Sunday, January 19, 2020

Needed: Flexible Investment for Impermanence

One reason why people in the U.S. don't save enough, is that investment in the form of personal housing tends to be an all or nothing affair. But is that really necessary? And what if better ownership options could take the actual impermanence of many building materials into account? Incremental investment would also mean flexible building components which owners easily combine or dissemble. Owners could keep using components still in good condition, should a single component fail.

Ideally, many components could be simple enough to be maintained by owners, especially since many frugal individuals balk at the cost of hiring specialists to do repair work for them. What would matter most for some mass produced components, is ensuring that plumbing and electrical circuitry are simple enough to no longer need professional attention once they leave the factory. When it comes to living arrangements, in this instance an inexpensive product which is easily disposed of, could prove to be quite a relief.

Nothing about our lives is truly permanent. The paradox however, is that our physical environments tend to be built with an illusion of permanence, even as cost cutting takes place in ways which ultimately require excessive maintenance and renovation. Plumbing and electrical wiring are still being run through buildings, as if there were little worry of pulling the whole mess apart for major repairs at some point. Since many building materials get connected in ways difficult to amend, doing so is not necessarily worthwhile, unless a property is sufficiently valuable to qualify for gentrification. Consequently, communities end up with many dilapidated buildings which have outlived their purpose, yet there is often little incentive to tear them down and start over.

Flexible building components would make it simpler not only to start anew as needed, but also for the simplest possible forms of instant remodels. Such options would make it much easier for aging individuals to retire without excessive home ownership burdens. In particular, flexible components built with plumbing and electrical circuitry as detachable units, could help even lower income levels to better manage financial responsibilities while aging in place.

Many building components could be mass produced in ways which are far more amenable to decentralized ownership options than is currently the case. Given our present lack of ownership flexibility, consider for example what can occur when "temporary" solutions end up as permanent outcomes. Johnny of the blog "Granola Shotgun", explains a style of Russian apartments, and how basic elements of their construction are now common elsewhere, for oddly similar reasons:
These ubiquitous buildings were mass produced from standardized parts by centralized authorities and were duplicated by millions across the Soviet sphere. This was in response to a housing crisis in the mid twentieth century. They were meant to be a temporary stop-gap solution that would last for twenty five years until permanent replacements were formed, but many are still occupied decades later. As is so often the case everywhere, there is nothing more permanent than a temporary solution.
In all this, Johnny notes that he is less bothered by the aesthetics of bulk housing, than by a dependence on either governments or corporations to maintain them over the long run. Indeed, excess regulations regarding how residents might keep these dwellings fully functional, only makes such dependence worse. He adds:
If an aging apartment is in a desirable location and is occupied by a small number of people who are reasonably prosperous, the situation can be quite livable...If too many budget conscious people are packed tight in an identical poorly maintained flat in a crappy part of the metroplex, life can be unbearable. In other words, it's like any place else in the world.
Importantly, public and private entities sometimes arrive at similar destinations, particularly when it comes to mass construction of today's inflexible housing units. The result?
...institutions driven by vertical integration, economies of scale, regulatory compliance, and the demands of physics and engineering. So hold off on touchy feely assumptions about the left or the right. We're observing convergent evolution and constrained maximization at work here.
Johnny's post is an apt reminder, how twentieth century housing can put anyone with limited resource capacity at a real disadvantage when it comes to managing one's life. Just as more flexibility is needed in housing regulation, flexible options are also needed for the physical components of housing and infrastructure in general. Incremental ownership patterns could make it simpler for millions of individuals to build better lives for themselves. Flexible building options could provide more opportunities for low income groups, and also reduce their long term investment risks.

However, there's much more at stake regarding mobility, given uncertainties such as climate change and the evolving nature of our workplaces. By way of example, a productive response to impermanence with flexible building components, could allow people to regain normal functioning much sooner after natural disasters.

Again, mass production isn't the problem. It's when mass production only creates investment in which personal risk assumes an all or nothing dimension. Why not create mass produced components which can be added, subtracted, or reconfigured without need of massive renovation costs? And why not amend them locally with 3D manufacture? Even better for local community dynamism, would be 3D manufacture which puts local plastics to good (additional) use.

