It's time for me to begin addressing the fiscal versus monetary debate by the terms of which recent suggestions have been put forth, on the part of Market Monetarists and others who believe in the capacity of aggregate demand both as a stabilizing mechanism and a means for growth. While I responded to Cardiff Garcia's recent post along these lines here, my initial response was primarily in terms of backing nominal targeting as the best framework for moving forward, and so I was greatly encouraged to see that Steve Randy Waldman (Interfluidity) also endorses NGDP as a medium term solution. However, his recent post was especially in response to the suggestions which David Beckworth made for helicopter drops in this recent post.
Suffice to say there is a world of material in these links which is but a fraction of the ongoing discussion, in which it appears some progress could eventually be in the offing (also check the links at the bottom of Waldman's post). So, this post is also a beginning point of sorts, in which I will make some preliminary arguments for - rather than helicopter drops - direct skills arbitrage as coordinated, measured and validated at local levels for ultimate inclusion in open market operations, when in fact a community has diversified to a point in which it becomes confident enough to once again include immigrants and individuals from outside their own area for further growth. For those who are new readers to this blog, I have a recent post which is a really good starting point for this line of thought. In that post, I argue why it is desirable to coordinate knowledge and skill arbitrage time sets from the same vantage point, in incremental terms. What I want to further explain here is how that could line up incentives for better economic linkages, then I want to return to some of the arguments in the first paragraph.
What would make infinity sets for arbitraged skills use incline positive? When a community allows every member to participate in skills arbitrage and educational aspiration to their fullest capacity, aggregate economic growth remains positive so long as population rates also do, even if through good deflation. However, there needs to be coordinated aspects of the resources necessary to apply to skills and knowledge use, in order for further monetary gain to be possible for individuals who take special effort to make that happen. (Open market operations for skills would only reimburse one unit per one hour of time, and our time is very limited). For example, there is considerable wealth in the infinite variety of product associated with healthcare, which can be tapped into by every member of a community who desires to invest in this particular associated infrastructure.
Any community that coordinates healthcare through its own educational and organizational capacity has tremendous gain as well by the ability of every citizen to not only invest in needed local equipment and resources, but also the capacity to invent the equipment a community needs. While our present institutions have rules that circumvent the majority of innovative processes from those outside the established framework, the fact that this is community coordinated (i.e. outside institutional frameworks, plus all economic activity under one unbrella) sidesteps the thousand and one actions that prevent both economic access and innovation in this regard.
Let's consider an additional gain on the part of community: with today's institutional separations, a community pays through taxation for l2 years of schooling for all youth, by lifetime taxes on housing, in the U.S. However, the community does not necessarily benefit from all that expense, in that the student often needs to leave to find a place where they can ply this (first) set of skills. If that were not enough, the community still starts over again in what they need to reimburse for healthcare expenses. In this sense, it's as though they get no return on the education tax base. By local coordination of education and knowledge/skills use potential, some of those double costs can be avoided. Not to mention, the time spent in school does not represent the same gamble for the individual, in that there are communities ready for their skills when institutions may have no room, for those skills. But the biggest benefit by far is that for the community, which by tapping into individual skill sets, brings about a far more positive and effective form of local wealth capture, than the self limiting interpretations of construction interests. By tapping directly into needed skills, a community's tax base also changes in dramatic ways.
Before this post gets too long I need to go back to some of the conversations which prompted it in the first place. Particularly my title, in which I posit direct skills arbitrage as a natural growth momentum, which - in a long term or aggregate sense - would certainly limit the possibility of a return to the zero bound through the application of near total economic access to both production and consumption activity, on the part of populations. Even though Scott Sumner proposed a negative 2% IOR as momentum to counter any (potential) return to zero bound, he nonetheless believes that a constant NGDP level would make such a measure unnecessary. However, I remain concerned that present day limitations of knowledge use in our institutions still work to the detriment of productivity factors standing in the way of equilibrium. What's more, limitations on knowledge use continue to cause problems in transmissions between skill sets and assets in general.
Waldman also links to Matt Bruening, who has a good article regarding cash benefit programs (which David Beckworth noted as amenable to helicopter drops). Bruening makes the point that government allows the recipient to decide how to spend the money, and notes that administration costs are minimal, citing the Social Security administration which "only spent 0.8% of its total expenditures on administering the program in 2012". If only all cash benefit programs could be so effective in that regard! While my counter (below) is only anecdotal, it nonetheless influenced my reaction to said administrative costs.
Over a period of time I was included in a household which received benefits from the SNAP program (formerly food stamps). Perhaps because the program was overwhelmed, there were numerous months in which the food benefit was only $10 per month. However, here's what the local office had to do to provide that $10 or whatever small difference thereof: collect copies of billing to chart monthly invoices for charges often in the thousands of dollars, for ongoing medical and related expenses. That meant providing dozens of copies to their office each month, some of which would invariably get delayed by the institutions providing them, i.e. coming in after the needed due date. In other words, all that effort on everyone's part for $10 per month in food assistance was definitely worth no one's time!
Program efficiencies depend on a large extent whether social frictions exists as to the program's existence, and clearly there has been resistance to food assistance in the U.S. for quite a while. I would certainly be concerned about resistance to permanent forms of helicopter money. And, as Waldman adds in Note 1 of his post: "However, permanent heli drops that are broadly distributed but accumulate to a narrow class might lead to expanding inequality, financial instability, and social mayhem." Think about that for a minute. What are the most difficult "wish I hadn't done that" programs to rid ourselves of, once they are actually enacted? The ones that benefit a narrow class! Something as seemingly innocuous as SNAP by which one readily buys from a wide marketplace, also means there must not be enough special interests standing at the ready to protect the SNAP program.
Ultimately, we need to overcome inefficiencies in the system by negotiating for services production and consumption in ways that can be measured and validated both locally and nationally. Local economies can address problems in a nation's transmission mechanism by capturing skills wealth locally, and thus tapping into the greater efficiencies of global goods by making knowledge/skills use a more central point of wealth transmission. Such a method is certainly more sustainable than the unbearable treadmill of inefficient construction for services funding, which continues to limit skills use and employment in the present.
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