Wednesday, December 31, 2014

"Futuristic" Thoughts on Design Platform Options

...What with all the new year's predictions, "futuristic" seemed appropriate enough for this post as well! Presently, design platforms face stiff competition. After all - by definition in primary equilibrium - one or a few platforms tend to become the standard, until they are ultimately displaced by others. Creative destruction? Certainly. But given the individuals who wish to contribute, creative destruction and the production gains it makes possible, is occurring in slow motion - for the most part. Whatever one thinks of NIMBYism, it has plenty of sunk costs.

One benefit of multiple alternative equilibrium, is that more space becomes available for platform design each time a new community is established. The greater the built in flexibility, the less NIMBYism is necessary. That allows more innovation to occur simultaneously, which in turn generates economic access which might not be possible elsewhere. While some knowledge use systems would adapt recently created platforms with a proven track record, multiple settings for diverse platforms remain possible.

This translates into new horizons for those who enjoy the challenges of infrastructure design. While recent broad based innovation has mostly focused on technology and communication, knowledge use systems would also open opportunities for design platforms. Options include - but would not be limited to - unique patterns and (strong, lightweight) materials for building components, locally shared investment structures, knowledge use digital networks, infrastructure grids, services formation structure, local production potential and local transportation patterns.

Fossil fuel use could last well into the future, once higher density options become available for work and living settings. Aggregate time coordination would mean that those who live in close proximity, would likely share economic activity in a given calendar year. This density advantage would also allow lower income levels (and others) to reserve a portion of the fossil fuels marketplace for choice destinations.

After all, most individuals who drive to work and then to random settings on the weekend, greatly prefer the autonomy of the latter. One benefit of fossil fuel consumption is its major contribution to experiential product. Choice in transportation allows life experiences which might not other wise be possible, particularly for those with limited income. Many new communities would likely design for motorized transportation access along their peripheries, so as to allow easy access from the center when local citizens seek out non routine activities.

Given the choice, many would prefer the automobile option for adventures and out of town visits, rather than work and normal daily routine. More municipality design which takes these preferences into account, could greatly boost labor force participation in the near future. Eventually, it will become easier to find living circumstance near diverse work environments.

Fossil fuels will finally be used more efficiently, once populations begin to organize for living and working conditions in closer proximity to one another. Existing institutions have already internalized efficiency gains for energy needs in recent decades. In the future, new community design will allow energy efficiency to accrue not just for production gains, but aggregate consumption gains as well.

20th century institutions often optimized productivity through what could be thought of as single purpose infrastructure settings. Individuals of all income and circumstance, tried to fit into the existing norms of an all purpose platform in both physical and knowledge based structures. For instance, the U.S. interstate system meant a sprawling, somewhat atomized primary equilibrium, for both production and consumption needs. Ongoing suburban vitality - at at least in the middle to upper income range - is one part of primary equilibrium which remains strong.

There was an all or nothing aspect to 20th century environments, and many of them began to look quite similar. One either drove and participated in the larger whole, or took the chance of falling away from the entire system. Personal decisions not to drive, generally meant exclusion on a number of levels. Yet for anyone with concerns regarding age, disability or income level, the decision to continue driving on a regular basis could mean undue risks.

Consider how these monotonic settings continue to affect knowledge use. One way to think about such limitations is a photosynthesis visual. In a sense, the empty corridors of too many Main Streets resemble trees with fallen leaves in a sort of "knowledge use winter". Knowledge of course remains ensconced in a vast information maze, yet is inexplicably locked - like sap - deep within the tree trunks and primary branches. Where is the "sun"? In knowledge based systems, group support for locally coordinated activities could be thought of as secondary "suns", whereby the photosynthesis process for knowledge use would finally resume.

Is knowledge even "real", if it isn't being fully utilized? Today I glanced over the degree offerings from one of those career institute cards which (still) come through the mail. One wonders what those degrees cost...Oddly, the biggest part of their offerings resembled what many local libraries and good bookstores once provided in their non fiction book sections. How much do graduates actually benefit from those degrees? Inquiring baby boomer minds in particular, would like to know.

The degree offerings were printed on a sheet which looked like those little green coupons my mother used to paste in coupon books for product rewards, when I was young. Some degrees were for everyday activities, many of which folk once expected to learn on their own. How "advanced" has this stuff become? One can only hope that jobs result from these institute degrees.

And yet, learning these things once required little more than the cost of widely available books, along with some focused time and attention! Somehow, the value in the doing, has been diverted to the value of the getting - all because of what the getting is supposed to be capable of...whether it actually is or not.

When a nation's horizons appear as though diminished by too many means, students absorb this reality at an early age. Timothy Taylor in a recent post, spoke once again of the U.S. lag in international education attainment levels.
One of the things that "everyone knows" is that the successful economies of the 21st century will be built on high-skill workers...Just spending marginally more money on the existing system isn't likely to be a successful answer. Some deeper thinking is required.
People want to learn. People also want to be able to utilize and adapt what they learn, in settings which are capable of taking the value of their time into consideration. Of all the design platforms I am most hopeful for, those which assign ownership rights and value to time use, would be at the top of the list. If students in the U.S. once again become convinced that personal investment matters, recent decades of "slacking off" will become a thing of the past.

Midweek Market Monetarist Links and Summaries - 12/31/14

Real G and real GDP growth? No positive correlation here (Marcus Nunes)
Tighten because...fewer people are buying gas?
Confidence is "good", up to a point:
Pretending the cause isn't monetary when it's convenient to do so:

Only about 1% RDGP growth per year, the last three years (Scott Sumner): What went wrong in Brazil?
Scott responds to Noah regarding tax disincentive effects: Noah Smith on taxes and labor supply

Scott at Econlog:
Unemployment in France is still over 10% The French experiment: Laffer is greater than Piketty
Data can be difficult enough to discern, without the political overtones: So how's the economy doing this year?
Betting on market forecasts could be better than betting on beliefs: I don't believe you (you're a liar)

Is it too much to ask...for a central bank to announce its target? (Nick Rowe)
Potential output, or just temporary growth?

David Beckworth responds to Krugman and others, re confusion over a permanent monetary base injection
"In short, inflation is below 2% in the United States because the Fed is happy with it being there."

Why are base money changes only temporary? Because of the inflation targeting monetary regime (Bill Woolsey) Monetary Policy Effectiveness
Done right, changes in base money would only be relevant to the degree necessary to keep NGDP on track: Fed's Dirty Little Secret II
Bill explores the options of a cashless society. Argh, I prefer the addition of alternative equilibrium, rather than a completely upside down equilibrium: Cancelling Currency According to Cochrane

David Glasner has his doubts:

The Bundesbank remains strongly opposed to QE (Lars Christensen)

Why doesn't it bother the media that the 2% inflation target isn't being met? (Bonnie Carr)

"Perfectly wrong" is an apt description (Benjamin Cole)

Two-fifths of the LFPR drop cannot be explained by aging (Evan Soltas)

Also of interest:

Eventually, the world will want that higher priced oil...

