Wrap Up for June '14

Summer humidity is setting in - and July almost here. Finally I'm starting to adjust, after a few years of complaints about Texas heat. Hey, when I was a kid, it didn't bother me. Still walking two miles a day on the trail!

Guess what happens, when a larger portion of the economy gets dutifully shuttled into a sector with an arbitrarily limited supply at the core. Contraction of GDP! Some of this month's rumblings started with a WSJ article:

"Ouch", Mr. Stanley said in a note to clients.

Ouch indeed. Or course the uproar only got worse after the actual number: a -2.9 drop in GDP. Sure the measure may be "off" but still...Shenanigans abound in measuring healthcare "output" and the like, but so long as people are arbitrarily removed from the economic process, there are going to be problems.

Of course if one fiscal boondoggle doesn't "do the trick", maybe another will. In this Bloomberg article, it almost sounded as though Brenden Greeley was blaming the "shotgun" of monetary policy for the fact that people were finding it too expensive to take a job. (??) Hence the fiscal solution of the day? Perhaps government could pay for babysitters and the cost of gas...argh. Not to say these things wouldn't be helpful, but there's better - and simpler - ways to go about solving them. If government were to provide sitters and gas money, the results would end up skewed - just as so many subsidies already have.

You know your local internet service provider is sub par, when even the Aleph blog references it in a post title and explains why it's such a lousy stock! My (updated and recent) computer software is now having trouble recognizing the internet connection, when I'm actually able to make it. That is, the software tells me I'm not connected to the service provider, after I was finally able to do so. Also I can usually count on the internet "cutting out" quite often on weekends and holidays. Thus I count myself fortunate if I'm in the middle of post drafts when it happens, so I won't have to walk away from the laptop in the meantime. I know...am too spoiled to working "in the cloud".

An interesting question occurred to me, this month. Is there really such a thing as a Tea Party? For one thing, Bonnie Carr noted that Eric Cantor lost his congressional seat to someone who is not even affiliated with the Tea Party, even though most media sounded as though the truth were otherwise. And then Ryan Long had a great rant in a post titled "There is No Tea Party":

The Republican establishment hasn’t offered any sort of meaningful operating system upgrade in a century or more. They’re “conservatives,” and conservatives like things to stay just as they are, thank you very much. What’s more, it’s doubtful that making any significant changes would be good for them as a political party. New or significantly improved features are difficult to produce, especially when your central goal is to reign supreme over the country. You might “alienate your base” by introducing them to weird, new-fangled concepts like ending agricultural and corporate welfare. If you stop talking about god, then you won’t be able to rattle certain cages anymore, and you’ll have to risk giving them individual liberty. And we can’t have that.

Here's some equal time use in action with local and digital help: "The students are given little direction about how to solve the problems, so they have to turn to each other - and to the internet - to figure out the solutions." The Venture Beat article provides an apt example how educational matching could occur at local levels, in coordinated settings.

An article from Rana Foroohar, "2030: The Year Retirement Ends", also provides good reasoning as to why services formations of all kinds need to be reconfigured, from the ground up. The marketplace of the future probably will not resemble megamalls or 50s downtowns in spite of a few "blasts from the past" - one only hope that tomorrow's Main Streets will become more inspiring and capable of bringing people together again.

Several posts this month got into specifics of time and skills arbitrage: a subject still very much on my mind. When compensation takes place through fixed time use valuation (generating sticky wages), we lose time use as an arbitrage option. Sometimes this does not matter, if we have sufficient access to other resources already. But when we don't, the alternative of time arbitrage is needed. When faced with sticky wages in aggregate service settings, government may be inclined to take a larger tax chunk in order to compensate. However in doing so, an equilibrium penalty is also generated (i.e.Obamacare). Trying to maintain all income levels in a vast general equilibrium, can be costly indeed.

Differentiated wages attempt to assign specific value to skill sets, but this happens in environments where other valuations are constantly changing. Hence there is a need to overcome the limitations of sticky wages - along with the debt contracts which reflect them, wherever possible. In the meantime, fixed value skills sets continue to push other possibilities for time use out of the marketplace - albeit through a wide variety of means. The result is the musical chairs effect. That effect could be overcome through time use arbitrage, and we would be paying ourselves to determine how best to arbitrage and coordinate our time with one another.

Time Ownership, Not Common Ownership

Some have likened my ideas to those of a participatory economy, and when I checked the definition in Wikipedia, I did note a number of similarities. Therefore, the title of this post is an initial response. There are subtle distinctions between the ownership and management of one's time use, versus the organizational structures of common ownership involving resources separate from time. Common ownership often focuses on existing production patterns and what has already transpired. Whereas, time ownership would seek to benefit from flexible production patterns, in services as well as resources other than time use.

Because rights to knowledge use would (locally) exist across institutional norms, it becomes possible to optimize knowledge and skills use patterns across institutional constructs. Fortunately, that would be true in both an individual and aggregate sense. Even though one's time use is voluntary, it could gain the organizational capacity to function as a master key or interchangeable tool.

While common ownership tries to solve for equality of outcome, time ownership attempts to solve for equality of opportunity, through the equal time already available to us. Time ownership is important because it is the basic resource starting point which we have already received. Hence, it is the only constant that we have available, for arbitrage and negotiation with others. Because our time is so limited, time use potential quickly becomes unbalanced when it is not taken into consideration with other economic factors. Without the ability to manage our time in relation with others, no one ever knows if the resources available to replace time constraints, can actually gain the chance to do so.

Even though unequal distribution of resources can be problematic, common resource ownership is not well situated to overcome those problems - at least in a broad or centralized sense. While it is possible to optimize time use better than others would in our stead, it is not possible for any individual to know the best optimization of other resources. By their very nature, resources separate from time respond best to diverse input which goes well beyond local boundaries. On the other hand, no one really knows the best use of our time, better than we do.

Problems arise when our time use is externally managed to such an extent, that our health also becomes compromised. However, the greatest problem for time capacity is harsh definition of both product and service formations. No amount of time adjustment can suffice, when individuals of low to medium income are not allowed to contribute to ongoing service or product roles. Indeed, it's not really possible to own time potential, if numerous options are automatically ruled out. When this occurs, no amount of resource capacity can salvage the ensuing time imbalances, even when resource windfalls have become quite substantial.

In order to be economically viable, time ownership and the knowledge use systems it makes possible, need to be closely aligned with capitalism - albeit with renewed focus on small business formation and decentralization. Services would be self supporting as matched time use product, and locally coordinated through calendared skills arbitrage. Also, local investment pools would be a part of work and educational structures, so that no monetary constraints would result from the equally compensated time use base.

Understandably, the idea of (once again) becoming responsible for our time use has been unsettling. After all, cultural and economic conditions have completely changed, since the use of one's time for economic purpose has played a central role. Till recently, labor had been externally defined to such an extent, that it did not seem necessary to be responsible in this capacity. Yet now the process of automation has brought time use considerations full circle.