Plus, incremental ownership would be a decentralized option which groups could set into motion as needed after natural disasters, instead of waiting for governments to come to their assistance. Fortunately, it is within our power to make peace with impermanence. Doing so would give societies a chance to use many resources more efficiently, as well.

Sunday, January 5, 2020

What Potential Does Libertarianism Still Hold?

Has old-style libertarianism bit the dust? Tyler Cowen suspects that changing times have made previous interpretations of libertarianism less relevant, hence debates whether state capacity libertarianism might be its most logical replacement. How to think about this?

In a post titled "(Adjective) Libertarianism", John Cochrane responds. Granted, he agrees with Cowen that many State activities are necessary for obvious reasons. Citizens need states that are capable of performing crucial tasks "competently and effectively".  However,
Libertarianism consists of many different ideas, and is clearly in need of some adjectives.
Cochrane also asks why Cowen assigns most blame to Democrats instead of taking a more bipartisan approach. All too often, we observe how support for individual liberties evaporates among Republicans, should that support become inconvenient for any reason. Cochrane notes some other (minor) differences in perspective, then adds,
While I like the basic idea, I think "State Capacity" is a poor adjective because it isn't that self-explanatory. Libertarians have awful marketing skills, as evidenced by the fact that such demonstrably correct ideas have such little traction.
Still, no other explanatory choices are obvious as a descriptive update. While adjectives such as constitutional, conservative, rule-of-law, empirical, and globalist have their uses, "...adjectives like these just define a set of ideas as antithesis of their opposites."

After considering John Cochrane's reply, I wondered whether "pattern" as an adjective might be useful. For example, what kinds of overall economic patterns either promote or possibly deter economic freedom, depending on how resources are utilized within participating groups? Plus, it's the non tradable sector patterns of our modern economy which now cause so many problems for lower income groups. New non tradable sector patterns could give a more important role to time value in particular. By clarifying resource use patterns and making them more recognizable, citizens could better coordinate resources already at their disposal. Large governments often stumble in this regard, by assuming responsibility for activities which citizens lack the ability to support via resources they can personally manage.

Alas, I found Tyler Cowen's referenced Cato essay from 2007 (in his above linked post) a bit problematic, since he could not visualize libertarian roles for intellectual property. For me, that lack of imagination tends to translate into a lack of libertarian context for applied knowledge at the level of economic freedom. But why should the State bear such responsibility for intellectual property, when doing so creates budgetary discrepancies that only accumulate and leave citizens ever more indebted? What's more, this leave it to the experts approach only further reduces individual rights in what is essentially a knowledge based economy.

Why can't libertarianism help to restore production rights to individuals, instead of leaving the bulk of those privileges to states and experts? Why can't libertarianism take part, in what would ultimately be a reduction of political struggle over excessive subsidies re skilled services? What if libertarians could just be getting started on a brighter future, instead of calling it a day when it comes to individual liberties? If libertarians appear to have somehow gotten cold feet, or are otherwise being disregarded, perhaps it is because some of them have not yet taken seriously, the dramatic transitions of a services dominant economy. Yet libertarians could still meet this challenge, by reducing the dependent market status of time based services, in a quest to make them more direct sources of wealth. Libertarians could take applied economic solution sets more seriously, which would help others take libertarian concepts more seriously as well.

If libertarian ideas are to escape theoretical abstraction, the contexts of economic freedom will need more direct application in the real world - especially for countless communities which don't want to be left behind. Libertarians could encourage economic patterns that create greater freedom for people of all income levels - not just individuals who already enjoy considerable wealth and liberty. Libertarian ideas could become a viable part of future supply and demand for time based services markets. Such an approach to individual liberty would be relevant for millions, who previously might not have imagined libertarianism as a true pragmatic source of greater economic freedom and prosperity.

Friday, January 3, 2020

Exit, Voice, and Skills Arbitrage

What benefit can we expect to gain, if we elect to exit malfunctioning economic circumstance, should it become difficult to express voice or loyalty in these environments? In a recent post, Tim Harford explains that while exit remains an option for citizens in mature economies, many feel more constrained in this regard than was once the case. Hence he asks, "What should we do when things go wrong?"
Typically, we think of exit and voice as complementary. Your complaints will be taken more seriously if you can credibly threaten to leave, as anyone who has called to cancel a mobile phone contract can attest. But sometimes exit can silence voice.
Unfortunately, as Harford also notes, one's ability to exit isn't particularly threatening to political parties, "especially not the hardliners who would rather lose than compromise." Alas, when "extremists are delighted" and "moderates quit in disgust", political paralysis is often the result.

