Tuesday, April 30, 2013

Buckminster Fuller in "Critical Path": A Unique Window Into The Great Depression

"Critical Path" was one of my favorite books, but because my first reading was more than 30 years ago, I don't always remember the particulars. So when I tried to recall his take on the Great Depression, I scanned as much of the chapter "Legally Piggily" as possible for this post. A word of warning! Some history buffs (and other specialists) who would pick up this book may be put off by his style, for he romps through history (and everything else) with a voice like no other and he is not easy to categorize. Perhaps that is what still makes him so interesting, to this day. For all the  recollections of the Depression years, we just don't seem to have the full range in viewpoints that one would expect. Perhaps that's why earlier depressions tended to catch people off guard, for too many people had forgotten the last one when...arggh, it happened again.  So I tried to round up as many "nuggets" and recollections as possible. Since there are too many quotes to post, I will summarize and paraphrase some of the elements which are central to the story he tells.

Fuller believed that swift technological evolution was responsible for the Great Crash, in the years leading up to the beginning of WWI and U.S. entry in 1917. In 1914, J.P. Morgan began purchases to help the British and their allies - an amount of goods from the U.S. equaling all the monetary bullion available to the "ins" power structure. Despite the unprecedented magnitude, it only fractionally tapped the available productivity of the U.S. Reading this I thought, how much of history would actually have been written, if nations never considered options beyond one's gold standard?

Ultimately the bills were run up, and the question became, how to pay? When Congress told J.P. Morgan that payment was no issue, he insisted it was, and a national income tax became the result. During WWI, U.S. industrial production was at $178 billion when there was $30 billion actually available. Because the debt to the U.S. was twice that of all the gold the "ins" had, all the countries involved paid their gold to the U.S. and consequently went off the gold standard. The U.S. then arranged vast trading account loans which created a boom - bust- boom sequence prior to the Great Crash.

However, prior to 1929, there was a vast amount of production capacity from WWI that was still in prime condition. What to do with it? Young people wanted autos, but the autos then were not yet being mass produced, and banks would not make loans for them. At the time, banks would accept chattel mortgages and time payments on large mobile capital goods such as trucking equipment, at least for large corporations. However, banks did support tractor-driven farm machinery. They would hold a chattel mortgage on the machinery, plus a mortgage on the farmland and all attached buildings.

There was a rough hog market in 1926, which made it difficult for many farmers to  make payments on their equipment. Local banks foreclosed on delinquent farmers' mortgages and machinery, with the assumption buyers would be at the ready. Alas, no buyers were in the offing and the previous owners, now bankrupt, could not buy their farms back. Dust bowls developed as upturned, unsown soil began to blow off the farms. Of course it helps to remember that a substantial part of the population still lived on farms at that time.

In 1927 and 1928, the bigger western city banks began to foreclose on their local county banks that had financed the farm machinery sales and were forced to borrow from the former. First the little and then the larger banks found that they had foreclosed on farmhouses with no indoor toilets, many with roofs falling in, barns in poor condition, and farm machinery rusting in the open elements. Word of the bad news spread; small bank runs started, then the crash. Business dropped, unemployment rose, prices dropped and no one had money. Larger banks foreclosed on smaller ones. In early 1933, 5000 banks closed their doors.

No one paraded or protested but instead became low in spirit. When the largest banks faltered, FDR was inaugurated  four months early. He immediately signed the Bank Moratorium  and about a month later, Congress voted the president the ability to control all money. U.S. citizens and their government had become the "wealth resource of last recourse". In 1933, the value of what Buckminster Fuller called "land-based capitalism" plummeted.

When Congress started the investigation of the banking system, they saw how many of the mortgaged properties were all but uninhabitable. At this point government dictated the banking strategy and started refinancing of the building industry. But the so-called building industry (remember this is Fuller talking, though I definitely relate) was already 2000 years behind the arts of building ships of the sea and sky. While airplanes and ships are weight and environment considerate, there is no weight consideration to design land-anchored environment controls. Instead they are completely dependent on sewers, waterlines, electric lines, highway maintenance and controlled by prime landowners with building codes and nearly impossible legal restrictions. Suffice to say I am being reminded now, why portions of this book became  hardwired into my brain.

