Sunday, September 29, 2013

How We Coordinate Depends on What We Want To Accomplish

This post covers some "nuts and bolts" of potential social coordination, for service activities at basic levels of community. In normal circumstances of everyday life, the further up the income ladder an individual goes, the more coordinated services one tends to either buy or expect - whether in one's own environment or in other forms of high density group focused activities. Lower income individuals tends to compensate with educational materials for consumption, by utilizing broadcast (one to the many) knowledge sets to use on DIY terms. How could more coordination happen for lower income and those presently unemployed?

Here, the primary problem for lower income is that credentialing prevents further economic activity (services production) of such gained knowledge in many cases for anyone but oneself. Presently, not only does that slow both knowledge use and aggregate wealth potential, but it calls into question the value of further capacity for educational media outside the bounds of formal education. Allowing coordination of knowledge with informal methods would make the spread of  knowledge product (separate from time use) a more valuable option for both providers and consumers.

Implicit in this post example is the option of eventual monetary compensation, for focused and directed economic activities that are "unseen" in present market based terms.  Local coordination for services product could provide a more beneficial  alternative to guaranteed income plans, which would simply reimburse long term unemployed for survival needs with nothing expected from them. Another similar option in guaranteed income terms is the creation of auction settings for lower end economic activities i.e. on present day "odd job work for others" terms. That is, the primary coordination involved in the latter setting, would be the normal circumstance of boss and employee.

Whereas the system suggested here involves multiple coordination and time arbitration sets in groups of entrepreneurs (free markets in skills use), and it also utilizes a base monetary income. Another important difference is that base income would be targeted to localized services to production choices on the part of the population, reflected in regulatory options. Those choice sets would depend in large part on the degree to which communities opt for innovative habitat technology. By bringing down the costs and burdens of housing, a base income for services coordination would go much further than if housing was defined in high maintenance and heavy resource use terms. By bringing services time use into accordance with (global) tradable production norms, it would be possible to measure individual income to consumption standards that local economies would elect to use - standards that would also define base income.

Why would "outsiders" elect to be a part of skills based communities such as this? Pre existing sets of credentials would not be necessary. However, those who desire to participate would need to take the time to understand of how the local economic system actually works, in order to take part in its benefits and expectations. The primary element for local participants is that of being entrepreneur of one's skills sets. As an adult, committing to some combination of the more basic skills sets (a certain weekly amount dependent on ability and community need) would qualify individuals for local property permits (holdings).  From there, one could also participate in the local 3D technology in some capacity. One element here might be recyclable "jigsaw puzzle" building components with plastics, for instance. While recyclables could provide a local option for direct skills match potential (less money needed), other building material components (local resources or otherwise) could also come into play for business ventures in tradable product beyond one's actual community.

What are we coordinating for? Real growth in services product...yes - but in social terms which relate to more than just pragmatic aspirations. It helps to stress this because as people continue to plan for the  privatization of services, the same restraints remain which have been an issue in public formations. Presently, people would not be able to pay for more services in the aggregate than they have been able to provide from a tax base. What's more, service product in many instances is so unlike the product which is separate from our time, that it is hard to compare the two in traditional economic terms. However, our time limitations are not unlike a strict gold standard in terms of availability. What provides true choice is our ability to overcome those limits, by making time the constant across the entire services spectrum.

Otherwise there would be no way to optimize knowledge use as applied to populations in any aggregate sense. For instance, when health services participation is allowed to overcome other service needs in terms of valuation, the effect is the same as a diminished quantity of "time gold" at a society's disposal. One reason this perspective is important: as Ezra Klein points out, 5 percent of people presently account for about 50 percent of the health system's spending. And healthcare spending is presently about 1/5 of actual GDP in the U.S.

When we consider possibilities for community coordination, what is the product we wish to arrive at? Social product exists in many forms, and it helps to consider the kinds of resource based dimensions which services actually exist within. That makes it far easier to coordinate what actually needs to be accomplished, and also to recognize that such product - while existing within measured time, is nonetheless capable of being layered into a number of capacities at once. In the past, groups engaged in multiple responsibilities carried out as simultaneous activities. Before most of those activities were labeled as economic, they became separated from one another. What was separated and why? Which separations are actually beneficial and completely necessary?

Some of the activities we elect to take on affects the degree to which corresponding sets of activities even take place. For instance, if most of society was economically engaged, how much of a system would we actually need to address criminal activity? Right now there's simply no way to know. Plus, some of the most basic coordination challenges include supplementing and replacing those which public funding no longer covers. How do we accomplish this in terms that are non-hierarchical, decentralized and open? Multiple use environments with movable infrastructure allow us to move around the mental and physical components to see what actually works. How much of a flexible legal system would actually be needed in such circumstance?

Each community would create different settings for knowledge use that come to resemble snowflake patterns, all of which start from a common base of recognized need. First, decisions regarding infrastructure have to be made, and from here, outlines for educational possibilities and beginnings for healthcare options. Other coordination sets would involve combinations of travel settings for both locals to other places, and visiting knowledge use providers from other areas. Markets in services would become the domain not just of a handful of universities and high profile businesses, but every community which aspires to distinguish itself in some capacity.

Saturday, September 28, 2013

Preserve Democracy - Make Knowledge Use Primary

There is no shortage of articles which tell of representative democracy being called into question, as nations find - sometimes unexpectedly - they will not be able to accommodate the demands of their all too recent middle classes. Two recent articles from Project Syndicate focus on this, and also here. Closer to home, (here in the U.S.) some of that same sentiment can be found, and the direction this is all headed...mmm, not encouraging. While there are ways to overcome the quagmire of impossible budgets and expectations, what to do in the meantime? Therein lies the problem. While reactions to political mismanagement continue to grow, political results become more about emotion - even punishment - than about focus or determination to overcome the problems of the present.

Representative democracy could in fact still work, especially in terms of the scarce resources and product which are separate from the use of our own time (services as time use skills need direct democracy). But increasingly, policymakers and the voting public try to use representative democracy for the wrong purposes, which only creates further gridlock and makes all governments increasingly  unpopular. What's more, many of the ways government integrated economic activities with their citizenry in the 20th century, are no longer workable for the needs of the 21st.

Lost amongst ongoing efforts to scale back services is the fact that changes in government function need more input from the populace, not less. How might this possibly be achieved, outside the limited purpose of voting for individual representatives? In order to be effective, voting needs to become a mechanism that signals ongoing possibilities for direct production and creation of knowledge product. Instead, voting has become a constant scramble to make certain every one gets their share of government mandated knowledge product. Special interests and policymakers have turned that product into something which no longer aligns with individual participation in economic life. Even as some speak of a future where less people are needed in the workplace, there is no escaping the fact that such a future is not realistic at all.

Governments - in their present form - came of age in times incredibly different from the present. When product was mostly something primarily associated with commodities shipped from elsewhere, government functions worked reasonably well. After all, governments were able to assist with transportation and related infrastructure needs for movable product - and if necessary, armies to protect what was transported. But today, not only has the definition of product shifted from these basic economic functions, the places such commodities come from only represent a fraction of the kinds of economic activities local economies actually need to take part in in production based terms.

