Sunday, December 30, 2018

Wrap Up for December 2018

"Cities that suffered manufacturing job losses decades ago are now grappling with the problem of fewer opportunities for white-collar employees such as managers, lawyers, bankers and accountants...roughly a third of major U.S. metro areas have lost a greater percentage of white-collar jobs than blue-collar jobs."

"For the first time in history, America is seeing its budget deficit rise dramatically higher during a period of peace and prosperity." "The current situation  is unusual because the deficit has been soaring dramatically higher even as unemployment has fallen to the lowest level since the 1960s (3.7 percent)."

Paul Romer re education: "We always have to be careful not to treat this as a perfect information competitive market."

"Should the Fed purchase Treasuries only?"

What happened to enthusiasm for start-ups?

Who is willing to work longer hours when the return to work declines?

"The key is to avoid favoring one particular transportation choice over others."

are millennials different?

"Empowering people to lay out their own space led to happier, more productive workers." And sometimes, places which appear to "suffer" from age or benign neglect, are the places where the best ideas happen.

How long before the interstate highway system begins to sputter?

A look at the last decade
"With surprising frankness, high officials at the Fed and other central banks have acknowledged that they simply don't know what the link between unemployment and inflation looks like today."

Success turns out to be more likely, when we embrace the state of being stuck.

Paul Romer, Nobel Prize lecture "On the possibility of progress"

Measures of the money stock should be included in future monetary decisions.

Almost half of West Virginia's budget is dedicated to K-12 education.

"Both free markets and property rights are key principles of classical liberalism, and they are in conflict."

The exploratory mode of attention can connect us to a deeper sense of purpose.

Spending on TANF has been falling since its creation in 1996.

Bloomberg's best books of 2018. There's lots of good non fiction this year.

The road to bipolarity is already being traveled.

Arnold Kling: Memoirs of a Would-be Macroeconomist

Vox on China: Was the wrong aggregate production approach being used? Factor costs and mobility vary widely in different industries.

"If we diagnose our anger problem as merely a Trump problem, we'll be sorely disappointed when he eventually departs public life and we remain enraged."

The "five L" headwinds confronting homebuilders: labour, lots, lending, lumber, local regulations.

How does the deceleration of China's growth rate compare to South Korea?

The principle of knowledge relatedness: "Economies are more likely to enter an activity when they are in presence of related activities."

Attempts to overturn globalization, are no solution for existing inequalities.

Spaced repetition can change the forgetting curve.

Fertility losses are a trend which "is shared with many industrialized nations".

Culture as an emergent order.

Monetary policy is not currently in a good place with monetary theory

"If we spend all of our time looking over our shoulders for killer robots, that means we are not looking ahead to discern the outcomes we might actually want."

Forecasting as an antidote to political tribalism.

Musings on a meritocratic endgame.

"We are heading toward the greatest housing problems for low-income people since the Great Depression..."

"It took the United States 193 years to accumulate its first trillion dollars of federal debt. We will add that much in the current fiscal year alone."

Intergenerational wealth transmission.

A short story about the U.S. economy since World War 2.

What makes this slowdown feel so different from other slowdowns?

Africa's supply chain faces many challenges.

Scott Sumner suggests that behavioral economics not be overemphasized in relation to core concepts. John Cochrane agrees and provides some additional examples.

Friday, December 21, 2018

Post Highlights From 2018

Here are highlights for some of the more popular posts of the year.

The Productivity Challenge of Our Time  Occasionally, what may be difficult to decipher, really needs to be understood just the same. This has certainly proven true for the shifting realities of productivity in modern day economies. While there have been tremendous productivity gains in recent centuries, we have nevertheless experienced a major shift (in terms of GDP), towards product which lacks the ability to scale in a normal sense.

How to make certain this shift doesn't ultimately reverse previous gains? We need to organize resource capacity differently, for products and services which have limited ability to scale due to connections with time and place. Fortunately, scale potential can also be envisioned in ways which go beyond monetary and traditional output gain, especially via the compounding interest possibilities of human capital and knowledge dispersal.

Debt as a Factor in Output and Productivity  When does new debt function as a source of increased output and growth gains? It's important to know whether new debt can do this, or instead represents yet another nested claim on already existing resource capacity. While such claims are realistic and to be expected up to a certain point, they begin to detract from total factor productivity, if they extensively offset debt formation which generates new wealth on more direct terms. While some debt will continue to function mostly as a way to shift existing resources and revenue, we still need to ensure that - at a macro level - sufficient space remains for debt which serves as a source of direct wealth creation.

Can AI Reduce the Burden of Human Capital Investment?  Artificial intelligence has evolved to a point it could now reduce the time which has been necessary for the accumulation of high skill human capital. But is this a result which high skill workers will actually be able to accept, especially given the fact their human capital value is monetarily reflected in their overhead costs of their own working environments? Plus, should artificial intelligence assume some of the duties of applied knowledge, this ultimately affects the valuation structure of formal education. Nevertheless, the more that AI is applied, the less overhead costs will be necessary in the future, in order to get things done. Hopefully, this organizational positive will be put to good use for all income levels.

Are Long Term Budget Issues a "Lost Cause"?  Despite my reservations about his approach, Paul Ryan was one of the few in Washington who recognized what was at stake, regarding long term budgetary issues. How long before these issues surface in ways that create real problems for the economy? It's time to unleash the full potential of human capital, and go well beyond the service structures which the "best of the best" currently generate, so that new social safety nets might emerge which contribute to wealth creation, instead of further budgetary burdens.

Service Sector Dominance vs. the Solow Residual  Why does service sector dominance detract from the long term gains which normally accrue from the Solow Residual, in product which is normally capable of scale? The main problem - especially insofar as it impacts long term budgetary issues, is the social choice between immediate economic reciprocity, and deferred reciprocity for services generation. Too much service sector activity presently takes place as deferred reciprocity - a cycle which not only increases future debt loads, but does so with uncertain near future revenue streams. This impacts total factor productivity, and by extension, reduces standards of living even if in an indirect or relative sense.

Left unchecked, services formation as deferred reciprocity, can negatively impact the prosperity which normally accrues from the Solow Residual. Whereas immediate reciprocity (via time arbitrage) could build new services wealth which would not make demands on existing resource capacity. Over time, immediate reciprocity in services could once again increase the value of the Solow Residual, for the cumulative benefits of product which scale at a macro level.

Resource Flexibility Requires Investment Flexibility Are there circumstances in which yearly property auctions might be beneficial? Perhaps a land auction concept might prove more useful as a means of time centered coordination, where property location is at issue for economic activities which transition during the course of a year. Nevertheless, flexible building components would greatly reduce the risks associated with long term investment strategies in this regard. Not only would flexible building components make it feasible for individuals with limited income to function normally, this economic option would also encourage people at all income levels to build wealth incrementally, via low risk ownership strategies.

The Importance of Personal Autonomy  Among the most crucial aspects of economic freedom, is whether we are actually able to influence and produce for our own local environments. This necessity holds not only for services diversity, but also the ways in which we transform local resource capacity to augment living and working arrangements. When we are able to maintain basic production rights in this regard, our consumption is positively augmented, so that no income is too small to tend to our most basic needs in life.

Empathy, AI and the Knowledge Factor  One problem with skills arbitrage, is that certain skills are in such high demand in the workplace, these individuals often face severe constraints when they are expected to fulfill other societal responsibilities which involve the use of their time. This has become increasingly true for empathy as a societal expectation, as well. What if robots or artificial intelligence could mimic empathy? While our first inclination may be to think of this possibility as extremely sub optimal, consider what individuals who are starved for attention, might actually prefer: "caring" artificial intelligence, over little or even no empathy from actual people.