Even though Buckminster Fuller decried the socialist decisions made at the time, he completely understood why they were necessary. But he wanted humanity to move into a state of true wealth: wealth still not possible as we continue to struggle with outdated interpretations of building product in the present. Perhaps people did not see Fuller for the proponent of freedom and prosperity that he actually was, because his idea of a different kind of wealth other than land was not unlike the philosophy of the American Indian as described by William Cronon in "Changes In the Land"(1983). For me, land wealth is important, but not primary. Whenever people see land wealth as the primary wealth attribute, they inadvertently lose land value anyway, whenever human attributes of wealth get stripped away from it. Let's do our best, not to let that happen again.

Monday, April 29, 2013

Real Life is Incremental, and Other Nominal Growth Targets

For those who aren't around macroeconomic dialogue every day, "supply shocks" may seem an odd sort of phrase, especially in that it covers quite a bit of territory in meaning. Plus, it refers both to what would be interpreted as positive and negative effects in both the marketplace and everyday life. Something happens and one sees the effects ripple out, from what could be anything from a weighty governmental decision to the discovery of a valuable new mine. Such a multitude of activities are occurring constantly, and one could tear their hair out trying to understand how each ripple may affect others.

If one wants to juggle these multiple effects, it's a complex job and not always rewarding. Certainly we need to understand how supply side effects work with demand side effects because one depends on the other. But there is a chance that we are making the job even harder that it has to be, for interest rate targeting has to constantly contrast at one factor against countless others to ascertain what is most important. Consequently the best thing interest rate targeting can do, is put a "lid" on the pot and hope that everything "cooks" well. Right now what's cooking, economically speaking, is a good reason to stay out of the kitchen.

For all the complexity and minds "hard at work", why then should the fact that someone makes the "wrong" decision make it even more likely that we may not have a job to go to, next week?  Is there any one factor in all those variables that could possible make the process a bit easier? There is, and what's more it isn't "all over the map" in terms of potentially available decisions or resources. It is the aggregate or nominal capacity of our own time, with the potential measure of hourly equivalents. What's more, our economic capacity is incremental in nature, which means with a little TLC, can grow at a reasonably steady rate. Don't get me wrong, for not everyone dwells on supply side realities like I do, as a contributing factor for economic health. I just don't think supply side realities are a good reason to continue with interest rate targeting which - in the present - basically wants to open the spigot for loans when supply side factors are good and close the spigot when times aren't so good. Economies need to be thought through a bit more carefully than that.

To be sure, I'm glad when Ben Bernanke considers all angles, even if I want to do a face palm when he talks about the economics of happiness. Something about the fact that he doesn't always sleep well at night, given the number of unemployed, is a bit comforting...perhaps it's the way in which he caters to various aspects of multiple realities that is the problem. For in his earlier research and writings it was clear that he "got it" - he knew exactly what the nominal anchor should be. How could anyone - who studied the Great Depression to any degree - not see that it was the tenacity of people to survive which was the only true constant? It was only when he took his present job, that the "trees" made it impossible for him to consider the whole "forest".

Why is it so hard to think of the logical targeting of incremental growth in the first place? While we think of herd mentalities in the marketplace, they also exist in the daily surroundings we create for ourselves. It's just profitable to sell the most substantial product possible, so this is what more and more providers focus on, and more municipalities (housing) for tax capture. Only everyone finally reaches a point where the middle classes can no longer reasonably buy the standard product without government help. The old ways of moving ahead incrementally in life and business can be forgotten, when the good times not only go for decades but do so by leaps and bounds. Somewhere along the way to greater prosperity, our institutions decide we should live like supermen and superwomen, capable of jumping over buildings and obstacles with a single bound. Sure, some people no longer have monetary equivalency anymore but hey I'll ignore that if you will...wink wink. Meanwhile we can just play the game of thrashing one another as to why the losers constantly lose. That game has been getting a little "old" lately, no? Nevertheless in the EU it's become the primetime that drives out all other viewership.

Our real lives have lots of expectations and big dreams too, which is why we're willing to sign on to the contracts our institutions demand of us even if they require the selling of our soul, to do so. We really don't know how to stop making the sacrifice, even if it has been formulated in increasingly unreachable terms. By the time another Great Depression rolls around, people have long forgotten what the world actually looked like when enough flexibility actually existed for people to "grow" their lives, educations and businesses in incremental ways. That's why governments rescues banks yet again, which afterward still want to offer our contracts in the same superhero terms, even after we couldn't clear the building the first time around.