However, there are any number of silver linings in this cloud. Time ownership brings the possibilities of utility and public choice back into the economic equation. Direct democracy in services would be possible. And through the measurement and compensation of self directed time, something else will also have the chance to make an appearance in GDP as well: happiness.

Why "Disrupt" With Local Knowledge Use Systems?

Why disrupt the status quo? Healthcare needs are the primary reason. Until greater skills capacity is tapped, it remains impossible to address other aspects of an out of balance system. While I have nothing against physicians - indeed there are many I hold in high regard - I remain convinced they can no longer be expected to carry out the work of healing by themselves. It's time to move past the limits of an outdated paradigm.

Of course, disruption is not something to take on lightly. This past week, Joshua Gans has been posting a series about disruption, which includes aspects of the decision making process involved, whether or not to do so. Clearly, some forms of disruption are more needed, than others. Of course, these can also be the most difficult to initiate, in that they are really about reform instead of more regulation and rules.

Often I have thought about the disruptive potential of knowledge use systems. While I have played down disruption potential in a number of posts, there are times when I'm reminded that knowledge use systems need to disrupt today's limited forms of knowledge use - in a big way. Not only do unnecessary limitations in knowledge and skills use continue to spread, they make it difficult to know where to begin the process of problem solving.

Today, skills potential - in aggregate - has less liquidity (market applicability) than I've ever observed: that's completely unnecessary. Let alone, it's bad enough when both government and business interests both claim they don't "need" the skills sets citizens have to offer. But they certainly need the citizen's money! When the prevailing system decides to punish people and take advantage of them for being unable to pay after needing medical assistance, I'm inclined to say... disrupt away! Not only has the right to heal been denied on the part of many who would, our very humanity has been denied in the process.

So what triggered today's outburst on my part? There is a discussion about the return of debtor's prisons: a problem which was already written about and observed in 2011.  Three years later the problem has only grown worse, and it represents a throwback to a point in history which no one expected to see again. The same governments which insist they are "protecting" their citizens from every bogeyman imaginable, are now becoming the worst bogeyman of all. And once governments are "crossed", it can be difficult indeed, to get back into their good graces.

If only "crossing" government was a result of normal criminal activity, little of this would be such a big deal. But people are being treated as criminals, when the real criminal act has been the limitations of skills potential in numerous economic circumstance. Who with limited (or no) income is going to feel confident about seeking seek life preserving action, if that could eventually mean dealing with the collection agencies which come calling afterward? Once debt spirals land individuals in prison, governments don't hesitate to extract even more money from them.

There is another side of this story, as well. It's not just about one's own medical bills, or how careful and frugal one might be to avoid a worst case scenario. It's also about those we are related to, because it makes little difference to the collection agency, who actually receives the bill or phone call. Not only has this become a dangerous scenario for anyone with a small or non existent income, it has likely become the greatest deterrent to marriage that now exists for lower to middle income levels in the U.S. What's more, there is considerable shame involved for those who have family related medical debt, and these folk are understandably uncomfortable about bringing this into public dialogue.

If for no other reason, present day dangers of receiving healthcare are sufficient grounds for new knowledge based systems with healthcare as central. Sure, the political problems appear intractable, but that is no longer reason enough for inaction. To be sure, not every person who receives healthcare will be safe from bill collectors in the future. But at the very least, people need to begin devising knowledge use systems which include diverse healthcare options. The right to heal, is essential.

First Quarter Plunge? A "Get In Line" Hypothesis

...At least, for what hypothetical musings are worth. The unexpected GDP revision is still very much on my mind, and there are a number of factors lurking behind skewed first quarter numbers, which don't add up. One might reasonably wonder: will some portions of the economy now have to wait patiently in line, before services production and consumption can generate expected output levels in a given quarter? If so, how might that affect future output?

It isn't difficult to imagine a growing aggregate supply/demand "holdup", which could result from artificially generated scarcities in supply side formations. Politically, those scarcities have yet to be seriously questioned, even though they need to be dealt with. Plus, healthcare holds a central place in the economy, which affects decision making further down the line in numerous areas. In other words, it's a problem not only for directly related industries and suppliers, but unrelated industries which bear responsibility to healthcare providers as well.

One interesting note: there were more positive aspects of the first quarter, in areas far removed from where anyone needs to "wait in line" for a physician. Consider a few measures which were in good shape - industrial output and hiring in general. At least some parts of the economy are not suffering from the fallout of healthcare challenges! From the WSJ (Jon Hilsenrath):

White House economist Jason Furman noted in an email that industrial output increased at a 2.1% annual rate during the first quarter, which is historically out of line with such a large contraction in gross domestic product. Then there is the peculiar hiring behavior of businesses. Hiring expanded at a 1.5% annual rate in the first quarter. Since the end of WWII, there have been fifteen other quarters during which GDP contracted by 2.9% or more. In 14 of these 15 quarters, hiring contracted along with output. 

Output expectations probably remain more positive than they appear, but that does not necessarily mean all is well. What if the time table for healthcare services which contribute to quarterly output, has become part of the problem? Supply side limitation in the form of physicians, has become the elephant in the room where everyone else turns themselves inside out, trying to fine tune other aspects of the economy to deal with the main problem. Physicians hold a primary position, in that wide swathes of healthcare providers must await central authorization before many vital activities can even be set into motion - let alone measured and recorded.

"Getting in line" for constant approval, reduces organizational agility and time use effectiveness on a number of levels. While Obamacare certainly exacerbates time utilization issues, such bottlenecks were already a problem before Obamacare ever came into the picture. Unfortunately, the new healthcare law does nothing to address the top down management structure and supply side limitations which previously existed. If anything, it seems to have strengthened them in some respects.

Only consider the recent outrage over the VA system, which - while clearly operating in a dysfunctional capacity - is far from alone in its time utilization headaches. For one thing, it's hard to imagine that many employees in the VA system fully understood the scheduling problems that were recently uncovered. Indeed, the VA employees I've known in recent years, had been quite proud of what they believed was now a well functioning system. While part of the blame goes to government inefficiencies and skewed incentives, the VA cover up represents skills capacity and time use problems which go much deeper than bureaucratic bungling.

Many who could fulfill some of the functions which physicians now hold, are still being denied the opportunity to do so. Unfortunately, this also holds true for other healthcare skills sets which are closely guarded as well. Presently, there is no telling when that circumstance will actually change on a wide scale, hence strategies need to focus on solutions for regions and individuals where services access is extremely limited.

Even though some aspects of the economy are returning to normal, skills use capacity is still woefully underrepresented. Indeed, one could call this a depression for skills sets, in aggregate. Greater liquidity in skills set potential is needed, to overcome a recession that has never really gone away.