The political nature of exit, voice, and loyalty, tends to affect the market potential of nations as well. For instance, since U.S. healthcare is such a commanding portion of GDP, one can forget these markets were constructed so as to intentionally leave market potential incomplete. Just as politicians lack concern for citizens who choose exit over voice, so too the special interests that prefer human capital requirements to restrict market capacity. Even though much of healthcare market exit is far from obvious, there's one important exception. In recent years stories have emerged regarding people in public places who are clearly in need of emergency care, yet they refuse ambulances and assistance to ensure they do not experience financial difficulties afterward.

Skills arbitrage has become one of the main mechanisms responsible for encouraging market exit. Where once people arbitraged their time for mutual assistance, some are more likely now to arbitrage skill sets in highly specific ways that require extensive human capital investment. However, the time based services markets which have resulted, are not near as efficient as one might expect. As "the best of the best" become the last ones standing in formal assistance roles, more citizens become resigned to abandoning services which they no longer have permission to actively provide for themselves or others.

Again, it also helps to consider skills arbitrage roles in the general equilibrium circumstance of national governments. Large nations in particular struggle to coordinate the skills arbitrage of knowledge providers, since only so much of any nation's wealth can be redirected towards full monetary compensation for human capital.

For purposes of general equilibrium, skills arbitrage has largely cornered value in exchange activities, at least for now. Even so, this need not prevent a reemergence of value in use healthcare in the form of time arbitrage. New organizational capacity could make it feasible for participating groups to build much needed skills, as formal value in use economic settings. Defined equilibrium options could help restore a fuller use of knowledge and skill in society. Even though skills arbitrage sometimes results in extensive market exit, time arbitrage might provide ways to ensure that citizens don't continue exiting healthcare markets - especially in moments when they need them most.

Monday, December 30, 2019

Wrap Up for December 2019

Even though there was much to disagree with in David Graeber's essay, David Glasner engages with some of his more meaningful arguments.

Where is low wage work more prevalent? Brookings illustrates how it is found to some extent in all regions. It also helps to be realistic about reskilling.

Banks are subjected to stress tests. Why not the government?

David Beckworth and Claudia discuss her new Sahm rule.

Even though low inflation is important for the credibility of central bankers, it makes them quite unpopular, as if by design.

Sarah Skwire notes how the gender bias of unions has often been missed.

Diane Coyle highlights some of her favourite economics books of the year.

The potato was an important lesson re monoculture.

Tyler Cowen interviews Daron Acemoglu.

"...a new General Purpose Technology might be required to kickstart economic growth once again."
Tyler Cowen posts from some of the above linked paper with Ben Southwood, here and here.

Why would state law be behind a pay wall?

"...fiscal resources are not infinite, and public leaders can't assume every older asset is worth maintaining." I would add, don't just convene the experts to work on this issue, because they may end up with mostly suggestions to build infrastructure that many citizens can't afford.

Tim Harford suggests ways to survive elections with your sanity intact.

Peter Boettke highlights some forgotten and neglected classics.
He also notes important political economy books from the last decade.

Is there a middle ground for "gentle" densities?
"...most single-family lots could accommodate more housing without purchasing adjacent parcels and combining them." Light touch density is a similarly used term, which could affect zoning laws in the near future. And while progressives are often blamed for NIMBYism in exclusive areas, Miles Kimball recently highlighted a conservative response to potential zoning changes.

Government debt carries hidden risks.

There's not many specifics in the 40 AI startups surveyed as of yet which point to greater productivity. 

Many communities will maintain the infrastructure status quo as long as they possibly can.

Greg Mankiw notes a review from Jason Furman, of the recent book from Banerjee and Duflo, Good Economics for Hard Times.

As monetary policy continues to improve, real shocks have become more likely to trigger RGDP slowdowns than recessions. Can the Fed finally engineer a soft landing?

Carnegie Mellon University remembers Marvin Goodfriend. Also Miles Kimball.

