Friday, January 24, 2014

Last Century's Wealth

Prior to the Great Recession, people of all walks of life (and income) shared a similar passion in many instances: finding the "great" bargain, whether by consignment shop, thrift store, or the fortuitous yard sale. Today, this recent pastime exists in a subdued form, and has shifted online as well. Even though a lot of shopping is digital now, it doesn't match the levels of product movement which took place for at least four decades. Individual shipping simply makes movement of some goods impractical. Not only have yard sales declined, but many a retail shop has closed in recent years, in cities and small towns alike. And even before 2008, flea markets - once another place for stupendous "finds", had already experienced their heyday in numerous parts of the U.S.

Indeed, where once several thrift stores existed on the nearby Main Street, the last one closed its doors some months back. As if on cue, a nearby pickup location for another thrift store quickly removed its collection box. For the donations invariably spilled out all around the large metal container box, before they could be picked up by employees of the non profit.

In the meantime, people are trying to figure out what to do with all the extra goods of recent decades, whether housed at home or in nearby storage facilities. So for anyone who is faced with the daunting prospect of organizing a yard sale, the question looms...will anyone come? Of course some customers will show, but mostly on the first morning. Just the same, it's time for me to put together what will be one of several more yard sales. Reasons? The same that most organizers have: making room to get around more easily in one's domain. This house is going to feel even larger than before (at least for just two people), after some of the extra years of taking on are pared back. Hopefully, customers will take advantage of a lot of clothes and collectibles which will simply be offered for free. That's the thing: even though they're still perfectly good...who really needs them?

The 20th century was really a production "wonderland" for factory product of every kind imaginable. Today, people of all political stripes continue to count on greater production capacity to provide a good life for millions. To some extent, today's latest manufacture and asset creation can translate into limited forms of services. But in and of itself, production of physical goods cannot continue the herculean task it once fulfilled, for 20th century services.

Perhaps the production transmission problem would not be so significant, except that most individuals now want more service offerings and less product. But in their desire to keep a tight grip on product definition and related financial support, governments have yet to come to terms with this basic fact. Therefore, services are created on government terms which only lead the middle class to complain about a diminished standard of living. All of this merry go round of nonsense also keeps monetary printing from any hope of tending to the plight of the unemployed.

While many aspects of the 21st century workplace will be redefined through automation, people still need to address the portions of services which would greatly benefit from social interaction and coordination - not just the miracle of robots for bottom lines. That's a task which - as far as I know, has yet to be started. In other words, services growth potential needs to be defined in free market terms: more direct, inclusive and locally responsive to all involved, than what is presently in use. We need to stop handing over the most vital aspects of our lives to "customer service" strangers who do not and will never know us. That especially holds true for anyone who is compromised in any way with such dealings and has no one around who can help them.

Services reform really needs to happen and soon, or far too many are going to lose aspects of the marketplace which contribute to overall well being and social inclination. Millions of individuals who presently have little ability to use their education or lifelong learning, could assist in the creation of a new and individualized services free market. Think people seem antisocial now? If the existing services marketplace is left to fend for itself while government even takes over marketplace terminology in TV ads to hawk a completely dysfunctional healthcare system, we haven't seen anything yet.

As people from all walks of life seek more services, a lack of direct (individual) services creation means services of every kind imaginable will continue to be throttled back. That's pretty much a given, if our basic approach to services is not reorganized and considered in its entirety. In the meantime, automation will continue apace and start to replace more job functions as they have been recognized for so long.

Time to think about what the wealth of the 21st century is going to represent. Because if it is ever to have a chance at being productive and meaningful, it really needs to take place on different terms than those of last century's wealth. The twentieth century was a great time for the shopping hunt, for asset accumulation, and "See the USA in your Chevrolet" as one commercial of my childhood had it. Much of this does not represent the daily realities and needs people experience in the present. What's more, people don't have recognizable ways to experience work realities that match the promises of their educations, let alone the social rationale for working with others.

It should not have to be the responsibility of monetary authorities to have to worry about aspects of the economy other than the actual function of monetary printing. Alas, this responsibility has nonetheless defaulted into their laps just the same, as governments the world over have refused to enter into real dialogue with their own citizens as to what citizens want and need the most in terms of 21st century product. As a result, governments - alongside finance structures, still try to continue the old course of asset formations as though the 20th century can stand in for the 21st.

People want to experience the world in ways different from even a decade ago, and too few policymakers have become cognizant of this fact. As a result, people struggle everywhere to define the marketplace in more usable ways, and economists are left to hash out the broader ramifications in macroeconomic terms. That's even as the public bemoans the ineptitude of policymakers, and yet continues to leave the job of defining economic destiny, to them. Clearly, this process isn't working anymore.

