Territory

What's wrong with the "new normal", especially as central bankers prepare to pull back further on quantitative easing? Even though some central bankers are still easing monetary conditions, it won't be long before they reverse course, and follow the contrarian lead of the U.S. However, policy makers risk creating new problems, if they give the impression they've done all that's necessary, for economic stability.

James Pethokoukis recently posted his own concerns that the "new normal" could be here to stay, "unless we do something about it". He points out what is a most telling graph, in a recent paper from Brookings. This graph highlights not only a gradually declining labour force participation rate, but also reductions in aggregate output.

And how to think about further rounds of monetary tightening, given losses in discretionary spending which populations continue to face? More income is being allocated for basic life necessities. Without sufficient monetary representation for all concerned, there's even less room to support the productive sectors which have been responsible for centuries of progress. Given these circumstance, declining monetary representation implies less discretionary spending over time, on the part of more households in the future. Will the majority of economic activity, eventually become associated with exclusive territory? Regarding the problems of discretionary income, Arnold Kling wrote:
There is a significant portion of the population with above-medium income and close to zero saving. I think it is hard to tell a story that explains that in terms of rational behavior. Remember we are talking about a lot of people, not just a few random exceptions.
As loans continue to mature, central bankers will gradually unwind their large balance sheets. There's a good chance that debt formation will play a less significant role, in the near future. However this likelihood is more problematic than it may appear. After all, new alternatives for wealth creation which go beyond further debt formation, are not yet on the horizon. Consequently, many who still lack economic access, are less likely to change their circumstance for the better, any time soon.

Perhaps the fact that debt formation has become less associated with wealth creation, and more associated with economic access (such as student loans and home mortgages) is an apt indicator of a mature equilibrium in need of redefinition. Even though new templates for economic participation would be difficult in the heart of general equilibrium, that shouldn't stop the creation of alternative options for economic participation along the margins. Otherwise, the new normal may begin to look more and more like exclusive territory, intended mostly for the best and the brightest.

Much debt which central bankers have become so anxious to unwind, originated from those who sought economic access on society's expected terms. New terms of economic engagement need to be actively pursued and already in motion, before any new normal can be considered valid. Wealth creation needs stronger structural foundations, which requires less debt formation to begin with. Otherwise, the new normal would mostly represent a closed door, to those presently deemed unnecessary for a 21st century economy.

Sunday, March 26, 2017

Are Reasoned Arguments Still (Publicly) Useful?

Perhaps not as much as one might assume. Political discussions in particular have become more polarized, even as professionals attempt to do the "hard" thinking on behalf of the average citizen. How much uncertainty regarding long term prosperity, can be traced back to a failure of economics, for instance? One can only wonder.

Even though reasoned arguments can still be found in national discussion, statistics are often expected to perform much of the "heavy lifting". Narratives increasingly fill the role of persuasion as well, even though they are sometimes presented in a biased fashion. Narratives and statistics may substitute for reasoned argument, especially if subject matter becomes so complicated no one has time to take more complex factors of discussion into account.

While in the process of rereading "Thinking Like Your Editor", I was reminded that many serious non fiction writers do not find argumentation as useful, as did previous generations. For instance, Susan Rabiner writes of her younger authors:
...many say they associate argument in writing with a type of discourse long gone out of fashion - the deductively reasoned essay. Argument, I am often told, is what authors from another time employed to win over readers to the validity of their analysis in the absence of data to prove it. As one author put it, today one's data is one's argument.
"Thinking Like Your Editor" is a pure pleasure to read. Even though - speaking as a former bookseller - this writer's guide also serves as an apt reminder, how much our world has already changed. I especially agree with her response to the above author:
Let me put this misconception to rest. While good argument is most effective when built on solid research, a piling on of facts does not an argument make. Absent an intellectual process that carefully marshals and positions these facts in support of a point, even the most thorough accumulation of data will come off as a boring recitation of all the author knows about the subject. 
In fairness to those who still enjoy reading serious nonfiction, there's only so much time to delve into the particulars of fields outside one's main interests. Hence books which rely more on narrative than argument, can tempt readers to sample what they might otherwise pass by. Like statistics, narrative can "persuade" in ways which require fewer demands on a reader's thought processes, than complex reasoning. In one sense, research results serve as a form of shorthand for the informed citizen, who has little remaining time for the more difficult demands of reasoned argument.