Innovation Matters For All Income Levels

Why is this important? Today's innovation - such as it is - seems to exist mostly for certain government and special interest functions. Fortunately that wasn't always the case...but what to do about the fact it is, now? Even though diverse forms of innovation once led to greater total factor productivity and growth, recent generations have not benefited from innovation across the spectrum of possibility. As a result, people from all walks of life can be forgiven for wondering if innovation even matters.

And yet, innovation once provided economic access and mobility for all income levels - in other words the gains of the 20th century. Who has enough incentive now, to reform a broken supply side marketplace which stands in the way of economic prosperity? And who "cares" that central bankers are following the lead, of all who are too comfortable with a downshift in expectations?

Unfortunately the first quarter contraction has me in rant mode. How much better might that first quarter have been, if supply side limitations in physicians had been adequately addressed in recent years? A lack of concern regarding needed production reforms, lurks behind conversations where one hears "X amount of dollars ought to be sufficient for the healthcare needs of a poor person!" or "Give em an air conditioner and a little wood frame house to live in and they'll do fine!"

Who for that matter is "poor" at any given moment...should a substantial part of the population be expected to revert to living standards from fifty years earlier, because of a current lack of income? What if IT had been forced into such a limited mindset? We might still be showing up at offices equipped with typewriters, adding machines and perhaps a few bulky computers. What if we could make full use of the resource potential which now exists? What if education could actually be used so that individuals find better ways to solve problems? What if people still had the right to define product for themselves and for others in their midst?

To be sure, plenty of technological advancement continues apace. But it has precious little to do with services, or the environment factors involving construction which cry out for reform. For instance, a recent Business Insider article speaks of great technological gains in the next twenty years, but are these something the average citizen can get excited about? Where are the IT building components which could turn today's infrastructure requirements into options instead of burdensome necessities? Or, perhaps local holographic environments for those who are limited in travel options? How about building components that your little sister could bring to site, and snap together in an afternoon?

If much touted robots, drones, big data and surveillance mattered so much in a broader sense for total factor productivity, then why would central banks have downshifted growth prospects to such an extent? The most recent number for first quarter GDP "growth" - minus 2.9 %, is starting to look like a lost decade style number. And as John Cochrane says in this post:

It's also extraordinary because the Washington policy machine has gotten bored with growth or lack of growth and moved on to squabble about other things...What was a recession is turning into everyone's nightmare, perpetually slow growth.

Innovation is all about supply side factors, and yet today, much supply side potential remains missing in action. So long as vital elements of the marketplace are missing, it may be difficult to convince any central bankers to maintain monetary policy on a reasonable growth trajectory. That only means it will be even more difficult, for individuals who still have little economic access.

There needs to be a unified approach, which addresses the multiple factors which play into one another and prevent anything constructive from getting done. In particular, this is not about superficial "maker versus taker" arguments, in spite of political nonsense to the contrary. Indeed, some who consider themselves in a maker position (particularly services), were granted special government privileges in order for that to happen. In some instances, this may not change. Just the same, marketplaces need to exist across the income spectrum, special privilege or no. Anything less is not enough.

Midweek Market Monetarist Links and Summaries - 6/25/14

Capital is dynamic, and can render older capital obsolete. Contrary to Piketty, "the accumulation of capital is not a smooth process." (David Glasner) http://uneasymoney.com/2014/06/19/further-thoughts-on-capital-and-inequality/

Some connecting points between economists and genetics (Nick Rowe)  http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/06/regression-towards-the-mean.html
NGDP is a better indicator than house prices: http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/06/house-prices-and-inflation-targeting.html

Greg Mankiw also considers regression towards the mean (and Piketty) in this NYT article, in which he includes a link to one of Scott Sumner's posts

A price index needs more than sticky prices. Josh Hendrickson responds to Nick Rowe's (second) linked post:
http://everydayecon.wordpress.com/2014/06/20/the-index-number-problem-and-inflation/

"Had the Fed listened to Bob then there would have been no Great Recession" (Lars Christensen) http://marketmonetarist.com/2014/06/22/bob-hetzels-great-idea/

From the Real bills doctrine to the "state of the art" (Scott Sumner at Econlog) The Fed at 100:
a century of procyclical policy
About Piketty: "...a book can contain many individual arguments that don't hold up, and still be a milestone in the debate." http://econlog.econlib.org/archives/2014/06/unpersuaded.html
Scott's Adam Smith Lecture, in London - he gave an excellent talk.
This post includes notes from Scott's recent trip. Polarized left and right views in the U.S. often present "issues" for market monetarists who live here. Watch for the endgame

David Beckworth reviews Mian and Sufi's "House of Debt" in the National Review: http://macromarketmusings.blogspot.com/2014/06/what-matters-more-zlb-or-debt.html

Korea - it's not about a "rise in savings" (Marcus Nunes) http://thefaintofheart.wordpress.com/2014/06/23/the-its-structural-bias/

Bonnie Carr explains how tight money can make someone really hungry.. http://dajeeps.wordpress.com/2014/06/18/inflation-nutters-getting-nuttier-lets-talk-about-the-cpi/.

"Central banks need to think about growth, not yesteryear's war on inflation." (Benjamin Cole) http://thefaintofheart.wordpress.com/2014/06/22/bain-co-capital-niagara-will-flood-planet-what-is-market-monetarisms-response/
More QE needed: http://thefaintofheart.wordpress.com/2014/06/24/halting-qe-active-monetary-asphyxiation/

Kevin Erdmann provides the first post for a series on Risk and Valuations

merijnknibbe (Real-World Economics Review Blog) notes that much of chapter 4 in Keyne's General Theory, sounds like Scott Sumner:
http://rwer.wordpress.com/2014/06/18/keynes-a-closet-market-monetarist/

Now we know why we haven't heard from George Selgin for quite a while:
http://www.freebanking.org/2014/06/18/leaving-athens/

Also of interest:

After seeing Claudia Sahm's comments so much in the blogosphere in recent years... http://www.federalreserve.gov/econresdata/notes/feds-notes/2014/deleveraging-is-it-over-and-what-was-it-20140624.html

pdf for "Our Work Here is Done" (Visions of a Robot Economy)

Some big differences: http://blogs.wsj.com/economics/2014/06/20/two-thirds-of-u-s-states-still-havent-recovered-the-jobs-lost-in-the-recession/?mod=blogmod

Economic Rights: The Missing Component

What is the missing component? The right to help either ourselves or one another economically, as more and more laws and regulations stand in the way of meaningful social interaction. If it's difficult to envision this as a substantial issue for middle to upper income levels (where more services alternatives exist), consider the services marketplace which is often inadequate or even nonexistent for lower to middle income levels. This is particularly true, the further one travels from primary economic centers.

Based on that criteria, it becomes easier to recognize the very real limitations which have been placed on our capacity to heal, educate, create, innovate, or simply be there for one another in the marketplace. Fees of every kind imaginable, licenses, patents, degree requirements, shaming ("wrong" knowledge) and debt loads: they all stand in the way of what would otherwise be natural human responses to the ways we go about our lives. In a world where dispersed knowledge use depends on logistics and time capacity, often the issue is not even about a supposed "just right" product or service. Rather, the issue becomes whether or not society has the right to respond to its own basic needs.