The job of determining how to make free and inclusive markets which work for everyone, belongs to everyone. We have to let go of the last century's definition of wealth, no matter how sentimental or solid it may have seemed, to some. The fact that governments have allowed knowledge based services to be determined by the few who can siphon wealth from production, has now spilled over into massive wealth limitation the world over. It would be bad enough if knowledge use limitations only affected developed nations and mature economies. But these services deficits, which also exist in the form of government deficits, are not affecting just the developed world. The services instability of the developed world, also makes it more difficult for developing countries which depended on the continued success of the developed world.

Wednesday, January 22, 2014

Midweek Market Monetarist Links and Summaries - 1/22/14

When it comes to blogging, Scott Sumner can't seem to stay away very long - he's been the busiest by far this week.
Last summer it wasn't easy to gauge signs of growth: The dust is beginning to settle
Sometimes, these two get confused - China: the problem is easy credit, not easy money
The unemployment rate should not have been put into the Evans rule - The Fed struggles to find the right guidepost
Some clarification re monetary offset: Reply to Matt Yglesias
And, Central Banks do monetary offset even while denying doing so
Individual members of the Eurozone no longer have room to devalue: Is the ECB making "rookie mistakes?"
How to think about recent gains? I consider myself a moderate supply-sider however...
IndoAsia is probably a nonissue for US inequality going forward - Goodbye BRICs hello IndoAsia
Re-employ the 3 to 5 million excess unemployed, then start working on supply-side problems that reduce U.S. employment:  I welcome "abrupt policy adjustments"
Some clarification re Krugman vs Barro
In 2008, it was as though New Keynesians became old Keynesians, while monetarists became Austrians: Further thoughts on Robert Barro

Econlog posts from Scott Sumner:

The "feel good" post of the week, with graphs (Marcus Nunes)
When FDR delinked from gold, things improved in a hurry...
Marcus offers highlights of a paper from John Williams of the San Francisco Fed

Bubble...or no bubble? Some links (Lars Christensen)
Lars takes an international monetary perspective:
Perhaps this letter to the Financial Times will help...

The UK inflation rate drops in December (Britmouse)

Negative for the last five years? Not an easy question to answer (David Beckworth)
David explains how the efforts of Miles Kimball and Scott Sumner have made a difference:

How might the theory of the demand for gold, play into matters? (Nick Rowe)

Some clarification on a recent Econlog post from Scott (David Glasner)

Discussion re David Glasner's "Free Banking and Monetary Reform" (Jonathan Finegold)

Gold, per se, was not the problem (James Caton)

Goldman Sachs is still bullish (James Pethokoukis)
Is the US recovery about to die of old age? 3 reasons why it isn't

Also of interest:

Since The Browser goes behind a firewall on Feb 3, I want to highlight a few more articles they've picked up, prior to that date Both of these are helpful for thinking about healthcare and related issues:
David Pilling (FT) How Japan stood up to old age

Car ownership is changing:

Monday, January 20, 2014

For Prosperity's Sake: Set Knowledge Use Free

Otherwise, everyone is in a world of hurt, right now. I know we are supposed to be making progress, and some nations continue to do so, in important ways. But global growth has stalled. What's more, many parts of the world remain fragile, because too many local economies don't have useful ways to connect with the gains of technology, knowledge use and economic prosperity. That leaves them vulnerable to fringe elements, which would just as soon the locals lose their ability to stay connected with the gains of progress. Likewise, local resources and institutional structures become threatened in their turn, as their citizens are gradually disempowered.

Terrorism and fringe elements especially thrive, where locals have little knowledge use access to more developed areas. That leaves isolated areas vulnerable, to those who would usurp their hard won gains in other regards.  Strategies are not just a matter of building up schools and/or military, and then crossing one's fingers that schools don't get torn down. Rather, this is a matter of knowledge use implemented locally to strengthen citizens from all walks of life, wherever they reside. If maintenance is needed for local technology for instance, that's something which needs to be integrated into local work and ongoing calendaring. Building a stronger economic base is something that any nation needs to continue for itself, instead of making promises with development or other monies that are only redirected towards local special interests.

Nations can only move ahead in the long run, by regaining faith in their own citizens to rebuild a truly free marketplace of ideas. Widespread skills and knowledge use are the only counterpoints to 21st century technology, which actually have the capacity to make technology applicable for overall prosperity. That means providing all citizens with the right to important knowledge use in their own domains, instead of institutions which are situated far away. By so doing, areas that are far flung from major city centers can remain better connected to those major centers, as active economic subsidiaries of knowledge use. By taking knowledge use beyond the city institutions, outlying areas would be also less exposed to fringe groups which seek to take those central governments down.

Developed nations have their own vulnerabilities, when their citizens are increasingly denied the gift of true freedom to use their minds. As a result, that lack of freedom obscures an entire potential marketplace. It represents vast economic investments, which consequently may not have a chance to materialize. There are few really free service markets, in a world which depends more on services and knowledge use, by the day. When the few are granted the right to determine knowledge substitutes for the decisions of others, remaining markets become primarily about political coercion.