Today, local economies need to be able to manage their own services for all of their citizens, instead of relying on state or national governments to help with such services for only a (fortunate) portion of local citizens. In other words, governments and local economies need to allow all of their citizens to use knowledge to help one another. This becomes all the more important, when local economies have only a limited quantity of other product separate from knowledge which they can rely upon for sustainability. When services are not generated internally in terms of both production and consumption, local economies over time also become threatened by the budget issues of larger governments. By making knowledge use primary instead of dependent on funding from governments or other forms of production, local economies can have a much greater chance at economic stability.

Even though education became a much greater part of life in the 20th century, the means for including proactive elements of education in our daily lives has yet to evolve. In fact, by turning education into a consumption good which in many cases was never intended for individual production capacity, the aggregate role of knowledge use in the citizenry which had initially seemed so promising, was slowly undermined. The education process was akin to teaching a farmer how to farm, all the while knowing he would not have his own acreage (ownership of knowledge time use hours) which was his to personally manage.

Over time, the lack of a self credentialing (entrepreneurial) capacity also created a loss of understanding how one might be able to coordinate time use with others in terms of natural limitations and scarcity. What's more, this loss was exacerbated by the growing role of finance. For those fortunate enough to gain a career (credentialed from without) the loss of time management potential was not quite so critical in that they could still pay for the time of others. But many of the "hired hands" of knowledge and skills use would never really be able to make up the difference. When they could not pay others for the jobs they didn't have time to do, often the outside jobs they needed for their personal circumstance just didn't happen.

The estates of the fortunate few (highly valued knowledge use time) literally ate the less valued time plots of the others so that they were left with one acre knowledge use plots for sustenance. As economic activities shifted from the self sufficiency of farms to the "hired hands" of the workplace, people slowly lost their means of interacting with one another in a managerial capacity for their own skills sets. As a result, knowledge use reimbursement came to resemble a limited number of large estates existing amongst mostly single acre plots.

Like the entrepreneur, the actual farmer had been responsible for maintaining resource sets so as to gain residual choices (profit) afterward. But one acre plots didn't leave much room for residuals or further choice sets. The move to defined compensation (salary or hourly by much of the populace) not only diminished individual ability to understand the power of the residual choice for further economic action, it also upset time use recognition as vital to monetary processes.

It's not about taking government functions away, as many policymakers are actively trying to do in the present. It's about transforming government functions so as to make real coordination once again the role of the citizen, who needs to be an integral part of the process of knowledge product. The hours we actually have are sacred, for they are the allotments of land we try to produce from, to gain residual choice or profit in our lives. When we tolerate tremendous holdings in knowledge estates, over time they reduce all other knowledge land holdings so that less highly valued components are relegated to the dustbins of history.

Those who would destroy government do not seek to safeguard our knowledge, they seek a world in which much of government and knowledge is deemed unnecessary: a world in which the most "valuable" knowledge can be used "efficiently" on behalf of the few. As long as we tolerate heavy credentialing (knowledge estates) the rest of us will try to scrape out a living on our single acre and hope that the powers that be will once again take full advantage of our skills expertise. But over time they will simply have less reason to do so, and we continue to lose our means to help one another when they don't.

Once there was a time it did not bother me so much that leaders of nations increasingly seemed to be stumbling around in the dark. But now it does, and world events are rapidly unfolding in circumstance where present day institutional formations simply are not equipped to cope. Leaders of nations do not even really understand yet that they need help from their own citizens, just to find a better way forward. In future posts, I will explore some of the ways knowledge use could be made primary in both a social and monetary sense.  Coordination could evolve into a variety of forms, depending on the kinds of product people actually seek to bring about.

Wednesday, September 25, 2013

Midweek Market Monetarist Links and Summaries - 9/25/13

Earlier in the week, Nick Rowe provided this well thought out (and lengthy) post:
Teaching Notes on Banks and Money
Also, what happened in 2008? Why didn't the cut in interest rates prevent aggregate demand from falling?
A lesson on comparative advantage:

Two market monetarists finally get to meet each other - Scott Sumner and Lars Christensen. Of course Lars can really make a person smile by being his hyper enthusiastic self:
And they "agree to disagree" about the taper:
As for central bankers who think they can "beat the market":

Speaking of taper, that's the question Scott Sumner asked in his first article for The Week. Why do it?
Scott explores some confusions in the relationship between interest rates and money, in this post: Interest rates and the face/vase problem
Some explanation regarding John Cochrane and liquidity traps:
The Fed non-taper turned out to be a pretty big deal. And when Tyler Cowen questioned why emerging markets would react so, Scott reminds him that Monetary policy is a really big deal.

Bill Woolsey also notes the continuance in QE:
He highlights a post by Ryan Avent, "Missing the forest for the QEs":
and also adds clarification for Nick Rowe's discussion regarding interest rates, linked above.

Marcus Nunes shows - in graphs - the factors that the Fed chose to overlook in a fateful meeting, five years ago:
The Fed keeps pulling new tricks out of its hat as growth slows...
Aaand, what we have here is a failure to communicate:

Justin Irving runs simulations for NGDPLT with measurement error, and in the process, notes that the simulations suggest price level targeting would be a poor substitute:

David Beckworth provides evidence that monetary policy can still be quite effective at the zero bound:
David also shares an exchange he had with Miles Kimball re the Fed's new fixed rate:

James Pethokoukis of AEI has a 5 questions for five days series this week, regarding market monetarism and quantitative easing. Here is the first post (September 23rd):
Also, in his article for The National Review, Pethokoukis stresses that QE is working:

George Selgin gave a talk on Free Banking recently, in which he asked: what is the counterfactual for central banks?

David Glasner provides the second installment on Hawtrey's Good and Bad Trade:

Britmouse reminds us that government attempts to control prices are not the way to a better marketplace:

The Browser picked up this story about Janet Yellen recently:

And just for fun, I thought some of my readers might enjoy an illustrated brief history of U.S. government misadventures with tax dollars, from Business Pundit:

Monday, September 23, 2013

Mad At The Fed? It Still Takes Two To Tango

..Or, "mad" at government, for that matter! Given the fact that nominal level targeting is not yet in place, economics news of the day still carries stories full of complaints about QE which "should" be stopped - as in yesterday perhaps. Oh yeah? Mmmm I feel somewhat combative today so beware - could take a swing at anybody! At the very least this blog post would make me unwelcome in certain company...

Michael Schuman (Time) tells how the global economy has become addicted to Fed money, and explains how sooner or later every smoker is going to have to quit. If only the "taper already" problem were as simple as a smoking addiction. Unfortunately, we are not just talking about random and controllable addictions here, but the ways in which people are expected to live and carry out their lives through monetary activity in general. That's where the real problem lies.

While the punchbowl is still on the table, it would be one thing if everyone just enjoyed it while it was there. But afterwards, all those tables and chairs tend to remain set up (new regulations and further restrictions of economic access as gifts to special interests) as though the punch would never be taken away. Then, no one is willing to remove any of the extra tables or chairs afterward.