Monday, December 29, 2014

Direct Time Use Compensation in Alternative Equilibrium

Wealth begins in the formation of product - whether by purposeful attention to a simple commodity, or product which includes the transforming capacity of the human mind. No one questions the result - when materials are coordinated and fashioned into new product - that wealth has been created. Why should anyone question product or wealth capacity, which occurs within an experiential time context?

Thus far, organizational efforts have not been able to validate purposeful time use, as product in its own right. Like the paid servants and bought slaves of earlier eras, knowledge use - in context as a time resource - has been caught in patterns which gain productivity in a limited sense, but lose broader aspects of productivity in a collective sense. What's more, merit compensation results in the loss of time aggregate values, because other skills sets are devalued accordingly. Even though merit is broadly understood as deserving of further compensation, it nonetheless generates bottlenecks in time coordination capacity.

Because some time value is consequently lost, further resource value needs to be derived from elsewhere. However, this occurs in ways which cannot be directly observed - either spatially or chronologically. Which is why further wealth may not necessarily be generated (as a whole), when people "sell" high value skills sets as a small fraction of time aggregates. By their nature, artificially limited skills sets generate negative time aggregate residuals, which in turn require resource backing within a larger - always contested - framework.

In the course of a lifetime, everyone benefits from the skills sets of others, but no one knows what might actually be required or at least most useful at any given moment. Sometimes, one simply needs affirmation of personally acquired problem solving capacity, but this is not what services systems have been built to acknowledge. Because of the requirements of merit based compensation, high value skills sets generally need to be sold as if their ultimate value is needed in every instance - which may or may not be the actual case.

Where once individuals were able to offer skills sets directly to the public, most options are now filtered through institutional constraints which put hard limits on primary equilibrium. In primary equilibrium, one person's leisure time is - for another - like the proverbial sea..."water, water everywhere, but not a drop to drink". It does little good for technology to "free" our time, if no societal pact exists so that "forgotten" time can also be freed to find its own value.

How to think about the product of time, in monetary terms? Time use in general has largely required indirect compensation, for at least a century, in developed nations. However, this interpretation of time use has finally begun to place limits on labor force participation. Even so: direct compensation of time use is not viable without an understandable reference point for mutual gains. How so?

Economic time use gains additional value in direct proportion to voluntary exchange, outside of one's immediate circle. Voluntary in this sense means personally managed, initiated and arbitraged. Individuals would need to "start from scratch" in local services based terms, and lay a basic foundation at the outset. Participants would not expect benefits, subsidies or services from either state or national government - nor would they expect government taxation. What would be taxation in primary equilibrium, becomes shared investment in alternate equilibrium. One of the benefits of these agreements, would be a uniquely generated macroeconomic equilibrium at a local level.

Even though this economy is open in terms of potential participants, it is closed in terms of services offerings. Someone who lives elsewhere, would not expect to gain services from time pools of which one is not actively involved.* Time matching would tie into local coordination patterns, and add to new wealth formation as an ongoing continuum. Basic elements for local organization would already need to already be in place (i.e. "gaining steam"), before direct monetary compensation for time use would be possible.**

Private enterprise generates time compensation endogenously, through its own means. Whereas government directed time compensation, involves both the monies of redistribution and bond creation. In other words, present day institutional structures compensate time use indirectly, through either production residuals or the redistribution which taxation makes possible.

Both public and private time use compensation rely on money which is pooled through numerous avenues and financial products. For similar reasons, the Fed has not been able to assist wealth creation through better targeted means. Until recently, indirect processes were quite sufficient. What can be done, now that more direct intervention is needed?

Central bankers need a more precise tool for direct monetary injections, because open market operations are intended for the purchase of already existing assets, with bonds as guaranteed government loans in this regard. These open market operations also reflect the indirect nature of time use compensation, as assisted by institutions which coordinate at broad levels.

The difference for alternative equilibrium? Local knowledge use systems (as newly formed production and services institutions) would direct coordinated time use in a real time format. In a sense, mutual coordination can be thought of as a new asset. The fact there is no remaining time aggregate residual, makes it possible to categorize direct time use compensation as newly created wealth. This wealth would be valued according to the hourly compensation base which local residents establish at the outset, alongside investment structures. An internal transmission structure which makes few demands on primary equilibrium, would also provide the Fed with a tool for precise, targeted growth.

One positive outcome is that compensated time use would not need to be approached as a bond formation. While nothing is inherently wrong with bond formation structures: limits exist given their rationale, and sometimes it takes a long time for governments to address their lingering effects. This linked example is a good reason, why the trade offs of immediate time "loan" cancellations are a worthy option to have.

For most individuals, skills portfolios can (gradually) be arranged so that it is possible to generate sufficient time matching opportunities. Individuals who would not have means to do so, are the ones who need assistance from others which is truly understandable. Some children and older individuals would have limited participation, but they would all want to participate. "Labor" or externally defined work is one thing. Purposeful activity as linked to that of others, is what one's identity consists of.

While social (i.e. reimburse later) bonds for needed services have sometimes provided "convenient" options; like so many other indirect forms of compensation, they obscure the relationship of time use to resource use. Because that relationship isn't clear on multiple fronts, compensation for time use in general remains in a beta position. Specifically, that means one person's time ends up in competition with another person's time. For example, from Wikipedia re social bonds.
Social Impact Bonds do not actually raise additional capital for social programs, but instead displace funding for other programs.
When time use of any kind is indirectly compensated, our time ends up in a beta position, dependent on other wealth and circumstance. Don't get me wrong, there is nothing wrong with beta, or social bonds for that matter. However, from the beginning of this project, I have been uncomfortable with "solution sets" that only meant more competition, for already scarce time and resource availability.

Directly matched time not only generates new wealth, it puts time use into an alpha or starter position which does not have to wait for other resource options to "clear" or otherwise come available. In other words: local effort, coordination and training could prove sufficient for economic sustainability, in many instances. Even when some community starts don't take; the flexible resources and preparation they require, could still prove useful in similar settings. With time, an understandable transmission between productivity and services formation could become like gold in the ground - available for the taking and generation of new wealth.

*Communities with hunter gatherer options (which include hospitality systems for other knowledge use "travelers") would be able to coordinate services between different knowledge use communities to varying degrees. Some aspects of emergency "on location" healthcare could also tie into these systems.

**Emergent (beginning) processes might seek assistance in a temporary non profit capacity. This would provide time to determine whether a community can gain the self sufficiency production and services capacity, which allow it to become a candidate for direct wealth creation in terms of Fed monetary backing. Maintaining Fed status for direct wealth creation, would require that high skill services formation and investment structures remain locally possible.

Saturday, December 27, 2014

Growth Potential, Output and the Fiscal Factor

More growth is needed, to regain the economic environment which existed prior to the Great Recession. While some recent signs are encouraging, they remain skewed towards partial economic access, which in turn affects other vital marketplace formation. Important components of the economy are being held back, in ways not yet fully understood.

Today's economy is - and has been for some time - consumer led. However, governments have invoked too many consumption definitions, through the demands of special interests. Productivity is being lost not just because of arbitrary product categories, but also organizational strategies in regard to resource access. Indeed, income differences are scarcely the point in political debates, when special interests too often prefer to define consumption needs on high income terms.