Special interests are often not cognizant of the degree to which they endanger capitalism by seeking favor from government. Worst, the lack of spontaneous economic activity not only makes people think capitalism has failed, they seek to supplement it with even more coercion. I was not able to read Ryan Avent this morning (reached my monthly limit already at the Economist) but some readers who haven't yet reached their month limit can get through. The article is "There Could Be Trouble Ahead", and it looks at the potential effects of automation on the labor market.

Because knowledge use is currently limited to the few amongst populations, a growing number of individuals are also endangered in the job markets, as technology becomes a greater factor. As a result, the very technology which could otherwise provide prosperity for the majority, ultimately becomes possible to access by mostly the few. Even though some want guaranteed incomes that would preserve limited aspects of technology for the masses, a guaranteed income floor in and of itself could not provision the kinds of technology, that would allow populations to continue improving infrastructure.

Compensated knowledge use arbitrage has the potential to bring balance back to the economic realm. Indeed, many people took on educational investment in the 20th century, with the belief that this was the new economic reality. Where once people could depend on land use to assist with survival, skills use was supposed to take the place of land use, thus governments led their citizens to believe that it could.

Hence when that promise seems broken, citizens have a right to be angry with their governments. But the good news is that governments can still realize that promise by allowing people to once again assist in the needs of one another, without the constant intervention of special interests to keep them from doing so. If governments are willing to do this for their citizens, free speech will actually come to mean what it is supposed to for a democracy to work, instead of just being a vehicle for coercion and intimidation.

By bringing knowledge use into monetized time arbitrage, the use of knowledge can once again be restored to democracies which might otherwise fail, without a similar process to preserve educational investments. No nation can expect to remain secure - no community can expect to remain strong, if their citizens invest in knowledge gains and yet have no way to make their investments work for them, outside the limitations of institutions. Without the ability to use knowledge to help and assist all individuals in free marketplaces, education - no matter how targeted - would only mean diminishing returns for ever larger segments of the population.

Set knowledge use free, for prosperity's sake. For democracy's sake. For the sake of every individual who dreams of a better future for themselves...for the world...for those who every person cares about. Set knowledge use free, from the shackles of institutions which unfortunately take what they need and end up throwing the rest away. Until our institutions are willing to allow us to create a true marketplace for knowledge, technology remains a threat to the participation of millions, when it should be a vital part of what frees us all. The enslavement of knowledge use, is the enslavement of mankind. We can do better than this.

Saturday, January 18, 2014

Externalities: Got Negatives? Make Positives

Dialogue can be a tricky thing. Thus, a lot of economic issues are conveyed, depending on how they are ultimately framed. Sure, it's easy enough to emphasize context, but how could that turn negatives into positives? Presently, the most important economic "externalities" are the unemployed of all nations. Their problems need to be addressed both at home and everywhere - in a world that needs immigration and focused domestic efforts at the same time. The unemployed and underemployed are the negative realities which today's institutions no longer have room to include - at least not to the degree that individuals prepare for. However, the ways that economists try to explain unemployment, are being brought into question.

The reason this matters, is that society does not have other cultural or social places for the unemployed which make much sense. Only consider the degree to which people marry those who are in similar circumstance as themselves. Just to marry someone with "subpar" health or related circumstance, can mean a life of struggle (in spite of one's hopes to the contrary), for anyone who marries for love. In the past, people without perfect "report cards" could still have a life and raise families. Whether because of land holdings or the ability to emigrate, they generally had options to the institutional ones that came to define the 20th century. Thus in the aggregate, most still had ways to contribute. What's more, it didn't really matter in a larger sense, if one's contributions for the world appeared "subpar" by industry standards.

How can we rationalize that anyone without a straight "A" report card, doesn't have what it takes to be responsible for anything...or even not be expected to "have a life"? Hmm. Invisibility only goes so far, especially for negative externalities such as unemployment. Hence, some dialogue can make the unemployed seem like so much "pollution", i.e. more of a nuisance factor than anything.

Or, some simply reason that these people do not want to be employed. And in many locations, marketplaces are not set up well for full employment, either. What gets missed: any system that does not have ways for all of its participants to contribute beyond consumption, is going to end up fragile. Humans don't do well, when consumption is their only real option. The longer that anyone lives with primarily a consumer role, the harder it becomes for them to maintain reciprocity and understanding, with others.

In some ways, it makes sense for an institution to refuse employment to someone with a chronic illness. On the other hand, the institution has thereby created a negative externality. It does not make sense for society to think that the individual with chronic illness still has the ability to carry their weight or pay their bills, if they are not in fact employed or otherwise able to participate in economic activity. Disability payments (beyond medical need), are little more than a result of the fact that no one has come to terms with this problem. Even though nations worry about the plight of the unemployed and underemployed, the greater worry over middle class issues, now gets in the way. Consequently, governments expect businesses to address inequality and access, at the precise moment businesses find themselves able to do less.