By no means can anyone expect to get back to sane and frugal living after QE tapers, under those still existing conditions. Consumers are generally treated as though they were the only ones who were profligate in the good times as a matter of course. Plus, sticky wages alone are hardly responsible for numerous costs which remain obstinate, no matter the resultant austerity and lost jobs. Even now it remains too easy for some to blame the Fed, government, the one percent, whatever - than to look at the areas in our lives where hidden costs continue to accumulate - as services, productivity and jobs continue to be sacrificed.

To be sure, the Fed was too accommodative in the past. But that was decades earlier, and today's accommodations are simply attempts to continue following the economic "marching orders" of  life as defined by governments large and small, along with their favored business constituents. In a recent lecture, George Selgin pointed out the fact that every financial crisis becomes an excuse for governments to take a larger role in the economy, from which there is no return.

But the fact that we still end up with too big to fail banks and unreasonable expectations for small incomes often comes down to a failure of imagination. It would be one thing if larger governments actually made a substantial difference in people's lives. Governments grow because it is far too easy for them to foster the illusion that they solve the problems of their constituents. Instead, they make existing problems worse by magnifying the effects of needless complexities by special interests. In other words, we are often too ready to blame government for something that populations are already - unwittingly - doing to themselves.

There has been too little incentive on anyone's part to coordinate economic activity in more amenable, simple and affordable terms. Not only are our governments ready to oblige whenever we have trouble working things out between ourselves, but they benefit from our own crisis of imagination. The reason it takes so much money just to get anything done is that too many people want it that way, and so the Fed goes along with the program.  Yes, nations do have reason to be concerned about the coming taper. Because, even though central banks are obligated to take their foot away from the accelerator, no one else feels obligated to in the areas that really matter, and nothing about daily life has adjusted to account for the necessary shift.

Even to talk about a return to normalcy is misleading, for there are few structural shifts in the economy to acknowledge a return to normal output. The fact that some banks are still considered too big to fail and that the major drivers of economic activity have not structurally changed at all, simply means that cutting back on money printing means austerity conditions and a gradual reduction in services over time.

Perhaps the recent efforts on the part of the Fed to communicate better have backfired somewhat, because if there was hope that the marketplace would react with structural adjustments to match the reality of scaling back, it just hasn't happened. Indeed, while monetary printing remains substantial, too many on Main Street feel that more money printing is just unwarranted. However, Main Street is also unaware of its own part in the role of Fed uncertainties or the fact that much excess begins at their doorstep. It's time for everyone to acknowledge their own role in the coming taper, difficult though the task may be.

Saturday, September 21, 2013

Market Monetarism Matters

Every now and then it helps to step back and paint in broad strokes, and this post is just to highlight some of the reasons why I'm so partial to market monetarism. Over time, different aspects of MM have become more apparent to me - but I've still got much to learn about macroeconomics even as I try to make better sense of my own thought processes through writing.

One thing that is so encouraging in times which still feel recessionary: people who think in market monetarist terms refuse to be bound by the seeming economic limitations of the past. The MM discipline is forward looking in terms of market expectations, even as it would draw upon recent monetary activity to maintain stability. Through level targeting, this potential measuring rule would continue to reflect ongoing circumstance as closely as possible, in terms of actual spending capacity. What's more, all of this is possible to achieve without the grandstanding and drama which continue to accompany monetary activity now.

Instead of being bound by bank lending capacity, nominal targeting responds to spending capacity on the part of all economic actors, through incremental means. Many who grew up in times when people frequently went into business or bought properties with cash instead of bank loans, can appreciate the not so subtle difference in focus. What's more nominal targeting provides an apt starting point, for a citizen's dialogue to redefine the purpose of wealth in the 21st century. Even though policy makers in Washington still seek ways to make homeowners of us all, MM helps to shift the discussion away from passive wealth holdings towards more active forms of wealth.

It is especially freeing to be able to step away from the idea of bank loans as primary for economic activity. At best, loans are a complement to ongoing activities and at worst, a detractor from human potential. Just the same, making a clean break with finance is no easy task, for it remains integrated in the same sets of circumstance which caused so much grief for governments in the first place. Adopting a nominal targeting rule is an important first step to find a way out of the present day finance quagmire.

Market monetarism is in some ways a plea for governments to stop the cycles of overreaction to market conditions and the destabilization which follows. To a degree, governments and their citizens created a protracted business cycle with housing, because of a lack of consensus as to what future wealth creation might actually consist of. While such dialogue may have been a matter for government responsibility in the 20th century, it is a responsibility for everyone in the 21st. Today, the future can be shaped by knowledge and skill, much as it was once shaped by fossil fuels and the automobile.

Market monetarists are nothing if not optimistic. And, it is good to know that the most important components of GDP measure and nominal targeting are just as applicable for dynamic wealth formation in the 21st century, as they were for the 20th - if not more so. To be sure there is still a lot of confusion how to move forward in the present, but this is something that no follower of MM is going to shy away from, and there are plenty of perspectives to be had all around.

In spite of all this, the biggest argument for nominal targeting is somewhat hidden in the background, which is why some may not readily recognize it. When spending capacity is accurately portrayed, it makes other economic elements a lot easier to tend to, than they would be otherwise. That's no small matter, at all.

Thursday, September 19, 2013

Lateral Time Use and the Knowledge Prior

How do we think about the differences between what we call work, what we actually consider work, and the work which many often go out of their way to avoid? To a degree that may seem apparent, but average retirement age structures from the last century make true differentials far less obvious, for instance. It matters not whether our jobs are really tedious, difficult or a fortunate blessing in disguise, for the retirement age speaks of a sameness in health approximations over time which nonetheless varies wildly, according to the work we actually do.

In other words, the work we actually want, we don't really consider work at all. Not only does it tend to keep us healthy much longer, the pay is mostly a bonus. What's more, the work people most enjoy is sometimes reminiscent of the play which inadvertently disappears from the schedules of too many children of the present. Increasingly, even the knowledge environments of adults don't always allow the spontaneity that was once possible. What if the process were inverted and work could recapture knowledge as prior instead of subordinate - to monetary rules which sometimes circumvent freer aspects of knowledge?

This post is not exactly linear thinking in term of work or pay structure approximations, so I'll try my best to explain. What's more this is not "change the world" stuff - it's just a mind stretch to see how people might actually include in their lives, the knowledge which became so important in the 20th century - knowledge which our institutions increasingly don't have room to use on an ongoing basis. While this line of thought underlies many of my suggestions, the idea of communities making knowledge wealth a first priority can feel a bit counterintuitive at first.

There are ways to recognize the knowledge prior in action when one sees it. In most any time frame, this is the work which people (with some mechanism of support) take on, even though it doesn't "pay" to do so. Much innovation and research stemmed from the knowledge prior before institutions took a goodly portion of this work behind their walls in the 20th century. For the sake of contrast, there are some simple ways to think about the knowledge prior.

Earlier societies utilized the knowledge prior mostly as an unpaid element alongside other activities, (especially whenever fortuitous circumstance freed up time) and it slowly contributed to the kinds of advances which made the Industrial Revolution possible. More recent adaptations of the knowledge prior were made possible, when wealth holdings once again made it possible to free up time for the greater challenges of the mind. In any circumstance, particularly valuable knowledge spreads because of its lateral use - i.e. when it is not strictly contained within institutional settings but works alongside them.