The Middle Classes: Is There Cause For Concern?  Perhaps insofar as the middle classes seek to shape their environments beyond what can be reasonably paid for. The preferred means by which middle classes have been structured, has in turn created its own limits. If so, how are lower income levels expected to effectively participate? Non tradable sector activity in particular, has been mostly constructed with medium to high levels of income in mind. A dynamic grassroots approach would create new economic opportunities and participation patterns for those with the least amount of income.

Does Price Taking "Deserve" Production Rights?  Time arbitrage would function as a form of price taking for services generation at local levels, and artificial intelligence could boost local skill application where necessary. Importantly, price taking isn't a feasible economic option for high skill services generation at national levels. However: Should nations begin to experience problems compensating high level skill, the most dangerous consequence is "brain drain". It's the loss of valuable human capital to nations which are better able to pay, that might be just the incentive nations need, for assigning stronger production rights to citizens who can work with applied knowledge via equal time coordination.

Saturday, December 15, 2018

Living Wage, or a Functional (Real) Wage?

Interestingly enough, one can think of mercantilist arguments - while still irrational from the standpoint of international trade - as political efforts to ensure a supply side version of a "living" wage, in the form of manufacturing jobs at home. Yet protectionism such as this misses the mark, since automation is responsible for far more lost manufacturing employment, than globalism. Paradoxically, however, technology and automation contributed to manufacturing output so much that - for a long time - they included higher levels of compensation for low skill workers, than what many service sector jobs can provide. Alas, service sector jobs, and their time based output constraints (which negatively impact nominal wage potential), have partially replaced the low skill manufacturing employment options of our recent past.

Of course, who doesn't want wages which cover basic expenses and costs of living? Once anyone experiences life on these terms; understandably, it can be difficult to imagine, or adjust to, other forms of existence. Even though progressives are more likely to advocate for living wage proposals from a nominal standpoint (which would increase service sector wages as well), there's some unexpected crossover of wishful thinking between these groups, regarding supply side versus nominal wage arguments.

As nations are faced with growing debts and revenue obligations, both protectionism and living wage arguments may appear as though a panacea. How does a government tax low skill income which is scarcely high enough to generate further revenue? Especially if that government already faces restrictions on the taxation of high skill income?

Yet both approaches are at best, little more than shifts in general equilibrium conditions, instead of general equilibrium improvements. In a recent CapX article, Tim Worstall decried the faulty rationale on the part of the Trades' Union Congress to create a million new manufacture jobs. While Worstall's reasoning is sound when he claims "More jobs in manufacturing is a terrible ambition for the British government", he nonetheless falls short with his first assertion:
The ultimate economic goal is not to create new jobs, but to destroy them.
How so? It's not the first time Worstall has made this claim. A brief digression might help. His argument has relevance for total factor productivity gains during periods of tradable sector dominance. Additional output gains in these conditions, can translate into more enterprise generating additional employment in new capacities. At the same time, these production gains benefit from decreasing internal labour hour requirements in the relevant "old" firms. The problem? Once non tradable sector dominance sets in, the earlier advantageous framework of tradable sector output gains becomes less certain, since more revenue in aggregate is being slated for non discretionary costs and non tradable sector requirements. Sectoral revenue imbalance means that employment opportunities become more responsive to political and financial realities, rather than fortuitous changes in general equilibrium output.

Present day non tradable sector dominance, is also a factor in the limited effectiveness of a living wage, insofar as its capacity for meeting societal expectation. Plus, higher minimum wage requirements increase workplace expectations and place a higher floor on employment opportunities. Perhaps what is needed, is the concept of a functional wage which serves to augment productivity options on the part of each economic participant. Such options would ultimately increase the value of a wage at a real level, instead of at a nominal level.

Nominal wage constructs tend to function as a passive response to general equilibrium conditions. One could envision a functional wage (compensation for personal time priorities as mass market commodity) as a more active approach. Rather than merely accepting the limits of a given wage, participants could ask: How might I alter, innovate or otherwise shift my local resource capacity so as to improve equilibrium conditions? Is it possible to place my wage capacity into the larger framework of total resource capacity and potential?

Granted, local rules and regulations in normal circumstance, greatly limit the degree to which such an approach is possible. However, in economic settings where the time value of local groups is compensated as a commodity (which allows everyone to take part in time based coordination), compensation for time would be functional in the sense that all would strive for gains in real wage capacity.

Until now, innovation has been possible in fits and starts, and mostly applied - despite loud complaints - wherever it was possible to do so. It is feasible to apply extensive innovation to both our services capacity and our physical environments. Even though individual participants would also be seeking gains for their own ends, they would (once again) often be able to do so in ways which expand general equilibrium potential.

For those willing to take part, ongoing innovation in a time/space continuum, could transform real wage capacity beyond present day horizons. The compounding interest of knowledge and skill in this continuum, could ultimately defuse the time constraint of services based output in many ways. While nominal wages of time arbitrage would appear quite minimal in contrast with present day minimum wage requirements, real wage gains could still outpace what a living wage could provide in many traditional economic settings. Despite the fact we have limited options for improving nominal wages, the potential for improving real wages via production reform is so vast, it boggles the imagination.

Monday, December 10, 2018

Might the Fed Be "Purposely" Holding Back Growth?

In a recent post, Scott Sumner reasons that the actual scenario is just the opposite. While he adds that "the Fed may start holding down growth in the future", recent gains in NGDP growth are not to be denied:
One can't just argue that the Fed is holding down growth, without providing any evidence. All the evidence points in the other direction, that the Fed has been juicing the economy.
Juicing? He adds:
Some will inevitably argue that there has been a supply side "miracle" that's hard to see because the Fed refuses to "let the economy rip". Supply-side miracles leave very specific tracks in the data, such as a slowdown in inflation. But inflation has been rising. And of course that doesn't explain the strong NGDP data.
There's certainly no supply side miracle yet. It's always good to remember that actual supply side contributions which increase output, aren't the same as those juicing "contributors" which tend to create additional inflation and output uncertainty.

Even as Scott stressed recent strength in the data, he noted the the possibility of recession in the near future. However, he also echoed an all too common emphasis on short term data. Some of us feel this short term emphasis can be unfortunate, since it's already too easy to neglect how a permanently lowered growth trajectory affects many statistical indicators. Many have rightfully noted how the present "expansion" lasted a long time, because it was a weak expansion to begin with.

I've another qualm, regarding some of the discussions which followed his post. Scott adheres to a model which doesn't take into account the fact that market and employment conditions might actually worsen, over time. My main concern in this regard, is that excessive price making is becoming a threat to markets in general, for it can directly impact both output and employment. It's not feasible for every economic actor to price make in general equilibrium. Are too many economic actors attempting to do so? If so, how could we make sense of what is taking place? Yes, there's a model hidden somewhere in this possible scenario.

Since many central bankers closely adhere to inflation targets, price making has been restricted to internal inflation which is not always as simple as it may appear. However, inflation targeting only makes it easier for price making to partially crowd out revenue which would otherwise accrue to more efficient and dynamic markets. In all honesty, I don't know how much this growth reducing effect could be reversed via NGDPLT, should it be the main targeted response. After all the imbalance between sector dynamics is a structural problem, and a production norm could pose similar restrictions for asymmetric non tradable sector dominance.

In aggregate, of course, price making is not an option for everyone. But how does any society know, when the process becomes insidious to the point of no return? And what does this have to do with the possible intentions of the Fed, regarding growth? It's the imbalance between tradable sector and non tradable sector activity, and the prevalence of price making in portions of the latter, which makes it so difficult to determine whether the Fed is maintaining an optimal position in terms of monetary representation.