As a result, primary (basic) consumption exists in many respects as a sticky, non tradable marketplace. This arbitrary marketplace does not reflect wide variance in income, in the same manner as tradable goods. Most important: non tradable goods aggregates require constant monetary flows in order to maintain. However - in spite of this reality - the money which is needed to represent existing marketplace definitions, continues to be questioned as to the purpose it actually serves.

Before any other policy action can be reasonably be considered, the present marketplace needs to remain monetarily fulfilled as it has already been constructed. And yet, as David Beckworth pointed out recently, the recent expansion of the monetary base is only temporary. More time is needed, before anyone can expect trimming present monetary flows to be a safe option. Plus, trimming present flows would only be a safe option after transitioning to less sticky marketplace conditions for consumers and producers.

Wait, what? Who in power is even contemplating the monetary needs of our present production and consumption based reality? Needed innovation for multiple income levels has not even begun to take place. At the very least, governments could provide their citizens with adequate money to fulfill the obligations which have been expected of them all along. Instead, populations are arbitrarily being told by policy makers of multiple stripes that stagnation is inevitable, so as to add confusion to a lack of monetary accommodation and meaningful leadership. This is why the present rush to halt quantitative easing is something of a farce.

Perhaps too many special interests do not recognize the danger in the tight money conditions they prefer. Even as they blithely contribute to the marketplace circumstance which therefore require more meaningful monetary accommodation on their behalf. Governments need to face up to the fact that policy makers remain responsible, for the aggregate demand equilibrium which remains in place.

To make matters worse, policy makers had begun to rely on commodities as primary wealth, even as governments are now forced to cut back on service formation in fiscal terms. Part of the stagnation arguments are also reluctance to acknowledge what a sluggish real estate market actually means, i.e. "it's the lack of building innovation, stupid." It is too easy for policy makers to forget: in order for commodity values to remain stable, time aggregates and access to commodity utilization also need to remain stable.

Governments especially didn't need the recent drop in commodities markets to exacerbate their budget woes. With each passing day, they are in greater need of the wealth potential of their own citizens. A recent post from Marcus Nunes illustrates the degree to which government contributions are falling away from those of the private sector - even as the private sector remains able to expand. There is now a growth paradox of limits in vital markets, for the government has stepped into a conundrum largely of its own making. The private sector is not yet free, to expand areas which governments are gradually becoming less able to support, over time.

Several things concern me about recent growth patterns, as to their actual viability. One problem is a growing need for government budgets to keep inflation low, because of already existing debt loads with their accompanying interest payments - payments which are only increasing in the years ahead. Does the Fed receive implicit messages (re inflation) from government, to "keep it low"? If so, that only decreases growth potential as a whole - just to ease government debt burdens.

The best strategy would be to move more services into a monetary - instead of fiscal - context. Otherwise, limits in services definition can only eat away at commodity wealth formation. Such a strategy might allow governments to eventually turn their attention to infrastructure support, as well. Even though monetizing services is a long term strategy, it could address the long term problem of government debt load - particularly in regard to healthcare. It helps to remember that - at least as far as I'm aware - no other strategies have yet been advanced in this regard. In the future, growth needs to take place through monetary means, so that citizens need not live with a limited marketplace because of policy mistakes.

Services as a monetary function, is not just a moral argument on my part for greater economic clarity and effectiveness. Put more simply: if fiscal capacity were capable of generating full employment and a viable services marketplace, I would back it without hesitation. Oddly, some fiscal proponents remain convinced that government can do this. But when?? If there really were a way to address employment issues through fiscal means, it would have happened by now...not to mention the blessed relief from all the political b.s. that would have occurred. The proof has been a long time coming, and remains yet to be seen.

Too much uncertainty is involved for extensive fiscal action in the present. Hence, production reform needs resource backing such as time arbitrage, which is evident at the point of economic origin. One of the most difficult aspects of fiscal policy is that it has become more difficult to discern the relationship between time use aggregates and total resource capacity. When government defines too many production and consumption requirements, time as an element of price level integrity can be easily lost.

Economic time representation is central to monetary stability. Aggregate time values are primary, if money is to continue serving its function as a tool for entire populations. Only consider what happens when citizens are left behind in the economic pursuits of their nations! I wanted to pull my hair out (and I don't have enough left as it is), when Simon Wren-Lewis recently claimed:
Money is not a hot potato in this world. The potato has gone cold because of the liquidity trap.
As the Fed turns itself inside out to maintain government's expectations (of marketplace conditions), some observe this scenario and expect today's monetary dysfunction to be permanent. Even so, this state of monetary affairs would be impossible to maintain for any protracted period. Societal breakdown would ensue, if populations (as a whole) lost the ability to use money effectively. Money and economies are not just for governments, but also the ends and means of human function. If governments remain hesitant as to serving the needs of their populations, then perhaps free banking should be allowed, where monetary policy refuses to reach.

Resource and commodity wealth aggregates need to be better understood, in relation to the assets, services markets and time use aggregates which ultimately reflect the former set. Most important: time aggregates need ample representation in both aspects of this wealth equilibrium - not just wherever it "feels" convenient to include them. I continue to cross my fingers and hope that governments will begin the task of working with their citizens, to make certain they are economically represented.

Fiscal policy has gone astray, because it built non tradable wealth formations which paid little heed to the existing perimeters of manufacture and commodities formation. Governments were only able to further extend the fiscal horizon, so long as citizens fulfilled the role of economic consumers and little else. It is wrong for central bankers to place the blame on populations for what they can scarcely consume, when production potential is effectively denied. Substantial production rights are needed, in order for populations to regain economic sustainability.

Growth potential is still quite real, but much of it exists on terms which have yet to be acknowledged by the elite. As to the present confidence on the part of the Fed and other observers: there is nothing wrong with confidence, per se. Just the same, confidence needs to be based on reality, and the knowing that problems have been faced squarely for what they actually represent. In other words, not the false confidence of hoping the underlying problems will somehow go away on their own volition. It's simply not going to happen.

Thursday, December 25, 2014

The Gift of Economic Freedom

Of all the gifts the world is in need of, I remain convinced that one of the most important - by far - is economic freedom. And yet the ability to maintain this vital dynamic, is not as easy as it may first appear. Freedoms are lost in countless small ways - many of which do not become apparent until certain tipping points are reached.

Societies need well defined pathways which provide ample settings for resource use, in order for political freedom to remain viable. When one's rights in the marketplace are not clearly and purposely delineated, they are too readily taken away.

And wherever economic freedom is lost, humanity also loses. Even though this gift cannot bring out the best in every human being, it has the capacity to greatly increase the odds for both sanity and civility. Hence economic freedom could still bring light to corners which remain dark - even in the midst of places where freedom too often pretends to exist in the present.

Given the chance - the gift of economic freedom could prove capable of overcoming considerable despair, and evil intentions in the world. Economic inclusion opens the first door, from whence it becomes possible to open further doors of aspiration and challenge.