Knowledge use often means contrast in method, and coordination with the skills sets of all who take part in the exchange. But that's not the way it's being treated. We are still pretending there is an "appropriate" knowledge set which is not only the exclusive domain of the provider, but is expected to preclude all other possibilities.

What's more, society is quite prepared to dish out the appropriate "punishment" if the "all knowing" service provider fails to fulfill their role "properly". A natural born desire to care for others becomes a straitjacket of expectation, or else the willingness to walk away completely if one is not up to the sacrifice the role entails. While many individuals are ready to assume the sacrifices involved, others need  better ways to think about what services actually represent.

Sometimes the whole scenario feels like a fire sale of our skills use potential, in slow motion. That's a liquidation which serves no useful purpose! Perhaps today's restrictions and regulatory environment wouldn't be so bad, if every time a new law were enacted, that meant another had to be discarded, as Megan McArdle suggested recently. If systematic removal of out of date laws were adopted in the U.S., now that would be a day I would go out into the streets to celebrate.

Often, issues regarding freedom are approached in ideological terms. But it is the loss of economic freedom which can play the most havoc - both for those who lack economic access and others who have no choice but to follow the straitjacketed rules. As for lower income levels, these individuals have too few remaining choices to be resourceful. In the days following the Great Depression, people had more options for problem solving to overcome economic hardships. Many of those earlier means have long since been legislated out of existence.

Supposedly the experts are taking care of pressing matters today so that the marginalized won't have to worry...hmmm this hasn't worked out very well, has it. In a sense, those with little economic access in the developed world, are in a position not unlike populations of the developing world who are also expected to follow through on the opinions of the experts. Even though William Easterly's latest book, "The Tyranny of Experts" is about the latter group, there are obvious parallels between the two.

While I've not yet read Easterly's most recent effort, I did read "The White Man's Burden" some years back, and I also kept up with his blog in its last year. For anyone not familiar with his material, it's definitely worth taking the time to listen to his latest podcast with Russ Roberts. From Econtalk:

...there is a more fundamental paternalism and condescension towards the poor, this inability to believe that the poor, that poor people are really capable of developing themselves. Development is thought of as something that we, the experts, have to do to and for them, as we really don't believe they can do it themselves.

Suffice to say that the development experts Easterly speaks of, are not alone in their insistence. What's more, it is this inherent paternalism which allows special interests to become intermediaries between governments and their citizens. In developed nations, expert "tyrannies" especially take the form of distorting redistribution systems so that incentives become misaligned. Even so, the problem is not that we have experts. The problem is it's too easy to believe the experts are the only ones with answers which are feasible. At the very least, that's a problem which could be overcome.

Connecting Points Along A Continuum: Time Arbitrage

The title of this post explains how time use can be accessed, for skills capacity. Knowledge use systems would take place along a relatively complete, close density continuum, consisting of diverse local service options. These systems also interact with the world at large (and invite it to join in), but they are monetarily compensated locally. Skills sets would be organized to accommodate anything from short term needs to long term goals, for both community and individual. Voluntary (calendared) coordination within the overarching structure, substitutes for what is generally planned coordination within today's organizational structures. All age groups would be included.

Organizational scale adjusts from institution specific to local specific. This allows for greater total factor productivity, in part because fewer externalities would be left unattended. Should various knowledge use and skills patterns be subjected to algorithms for "complete skills optimization", they would show aggregate possibilities for services connections (choice sets). Of course, a working model would initially do little more than hint at potential outcomes, especially if calendaring and decision sets were approached as the community game they actually represent. It would be a game which includes lifelong education, work projects, investment decision collaboration and experiential product. No "make believe" necessary!

It helps to remember that everyone's time capacity is limited, and time management is essential. Unfortunately in price arbitrage (general) equilibrium, it's not always possible to take limited time capacity into consideration, because money in general equilibrium represents resources which go well beyond time use. Monetarily compensated time arbitrage provides that option. Time arbitrage allows individuals to coordinate through supply side efforts for aggregate services potential. One example would include education curricula for skills set markets. Even when time use and accompanying logistics are aligned to the greatest degree possible, some discrepancies will always remain. However, they do not have to be near as pronounced as they are in the present.

Even though one's ability to match time with others is somewhat limited in the short run, a primary community goal would be to diversity individual connections to the greatest extent possible, in the medium and long run. The connecting points of any given day are our actual possibilities for arbitrage. Who has time available, which makes sense logistically with our own? Local knowledge systems would use this fortuitous circumstance as a vantage point.

At first glance, monetary compensation for knowledge use systems may appear as either income equality arguments or a form of guaranteed income. However that is not the case. Time arbitrage makes equality of opportunity possible, rather than equality of outcome. Equality of time use provides a point of access, into a system which otherwise would not be possible to generate. Once someone's time is compensated differently from that of another, we revert back to to the standard form of price arbitrage, but it is no longer aligned with the use of our time. Which means the possibility of time management at either individual or aggregate levels, can still remain elusive.

What's more, price arbitrage equilibrium which has no time arbitrage option, can unfortunately play a large role in national imbalances. Those imbalances - over time - become constrained by the addition of compensated time use to already existing debt balances. Because some compensated skills sets end up paying for the exclusion of other time use through taxation schemes (Obamacare as latest example), all compensated time use additions become suspect. This can lead to critical junctures, when nations may no longer welcome immigrants or most anything that appears to compete for limited resources.

By recognizing time use limitation and factoring for it in economic circumstance, many social divisions can be overcome. After all, time use experiences limitations which are more significant than any other resource nations utilize. Plus, it helps to remember that money represents all resource capacity, whether it be limited or abundant. This is why we now have a somewhat divided equilibrium, which often does not not align well with lower to middle income capacities.

Thus, time arbitrage allows the choice of a different equilibrium or dual economy, so as to access services and investment formation in unique patterns. The dual economy in this particular context, is different from the dual economy which developing countries continue to evolve away from. It is different in that it seeks new forms of production efficiencies, instead of reverting back to less productive equilibrium whenever economic access remains limited.

Another problem with unequal time use compensation: even though these skills sets are a valuable component of general equilibrium, differentiated time use is not capable of generating new product or wealth on its own terms. Instead, differentiated time value generates a form of debt in a portion of the exchange, which in turn needs to be compensated from preexisting wealth. This forces services formation into the politically charged arena of public and private definition and support. Knowledge use systems would provide some respite from these battles, in that they generate newly created wealth through a "cancelled debt" equal match scenario. It is the equal match which allows our time choices, knowledge use and skills sets to become capital in a real sense.