We need to leave plenty of spaces in our lives for incremental growth, because otherwise the tendency is invariably to maximize potential gains right out the gate, every time. Business claims government does this (spends too much in the good times), but business does the exact same thing, i.e. they will see just how much they can get from their customers in the good times as well. NGDPLT shows this relation of income to consumption so that one knows when the line is becoming stretched, and that can only promote a far better understanding for long term growth.

Sunday, April 28, 2013

Nominal Targeting: "Are You Being Served?"

Many folk of a certain age here in the U.S. remember this long running British comedy from the 1970s and 1980s. And just like the enthusiastic staff at Grace Brothers, today's customer finds market monetarists ready and willing to explain why their "product" of nominal targeting is superior to interest rate targeting. Often the first question a commenter, ah, "customer" asks is "What's in it for me?" Or, what is supposedly better about nominal targeting in the first place? Some are confused by the impersonality of the measure itself, which may make them think it will somehow get hijacked at the first "landing" i.e. the Cantillon effect.

But there's not really a landing pad, and money certainly would not get hijacked because of nominal targeting. As to whether someone actually keeps money away from the "bad guys" with interest rate targeting is anyone's guess, I suppose. Helicopter drops are a captivating image to be sure (where's mine, Ben Bernanke?) but the entry of money throughout an economy is a rather mundane affair. While money distribution begins with open market operations, it ends up in all the same places. Certainly the "new" money (if indeed one could designate that from some previously printed batch) isn't different from the other. What is significant is the measurement of the time frame itself, or the velocity. While there are aspects of velocity I'm still learning, this much I do know: there are lots of things we need to do with our money and many places it needs to go. The same is true for everyone else. When someone gets the arbitrary notion that enough money has been printed already, someone is likely not to get paid, and then someone else won't get paid...in other words it really matters how many batches get printed in a timely fashion, so that your neighbor keeps his job, and his neighbor keeps his business open and running.

Another customer complains, "The Federal Reserve has printed enough money already. If it prints any more you are just going to raise prices!" However, there's a good chance the particular price you have in mind is being wiggled about for reasons that may have little if any thing to do with the Fed. In fact, that's an important point about nominal targeting: your actual relation to the price you see becomes more clear. Not exactly your individual income, of course, but the combination of your income with that of others, compared to what you need to purchase overall. While the relation may not be immediately obvious, with time and NGDPLT, it would become easier to see whether distortions are actually occurring. And the best part is something as simple as lines on a graph can show whether the total relation between overall income and consumption actually changes. Anyone my age can look back on previous decades to see that when NGDP was not well targeted, there was a good chance it may have been creating problems with getting and keeping a job as well. While interest rate targeting can show lots of things, I don't think it really had a good graph for that particular observation.

Some customers may not see where the product of nominal targeting is significant because it has already been "tried". During the Great Moderation it was in fact utilized successfully alongside interest rate targeting, and if one just looks at numbers and statistics they could miss the overall point of the measure. Because of that, some may just stress the fact that we need stimulus now and then we can just return back to the same program of interest rate targeting once everything turns back to normal. Only there's one problem: the last time we found ourselves at the zero bound was the Great Depression. It took decades before everything returned to normal and interest rate targeting could finally be used effectively again.

But don't just take it from me, I'm a newbie, and so I should point out some of the other market monetarist "staff and management" from the sidebar, in alphabetical order: Bonnie Carr at dajeeps, Marcus Nunes (best graphs ever) at Historinhas, David Beckworth at Macro and Other Market Musings, Bill Woolsey at Monetary Freedom, Lars Christensen at The Market Monetarist, Scott Sumner at The Money Illusion, David Glasner at Uneasy Money and Nick Rowe at Worthwhile Canadian Initiative. All of these friendly (mmm maybe occasionally grouchy!) people are glad to be of service.

Saturday, April 27, 2013

NGDP, Economic Actors and the Transmission Mechanism

From my earliest days of reading The Money Illusion, I identified with Scott Sumner's excitement about nominal targeting and the ways it could potentially affect the entire economic spectrum. Of course when a seemingly simple idea meets a complex world, confusion ensues. Plus, while the implications of nominal targeting go well beyond macroeconomic concerns, NGDP level targeting is not yet a reality and so the primary discussion remains in macroeconomic terms. The fact that psychological and social factors also underlie monetary policy concerns is not always easy to acknowledge. Perhaps for that reason, comment threads on monetary and macroeconomics blogs occasionally seem to run in circles.