It often becomes difficult for knowledge to continue its spread in lateral terms, at historical junctures when people are paid for what they know instead of other vital components of economic activity. Sometimes education backfires for instance, because it may not view knowledge as usable or relevant outside of institutional walls. In such settings, the free use of knowledge may become questioned in other capacities. What's more, it becomes difficult for communities to harness skills wealth in terms that benefit entire groups. How then might communities make each member a miniature wealth holder to a degree that all might support one another in the free use of knowledge, so that production is not forced to create limited settings for its continued use? Part of the process depends on how supply side factors are considered as a whole.

So when I speak of lateral time use, this applies to the time we set aside in our lives for knowledge based work and decisions which are most important to us. Granted, how each individual views such time valuations is different for many reasons. What's more, the fact that we have the chance to tend to internal valuations ourselves, means we are less likely to burn out on knowledge challenges in the sense that monetary priors say it is "necessary" to do so.

Lateral time is equal time in the sense that it is our participation point of economic entry and access. Rather than an arbitrary designation of "low income" individual match with, say, low skill healthcare provider, a community has a chance to see how many want to participate over a lifetime in the actual experience of healthcare matching provisions. That's a better option than having such an important facet of life left up to chance in artificial designations of choice, through both limited provisions and societally "justified" coverage. Where a range of choice exists, most individuals would not see their options through the same lens as income level potentialities for services offerings.

People can have the option to use knowledge priors to create a greater degree of knowledge wealth, based simply on the agreement to support one another in the endeavor to make it possible. By continuing to associate resource use and (separate) product with the random scarcities they represent, skills use in time sequence can be seen as a constant in relation to other more random resource factors. Lateral time participation becomes an anchor both in a monetary and an internal time based sense as well. Even as the agreement (to use time as an equal point of entry) allows a form of internal Say's Law at local levels, the social arrangement continues to have a direct link to the external (non Say's Law) and random arrangement of scarce resources which work in normal monetary terms.

There is an instinctive aspect to matched knowledge use, in terms of what people might elect to use and benefit from. Because time is such a scarce commodity, people often choose time with others which has focused activity. Even children's play of the fifties and sixties (above link) had focus - albeit a more random sort. As a child of the fifties, the times I remember most about those years (when one could just knock on doors to ask neighbors to "come out and play") were the adult versions of life that we reenacted as children. Any present day skills sets calendars (education and work) would allow communities to put together such forms of focused "play", whether in the form of important research or community games.

One of the challenges of spontaneous work/education/play is knowing the difference between what people consider challenges or simply life responsibilities, onerous though some aspects of the work may feel at times. In terms of healthcare in particular, these elements frequently overlap, and any community would have to tease out the differences to understand the work challenges they desire and the work that is simply ongoing and necessary. The reason this is important is the fact that many low skill aspects of healthcare do not belong in a lateral time use setting, but absolutely require normal monetary reimbursement (non lateral terms) in order to take place through normal incentives.

Or, at the very least, some ongoing responsibilities could become part of a local "taxation" system - i.e. skills taxes which would also ensure a much needed skills base for participating citizens to rely upon. Also, and this is important: work which we enjoy for a period of time can quickly become onerous when we have to push beyond a set threshold for that work - a threshold that only our own physical and mental capacity can truly address. Everything about personal choice changes after certain thresholds are repeatedly crossed.

Local economies have incentive to create a supportive base for encouraging challenging work, for only a fraction of this work is actually generated today in any broad sense - whilst maintenance and tedious work is supported by absolute necessity. Fortunately, work which so often engages the knowledge prior runs the gamut to all aspects of life, and often there are opportunities to match such interests with the time of others. For local economies this can also translate into spontaneous forms of work and educational opportunity.

How do we know this is needed in the present? Many institutions - especially at local levels, are only able to offer increasingly truncated versions of the knowledge that was once available in actual product form to the public. While the internet has certainly made a difference in this regard, one problem now lies in the fact that society has yet to utilize this tool for full local knowledge integration. What that means is that local knowledge tends to be like a tree with too few branches and leaves, in that its energy is caught up in its primary trunks. By encouraging and fully developing lateral time use for knowledge, numerous local economies have the capacity to develop knowledge use in much the same manner as any desirable city location.

One important aspect of this potential is that the use of the knowledge prior allows a merge of what has been perceived as separate economies. Consider some recent arguments (per link) that broad innovation carries "too much risk" now for private industry! My readers know that I believe this to be a task for domestic summits, not for the scattered energies of mercantilism necessary. Going forward, it may be the case that developed and developing nations adopt an approach which combines innovative and maintenance elements (earlier aspects of innovation that still apply) to greater effect, and lateral time use with the knowledge prior makes that possible.

Knowledge is like a wildflower. When anyone "pulls it up out of the ground" just to transplant it elsewhere, a couple of things can happen. Some knowledge flowers will do just fine - in hothouses, greenhouses (static or permanent team settings), special landscaped settings (institutions). In fact, some of those flowers will happily bloom and rapidly spread. But other flowers don't do so well. In fact, they may even die out if they are expected to live on a property where they are just not compatible with the soil or perhaps the lay of the land, and so need to be able to grow where seeds would carry them on the wind.  When we honor the place that is the time of the individual as true private property, the knowledge wildflowers of the world can once again bloom.

Wednesday, September 18, 2013

Unemployment: What About the Present Day 80%?

Recently in comments at The Money Illusion, Scott Sumner estimated that tight money (insufficient NGDP) could have been responsible for at least 40% of unemployment in October of 2009. While he acknowledges that nominal targeting can't account for such a significant amount in the present, he estimates that it could still remedy about 20% of present unemployment - if in fact level nominal targeting were the monetary rule for the Fed. Of course, there are other unknowns as to whether expectations for level targeting would close the gap further, but much also depends on supply side efforts. However, Scott's remarks indicate that even with continued efforts to make NGDP the monetary policy rule for the Fed, all of us need to be thinking about that other 80 percent.

What really concerns this blogger is the fact that supply side efforts have practically no coordinated response amongst different regions which share similar problems in structural issues. There is so much which could be done that would benefit both free markets and the problems of unemployment. It is hard to see how expectations can be improved for future growth and managed demand on the part of the Fed, as long as some on the supply side find it too convenient to use the Fed as a whipping post for past irrational exuberance. A managed and coordinated supply side response for further wealth creation and economic inclusion, would stop some of the nonsense in that regard.

Government solutions for unemployment have always been a bit ad hoc, but in a sense that's not quite the fault of this institution. Unemployment is not an easy issue to respond to, because it involves many facets of our economic lives and lifestyles. Governments would likely coordinate wealth creation strategies with their citizens if in fact people knew what they wanted to accomplish and were willing to work on it together. At the larger level, unemployment depends on not just supply and demand side factors but also the ways in which property usage gets configured and acted upon in the marketplace. While economists understandably look to government for potential supply side efforts (taxation, etc.) as a former business person I tend to look towards Main Street for solutions, if only because of the extensive degree that economic breakdown is observable here.