Again, all of the above has bearing on why I promote the economic option of price taking in non tradable sectors - particularly for time based services. We presently lack context for doing so, because services are normally structured in ways that don't allow for immediate reciprocity of time and resources. Resource reciprocity is what makes it a simple matter, for tradable sectors to utilize the spontaneous and wonderful coordination of price taking options. Even though many economic actors would prefer to work with more equal templates, markets can get stuck in positions where price making appears as though the only reasonable choice.

Chances are, the Fed is not purposely holding back growth. Nevertheless, its hands are tied by our present lack of ability to coordinate time based services in a more productive and dynamic context. In all of this, the Fed is only adhering to sub optimal general equilibrium realities which have yet to be addressed.

If asymmetric compensation could ultimately be reduced to levels where price making doesn't undercut general equilibrium gains, symmetric compensation could help restore output and employment certainty. We need coordinated price taking markets which account for the actual scarcities of our time, as a valid part of economic dynamism. At the very least, one can hope.

Saturday, December 8, 2018

Occupational Licensing Has a First Mover Problem

What can be done about the awkward fact that occupational licensing reduces labour supply? Alex Tabarrok cited an NBER paper which suggests employment losses due to occupational licensing could be as much as 17% to 27%. And the recent report from the Institute for Justice that he linked, provides additional detail re state licensing requirements. The report also notes how occupational licenses are basically
government permission to work for pay in a particular occupation. Securing a license may require education, experience, exams, fees, and more, which means licensing can pose a major barrier to entry for aspiring workers.
Some of the commenters at Marginal Revolution highlighted the fact it is easier to emphasize licensing issues for low or medium skill workers, than for high skill workers. While not all occupational licensing includes the logic of quality product, it's difficult to escape such an argument in many circumstance. Perhaps one could even imagine licensing of lower skill levels as a "logical" form of follow through for quality product requirements which occurred in terms of high skill work, especially requirements which transpired early in the 20th century.

Nevertheless, rules and work patterns for time centric product have had plenty of time to evolve. Indeed, the rationale of limited supply side access, exists in part due to the limited output potential of individual providers, as contrast with tradable sector output. These individuals uphold quality product values which are expected to reinburse traditional forms of expensive building maintenance and infrastructure, not to mention prime locations. They have understandably resorted to extensive knowledge protection since they lack the deep pools of output which provide revenue for tradable sector activity to function in areas of prime real estate. Yet this approach has now created real limits for knowledge use and dispersal, as a result.

Before much of today's high skill services framework became standardized, professions which weren't necessarily perceived as contributing to new wealth, felt the need to go to great lengths to prove their worth. Insofar as potentially reversing what has become a well rationalized status quo, the initial groups which gained both respect and protected status, are positioned for a good defense. Even a rollback of licensing requirements in low to medium skill ranges would mostly be nibbling around the edges of the problem. Where to begin?

Quality product models are becoming problematic in part, because many near future employment opportunities can't compensate at a level that generates access to present day housing or high skill services. Our quality product conundrum can be attributed to the Baumol effect as well - particularly in prosperous regions which limit access not only to preserve existing housing wealth, but also the time value of local service providers who are already established.

One reason it is increasingly difficult to add to the wealth aggregates of present day service sectors, is that today's time based service product (with its general equilibrium dependent position) has mostly offset the equilibrium potential of a tradable sector derived wealth base. Even though service sector activity accounts for approximately 80% of GDP in the U.S., production norm limits will likely come to define both monetary policy and general equilibrium structure in the near future. If present day knowledge provision seems demand driven, much of it was crafted for what was perceived as potential demand scenarios which could readily meet costs, rather than optimal supply for entire populations.

Even as some attempt to reduce costs of economic access for lower skill workers, we see that economic access costs associated with today's higher skill levels are deeply embedded, particularly in the knowledge production requirements associated with formal education and real estate overhead. Much of today's wealth creation framework, includes high skill endeavour which could be imagined as the support walls of a building, while lower skill positions contribute additional scaffolding. All of which makes it difficult to rationally establish a first mover position, for supply side economic access within prevailing general equilibrium conditions. For that matter: Should the process begin, where would it stop?

Occupational licensing issues are yet another reason I've suggested alternative or defined equilibrium settings, for greater economic access in terms of both supply and demand. Time based services and flexible housing/infrastructure in particular, need a viable context in which they contribute to - rather than threaten - the established framework of asymmetric high skill services generation, and its supporting physical infrastructure.

Plus it's possible to pinpoint at least two factors which make it difficult to dislodge the Baumol effect that contributes to the present rationale of quality service product. For one: As tradable sector wealth grew, non tradable sector activity and quality expectations followed in its footsteps. All wages (with some breaks of course) have risen for centuries due to tradable sector dominance and its associated output gains. It's not easy to accept the fact wage increases aren't as reliable during periods of non tradable sector dominance.

The other factor? Attempts to reduce the Baumol effect via lower economic access requirements, may come across as increased personal risk - whether on the part of consumer or worker - via lower product standards. Hence arguments for less regulation so as to promote well being and economic access in some settings, may backfire in others. What's more, in some circumstance, lower product standards do become a problem. But there's a difference between low quality standards which might result in a cheap, essentially worthless coffee pot for instance, versus the product or service "lower standards" which clearly contribute to irreversible problems, which of course include death. It's those irreversible problems that make it all too easy to defend higher product standards across the board, whether or not they're needed.

Hence the need to move the focus away from what appears as a lowering of quality standards, to a different approach where quality standards are part of an internal approach. Not only could such an approach be capable of providing greater transparency, it would internally coordinate what otherwise consists of multiple services platforms which tend to be at odds with one another. Again, organizational capacity could ultimately create good deflation in non tradable sector activity. But instead of saying "less educational requirement is necessary in order to achieve X", go about the process differently, so as to better align the relevant resource capacity at the outset. Internalizing knowledge production as an "in house" process, means achieving output gains that are also quality gains. And it could be accomplished without "less education is necessary" arguments, which in some minds suggests a willingness to settle for inferior services.

Perhaps the best first mover position in this instance, is to establish exploratory settings for new forms of services generation. After all, no one should have to argue against "unnecessary" quality, in a world where quality is increasingly appreciated! It's misleading to assume that "lower" quality standards are the way to good deflation and additional economic access in non tradable sector activity. That said, more effective human capital alignment can create more precise applications for knowledge use and experiential gain. Fortunately, tradable sector innovation has already paved a prosperous path of reciprocal resource utilization, in recent centuries. With a little luck, our non tradable sectors might eventually be able to accomplish the same.

Wednesday, December 5, 2018

Productivity Gain as Conceptual Organization

Imagine for a moment, that all firms and organizations might somehow realize gains in productivity, by reducing labour in relation to capital (in aggregate) while increasing output. For that matter, most productivity potential, with its associated expectations for gains in standards of living, continues to be thought of on these terms.

Clearly, the marketplace doesn't necessarily follow the above described pattern, especially where quality product is concerned. In particular: Until recently, non tradable sectors have been relatively free to up the ante on quality product requirements, due to the centuries long growing revenue of tradable sector output gains. However, once non tradable activity began to dominate tradable sector activity, its relative lack of ability to scale meant less growth in aggregate output, which ultimately contributed to substantial adjustments in monetary policy as well. The growth of non tradable sector activity as a component of GDP, especially in time based product, was also due to broad government support and extensive financial networks. One could say that private industry's desire for quality product requirements, mostly received the blessing of public institutions, in spite of the burdens that created for the latter.