While all market monetarists agree on the core concepts of measurement (whether by central banks or free banking), interpretations vary for any potential growth trajectory. Economists in particular may be quite specific as to their preferred target, depending on whether they believe an economy can continue to grow. More importantly, one's belief system regarding the role of human skill in wealth creation could make a tremendous difference. That last point is especially important, given that the proposed anchor basically revolves around existing income and consumption patterns.

When discussions about the transmission mechanism do arise, one hears the technicalities of course, but below the surface lie individual conceptions as to what roles governments and citizens should play. Most importantly, the core concept of NGDP is "radical" in a way that hasn't quite been explored, and Scott Sumner has only alluded to from time to time. How so? The fact that people are even talking about moving the prime notion of wealth away from precious metals and other important resources to actual economic actors is a BIG DEAL. What's more, some are not so convinced about human potential right now, especially given that skills investments have suffered such blows in recent years.

Gold and other metallic standards of our monetary past were not quite so simple as they may seem. By putting the locus of wealth outside an actual population, notions of wealth could be more easily controlled by prevailing outside interests of the moment, which often represented the current "supreme" commodity. Today, interest rate targeting fulfills a similar function by focusing on the ability of banks to lend as the primary source of wealth. So thoughts of wealth as residing in consumer potential (all talk of consumer economies aside) can be a bit unsettling, especially when monetary equivalence is not viewed in terms of human skill. To be sure, money is connected with skill potential, but the correlation is not strong enough to convince many that this is in fact a suitable anchor.

While some individuals in developed economies have a sizable degree of monetary equivalence, that nonetheless does not seem relevant enough to apply to entire populations.  One senses this uncertainty not only in discussions about zero marginal productivity and sticky wages, but in what people interpret as appropriate growth targets. Those who place more emphasis on aggregate skills wealth tend towards higher targets, while others who question the ability of skills to translate into actual wealth may prefer lower growth targets or even no expansion at all.

In all fairness I admit there are reasonable grounds for such uncertainty. Were we to remain in the status quo of the present with no structural change, real long term growth would be hard to come by. With little consensus as to a way forward, the transmission mechanism of the Federal Reserve starts to seem like a stripped gear, by which Keynesians galore pray the car can get down the mountain and keep coasting until the long term when everyone is already dead...I have as little use for long term dead logic as for Armageddon dialogue, and would rather see the vehicle get a new transmission so as to continue right up to the next mountain and beyond.

But what exactly does fixing a broken transmission entail? To be sure, it depends on the model of the car (or nation and central bank) but it also depends on whether people are willing to determine how skills in general can become a valid component of monetary equivalence. The first step is to acknowledge that people need the service economies that are threatened, and debate how they can be transformed into more sustainable forms. None of this is to suggest that NGDP could not be realistically targeted in the here and now; only that it needs to be accompanied by real growth, for people to see nominal targeting as the solution it actually represents.  As Ben Bernanke has stressed, monetary policy cannot do the job all alone. Citizens also need to believe in growth and their own potential, so that they can create a better future with the help of their own printing press.

Arbitrage and Collective Capacity: A Wrap Up

There are so many ways to think of this subject matter that my notes quickly got away from me, since the last post! Suffice to say, we need to rethink skills arbitration possibilities for future economic stability. However there is a useful way to frame the discussion which I can touch on here. Governments can utilize forms of economic centralization, and forms of economic decentralization as well. Together, a sort of lockstitch effect is created, such as one would use to prevent a garment from unraveling. Remember the old phrase "think globally, act locally", and consider how it still needs to apply in this sense. Of course, many people unfortunately lost their belief in globalization, even before mortgage backed securities unraveled the "garment" of housing.

The housing crisis was an excellent example of such a "forgetting" why local knowledge matters. All those tranches that were created for different clients forgot to embed the most important information of all: local circumstances and conditions of the properties that were being repackaged and resold. One doesn't just set up systems of courthouse records to expedite economic activity one day, and then pretend the next that they are unimportant without negative effects. But that's what people did, and it was not just the courthouses or finance customers who were left out of the knowledge loop. Imagine what it felt like to call the "neighborhood bank" when you needed to sell your house for instance, only to discover that they could not find the records for it! Small wonder that so much trust in overall systems took such a serious hit. Even as people reacted against globalization, many strategies for economic integration at local levels had already disappeared.