There are numerous possibilities for coordination strategies which cut across broad swathes of interests. Possibly the best strategy of all to address unemployment is that of making livability easier in general for all members of society, many of whom would respond by creating new businesses and hiring again. While it is second nature for systems to turn to greater complexity over time, sometimes complexity takes the wrong forms and unravels the primary advantages of the systems themselves. A lack of small business formation was just one of the problems of unnecessary complexity.

The primary reason coordinated efforts are needed is the fact that numerous first mover problems exist across the board. Those first mover problems only thwart individual efforts to gain greater simplicity and access. Main Street needs to reinvent the ways it thinks about both wealth and knowledge use, especially for the benefit of younger generations. While the thought of doing so remains daunting, many local economies realistically have little choice, as a prevalence of lower income occupations in the future means that both infrastructure and services provision need to be planned and acted upon in new ways. Once coordinated systems are in place for greater economic access, not only will expectations for growth resume but broad employment levels can also return.

Yes...but what about those problematic lower income levels? For one thing, the present stagnation remains somewhat misleading, in that it represents static formations of wealth definition. In linear terms for instance, one thinks of job share as a way to better inclusion. However, a better way to think about economic inclusion is to tap hidden supply and demand in more extensive terms. Once this happens, and true innovation in building environments is also allowed to take place, income potentialities can be reassessed. In non linear terms, there is a good chance that what appears as low income presently does not have to be so, at all.

Midweek Market Monetarist Links and Summaries - 9/18/13

It's good to finally be online again, after days of technical difficulties with my computer which I was unable to satisfactorily resolve. Yesterday I brought home a small Lenovo laptop and am quite happy with it - so far! Perhaps the real quest for me is just to get better about taking such interruptions in stride. At any rate, my forays online recently have been quite limited, but hopefully enough to at least provide some helpful links today:

Yichuan Wang says that - like engineering - economics is a broad discipline that covers many fields. This good defense of economics was also noted by The Browser - I believe the second time they've picked up on Yichuan's posts this year.

Britmouse provides UK examples as to why real wages are not real incomes:
aaand, why a creditism scheme wasn't such a good idea:

Ashok Rao made an argument which really needed to be made, and one that also weighed on my mind - why bother with negative interest rates when you can have NGDPLT?

Josh Hendrickson (The Everyday Economist) explains that it's not enough to rely on inductive reasoning to support one's theories.

Nick Rowe reminds us that...sorry finance, macro roolz!
More MOA versus MOE in the Battle of the Paintings:
Bertrand, Cournot and the Simple Money Game

Scott Sumner has lots of posts this week, here are some:
My Mercatus paper on monetary offset
Cash is getting more important as bank deposits become less important
My final attempt to explain the MOA
A note on currency depreciation and liquidity traps

Monetary policy should not be dependent on a single personality, as Lars Christensen notes in a post which includes the link for his latest article at City AM.

Some reflections. Scott Sumner marks the day he became a Market Monetarist, five years ago:
September 16, 2008
Also, Bonnie Carr (dajeeps) notes when she became a Market Monetarist, five months later:

Wednesday, September 11, 2013

Did No One Notice Timothy Taylor Stress This?

Doubtless there are some who did, but I'm just not aware of anyone who linked to a post I can only "chew on" for now - and discussed it in terms of excess wealth defined as housing. The problem for me is that a seemingly primary point which Timothy Taylor made about housing was dodged, in recent articles which noted his post, ("Breaking Down the Falling Labor Share of Income") While Taylor also addresses these issues in a linked video (from last year? I watched some of it again), his post does a better job of getting at the pertinent issues quickly and also has helpful graphs.

Jared Bernstein once again reminds us of the "usual suspects" in what appears as an unsolvable mystery, "Why Labor's Share of Income Is Falling". He referred to a related article by Robert Samuelson, and they both cited Taylor's post. Unfortunately I didn't glean much from the articles which Bernstein or Samuelson wrote, which is what made me appreciate Taylor's post all the more. At the very least - even though in a sense what he covers is nothing new, Taylor looks at components of housing and the rising role they play in capital holdings.

Certainly, corporate profits are a part of the picture, as something which "takes" from labor share in always debatable fashion. But not even corporate profits have risen in the way that capital holdings have in recent decades. What's more, our considerable holdings of this easily forgotten capital are not productive in the sense of corporate profit holdings, because corporate holdings can take advantage of efficiencies and innovations that are not available in our own housing holdings. That is very much a hidden aspect of lower productivity in the present, as more productive (higher income to product) endeavor is now a smaller part of aggregate wealth.

Taylor summarizes:
Some of the fall in labor's share of income is due, in a statistical sense, to less-discussed factors affecting capital income like a rise in recent decades in the value of living in a home that you own, and the fact that capital investment in informational technology has a shorter life and depreciates faster than past capital investment.
What is interesting about this is the fact that government treats owner occupied houses as rental businesses. A lot of income is generated from home ownership, with multiple effects that just are not well understood. While all of this can be considered extractive enterprise in terms of government purpose, it's not easy to look at the receipts of these interrelated institutions to figure out societal cost. Even though it's not always easy to look at receipts which pass between governments and their institutions in less developed countries in Africa for instance (Acemoglu and Robinson) the very least, one might actually find receipts that make sense.

Midweek Market Monetarist Links and Summaries - 9/11/13

And quite a week it has been, with lots of discussion in the blogosphere. A debate between Scott Sumner and David Andolfatto started things off, and Marcus Nunes follows the primary points while providing pertinent links for readers as well. Thanks, Marcus!

Bill Woolsey also posted a response to the Andolfatto debate:
Andolfatto on Nominal GDP Targeting
And earlier in the week, he posted some further thoughts on the Pigou effect:

Even as the prior discussion was just "heating up" another started, with a post from Steve Randy Waldman re the inflation of the seventies. He wanted to know - was it really monetary? Oh my...
Scott Sumner replies,
Yes, expansionary monetary policy really did cause the 1970s inflation
Steve's response to Scott (agreeing in different languages):
Second response from Scott:
Why causality matters
Whereby Waldman updates international graphs with a bit of help from Mark Sadoswki:
Here's his latest update:
Waldman provides plenty of summary in the update and more links than many people have the time in a day to chase down. Therefore I'll link to some that readers here may find most helpful. First this response from Even Soltas, which is also covered in the followup post:
There are two responses from Karl Smith, who also links to and discusses the Robert Hetzel paper on Arthur Burns and Inflation in his first post. (he continued in a follow up)
The first response from Marcus Nunes was a repost - The Origins of the Great Inflation: Second response here: eureka-the-great-inflation-was-the-result-of-demographic-trends/

Okay - now where was I? Oh yes, there were other noteworthy posts as well. Lars Christensen provides an AS-AD analysis as to why there is no fiscal cliff in Japan:
About rising bond yields, Lars says:
Lars has a piece in City AM:

And from Nick Rowe, here's where he responded to David Andolfatto earlier in the week:
Is NGDPLT a perfect "guard dog?"
Also, Old and New Keynesians and Self-equilibration

From Marcus Nunes, a reminder to Robert Higgs not to reason from a GDP component change:
Highlights from a Bloomberg article:

Several responses to a misleading quote from Robert Hall about nominal targeting, which also had John Taylor's "approval" (Scott Sumner, Marcus Nunes, Bill Woolsey):
Comments on Taylor and Cochrane
Taylor and Hall on Nominal GDP Targeting

Scott Sumner asks, What would Milton Friedman have thought about Market Monetarism?