What this means: in the aggregate, fewer people are gaining the positive side of the ledger which institutional validation provides. Oddly enough, when too many people find themselves on the negative side of the ledger, so too do interest rates and investment opportunities. At multiple points in history, individuals could provide their own resourcefulness for better outcomes. But there are not as many means in the present to do so. As a result, a growing number find themselves on the negative side of the ledger. That's often true, even though they may have limited access through part time or work representing a portion of their actual capacity. The growing negative on the part of individuals, translates into the larger societal negative interest on return. How to turn that around? How do we contribute to the positive side, outside the role of institutions?

After all, making positives is not easy because it implies the need to rearrange basic elements and even starting over, in some instances. At the very least, this is not the only discussion for starting over with something simpler to use, all around. NGDPLT or nominal targeting is a way for central banks to start over. Also, simpler tax systems are sometimes argued for in similar terms. Indeed, by providing incentive to allow everyone to contribute knowledge and skill,  much present day taxation for services might eventually prove unnecessary. People would be willing to contribute their part in matched services to the bottom line, if they had real means by which to do so.

A more positive return overall is something we can generate, by stepping beyond the bounds of what our institutions are capable of providing. That doesn't mean that we abandon them. Rather, it means a broader definition of skill set applicability than our institutions are capable of harvesting. Our institutions not only pointed the way towards broader skills delineations, they tried to take us there, before the Great Recession intervened. In the process, they have also shown us how we would like to be able to interact with one another, both socially and economically. There is a wealth of skills possibilities which could readily be adapted for use at local levels.  

One interesting aspect about the unemployed and underemployed creating their own knowledge based marketplace: it might be the most comprehensive experiment in overcoming IQ limitations the world has ever known. No doubt, institutions could observe the work these individuals prove capable of and say, "Hey, you don't have to do all that - after all that's something we can do instead!"
Likewise I know the limitations of my IQ. Often, posts that take me the better part of a day to complete, could be knocked out in an hour by someone with a higher IQ. But that's just the thing: people with high IQ, tend to find their time is in high demand, and there is only so much time to go around. Therefore, they can only attend to so many who ask for their help. The same is true of those who can only hire so many, for limited jobs. Let alone doctors, who can only tend to so many patients.

Yes, these institutions would handle all the knowledge work and the decision making if they could. But they can only do so - under present day demands - with the best and the brightest; those who win the popularity or talent contests, the ones with the fewest sick days, bright minds with the best math abilities. However we live in a world where everyone needs to participate, not just the best and the brightest. By arbitraging skills sets between time use similarities - perhaps even age related "handicaps", production value and wealth aggregates need not be lost in the quest for economic inclusion. It's time to turn "lemons" into lemonade.

Wednesday, January 15, 2014

Midweek Market Monetarist Links and Summaries - 1/15/14

David Beckworth submitted a request for the Federal Reserve to provide monthly estimates of the short-run natural interest rate:

In a reply to Simon Wren-Lewis, Bill Woolsey explains that monetary and fiscal policy are not the same thing (my reply to Wren-Lewis is here): Wren-Lewis on Fiscal Policy
How might the need for base money eventually change? Market Monetarism and New Keynesian Economics, Again
Neither one of their proposals is a good idea: Summers vs Blanchard: Choose Your Poison
Woolsey agrees with Rowe that the ZLB is largely self-imposed: Rowe on the Liquidity Trap
The lower interest rate only dampens the decrease in asset prices: Secular Stagnation and Asset Prices
Is MM irrefutable? Testing Market Monetarism

"A test has already taken place." (Marcus Nunes):
Price stability first?
Marcus highlights a recent Ambrose Evans-Pritchard article:
Some variations in the last five business cycles with charts:
How will history remember Bernanke?
If this graph doesn't convince anyone...

James Grant misses the mark in this WSJ review (David Glasner):
A Stephen Williamson "takedown" via Greg Hill:

What is actually necessary to manage liquidity? (Nick Rowe) Monetary policy, fiscal policy, the target, and the size of the central bank
Where "corporate bonds" become land (Nick responds to Bill Woolsey):

(Scott Sumner) given the fact that construction costs are much higher in the U.S...The U.S. should have crappy infrastructure
Some days it's just emotionally rewarding to offend people - Bashing Smith, Kling and anyone else that gets in my way
Further thoughts on inequality: Reply to Ryan Avent
Is NGDPLT really what's happening in this hypothetical? A reply to Arnold Kling
"what really matters is how policy affects macro forecasts, not how actual results differ from market forecasts" Mike Konczal provides two arguments against monetary offset
Still a mystery: Different types of unemployment (it's not the discouraged workers)
What purpose served? How would the Fed respond to the elimination of extended UI?
I certainly agree: Why history of thought matters
An important distinction: Fiscal and monetary policy are not alternatives

This week at Econlog (Scott Sumner)

Another "must read" for Lars Christensen:
A new paper:

This was not one of the "genteel post-1980s recessions" (Ryan Avent)

Bonnie Carr contemplates the road less traveled:

From Evan Soltas:

The only category rising? Less than high school education (Kevin Erdmann)

James Pethokoukis: For the long term unemployed, the U.S. job market is in a depression
Turn more workers into capitalists? The solution to income inequality and immobility? It's been right in front of us all along.