Rural flight in Texas started back in the fifties.

Lars Christensen is blogging again. Also, "Revisiting the P-star model"

When it comes to tradeoffs, time is the ultimate scarcity.

Let's be careful not to take the advantages and benefits of the modern world, for granted.
"We certainly don't seem to have as much of a commitment as we did to leaving people to their own devices." We can't arbitrarily stop progress now, we have to keep innovating just to maintain what we already have.

When everything is said and done, might we end up with some version of Medicare for all?

The transition to modernity may have been messier than it seemed.

Frances Coppola questions the role of the repo market, which functions quite differently from the previous interbank market.

How much Chinese tech will have to be replaced?

From David Wessel at Brookings: This study found that minimum wage hikes are causing problems for new small business formation particularly in rural areas.

"Beyond developing conversational skills, the family phone asked its users to be patient and participate in one another's lives."

How accurate is that drug price index?

Gregory Mankiw explains his skepticism regarding modern monetary theory.

"Deafness freed Beethoven as a composer because he no longer had society's soundtrack in his ear."

Some digital stories of shame this year were particularly good!

Do cities suffer from energy imbalances?

Cyril Morong highlights a Minneapolis Fed paper re how changing technology affects inequality.

Gratitude is a complex thing.

Inside Cato's annual monetary conference.

Some historical aspects of migraine. Mine are in that (somewhat) tolerable average range.

Tyler Cowen presents a wish list of worthy projects.

Some of the big economic stories of the decade.

A recent Minneapolis Fed conference discussed potential housing options.
They are certainly needed. For instance, Just having a peaceful night of sleep can make a real difference.

Scott Sumner notes that the new spending bill is a disaster. Someone must be celebrating however, because it's a four hundred billion dollar win for special interests in a repeal of three healthcare taxes alone: the Cadillac tax, a health insurance tax and the medical device tax. Hence Bob Laszewski jokes, "Who says Washington can't get along!" The surprisingly mutual desire to do something about surprise medical bills, went nowhere as well.

Coffee had plenty of detractors when it was the newly introduced product.

For now the economy is strong.

It's not easy to think clearly about the eventual ramifications of excessive debt loads.

"While much of the rest of Mercy Hospital Fort Scott had been underused and patient rooms sat empty, the ER handled nearly 9000 people the year before it closed."

It cost about 9 million for the community to set up their own internet infrastructure.

"If Sapiens were a blog post"

Some personal reminisces from Arnold Kling re Robert Solow.

Saturday, December 28, 2019

Post Highlights from 2019

Here are highlights from some of this year's popular posts.

Where is the Educational Upside?  One major issue regarding formal education in general - whether public or private - is a tendency to treat "desirable learning and competence" as "scarce goods for which men and women must compete". Consequently, formal education contributes to artificial skills scarcities and imbalances in time based services markets. While knowledge and skills capture have become deeply embedded in ways which aren't readily remedied at state or national levels, communities could nevertheless start taking local action. Local education has the potential to not only become broader in scope, but more closely connected to the evolving wants and needs of all citizens.

Money Price is Most Relevant for Traditional Scale  An incredible amount of economic time use potential remains untapped. Yet more of our accomplishments could provide value for others, if we were to capture mutual wants and needs in a marketplace for time value. We need to derive value from our scarce time more effectively, especially since time based product does not scale via traditional means.

Monetary pricing is most relevant for output which scales on traditional terms, and it can't always offer similar benefits for human capital's natural scarcity in the form of time based product. Earlier forms of tradable sector dominance, meant societies could mostly rely on monetary compensation patterns which captured additional monetary gains from scale. In this context, a wide array of time based product was readily derived from revenue surplus, taxation, and multiple forms of financial debt. However, as we continue to adjust to a services dominant economy, there may gradually be fewer options for gains in scale to accrue to aggregate income in general. Fortunately, these losses might be amended by seeking aggregate output gains that include knowledge, skill and time value as wealth components alongside monetary compensation.

Has GDP Measure Lost Its Practicality?  Even though monetary representation is but a partial approximation of progress, there is no consensus how intangible resource factors could contribute to a better framework. Yet it would be counterproductive to discard elements of GDP measure which clearly serve valid purpose. In all of this, practicality and utility are as relevant as ever. Economic time value is an intangible component which needs more clarification, especially given our high levels of time scarcity and already existing financial responsibilities. There's a good chance that economic time value would be the most logical addition to current GDP measure.

