Tuesday, January 31, 2017

Wrap Up for January 2017

It's hard to recall, when I've come across so many articles and posts that deserve more than a moment's notice. Right up to the end of the month, too - a busy January indeed.

Has someone in your life been saved by a globalized world?

Fake news doesn't always come from the places one might expect.

The Maker Movement continues to grow.

Reverse repos are still sucking liquidity out of the economy.

The Future of Employment: How Susceptible are Jobs to Computerisation?

Labor supply is an important component of wealth creation. https://www.richmondfed.org/publications/research/economic_brief/2017/eb_17-01

From 2016: A Year defined by America's Diverging Economies:
The employment rate in rural areas was actually 2.9% lower in mid-2016 than it was in early 2007. 
"Money spent on wages and machines is not a benefit to the economy, it's a cost. The benefit comes from consuming the widget." (Scott Sumner) I would also add, consuming the (time originated) service. http://econlog.econlib.org/archives/2017/01/spending_on_con.html

"Zoning is political kryptonite, so cities are loath to take it on."  http://www.city-journal.org/html/where-buffalo-zone-14927.html

I'm in this category as an early "retiree", heh. http://www.hamiltonproject.org/blog/an_update_on_who_is_poor_in_the_united_states1

It's the physical and social infrastructure requirements around us (general equilibrium expectations) that keep a majority of the poor from working on economic terms. Again, as noted by Scott Sumner above, consumption opportunities provide more benefit than investment costs. https://www.aei.org/publication/most-poor-adults-incapable-of-work/

Who thinks these costs for raising a child are realistic?

Why is it so hard to secure funding to maintain already existing infrastructure? This Strongtown post also generated commenter responses at Marginal Revolution.

Deindustrialization translates into hyper-incarceration in the U.S. I believe that locally coordinated mutual employment could provide a productive alternative. https://www.vera.org/the-human-toll-of-jail/why-are-there-so-many-people-in-jail-in-scranton-pa

Which states rely the most on federal aid?

Ben Bernanke explains the Fed's cautious approach to upcoming changes in Washington: https://www.brookings.edu/blog/ben-bernanke/2017/01/13/the-fed-and-fiscal-policy/

The growing tiny house movement, in spite of its enthusiasts (of which I am one), is likely to be constrained by a wide array of economic factors for now.

Hardly anyone seemed to notice Davos this year. http://www.businessinsider.com/davos-elites-suffering-acute-anxiety-over-the-dawning-of-the-trump-era-2017-1

A global services dataset?

Should social science be more solution oriented?

From Edmund Phelps: "Corporatism, and the Dearth of Innovation":
While private ownership remains extensive, the government now exerts control over much of the private sector. A private actor with a new idea often needs government approval to start up; and firms that enter an existing industry must compete with incumbents that usually already have government support.
The value of wanting - hence ultimately choosing - to work together.

Scott Sumner provides AS and AD material worthy of a macroeconomics textbook.

Rodrik asks, Is global equality the enemy of national equality?

From David Beckworth: http://macromarketmusings.blogspot.com/2017/01/macro-musings-podcast-gauti-eggertsson.html and a recent paper: http://people.wku.edu/david.beckworth/fed_dirty.pdf

Some global demographic profiles, plus illustrations.

Interest on reserves is only worsening an already fragile situation. From George Selgin:

Immigration has always been the story: https://www.statista.com/chart/7729/the-united-states-is-a-nation-of-immigrants/

Just a few of many blogger efforts this month, to preserve the open economy that defines our lives.

One has to wonder, how many centrists and moderates are still left? http://politicalcalculations.blogspot.com/2017/01/a-centrists-guide-to-media-bias-and.html#.WIttq4grLnA

Re tariffs, from the Economist: http://www.economist.com/blogs/buttonwood/2017/01/taxing-poor

On global talent mobility, from Vox

Larry White provides a useful update re efforts to restrict and/or ban cash: https://www.alt-m.org/2017/01/31/baptists-and-bootleggers-in-the-organized-effort-to-restrict-the-use-of-cash/

What do the Web people and Wall people have in common? Skepticism of existing institutions.

Some additional explanations and linked reference material for the ongoing discussions of border adjustments, tariffs, VAT and the corporate income tax.

If there's an apple cart to upset, it seems he will find it: https://marketmonetarist.com/2017/01/31/when-will-trump-accuse-denmark-of-being-a-currency-manipulator/

Monday, January 30, 2017

Free Trade? Don't Knock it Till You've Tried It

I know, the title isn't completely on the mark, for the world has in fact embarked on considerable free trade in recent centuries. But there's real problems on the horizon, which could negatively impact what thus far has been the most beneficial free trade of all: our tradable sectors. It is the lack of free markets for our aggregate time value (only the "best" need apply), which make job loss in tradable sector activity, appear more dangerous than necessary. As labor force participation declines in the face of non tradable sector protectionism at home, policy makers increasingly resort to protectionist actions, abroad.

Regular readers of this blog are familiar with my arguments for free trade. Perhaps mercantile reasoning would not have gotten such a stronghold, had existing trade imbalances already been addressed via a marketplace for time value. What many of us aspire to accomplish - and experience - in our lives, is scarcely represented in today's marketplace. This dearth of wealth creation is like a gaping hole, in both the supply and demand dimensions of non tradable sector activity. Hence the free market reference of my title.

A more recent aspect of protectionism, is the possibility of what - as far as I can tell - is essentially heavy tariffs that are somewhat disguised as border adjustments. The effects of such a revenue grab could play out similarly for low income levels and retailers - both of which have already been compromised by tight money conditions for some time. I'm concerned that the ongoing circumstance of grocery retailers is not well understood, at all. Scarcely anyone noticed not long ago, when some of them sounded the alarm about low profit margins which were making it difficult to keep their doors open. There's a good chance that extremely low profit margins for basic foodstuffs, is a sign of overly tight monetary representation.

Since grocery retailers are already in a compromised position, they may experience more difficulty in setting aside additional government revenue, than people realize. In all likelihood, already low profit margins would mean passing most additional costs to the consumer - some of whom may respond by cutting back on grocery budgets.

Also, some of the potency of free market advocacy (re gains) for the poor could be reduced, should widespread tariffs on imports be adopted. It saddens me to think of the extent to which tradable sector good deflation could be undercut by these measures, especially as nations begin to retaliate. However, grocery retailers have experienced additional layers of bad deflation since the Great Recession due to tight money, on top of decades of good deflation which brought food prices well within reach of most budgets. In all of this, non tradable sectors have been unwilling - thus far - to encourage free market environments which permit deflation of any sort.

Nevertheless, it must be tempting for policy makers to consider the high tariff route, since incomes for many have risen enough that tariffs may not pose a burden to the average consumer, as in the earlier days of the nation. Hopefully, policy makers will remember, that should tariffs once again become a reality, history has shown how difficult they can be to reverse. For anyone who still believes in the potential of free markets, it's more important than ever, to make one's voice heard in Washington in the days ahead.

Saturday, January 28, 2017

Decentralization Now!