Granted: families, governments, businesses, religion and charities come to the aid of those who have limited economic freedom. But none of these have the ability to do so on a continual basis, nor should they be expected to. The freedom to work with as many resources in one's own midst as possible, means access to a continual loop of sustainability. Such access means that those who fall, can stand up and try again.

Economic freedom is the ability to live life, so that one's natural inclinations have a chance to materialize in a shared marketplace with others. It means that one's destiny need not always be based on sheer luck or chance. When people are willing to work together for prosperity with means which are supported by all, everyone has a better chance to prosper.

Prosperity also relies on social tolerance and continual innovation. However, this process is not just about having the freedom to innovate the consumer products we utilize. It is also about personal rights to innovate the assets and infrastructure one relies upon, and the services we would seek to provide for one another through the use of our time.

Economic freedom means having ways to rise above personal limitations in the course of one's lifetime, whether those limitations are geographic, familial, monetary or otherwise. It means having roles by which one need not remain a victim. Particularly if one is doing their utmost best not to be a victim - instead of simply refusing the role of victimhood through alternatives that make little sense to others, such as homelessness.

Some are not quite convinced, that economic freedom is all that important. Just the same, a lack of economic freedom is the common denominator behind many tragedies which otherwise appear completely dissimilar in nature. Without sufficient economic freedom, life can become a difficult path, for too many.

With a little luck, perhaps it won't always have to be this way. So here is a wish for Peace on Earth, along with a sincere hope that everyone might be fortunate enough in the years ahead, to experience the gift of economic freedom.

Wednesday, December 24, 2014

Midweek Market Monetarist Links and Summaries - 12/24/14

To what extent, might an Export Price Norm have helped? (Lars Christensen)
So far it's been a rough week for the Russian rouble:
How much can a central banker really do? (ouch)
Would a devaluation help?
A rules based perspective is needed...

Inflation doesn't get much more confusing than this. (Britmouse):
Holding steady "in the face of a large supply-side disinflation":
Why isn't this showing up in the forecast?
Sorting out the cyclical from the structural issues hasn't gotten any easier since 2008:

Still a helpful - if not a complete tool (Scott Sumner) Don't underestimate monetarism
One commenter even claims the beaver is "adorable". They must be stopped
At this point, the liquidity trap "war" is the one which particularly needs to be won: Inflationistas and liquidity trappers
Heh! Nobody is going to out-"crotchety old man" me!

Scott at Econlog:
Unfortunately, this isn't as obvious as one might think: Central banks should do their job
Scott responds to a recent post from Paul Krugman: Markets describe reality, models should explain market reactions
At his blog, Scott provides a list of 47 Macro tools. Here, he provides some application: Choosing the right tools

Hopefully we will see more of David Beckworth's talent for drawing!
Paul Krugman responds to Beckworth's post:
David Glasner responds:

One opinion cancels the other (Marcus Nunes)
Not one of the better historical precedents:
Which nominal variable indicates growth on the horizon?
An upward trend can be discerned:

The gold standard of the early twenties affected countries differently, depending on size. (Nick Rowe)
David Glasner provides the pertinent quote in a response to Nick's post:
How interest-elastic is the demand for money?
Without helicopter money, it's central planning as far as the eye can see...
"Economics is the study of society. Economics is the study of expectations."
One small adaptation, can change the result:
The liquidity trap discussion continues

George Selgin has A Free Banker's Christmas Wish List

"The next six months should lead to some important discoveries about the future path of the U.S. economy." (Kevin Erdmann)

Bonnie Carr considers some political aspects of the Russian crisis:

(Benjamin Cole)

Also of interest:

(Dean Baker) Schumer Should Focus on Keeping Government from Redistributing Income Upward "But we did not construct trade agreements to put our highest paid professions in direct competition with lower paid counterparts in the developing world. These workers still enjoy protected labor markets...So the answer here is government, It is government that increased inequality."

Tuesday, December 23, 2014

Domestic Summits and the Design Perspective

Interesting indeed, that Shane Parrish found in The U.S. Army/Marine Corps Counterinsurgency Manual, these thoughts on the differences between design and planning:
While both activities seek to formulate ways to bring about preferable futures, they are cognitively different. Planning applies established procedures to solve a largely understood problem within an accepted framework. Design inquires into the nature of a problem for solving that problem...Where planning focuses on generating a plan - a series of executable actions - design focuses on learning about the nature of an unfamiliar problem. When situations do not conform to established frames of reference - when the hardest part of the problem is figuring out what the problem is - planning alone is inadequate and design becomes essential.
Many have given up on the earlier growth trajectory, in part because reform tends to be couched in the language of planning instead of the language of design. As a result, attempted financial reforms are little more than reactions to already known givens. Reactions are only exacerbating political differences, and means to discover alternate pathways should be at the top of the national agenda. In particular, the fact that design elements remain missing from housing as a consumption good, affects the weakness of the housing market. For instance, James Picerno asks: can the U.S. economy remain strong as it presently appears, if housing remains wobbly?

Part of the problem is that governments and citizens are not used to working together for design perspectives, and scarcely have applicable context by which to do so. Domestic summits would be one way to address this, because the design format would apply for those who wish to take part in the result, instead of populations as a whole. Recently I've read several books which cover history around the time of the American Revolution, and by no means was the required coordination for those original states a walk in the park. They were more inclined to think of themselves as distinct countries! In retrospect, it is amazing that so many individual visions were able to coalesce to the degree they did, to form a new nation.

Today, design scenarios need to occur within specifically contained templates, so that problem solving efforts do not pose threats to already existing design patterns. Of course, this would not make design process outcomes any less important. The new communities which could eventually result, would highlight the efforts of incredibly diverse imaginations.

What, then, are underlying design elements which would apply in multiple circumstance? First, ask: what overall purpose would new communities serve? Economic inclusion is important, in that it is too often not possible in primary equilibrium. The main reason for internally generated unique equilibrium levels, is to make resource use representative of multiple income and lifestyle choices. One reason today's monetary policy exists on such a knife's edge, is the fact that entire populations are expected to make do with a very similar equilibrium, re non tradable asset and services structures.

Compensation for a common time base, would allow individuals to design personal time use as they see fit. What's more, time arbitrage brings clarity to automation choices, which would also become ongoing community investment options. Another important design element of time choice, exists in regard to the "slow economies" which offer experiential product. Again, automation in combination with a common time base, creates time, production and consumption choices at personal levels. Each community would have unique automation and "slow economy" imprints.

Experiential aspects of "slow economies" would include numerous hunter gatherer elements - both in terms of knowledge use and environmental definition. Of course, these elements are also representative of the challenges which need to remain in otherwise static primary equilibrium, where possible. To be sure, equilibrium does not always appear static, for high income levels with considerable economic freedom. However, time use and resource options need to remain fluid at lower income levels as well.

How to think about design for production and consumption in general? Everyone wants product options which are tempting by design, but not in such a way that those choices require unnecessarily having to give up on other desired options. In other words, what is scarce, and what is artificially scarce? Understanding the difference means everything, for time use potential.

What's more, design needs to be such that one can move forward in a series of steps in which if a hard fall occurs, that does not mean falling all the way back to the bottom. A marketplace which is designed for economic freedom, leaves as many options in this regard as possible. And with economic freedom, Hope Has a Place.