What Really Preserves the Labour Theory of Value?  In some respects the labour theory of value has been disproved, especially when labour is applied to product which exists separately from time value. However, the labour theory of value likely has some adherents in unexpected places, particularly among providers of high skill time based product. Social position for example allows professional associations to reward personal labour via a rationale that one's time represents quality product deserving of monetary reward. Here one can also find much of today's intangible resource capacity, which causes much confusion as to actual productivity gains. More markets are needed for forms of quality time based product that don't negatively impact total factor productivity.

Inclusive Economies Can't Be Built on Exclusive Pricing  Interestingly enough when this post was written, Wikipedia provided more information on inclusive growth, than on inclusive economies in particular. Yet that was a reasonable search result, since growth is always necessary, before more individuals can participate and gain economic access. Consider why the correlation of inclusiveness with economic growth, matters. Should people become convinced that economic growth is no longer necessary, markets would become more exclusive by design. Such a result would only close the door further on those who still seek access.

One way to counter this impulse, is to create additional economic value for time based product. Doing so would also mean less pressure on earth's physical resources for the monetary support of time value. Direct reciprocity for time based services is an inclusive approach, which could result in more supply and demand for applied knowledge, hence additional growth in the use of knowledge for all citizens.

Time and Fiscal Revenue as Scarce Commons  One way to decipher whether additional budgetary debt burdens can be safely imposed, is to stop and ask: Do we really understand the full extent of aggregate time obligations we have already imposed? What if we discovered how many economic time hours would be necessary to meet those already existing obligations, only to realize current or near future generations don't actually have that many economic time hours to spend? Given the possibility of such a scenario, time value may need to evolve beyond a purely monetary focus, so that societies aren't jeopardized once budgetary burdens in general become more difficult to repay.

Some Broader Considerations re MMT Logic  There are too many competing demands on present day fiscal policy, for it to provide a strong framework for the underpinnings of a 21st century economy. National income taxes were established during historical periods when (now mature) economies could still rely on expanding tradable sector growth. Much of these revenue sources consequently benefited from traditional scale, which allowed millions to contribute to the government's wealth redistribution patterns of the present. Alas, since gains in traditional scale are no longer widely distributed in aggregate income, more than monetary representation may be needed, to preserve the knowledge dispersal and skill sets so important to modern society.

Time as Economic Unit: Intervals of Certainty  Time arbitrage could bring greater stability and precision to how individuals plan and manage the use of their time. Indeed, such an economic option might even prove more useful than the proposed Facebook currency (Libra) which inspired this post. While workplace skills arbitrage is partly useful for personal time management, it is mostly feasible when personal income is sufficient for individuals to delegate to others, the responsibilities they lack the time to accomplish on their own.

Markets Could "Find a Way" For Services  Sometimes, supply side conservation of unique skills capacity may come at the expense of supply side potential for markets as a whole. Just as aquaculture provided a market solution for overfished oceans, time arbitrage might ultimately create solutions for overfished governmental revenue.

When is Hierarchical Structure a Good Approach?  Normally, time arbitrage would utilize relatively flat organizational capacity, in order to get things done. However there will always be occasions when hierarchical organization is more efficient and appropriate. Examples include complex procedures which are not often needed locally, and also workplace outcomes which clearly go beyond the contributions of single individuals.

Thursday, December 26, 2019

Full Employment, or Future Productivity Gains?

Indeed, why should it have to be one or the other? And why isn't automation more often acknowledged, for the long term employment problems it might ultimately pose? Basically the issue is this: Would it be necessary to give up full employment for society to realize continued progress?

Perhaps the fact many earlier Luddite arguments didn't pose long term problems, explains an inclination to disregard where automation is a factor in regional employment losses. Nevertheless, as Scott Sumner noted in a recent post, protectionist and Mercantilist trade spats between nations aren't a reasonable approach, either. Alas, more logical responses aren't as obvious as one might expect, and there are plenty of moving parts in this scenario. Even though nationalist responses for instance are inappropriate and counterproductive, there's little consensus regarding a constructive framework for long term employment potential.