Also of interest:

From the book "Naked Statistics" (Charles Wheelan) now out in paperback

Don't we all! (Ryan Long)
Regrets, I Have A Few

Tuesday, January 14, 2014

A Reply to Tony Blair

In a recent article for Project Syndicate, Tony Blair promotes education for cross cultural dialogue, amongst students around the world 12-17 years of age. Here's some of his concerns:
...stories of terrorism and violence perpetrated in the cause of a false view of religion...Today, in an arc that stretches from the Far East through the Middle East to the streets of cities in Europe and in the United States, we face a scourge that has taken innocent lives, scarred communities, and destabilized countries."
Blair seeks to counteract growing terrorism, the result of fanatical Islamists, as well as "Christians, Jews, Hindus and Buddhists who disfigure the true nature of their faith." However, I sense underlying economic causes, which I wonder whether Blair has taken into account. In recent decades, there has been a sea change in rural life in the U.S. While there is frequent dialogue regarding struggling areas in the cities, the lack of economic access for rural areas is mostly ignored in U.S. dialogue. Discussions about poverty are not the same thing, for they mostly revolve around governmental solution finding instead of actual economic viability at local levels.

So when political insurgent problems finally arise which start out rural in nature, they can be like a fire which is practically impossible to put out. Rebels of all stripes may be inclined to laugh and fire their gun in the air when people look astonished and ask, "Why can't we all just get along? Where did all this anger come from?"

Much of what was labeled a war on poverty, should have been taken on as a campaign to restore economic viability and diversity at local levels, decades ago. Terrorism has more backing than ever, in places around the world. But it wasn't always this way. Today, anyone with money who has issues with the status quo, can just tap into the economic vacuum that was ignored at local levels by everyone for far too long. Finally, the hate spilled over into the cities and everywhere. Any nation or government which hoards the main economic action for its cities and capitals, leaves its rural areas too vulnerable.

One only hopes that Blair's efforts can do some good. Still, I am concerned that the outreach he supports, will mostly reinforce good feelings that those of different faiths already want to extend towards one another. In other words it works as a social signal for those who already stood to gain, from being so inclined. Efforts in this regard, don't take into account why different faiths step into community roles which they never should have had to assume in the first place. Who else was around to help citizens discover better ways to help themselves? Too often, the purpose of formal education has been to encourage escape, from places which are consequently left with little economic purpose.

For too many places, local faith ends up as the last provider of social coordination and integration, left standing. In all this, the fact that we have history to show us how to avoid episodes of conflict, isn't enough. When people are not economically connected to one another in real ways, they will keep stumbling over and over again. No government can afford to forget that, yet it is a crucial mistake which formal education and governments have been making all along. Working through the same channels to repeat a similar message again mostly reinforces the status quo.

Local education is often not a contributor to success at local levels, because it is taken on for purposes mostly beyond the community which commits to it. This is true both for teachers and students. In many instances, their activities are not connected to actual ongoing services needs and wealth creation potential amongst the community. Once a student graduates, oftentimes a dozen years of efforts simply stop with no further place to go.

That may still hold true even when private schools provide better quality education, for the purpose remains externally and institutionally directed. In other words, education is still mostly about preparing people to look for something other than the ways they are experiencing reality. Supposedly, other institutions are able to pick up where schools leave off, but the coordination amongst these doesn't really exist. That translates into students not knowing how to proceed from their present circumstance, and not knowing how to help others from what they've learned. It's left to one's local faith to pick up the pieces - whatever that faith happens to be.

A lot of this comes down to patterns of centralization or decentralization, and how they are ultimately arrived at locally and nationally. Today there are calls for decentralization in the U.S. but so far the dialogue is reactionary. What matters is whether proposed methods for decentralization are productive or reactionary, for there is a world of difference between the two. One is simply fed up with dictates from elsewhere. Whereas the other is prepared to take knowledge use, and apply it so as to allow communities to take better care of their own and create renewed wealth.

Before anyone can actually become capable of economic diversification at local levels, they need the rights to knowledge use for individuals which would make that possible. Such knowledge use rights would make local education effective, so that all in community could become part of local coordination efforts for services and wealth creation. These knowledge use rights might also encourage local leaders to once again take the chances on extensive support of local educational efforts. In some parts of the world, villages without local knowledge use are even hampered further, by terrorists who block the entry of doctors who would come to help the wounded and the sick.

When people who are geographically isolated are expected to rely on coordination from economic structures far away, they don't trust them. But that's not the worst of it. They may not trust each other. They become reluctant to approach their neighbors for anything, because they don't see their neighbor as being invested with value or skill either. That's particularly true  if no institution is currently investing in the skills of locals. They may no longer see the product formations of others as valuable, and begin to reason that if they need something they can tend to it themselves. It's just not a good idea for any society to go too far down this path.