Reasoned argument has also suffered, from too many crude applications of the term. How many believe arguments to be little more than personal disagreement with others, for instance? Even so, argument is the best means by which a writer can pull together the various strands of their thought processes into a cohesive whole. Again, from "Thinking Like Your Editor":
Yet argument is more than a set of expository or rhetorical skills. Like art itself, a successful piece of argument communicates somewhat more than it says explicitly. It stimulates readers to think in new ways not only about the author's topic but about other aspects of their lives as well.

Thursday, March 23, 2017

A Macroeconomic Dimension for Productivity

Is it possible to think about productivity in terms of aggregate (supply side) output potential, alongside the microeconomic terms in which productivity are generally expressed? One reason this is important: the macro effects which accrue to sector divisions can sometimes act as equilibrium constraints, as is occurring now. I'm concerned these equilibrium constraints have not been fully taken into account, in the productivity discussions of the present.

Yet the macroeconomic dimension of productivity was touched on centuries earlier by Adam Smith, well before economics became recognized as a individual field of study - let alone micro and macro. Even though Adam Smith recognized labour divisions as either "productive" or "unproductive" (a macro concept), his divisions of labour terminology and its associated microeconomic context are most frequently referenced in the present. For instance, the site "Economics Help" highlights an Adam Smith quote as a human capital reference:
The greatest improvement in the productive powers of labour...seem to have been the effects of the division of labour.
Smith's above quote is microeconomic in nature, for it illustrates internal institutional coordination. Yet his broader labeling of labour divisions, holds an important macroeconomic dimension. In a "Wealth of Nations" chapter entitled "Of the Accumulation of Capital, or of Productive and Unproductive Labour, Adam Smith begins:
There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour...the labour of some of the most respectable orders in the society is, like that of menial servants, unproductive of any value, and does not fix or realize itself in any permanent subject, or vendible commodity, which endures after that labour is past, and for which an equal quantity of labour could afterwards be procured. The sovereign, for example...are unproductive labourers.
In part, Smith's concern appeared to be that "unproductive" labour did not contain the seeds of its own self replicating processes. Productivity ultimately comes down to output, and time based product thus far has been organized in ways that output is constrained at the outset. On the other hand, the capital investment of tradable sector activity is self replicating, because it takes place as a closed system in which investment is directly aligned with output. Adam Smith spoke extensively of the fortuitous wealth creation circumstance of this closed system.

Whereas the output of non tradable time based product, takes place in a general equilibrium construct (or open system) which depends on system wide resource capacity to define total non tradable sector output, instead of internal coordination elements. The result is time based product which has no means by which to directly align human capital investment with total output gains, or by extension, greater productivity.

What occurs instead, are continuous efforts to improve aggregate quality gains. While this human capital improvement/investment approach is effective in the closed loop of tradable sectors; in non tradable sector time based product, the process of seeking productivity gains becomes like a dog chasing its own tail. How so? Due to reliance on an open system to coordinate human capital in relation to output, quality gains often result in human capital investment which is more extensive than the system output of time based product, over time. This process also results in greater debt formation and the Baumol effect.

The open ended macroeconomic problem of time based product, or the "unproductive" labour of Adam Smith's time, is one reason I've suggested symmetric compensation and coordination, which could align human capital directly with output in ways that don't allow the costs of human capital investment to outweigh total output benefits, over time. Instead, quality gains in time use would accrue from individual to group efforts capable of internalizing a wide range of time use potential which otherwise is not readily captured.

This internal coordination and time quantified process would also exist - like tradable sector activity - as a first mover position, capable of generating new economic growth. Best, the process would eventually provide new product without the burdens of increased human capital investment costs, in relation to total output. One could also say that the macroeconomic dimension of this process, is the capture of internal resource use flows that eventually restore balance to the tradable and non tradable sectoral problems which presently inhibit long term growth.

Tuesday, March 21, 2017

Symmetric Compensation as an Economic Option

In other words: I don't suggest symmetric compensation as a repudiation of the status quo, but as a counterpart to equilibrium conditions which are more tightly defined than generally realized. Symmetric compensation would allow individuals within specific groups, to coordinate time value in ways that allow an additional level of economic access. Best: the process for doing so, would take place as new wealth generation.

Symmetric compensation includes room enough for meaningful coordination of multiple skills levels. This could prove particularly helpful, if the asymmetric compensation which individuals seek on merit based terms is in short supply, for whatever reason. The equilibrium constraints of asymmetric compensation are a major concern for me. Yet I'm still trying to develop a simpler language, for those who aren't economically inclined, why I believe purposeful economic responses are so vitally important in the first place.

It's imperative that I learn to do so, for this project might eventually fizzle out if I don't gain sufficient clarity for the average layperson who comes across my work. Books such as "Thinking Like Your Editor" (2002) by Susan Rabiner and Alred Fortunato, are apt reminders of what is at stake. The authors stress the importance, of knowing who your audience consists of. And just because something is compelling to authors, is not necessarily enough to make it compelling to others.

Some may recall that last year I began organizing material more closely, for a series which will eventually be located on the sidebar of the blog. Since the beginning of this blog I've worked on material that is actually intended for several audiences. Hopefully, the divisions for (eventual) book material will help with those designations.

One conversation last year in regard to audience considerations, essentially came down to this: why did I believe it was so difficult to access important services? After all, if I was willing to take the effort, plenty of marketplace options were already available. Those same options for time based services were also available to others, as well. Why was I making economic access, appear to be such a difficult process?

To the extent services can be available (at least in some areas), my challengers were right. If I wanted or needed something enough to go the extra mile, chances were I could find a way to make it happen. Indeed, a similar rationale applies for one's personal efforts in securing work. If one wants employment "badly" enough, the determination to do so, can be apparent to others. Hence the different economic approach I've suggested, sometimes appears as though an affront to systems already in place.

Yet it is not my intent at all, to deride or dismiss what exists now. When I envision existing work and service options as a constrained equilibrium, my framing doesn't quite make sense, to those who live and work in these demanding environments on a daily basis. One mostly finds the clues of constrained equilibrium, in governments whose citizens are becoming less inclined to share either jobs or services with anyone they perceive to be "outsiders" in some important respect. Consequently, the political framing often becomes construed as politicians who "don't have enough humanity", to maintain even the basic sets of knowledge use one expects to find in a civil society.

I don't disparage the fact that gaining success and "the good things in life" takes tremendous effort. Personal diligence and stamina are most deserving of societal reward, and we celebrate those who are successful for good reason. Nevertheless, people can be quick to assume that those who fall behind, just didn't want success enough to really try. Sometimes that's true. But how often does this assumption arbitrarily condemn those who don't make the cut?

After all, the result may not be one of isolation for a day or a year, but possibly a lifetime. Basic income, even if it should one day prove feasible for large nations, would be a lousy consolation prize for those who would have preferred real connections to life challenges. Indeed, basic income would come to symbolize a door permanently closed, because it became too difficult to envision economic opportunity for a full range of aptitude and skill potential..

Just the same, no one should be expected to rely solely on symmetric compensation, if such methods prove inadequate for personal aspiration. Everyone deserves the chance at a merit based asymmetric income, wherever such an approach is possible. Rather: the bigger concern is one of a lack of economic choice outside the constraints of a too narrowly defined equilibrium. A lack of economic options, could become associated with permanent societal divergence in intellect and ability. That's one "natural experiment" we can only hope will not play out, for much longer.

And it could, if tomorrow's automation taps mostly the highest skilled individuals, while abandoning others to low skill "leftover" jobs. There's no reason for such a dystopian reality, if knowledge can remain integrated across all levels of skill and ability. This is what symmetric compensation could make possible, so that patterns in knowledge use do not diverge any wider than necessary, in the long run.