Any progress in this regard would focus on domestic economic realignment, and continued productivity gains are key to this discussion. Importantly, there are no linear solution sets which include full employment and continued productivity gains in a general equilibrium scenario. That said, the good news is that tradable sector organizational capacity is as appropriate as ever, at all levels of equilibrium dynamics. It's the organizational capacity of non tradable sectors which pose such problems for long term productivity, and employment as well.

If there is a tradable sector problem in all this, it's that we can no longer expect full employment in these areas. What we also can't accomplish is full employment from non tradable sector time based services as they are currently constructed. Without a more dynamic approach to services generation, these dependent (secondary) markets would ultimately create extensive societal burdens. Hence non tradable sector activity could benefit from a non linear approach. These new institutions (new communities) would build defined equilibrium settings which create additional employment and supply side potential, via mutual time reciprocity.

Once new non tradable sector institutions address full employment, how would they contribute to future productivity gains? First, a time arbitrage defined equilibrium does not detract from total factor productivity, since it would function as a primary or direct wealth creation market, instead of as a secondary market which depends on general equilibrium wealth.

Possibly the best news, is that internal sustainability is only part of what time arbitrage could contribute to long term productivity gains. When participating groups align skills and applied knowledge internally, they create new wealth in the process. Even though each individual's economic time options are necessarily rival due to time scarcity, the applied knowledge in each setting is non rival. Consequently, knowledge and skill gradually accumulate in ways which move forward services production benefits to future generations. This, instead of mostly expecting future generations to pay for today's skilled services! Even though these particular aspects of productivity might not manifest as monetary gains, they would nevertheless accumulate as long term output gains for knowledge, skills and services markets access.

Again, tradable sector productivity is still optimal in the sense that in many respects, we mostly need to keep doing what already works. One could say that tradable sector activity as a linear reality, is relevant as ever - not just for general equilibrium dynamics but as potential for every defined equilibrium setting. Yet we need to organize differently for non tradable sector output capacity, by thinking in non linear patterns which simultaneously encourage full employment and long term productivity gains.

Friday, December 20, 2019

Does Cooperation Lead to Greater Inequality?

In a recent Marginal Revolution post, Tyler Cowen appreciates "the virtues of greater cooperation" but adds, "Be careful what you wish for!" In some respects, it appears that more cooperation among participating groups could actually lead to greater levels of inequality. For instance, Cowen noted how high skilled individuals gain more benefits from mutual cooperation, than those who utilize lower skill levels in the workplace. Another oft cited example of late, are growing levels of inequality between different firms. How might one think about this conundrum? Could cooperation turn out to be just another expression for the wealth capture of collusion, or the exclusive nature of tribalism?

Fortunately, mutual coordination is too basic a human survival instinct, to be associated solely with either positive or negative outcomes. Plus, the references in Tyer Cowen's post were somewhat broad, in that his examples were more indicative of correlation than causation.

Nevertheless, when it comes to apparent inequalities, much depends on the extent to which specific resource coordination can disperse beyond directly participating groups. And since our time is naturally scarce, so too is time based product. Indeed, the only way to multiply high skill markets for time based services generation, is to invite more participants to the process. Otherwise, mutual cooperation in supply side chains which are limited by design, will only continue to exacerbate existing inequalities.

Until now, tradable sector dominance has proven far more capable of spreading wealth in societies, than has been the case for non tradable sector time based services. However, with time as a component of economic value alongside money, this problematic sectoral imbalance could ultimately be addressed. Time arbitrage would also be able to address the human capital investment problem by greatly lowering its costs. Presently, high human capital investment costs have become difficult for society to carry, since many time based services are reimbursed via debt and tax based redistribution.

Granted, the coordination potential of time arbitrage can't change the underlying problems of limited non tradable sector revenue. After all, the scarcity of time based product translates into aggregate output limits for these activities as well. What time arbitrage could create, however, is greater accessibility to services marketplaces in terms of production and consumption. One reason this ultimately matters so much for existing inequalities, is that millions now need a high income level just to access basic - yet vital - skilled services. In short, there are organizational means whereby mutual cooperation could create greater equality for all skill levels, once time value gains validity alongside monetary value.