 Because previous aspects of local life have changed so much, it has not been easy to envision how coordination between local and global efforts could take place.  As long as product does not involve a meter or communications consumption bundle (results of sub-optimal localized wealth capture), some forms of economic centralization work reasonably well. An example of workable centralization is that of tradable goods networks, in that centralization can optimize overall flows. However, governments falter when they finally take centralization too far, because they still need to rely on the strength of their citizens.  Citizens in turn need effective forms of decentralization in order to maintain their strength, to begin with. When skills are arbitraged to capture wealth in limited settings, efficiency depends on "hollowing out the middle" to maximize gain for the firm or institution. But as the hollowing  out continues (now happening in health care), again citizens are weakened and so governments in turn, as well.

Decentralization is possible wherever each economic actor has full sets of potential actions that can be taken in coordination with  those of other actors. This is also a roundabout way of saying entrepreneurs can make individual decisions with other entrepreneurs which also add up to a cohesive flexible whole, and yet an overall process still occurs which is not coordinated from the outside. However, such spontaneous processes never had a chance to happen in some service industries. Many services that we rely on continue to move away from the individual entrepreneur capacity for organized action. This is what leaves local economies the most vulnerable to the hollowing out processes, leaving overall employment and total economic access diminished in the process. These processes are not irreversible, but they require coordinated efforts to change. While it seems counterintuitive that decentralization actually requires some planning, perhaps that is indeed the case. Common sense tells us that no one can grow up strong if they are not allowed to make their own decisions. Governments now, should they want to be strong again in real terms, will need to trust the decisions of their own citizens, first. Communities can more readily capture the abundant wealth of their citizens. Governments can help network provisions for overall wealth capture in scarce resources. We need to be able to take advantage of the incredible differences between the two.

Thursday, April 25, 2013

Arbitrage and Collective Capacity, Part II

In the first segment, I compared knowledge skill capacity to widely available resources: thus only randomly mined or simply picked up off the ground. Another analogy might be that of trees in a landscape which some arbitrage well, while others think useful primarily as shade. However there's an ironic twist: that's some expensive shade!  People require considerable monetary resources to "grow". One might say, well, the cost of "growing" those individuals simply went back into the economy and provided real wealth in the process. And communities have always invested in their youth over the millennia. There's just one problem this time: lots of individuals don't have optimal means to recoup that investment. They don't have the monetary equivalence to pay back the efforts which went into their own destinies. One has to wonder, does that circumstance affect a nation's overall debt obligations more than other supposed tipping points? A nation's debt may actually be low compared to previous historical standards, for instance, when people nonetheless decide to worry about it. What long term economic circumstances do citizens actually hold, when measurements of national debt take place?

Let's back up briefly, to consider what led to the current state of affairs at local levels: limitations that deal a hammer blow to those seeking economic access now. Adam Smith would scarcely recognize economic activity today in many places, especially in rural areas where "income" tends to be some form of government redistribution and people no longer work for pay (in the U.S.). As previous categories of economic activity migrated to the cities, those in rural areas were often left with little more than formal educational settings as the primary local activity. How could Adam Smith know that divisions of labor, as they became associated with internal business structures which quickly migrated elsewhere, would cease to be a realistic component of local economic activity? To be sure, divisions of labor continued on in cultural and familial expectations, but these were not actually included in measured activity, nor should they have been.

In other words, the very processes which gave people additional freedoms after the Industrial Revolution, tended to ultimately reverse their freedoms, as options for realistic divisions of labor disappeared at local levels. No longer does it make sense to rely on familial wealth structures of the past i.e. before this long chain of events, and yet some scaled back visions of economic life imagine going back to such a reality. Not only is it in the best interests of local communities to find new ways to capture wealth, it also makes sense for individuals with limited opportunities (otherwise) to make that happen, as well.

What might be different from economic and social arrangements in the present? For one thing, some needless complexities could be simplified without significant loss in GDP, because there would be far more connecting points in which economic activity can take place. Let's consider why, in the next segment.