First, I want to reassure my readers that this post title is not intended as a political threat to anyone. Rather, what I wish to accomplish - via my own limited skills and means in a non professional capacity - is an appeal to the freedoms upon which nations have flourished, at least until the recent decades of increased centralization.

What initially prompted this post, was a recent Foreign Policy article from Daron Acemoglu, in which he argues that the political institutions in the U.S. are not enough to "save" us from Donald Trump. Unlike his previous work, where he noted that the success of nations depends on their institutions; here, Acemoglu emphasizes that the citizen is now the last defense. Hence others are now wondering: what to think, about this change in his stance? And Tom Pepinsky wrote:
One is to see with clear eyes that institutions do not constrain politicians automatically.
At some level, the citizen has indeed become the last defense. However, I believe that the appropriate response exists at an economic- not political - level. In other words, the best way forward is not resistance to Washington, but alternative solutions that provide more inclusive means for citizens than what today's institutions are now capable of. In particular, for those who might be visiting my blog for the first time, I advocate for viable solutions for those who are now constrained by small incomes, in environments which primarily demand large incomes to survive.

Calls for decentralized economic and governmental options have died down somewhat, in recent years. In retrospect, it's not difficult to see why. Due to wide income variance, decentralized government can become problematic when expressed primarily in monetary terms, because these structures also suggest escape from centralized structure, on the part of those with high incomes who continue to derive benefit from that same centralized structure. Consequently, the potential benefits of decentralized settings in which low income groups would finally have the discretionary freedom to create their own wealth, have been missed.

The aggregate time value of citizens as a whole, affects how efforts for decentralization play out in the real world. Limits to production rights for personal time use, means millions of citizens are not able to contribute to the validity of their own destinies. This matters, because when it comes to shared taxation responsibilities, time value is finite and extremely scarce, while other forms of resource capacity are not only random, they are randomly assigned. Hence the current disconnect between personal responsibility and the institutional/infrastructure requirements of our time. It is those requirements, which stand in the way of any possibility of an inclusive stance on the part of presently existing institutions.

If economies are to remain valid for small incomes, both infrastructure and local environment need local exposure to personal design and interpretation. All of the local time value that is possible, needs to be completely accounted for within a context of shared responsibility. Where national governments have stumbled most, is the redistribution of product which includes time scarcity, as protected by knowledge use limits. When time value can only be shared via exhaustive investment requirements, this meritocratic framework becomes the first exit ramp, on the highway to exclusive outcomes and lost freedoms.

Even though the new institutional framework of the equilibrium corporation would include its own infrastructural limits, these would be devised along an entire spectrum of production and consumption possibility in terms of the resource utilization of the groups which take part. Hence even though an equilibrium corporation would appear to have exclusive (local) communities, community setting options as a whole would be purposely inclusive by institutional design. If one cannot find sufficient means to match time value with others in one community, there would be many more communities in which further possibilities exist. Each little community would have its own preferences, by which local citizens could share the responsibilities that come with time based product, via their own personal means. Is this not a better approach, than imposed, top down default "solutions" that countless numbers of citizens are still expected to follow?

As it turns out, large nations such as the U.S. have proven incapable of providing these production and consumption options in large scale settings. When we attempt to impose single settings for production, consumption and infrastructure, we are in effect purposely limiting the freedom of all citizens. Yet there is no reason that high income taxpayers should have to bear the burdens of low income citizens who could realistically create their own forms of knowledge based wealth. Likewise, there is no reason why low income citizens such as myself, should have to pay for a wall they neither want, or need.

Thursday, January 26, 2017

The Risk of Losing Productive Complexity

So many economic risks exist at a global level, that it can be difficult to discern what needs immediate attention. Nevertheless: among our greatest risks, is the possibility of losing productive economic complexity in the years to come. Without a sufficient response, more nations and governments are likely to double down on mercantile "solutions" to economic uncertainty. Now is the time to make certain, of real economy responses which extend well beyond bringing traditional manufacture "back home". Doubtless, such a protectionist mindset wouldn't have taken hold, had free markets already been strengthened and diversified, so as to allow everyone to take part.

Since free markets in knowledge use and building component definition have been held back, the risks of lost complexity are greater than what existed, prior to the Great Recession. Unfortunately, it's not completely off the mark for bloggers and others to compare the erratic leadership of prominent nations, with the leadership of countries whose economic complexity has hardly been encouraged.

Meanwhile, there's been too many years of "eminently reasonable" leaders, who nonetheless didn't work to promote the forms of productivity which result in greater output without excessive costs. Even the centuries old production standards of housing, means construction workers have scarcely held the job security of traditional manufacturing workers, whose incomes continue to benefit from the increased output of mass manufacture. For instance: why assume "real men" would rather build homes than take on "soft jobs", when building homes without today's added technological benefits, often means not even having sufficient wages to build a home of one's own? Anyone who has personally known construction workers is familiar with this reality.

The most encouraging response to political and economic uncertainty I've heard so far, is that a better understanding of productivity is crucial, to continued progress and prosperity. Hopefully, more individuals in the days ahead, will take this challenge to heart. While highlighting a productivity perspective (in macro) can be confusing at times, this earlier post from yesterday counts among my recent efforts. Before too long I'll put a series of productivity notes into a broader and (hopefully) more clear context. Unfortunately it can be difficult for society to focus on critical issues, when political distractions begin to pile up all too quickly. Plenty of thoughtful posts from multiple quarters may go unnoticed, as the latest atrocities from Washington and elsewhere drown them out. Which is why "calls to action" in the form of applied economic response, need to begin well before the "roof" already has gaping holes which let in the rain.

Again, I have suggested the possibility of alternative equilibrium constructs not as a replacement for general equilibrium conditions, but as a relief valve for too rigid equilibrium conditions. Too many successful groups now have little incentive to evolve, grow, adapt or otherwise make room for those who still seek economic entry. Yet in order for this broad set of economic expectations to remain stable, people have to at least allow growth to continue in ways which do not pose direct threats to existing investments and ways of life.

Eric Beinhocker in "The Origin of Wealth", reminded his readers that there's no such thing as a static equilibrium. When populations try too hard to ensure that everything about their lives remains the same, the consequent loss of dynamism can lead to more entrophy than might otherwise be the case. Even though prominent players on the present "game board" set the rules and dictate how resources are to be utilized, resource availability - and demand - constantly changes just the same.

As Jason Collins noted in a 2012 review of "The Origin of Wealth", Beinhocker didn't take the additional step of bringing complexity economics (as an applied science) to present day settings. In Beinhocker's defense, I can only note that we still need the institutional means which would make it possible to work out potential evolutionary paths such as mutual employment. I'm presently 300 pages in, and this book does offer evolutionary illustrations capable of providing additional perspective at a basic level, while citizens explore the early stages of knowledge use as a free market platform. Even though complexity economics has yet to benefit from an applied approach, there's still hope that its observations can also shed further light on the productivity dilemma of our time.