Instead of providing choice and freedom, products and services are now seen as something to be parceled out on merit, instead of spontaneous ability and aspiration to share with others. People in every community need knowledge use and economic diversity where they are - not just access to cities in critical moments of their lives. Otherwise, no social diversity will ever make sense to them, and understandably so.

This set of affairs has been going on for too long, and I don't like the fact that it is happening. Without the right to local knowledge use wealth, no village can aspire to economic and social connectivity. Every faith struggles to turn its own radical members around when they have been economically abandoned - in some instances for centuries at a time.

Thursday, January 9, 2014

Before Social Programs Devolve to the States...

Whoa, hang on just a minute there. Sure, it's reasonable to suggest - as Senator Rubio did - that the vast majority of social programs be handled at state levels. But how does anyone really propose to do that? Presently, Washington struggles to fund or otherwise support more services than are presently possible at state levels. The fact remains that local and state governments do not yet have the additional means, coordination or resources in place, to be able to take over the process.

By trying to force this devolution through political channels instead of active negotiations, thousands of details would not be considered beforehand. Discussions with thousands of participants from all walks are life, are needed before such a process might actually proceed in designated locations. People need examples of services coordination alongside local education preparation over time, to see what works and what doesn't.

Let's hope no one will vote full scale services changes across the entire country at once. Indeed, the same complaints about rolling out Obamacare in each state at the same time, apply in this situation, as well. Without domestic summits and any real participation from the public, "solutions" would mostly look like the same special interest wealth capture as before. Those institutional incentives would only stretch state budgets even further, while making the actual services marketplace even smaller than the present.

In a podcast with James Pethokoukis, Oren Cass discusses a plan to consolidate assistance programs. The plan has also been endorsed by Senator Marco Rubio.  Indeed, anyone with only a passing acquaintance with my posts might wonder, what is the problem here? Doesn't this blogger advocate for services coordination and accountability at local levels? The problem is the fact that no one is considering this potential sea change in an economic equilibrium context. How so?

States are more dependent on national monetary assets to services transmission, than they realize. People in many rural areas are especially reliant on national assistance for health care. What's presently lacking, is an understanding how income potential and economic access affect this process. Only consider the battles between economists, as to whether monetary equivalence for all participants even matters. If economists aren't making that connection between income and consumption potential, how can anyone expect states to be able to do so? There's no true context of accountability on the part of individual, state or community, yet. Any devolution of social programs to state levels now, would immediately put a lot of people in a world of hurt.

The primary issue in this regard is that only the budget context is being considered, and budgets are stretched out of recognition because of supplier to consumer realities, in services. Just as national government has been forced to dip into deep pockets to reimburse the suppliers of healthcare, state governments would presently be expected to do the same. What's more, the states would no longer have the backing of the entire monetary system behind them, to be able to do so. That means an immediate shift in terms of the population which has access to healthcare.

Consider pension obligations, particularly the "unmet" garden variety which lurk in the shadows of vulnerable municipalities everywhere. Unions! Lefties! Hmmm, but why exactly were those pension payouts getting so high in the first place? A working paper highlighted by Arnold Kling gives a few clues: "...we find that unfunded retiree healthcare liabilities are 1/2 the size of unfunded pension obligations." Arnold adds, "there are strong incentives for politicians to avoid transparent accounting."

They want to get reelected don't they? I certainly concur. Here's the thing. The problem for anyone who relies on social programs, is that sufficiency of vouchers and choice are wishful thinking. At least, so long as the person who seeks services has to rely on product which is essentially defined outside of the marketplace (with political favors). Healthcare providers in particular, are set up for the portion of the marketplace which contributes to their present structure. Many of them are far from ready, to accommodate those individuals who would be showing up with vouchers or the like. What's more, the most basic services people expect now at the national level are becoming strained, as this chart indicates for calls to the IRS since the Great Recession. Clearly governments are overwhelmed at all levels. Citizens need to begin coordinating services by more direct and informal means, in the years ahead.

Even though many social services tend to be associated with lower income, the fact remains that they are necessary to maintain for all levels of income. Even so, no economic balance is really possible, until those with lower incomes can move towards a future for themselves. They need dedicated spaces, where they can generate services based solutions in line with their actual needs and desires. But to do so, they need environments where they can break free of the constraints of special interests.

It is not easy for governments to break their exclusivity arrangements with suppliers, producers and providers, even though services provisions for lower incomes are now being curtailed. An apt example of this discrepancy, is the recent separation of the SNAP program from its former association with government agricultural programs. One would have expected these agricultural subsidies to have been rolled back as well, but the reality is that commitments between Washington and agriculture may only be growing stronger.

The agriculture example illustrates how governments aren't well positioned, to expect suppliers to to be accessible to all income categories. The best that can be hoped for is to designate areas where individuals are free to create product and services more in line with their income and resource capacity. As it becomes more difficult for any governments to provide services, the best road to sustainability for all concerned is to allow individuals to innovate - with legal backing. Over time, institutions of all kinds will need to adapt, for they are responsible for the broken equilibrium between income levels that caused the present dilemma.