Wednesday, April 24, 2013

Arbitrage and Collective Capacity: Part I

First off, how does one imagine or "plan" their way to better economic realities? Undoubtedly when some hear me express myself in this fashion, it may not be immediately obvious that I am basically a libertarian. Not only that, a libertarian who firmly believes that most convoluted tax strategies simply do not accomplish what they set out, to do. Another aspect of libertarians which may not always make sense to others: they may care about unemployment, too. They just think about unemployment in different ways than others, and until now such dialogue has not really been explored to a great degree. This is why, when even a staunch libertarian like Bryan Caplan (of Econlog) speaks of the burdens of unemployment, that matters to a lot of people including market monetarists such as myself. Bryan's recent posts discussing unemployment, among others including Tyler Cowen, suggest the time is right for better dialogue.

For me, unemployment is part of larger patterns in which economic access has become increasingly limited. A conundrum of our time is that the very part of economic life currently expanding in the developed nations (services) is - inexplicably - the one that's imperiled to some degree. Granted, not all services are the same: in this regard I would exclude retail and foodservices. Finance? Well that's a matter for another day...

Free markets for product configurations in physical commodities and resources - for the most part - develop and slowly adapt over time, so that the arbitrage constructs they rely on might appear to just materialize out of the ether, perhaps. Yet every time new wealth evolves, someone says: hey, what might we do with X that no one is doing now? Sure, such spontaneous moments (or perhaps years of effort) aren't exactly "planned" in a strict sense. And we know arbitrage to be something that moves from a point where it is perceived as less valuable, to a setting in which it becomes perceived as more valuable. Oftentimes that "something" is in considerable abundance before the human mind fashions it into greater meanings...just as skills are now. We have repeated arbitrage processes countless times over, for the products we call "real" wealth.

Why, then, has that process not actually happened for services in general? I know plenty of people may take umbrage with that assertion, but in many ways, services either tend to happen with "leftover" residuals of wealth for lower skill non-repetitive capacities, or else they tend to be "captured" by special interests in higher skill non-repetitive capacities (repetitive skills are increasingly given to technology). Some would say, "We arbitrage for knowledge skills every day! After all just look at the additional wealth which has derived directly from knowledge skills use." Yes, that much is true. However, settings for skills use take place in what could be called random mining settings, that is, basically picking up what is already lying on the ground. The fact that so much lies just under the surface means that no one dare apply the realities of wage flexibility to reflect what isn't actually being utilized. That drastic, deflating notion of ZMP is unfortunately there for a good reason.

The next logical question would be: why can't better arbitration processes just happen naturally? Well...settings matter. Sometimes we hear from inspirational speakers how wealth creation will be organized in new ways in the years ahead, and of course we want to hear more. But too often that's where the conversation stops. In the next segment, let's explore some of the possibilities for potential new organizational capacity: possibilities which we wanted those speakers to talk about in the first place.

Monday, April 22, 2013

Why Do Product Definitions Matter For Expectations?

Rigid product definitions don't just stifle innovation and progress, they also create uncertainty and lowered expectations for a positive future. How, then, to break free of rigidities? Ah, but there is the rub. Sometimes rigidities exist for no better reason than we don't really know how to talk, or think, about them. We become used to seeing the world around us in certain ways, and so it is not immediately obvious why some of those aspects may need to be altered. Consequently, we end up fighting over the broader effects of those settings in which it has become difficult to coordinate economic life. The reason product definition matters is that products are not just something we randomly purchase.  Such definitions interlock with the ways we present environments for buying, selling, and living our lives.

Even though the U.S. was fortunate enough to avoid a depression this time around, the slow recovery indicates that all is certainly not back to normal. The Great Depression took place just long enough ago that some forms of direct comparisons are not easy to come by. While we are learning more about the monetary policies that were debated then, and the potential solutions of nominal targeting that didn't gain adequate consideration, it is not so easy to place ourselves into what was a very different environment for product definition in a larger sense. More importantly, the settings in which people lived their lives changed in dramatic ways, from the beginning of the Great Depression to the time that it was finally in the rear view mirror. While some of those changes occurred because of infrastructure development, others were more spontaneous. However the best part was that entirely new kinds of product were offered to the masses for the first time, which not only gave the consumer greater monetary equivalence (i.e. relevance), but boosted productivity and wealth creation at the same time. There was a wonderful, spatial feel to this product environment that took more than half a century to fully mature.

To be sure, the changing product environments of our present still have a spatial feel, but not in the same sense of physical definition. Instead the spatial explorations of the present tend to happen in more digital forms, and the social element of countless retail stores has not really been replaced by social media.  Many of the furniture items that once filled family rooms everywhere, are no longer even necessary. Yet the old rules and regulations for living spaces remain in place, while many people are already learning how to move through environments in ways quite different from the specific confines of  private dwellings in the 20th century.

Expectations for the future also depend on the decade in which one was born. For instance, the expanding nature of retail was quite evident for anyone born in the fifties such as myself. Many a Baby Boomer let go of retail environments only reluctantly in the first decade of the new century, when it became evident that aspect of life was quickly changing. For those born in the sixties and beyond, they didn't really see the brief flirtation retail had with rural areas, before it moved past small town life into larger, more rewarding settings.

One of the most important aspects of expectations is the way service products are currently presented, in that the wealth they actually hold is not well understood. While this does not present problems for economies in times of rapid growth, production discrepancies become more apparent once growth slows and services of all kinds may be brought into question. The first thing that can be done for such issues is to take a hard look at the physical environments they actually are required to operate in. Once physical environments are created in more sustainable ways , the harder work of preserving important services for the long run can finally be considered. Expectations need not be "it can't be done".

Sunday, April 21, 2013

What's Gold Got To Do With It

For whatever reason I've been fidgety about pushing the publish button for the first time, so I went to Tina Turner for a little inspiration before writing this post. Hmmm...love, gold, what is the difference really?

In both cases, sometimes we think the "affirmation" we need lies outside of ourselves! Yet one of life's primary challenges is finding ways to rely on ourselves as an ultimate anchor. Perhaps some might call it a stretch to think of monetary policy in the same way, but if one really thinks about it, the idea makes perfect sense. Why not think of money printing as the aggregate measure of our total economic activity? Otherwise we can end up with too much or too little money, and too little puts the kibosh on someone's ability to participate. Sure, we're talking about a statistical aggregate in a complex economic environment but still, if money gets shorted someone loses out. Whereas if too much gets printed compared to our actual total activity, inflation results. Just the same, should the measure remain close to our actual income and consumption, what inflation may arise is not substantial. Plus when we're aware what's going on (transparency), we can react when it becomes clear whether someone changes what gets printed, to suit their own ends.

What I'm describing in simple language is also referred to as nominal targeting, or NGDP level targeting. The economists who brought this neglected idea back into public dialogue are known as market monetarists, and while I am but an enthusiastic scholar of the discipline, count myself among the growing numbers of this group just the same. Among my sidebar links, the reader will also find blogs by those who explain and discuss the concept with more specific terminology. I especially liked the title of a post by David Glasner at Uneasy Money this week, "The Golden Constant My Eye".

But back in the world of the present, we are still trying to rely on the mechanism of interest rate targeting which no longer works as well as it once did. Nonetheless this monetary policy tool is not easy to let go of, in part because it allows central bankers to maintain the illusion that economic power resides not in our own abilities, but in the institutions around us. Consequently, our lives have become more and more dependent upon loans for our most important activities. While people can be forgiven for thinking it's the banks that really count in economic terms, that still makes it mighty difficult to rely on oneself as an anchor of anything.

In other words, whatever "real" wealth is, supposedly it remains separate from our own abilities and aspirations. Are we expected to believe our economic value isn't "activated" without the blessing of a gold standard, or something approximate? To be sure, there are plenty of unanswered questions about the economic value of our time in the present, which need to be specifically addressed and dealt with at length. Even so, the aggregate measure of our economic time hours will always be the most reliable indicator we have, in that no other form of wealth is utilized with the same consistency.

Update: Right out the gate I've already committed the "random act of naming" offense. For anyone who loves naming things it's a hard habit to break, and as a result I might have to refer to some labels as "pardon my jargon"! Consequently, some post labels may eventually have a page tab of descriptions. However, "income/consumption" standard was the first thing which came to mind as opposed to the gold standard tag I didn't want to use. Perhaps it is appropriate to keep those words together for any number or reasons. For instance, we want to measure economic value in terms of hours, but now some college programs are decoupling degree programs from the credit hour. At the very least, that indicates how investment time tends to be "all over the map" compared to actual knowledge and skills use time, with others.