Time arbitrage is different from price arbitrage, in that price arbitrage is capable of substituting other resources for time use. Whereas time arbitrage would need to incorporate local investment structures in order to gain from additional resource capacity. In a sense, the coordination system becomes a substitute for the additional resource access which lower to middle income levels may not have. The substitution is particularly valuable in that it generates greater GDP and a more complete marketplace than would otherwise be possible.

Few things are more important in our lives, than the ability to manage our time effectively. When time value is capable of arbitrage, other life challenges are easier to keep in perspective. By aligning time value with others along a continuum, other important political and social alignments become possible. Instead of others representing a threat to our own economic access, the time value of others would come to be seen as a greater marketplace of potential. And the human capital which has been denied till now, would become a defining part of economic activity.

Logic and Critical Thought: An Appreciation

Logic must seem like a odd thing, to be in awe of. What's so special about logic? After all, anyone with a modicum of common sense, uses logic on a regular basis...right? If only it were always possible to use logic, and make doing so count! Many with level upper incomes, also received education in critical thinking from a young age. In such environments, this highly useful tool can also become a mostly unconscious one, especially in that it is also reflected by others.

What of those whose education didn't include elements of logic? At the very least, propitious use of logic can still be sought at a later point in one's life. Of course in this instance, doing so requires a fair amount of concentration and conscious effort. By way of example: blog posts may take longer to complete than the norm!

When logic and critical thought remain viable options, times of seeming chaos can often be overcome. To be sure, all of this intersects with matters of the heart. But the heart especially needs logic, so that one is not tempted to escape or lash out when mutual understanding appears lost. Any time relations break down, the heart needs all the help it can get. And if the only circumstance we can "rescue" is our own, logic and the heart need to work in tandem so this can happen.

Even so, there are times when logic may only provide limited assistance to the long term unemployed and the marginalized. What's more, some do not see true applicability for logic, as a useful tool for all concerned. So potential gains from the use of logic may depend on one's personal circumstance. For one thing, it matters whether we are actively engaged with others, in both knowledge based study and related work. At a more basic level, it depends on the degree we are able to affect our environment. That is, our capacity for logic may not always extend beyond ourselves - important though it is.

So long as circumstances are "right", the use of logic and knowledge allow us to contribute to our environments. Just the same, personal or societal "invitations" to engage in logic need to be extended, before we can align our interests and aspirations with others. This may not always happen - especially when the realities of others are not aligned to benefit from our own efforts at self improvement. In particular, the need for invitation is not well understood.

Since exclusive invitation to economic access remains the norm, knowledge product may exist primarily within the limitations of consumer roles, which also leaves educational investment roles uncertain. As a result, the knowledge we interact through, may not be sufficient to contribute meaningfully to either our own challenges or the challenges of others. Does economic definition exist for the challenges we pursue? If not, how might people back one another in new ways, for the aspects of life that everyone cares about? As it turns out, there's quite a difference in being a consumer of knowledge, versus an active participant.

In the meantime, logic is not always welcome, where there exists little societal room for it to remain actively applied. Hence logic and critical thought are sometimes removed from school curriculums, and books are not necessarily easy to access in the prisons of the U.S. Understandably...who wants to be confronted with meaningful logic from those who appear to be in no position to improve their lot? Not very many, and for good reason. Still,when we reduce both private and public space for logic and knowledge utilization, we reduce our own humanity. Over time, it becomes more difficult to escape the exclusion which has already occurred.

Fortunately, I managed to delete a lot of emotional elements which would have distracted from the message of this post! Perhaps the best way to wrap this up is to suggest that if we extend a societal invitation for knowledge use inclusion, we will be able to return to a society which offers equality of opportunity, and which would once again welcome the use of logic.

That really matters. Because when the opportunity to share in knowledge use isn't there, the clamor for equality in outcome only grows more intense. And equality in outcome isn't possible. Even to attempt it, makes individuals less human in the process. I'm for more humanity, and more equality of access. Ultimately, that could lead to better outcomes for all concerned.

Productivity Gains Are Still An Option For Growth

...What's more: if real productivity gains were possible throughout populations, how might they ultimately affect long term growth potential? It's worth remembering that even though productivity has stalled to some degree, by no means does the present situation have to remain as it is. There's quite a difference between stalled productivity due to a lack of imagination, versus a lack of political will. Chances are, much of the problem in this regard is due to the latter.

Nevertheless, John Fernauld of the San Francisco Fed, is one among many who believe a relatively slower productivity will be the norm in the years ahead. As it turns out, gains from the IT revolution were of a temporary nature, in that much benefit remained within the bounds of specific institutions instead of spreading through the marketplace as a whole. In a working paper, (pdf) Fernauld noted that three of the past four decades experienced lower productivity levels, thus he assumes that the return to a lower level may be normal.

In a recent post, Dietz Vollrath (The Growth Economics Blog) highlights John Fernauld's paper, and states:

What Fernauld's results imply is that the economy is not as far from its potential GDP as we might think.

Unfortunately, it's a conclusion which presently makes sense. That is, given the reticence all around on the part of many, who - until the Great Recession - continued to promote economic growth. Today, growth tends to be associated with high inflation and economic disruption, even though labor force participation leaves a lot to be desired. Hence, questions remain. Who is willing to live with with that assessment? Who is not, and why? How do we know for certain it "isn't possible" to have strong productivity and strong employment at the same time? Regular readers - by now - know that this blogger isn't ready to give up on growth potential.

Monetarily, too many lives were disrupted by "musical chairs" which are still missing. These individuals have little recourse or alternative action - a circumstance which drags on longer than most people are comfortable thinking about. Monetary policy makers might once again affirm their belief in growth potential, even to the extent of repairing the output gap. Just the same, real dialogue and societal coordination needs to occur across a wide swathe of supply side efforts. Even though central bankers can promise monetary action where it is needed (and a nominal level target is best), they still have to follow the lead of others, in order to make an improved growth trajectory a reality.

However, there are still many obstacles to overcome before production reform is a possibility. For instance, the IT which is already in place, could have achieved far more than it was ever given the chance to provide. While there are numerous examples I could offer in this regard - particularly in healthcare, just thinking about the mass scale of these inefficiencies is painful, because I have witnessed them firsthand for so long. The unwillingness of institutions to utilize digital knowledge across institutional lines has already caused considerable damage, both social and economic.

What's more, that doesn't even count potential innovation in environment and workplace structures. Imagine the leisure time option so many in the U.S. would gain, were real innovation and flexibility ever allowed in building materials. In a comment to Dietz Vollrath's above linked post, I emphasized what could have taken place, which would have meant a better growth outcome:

Much of the current downshift in growth is a result of service economy dynamics, and the fact they are not yet able to tap into digital gains across institutional boundaries. That also prevents many services in their present form, from becoming self-sufficient mechanisms for knowledge use.