Monday, December 22, 2014

From Energy, to Knowledge: It's Time to Pass the Torch

Why so? Something is becoming apparent about energy as the economic driver of the present. No one really knows what it takes to maintain energy stability among nations, or even whether it's possible or politically desirable to do so. That's true not just in the long run, but also in the short run, as energy production is an international game board which is constantly in motion.

This should not be problematic, for much of productive economic activity occurs within close distances. And it would not be problematic, if improvements for spatial economic capacity and time use aggregates were already on the table. Perhaps because such important discussions are not yet taking place, central bankers have become too reliant on energy and commodities, as government versions of consumption led economies have begun to stall - both in terms of services formation and the housing market.

Because of their always reasonable production costs, Saudi Arabia continues to hold sway over oil production to a greater degree than has been acknowledged. That's $25 a barrel presently: oh my. Sure, everyone could wait and produce more expensive oil when Saudi Arabia basically runs out, but there have been plenty of political reasons all along, not to wait. Only consider the last time Saudi Arabia played havoc with Russia, through the oil markets of the two nations. A long time ago? It does not feel that way to me at all.

At some point I'm going to dig through some old Wall Street journal articles from a decade earlier, because one of them explains that nineties story in excruciating, up close detail. Whereas a quick Google search only came up with recent examples of the renewed "battle" of which Russia is now only a part. In the nineties, Saudi Arabia's low production costs made it possible to affect the lives every Russian citizen in the worst ways possible. Reflecting on my present day aversion to wealth formation as based on commodities in general, that comprehensive WSJ story must have played a greater role than I realized.

Even though Russia stands to lose the most in the latest fallout, they will be far from alone. In the U.S. heartland, some recent fracking efforts could well hit the skids. News reports are already honing in on small town "empty" restaurants, which only yesterday were filled with oil workers.

In spite of a diverse economy, this only serves as a reminder that rural America in too many instances is anything but diverse. What happens to rural America, eventually comes knocking at the door of more prosperous regions. What's more, should oil prices remain low, some of that Texas "miracle" will certainly be tarnished.

So this is a good time for me to make a request of the Fed - perhaps one might even call it a plea. It is this: Oil can be a great wealth builder for nations. But please, please, please. Quit relying on oil production and its commodity counterparts to the degree you have, as central components of wealth. When different nations have such frightfully different oil production costs, relying on the energy economy as central, is just not a good strategy for the long run. In some respects, even the earlier reliance on gold as monetary base could scarcely have seemed as problematic.

Between recent energy events and the latest round of battles over the ungodly liquidity trap (a concept which refuses to die), my mind has been a tangled mess in which it is difficult to even put together a cohesive post. So today I'll keep it simple: make time value central to economic life, where it belongs. After all, many commodities besides oil remain at stake, if production and consumption are not defined on more inclusive terms.

Time value trumps commodity value, every time. It is the primary source of economic stability in the long run. When citizens are finally allowed to be front and center of their own economies, perhaps central bankers will not remain in the quandary which exists for them now.

Update: This, this, this is why wealth needs time value as a base

Saturday, December 20, 2014

Applied Knowledge Systems: Some Contractual Considerations

Commitments are important. As Nick Rowe noted in a recent excellent post:
In a world without commitments there would be no money, no financial assets, no markets, no trade, no property rights; and the life of man would be solitary, poor, nasty, brutish and short.
Today I mostly want to jot down some thoughts, regarding the commitments which knowledge use systems would need to honor, in order to provide a recognizable or unique equilibrium. Such promises would be necessary: not just for compensated time value which doesn't compete with time value assessments in primary equilibrium, but also to provide clarity for the expectations of monetary transmission.

Even though knowledge use systems would not be closed to outside systems, their non tradable elements are managed locally, to discern how decentralization can work in conjunction with the greater centralization of state and national governments. Centralization works quite well for many tradable goods, but stumbles badly whenever it is applied to non tradable goods - particularly given some financial settings. Knowledge use systems remain open in the sense that knowledge, individuals, and commodities from elsewhere are readily integrated in local settings. Just the same, they all become a part of local time value and resource adaptation, as defined in local wealth generation.

Internal infrastructure formation would be shared through investment options beginning in youth, and holdings on the part of earlier citizens would eventually be made available for circulation. This would allow individuals to pursue personal and intellectual challenges - particularly those life challenges which can't always gain (ongoing) monetary compensation through matched time use. Also, local investment portfolios would substitute for government provided social security. This lack of international monetary flow at local levels, makes it possible to discern income/consumption ratios, alongside the local matched time use averages which are needed to maintain them.

While time value - with its associated sticky wages - is randomly assigned and limited in primary equilibrium, time use value in alternative equilibrium would be based on total aggregates in unique settings. As a result, time aggregate values would grow in a gradual continuum. This would allow human capital to become a larger and better recognized component of today's wealth structures.

Contractual commitments would be necessary, for the compensated time use base of knowledge based systems. Otherwise, the gains and sacrifices of a no compete clause between equilibrium, would not be clear. For instance, the primary gain for highly compensated skills in primary equilibrium with this arrangement, is that the sticky wages of a protected high skill labor market would be less problematic for government budgets, well into the foreseeable future.

Anyone who eventually hopes for monetary gains from a college degree, might need to stand firm in their desire to gain access to primary equilibrium, for instance. Another consideration: recent arguments for a college education tend to emphasize that one often needs additional wealth sources, to gain the economic access which college degrees can sometimes provide. Hence those who don't have additional resources and are uncertain about the advisability of heavy college debt loads, would want to consider the advantages of knowledge based systems for skills use.

Some skills capacity in knowledge use systems, might eventually appear similar to capacity in the professional settings of primary equilibrium. However, the use, intent and identification of knowledge specialties would be quite different. For instance, one would not open a professional office for clients, in knowledge use systems. Nor would anyone educated in a knowledge use system, attempt to go into a primary equilibrium setting to do so, either. In primary equilibrium, the same job or career qualifications that are currently expected for many institutions, would still apply.

Instead, applied knowledge systems recognize skills as part of a flexible package or portfolio, for local coordination patterns. Both time use and knowledge, while voluntarily provided, are nonetheless like interchangeable factory components - with the same "just in time" benefits. Hence the most important right for the individual, is being able to offer the use of one's time as one sees fit. This needs to be distinguished from any "right" to diminish time use capacity (or skills potential) on the part of others. That is not a given right in knowledge use systems, unless someone quite clearly intends to harm others.

As we age, there is often a greater need to shift towards knowledge use work and away from physical labor, depending on one's abilities. Where needed skills or knowledge sets are in short supply, local educational efforts in this regard would be ongoing. Older citizens in particular, could be tapped for these new responsibilities. More robots are needed for heavy lifting and routine tasks for elderly, whereas older citizens are needed to engage with older patients in terms of intellectual challenge.

Regarding contractual arrangements with government: national backing for this endeavor would be necessary, particularly because of the monetary compensation involved. What individuals match locally in time use, would be matched by national government as a point of new wealth origination. In order to be able to fulfill this role, governments would need access to the same information and recorded history of time use and investment which is also utilized at local levels.

Part of these agreements would also mean no other dependence on government for services or subsidies (after a certain agreed upon point of skills gains), other than ongoing maintenance of infrastructure which exists in these regions. These purposeful separations of monetary flow, are what make the unique equilibrium possible to ascertain. Likewise, the same rationale exists regarding internal investment, and an almost complete lack of taxation. This natural experiment would make it possible to determine over time, how resource use transformation can be understood, in direct relation to base or given income.

Friday, December 19, 2014

Total Factor Productivity and Community Potential

Surely, total factor productivity has not flatlined since 1980. But how would anyone really know? Dietz Vollrath in a recent post, "Why did consumption TFP stagnate?", includes these thoughts in the post conclusion:
We've got this intuition that the service sector has changed appreciably over the last thirty years, but it doesn't show up in the TFP fact consumption TFP doesn't reflect accurately the innovations that occurred. 
One thing to consider: some innovation exists in sectors which have means to reform labor definition. This provides more flexibility (consumption potential), but only within specific institutions with limited missions, rather than the diverse missions of communities as a whole. What's more, productivity which generates more product through less time utilizaton, is a traditional productivity measure. In other words, when knowledge or labor need to be adapted to (in the moment) unique circumstance, a different mechanism is needed. Time arbitrage would be one means to capture further productivity, through marketplace gains in total aggregates.

Presently, many service formations are defined by the degrees to which they (differently) compensate time use. As a result, decision making for occupational choices in services, may not necessarily represent what would otherwise be first choices for those who participate. To be sure, it is understandable that many in these groups receive compensation which goes well beyond time input. However, this compensation method arbitrarily impacts services marketplace capacity in multiple ways. All of which especially matters at the margins, where time use in the marketplace has become more limited than ever.

Some knowledge based skill sets also remain immune to automation, because they serve as consumption signals for other high income groups. As Dean Baker recently noted, no one in the highest paid professions was ever put in direct competition with their lower paid counterparts. Indeed, these higher paid counterparts still enjoy protected labor markets.

However, Baker's post serves as a reminder of the special interests which - with government's "blessings" - are responsible for many inequalities of the present. As a result, not only is Washington unable to "make amends" through further tax redistribution for services, it can't really address this labor dynamic without doing serious damage to some of its funding sources. Even so, these consumption factors need to at least be dealt with at the margins, where a services marketplace might otherwise not exist.

Otherwise, too many consumption issues stand in the way of the total factor productivity gains which might still be realized. Skewed production dynamics and sticky upper level wages are easier to address locally, because of the myriad of factors involved. As a result, new communities could organize for greater total factor productivity - hence more consumption options in services and asset formation - where states and nations would otherwise struggle to do so.

How so? By optimizing local time aggregates, which single mission institutions can't utilize. By their nature, today's local institutions - with missions which sometimes counteract the missions of others - are forced to pick and choose from skills sets among given populations. What's more, private industry too often ends up compromised by what appears as "opposing" needs in services formation - in large part because of their ill defined nature. In other words, all too often it is just not clear, what resources are actually available to compensate them.

What is needed are local institutions with missions which integrate services as part of wealth creation, while building time use gains at the same time. These new institutions would make it possible, to understand transmission mechanisms between wealth generation and the time value of services generation. By compensating time matching directly, services "confusion" disappears, and base income becomes the direct source of further local investment options.

These new institutions would restore value to personal time use, along with personal identity for millions who still wish to contribute to the marketplace. After all, service product demands time. It is not possible to reduce time use in a marketplace which is all about time, unless one is actually willing to destroy the marketplace to some degree.

Central to this dilemma is the fact that normal pricing cannot allocate for time use as it does for other resources, because other resources are massive compared to time aggregates. Even though other resources might seem infinite, that no longer inspires confidence in resource infinity, as a stand in for time in the long run. Too much of the present day services marketplace is already in decline. The need to be able to use time choice as a true marketplace option, is growing by the day.

Not only is time use availability a fixed commodity, it is the most scarce commodity anyone has...even though everyone has it. When a few skills are rewarded, while other needed skills go largely uncompensated (by comparison), a dynamic results in which many individuals cannot utilize time value for the coordination they need, to tend to ongoing responsibilities. When few options exist for time arbitrage, communities can lose consumption capacity as a whole, along with the greater productivity that time arbitrage could make possible.

To reconsider productivity, time as product needs to be taken more seriously. Again, Dietz Vollrath, regarding the lack of change in the last thirty years:
By a lack of change, I mean the service sector has not found a way to produce more services for a given supply of inputs, and/or produced the same amount of service with a decreasing supply of inputs. We often buy time when we buy services, not things. And it isn't so much time as it is attention. And it is very hard to innovate such that you can provide the same amount of attention with fewer inputs (i.e. workers).
Sometimes, production factors are not just about digital components and technology, but also the interconnected webs which individuals could generate for greater consumption and total factor productivity. Even though this historical moment surfaced decades earlier, a leap of faith is required, before populations gain the chance to back their collective potential. Hopefully, doing so will become a possibility in the near future.

Wednesday, December 17, 2014

Midweek Market Monetarist Links and Summaries - 12/17/14

Nick Rowe explains how the fiscal theory of the price level can be problematic for the quantity theory of money:
Everything about bonds depends on what is already happening with money supply:
FTPL is "a theory that cannot be universally true"
One more "throttle", before Nick gives FTPL a break!

Bill Woolsey takes another look at IOR, with some math: Interest on reserves again
No, money is not just like government bonds...Beckworth on the fiscal theory of the price level

George Selgin defends a steady NGDP target...or perhaps Domestic Final Demand:

"The hawks ignored the wisdom of Milton Friedman" (Scott Sumner) A distant echo of the big bang
Why has it gone under reported, that industrial production has been rising faster than RGDP in recent years? America's industrial boom (what is it telling us?)
The Gabe Newell funded Hypermind NGDP Market is up and running
"in his pessimistic mood" Krugman on the limits of monetary policy

Scott at Econlog:
What is the point of Fed meetings...really? John Cochrane on modern macro
The fact that Draghi may resign, certainly isn't helping. The ECB: is it a hopeless case?

(David Glasner) More on complexity, equilibrium and coordination failures:

Hard to believe this FOMC transcript was from a decade earlier...(Marcus Nunes):

When central bankers don't actually believe in QE...(Benjamin Cole)

How to think about the supply side issues of 2002-2004? (Bonnie Carr)

Sam Bowman highlights an Ambrose Evans-Pritchard articleA miracle cure for central bank impotence

Supply side circumstance are one of the bigger problems for an inflation targeting regime (David Beckworth)

How is a tax state different from a fiscal state? (Lorenzo)

Tuesday, December 16, 2014

Collectively...How to Make our Lives "Easier"?

It's obvious that tax redistribution is no longer making life easier, in spite of government's protestations to the contrary. What's more, social security is not sufficient for the kinds of assistance that matters most, as one gets older. How then to think about collective means of support for groups and individuals, regardless of age? Aggregate time value and personal choice in this regard, are key. However, it's going to take a while to regain time use perspective, before progress can be made.

A few days ago, my cat (of all things) got me thinking about present day expectations regarding time and resources. As a general rule, cats tend to "lean libertarian", one might say. Normally, they're good at taking care of and "entertaining" themselves! But as they get older, it turns out some of that independence starts to disappear. At fifteen years of age - for instance - a delicate stomach seems to mean wanting a few bites of canned food at a time.

So recently, after the umpteenth mini snack, and way too much restlessness on her part when I needed to get some work done, I chided my little furry senior citizen, "Come on...make my life a bit easier!" And then I immediately thought, ouch. It's a good thing I said that to a cat, instead of a person. For the most part, this reaction generally remains unspoken, even though it is an underlying given for human relationships.

To be sure, much of work and life in general is about being of service to others. Independence, valuable though it is, needs to be considered in context. Is it possible for individuals to be independent and (happily) dependent at the same time? Most individuals want to make life easier for others, even though everyone needs to be able to do so on their own terms. All too often, it doesn't happen that way.

In order for relationships to remain viable, commitments and independence need to go both ways. Otherwise no one can remain strong enough, to be able to continue as a source of strength for others. Can anyone safely assume there are enough who are strong, to also be a source of strength for others? Not necessarily. A lot of individuals end up abandoning one another in diverse relationships, in part because societies are losing the means to make life easier for the whole. This matters even more, as governments have begun the process of pulling back on the earlier support they believed themselves capable of providing to their citizens.

Learned helplessness is just one result, when a growing number of individuals become incapable of providing support either for themselves or others. When purposeful time use becomes devalued across a broad spectrum of choice, love and appreciation don't always suffice, for much needed reciprocity in a demanding world. How can anyone assist others through services, when vital service definition has too little context or access to provide choice? From Greg McKeown (HT Farnam Street).
The ability to choose cannot be taken away or even given away - it can only be forgotten.
Indeed, this is what has happened. Much of what had been societal coordination in agricultural times was replaced when manufacture was primary, with other forms of coordination which sufficed until only recently. However, as much of group organization has shifted towards cities and prosperous regions, that loss of coordinated time use is keenly felt, everywhere else.

Like the cat which slowly becomes more dependent on (and appreciative of) humans: as one gets older, there comes a time when it is not as easy to remain independent. For this inevitability, there are no hard and fast solutions. However, finding means to renew time coordination while mind and body are strong, would mean more who stay strong to begin with. This could make it easier to reach out, to those who struggle to take care of their needs. Presently, it is still difficult to know, who could be strong once again. This is what needs to be found out, first.

Monday, December 15, 2014

What Defines an Economic "Oasis"?

What kinds of economic environments do individuals seek out over the course of their lives, besides the obvious ones of work and family? Does home as "oasis" have real practicality through time, defined as it is in mostly consumption terms...even though lifestyle consumption often changes? How limited is knowledge resource application, in presently existing circumstance? These questions matter, both for reasons of infrastructure and investment. All the more so, as today's challenges are quite different from how they appeared only fifteen years earlier.

For instance, who needs changes in equilibrium in order to make the best use of their time and energies? How could incremental forms of ownership assist the definitions of investment which currently exist? Do economies which also rely on energy production as a wealth component, feel "complete" in terms of work life balance? A visual in this regard might help, in terms of where wages in the U.S. have changed over the last decade. Is is fair to suggest that where dark blues exist, equilibrium needs little "help" from the time input of individuals? Hmm. From the related WSJ article:
Energy: When you see that dark blue running through the middle of the country, one of the big movers in that pay growth has been energy - oil and gas extraction and refining. In a sense, they make this map look "better" than it is, where the experience of many Americans is concerned.
In some respects, the wealth improvements in the map are almost inverse, to where wage growth was associated in the U.S. for several decades. Think about the monetary implications, in that this seems to suggest a return to a commodity based vision of growth. But commodities serve as beginning points for wealth creation, in mature and complex economies.

Commodities can only go so far in monetary flows, to contribute to assets, incomes and services formation - all of  which economies the world over, continue to rely on. What's more, increased wealth is not necessarily job formation. While I live in a primary oil production county, unemployment here among males ages 25 to 54 (according to this interactive map) is still at 22%. And of those gainfully employed, more homes in the area are increasingly being shared, by groups of individuals who otherwise would not make rent on their own.

Hence the recent decline in commodity prices such as oil is not quite the positive it might seem under different supply side circumstance. To be sure, there is nothing wrong with commodities as primary wealth formation. However, the fact that wage growth in general would decline in relation to commodity formation - particularly after the twentieth century promise of knowledge use - is somewhat disconcerting. As Scott Sumner points out in a recent post about America's recent industrial production boom: productivity - it's a great thing, and once again the U.S. has it in spades. But what is that telling us?? Scott continues:
Agriculture went through this in the late 19th century and early 20th century. And now it's manufacturing's turn.
When one thinks of changes in income gains and losses at the WSJ link, it's not hard to see how the Fed has continued to downplay the human component since the Great Recession - mistaken though they are in doing so. What potential wealth have they yet to recognize? Productive time use options remain necessary, to maintain desirable economic complexity and keep knowledge applications central to economic activity.

Perhaps the fact that commodity prices are currently falling, also serves as a reminder that no central banker can really afford to forget what counts most. What might the economic oasis of the near future look like? With a little luck - it would include a newly empowered, inclusive and dynamic services sector.

Saturday, December 13, 2014

Primary Equilibrium and its Many Alternatives

Recently I read an article which suggested that America could be more like Disneyland. I was a bit curious before getting to the central argument, in that some praise for Disneyland cites it as an example of charter city potential. However, this praise came from a left leaning source, because of well maintained infrastructure! Who doesn't admire any nation or city which is able to keep its infrastructure top notch? Then why can't the U.S. do a better job of maintenance? Oh, to count the possible reasons...

Among the laundry list: confusion over priorities, in spite of vast resource potential which remains at Washington's behest. Just pay for X now! Yes, but this is hardly the only letter of the alphabet demanding attention, in a diverse economy with aging infrastructure and growing entitlement to add to the different directions everyone prefers. Where does X even stand, as compared to other concerns?

All of this needs to be considered, before anyone can begin work on new infrastructure design which includes not just physical elements, but important social components as well. Big reform bites are not the way to go, because they would subject some populations to change that is not necessarily needed for them. Little bites are better because they are the best way to test production reform in populations which wish to do so.

Despite a seeming difference in charter cities (as compared to what already exists), they remain part of what is primary, mature and - in a sense - international equilibrium. Think recent subdivision formation around the world which looks the same, for instance. In other words, similar economic and financial formulas are followed, and citizens come along afterward without real input into the process. So long as infrastructure design doesn't adapt to differences in income and lifestyle patterns, the result is almost a carbon copy of what already exists. Even the alternative of charter city formation, suffers from the stigma of not enough citizen participation, and a mostly external vision of what the city can become.

How could citizens become a more active part of local investment processes? Direct involvement in this regard, can also positively affect the local tax structures which became so problematic in the twentieth century. New forms of equilibrium would particularly be conscious of local income and consumption ratios, which would be reflected in both asset and services formation. Entry into knowledge systems communities would also involve educational preparation, beforehand. Anyone attending domestic summits, would not only need to approach time use differently, but also plan to take part in ongoing local investment projects.

Each knowledge systems community would become a new business model, and each would create a unique equilibrium, none of which is the same as others or primary equilibrium. Even though clear patterns would be defined, they are not the same patterns which others would utilize in quite the same ways. The purpose of new patterns is to make certain individuals have productive options for both survival and the ability to thrive.

Where primary equilibrium often appears uncertain in the present, the main difficulty lies in anchoring income potential to certain givens in consumption and production. All too often at national levels, that has not been happening. Governments and central bankers - among other things - have become sidetracked with their direct involvement in asset formations. In turn, asset formations tie into global resources which do not always provide a clear picture as to domestic realities. The self contained nature of investment and services formation in new communities, would provide means for governments to once again look inward, to determine what domestic capacity is still possible.

Wednesday, December 10, 2014

Midweek Market Monetarist Links and Summaries - 12/10/14

How to think about total factor productivity which appears to have flatlined since the early seventies? Chances are, better services measures can change this. (David Beckworth)
Something new to look forward to: Monday links from David Beckworth, and this first round includes a recent Boom Bust segment:
Institutional Money Asset Growth Remains Weak and it Matters

A lively free banking dialog in comments, continues in this post (David Glasner)
Models are one thing - equilibrium in motion, altogether another:

James Grant's recent book regarding the 1920-1921 depression has several responses:
(George Selgin)
(David Glasner):
Scott Sumner at Econlog: What (if anything) can we learn from 1921?

While it cannot recover lost wealth, an Export-Price-Norm can still help stabilize monetary policy, in countries which especially depend on commodities (Lars Christensen)
Lars highlights quotes from the Financial Times:
There's little difference between today's Greece, and the Austrian depression of the thirties:

A bright 2015? Bonnie Carr isn't ready to don those shades just yet...

Aggregate spending capacity is still falling away from trend (Marcus Nunes):
Not much time left for debate, Draghi!
Will Australia lose sight of a steady trend?

Where are the higher interest rates which normally come with strong jobs growth? (Scott Sumner) The Dog Still Isn't Barking
There's a good chance Giles Wilkes provided a helpful FT article - Financial Times: Low Rates Don't Mean Easy Money
How much of an economic effect could President Obama have? Chris Rock gives new meaning to "creative destruction" and Ezra Klein responds

Some Econlog posts from Scott Sumner:
Bloggers are much greater than central banks
Why debates over inflation are pointless
War on crime? Or war on the poor?

How many doctoral macro students even have class offerings in economic history...monetary history...or history of economic thought?? (George Selgin)
George Selgin's contribution to the recent Cato conference:

Thus far, the model has been "disobedient"! (Nick Rowe)
Central banks need to stay honest:

Ryan Avent to Fed: "...just focus on the dynamics within the American economy." "The Fed Prepares to Make A Mistake"

Bill Woolsey asks, "Can interest on reserves be expansionary?"

Kevin Erdmann reminds us that "Capital is foundationally deferred consumption." This is why it is so important to make time, skills and knowledge use central to capital formation, instead of allowing them to remain dependent on other fruits of production.

Also of interest:

"...the term structure of unemployment remains substantially different from the prerecession pattern" (Ed Dolan)

Dietz Vollrath also lists NGDP as the first of several exceptions...

Monday, December 8, 2014

The Nominal Target as a Visible Horizon

Even though the Fed resumed a fairly normal growth pattern after the Great Recession, central bankers never really explained the loss of the earlier trajectory - nor have they sought to remedy the lost output. While it appears as though a nominal target is presently observed, by no means has this been stated as such. If only a (temporary?) steady level were matched by a steady vision, on the part of the Fed. Do they see the recent trajectory as an actual horizon to plan by, or are they preparing for further drawbacks?

A level nominal target would be the most reliable monetary indicator available, in part because it expresses a commitment to the intersection of time use aggregates and resource utilization capacity. In other words, a nominal target serves as a reminder what can be done, in spite of negative feedback to the contrary. Why, then, is the Fed unwilling to express the meaning of its current trajectory in understandable terms to the public? No one really knows, which is why a "quiet" target level isn't completely reassuring. As a result, people want to know: will further Fed discretion make matters more uncertain at home?

What's more, the reluctance of the Fed to monetarily back its own citizens, could have effects beyond the borders of the U.S. David Wessel in "How The Rising Dollar Could Trigger the Next Global Crisis", expresses concern that the U.S. is tightening, even as other nations attempt to loosen monetary conditions and overcome the recent effects of disinflation. Oddly, this has become a recent concern on the part of the BIS, which provided source material for Wessel's article.

David Beckworth also points out in a related post link, how the BIS only recently argued that the Fed's monetary policy stance was too loose. Herein lies the problem: when interest rate targeting is used to react to changes in asset and commodity pricing, problems ensue. By focusing on everything but the people who are part and parcel of economic life, central bankers forget that domestic demand requires top priority for monetary stability. If governments were not so caught up in their own definitions of production and consumption, they would discover that citizens still have the capacity to innovate and prosper.

Do policy makers in the U.S. still believe in the ability of citizens to make positive contributions, well into the future? Or will citizens get short shrift because they cannot always purchase the "appropriate" government defined consumer basket? The nominal target level, which highlights the intersection between time use and resources, is the horizon that matters. It represents the degree of future commitment which people could - given the chance - plan for in the here and now.

The nominal target level provides monetary compensation for time use in relation to economic circumstance. If productive economic activity is underway - by whatever means - so long as the activity is appropriately measured (locally and nationally) it should be covered and accounted for. As a result, a nominal target level is not just an appropriate measure of activity, but also an indicator of wealth potential. According to Richard Feynman (HT Ryan Decker):
It isn't the stuff, but the power to make the stuff, that is important. 
Have nations given up on that inherent dynamism? While some still hope for continued progress, too many others are fighting over the stuff increasingly misbegotten remains of the day. Feynman reasoned that the lack of understanding, could be on the part of those with insufficient science background. If only! As Ryan Decker noted, scientists - just like everyone else, can be prone to falling into resource ruts.

Only consider that some central bankers are willing to further tighten, in spite of disinflation from the "positive" supply shock of lowered oil prices. If they truly believed this latest round of price declines to be positive, then why would they be reluctant to provide the greater spending capacity such circumstance could normally offer?

To be sure, some individuals have negative long term outlooks because of eventual "peak" oil (in spite of present supply gains). But that isn't now, and policy makers are mostly reacting to current - and recent - events in play. Otherwise, broad monetary tightening would not remain the stuck gear that refuses to budge. To some degree, populations are utilizing less oil, because they do not have sufficient economic access to be able to do so. Why is that not a flashing warning signal?

Many central bankers - for all intents and purposes - do not have a clear horizon in their minds for economic potential. They are reluctant to publicly commit to even short term targets, excepting the blunt tool of inflation. Who will convince them - when others also remain unconvinced - as to the future of human potential? Readers know where I stand on this issue.