Empires of wealth were recently built by healthcare and housing interests in the U.S. but these can no longer be maintained in their present status. Local governments supported these forms of wealth capture just as surely as national governments. Thus the idea of better sustainability minus national dictates won't get too far, so long as the same product restrictions and political favors remain in place.

Wednesday, January 8, 2014

Midweek Market Monetarist Links and Summaries - 1/8/14

A busy week, for Scott Sumner - Why bitcoins aren't actually money
An interesting post - Does planning explain prosperity?
When you get caught between the moon and another MM - New Keynesian debate...starting New Year's day, no less! Krugman overlooks the smoking gun
I like Patrick Sullivan's comment about financial innovation at 11:33 in this post - John Cochrane on money/macro
It's been a good year for Market Monetarism - Diogenes never met Joe Wiesenthal
Does "updating one's priors" count as a good New Year's resolution? Is Paul Krugman a Bayesian?
Another take on How does market monetarism differ from new Keynesianism? Commenter "dtoh" also offers a "quick and handy" reference guide at 8:44.
At least Delong considered benchmark levels. But the use of RGDP only further distorts them: Brad Delong hasn't done his homework

Also, Scott Sumner's posts at Econlog this week:
Reduce bubbles with budget deficits?

Bill Woolsey explains some of the differences between shadow and conventional banking
No test really happens until nominal targeting is adopted. And in all this, levels matter:
The "Test" of Market Monetarism
"The theoretical framework of Market Monetarism is that spending on output depends on the quantity of money and the demand to hold it. And the quantity of money should be adjusted according to the demand to hold money given a level target for nominal GDP." Market Monetarism vs. new Keynesian

Governments...banks...codependency? (Nick Rowe)
Where Nick Rowe's thoughts about banks, according to Bill Woolsey, are either "wrong or wrong headed"!

Why name a target and then consistently hit below it? (Marcus Nunes)
When policy makers try to control prices directly...
Will 2014 be the year that levels are reconsidered?
Has the Fed given up on a robust recovery?
In graphs - the real difference in this recession:

The Weidmann rule is a recipe for deflation (Lars Christensen)
Some Argentine economists are familiar with deadweight loss. Help!
See, this wasn't about a currency war after all...
Tick, tick...

2013 - the year the Sumner Critique became political -

Microfoundations should be making new and better predictions than we were making without them (David Glasner)

David Beckworth follows Paul Krugman's instructions and gets a surprising result:

James Pethokoukis is concerned: Which of these 3 charts makes it seem like a smart idea to end emergency jobless benefits?

JP Koning's take on QE and deflation:

Does Larry Summers think that monetary stimulus is "bad for society"? (Ryan Avent)

Tuesday, January 7, 2014

A Reply to Simon Wren-Lewis

In a timeframe when economic arguments often get bogged down in particulars, I was somewhat relieved when Simon Wren-Lewis asked a rather basic question which boils down to this: what's the deal with the fight between monetary and fiscal advocates, anyway? Even though I have a limited understanding of macroeconomics beyond the level of a layperson, the fact that much of this discussion comes down to political differences is something I can engage in. That's not true because I think in normal political terms (as my readers are well aware) but because I prefer to weave my way around the minefields that both sides set up for one another. Why? Because I'm tired...and there are days when life feels too short for either "precise" logic or fallacy!

First, I need to stress that as a Market Monetarist, the basic issue for me is - yes - about a very specific parameter which I believe to be paramount for economic stability. (No, not that earlier IS-LM model that macroeconomists argued about) The parameter I'm concerned about, is a faithful following of the actual capacity which everyone has to spend - or consume - in any given timeframe. That is, money is made available to economic participants, based on recent commitments and contractual arrangements on everyone's part. The importance of providing adequate money for all the economic players (whoever they are) with a level target has been lost, in the competing arenas of finance demands and fought over government programs.

Even though following this parameter faithfully is not going to ease all unemployment, it can still clarify how to best focus on the remainder.  By focusing on the actual time value of economic participants, the missing (knowledge use) marketplace of the present can also be addressed. That means governments can move away from inefficient and partial reimbursement of limited services, to reimbursing all citizens at local levels in their efforts to coordinate activity and services. When knowledge use becomes actual wealth and desirable product in its own right, services are no longer just a means to an end. This would be a tremendous boost for governments which have spent decades preparing citizens for knowledge use, only to end up not having room for them in the marketplace, because of tight money and special interests in the wake of the Great Recession.

When I suggest that monetary measures are more effective than fiscal measures, my reasoning also includes a historical timing element, besides the nominal targeting context. Governments in developed nations don't have the room to maneuver that they once had. Plus, the idea of fiscal action occurs within a general monetary framework at all times. What's more, the role of finance is quite similar to fiscal support in that regard. Unfortunately, a lot of priors for these arguments not only get lost, but correlation and causation are getting confused as well.