Britmouse puts together a follow up post from the previous month:

David Glasner presents an overview of Hawtrey's "Good and Bad Trade":

Also, a good quote which Jonathan Finegold highlights from an essay by Leland Yeager in "The Fluttering Veil":

Sunday, September 8, 2013

A Year For Eudaimonia

Eudaimonia...nope, spellcheck didn't recognize it but Wikipedia shows what it represents to a degree. What's more this is a very old term with lots of interpretations, and one I wasn't familiar with until a philosophy class several years ago. My professor stressed a definition which also made sense to me: living is not always easy - especially on the terms society recently came to expect, let alone the search for happiness which became such a part of the 20th century. Another aspect of the word involves virtue in what one chooses and while that is certainly important, a part of me wants to downplay it because of the association with morality. Morality is an odd thing...of course it's important, but I'm not sure if I can pin down how, because each of us has our own interpretation.

For a lot of people over the course of time, eudaimonia may not have been associated with happiness so much as simply living out one's life - in the long run - according to the purpose which makes the most sense. It does seem that living beyond a certain point means making a grudging peace with one's "destiny", even for staunch believers in free will such as myself. However there is a reason the word eudaimonia applies now, in that I let life get in the way of committing to my own primary purpose, many times over. The fact that I finally found myself in a "do or die" corner, makes the versions of happiness I once pursued, somewhat irrelevant.

As my birthday approaches (59 on the 24th) I reflect on a year of considerable change. No, not easy to see changes as in earlier decades, just continued transitioning on the inside. Perhaps I'm doing better with those "inevitable" parts of life that we often fear or otherwise wish we could just keep running from as quickly as possible - who knows. However one aspect of the present is something I didn't really expect: a growing ability to recall elements of the past which seemed long forgotten.

What's more, remembering the past can be a really good thing as indicated in this recent post by Scott Sumner. I used to chide others about "reliving the good old days" when there were good days to be "made" now. In a performing context as a musician, that mindset also meant adding as many current songs as possible to the band's playlist. When it came to others my own age, something about reliving the past once felt as though someone's personal star wasn't set high enough in the sky. And yet, Scott's thoughts on reminiscing are actually encouraging for me now, for they remind me of so many earlier efforts I'd made to get the most out of life - all along.

Whenever we go through years which turn into a scary struggle to survive, they can steal away a lot of our better memories. I finally reached a point where it became obvious that even though I would be okay, I would not be able to continue the kind of work I did in the past. What's more, the (long overdue) cataract surgery on both eyes meant regaining my vision. I must have started reading (everything in sight) again the next day, prior to taking on the project of this past decade. Even then, once I was able to "catch my breath", I was startled at the recall of past events which would matter for the studies of the present.

In the months since starting this blog, ongoing efforts to turn notes into recognizable thought processes are starting to bring that ability of recall into sharper focus. The nice part about it: not everything was hardship and difficulty. When one focuses on "driving ahead" for new realities as I did for so long, it can be too easy to forget about the good times. In other words, I wasn't really very sentimental or nostalgic! At the very least, giving in to the occasional bout of nostalgia now seems to have some side benefits as well.

Of course all too often I was the one who "moved on", because it's just what so many of my generation did when they were young. While work was often responsible for the move, there were other reasons too. The seventies and eighties were a time when investment often meant buying into new forms of experience, and real estate just a part of that. Especially in the eighties: if something about one's environment was annoying, frightening, dangerous or otherwise aggravating, the common reaction was to be proactive, even if that meant leaving the premises and starting anew. Unfortunately in some cases that was as true for relationships (not to mention the advice of counselors) as well as the workplace.

Indeed, the need to start over (too many times) still exists for individuals in lower income work, even as those with higher incomes and also younger generations are less inclined to such a high degree of change in their lives now. Perhaps telling as to just how different our economic environment really is in the present: it has become a point of integrity for people to maintain their relationship circumstances in particular, by whatever means. No question - when there is adequate income, relationships are a tremendous part of that stability. This is something I've observed in my own extended family over the years as well.

How might eudaimonia apply in the present, for those who are still young? I like to think it is possible to find versions of happiness which revolve around purpose in a more immediate sense. This quote (HT Farnam Street) about happiness from Mihaly Csikszentmihalyi:
...the best moments of our lives, are not the passive, receptive, relaxing times - although such experiences can also be enjoyable, if we have worked hard to attain them. The best moments usually occur when a person's body or mind is stretched to its limits in a voluntary effort to accomplish something difficult and worthwhile. Optimal experience is thus something we make happen.
I have to agree.

Wednesday, September 4, 2013

Needed: Greater Support For Entrepreneurial Potential

Whatever happened to entrepreneurial dreams? Lately they have been getting pummeled more than ever, by ongoing monetary and social realities. At the very least, entrepreneurs weren't completely forgotten on Labor Day. Some bloggers suggested celebrating capital, to which Lars Christensen basically replied: wait a minute, it's not just about capital. His post about the value of entrepreneurs also prompted a response on my part, in that economic access (participation) is about all of us. Some of those thoughts continue in this post today.

Capital, for all it's seeming certainty and supposed "stability", doesn't really have much of a life without the entrepreneur or small business owner. Even as people once again embraced the idea of entrepreneurship prior to the Great Recession, some didn't really know how many entrepreneurs (especially individuals and small businesses) needlessly lost their ability to remain in business, in recent decades. Not only did that mean less available employment for everyone from the remaining businesses, it meant far more people than otherwise would have been the case - pounding the streets and looking for the remaining jobs.

Often we hear that businesspeople lose the ability to remain viable because they mistakenly offer the "wrong product", but it's not at all that simple. Many are the times when businesses offer product plenty of people want, and yet circumstances for remaining in business aren't right for reasons largely hidden to the public. Indeed, one doesn't generally encounter these specific roadblocks from municipalities and other institutions unless they try to start a business. As a result, others fear taking the chance on self employment or starting a business, because of what has already happened to friends and family.

The lack of understandable context amongst all economic actors, and a consequent dearth of social backing for economic activity, makes a needless travesty of inventories, capital, investments and commitments on the part of too many people we know. What about government "protection" for business interest? Yes this certainly exists, but mostly in forms which limit economic access for all but a select few, especially at local levels. The most notorious protection which limits access today, exists in the form of knowledge definitions and specific rights to knowledge use for services.

At national levels we may think of governments protecting businesses in terms of risks, but this is not really the right approach. Generally when governments protect highly specific forms of businesses, someone loses out - whether other potential business entrants or consumers. Protection of business should be more about protecting the rights we all have to economic access, and less about the cash cows who want to contribute at election time. Anytime a regulation is considered in terms of its desirability, that should be the primary consideration. Does the existing regulation make economic access more difficult for everyone in some way...or easier?

In other words,  the risks we take on just by attempting to start a business are much more extreme at local levels than should be necessary. Whether or not conducive social settings actually exist for entrepreneurialism to thrive, depends on the degree to which existing profits and non profits are able to lock up the definitions of economic access in the future. That's true at both local and national levels. If governments continue to protect only those who already exist, it will only become harder for everyone to revitalize wealth creation when it is needed most.

When existing institutional settings become too limited or otherwise place the bar of entry too high, many entrepreneurial dreams are lost, along with their investments and inventories which have little recourse afterward. In spite of one's best efforts, a tremendous amount of commitment and work sometimes goes to waste just the same. That is especially true for entrepreneurs and business owners in lower income brackets, for whom the results are often irreversible and life changing.

One reason it is so difficult for people to take risks in the present is the fact that no one has begun the process of making risks more manageable and incremental, as they were for a long time. Making risks manageable is not something that anyone can reasonably expect banks or finance to do, for them. Rather, it is something that people have to actually do for themselves in terms of living and working arrangements. When people are willing to face up to the problem where it actually exists, banks eventually have a chance to fall in line with the greater responsibility all citizens are able to assume.

There is nothing unusual about the idea of organizing for additional entrepreneurial potential. Otherwise, without well thought out plans of action, it's just not possible to create active spaces for entrepreneurial possibilities that won't get shot down by present sets of circumstances. If anyone wonders why such public backing of entrepreneurial effort is so important, consider Lars Christensen's words: "First, the entrepreneur roots out misallocation of the systems - the entrepreneur is the equilibrating force in the economy."

Today, for instance, one sees misallocations such as extra ambulances which carry rural patients away from rural hospitals to city hospitals, instead of working with knowledge locally to keep patients close to home and family. Present day limits on knowledge use have created the most significant misallocation of resources in our times, and this is especially what service entrepreneurs need to be able to address. It's important to stress that much of what needs to be done is not linear in nature, in fact it runs counter to the limitations that have already been imposed for centuries. Just to look at the idea of services entrepreneurship "straight on", is daunting indeed.

Even small change requests are regularly met with negative responses, as this list of 50 reasons why nothing can be changed attests. Added to the list of 50 reasons one would likely find this this question: Entrepreneurship of what, exactly? Aren't these things already being provided by society's institutions, inferior though they may seem in meeting their responsibilities? Yes, to varying degrees. Just the same, there are three immediate questions which come to mind, which would also be excellent topics for domestic summits:

What services do we feel are being reasonably met, and how? Which ones are being "met" but not exactly by results or costs that warrant the economic, social and financial burden they have imposed? And third, what provisions of societal needs or desires have we already basically written off as unachievable...and continue to give up on? Indeed there are volumes which could be written just from answers to these questions and they are really society's questions. Plus, there is also a fourth consideration in these. Say budgets falter even further. What could still be realistically met by private interests? Yes it matters if only a small segment of society gains the results of today's version of private provision potential, and present government limitations would make that far more likely.

Budgets realities mean that the portion of society which still expects services can be compromised nevertheless, because of extreme organizational inefficiencies in the present. This is the circumstance that anyone would agree, needs to be remedied at all costs. Organizing for entrepreneurial potential is also a way to make sure we avoid services apocalypse in the U.S. What's more, all of us can do a better job of providing societal cushions for one another, whenever we fall. We have to stop convincing ourselves that we're not up to the job, because if we don't one day everyone will wake up and the jobs will indeed be gone. How do we provide value in use systems which don't tax away our best energies and good intentions? Therein lies the challenge.

Midweek Market Monetarist Links and Summaries - 9/4/13

Unless some Market Monetarists were living (or at least vacationing) under a rock this week, it would have been hard not to notice that Scott Sumner returned from Australia! Some interesting online discussions ensued, and a number of Scott's posts were in fact reminiscent of "teaching" posts from a time when he wasn't so busy traveling, giving talks and the like. First I want to highlight three posts which discussed interest rates:
Yes, the economics profession really does believe low interest rates mean easy money
Interest rates versus the base
Real interest rates are not much better

Perhaps Scott's trip to Australia wouldn't have seemed "complete" without an online dialogue with John Quiggin. Here's two posts in which Mark Sadowski really contributes to the comment threads, and plenty of other MM commenters take part as well:

Lots of "back and forth", from these two Nick Rowe posts which also revived last year's MOE - MOA debate:
...where Scott responds to Nick's Tobin post:
There's only one James Tobin

Here, George Selgin responds to Scott's James Tobin post:
and Scott replies to George Selgin:
Bill Woolsey also replies to Selgin:

This "MOA versus MOE" from Scott is a good "wrap" for the above:

Nick  Rowe asks, How can you get an economy into a liquidity trap?
And Marcus Nunes responds:

Earlier in the week, Marcus also responded to a David Andolfatto post, "Whither The Consumer?"
Hey, if the Fed isn't concerned about meeting its own specified targets, why should anyone else worry about meeting theirs?
Marcus illustrates in charts that the stock market crash was not responsible for the Great Recession:
For Labor Day, Marcus takes a look at unemployment in the last four cycles, since 1981:

Speaking of Labor Day, I like Lars Christensen's take:

It's a good thing I went back and double checked, or would have missed this important post from Scott Sumner:
The hot potato effect explained

Monday, September 2, 2013

Prices Rise When We Make Things Artificially Scarce...

Do you think?? Yes, I know this should seem quite obvious. If only it were so! When we speak of scarcities in economics, often the first thing that comes to mind is physical resources and commodities. Oddly enough they hardly seemed scarce in the 20th century, given the ways in which product of every kind spread far and wide. Just the same, the notion of scarcity - as in actual finite quantities - was too readily applied to conceptual definitions where it never really belonged.

One of the more blatant examples were extreme constraints on building and construction definitions, before innovations in building and construction even had a chance to gain public consideration in the 20th century. To this day, far more inputs and materials go into construction than are actually needed or necessary, which does create the scarcity of the original definition.

Artificial constraints on knowledge use played a major role in the growing government redistribution which began in the 20th century. Governments scrambled to take on social contracts with their older citizens, in the attempt to make amends for increasing costs and complexities in healthcare. When those social contracts were taken on, perhaps it was understandable to assume that knowledge use potential might not ever see the widespread capacities it has actually acquired in the present.

But there is no denying now, that the potential for knowledge use application has become more prolific than the world has ever seen. Just the same, we still live in a era which dictates that knowledge must remain scarce on prior institutional terms: an unsettling proposition that is not playing well with the younger generations of our time.

We keep hearing about the fallout of the middle class for instance. But realistically, there never should have been a "failing" middle class at all.  Even so, there is a lack of consensus re the stupidity of making some very important aspects of life artificially scarce when they don't have to be. In the meantime, next time someone calls the phenomenon of artificial (politically powered) scarcity "inflation" , perhaps they deserve a pie...

This problem only magnifies when we allow the most basic aspects of life to become paramount, because they are defined by artificial scarcity terms. For example someone supposedly has to live in so many square feet of housing if they are going to "rise and shine" in the morning. Or, someone has to see an individual who just mortgaged the next thirty years of his life to his education, so that the person in question could take care of a nagging cough.

When the monetary elements of life lose out to the most common denominators as caught by special interests, there is precious little left over, for the elements that might actually add to what we thought could be our life experiences. And in monetary terms, too few among the public really "get" how much money still needs to circulate just to tend to the "leftovers" of our lives after the basics have been taken care of.

If these aspects of life remain the same because they appear as though intractable, that is one thing. But the problem is that the basic issue of artificial scarcity gets completely forgotten as it feeds into a political context. Consequently, political distortions result in people blaming the system and one another for the inadequacies of compensation (for artificial scarcity) through redistribution. For instance, lack of progress in the creation of innovative and dynamic building components, means that people continue to rely on a banking system of loans and mortgages which has long since outlived its usefulness for at least half the population in much of the developed world.

How do we really know which scarcities can be helped, and which ones cannot? First, it helps to ask - what is the political consensus which lies behind the induced scarcity, and to what degree is the public actually aware that this is in fact the problem? For instance, physicians are now facing societal pressure, but one of the real healthcare problems today is the extreme limitations of hospital settings. Part of the problem lies in the fact that patients cannot always gain access to the hospital which even utilizes the knowledge they need. What's more, how aware is the public that attempted redistribution to cover for artificial scarcities ends up as holes which can never be filled? Over time, the attempts to fill those holes just eats away at the larger goals and aspirations of both individuals and nations.

What's more, no one can expect for politicians, bankers and others who benefit from artificial scarcities to set knowledge use or innovation reforms into motion. Unfortunately, they would rather we blame one another so as to keep our eyes off the actual problem. The task for the public is to refuse to allow their politicians to divide them from one another. For as long as such divisions exist, there can be no coming together on the part of citizens to convince those in power that they only guarantee eventual decline by allowing artificial scarcities to continue to exist. All of us need to know which scarcities can or cannot be helped or amended in any realistic sense. By engaging in the dialogue which helps us to understand the difference, we have a place to begin.

Sunday, September 1, 2013

Will Comparative Advantage "Bite The Dust?"

Granted, this isn't the first historical moment that people have found good reason to question the benefits of comparative advantage, by any means. Just the same, any time nations - let alone economists - doubt the logic of nations trading with one another, that should send out a flashing warning signal that something is seriously awry and needs to be dealt with. Not long ago in a recent post I touched on protectionism concerns, and to a degree those thoughts include the same concerns as this post.

Thus, when Tyler Cowen posted a litany of complaints re comparative advantage logic, I knew my response would be even slower than usual, because this issue really needs to be thought through more carefully than the initial post I will offer up today. Plus, regular readers know that even though I defend comparative advantage, thus far I have failed to offer up a full explanation as to why, especially given present realities in which the concept appears to have "sprung some serious leaks" in terms of unemployment.

And unemployment, after all, is the primary concern in all of this. The answer as to why I believe comparative advantage greatly matters, has to do with some of my own concepts which I'm trying to learn how to explain in an understandable way. Which is why I'm still pulling my hair out...God help me if anyone else poses such a significant dilemma in the next few days, as Tyler has presented!

So when people (understandably) believe they lose work because of a combination of what happens elsewhere, technology and "who knows what else", several elements come into focus: more loss of discretionary income, more income polarization and long term unemployment. Even one of these is problematic - let alone all three. Yet the role that local economies play in these circumstance is not immediately obvious. Ultimately the local economy needs to reform itself in terms of more efficient and dynamic patterns of wealth capture (for all concerned), instead of negating the benefits of comparative advantage in a misguided attempt to preserve economic stability.

Generally, when nations back away from trade, the historical results aren't very pretty. Even though comparative advantage still exists now in important respects, earlier gains are becoming obscured by the increasing importance of basic economic activities at local levels. Much of the nature of this local activity is relatively unimportant in terms of free trade advantages, compared to the 20th century. By the same token, however, the present exogenous structure of local services activities - an inadvertent carryover from earlier corporate institutional structures  - puts extreme strains on government budgets.

What's more, "free ranging" finance structure remains bound to exogenous patterns of local wealth capture methodology. Local economies - for lack of a better way to express it - still need to figure out how to create economic participation for everyone in their own midst, in order to be able to continue reaching out to the world at large. To do so, knowledge based wealth capture needs to happen in completely endogenous terms that are time based. That would also allow each individual in community to be a representative of all the world can offer in this regard.

Here's the paradox: scarce (physical) resources - as utilized in all their aggregate abundance - add up to multiple social gains on a growing scale...for a while. Every society reaches a point where the present form of exogenous growth ultimately slows. That becomes a problem in that not only was exogenous wealth used to pay for knowledge use, but knowledge use in services utilized the same exogenous structure, in spite of the limited time base each economic participant actually holds.

To tap into the infinite ability of our minds in any aggregate sense, we have to work the with equal time constraints each of us actually has in order to maximize knowledge use potential. Otherwise, the outsized time value which gets assigned to subsets of economic procedures (let alone small numbers of individuals) quickly cancels out the ability of others to participate in the knowledge use equilibrium. Anytime that happens, an ever increasing number of potential service offerings are discarded as "not affordable": a process which can eventually turn many local economies into knowledge use deserts.

Whenever the exogenous resource environment steadily grows in historical terms, no one has to worry so about full utilization according to dictates of scarcity. But when physical resource use slows, only the reclamation of time within local endogenous environments can restore wealth creation potential. When knowledge use and time use are aligned, comparative advantage in product which is separate from our time, can finally be seen for the true benefit it represents in terms of leaving our time free for the knowledge palette.

The problem for the local economy lies in the way it has envisioned wealth capture in services, which ultimately limits knowledge use severely in an aggregate sense. Local institutions in services followed the earlier example of product definition which production and manufacture had developed. However there is a vital difference for institutional formation, between time as limited product offering, and product which exists separately from time. Production creates product separate from human time, and is capable of raising aggregate wealth by its very separation, duplicity and dispersion into the larger society. The exogenous or external organizational format works because the product is external.

When people try to utilize knowledge by exogenous or external means, it prevents them from integrating knowledge as a freely used component throughout the multiple and ongoing processes a community actually needs. Through endogenous use, knowledge becomes a palette for all to use where needed and as needed, instead of being "bound" to specific bodies within specific time frames. Not only is knowledge use freed in such processes, so also is the time of those who were previously bound to the next emergency at most every moment.

One of the best aspects of moving to endogenous knowledge wealth formations, is the fact that technology is mostly ready for the transition. The multiple function formats, goal sets and short term projects which communities might wish to take on, could readily transform into dynamic infrastructure and investment possibilities which are not possible with limited purpose institutions or older production equipment. What's more, dynamic, interchangeable and multiple purpose holdings are less problematic in terms of risk, for where one project leaves off, capital can readily adapt to the next.

If it's any consolation to the reader, I am far from satisfied with my descriptions thus far, how to compensate for the loss of an earlier system which no longer promises the level of engaged employment which once was possible. Therefore, I will continue in my attempts to explain what could even be better, then the old services system which now mostly exists in a bare structural form in any aggregate sense.