Wednesday, January 25, 2017

Secondary Market Limits Can Affect Solow Residual Limits

Specifically, secondary markets for which time value is an important component of final product. Even though this form of organizational capacity continues to generate employment, its methods are less certain - or reliable - than those of primary markets. Whenever primary market and tradable sector activity are dominant, the productivity gains of the Solow Residual are more obvious. Meanwhile, total factor productivity has stalled, as the limits of secondary markets affect total output and capacity. From Wikipedia re the Solow Residual:
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. It is a "residual" because it is the part of growth that cannot be explained through capital accumulation or increased labor...The Solow Residual is procyclical and is sometimes called the rate of growth of total factor productivity.
When secondary market formation is confronted by economic stagnation, one result is a reversal of a previously "virtuous" cycle of increased labor force participation, as contributing to manufacturing demand. So long as economies maintain solid growth trajectories, secondary market formation and primary market formation are able to reinforce one another in this process. What's more, until the Great Recession, many believed that secondary markets would be able to substitute for primary markets, if and when the latter didn't provide sufficient employment.

Now that the organizational capacity of secondary markets is facing limits, a new form of organizational structure is needed, so as to restore first mover market positions for long term growth. Unfortunately, knowledge use as the obvious candidate, is still trapped within a limited framework of secondary market terms of engagement. Consequently, a lack of first mover organizational capacity, means governments increasingly resort to long outdated mercantile strategies, as a response to economic stagnation.

No longer are secondary markets for time based product, the employment panacea they might have appeared, scarcely more than a decade ago. As it turns out, the secondary markets of time based product - as a second mover - have been revenue dependent. Hence when this form of organizational capacity seeks greater efficiency via a Solow Residual process, the result is often lost supply and demand of time based product, instead of the productivity gains which normally accrue to the cumulative labor reductions of (total) tradable sector output.

What isn't always evident is that lost supply and demand for time based product also translates into lost productivity. This is all the more important, given the fact tradable sector consumption has also been limited by falling labor force participation. However, a first mover position for knowledge and time based product, requires a different organizational response than what has transpired thus far - one that reinforces the Solow Residual of tradable sector wealth, instead of detracting from its benefits.

Meanwhile, as Arnold Kling noted in a recent entry for the Concise Encyclopedia of Economics:
For most people, viewing trade as a rivalry is as instinctive as rooting for their national team in Olympic basketball. To economists, Olympic basketball is not an appropriate analogy for international trade. Instead, we see international trade as analogous to a production technique. Opening up to trade is equivalent to adopting a more efficient technology.
What's important now, is a recognition how rivalry for knowledge use has decreased the work availability that many individuals have sought and prepared for, in the marketplace. Otherwise, populations might not be so inclined to disregard centuries of progress, via the mutual gains from international trade.

Consider Arnold Kling's assertion above, that opening up to trade means adopting more efficient technology. Before anyone can remain comfortable with the efficiency of the Solow Residual model for tradable sector productivity, time value needs its own place in the sun as well. Time based product is particularly scarce and finite. Hence it coordinates best with other forms of time based product. Further, mutual cooperation within a continuum of group patterns, would finally allow economic settings in which both parties gain from the process. This is particularly important, given the fact too much economic activity has become reduced to zero sum outcomes, and the protectionism they imply.

The Solow Residual will always be a vital component of economic activity. However, it functions best on the traditional productivity terms of tradable sector activity. Whereas in the time based product of non tradable sector activity, this approach often translates into lost marketplace potential. It's time to build new primary market formation for knowledge use, which is capable of measuring productivity gains as surely as those which the Solow Residual have indicated for tradable sector activity.

Monday, January 23, 2017

Social Contracts and the Choice to "Opt Out"

Since important national budget issues are already being addressed, what is immediately at stake? The social contracts which involve mutual coordination for time based product, aren't just important for citizens, but also national prosperity. One example involves a study which gained attention last November. The researchers highlighted "opting out" which occurs in emergency rooms. From CNBC:
A new study that looked at more than 2 million emergency department visits found that more than 1 in five patients who went to ERs within their health-insurance networks end up being treated by an "out-of-network" doctor - and thus exposed to additional charges not covered by their insurance plan. 
And the average out-of-network bill those patients faces, unless their insurance plan ultimately agreed to cover it, was more than $622...But the bills can be much higher than that, according to the researchers, who pointed out that one patient they were aware of faced a potential balance bill of more than $19,600. 
Still, this is only a limited opt out example, given the fact physicians already have limited participation with either Medicare or Medicaid patients. Often, individuals with chronic illness and/or disability, may go months at a time without a primary care provider, should they lose one. Or when they finally locate another, may need to drive several hours one way, in order to reach appointments. It's not always possible to gain healthcare provision in nearby cities, as physicians who take Medicare and Medicaid tend to have very full schedules.

Traveling long distances for healthcare can be difficult enough for those who still have reliable transportation. But as health declines, one faces additional uncertainties regarding doctor's visits, should their vehicles have some of the same ongoing maintenance issues that a physical body may face. If there's one thing worse than being stranded on the side of the road with no one nearby to call on, it's being stranded on the side of the road in approaching nightfall, with a patient in the car who really should be in the hospital. Yes I've been there, and after circumstance like this, decades of driving confidence can flat out disappear.

Where opt out for the physician is a matter of being able to freely choose patients, opting out for others may simply mean leaving the participation framework that exists. Now, an even larger opting out issue is at stake, as Washington contemplates a partial opting out for Medicaid provisions. While the extent of block grants involved is uncertain, the bigger message is clear: as healthcare gradually reverts to the states, policy makers can finally achieve much needed cost reductions. There's just one problem. As the healthcare marketplace is currently designed, national output is more likely to suffer, as no one really knows the kinds of supply and demand that would exist were there free market conditions for healthcare.

These supply problems originate with the ways in which healthcare became a social contract in the twentieth century - especially in the U.S. Since the opting out process realistically only goes one way (doctors and healthcare providers choose the patients they can serve with their limited time), it is most inefficient and illogical. Even though doctors and healthcare providers are quite reasonable in making the most of their time scarcity, other citizens cannot make good collective use of their time to amend the fact that existing hours on the part of physicians and healthcare providers are severely limited. This lack of citizen options re rights to produce/apply knowledge for healing, is all the more illogical, since there is little if any cultural acceptance for suicide in the U.S.

Ultimately, if democracy is to remain viable, everyone needs realistic opting out and opting in for time based product processes. Citizens with low incomes need the same formal opt out options that healthcare workers have, so they can to take part in local "opt in" system alternatives. Opt in alternatives would mean knowing one's budget need not be devastated after years of resisting healthcare markets designed for higher income, only to need them anyway, in the event of emergency or serious illness.

Knowledge use systems as a new form of social contract, would encourage further development of applied and practical knowledge. Doing so is all the more important, given the fact that block grants for states would run their course long before existing markets are addressed. With the budget cutting in Washington, there's little time to lose, for citizens to gain the kinds of production rights that could secure knowledge use and prosperity, well into the future.

Saturday, January 21, 2017

The Wealth That is Missing

Reflecting on yesterday's presidential inauguration, I remembered a long lingering question: is there any context in which "nation first" is as important, as some leaders now believe? Perhaps the answer depends on the form of wealth, which is at stake. Are we referring to the random and mobile resource capacity that is globalization, prosperity and our world marketplace? Or, the fixed resource capacity of time value in our personal lives? After all, the potential of the latter, with its inevitable links to fixed-in-time economic location, has hardly been considered. Consequently, the lack of free markets in today's non tradable sectors, now threatens the prosperity of tradable sector free markets across the globe.

Yet much of the "nation first" rhetoric of late, has little context in which missing wealth can be readily understood. How does one explain the economic dynamism which has been disallowed, when not only is it missing, it might not even get the chance to see the light of day? The only part of economic logic that makes sense in this context re wealth creation, is that new growth doesn't result from forcing manufacture to return to one's shores. No amount of political efforts towards these ends would increase aggregate global wealth, or national wealth for that matter. So why do political constituencies - along with a growing list of others - see protectionism as the only solution to promote long term growth and prosperity at home?

Perhaps it's due to the protectionism which has already taken place. One way to think about this problem, is the fact that protectionism at home continues unabated. Yet even as it reduces both employment potential and national output, home based protectionism occurs in ways not easy to correlate with the vagaries of world trade.

Further, internal protectionism at home (wealth capture) mostly takes place in non tradable sectors. It results in limits on both production and consumption of both time based services and housing, in particular. Even though Adam Smith spoke of the dangers of protectionism centuries earlier, tradable sector activity was the primary economic given of his time. Indeed, tradable sector activity remains central to economic thought, even though U.S. manufacture is now less than 12% of GDP. Hence who has means, for instance, to determine precisely how non tradable sector dominance affects equilibrium conditions and growth capacity? Meanwhile, non tradable sector wealth capture continues to be glossed over, as world leaders reach for the understandable prosperity of tradable sector activity.

If worldwide tradable sector activity was threatened by the crowding out effect (of non tradable sector dominance) before, worldwide or external protectionism, only makes the threat worse. Home based protectionism is also likely to worsen - in spite of calls for greater inclusiveness - should local sources of (international) revenue become less certain. The domestic protectionism which is built into the regulations of knowledge use and (physical) asset formation, is today's missing wealth, in all areas of society. Small wonder that some policy makers have warned their populations of economic stagnation, with no seeming end in sight.

Given this unfortunate reality, an inaugural speech in Washington which aimed to make both Democrats and Republicans uncomfortable, makes a bit more sense - even as people around the world react to a president they are disinclined to trust. If economic prosperity is to remain a viable possibility, the wealth that is missing - that which represents the true finite reality of our time value - will have to be acknowledged and honored. Otherwise, the insidious protectionism which begins at home, will only spill out into the larger world arena for decades to come.

Thursday, January 19, 2017

Notes On High Skill Transaction Costs Versus the Baumol Effect

What forms of transaction costs have become most problematic? Often, they involve time based product which requires a great deal of knowledge use preparation and investment beforehand, as these costs ultimately need to be shared throughout a broad range of systems. Even though one hears complaints of Baumol's disease in terms of, say, medium skill work which adjusts income levels via coordination alongside higher skills and more productive work; often it is high skill work, which requires a higher level of compensation for individuals wherever they may live, which poses the more substantial societal costs.

How might one think about these productivity differences, in terms of time based product? For instance: even though citizens of prosperous regions pay more for a wide range of skill levels in their vicinity (some of which cost far less elsewhere such as hairdressers), most citizens are expected to travel to prosperous regions to gain the expertise of professionals, and pay the same costs to those professionals as other local citizens - regardless of existing wide variance in the income levels of their own regions.

Again, think about the difference in aggregate. Medium skill levels which are subject to Baumol's disease, can appear unproductive in relation to nearby high skill and other productive work. Yet since local high income levels can still directly coordinate for many of these skills costs via their own means, medium skill levels don't carry the same (societal) cost burdens as the costs of high skill time based product. Nevertheless: even though medium skill levels tend to command less income in less prosperous areas, most high skill work is presently subject to higher costs (income compensation at a multi institutional level) regardless of where or how social coordination takes place.

These transaction costs, which in the U.S. are shared by consumers, governments, municipal budgets and businesses alike, need to at least be addressed at the margins, in order to maintain system viability in the foreseeable future. Might it be possible for regions which are beginning to falter under these circumstance (bankruptcy, etc.), to adopt a new institutional structure which is capable of reducing these otherwise built in transaction costs?

Firms in recent centuries were able to reduce transaction costs, in part because many divisions of labour were more flexible and required less extensive investment, beforehand. In "Theory of the Firm", Wikipedia notes:
According to Ronald Coase, people begin to organize their production in firms when the transaction cost of coordinating production through the market exchange, given imperfect information, is greater than within the firm.
In the present, the more important concern is not one of further divisions of labour for a non market environment to generate separately existing product, but divisions of labour which would allow individuals to coordinate their time via direct free market terms. Hence the equilibrium corporation would be different from the traditional firm, for it would restore local market platforms to make more complex forms of economic activity possible.

Rather than removing divisions of labour functions from the marketplace, the equilibrium corporation would seek to bring multiple time based functions back to the marketplace - albeit in a somewhat changed form. Whereas the single entrepreneur in the Coase model was responsible for the coordinated activity of large groups - so as to facilitate the complicated production processes of tradable sectors, participants in an equilibrium corporate construct would assume entrepreneurial responsibility for their own time value. What makes it possible to take this approach, is the fact these non tradable service sector settings don't involve the numerous level of production processes that have often been required by tradable sector activity.

There's another important factor for the transaction costs which comprise local coordination of time based services. Once a region becomes more prosperous, it often seeks to control local entry and access, so that only a certain amount of medium skill participation remains possible. Indeed, some economists have recently noted this self limiting Baumol effect. Prosperous municipalities can achieve these limits via control over local real estate values.

Whereas lower income regions don't necessarily have the same ability to control local factors for the skills levels they may seek. Since many professional skill sets include considerable sacrifice and investment, individuals who seek these opportunities, may not have the option of locating where lower income levels are hard pressed to compensate them. Areas with lower incomes could especially benefit from a new institutional structure, which would also build new markets for high skill levels which otherwise might not be locally possible.

Tuesday, January 17, 2017

Today's Healthcare: A Missed Opportunity For Trade

Has Washington mostly suffered from a naming rights process, when it comes to the basic gist of Obamacare? It's beginning to appear as though the "wrong" party was in power, for enacting a healthcare policy. Never mind what could have been the use of logic and rationality, to sort out particulars. What an expensive game! Much of what is at stake involves the costs of Medicaid, for which Timothy Taylor provides useful perspective in a recent post.

For me, the real story is that healthcare never got the chance to evolve free market options in the twentieth century. At root, the supply for healthcare in terms of knowledge, skill and other resources is far too restricted for anyone to know its true potential. Consequently, it's difficult to imagine, how producer/consumer choice and personal challenge in these areas might play out, were they given the chance. I thought about these missed opportunities for healthcare, after reading about a computer enactment of a basic economy which took place more than twenty years ago.

In "The Origin of Wealth" (2007), Eric Beinhocker describes an experiment called Sugarscape, created by two researchers, Joshua Epstein and Robert Axtell. Was it possible to create an economy from scratch? They began with a fifty-by-fifty computer grid and one resource: sugar. While each square had varying amounts of sugar, there were two mountains in the grid with a range of four sugar units high.

Each person (agent) in the Sugarscape environment could look for sugar, move, eat sugar and also store what they didn't immediately need. Agents were programmed with metabolisms which needed more or less sugar for survival, and not enough would cause an agent to starve or be removed from the game. Some agents were programmed with better vision: they could see up to six squares ahead, while poor vision may only mean being able to see one square ahead. Agents also had randomly assigned lifetimes.

Once 250 agents were dropped on the Sugarscape, some landed on rich sugar mountains, hence born into wealth. Others had bad luck - being born where sugar was scarce. Even though the game appeared chaotic at the start, order soon emerged, and it proved clear how geographic destiny mattered for survival. Many died before they could reach their needed resource. Indeed Sugarscape was efficient, for almost as soon as sugar grew back to capacity, a grazing agent would find it.

Some had real sugar advantages, and distributions of wealth became increasingly skewed. Sure enough, this was an emergent property of the system. It became particularly interesting for me, when Epstein and Axtell introduced a second commodity called spice. From the book:
Each square on the board now had a value for how much sugar it held and a value for how much spice it held. As with sugar, spice was concentrated in two mountains...Epstein and Axtell also tweaked their agents' metabolisms so that they all required some of each commodity to survive. However, some agents needed lots of sugar and only a little spice, while others needed more spice than sugar - again, this was determined by their DNA...
Epstein and Axtell seeded Sugarscape with randomly endowed agents who could now trade, and hit the switch. The agents started to buzz around, and immediately a brisk business in sugar and spice took off. 
Trade made Sugarscape much richer than it had been. They highlighted one extreme case, in which neighboring agents who were close to death came into close proximity with the other which held the resource they needed. Here, trade was the definitive factor in maintaining life. Again, from the book:
Trade has an effect equivalent to increasing the carrying capacity of the landscape, thus making everyone better off.
Of course, I had to wonder: what might have been the effect on output and agent survival, had they programmed a requirement to get permission, before offering or consuming needed resources. How many more agents would die, before they could get to the mountains where "permission givers" lived in sufficient abundance to give the okay for specific resources? Is not healthcare, a missed opportunity for trade?

Poor logic can be involved in the assignment of permission givers, especially if they capture the wealth capacity of what may have been normal life amenities of a given landscape. When societies have little choice but to accept that permission givers are "necessary" for basic economic activities, it becomes more difficult to accept that logic is truly useful, in other areas of daily life, as well. The negating of logic is often a slow process, but finally - like the ripples from a skipping stone - such perceptions spread to the "edge of a pond".

Once, it may have seemed like a good thing, for authorities to assume logic and important decision making "on behalf" of their citizens. But when this process goes on long enough, people can become convinced that logic isn't really necessary after all. In fact, some people become more inclined to dismiss logic at a social level, if the use of logic means a loss of their own degree of control, or has not proven helpful for their peers. Anyone who has lived any length of time where economic complexity is lacking, likely has seen this process firsthand. And should that dismissal of logic and rationality continue, a growing percentage of populations eventually become convinced to elect leaders who also lack faith in the social processes of logic and rationality. Is it still possible to reverse, what is now taking place?

Sunday, January 15, 2017

Market Position Matters, for Output Potential

Why is primary and secondary market positioning so important, in terms of output potential? One thing to consider: when more output and product diversity is desired by both producers and consumers, competition is more likely to be encouraged. In particular, tradable sectors already have high incentives for productive competition. After all, many of these institutions are well organized to benefit, if and when it becomes possible to increase aggregate output.

Whereas increased output is not necessarily a plus for some forms of non tradable sector activity, especially when it is organized in a secondary market position which is dependent on external revenue (such as knowledge use). Here, increased market output and/or product diversity may actually translate into revenue dilution, since time and place linked product cannot be replicated by means of the same (identical) time and place. As I have argued in previous posts, new forms of organizational capacity are needed, to generate similar forms of product which expand the marketplace without directly competing with these fixed scarcities. Yet ultimately, no person - or institution - should have to be completely dependent on the fixed scarcity of (one's own) time value or real estate value, as a sole revenue source. Not only does this form of ownership create excessive vulnerability, but also a natural impulse to decrease additional marketplace formation if it "competes" with personal ownership capacity.

Too many people and institutions are now dependent on revenue that is directly linked to the fixed scarcities of time and place, which understandably leads to widespread protection of market definition and share. Since these crucial differences in ownership incentive are not well understood, they are adversely affecting aggregate output, so as to negatively impact tradable sector capacity. Meanwhile, the forms of capitalism which are already well aligned to embrace competition, have become confused with negative "competition", which instead seeks to "crush" those who dare "threaten" the fixed scarcities of time and place.

These differences in ownership incentive are important, at a very basic economic level. Without the organizational capacity that would encourage non tradable sector output and product diversity, future growth potential could be jeopardized. Organizational factors in primary and secondary market positioning matter, for marketplace outcomes. In the meantime, some of today's secondary market patterns will continue to diminish marketplace capacity, due to NIMBY responses re fixed product scarcities as aligned with time and place. Unfortunately, the way institutions now approach these fixed scarcities, also plays psychological havoc with the public psyche.

But how does one know, whether a secondary market position is aligned so as to prompt the suppression of potential aggregate output? It depends on whether ownership is mostly in terms of fixed scarcity product limits (time and place), or if ownership more closely represents product in a related capacity. An apt illustration of the difference, comes from a post by Arnold Kling (re higher education), in which he stated:
The Kling theory of Public Choice is that public policy will always choose to subsidize demand and restrict supply.
Indeed, plenty of examples come to mind, since government economic activity tends to be closely linked to product which includes fixed scarcities - particularly time linked healthcare and place linked real estate/housing. But supply of education isn't exactly limited. What gives? As some of Kling's commenters noted, the subsidy (which increases the cost of access) is mostly a response to the limited platform of participation, as represented by the best educational institutions. In this instance, it's the platform for knowledge use participation, which is the most obvious fixed scarcity, in terms of productive agglomeration at an aggregate level.

Additional options for higher education, are not unlike other secondary marketplace components which exist in abundance - particularly financial activity. Secondary markets such as these can afford to be competitive and expansive in outlook, because they serve as further support for economic access, instead of access as it is actually put to use in the marketplace. And even though financial activities have at times fallen victim to their own excesses, they have nonetheless proven capable of expanding the output of general equilibrium in productive ways. In this sense, they are a positive association for competition that one may not always expect.

Friday, January 13, 2017

More Money Chasing Fewer Goods...

Economics can get confusing indeed, when neither monetary or fiscal policy is well positioned to provide sufficient economic stimulus. If neither appears necessary, does that mean an economy is already close to its "full potential"? If this be so, then why do so many problem areas and pockets of low labor force participation, remain?

While structural factors continue to inhibit the effectiveness of fiscal and monetary policy, it's not clear how they do so. Mostly evident, is the fact ordinary forms of stimulus are increasingly off the mark, given present circumstance. Supply side issues contribute to these problems in ways which leave many scratching their heads. Sure, the prospect of cronyism has become even stronger than before. But what, specifically, about favoritism, stands in the way of progress and long term growth?

Like the monetary inflation that central bankers are so determined to "destroy", cronyism contributes to its own internal form of inflation. In other words, pro business policy - as opposed to pro market policy - often leads to "more money chasing fewer goods" as well, with time based services and housing among the more egregious examples. If an already constrained marketplace weren't enough, recent suggestions for fiscal stimulus would likely be subject to monetary offset by the Fed, as Scott Sumner noted in a recent post.

Unfortunately, the Fed is not equipped to respond to what is essentially a real economy equivalent of monetary inflation. However, that does not mean a response is not needed. Why so? Over time, the real economy equivalent of more money chasing fewer goods (in spite of Fed inflation targets) begins to crowd out the marketplace options of our most productive sectors, particularly those associated with tradable sector manufacture. Yet the problem goes well beyond crowding out, for this process is occurring in terms of limits on primary market formation, or original wealth. Consequently, gradual losses in primary market representation, lead to gradual deflation, as secondary market crowding has to adjust to the gradual losses of primary market revenue which these sectors depend upon. The result is a gradual - but consistent - negative form of deflation.

Some of the retro trade policies presently being proposed in Washington, could also result in more money chasing fewer goods for tradable sectors as well. However, it is the long trajectory of NIMBY non tradable sector activity, which has constrained output (in product diversity) to such an extent the process now distorts general equilibrium conditions.

Structural problems can no longer be ignored, because disallowing inflation at the level of national economies is only making things worse. It is dangerous to assume that central bankers are actually capable of providing good deflation on behalf of their citizens. Good deflation is purely a real economy construct, and fortunately it is still possible to organize markets in ways that provide positive incentive for more output, instead of less. Without more marketplace choice, the present retreat to authoritarian "solutions" may only continue.

Wednesday, January 11, 2017

Rent Seeking: "Baked" in the Costs of Economic Access

At a recent ASSA conference in Chicago, one of the panels included discussion regarding rent seeking. While this ProMarket article is worth reading in its entirety, I'll focus on some remarks from Angus Deaton:
To the very considerable extent that inequality is generated by rent seeking, we could sharply reduce inequality itself, if rent seeking were to be somehow reduced...I don't think that rent seeking, which is incredibly profitable, is very sensitive to taxes at all. I don't think taxes are a good way of stopping rent seeking. People should deal with rent seeking by stopping rent seeking, not by taxing the rich.
He also notes that healthcare - in particular - has been notorious in this regard. I agree with Deaton, that taxation is not a well suited approach for what is an important aspect of today's inequality. That said, there are hierarchical divisions for non tradable sector labor and compensation, which make it difficult to approach inequality as a rent seeking problem. How so?

Whereas abundance in tradable sector activity often consists of "windfalls" which contribute to endogenous resource flows, the revenue sources of non tradable sector organization has been defined quite differently. Understandably, these institutions are intended to provide long term employment security, but thus far they have sought to fulfill this purpose via exogenous monetary flows. Relying on these flows requires plenty of "proof" as to one's "worthiness" for knowledge use. If this were not reason enough for the high investment costs required to gain knowledge production rights, career stability is also included as part of the package.

Unlike the wealth of tradable sector activity, which still has a relative degree of freedom to respond to consumer choice and preference, healthcare as non tradable sector wealth, has become a specific component of general equilibrium valuation. Some of this rent seeking structure, is a holdover from days when information and knowledge weren't widely available. Extensive investment for educational costs was understandable, when critical knowledge was scarce. Even as budgetary constraints limit healthcare output, this skills investment structure will continue to require a significant portion of general equilibrium income.

Fortunately: even though it is impractical to "dismantle" the high costs of today's healthcare, there are means by which to (eventually) disperse valuable and practical knowledge on new sets of terms. Even though inequality is likely to remain problematic in the decades ahead, the bigger problem is unnecessarily low levels of labor force participation, which in turn limits the forms of knowledge and time based product that appear in the marketplace. Inequality can gradually be eased by tapping into the technological potential of the present, so that more individuals can participate in knowledge based activities once reserved for those with the highest skill levels.

There's nothing wrong with having some time value that is reimbursed on terms which go well beyond normal levels of skill and intellect. Still, we shouldn't expect a mostly meritocratic framework to be a "permanent" norm for knowledge use at all levels of society, as is presently the case. In many instances, knowledge use also needs to close the loop of reciprocity at local levels, so that more citizens can take part in the important activities which contribute to their own destinies.

Monday, January 9, 2017

Could "Futures Studies" Address Regional Decline?

Even though unemployment levels are (supposedly) no longer a concern, regional decline belies the "all is well" refrain, which economists and policy makers have been inclined to agree upon. While a certain degree of regional decline can be inevitable at times, this phenomenon is becoming too prominent a feature in the economic landscape, to ignore.

Reasons for regional decline are numerous, and yet one element defines them all: earlier forms of economic complexity have been displaced. Nevertheless, recent losses in the U.S. have also contributed to the gains of other regions and sectors, since the Great Recession. Indeed, today's positive aggregate indicators only add to the confusion, of sorting out economic problems which have not gone away since the Great Recession. According to The Atlantic:
The employment rate in rural areas was actually 2.9% lower in mid-2016 than it was in early 2007.
In all of this, there's a real possibility of eventual employment losses in prosperous regions as well, due to automation. Why, then, is public dialogue still caught in a preliminary position, regarding the "unlikelihood" of further significant losses in labor force participation?

Of course, as usual: I'm entering an area of discussion which is speculative. And many in the blogosphere, don't consider speculation particularly helpful. When the WSJ recently ran an article about "futurology", their paywall prompted me to do a bit more searching for related articles and posts. Sure enough, it was easier to locate negative reactions against futurology, than articles in support of this relatively new area of study.

Granted, some continue to suggest imaginary scenarios which aren't much more than the usual refrains of doom and gloom. But what if positive actions could be taken, to counter the possibility of further negative outcomes? Wouldn't experimental plans of action be a better approach, than simply insisting no such preparations are necessary? In other words: what if it's actually a good idea, to craft viable responses to the pressures of economic uncertainty? Perhaps time spent preparing for a range of scenarios, could serve a productive purpose. Might futures studies help to reduce the possibility, of further regional decline?

 Wikipedia also provides detail, regarding futures studies:
Futures studies (also called futurology) is the study of postulating possible, probable, and preferable futures and the worldviews and myths that underlie them...Futures studies (colloquially called "futures" by many of the field's practitioners) seek to understand what is likely to continue and what could plausibly change. Part of the discipline thus seeks a systematic and pattern-based understanding of past and present, and to determine the likelihood of future events and trends. Unlike the physical sciences where a narrower , more specified system is studied, futures studies concern a much bigger and more complex world system. The methodology and knowledge are much less proven as compared to a natural science or even social science like sociology.
While this BuzzFeed article was written some years earlier, not everyone is familiar, with the work that people engaged in futures studies have already provided. From "What It's Like to Be a Corporate 'Futurist'":
They work for large companies, large energy companies and oil companies, they'll do work for the government and militaries definitely, and you'll have some product people. I know General Mills and Ford both have futurists as well as Proctor and Gamble...It's not hugely popular yet, but because of what capabilities technology has given us, we can have more and more.
Consider what today's employment uncertainties entail, and how these issues are not easy to capture in primary statistics. Presently, there are few reliable policy approaches, for what has become one of the greatest problems of our time. Too many individuals are well aware, that they may not gain the level of economic access which is necessary to fully function in today's economy. Will their numbers only continue to grow?

Saturday, January 7, 2017

Fiscal Policy: Too Much of a Good Thing?

Oddly, it seems that fiscal arguments become an easier sell, when it's difficult to tell whether economic activity is actually in a strong position. Ed Dolan notes in a recent post that Republicans are anxious to once again ramp it up with fiscal policy. Should this in fact occur, would it be a "good thing"? Dolan responds:
Too much, in my opinion. Republicans like to portray themselves as the party of fiscal responsibility, but their record says otherwise. In practice, GOP budget policy so far this century has been consistently procyclical - expansionary when it should show constraint, contractionary when it should support a weak economy. All signs point to another procyclical episode in the making.
He provides a summary of recent fiscal policy, and adds:
Is the stage set now for the strongest dose of procyclical fiscal policy yet? That is a very real possibility. Tax cut fever is in the air. Despite the rhetoric of fiscal hawks, Congressional Republicans have, in the past, found it hard to resist demands to spend the revenue generated by economic expansion rather than using it to pay the debt. A bad record of fiscal policy may be about to turn ugly.
Should it all turn ugly as Dolan fears, how much procyclical fiscal policy might be due to an incoming president with an especially dominant personality? His post reminded me of an earlier dominant presidential personality, who allowed procyclical fiscal policy to become too much of a good thing, as well. Of LBJ, John Steele Gordon wrote in "An Empire of Wealth":
A decade older than Kennedy, Johnson was fully a son of the New Deal, one with deep faith that government could solve social and economic problems. He also possessed what were perhaps the most surpassing legislative skills of any American president. These skills had made him the most effective majority leader in the history of the Senate, and he was determined to use them to achieve what he saw as the completion of the New Deal of his political hero, FDR.
Gordon continues:
With the help of an overwhelming electoral victory in November that year, Johnson prodded Congress to pass bill after bill...Had the economy been underperforming as it had been in the 1930s, the result of all this new spending would have been stimulating. But the economy in the mid-1960s was near full employment, so the inevitable result was that inflation began to increase. A vicious circle quickly developed. Increased inflation caused interest rates to rise as lenders wanted protection from the inflation. But the Federal Reserve, operating on a Keynesian model, was afraid that increased interest rates would cause economic growth to end, and so it expanded the money supply to keep interest rates low. An increased money supply, relative to the goods and services the money could buy, ineluctably caused further inflation.
One has to wonder, if the Federal Reserve were as worried about potential for stalled growth in Lyndon Johnson's time, as Gordon assumed. Nevertheless the Fed doesn't appear particularly worried about stalled growth now. After all, it has announced intentions to raise interest rates several times this year, apparently, irrespective of how Trump might affect economic conditions.

Perhaps the inflation question is also difficult to answer, since fiscal approaches are subject to wide variance in outcome. For one, government efforts this time around may prove more likely to benefit business interests, than demographic groups. That said, inflation could be more extensive, should infrastructure investment turn out to be mostly additional options to what the intended recipients already rely on. Yet growth and greater productivity is more likely to occur, if fiscal policy benefits groups who consequently gain more economic access, than they had prior to fiscal stimulus. Might the Fed also doubt the ability of fiscal stimulus to translate into real economic gains? A quote from a recent Atlantic article, could provide a clue:
Policy is much better at redistributing money to individuals than it is at revitalizing regions.

Friday, January 6, 2017

Moving Time Value Towards Recognizable Wealth

Knowledge use became a major economic component in the twentieth century. Even so: in many instances, it wasn't sufficiently clear, how knowledge and skill actually contributed to discernible progress. All too often, specific forms of knowledge use have become a judgement call, which governments attempt to provide on behalf of their citizens. Yet the process mostly makes populations less certain over time, what they've actually gained. Perhaps it would be easier to convince societies the worth of knowledge, should its use become more closely connected to personal time value. After all, a direct time/knowledge economic connection, would allow the use of knowledge to be measured - hence accounted for - in increments of reciprocal time.

Granted, it's easier on a number of levels, for institutions to make note of time use patterns after the fact. Which also allows everyone to gradually sort out the bill, well after the dealing's done. But this approach - flexible though it is - gradually plays havoc with long term budgets, the services needs of lower income levels and finally, populations as a whole. And given what we know about Adam Smith's attitudes toward wealth creation, chances are he would not have considered these open ended and knowledge based service patterns, capable of moving society forward. This is no small matter, given the dominance of time based service formation as a part of today's economies.

Fortunately, knowledge use in conjunction with tradable product, gains measurable value through recognizable output which is accounted for at the source. Whereas non tradable sector time product often expects citizens to take on faith, the ways knowledge are monetarily compensated in the process. Even though non tradable sector private institutions may be more accountable than their public counterparts: if the knowledge they utilize is purposely limited at the outset, even responsible accounting can't detract from the diminished monetary velocity - however small - which is likely to result from captured wealth. In other words, both public and private approaches to the coordination of time based product, can gradually subtract from incremental and reliable wealth creation.

The dominant sectors of our most complex economies, are heavily dependent on time based product - much of which is secondary market activity. In the last year or so, I began to more closely consider how the dependence of secondary markets on primary markets, affects overall equilibrium structure. As secondary markets continue to crowd primary markets, political pressure grows to dismiss knowledge based activity, where possible. If some of this pressure appears indiscriminate, it's reached a point where political constituents aren't necessarily rational about the process. Yet people are right to worry about slashed budgets, when many normal means of knowledge use preservation are also being threatened. By way of example, is this recent announcement of layoffs at M.D. Anderson, indicative of what might become a growing trend?

Ultimately, secondary market activity should not have to be diminished, in relation to what already exists in this regard. Instead, it would be better to supplement secondary markets with a greater degree of primary market activity for knowledge use. Even though Obamacare may soon be a thing of the past, the fact neither public or private interests are prepared to preserve valuable marketplace output, could nonetheless mean further difficulties for hospital budgets. By bringing more knowledge use into primary market roles, one might also hope for fewer hospital layoffs in the future.

How might a restoration of knowledge based wealth, take place on primary market terms? Time value can be organized to function much as any other valuable commodity in primary markets. In order to do so, a time continuum would be internally generated for a broad range of time linked services and knowledge use. What allows for recognizable wealth to be formed at the outset, are coordinated services patterns which allow matched reciprocity to become immediately possible, instead of at some point in an undefinable - hence not always accountable - future.

Wealth creation at the outset, would result from matched time value with individuals who already live and work in close proximity with one another. In a sense this process can appear as bartered time, which has been reasoned away because "it's hard". But barter did not take place in a coordinated time use continuum. Thankfully, we have money to provide the coordination roles which supplanted earlier forms of barter, especially for the tradable goods which existed well beyond local resource capacity. Nevertheless, money works best, as a signal for product which is separate from time. As a coordination signal for time based product, money begins to suffer distortions early in the process, because time is a fixed scarcity, in relation to the random scarcities of other resource capacity.

Consequently, government efforts to assist the coordination of time based product, have carried substantial trade offs. Even though government debt for fiscal transmission is reasonably secure (government debt represents someone's asset), each declared asset is subject to countervailing forces. Consequently, fiscal transmission cannot always contribute to a full range of knowledge use preservation.

While a time based continuum for organizational capacity includes trade offs much as anything else, the equal starting value this approach utilizes, makes it possible for local groups to eventually provide reliable signals for the production and consumption of desired services. Since these groups organize for internal reciprocity and immediate time based wealth, they don't have to wait - and hope - for broader sets of equilibrium factors to give a green light to their productive pursuits.

Establishing new productive routines and habits, of course includes inevitable adjustments for the changing wants, needs and challenges of participating groups. Yet the real value consists in being able to maintain normal economic routines which are not constantly broken down, just because some product formations are only temporary for the participants involved.

Wednesday, January 4, 2017

"They're Not Like Us": Redistribution Problems

In a time of growing inequality, some nations are beginning to experiment with direct payments of various forms - albeit to a limited number of citizens. Finland is the latest for instance, to implement an experimental universal basic income program. Among the incentives for this approach, are uncertainties regarding the long term effects of automation, on employment. Others view such payments as potential means to simplify the confusion, of too many overlapping welfare systems.

While direct payments are an understandable response, the "not like us" rationale may nonetheless undermine some of these efforts. Recently, Chris Blattman highlighted an article which noted how British taxpayers were supposedly "doling out" money for Pakistani families. It's an unfortunate reaction, given the efficiency and effectiveness which might have been gained from the policy approach. And Blattman's post title illustrates the broader meaning of the problem faced by economists and policy makers alike: "This is why politicians fear cash transfer programs."

So long as economies are dynamic and (seemingly) reliable, populations are far less likely to complain about many forms of government redistribution. But when the economic pie is scarcely growing, various constituents become more intent on taking action, should they discover that money is going to the "wrong people", whoever they might be. While Blattman's example exemplifies problems for foreign aid and developmental policy, domestic policy may well be the larger struggle in this regard.

How to think about redistribution problems, especially when they appear as though magnified with economic stagnation? Or, what's the "worse" trade off:  so called "deadbeats" who live off the taxes of others, or individuals who make a living "unfairly" from utilizing knowledge which already "belongs" to others? It's a valid question, since the use of knowledge has become central to economic vitality. Even those who invest in knowledge based skills, may still lack economic access to some extent.

Granted, unemployment issues aren't often framed in these terms. But doing so, might help to think about differences in the trade offs involved, between money and/or knowledge use as redistribution. Especially since the latter has the potential to expand the economic pie as a whole. Ultimately, the question really comes down to: would we rather pay people for doing nothing, or would we rather pay people for becoming more willing to assist one another? And even here, the framing for the latter is actually better than the choice implies. Because people could organize their time in ways that allow mutual self assistance to also become new wealth.

When money is the sole form of redistribution, people can't buy services (simultaneously) that don't actually exist.  When important forms of knowledge use remain off limits to large segments of the population, less wealth in aggregate is possible, and hard choices have to be made. In such circumstance, it is also difficult for nations to provide important time based services for all would be comers. Only consider that Medicaid in the U.S. for example, is almost 20% of all healthcare spending - a factor which particularly stands in the way of finding effective means to replace Obamacare. More than 70 million enrollees have too few means, by which to fully reciprocate, for the health based services they may actually need.

If little is done in terms of supply reform, restrictions on the use of knowledge might increasingly mean more closed societies in the near future. Whereas an ability to utilize knowledge to build new wealth capacity, could help preserve open societies and relations between nations. A greater supply of knowledge based services activity, would mean fewer individuals appear as though "takers" of the wealth of others. Until vital knowledge use becomes a more important part of the economy, too many will appear as "outsiders", as populations organize to trim their budgets by excluding those who are "not like us".

Monday, January 2, 2017

Long Term Growth and the Debt Factor

Is debt something that we should not even be worrying about, in terms of economic stability? Some are concerned about Mick Mulvaney's nomination to the Office of Management and Budget. Kerry Pechter writes:
Mulvaney has said...that one of the greatest dangers we face as Americans is the annual budget deficit and the $20 trillion national debt. This notion is an effective political weapon, but it's dangerously untrue. If it were true, the country would have failed long ago.
Pechter is right that the budget deficit can all too often be an effective political weapon. Sometimes budget rationale only comes into the picture, as means to arbitrarily limit economic activity. He continues:
Debunking this canard should be a priority for anybody who cares about retirement security. As long as we believe in the debt bogeyman, we can't productively solve the Social Security and Medicaid funding problems, or defend the tax expenditure for retirement savings, or even create a non-deflationary annual federal budget. Everything will look unaffordable.
Unfortunately, some things have become unaffordable (beyond a certain general equilibrium limit), given the way they are currently structured, and the position they may hold as an aggregate medium of account function. The relationship of aggregate debt over time (in relation to output and growth trajectories), is important, However, I definitely agree with Pechter's conviction, that it is important to preserve valuable economic complexity. Not everyone who expresses concern about debt or budget obligations, does so with a corresponding intent to preserve valuable knowledge use or skill, in the marketplace. Budget obligations should not be a convenient fall back position, for political coalitions which would undermine economic potential - mostly with intent to protect the supply side limits of special interests.

That said, debt cannot cannot continue to grow indefinitely, in relation to output which is clearly measured and ascertained as it is created. Oddly enough, the more that a society is willing to internally account for the measure of wealth when it is generated (via primary market means), the more debt that populations and policy makers are likely to remain comfortable with, as well.

Once, it was quite logical to fund knowledge via open ended (and secondary market) means, when the use of knowledge remained (somewhat) minimal in relation to manufacture and agriculture. Indeed: so long as primary markets maintain a healthy balance with secondary markets, it remains safe to fund for knowledge, via the open ended means of debt and further budget obligations.

Today, however, everything has changed in this regard. Secondary markets are presently too dominant in relation to primary markets, which in turn negatively impacts the nature of budget obligations. And as knowledge and information has became ubiquitous in the marketplace, knowledge is fast becoming underutilized (insufficient practical dispersal), because too little of it is being generated via reciprocal and direct means. The present lack of economic reciprocity patterns for knowledge use, means many who prepare for knowledge based work are deemed "excess" labor capacity.

We need more means to solve for economic reciprocity at the outset. Any time value or product which has to be politically approved in order to occur, will always be subject to political forces that use budgets to bludgeon such endeavour out of existence. By closing the circle of reciprocity in terms of knowledge use formation, it becomes possible to preserve economic complexity at multiple levels of society. Solving for economic reciprocity at the outset, means less debt over time is needed. And the more economic complexity that can be generated as primary market activity, the less anyone needs to worry, about the debts and demanding budgets, that remain.