Therefore the primary thing I need to emphasize is the former growth trend level, which dropped at the onset of the Great Recession and has not recovered. What's more, it's difficult to even visualize what was lost, if graphs are not illustrated in nominal spending terms. Granted, some Market Monetarists no longer expect that the previous trend line can be restored, but until recently, there was considerable hope that it could be. What's more, Market Monetarists such as myself will continue to push for the return of the growth trajectory which existed prior to the Great Recession.

Not only do many fiscal theorists downplay this concern on the part of Market Monetarists, but they also downplay MM concern regarding persistent long term unemployment. Very few macroeconomists have given enough thought to that still missing territory in recent debates, which has resulted in yet more misunderstandings. Throwing up one's hands and declaring that we are facing stagnation well into the future, is not addressing the issue.

Why is it so hard to explore what happened to the core idea of wealth, almost overnight? Yes, people bought increasingly larger homes as the 20th century progressed. But this was hardly the way that most people conceptualized or spoke of wealth. So why did a decline in housing destroy wealth building potential? This issue is barely being spoken of in the present, and that wealth needs to be recaptured both in knowledge use and services terms. No one can afford to exclude the concept of missing wealth indefinitely, from these most recent versions of monetary and fiscal debate.

Governments once made a tremendous difference in infrastructure because of their ability to affect economic conditions in general. Unfortunately, this flexibility has been lost. What's more, some of the reasoning for that loss goes beyond finger pointing, and governments can reach out to their own citizens to find greater flexibility in decision making. So when I suggest that fiscal outlays are not as effective as monetary outlays, much of this has to do with government's inability to coordinate societal goals on its own. A primary reason I advocate economic coordination through informal group settings across the U.S. (domestic summits for citizens), is the fact that governments and special interests have become too entrenched to be able to respond to the actual needs of present generations.

The space in which many governments could partake in infrastructural design, was quickly filled, defined and hardened by special interests in the 20th century. That's why fiscal action is not the guaranteed economic booster it once was, especially in developed nations. In the meantime, past infrastructure continues to decline, and future infrastructure cannot be agreed upon . But even these differences in focus are not always obvious, because younger generations will be living in ways quite different from the Baby Boomers and the generation just prior to them.

Focusing on technical differences in models between New Keynesians and Market Monetarists has not really borne fruit, which is why I suggest digging a bit deeper, now. Even exploring political differences is not enough, for polarization is far greater here, than in the economics profession itself. For this blogger, recognizing the importance of following a nominal level target is vital, because until all economic actors are taken into account, finance alongside other special interests are going to win the bigger part of these battles while the rest of us lose.

Any time people can agree on coordinated action for the economy, fiscal efforts can certainly play a vital role. It is when fiscal elements are used instead for special interests that no one gains. Instead, more people ultimately end up unemployed or driven out of business, and taxes are even harder to come by. What the nominal target insists upon in all this, is that we all are monetarily covered for what we are already obligated to in the present, no more and no less.

That is the best starting point we have. When everyone recognizes what it actually means, then government efforts can continue to play their part in economic activity, just as they always have. Unfortunately, government efforts have become too bogged down in past promises of late, to really assist in present needs. Which is also why a better understanding of the monetary role is needed now, so that nations might once again move forward.

Wednesday, January 1, 2014

Midweek Market Monetarist Links and Summaries - 1/1/14

Happy New Year!

This has been a light week for blogging in general, although Nick Rowe has been quite busy...
Those who hire - do they "gain" in a recession?
There is a taboo against buyers of labor switching to a competing seller who offers a better deal. There is no taboo against sellers of labor switching to a competing buyer who offers a better deal.
"Never reason from an increase in inequality...Inequality is an endogenous variable":
Why can't all banks be as safe as the Bank of Canada?
What happens when two currencies are identical, but only one is backed by assets?

My thoughts on reading this post: Remember Monopoly games as a kid? Imagine that - for a couple of turns - the banker gets cold feet and refuses to follow, back up or otherwise honor the role of the dice, that is our "moves". (Marcus Nunes)
In 2010, something happened:
1960's all over again? Except this time, finance doesn't have the "teeth" to back the fiscal bet:
Output alone does not tell us participation levels:
Remember this bet? (Which Krugman "lost")

Some interesting aspects of currency demand at Christmas, from Scott Sumner's dissertation.
When tapering is done, that doesn't mean the work of (most) Market Monetarists is done, by any means: Brace yourself for the taper
Scott will be guest blogging at Econlog this year Yes he will still continue his main blog as well.

Remember Dustin's question in one of Scott Sumner's posts, last week? Some more "untangling" in these two responses. First one is from David Glasner:
And the second post is from Bill Woolsey: Interest Rates and Investment

Lars Christensen covers lots of territory in this post, and also thoughts on family life:

Kevin Erdmann understands the degree to which Obamacare affects very real scarcities - An important post: