Sunday, May 21, 2017

Notes on the Solow Residual and Aggregate Supply

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

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

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

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

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

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

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

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

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

Saturday, May 20, 2017

Social Capital Requires A Primary Economic Context

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

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

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

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

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

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

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

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

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

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

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

Wednesday, May 17, 2017

William Baumol and Equilibrium Imbalance

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

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

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

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

Monday, May 15, 2017

Become the Change We Want to See

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

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

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

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

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

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

Saturday, May 13, 2017

Potential Productivity: Much More Than One-Off Gains

Our personal productivity (time management) isn't functioning very smoothly, with the productivity of our institutions. Is it possible to bring these different approaches into a better alignment?

Granted: in many instances, we can problem solve and experience life without resorting to marketplace solutions. Nevertheless, when we do prefer to seek out assistance, second opinions, inspiration and the like, we often lack an institutional context which is well suited to our natural inclinations. Economically speaking, we could often benefit from the human capital of others not just as a product input, but as an intended product outcome.

Presently, however, productivity is framed quite differently. Since human capital as output is not considered integral to production processes, it tends to be removed when institutions find suitable means to do so. Further, the time based product that remains, tends to capture already existing wealth. Which means essential services involving even moderate levels of skill, are approaching luxury good status.

Yet it's been difficult to question this process, because production gains are associated with higher wages, regardless of how those gains originate. However, the source of sustainable higher wages over time has been greater output - in particular what is associated with tradable sector production. Whereas much of today's time based services income is not associated with greater output, and is actually indeterminate in nature.

As a result, when personal time increments become output or final product, the higher wages which are traditionally thought of as production gains, instead translate into someone else's higher costs. This effectively short circuits part of the processes by which productivity would otherwise bring more goods and services within reach. Given this circumstance, wage gains don't necessarily make us collectively better off, regardless of where they occur along a given income spectrum. Productivity assumptions deserve closer examination, in a services dominated economy.

The indeterminacy of time based services product, has important implications for economic stagnation and productivity. In a recent post, Tim Harford asks, if this is a time of change and disruption, then why is (typical) job tenure longer today, than it was when he entered the UK labour market in the late 1990s? Some of the same features of a services dominated economy which create problems for costs, also contribute to lost dynamism in overall marketplace conditions. Given this circumstance, today's organizational patterns for time based product, will continue to draw down overall productivity.

What can be done? Time based product as a determinate quantity of time value, would help to realign the indeterminate skills capture of non tradable sector activity. Services generation can be made determinate, by structuring mutual coordination options so that ongoing services "debts" are cancelled in real time. Eventually, this process would help to reduce the adverse selection of today's health insurance environment, for instance. Through the transfer of knowledge use for today's low income groups, knowledge providers would play a vital role in the reduction of adverse selection. Beginning this process is all the more important, as populations are increasingly refusing to administer safety nets over a wide income range. Otherwise, budgets may become problematic to such an extent that well paid time value may become indiscriminately removed from the marketplace, through automation and technology.

Debt cancelling in real time is an incremental form of services and asset generation, which would scale differently from the patterns which propelled tradable sector growth in recent centuries. Instead of placing yet more high stakes bets on access to existing services, time arbitrage would gradually bring productive agglomeration to places which now lack economic complexity. How might its growth trajectory be different, as a result?

Initial wealth gains accrue from the additions of new entrants to the system, as they begin their contributions to time measure and quantification. The second incremental gains, stem from system quality improvements that accrue over time. However, where the first incremental gain (fixed time quantities) have monetary and asset based equivalency, the quality gains of the process are a result of ongoing time management in a protected continuum. Here is where the "magic" also occurs, in the form of services generation at lower costs than what are possible in general equilibrium conditions.

Until now, it hasn't been possible to achieve substantial gains for time based productivity, unless the time factor was actually removed as an input component. By making time value a determinate output, and not just an indeterminate input, time value as output becomes a wealth component instead of a system cost. The lower costs of determinate time value, could make the balance of indeterminate time value in general equilibrium, easier to maintain, for the income levels which are capable of sustaining indeterminate income for time based product.

Thursday, May 11, 2017

Notes on Monetary Equivalence and the Price of Time

What determines whether individuals are willing, to structure their time commitments on economic terms? It's a question which assumes greater importance, as traditional (20th century) economic roles become less certain, and earlier cultural means for mutual coordination have largely disappeared. Regaining monetary equivalence for our personal aspirations and obligations, involves more than just reliable compensation. Likewise, the time price terms of our economic engagement, will deserve careful attention as well.

Employment commitments are most worthwhile, when they generate constructive time use options which extend beyond one's actual workplace. Whereas if one's employment is too uncertain or sporadic, it becomes difficult to maintain personal goals and aspirations beyond basic survival needs. Our employment roles increasingly serve as a signal to others, whether the levels of personal commitment we seek are within our means. For instance: If paid work means transportation and related amenities which requires the majority of one's pay (and stamina), we might be better positioned for meaningful work which is capable of preserving our energy, even if it carries no monetary reward.

Our willingness to engage in the workplaces of the present, is also referred to as the reservation wage. From Wikipedia:
In labor economics, the reservation wage is the lowest wage rate at which a worker would be willing to accept a particular type of job. A job offer involving the same type of work and the same working conditions but at a lower wage rate, would be rejected by the worker. 
An individual's reservation wage may change over time depending on a number of factors, like changes in the individual's overall wealth, changes in marital status or living arrangements, length of unemployment, and health and disability issues. An individual might also set a higher reservation wage when considering an offer of an unpleasant or undesirable job.
This explanation is interesting, in that it draws from a wide range of equilibrium factors which go well beyond what employers are willing to pay, or what various constituencies may "expect" them to pay. Yet many environmental settings which affect decision making processes for economic engagement, have not been fully explored. What combinations of environment factors could contribute to our willingness to work for a lower reservation wage? Should populations become willing to explore environmental designs which are more conducive for mutual employment, there would be less need to worry about the supply side factors which are being changed by automation.

Another consideration is the fact many of today's divisions of labour, include strong undercurrents of reward and punishment elements. A "fortunate" job tends to be not only full time with benefits, but includes intellectual challenges as well. This makes today's default job "remainders" all the more unfortunate. Not only do they tend to be temporary and/or part time without benefits, there's something else: more of these jobs in the near future revolve around assisting others.

Is not society giving the impression that low skill work is a default or "punishment" position, for those who did not "try hard enough", or possibly just weren't smart enough to succeed? Will society become even more dependent on security cameras to ascertain who accepts life as it is, hence assists others gladly with a good heart, versus those who do so only reluctantly and even grudgingly?

Perhaps as economic roles are discussed in the years ahead, it will be possible to reevaluate the labour roles which are driving what could become a permanent wedge between class levels. Much of 20th century social mobility was a result of tradable sector transformation, not the time based product of non tradable sector activity. Indeed, some of the latter has not changed, for centuries.

Are these hard divisions of labour really a rational, long term approach? Some who assist others do so gladly. Still, what is difficult for many, is that society assumes this is all these individuals are capable of doing. If we found more ways to share the work of high skill and intellectual challenge, the vital work of assisting society's most vulnerable, young and old alike, would surely benefit. Perhaps high and low skill work needs to be coordinated more fully, so that everyone's time will hold more value.

Monday, May 8, 2017

To Preserve Free Markets, Make Sure There's Enough of Them

Sometimes I find myself a bit fidgety, whenever "spontaneous economic order" is celebrated. Why? Because the context for free markets, is - more than ever - woefully incomplete. Granted: Where decentralized order can properly function, it often does so quite well. Nevertheless, there are many ways in which the economy badly misfires, which are begging to be understood. Ultimately, ignoring these hidden economic dimensions, could endanger the prosperity of the spontaneous order we do have.

Clearly, political events have been sounding the warnings. When viable marketplace options become too thin - especially for a nation's youth - populations are likely to respond either with calls for more local manufacture (mercantilism), or simply frustration: "Markets no longer work!"

Alas, I understand the impulse to reply to both of the above complaints, "Yes, markets work! Why can't you see it?" If only the sentiment of Russ Robert's poetic tribute to free markets, "It's a Wonderful Loaf", were enough to make things right. Arnold Kling highlights Robert's poem in "A Poem to celebrate Decentralized Order", and adds:
I believe the challenge that economists face in promoting pro-market views is overcoming small-community intuition. If your model of society is that it is a family or small community, then your intuition will not supply any benefits for markets. 
Where once a familial economic perspective made sense (prior to widespread markets), I agree with Arnold Kling, that family rationale isn't well suited for productive economic complexity. That said, I'm not sure if he's given enough thought to the local community potential which needs encouraging in the present.

For instance, consider the 20th century economic rationale for school models which still applies today, even though the world has dramatically changed. Small communities or otherwise, schools exist to promote economic potential for individuals beyond the limits of local community. Nevertheless, this school model has inadvertently encouraged economic input (or economic access) at the expense of aggregate human capital output. And as human capital becomes integral to output, most institutions are not well designed to benefit from this bounty, in a prevailing paradigm which still requires reductions of total hours worked to increase productivity.

Even though local schools focused on human capital investment, there's no real institutional means to internally complete the production cycle for time based services. Consequently, there's still few means to correlate human capital input, with local settings for economic output of the same. This is the free market decentralized order, which has yet to evolve.

We are each allotted the same amount of daily hours, in which to take care of what needs to be done, and to maintain our responsibilities to others. Yet when we have no marketplace option which allows us to utilize time as an economic point of entry, there's no free market for time based services generation. In the meantime, nominal income continues to be shorted, as it mostly covers specific skills sets rather than the full potential of aggregate time value.

Time value has the potential to provide additional wealth, if it is utilized as a point of spontaneous generation for free markets in services. When economic coordination mostly takes place for highly invested skill sets, individuals lose the capacity to coordinate their lives with one another. If we are to maintain the prosperity and decentralized order of tradable sector activity which so many celebrate, why not promote a decentralized order which also makes free markets possible, for time based services generation.

Sunday, May 7, 2017

Notes on Symmetric and Asymmetric Work

How might differentiation between asymmetric and symmetric work (and its associated compensation) matter, especially in terms of output versus outcomes? For instance: Are services project results (i.e. outcomes) for time based product, recognizable as output? Questions such as these matter in part, because today's services are notoriously difficult to measure, in terms of output and productivity.

I've previously described asymmetrically performed work, as either compensated through discretionary income, profits or governmental redistribution. Fortunately, productivity for hours worked in tradable sectors, is generally easier to measure, since these work hours are recognizable in relation to final product output. Consequently, the asymmetric compensation of hours worked for tradable product, isn't problematic. When technology substitutes for hours worked in tradable sector activity, it is able to do so without reductions in output.

Whereas the asymmetric compensation which contributes to time based services product, isn't as simple. The human capital investments required (formal education, etc.), have too little direct correlation with final product output. Since much of human capital investment (in general equilibrium) is not an internal organizational expense, it can be difficult to recognize, how extensive human capital investment requirements actually hinder forward economic momentum at an aggregate level. Put simply, people have to wait too long, before their extensive commitments - undertaken in hopes of eventual success - gain any economic reinforcement, in any part of their lives.

Knowledge application and preservation could gradually become more difficult, if the relationship of human capital input to aggregate output, remains poorly understood. What's more: When input and output information for human capital are lacking, the technology which supplants work hours can result in lost personal investment, services production, and marketplace output.

If budgetary limitations require technology to substitute for hours worked, how should outcomes versus output be considered? It depends. Does the time based product in question, include important conditional and/or experimental factors? Should either of these conditions matter, technology may contribute to versions of knowledge application which are not sufficiently dynamic, for the stated purpose at hand.

Nevertheless, technology is indispensable to productivity, when output can be maintained or increased via means which only bear indirect correlation with human capital and skill. It's when conditional and experiential factors are important for knowledge use processes, that the use of technology may sometimes detract from marketplace outcomes.

So long as time based product is not well differentiated from other forms of marketplace product, not only does this circumstance present problems for economic measure; but the potential for marketplace losses to technological application, also exists. Whenever time based product could benefit from conditional and experiential factors, more participants need to remain part of economic processes, so as to preserve personal autonomy and choice in the marketplace.

Symmetric work - and its associated compensation patterns - could help to restore a full range of time based product which might otherwise be eventually threatened. Symmetric work would also provide more understandable means to measurable output. Even though time use as a commodity is not quite the same thing as compensated skill, a time continuum in which skill sets can be collectively invested and managed, would provide easy to understand productivity gains, for human capital.

Friday, May 5, 2017

Healthcare Policy as a General Equilibrium Response

There's been plenty of discussions in recent years, how healthcare could be made "more efficient' - especially given the problems of Obamacare. Why, then, does a more rational approach appear to be missing now? Is healthcare little more than a political battle ground,with opposing viewpoints as to what current budgets appear to be capable of providing?

Not so long ago, some believed that a Republican Congress could lead to a more efficient and accessible marketplace in healthcare. For example, even an article from the New York Times (November 2016) emphasized that the problem wasn't so much physician supply, but rather, problems in terms of overall geographic distribution and work responsibilities. Aaron Carroll summarizes in "A Doctor Shortage? Let's Take a Closer Look":
What no one seems to be debating is that we have a shortage of services. We could fix that by increasing the numbers of physicians, either by training more or allowing more to immigrate into the country. We could fix that by improving the ratios at which physicians enter specialties or primary care...by making the healthcare system more efficient, by distributing the resources we have more effectively, or by increasing our willingness to use midlevel practitioners through changes in regulation or licensing.
None of these approaches are easy, and all would most likely require governments to act. As the next administration takes power, choosing at least one of these paths seems necessary to improve access in the health care system. 
Fast forward to the present. Prior to the latest vote to repeal Obamacare (the House version of the American Health Care Act), I noticed complaints from physicians and healthcare associations, that they were not being asked to take part in the discussions. How significant was this problem? Did it mean there wouldn't be time to take a closer look, at potential supply side reforms? After all, there's a big difference, between supply side reform, versus what is also shaping up to be a protectionist reaction (immigrants "stealing" our healthcare), on the part of taxpayers and service providers to general equilibrium conditions.

Citizens and policy makers alike, may have already "moved on", by taking for granted what healthcare's supply side structure is capable of now, in a time of growing budget constraints. Nevertheless, physicians may not actually be excluded from these discussions, for they are being elected to both House and Senate more frequently in recent years. Will the Senate revisit some of the more important economic considerations, should they "start from scratch"? If they don't believe it's important to do so, then why have economists and pundits alike, concentrated on supply side improvement potential for so many years?

Unfortunately, the cynic in me believes the general equilibrium response could hold, as healthcare increasingly comes down to who "deserves" access and who does not. Given this circumstance: Arbitrary limits for knowledge use, have turned what could have been a competitive free market, into moral positions which also hold economic, political, and social ramifications. Only consider how the general equilibrium response is not just a national factor, but equally problematic at a state level. Then, it's easier to understand these remarks from a Texas Senator and physician, Donna Campbell:
It's misguided to think that an x amount of uninsured is because of the government. People need to have responsibility and accountability. Some people choose not to have it. They're not sick and they're just not going to pay for it. We also have a lot of folks that come into our country illegally, and they're counted, and they use our healthcare system and take up the capacity that we have.
I've noted a number of times in recent years that a general lack of ability to reciprocate for vital time based services, could be partly responsible for the backlash to immigration. Alas, Campbell's response helps to reinforce my suspicions. Simply stated, the general equilibrium response for a publicly funded time based product, means these service providers (of time based service product), only stand to gain by limiting access to said product. Likewise, a normal taxpayer response for healthcare in general equilibrium conditions, is to reduce one's tax exposure where possible, to the funding of time based services.

This is yet another reason why I've suggested a marketplace for time value at local levels, so that entire swathes of the population are not dismissed as potential free riders, in systems of which their time value never had a realistic way to make a difference in the first place.  Protectionism shouldn't have to be just another excuse, for giving up on realistic supply side responses to economic problems.

Thursday, May 4, 2017

Time Equity as a Core for Growth Potential

Human capital is the unrealized wealth potential of the present, and a marketplace for time value could provide excellent opportunities for human capital. Time equity is a good way to create mutual employment, well into the foreseeable future, on verifiable and quantifiable terms. A new institutional framework, which I have previously described as an equilibrium corporation, could take part in generating the workplace required, among other vital tasks. Should I live long enough to assist in these efforts, building the equilibrium corporation would be part of my "bucket list"!

Equilibrium corporations would generate reliable sets of records for time equity. While ongoing records of our activities do exist in a number of institutions, these records aren't generally intended to assist in societal coordination, as an ongoing life process. In the future, equilibrium corporations would seek to synchronize time equity records across groups, so that all concerned are better able to meet personal goals and challenges.

The product of time value can be categorized more specifically, once time value is tapped to provide equity which otherwise mostly serves monetary functions. By providing a corollary role for time as money, individual units of time can "grow" both individual and group wealth, on incremental terms.

Time equity would gradually accrue to societal gain in three ways: monetarily, socially, and materially. For each matched hour of activity, the time equity involved would contain a monetary equivalent and physical component. This wealth generation can help to create welfare systems which include (but are not limited to) preventative community maintenance, preventative personal maintenance, research and development, and participation in knowledge as experiential product.

In all of this, it helps to maintain simple notions for societal need, which are not continually confused with the expectations of progress. Indeed, economists left governments and special interests free to define societal "need" at a level so as to play havoc with low income groups, through the assumption that need was not a valid part of economics. Forced consumption of life's "necessities" on strict terms, just means excuses to leave life's economic basics untouched by the promise of innovation and free competition. Through time arbitrage, communities can establish basic need settings which don't compromise the finite nature of time arbitrage for life's necessities. This would leave citizens free to establish further discretionary income, through the tradable sector activity which is utilized to expand the core framework.

Even though the finite nature of one's time does not "grow the pie", it helps to remember that time value in this instance, would be effectively utilized as a starting point for further growth. Nevertheless, time equity would gradually build the quality of services, as a given alternative equilibrium begins to mature. Meanwhile the pie can continue to grow - as always - by encouraging citizens to take part in tradable sector activity, on both local and global terms.

Time value as equity, would make the relationship of human capital to other resource capacity, easier to understand, through incremental maintenance of skills and assets. This is especially important, since intermediaries for human capital formation, have increased input costs to a degree that now negatively impacts total factor productivity.

Those input costs also affect the amount of productive agglomeration that is presently possible. Fortunately, better management of aggregate time value, can eventually make the use of human capital a more viable marketplace component. Time equity could provide a way forward for long term growth, through addressing the relationship of input vs output for services generation.

Tuesday, May 2, 2017

Can Productivity Address the "Race Against the Machine"?

Recently, Focus Economics asked a group of 23 economists, "Why is productivity so low?" From the opening paragraph of their post:
Productivity is considered by some to be the most important area of economics and yet one of the least understood. Its simplest definition is output per hour worked, however, productivity in the real world is not that simple. Productivity is a major factor in an economy's ability to grow and therefore is the greatest determinant of the standard of living...It is why a worker today makes much more than a century ago, because each hour of work produces more output of goods and services."
Let's take a look at this last sentence, which is true, but in a partial sense. It's complicated, because human capital has become a more important component over time, of final product output. Even though this is only true for certain product categories, the process still affects the resource redistribution for other marketplace factors. Human capital as a component of both input and output, has not been seriously considered. Sometimes people realize income gains because of their level of human capital investment, which is quite different from the income relationships which are associated with institutional output.

Consequently, time based product which includes human investment factors, skews the hours worked per output relationship at an aggregate level. In particular, high skill time based product, generates output on a different set of terms from what is associated with goods manufacture. Should we be designating the differences between time based product, versus the product where human input is not tied to finished product? After all, doing so, could ultimately help address what is sometimes termed the "race against the machine".

Final product which exists separately from time value, still adheres to the productivity gains of the Solow Residual. Here, reductions in human input at an institutional level, continues to ensure greater output over time, even if at a slower pace than before. Many tradable sector firms should be able to continue sharing output gains (and associated benefits) with core employees.

On the other hand, institutions where product output is more closely associated with time value, increasingly struggle to provide either monetary or other benefits to all employees. Unfortunately, much of today's time based product is not capable of providing what populations have come to expect as an optimal standard of living. Productivity needs to be approached differently for time based product, as input costs (quality) are beginning to short circuit output results.

Presently, without a separate designation for time based product, a growing response to labour costs is the substitution of expensive time value via technology. It's an understandable approach. Nevertheless, when time based product is at stake, both input and output potential are affected. When people try to acquire more skills to access today's knowledge use template, the result is the race against the machine. And where only the terms of the Solow residual apply (for knowledge production processes), it's a race that can't be won.

We need to formally acknowledge that human capital is an integral component of both input and output, not just input. Otherwise, too much experiential product value might be summarily dismissed, given the budgetary demands of the present. A formal designation of time based product as a separate and distinguishable category in its own right, could eventually help to overcome the race against the machine.

The time based product (versus non time based product) difference particularly matters, as it becomes more difficult to match labour potential across multiple income levels. An important challenge for the future, is to determine how to generate time based product via sustainable terms, especially as nations struggle to support the knowledge benefits of time based product through already stretched budgets.

Addressing the race again the machine, requires seeking additional value via places and means which until now have been summarily dismissed. The potential economic value of people and places can be completely forgotten, should they become rationalized as "no longer efficient" and fall away from economic participation. Yet this approach is resulting in the lost input of individuals, and lost output in the marketplace. Miles Kimball, one of the economists in the above Focus Economics link, highlights the need to look beyond the "normal" places of improvement to generate better productivity gains. He emphasized these same points in a recent talk, as well.

As societies came to qualify the terms of economic engagement, some institutions responded by adding value in terms of ever increasing input costs for human capital. These additional investment commitments, translate into input costs which are beginning short circuit output results. Indeed, the technological response to these excessive investment costs, affects the value of education as economic access. When machines begin to substitute for humans, it's time to consider alternate investment means, so that input costs can eventually coordinate more readily, with time based output.

In all of this, ongoing reduction of time input (in relation to output) makes the most sense when time value is not integral to the actual product a consumer desires. Whereas assumptions of "efficiency" through removal of people and places which "don't matter", needs to be rethought. Instead of being so quick to declare something less than optimal, why not look more closer at the myriad of infrastructure factors which inhibit participation and resource potential. Time based product needs a more carefully considered approach, so that goods and services might be restored in places where they have been lost. Input potential matters for output potential, and human capital deserves to be a better understood part of that equation.