Of course it wasn't always this way. Centuries earlier, tradable sector dynamism and global output grew, as artisan quality product was transformed into mass production. Oddly, we've yet to come to terms with the reality of artisanal non tradable sector product requirements as an actual regression in standards of living. Small wonder, because it can be easy to confuse the financial obligations of quality living environments with gains in standards of living. What, exactly, does ownership of a nice home require in terms of personal commitment for the full extent of one's working years, for example? Yet relative time commitment requirements are one of the best means we have, to decipher true gains in standards of living and total factor productivity. Today's non tradable sector requirements also explain why Keynes never realized his vision of a world in which future generations would no longer need to work full time.

Much societal progress is a result of those earlier tradable sector output gains. Today's total factor productivity will remain compromised, until innovation is finally allowed to do its magic on the ways in which our non tradable sectors are constructed. For one, service sector activity isn't so much about reducing labour in relation to physical capital and aggregate output, as output gains which include a greater measure of total human capital potential. Many non tradable sector production processes need further clarifying, especially insofar as how quality expectations affect supply side realities.

Again, once service sectors started to dominate economic activity in developed nations, markets emerged as a considerable portion of GDP, which were not readily amenable to gains in scale. Since the Great Recession, the Fed never completely recovered the previous growth trajectory level which had essentially been maintained for well over a century in the U.S.  If total factor productivity is to be restored to a more dynamic level, the general revenue demands of present day non tradable sector activity will need to become better managed. Not only do more direct forms of growth need to emerge in non tradable sector activity, this growth needs to be permitted to an extent that tradable sector activity can once again contribute to higher growth levels as well.

Periods of service sector dominance call for more direct means of conceptual organizational capacity, than what are presently being observed. The economic option of labour symmetry - or time arbitrage - could provide a path toward greater productivity which no longer detracts from existing general equilibrium revenue. Presently, some aspects of total factor productivity are being compromised by limited sets of human capital demands on total revenue. These existing demands have only become more evident, as service sectors comprise as much as 80% of GDP in developed nations.

Perhaps a reasonable limit for asymmetric services sector patterns would be in the range of 50% of GDP, so that general revenue balance could be restored between all sectors. By no means would such an adjustment suggest that service sector growth be diminished - only that more service sector activity would occur on symmetric or immediate wealth creation terms. By allowing more supply side in services product, more discretionary income would once again be able to flow towards the dynamism of tradable sector activity.

One advantage of such an approach, is that a growing percentage of non tradable sector activity could function with a similar production norm of good deflation, such as what naturally occurs in tradable sector activity. Greater balance between tradable and non tradable sector activity, might also allow monetary policy to return to normalcy. After all, central bankers would no longer be as compelled to keep extensive amounts of human capital sourced income, out of the active circulation of general revenue.

A significant amount of today's income representation is also parked in assets which can't fully contribute to economic dynamism. Yet GDP is representative of our economic journey, not a supposed destination. Let's ensure that more individuals take active part in our economic journeys, instead of having to watch from the sidelines. It's possible to tap human capital in ways which could capture its full potential. We can make excellent use of far more, than what only the best and the brightest have to contribute.

Friday, November 30, 2018

Wrap Up for November 2018

When the Fed began paying interest on reserves in October 2008, broad money growth declined, and while it was ultimately restored, never got the chance to return to its previous trend level path.

Frances Coppola explains why the basic fundamentals of MMT come up short:
"Monetary sovereignty is perhaps best regarded as a spectrum. No country on earth is completely monetarily sovereign: the closest is the US, because of its "exorbitant privilege", but even the US cannot completely ignore the effect of its government's policies on international demand for its currency and its debt."
Also, a follow up post: "Some Governments Really are Like Households"

Could federal debt rise to 152 percent of GDP by 2048?

"Treat your students the same way you treat anyone else."

States will want to be seen as more in-charge of their economy. But neither the Right nor Left will be quite able to solve their inherent contradictions."

The "universal craving for recognition" has much to do with the forces currently shaping world events.
"The Democrats have become the party of minorities, white professionals and educated white women...while the Republicans are the white people's party. It's a moral disaster for American democracy."

"Monetary disequilibrium is not something we measure directly"
And a response from Nick Rowe: To what extent is an equilibrium defined by who shows up first in the morning?

A collision of three geographies "has no historical parallels".

To what degree is inequality associated with trust?

Ian Hathaway highlights a study on productive startup communities.

This trend would negatively "affect the ability of all cities to honor outstanding debt obligations."

"As bad as a slowdown in exports to China would be for many countries, a significant rise in global interest rates would be much worse."

"To avoid repeating mistakes of the past, policymakers should create rules that neither subsidize nor give carte blanche over government-owned rights-of-way."

Formal education is not especially well suited, for 21st century technical skills.

"The murders most associated with inequality, it seems, are driven by a lack of respect."

Scale effects aren't always as predictable as they may seem.

Healthcare: "Where will AI be useful?"

Can digital technology transform the safety net?

This old post from Tyler Cowen re Jane Jacobs, still poses some interesting issues. For instance, why didn't Jane Jacobs meaningfully address problems of scale or infrastructure?

A new initiative for "transformative placemaking".

"Fans of free markets should never be put in the position of defending regimes that are so distorted by subsidy and other regulations." "Conservatives need to remember that the "liberty" to spend or loan out government subsidized funds is not true liberty."

Will "dark store" tactics put a serious dent in property tax collection?

The "gold rush-like conditions in the Permian" have taken their toll on services and infrastructure.

Economic wealth is what we do, not some imaginary distribution of money.

It's been fifty years since Garrett Hardin published "The Tragedy of the Commons".

Mobility today mostly reinforces existing patterns.

According to this estimate, labour force participation could drop approximately 2.5% in the next decade.

Alas, We took an L-shaped recovery for granted.

When convergence gives way to divergence.

The future may include less commuting time, and more mixed use spaces.

Matthew Kahn summarizes a recent WSJ article from Paul Romer, which offers tips for growth.

"One of the fathers of AI is worried about its future."

Nintil looks at the constancy of the rate of GDP growth.

Most growth initiatives boost the level of GDP without actually increasing the long run growth rate.

"How Loneliness is tearing America apart." How might we "intentionally" invest in places we choose to live?

Britain's growing North-South divide.

Entropy as a measure of disorder, or "nature's tax".

When "potential" has been downgraded, advancement doesn't mean the same thing.

An interesting discussion between Tyler Cowen and Paul Krugman

David Beckworth has a new paper on the Fed's floor system.

Could the Fed become fiscally neutral?

A "top five" list of the year's economics books, from Diane Coyle.

One reason the U.S. is not quite ready for greater adaptation of robot technology, is the fact high school education is not oriented towards this possibility.

"In Chicago, Washington D.C., and Philadelphia, central land is about 30 times more valuable than surrounding land."

Eventually, these little robots will greatly reduce the need for agricultural fertilizers and chemicals.

"Small" Economic Options Continue to Disappear

Why has there not been more attention to the ongoing loss of "small" economic options? After all, many such consumption possibilities are more in line with the income/wage potential that many jobs actually represent. This will doubtless be true as well, for plenty of near future employment prospects. By way of example, Ryan Avent stressed in The Wealth of Humans some years earlier, the political turmoil we can expect to endure until we finally face the fact near term employment won't be as fully compensated, as what transpired in the 20th century.

So why do we continue getting larger product offerings, in light of the relatively smaller incomes many now experience? The "larger is better" rational, also shows up in what U.S. auto manufacturers are currently able to profitably produce. (How much do land prices which reflect limited productive agglomeration, affect this reality?) While President Trump is frustrated with GM for closing more plants, as a Reuter's article noted, "Car market collapse outruns GM moves to keep up." Much concern understandably highlight losses of good jobs with benefits. Nevertheless, consider some not so obvious features of this production reality, since,
This year, sedans will account for less than a third of light vehicle sales.
What does that suggest for the millions who don't prefer heavier vehicles such as trucks or SUVs as transportation? How much of this reality comes down to wide income divergence? Many with high income levels, will of course continue to purchase either high quality import sedans or high quality local versions. What is increasingly missing, however, are the millions of consumers who once bought small sedans because they were economical. How many among this latter group, face the reality of small wages which have become insufficient for the total costs of transportation? And how many rural residents can't realistically be expected to benefit from companies such as Uber?

While it makes little sense to demand that economic (or "affordable") vehicles continue being built, we still need a reasoned and productive response to what is occurring in the marketplace. After all, the "dollar vote" has already spoken, and worse, it represents a form of economic exit. What are the production and consumption options that would make it more realistic, for low wage individuals to reengage in economic life? Factories will sometimes need to close when there's too little profit. But there's still the larger issue: How could society respond to this latest indicator of lost social mobility for those with small wages? As previous "small" economic options continue give way to "large" marketplace options, only recall, how little innovative product actually exists in the pipeline, which could effectively correspond to the market potential of relatively small wages.

We need sustainable production and consumption models which take the reality of widespread small incomes into account. For example: Without such options, we end up with head scratching examples of "improved" services access such as a single Texas Walmart which will offer mental health care for rural residents. This service offering is "only" $140 for an initial session, and $110 for follow up sessions! Seriously? Where are the good friends who might patiently listen to our occasional life struggles, when we really need them?

In all of this, we can't just focus on the power struggles of "good" job preservation, given underlying trends which are changing overall consumption patterns. Yet aggregate output is always going to depend on total participation in our workplaces and marketplaces. And even if we don't respond to why people disengage, ignoring this factor won't take away the ripple effects of limited labour force participation.

Likewise, the loss of small consumption options with few viable replacements, doubtless contributes to lost social mobility. How much of "skills mismatch" in the workplace is really about the lost economic options that were once available to individuals with small budgets? People of a certain age such as myself, remember well when it was possible to move cross country with only $250 in one's pocket. As Timothy Taylor noted regarding lost social mobility, it's a "legitimate public concern". And, as production and consumption possibilities for low incomes continue to be left out of the economic equation, is this not a factor in the lower growth trajectory we've inadvertently followed since the Great Recession?

Of late, the majority of profit and non profit activity tends to be focused on large economic options for production and consumption. Can we create a for profit, capable of embedding an (apparently) "odd" category of "small" economic options? If nothing else, we could envision small scale economic dynamism as not for profit endeavour, even though it would ultimately lead to extensive new wealth creation. We shouldn't have to rely on Dollar General Stores and the developing nations of the world, to supply what have become practically our only "small" economic options. Let's accomplish the same with walkable communities, new productive agglomeration which could ease land costs, new tradable sector building components, and a more dynamic non tradable sector, as well.

Sunday, November 25, 2018

Does Price Making Affect Total Output and Investment?

Could extensive price making affect investment potential, for revenue which otherwise would have generated output gains? In particular, does price making in non tradable sector activity, lead to quicker diminishing returns in aggregate for capital investment, than would otherwise be the case? If so, this could be one of the ways in which some aggregate revenue claims on the part of non tradable sector activity, negatively impact total factor productivity.

One often hears arguments, how government spending crowds what private sector activity could otherwise achieve, in terms of economic dynamism. Alas, it's not quite so simple. Much crowding also results from price making in non discretionary private sector activity which is further compounded by the fact supply side potential can be limited at the outset. If there were less price making and more price taking, aggregate investment and output for all sectors could become more pronounced. Meanwhile, once low income discretionary income is shifted towards non discretionary "requirements", less revenue remains for the output enhancing potential of discretionary spending in tradable sectors.

Nevertheless, recent corporate tax cuts were extended to tradable and non tradable sectors alike, in hopes of generating fiscal stimulus. Did this help economic conditions, overall? With total (and business) investment rising at about 8% per year, Scott Sumner opines "The data suggests it has, unless I'm missing something."

Of course, short term boosts aren't comparable to permanent gains. For instance, Sumner recently stressed as well, how most growth initiatives boost the level of GDP without actually increasing the long run growth rate. By way of example, capital investments in general are only useful up to a point, in part due the diminishing returns highlighted by the Solow growth model. Once market saturation is reached, further capital investments no longer provide sufficient dividends. Importantly, this same market saturation (at least within a desired price range) applies for extensive investment in human capital as well, consequently limiting supply side knowledge production regardless of demographic change.

Fortunately, a broader economic context for price taking in time based services, could ultimately delay that market saturation point for all concerned. Plus, the price taking symmetry of time arbitrage could provide additional organizational means for knowledge preservation. With a more dynamic and independent form of services capacity, our knowledge based economy might gain much needed economic stability, well into the future.

However: In fairness to the prevailing system, knowledge providers have created a form of quality product requiring extensive human capital investment, as a defensive means of ensuring services coordination with individuals who are among the most valuable contributors to society. The problem? There are societal expectations of standard methods and relatively standard or "single" time based service prices. This in turn has worsened the Baumol effect, so that societies are no longer able to effectively coordinate wide income variance. Even though it's feasible to organize time based services activity differently to address income divergence, we still need a carefully thought through response - one which doesn't pose a threat to the expected human capital investments in general equilibrium services generation.

It's possible to create symmetric economic options, whereby knowledge can be utilized and dispersed via price taking means. A combined group approach in defined equilibrium conditions would allow new knowledge based services generation. Such an approach could even make it unnecessary to be the recipient of extensive family support, in order to have the freedom to take part in knowledge based activity so long as one desires to do so - instead of waiting till retirement, for instance. Sometimes a mind - or body - can't wait that long!

A price taking services approach could eventually lead to increased societal demand for tradable sector activity, once more. After all, this is the activity which historically provided investing dividends due to high levels of output. It was the simple pleasures of the Main Street material world many of us remember from youth, which created such high hopes for the pursuit of knowledge in the first place. Yet the pursuit of knowledge can be its own reward, and not every intellectual challenge has to take place on extensive monetary compensation terms.

Much of today's investment potential is in a holding pattern. Excessive non tradable sector claims on what should have been discretionary income, have made it difficult to generate a level of output gain which could restore economic vitality to a higher level. And should a higher level of output become possible, diminishing returns would not set in near as fast for personal investment, as has been the case of late. Perhaps a price taking option for non tradable sector activity, could even increase the long term growth rate as well.

Monday, November 19, 2018

Update on a Busy Writing Schedule

Regular readers have probably noticed I've not had much time for blogging recently. However it's mostly due to a good reason: I'm in the process of finalizing material, for the first book of a series which will also eventually become part of the blog sidebar. This past August, I'd begun settling into a schedule of wrapping up chapter material each month, before continuing to the next chapter. Of course as it turned out, the third chapter ran three weeks longer than expected - given my self imposed deadline! Hopefully that won't happen too often, so I'll still have time for blogging, and particularly so the initial part of this extended writing project will be complete (finally!) by summer's end of 2019.

There'll be eight chapters in the first book and they should be ready for their last edit (prior to this initial publication) by late spring. Once Time as Wealth is complete, I'll be able to set my sights on some pressing macroeconomic concerns which are the main focus for the second book. Afterward, the third book will describe a potential institution which - alongside for profit endeavour (physical building and infrastructure components) - would support a time/generational continuum for mutual employment and knowledge preservation. In particular, an institutional structure is needed which can address the widespread structural dilemma which is also a result of the Baumol effect. Meanwhile, here's a few highlights from Time as Wealth.

1) The Untapped Potential of Time Value
Many discussions re time as wealth, understandably focus on the reality of personal time scarcities in relation to institutions which already exist. But what if it were possible to position our economic time value within a context of institutional adaptation? Importantly, a marketplace for time value, would mean greater monetary equivalence for all time use potential. This approach would help compensate for the fact nominal wages may be slow to adjust upward, during historical periods of service sector dominance. Indeed: The tradable sector dominance of our recent past, was likely a greater contributor to relative income equality than is generally recognized. That relative loss in tradable sector output - hence relative wage loss - is a recipe for political fragility. Gains in aggregate time value could  help restore a rising standard of living, and bring a new dimension to productivity as well.

2) Imagine and Create the Markets We Want
How might a well defined marketplace for time value, actually benefit society? For one, there is a growing zero sum mentality in the political arena, which has been exacerbated by the exclusivity and polarization of today's non tradable sectors. By taking all time use potential into account, more inclusive and less polarized workplaces would eventually take shape. What makes greater inclusion feasible, is that mutual reciprocity creates wealth at the outset, instead of having to demand resource capacity from elsewhere. Reciprocal wealth building, means new economic options that go well beyond the skills exclusivity of many present day workplaces.

3) From Skills Arbitrage to Time Arbitrage
Is it possible to differentiate how we value the overall use of our time, from how we came to define the value of skills investments in 20th century workplaces? All too often, the commitments of our skills priorities have meant giving short shrift to other time priorities and responsibilities. In some respects, time arbitrage could prove a more flexible means of services coordination, than skills arbitrage. Time arbitrage could tap the use of knowledge in non rival ways which help to preserve the spread of knowledge throughout society. Not only could time arbitrage restore our capacity to manage the time necessary for personal commitments, it could allow local groups to coordinate a broader range of skill sets than is presently possible.

4) Autonomy, Personal Agency and Economic Freedom
Governments and private industry alike, have long been complicit in mutual agreements which reduce our economic freedoms. How can a society expect to preserve political freedom, without economic freedom? Nevertheless, the freedom to produce is not as prominent among supporters of free markets as one might expect. Much of the usurpation of knowledge production rights in particular, took place well before wealth came to be strongly associated with knowledge. Indeed, the dialogue of victimization likely emerged in part due to a lack of understanding, how production rights have slowly but surely been lost. Production rights are an important part of our potential happiness and satisfaction in life, in that they make autonomy and personal agency a viable option for society as a whole.

5) From Divisions of Labour to Mutual Time Priorities
Not only do we need to closely examine future possibilities for time management, we also need to take a broader perspective regarding the rationality of mutually held time commitments. While tradable sector activity continued to dominate, time management was often a secondary concern, given the obvious demands of these kinds of organizational activity. However, non tradable sector organization has not been near as efficient, or as complete in terms of production potential. Possibly the best way to think about regaining efficiency for time based services product, is to envision the process as one of mutual employment for mutually held time priorities.

6) A Place in the Sun for Students of Life
How did our personal enjoyment of experiential and practical knowledge, become so lost in the demands of formal education? If that weren't enough: Formalized education has made it exceedingly difficult for average citizens without college degrees, to participate in some of the most important issues of our times. It is said we need to vote if we want a good societal outcome. Nevertheless, there's little in the political area which actually addresses the most pressing issues of the day. And many vital issues - instead of being worked out at a societal level - are inexplicably "roped off" for educational papers and high level discussions. Let's create more meaningful roles which include economic context, for students of life with an avid interest in lifelong learning, yet little means by which to share that passion in productive ways with others.

7) Building a Continuum for Knowledge Preservation
Even though generational wisdom may appear irrelevant or outdated, there is hidden fragility in the systems of our times. Knowledge tends to utilized in ways which don't necessarily carry a reliable continuum or momentum. Important information may actually be lost at times, in part due to how its use is organizationally structured. How might societies reduce this risk? An important aspect of this conundrum, is a wall of separation between schools and workplaces which prevent students from taking active roles in the economic and civic lives of their communities. Even though social and economic mobility will always be important, more communities need the economic option of being able to play direct roles in the knowledge preservation and utilization processes they have supported for so long, via formal education.

8) An Overview for a New Institutional Role
A new institution is needed, which can productively respond to the fact that time value scales differently from other forms of value. Time based product is vitally important in multiple aspects of our lives, especially since it contains an experiential nature which cannot be replicated in any other way. Nevertheless, the only way to make time based product truly efficient, is to provide an economic dimension in which time can directly function in relation to itself. Knowledge and human value would be able to scale up in this arrangement, so as to compensate for the fact this system wouldn't directly capture full monetary representation. Participants would generate the monetary equivalence of real wage value, through their creation of service options which otherwise would not be possible.

There's another important aspect of monetary equivalence in this arrangement. Each participant would build lifetime ownership in both local building components and physical infrastructure, and have ownership options as well in the manufacture of these components which are sold globally. This active citizen shareholding position, would make it possible for central banks to indirectly represent the labour of these groups (which otherwise couldn't function as a liquid asset), via their share of ownership in the for profit role of the equilibrium corporation.

Saturday, November 17, 2018

The Untapped Potential of Plastics

Ever since plastics came into widespread use, people have harbored mixed feelings about them. And there's also a paradox: Even though they degrade quite slowly (what should be a beneficial characteristic), their potential for durability and flexibility in our physical environments, has long been overlooked. Meanwhile, the proliferation of disposable product has certainly not helped their reputation. Indeed: Given how long plastics have already been with us, I'm surprised that the term "single use" has only now become a "word of the year". Alas, plastics play an outsized role in products which are only intended for a brief use. Where, exactly, do we still have ample space to throw things away?

Nevertheless, despite the recent rush to create biodegradable products, it helps to remember the kinds of products we don't necessarily want to dispose of - at least in the short or medium term. Even though biodegradable material makes sense for disposable plates and the like, it's not necessarily a good idea for products that need to last for a longer duration such as housing and automobiles. Anyone who lives in areas prone to flooding or insect infestations, knows the drawbacks of wood and wood based products as "permanent" parts of a home's structure, for example. Equally problematic are the biodegradable products being utilized for automotive parts, since rodents find these products suitable for consumption! And granted, even though squirrels have already been known to destroy (expensive) parts under the hood, some are convinced that biodegradable materials for this purpose, simply makes things worse.

More companies than ever are responding to the fact that plastic has been ending up in too many of the wrong places, such as our oceans. Is it possible, given this scenario, to reclaim the value of plastics which could be put to more durable and long lasting use? Plastic building components could especially help those who lack the ability to rebuild on traditional terms after natural disasters. Components which are both strong and lightweight, would also be a tremendous plus for those who need to renovate deteriorating structures but presently lack the physical capacity (or other resources) to undertake extensive renovation.

Plastics still have considerably more potential for widespread use than is recognized, especially for anyone seeking viable alternatives to the high costs of traditional building methods. Chances are, durable forms of plastic could play a role in more flexible forms of infrastructure. One apt example is the need to create environmental options for what are now growing shortages of sand that binds well for concrete. Might it be possible to combine methods of 3D manufacture and landfill alternatives to create building components and flexible forms of infrastructure? Perhaps the plastics which can't readily be used for recycle could be compressed inside of 3D print frames which in turn could serve either as walls for housing, or even walking paths. For that matter, there may be entrepreneurs and STEM graduates working on such challenges, even as this post was being written. I certainly hope so. After all, living in uncertain times makes some of us wish we were decades younger, so that we too could also be actively pursuing such possibilities.

Sunday, November 4, 2018

Time Product vs the Marginal Product of Labour

Is the marginal product of labour still a useful concept? It depends, especially since some labour translates into final product for individual consumers primarily due to individual providers. For all practical purposes, some forms of time based activity which translate into final product, have little to do with the marginal product of labour, even though such labour may benefit from augmentation in the form of supporting personnel and/or automation.

Marginal product of labour as concept, could certainly benefit from further discussion. All the more so, since attacks on this concept aren't necessarily grounded in a complete understanding of when the concept fully applies. Hence Scott Sumner provides a useful post for Econlog where he asks "Are workers paid their marginal product? Should they be?" He explains:
There is no obvious straightforward way to think about the marginal product of labor; it depends on many institutional factors.
Clearly, when it comes to different perceptions of fairness re wage distribution, this is an important point on Sumner's part. Yet he highlights the fact average wages have risen faster than median wages, which makes inequality more problematic than would be the case otherwise. Further, credentialing is another aspect of income polarization which obscures marginal product of labour as a valid concept. When wages, income and compensation are closely linked to IP rights, one's time value potential becomes even more complex.

Home ownership is another factor in these considerations, because housing asset valuations can be misconstrued as "excess" capital in relation to labour. Even though housing is representative of income, these aggregates are still a partial representation of wages and income which derive from the marginal product of labour. Hence part of what makes this capital appear excessive, is due to the growing factor of time based product compensation which does not derive from the marginal product of labour.

The marginal product of labour does exist in a relatively pure form, but in many respects it inhabits multiple points along a spectrum for derived economic value. While one end of the spectrum represents the marginal product of labour (traditional tradable sector activity and manufacture), the other end of the spectrum gives way to present day societal expectations for human capital investment. In a pure form, this is time value that is derived solely from product quality, rather than quantity.

Merit affects these distributions in different ways. Merit based skill can lead to both increased quality and output in tradable sector activity, which in turn creates additional revenue for employee distribution. However, merit based skill in non tradable time based product, tends to lack additional revenue based on quantity of output. Consequently, it relies on quality product definition to do the heavy lifting of covering expenses and creating compensation for human capital investment. Last but certainly not least, the middle of the spectrum contains high skill time value which is more likely to contribute to intangible forms of institutional product (both tradable and non tradable sectors), rather than the compensation of individual professionals.

How might someone with a utilitarian perspective respond to these realities? It's complicated. Nevertheless, when it comes to time based product (as one of the most sought after forms of employment of our time!), monetary aggregates can only go so far. Once price making reaches a certain point in the societal coordination of time based services, money loses its ability to fully represent the time value of all would be participants who struggle to gain access on these terms. In other words, money alone can't be expected do the entire job, of providing maximum utility for the benefit of all concerned. Is time based product a detractor, then, to total factor productivity, as contrast with the marginal product of labour? Again, Scott Sumner:
Furthermore, the marginal product of a worker who cooperates with many other workers and many other machines, doesn't necessarily match our intuition as to what the term "productivity" means. There's nothing in marginal product theory to prevent a scenario where one man owns all the capital and earns 99% of national income, and the other 1% is divided between 150 million workers on the basis of the MP of each worker. That's obviously not likely to occur, but it's not ruled out by the theory. 
When tradable sector activity was still dominant in advanced economies, the marginal product of labour was much more relevant for employment compensation. In contrast, a recent jobs report shows the prevalence of sectors with high representations of time based product (education, healthcare, professional and business services) as compared with lower employment figures for manufacture, construction and mining. Yet it's the latter, where the marginal product of labour is fairly simple to discern. If a decreasing percentage of employment is fully understandable in terms of output and revenue potential, how to remain certain of economic stability in the foreseeable future, given the power struggles taking place in today's non tradable sectors?

Alas, the intangibles of non tradable sector activity are contributing to the economic uncertainties which in turn exacerbate populism and nationalism. Let's focus on creating more tangible forms of services generation, so that aggregate time value can ultimately be recreated, for those who are afraid (or angry) they will only be left on the sidelines.

Wednesday, October 31, 2018

Wrap Up for October 2018

"One of the first steps to helping people out of homelessness is getting them a steady job. But what about the thousands of homeless Californians who are already working?"

Healthcare: Some supply side considerations

"Getting health insurance through work now costs nearly $20,000."

Will robots be in charge of vertical farms?

"Place-Based Policies for Shared Economic Growth" (PDF) Edited by Jay Shambaugh and Ryan Nunn

"Surprise" medical billing is one of the major financial fears.

Ian Hathaway provides a concise update of global level venture capital.

"Risk is what's left over when you think you've thought of everything."

Sometimes people can glimpse what the future may look like, but are simply unable to put together a good response.

There's plenty of variance in labour force participation rate by country.

"How fast can buildings be built these days?" On the other hand, as Scott Sumner notes, other building projects fare worse than skyscrapers.

Neural networks, explained.

Despite the fact real wages remain flat, real income is rising due to gains in both hours worked and employment levels. "Annual income depends not only on wages, but also on the number of hours a person works in a year and the share of the population that is working."

Romer and Nordhaus for the Economic Nobel prize 2018
Tyler Cowen lists helpful references for Paul Romer. Also for William Nordhaus
Joshua Gans explains their primary contributions.
A Fine Theorem goes into greater detail for both, with "How we create and destroy growth"
Timothy Taylor's post also highlights two essays on this year's winners released from the Nobel committee.
Chad Jones re Romer: Ideas are not depleted by use

If only more of us had been "warned" when we were (much) younger. Nevertheless, much about the workplace was quite different, decades earlier. Once, it was relatively easy to get good work without a college degree. "Working past 65? It's easier to do if you graduated college."

Ash Milton of Palladium Magazine challenges the libertarian ideal of charter cities and more recently, innovative governance.

When it comes to nurse practitioners, progress is slow.

Soft law as "the worst of all systems, except all the others before it." Soft law could also eventually prove important for the use of knowledge in local settings.

Over the past few decades, the "spatial equilibrium" has shifted.

"The Forgotten Americans represent 30 percent of the working age population, are in the bottom half of the family income distribution, and lack a college degree."

Perhaps the best way to approach solution aversion is to have more than a single solution. For instance, walkable communities could help the environment without imposing restrictions on everyone, and also help people who need viable options to auto transportation.

Will the dollar lose its "exorbitant privilege"?

Has corruption become the world's most important problem?

Recessions are quite different from structural problems.

Truth has many sides.

If something can be replicated, it can also be made interchangeable.

"It is entirely within the scope of a Malthusian economy to have (1) positive productivity changes such as increased commercialization and market access, (2) positive population growth, and (3) stagnant output per worker."

Twenty innovations in healthcare

"In a recent National Association of Realtors survey, only 10 percent of respondents want to live in single-use housing subdivisions."

Process knowledge is an important part of technology. Also, Dan Wang's initial essay.

Benjamin Reinhardt suggests there are eight innovation channels.

What has happened to accountability in an administrative state?

Japan has developed a unique "hometown" tax.

James Pethokoukis discusses debt and entitlements with James Capretta.

Real output growth in the past decade is still less than real economy growth during the 1930s.

What explains the early stage retreat? Will other regions still be able to successfully compete in the near future with established regions? The "new normal" is about a third to a quarter below the 2015 peak.

"modern marketplaces get their power from aggregating the demand side"

Tuesday, October 30, 2018

The Economy: More Fragile Than it Seems?

Fragile in what sense? After all, some believe the economy is quite strong. Except there's this: Many activities that citizens once actively engaged in, are gradually being reserved for a relative few in society. For those who lack money or social positioning, it's becoming difficult to make a real difference in the world, or even to get things done which were once considered quite ordinary.

Today's money/status approach to economic activity, also suggests that millions could lose the ability to fully participate in the left behind regions of today's advanced economies. For that matter, much of the near future work in these regions is composed of low paid services. The fact these jobs can't fully support existing community infrastructure and its associated costs, doubtless has bearing on the unsettled political landscape of our time.

This past week left little breathing space between outbreaks of violence, which included domestic terrorism as well. The Squirrel Hill massacre at the Tree of Life Synagogue, and the pipe bomber incident, are only the latest reminders of a world which feels unexpectedly - and inexplicably - fragile.

Might we have entered a state of prolonged, if not completely acknowledged grief? How much do the structural economic changes of our time affect this state of affairs? Are economists in denial about their contributions to the apparent zero sum struggles of our time?  How can anyone miss the fact there is no longer room for many would be participants in today's world? How can economists believe their discipline is crucial for economic prosperity, while taking refuge in cultural and sociological hand waving and dismissing out of hand the connections between economic and political circumstance?

Meanwhile we continue to lose our positive social connections. This, even as some economists stress economic conditions of recent centuries which helped build these connections, as if that were sufficient to negate the present dilemma. How long have we already mourned what is being lost now? Only recall a descriptive five stages of grief model, and what it suggests about this reality. While these stages don't assume a linear nature or occur in all instances, the processes of denial, anger, bargaining, depression, and acceptance, can still be understood in an economic framing.

Where we observe these responses, depends in part on how societal roles are internally and externally perceived. Clearly, the anger element is most obvious, not only in the media but also in our daily surroundings. Recently I was reminded of the fear based anger I suffered during the Great Recession, when I overheard a conversation in a nearby discount store. Indeed, this individual felt the need to repeatedly explain to his friend what had occurred, before he finally calmed down. The story? He had been certain of acquiring a good job with benefits, only to lose the job to someone else. The struggle over today's imposed zero sum circumstance, was highlighted by the fact neither job applicant was white (one black, the other Mexican). Was there "favoritism" toward the one who might not have been in the country legally? In any event, this became the story teller's rationale for his loss.

Whether or not his story was honest, this individual had the good fortune to meet up with a friend who was willing to lend him (again) a couple hundred dollars till he succeeded in his job search. Admittedly I'm glad that bout of fear induced frustration was peacefully resolved, since for a moment or two I wasn't sure about my safety on the next aisle. That's one thing about anger which stems from abject fear: It's not easy for others to immediately discern whether we might also "act out" on our frustration.

What about aspects of grief other than anger? While denial can be attributed to economists who did not see the Great Recession as a time to closely review ongoing strategies or explanations, they certainly aren't alone. Possibly the greatest denial thus far, is the fact many near future jobs aren't going to carry the extensive economic benefits of the recent past. Unfortunately, we may not be able to successfully navigate this new era of wage limits with the monetary requirements of aging infrastructure maintenance, not to mention the services cost burdens of our retirement years. If we aren't able to productively respond and soon, the problems of our uneasy political climate will only get worse.

Depression is quite different from anger, in part because it makes us want to isolate ourselves from the world, so as to hide what we suffer. That's why it can so difficult to make plausible estimates of depression, whereas anger prompts an almost opposite response of wanting the world to be fully aware of our grievances. It's easy to imagine anger can somehow be reduced by acting out or - at the very least - verbalizing how one feels. On the other hand, depression simply contributes to the social isolation which has become so prevalent in recent decades.

So who tends the bargaining role, in all this? For all its seeming implausibility, the slogan "Make America Great Again" was an attempt to address real societal losses that had basically gone unnoticed. Inexplicably, many economic processes end up as government responsibilities when they aren't productively addressed by private enterprise. And if private industry creates enough zero sum wealth capture, eventually people end up with zero sum realities. No wonder government "bargaining" feels so regressive, since it includes the same mercantilism Adam Smith argued against, centuries earlier. Had there been a well reasoned response to the Great Recession, when citizens and economists were still engaged in what could have been productive dialogue, perhaps we wouldn't be stuck now with rhetoric better suited to earlier economic circumstance quite different from our own.

Alas there will be no acceptance of what's at stake in this economic dilemma, if we can't successfully get past denial. Yes, it's a fragile world. But that doesn't mean we have to give up hope.

Tuesday, October 23, 2018

Notes on Money-Income Causality and Sticky Wages

The initial impetus for this post came from David Henderson's helpful encyclopedia entry for Christopher Sims. I found the money-income causality argument particularly interesting:
One of Sim's earliest famous contributions was his work on money-income causality, which was cited by the Nobel committee. Money and income move together, but which causes which? Milton Friedman argued that changes in the money supply caused changes in income, noting that the supply of money often rises before income rises. Keynesians such as James Tobin argued that changes in income caused changes in the amount of money. Money seems to move first, but causality, said Tobin and others, goes the other way: people hold more money when they expect income to rise in the future. 
Which view makes more sense? Upon applying Clive Granger's econometric test of causality, Sims concluded:
The hypothesis that causality is unidirectional from money to income [Friedman's view] agrees with the postwar U.S. data, whereas the hypothesis that causality is unidirectional from income to money [Tobin's view] is rejected.
Regular readers won't be surprised, that I also consider money-income causality effects in terms of tradable sector and non tradable sector contributions to general equilibrium outcome. Even as causality mostly originates via money to income, additional money supply (non inflationary) still originates in positive output changes. As always, real economy growth - or the lack of it - is the long run deciding factor.

While output growth is relatively transparent in tradable sectors, the lack of actual output transparency in (some forms of) non tradable sector activity, makes for too easy assumptions that causality may flow from income to money. Importantly, the income to money causality rationale can prove dangerous as well if carried too far. However, today's knowledge production dependency, which I've referred to as a form of secondary market, is so integral to economic activity that oft extensive price making in these areas isn't easy to discern. Price making in non tradable sector knowledge production can be all the more problematic, since it further impacts supply and demand for all markets in unpredictable ways.

Even though non tradable sector time based product depends on general equilibrium dimensions, once a nation's high skill professionals gain confidence in their country's resource capacity and market definition, wage or income demand becomes resistant to change, hence is "sticky downwards". Chances are, downward stickiness also provides rationale for the appearance of income to money causality, because a nation state will take extensive monetary and fiscal measures to maintain a given general equilibrium level, especially after general equilibrium conditions begin to suffer from too few ares of growth (wealth) origination.

Wage stickiness in tradable sector activity is generally less of a problem. These points of wealth origination are often quick to respond to changes in supply and demand, in that output levels which directly contribute (internally) to nominal income aggregates, can be readily shifted. On the other hand, professional time based product in non tradable sector activity, where compensation is externally derived from existing monetary flows, lacks the flexibility to quickly respond to market changes. Hence the activity of the latter imposes restraints on general equilibrium conditions which may not be easy to recognize. In a recent follow up of an earlier popular post re sticky wages, David Glasner observes:
Market-clearing equilibrium requires not merely isolated price and wage cuts by individual suppliers of inputs and final outputs that will be consistent with market clearing, but a convergence of expectations about the prices of inputs and outputs. And there is no market mechanism that achieves that convergence of expectations.
Consider why this matters, for what have become the required societal inputs which ultimately result in a "final" form of high skill time based product. Presently, the costs of human capital - due to societal expectations - are resistant to the recent ability of digital potential to contribute to learning by doing processes which could greatly reduce these initial cost burdens. Nevertheless, not only does the asymmetric compensation of secondary market knowledge application provide immense skills flexibility, it is integral to the very framework in which much of today's wealth takes place. Sticky markets indeed!

Hence what is now needed, is a digitally enhanced supply side structure for knowledge production, which can generate new wealth capacity to restore a growth frontier along the margins of today's NIMBY general equilibrium. A symmetrically aligned organizational structure creates internal reciprocity, which in turn makes internal coordination a viable economic option. After all, as Glasner rightly explained, it can be all but impossible to achieve the coordination of labour markets at a general equilibrium level. Fortunately, it's still feasible to create defined equilibrium settings at local levels, where the time value of our labour might once again contribute to overall growth and productivity.