He was so kind as to respond:

You're right - if there is some "leap" of IT to other sectors, then there is not reason we could not have another wave of productivity increases that temporarily increase the growth rate. But as of now, that hasn't happened, and growth in labor productivity seems to be back to pre - 1995 rates.

There's much to be said for keeping the focus on improved productivity, and such efforts could eventually assist in closing the remaining output gap. To be sure, it's not easy to change aggregate supply factors across the board, thus a process of renewed supply side growth would likely be gradual. While aggregate demand can be coordinated at national levels, substantial aggregate supply reform would be a grass roots, decentralized process.

It helps to remember, that supply side discussions are not the responsibility of monetary policy authorities, even though they would certainly want to keep up with ongoing activities should they occur. Just the same, supply side dialogue should be something that progressives, conservatives and libertarians could all get behind. After all, doing so would mean greater inclusion and economic access, innovation in the areas of the economy where it is needed most, and local investment opportunities for people at all parts of the income spectrum..

Midweek Market Monetarist Links and Summaries - 6/18/14

Scott Sumner provides an explanation for Simon Wren-Lewis: Why are market monetarists such extremists on fiscal policy?
A change in IOR affects demand for base money, while a change in the fed funds rate is an effect of a change in the supply of base money: Interest rates and monetary policy
"Seriously, we need two Federal Reserve Boards. One for monetary policy and one for banking regulation." ...At the very least, the Fed should be able to concentrate on monetary! Why we are in this mess

Some Econlog posts from Scott:
Inflation and NGDP growth need to be taken into consideration, first: Never reason from an interest rate change
Noah Smith has changed his mind about Abe "...unlike everyone else in the world, Abe listened to Milton Friedman, and the results are looking good": Fiscally inefficient monetary policy
What does 1933-80 tell us about banking regulation? Quite a lot, it turns out.

A key figure illustrates the story (Lars Christensen) http://marketmonetarist.com/2014/06/16/belka-gate-the-polish-version-of-the-sumner-critique/
Minimum wage discussions will bring dissenters "out of the woodwork" every time! http://marketmonetarist.com/2014/06/16/paul-krugman-puts-the-imf-straight-and-it-is-not-what-you-think/
In the picture, from left to right: Lars, Scott, and Marcus http://marketmonetarist.com/2014/06/18/sumner-nunes-and-christensen-in-london/

"They are all the same" (Nick Rowe) Bank Runs, Keynesian Multipliers, Monetarist Cold Potatoes

(Mark Sadowski) Where does one measure the ZLB?
http://thefaintofheart.wordpress.com/2014/06/11/simon-wren-lewis-needs-help-figuring-out-what-nothing-and-zero-mean-and-the-real-asymmetry-between-monetarists-and-fiscalists/
More at stake, than just debt stabilization:
http://thefaintofheart.wordpress.com/2014/06/12/is-fiscalist-policy-advice-consistent-with-their-research-and-just-how-interested-is-simon-wren-lewis-in-debt-stabilization/
Monetary policy and AS shocks needs to be incorporated into the fiscalist model: http://thefaintofheart.wordpress.com/2014/06/13/stuff-happens-or-why-the-fiscalist-model-never-seems-to-fit-the-data/
Some of us are convinced that spending comes first: http://thefaintofheart.wordpress.com/2014/06/14/does-lending-cause-nominal-spending-or-does-nominal-spending-cause-lending/

Has Cochrane had a change of heart? (Benjamin Cole) http://thefaintofheart.wordpress.com/2014/06/13/how-john-h-cochrane-quit-worrying-and-learned-to-love-the-monetary-bomb/

Once, central bankers were resistant to the notion that inflation was their responsibility (Lorenzo) http://thefaintofheart.wordpress.com/2014/06/14/why-monetarist-victory-is-necessary-so-central-banks-cannot-hide/
An important distinction: http://skepticlawyer.com.au/2014/06/13/hard-money-is-not-the-same-as-sound-money/

Britmouse highlights an example of money demand shock:
http://uneconomical.wordpress.com/2014/06/12/recessions-are-always-and-everywhere-a-monetary-phenomenon-in-greece-too/
Is random and unpredictable behavior supposed to inspire confidence?
http://uneconomical.wordpress.com/2014/06/13/rules-not-discretion-foster-stability/
Productivity data doesn't matter for setting monetary policy. Nominal wages/income? 100 per cent. http://uneconomical.wordpress.com/2014/06/17/inflation-inflation-there-is-no-inflation/
A useful Eurostat time series: http://uneconomical.wordpress.com/2014/06/17/administered-prices-revisited/

Bonnie Carr looks at a 2010 post from Gary Becker, regarding Fed Independence

"The system is no longer plagued by unsychronized prices..." http://economicsophisms.com/2014/06/16/btw-the-new-chart-is-up-at-efficientforecast-com/

Sometimes a bit of logic really helps: "we're all in this together" (Kevin Erdmann) http://idiosyncraticwhisk.blogspot.com/2014/06/if-we-are-100-then-who-will-be-scapegoat.html

History making - in real time (Giles Wilkes) http://freethinkecon.wordpress.com/2014/06/15/a-defence-of-hot-air/

Like James Pethokoukis, I've got some issues with this forecast: Team Obama: Sorry America, the 'new normal' may be here to stay

Also of interest:

"Should developers be driving the regional conversation on housing needs?" All together now...No! http://www.newgeography.com/content/004363-circling-brain-drain

Sometimes foreign policy just gets downright strange: http://daviddfriedman.blogspot.com/2014/06/the-tangled-web-of-foreign-policy.html

While implications for the immediate U.S. economy could be minor, the world is changing nonetheless:
http://econbrowser.com/archives/2014/06/iraq-oil-markets-and-the-u-s-economy

Democracy: What Representation is Actually Possible?

Sometimes, political representation becomes so open ended and confusing, that the process gradually starts to break down. In terms of resource potential, too few individuals know what is actually possible or achievable in their own environments. What's more, those who do know what is at stake, tend to dominate the conversation - or at least the results. How can economic progress be expected to continue, when so many among the electorate remain in the position of passive consumers?

It's important for the public to gain a better understanding, regarding numerous resource options which are available, versus some very real unrecognized limitations. While representative democracy and centralization still work reasonably well for traditional supply side factors (commodities, manufacture), decentralization and direct democracy are desperately needed, for services of all kinds.

Otherwise, it will be difficult for knowledge use to remain a substantial part of the marketplace in the future. Much human potential remains untapped, because of the inadequate methods by which value continues to be derived. In a recent article for Project Syndicate, Dani Rodrik looks at the fact that even though "the world has never been more democratic", today's democratic governments do not perform well. He says,

In the advanced countries, dissatisfaction with government stems from its inability to deliver effective economic policies for growth and inclusion. 

One problem is a growing divergence in lifestyle options, and the fact they can't be easily reconciled by representation which was designed for simpler realities. Not only is this true of needed variance in environment, but in service pattern design which needs to take multiple income levels into consideration.

Small wonder that a libertarian - for instance - who might normally support open borders, would hesitate, given the attempts of current welfare states to bridge income gaps. When only a fraction of time use is utilized with real valuation in aggregate, extreme competition between all concerned, becomes the norm. Dani Rodrik continues:

The attack on the nation-state comes from above and below. Economic globalization has blunted the instruments of national economic policy and weakened the traditional mechanisms of transfers and redistribution that strengthened social inclusion.

But why has this been the case? Globalization provided the means for society to reach for desirable choices in time utilization. And yet, many of those options were not widely recognized. As a result, people relied on the fruits of production to build service sectors, which became unwieldy in their dependence on indirect formation and skewed incentives. Had service formations not proceeded in this manner, there's a good chance that globalization would not be seen today, as a deterrent to economic stability.

Direct democracy is still possible in terms of service formation, if governments are willing to take a chance on the skills sets and natural abilities of their own citizens. Of course, that would mean "just say no" to a lot of special interests. Just the same, the demands of too many services agendas have already led to inefficient operations and rising budgets. They have also caused governments and central bankers to take austerity measures, which now blunt the growth potential of entire natons.

To be sure, globalization and democracy are not necessarily in danger of becoming "extinct", if knowledge use systems and widespread economic access isn't possible. But chances are - without more direct knowledge use formations - growth could remain subdued, and the value of education would also remain in question. Education is not just about being an informed citizen: education needs to be about being able to contribute and reciprocate in kind. It's time to shake things up, so that renewed growth and economic progress still have a chance.

Update: speaking of present day inadequate services representation - consider a correlation of zero, between ongoing research and actual health related conditions

What I Really Wanted to Title This Post...

...was, "Sorry Piketty, But Capital is Becoming Gold Dust Sprinkles." Wow I knew I couldn't keep that ridiculous post title. But some days, even an inane thought about the disappointments of diminishing returns, can provide a much needed laugh. Of course - on a more serious note, a review (pdf) by Matt Rognlie of Piketty's "Capital" addresses one of my basic concerns regarding some of the book's implications. As Rognlie indicated, "...more capital will erode the economywide return on capital". One has to wonder, why are we not already dealing with the significance of this fact?

And why hasn't this gradual erosion of return potential been more apparent, to all who observe the marketplace? For one thing, it's still easy to get sidetracked (just as Piketty has) by those elusive profits which remain possible at the margins. Much of today's returns are a far cry from the arbitraged returns of yesteryear, just the same. It's taking me a while to digest Piketty's arguments plus I've started rereading his book. But a number of "housing as wealth" issues are - fortunately - becoming more clear.

In my last post I spoke of a oblique form of monetary flow, which has resulted from increasingly direct input into today's wealth formations, on the part of government. Perhaps government's contribution doesn't seem significant? If only the ultimate price for said input hadn't been the leisure time option, which some folk might have otherwise wanted. Enforced housing definition does not provide enough leeway in housing choice sets, whatever one's income may be. And for smaller incomes, this is where inequalities hurt most.

It's not clear whether Piketty realizes the degree to which governments already control and benefit from housing as a primary form of capital. Especially given the fact that Piketty's graphs also indicate where much of today's wealth exists: firmly attached to the ground. Another problem with housing as wealth, is that much of this wealth formation no longer has a chance to produce significant private value, i.e. home as producer of marketplace options. Instead, much of the value in home formations is presently derived as public value in terms of taxation.

Central to housing wealth, is the fact that consumer requirements became the primary means for all concerned, of locking in the most desirable human capital potential in the twentieth century. This occurred in lieu of what might have been a broader application of skills sets and knowledge use, in the marketplace. Of course on the part of public and private interests, it's a  strategy which makes sense. The problem is that this strategy has left an incomplete marketplace, which has as much to do with the inequalities of the present, as anything that can be imagined.

The problem for all concerned is that neither the wealth of housing or any hidden corporate wealth supposedly available for capture, can tend to the underlying issue of an incomplete marketplace. That can only be done by allowing innovation, and arranging time use capacities for services in the same logistical space, in order to provide equality of opportunity. It's much easier to achieve equality of opportunity than equality of outcome, because we all know how much time we have at our disposal. On the other hand, no one knows in advance how the vagaries of resources separate from time, might play out.

In a recent Liberty Unbound book review, Leland Yeager concludes his thoughts regarding Piketty with these words:

...I warn libertarians: don't risk a boomerang effect by unfairly dismissing his work as a mere ideological tract. It is indeed a work of genuine scholarship. Dealing with its challenge can strengthen the libertarian case. 

Piketty's book serves as a reminder that we do have common cause in addressing inequalities, for any number of reasons. Certainly, it helps to get the facts straight, as Matt Rognlie attempted to do in his own review. After all, the problem of diminishing returns to capital is something that needs to be thoroughly examined, for the role it also plays in inequality. Inequalities are indeed confusing, for they are never quite what they seem.

Some Aspects of Waterfall Effects

For some reason I've had quite a case of writer's block regarding this description...but why? I've written any number of times about "waterfall effects" over the past year - only to delete the text before hitting the publish button. At the very least: if I try to explain a simple way of envisioning monetary flows in this post, perhaps I won't delete so much material in the future!

Why emphasize a vertical flow component? To be sure, money circulates in seemingly endless ways. But there have also been recognizable points of wealth origination, which act as "waterfalls" and provide lead ins to other important forms of economic activities. Sometimes, the breadth and depth of original flows, can make secondary and service related flows more likely to occur. When we think of momentary "captures" in quantitative terms, what might otherwise appear "unequal", is actually a dynamic result.

Until recently, commodities and manufacture were responsible for providing what is a still symbolic role, for monetary origination. However, they are increasingly augmented by secondary monetary flows which are substantial in prosperous regions. The only problem is that the secondary effect is far more subdued elsewhere, in places which are nonetheless expected to play by the same rules. As a result, too many regions in developed nations have had little choice, but to heavily rely on the redistribution governments have provided. As governments came to rely more on finance and consumer roles, the vertical nature of the flow became oblique in some respects.

While redistribution made centralization possible in the 20th century, the load which redistribution now carries has become too heavy. Thus the question eventually becomes: how might productive decentralization best occur? Governments have a chance to thrive, when they plan for decentralization alongside their citizens...rather than struggling to prevent the inevitable. A major part of this transition, means making certain the public understands the roles money could fulfill in their daily lives. In order for this to happen, the service path which governments originated through fiat money, needs further evolution in order to continue.

Monetary origin has generally been associated with commodities such as gold, and fiat money has struggled to transition away from those earlier interpretations. While fiat money allowed (largely) government defined services to become a substantial part of GDP in the twentieth century, services are still a confusing component in wealth based terms. The problem in this regard, is that many service formations are not yet sustainable. Not only were they indirectly generated as partial markets, but they were heavily subsidized debt producers, as well.

Diminishing returns to capital are making it more difficult to maintain the service formations of the present - let alone expand them to the degree that populations have already invested and prepared for. Readers know that I would like to see some services as a more definitive part of the overall equation. Services could also become points of monetary origination, which would result in horizontal and decentralized flows to augment the vertical flows of commodities. Everyone's spending is indeed someone's income, and this needs to be a macroeconomic axiom which people can get behind and believe in.

Present day wealth continues to rely on product separate from time use, alongside the activities of finance. Even though these wealth generators are but a portion of GDP (as are services and government activity), flow does originate from newly created product. However, finance wealth has strong correlations with already existing wealth, before it becomes capable of adding to the mix. Finance can not be expected to fill in indefinitely, for the missing gaps in a marketplace. For instance, as Mark Sadowski indicates:

In particular, changes in private nonresidential fixed investment precede changes in business sector credit market debt and bank lending, and changes in private residential fixed investment precede changes in bank lending.

In other words, real growth needs to be present before finance and credit channels can contribute to wealth in any long term sense. What's more, further contributions in that regard may become more subdued than in the recent past. Populations in the present, need the option of incremental growth alongside the high expectations which developed in recent decades. Incremental forms of growth would also make it possible to explore horizontal services growth. New growth patterns such as this could serve to stabilize vertical wealth flows, so as to prevent deflation and contribute to monetary stability.

Is Growth Potential Still "Open For Discussion"?

Some days, it's not easy to know for certain. And yet economic circumstances, given the chance, could change for the better in the near future. Substantial gridlock might be overcome (!) - which would make an "upgrade" to the present growth trajectory more likely. Even so, would it be possible to convince central bankers of such a possibility? This matters. After all, it helps to remember that any resolve on the part of populations for continued progress, needs to be central bank resolve as well.

Or, at least that holds true insofar as how monetary policy is presently defined. In other words, we still need the "blessing" of central bankers to move forward, monetarily and economically. What's more, the interests of governments and central bankers have become more aligned with finance interests over time, which bear considerable responsibility for pulling back on growth. Too many still find it difficult to imagine the citizen as producer of one's destiny. Instead, the consumer role which became so important in the 20th century, still prevails - along with the interest rate focus which came to define it.

Not only are citizens uncertain of the Fed's role, but many also see the symbolic role of money differently as well. Until now, many who questioned the existence of the Fed, often did so on the premise that the Fed was providing too much monetary backing in the present, instead of not enough. Requests for the Fed to print more money when needed, are not quite recognized for what they represent. The request for monetary backing based on behalf of all engaged (total spending capacity) not only remains unfamiliar, but unemployment "targets" are not the same thing. Nor are such targets suitable for the job that needs to be done.

Right now, central bankers and governments mostly have each other convinced that it's not reasonable to expect better than this subdued recovery - indeed, well out into the future. How might governments and central bankers respond to the fact their citizens do not want to give up on hopes and aspirations? Are the present economic circumstances too beneficial for special interests, for anyone to "rock the boat"?

Because all too often, the public is now being told in so many words, to dial down its hopes. Governments need to rely on the judgement and decision making abilities of their citizens for today's challenges, so that disappointment and frustration does not get further out of hand. Relying on the knowledge use and skills capacity of citizens, means tapping into the tremendous efforts they have made to be a part of society in the course of their lifetimes.

What's more, governments do not have to directly employ their citizens in order to make their voices heard and their efforts count. Citizens have the ability to coordinate mutual employment for knowledge use and services among one another. They would be able to monetarily back one another, through systems in which equal matched time use becomes local product. This would also allow ongoing issues and problems to be addressed in local settings.

After all, the services which governments have struggled to indirectly provide, are what citizens have already invested in, through their own time and sacrifice. It is wrong to just dump the efforts of so many into the dustbin of history, because of an arbitrary slowdown in economic growth. If for no other good reason, include citizens in problem solving just for the sake of the happiness factor, just as the example of dogs in this great article.

True, a "new" growth path was stabilized since the Great Recession in the U.S., but the fact that it is now a lower trajectory, has mostly been rationalized away. Fortunately, not everyone is ready to forget what the earlier growth path was all about. James Pethokoukis, in Sorry America, the 'new normal' may be here to stay, wonders if "the good times may be over for good". And Binyamin Applebaum in a recent NYT article, writes:

For more than a century, the pace of growth was reliably resilient, bouncing back after recessions like a car returning to its cruising speed after a roadblock.

It seems that many among the elite gave up on the growth capacity of the country, just as an earlier consumer led form of growth reached a certain tipping point. Perhaps some even imagined that tipping point coming, for the Fed to withdraw monetary support to the extreme it did - instead of meeting the problem head on. And meeting the problem head on would have meant serious discussions with the public about better forms of future growth - something which governments have been too reluctant to attempt.

As a result, monetary policy continues in a subdued growth pattern. It's a pattern which thus far has been interspersed with lots of hand wringing and blame games, rather than the sanity which a level nominal target could provide. Instead, there has been a growing mountain of excuses why a better growth based outcome is supposedly not possible. At some point, the excuses need to be recognized for the stalling tactics they actually are: tactics to delay the possibility of greater monetary stability.

With a little luck, the topic of growth will remain open for discussion. After all, in some respects, the discussion has hardly even begun. Excuses why we supposedly need to give up on growth are still coming in, even as I attempt to complete this post. Those who have given up, need to be proven wrong.

Some Thoughts on Immigration and Equal Time Use

While I don't always follow political events closely, Eric Cantor's loss in the GOP primary, definitely got my attention. (Bonnie Carr just posted about this and it almost sounds as though he had it coming.) What news I've heard about the upset, makes it seem as though an even further drift is inevitable, from any moderate position still remaining. In the days ahead we will be finding out who David Brat actually is. Right now it seems to be anyone's guess.

Will it become even more difficult for our government to accomplish anything? The possibility of fallout in immigration policy is what triggered this post, for immigration issues had been on my mind for a while. Certainly, the U.S. would only be the latest example, of a growing frustration over competition for jobs and squeezed budgets. Are economists beginning to throw their hat in the ring with the public on this matter? Even though I dislike the anti-immigration stance, it's not hard to see where others have problems with immigration.

And while I've noted numerous benefits from immigration, there were two occasions when local immigrant populations negatively impacted my own work related circumstance - in two different states. Those circumstances were not easy to overcome. Anyone seeking a job in a city which has lots of immigrants and college students - for instance - will have plenty of competition for job opportunities which require less skill - plentiful though such jobs might seem. That goes double for anyone who has been unemployed for a while.

Still, I remain sympathetic to immigration in the sense that it would be an incredible plus, if human capital were widely utilized in a more inclusive marketplace. Hence I continue to hope for a day when people no longer resent the skills capacity (or lack thereof) of others, whoever they are. And I continue to hope for monetary policy which will also provide greater economic access. Even so, as Scott Sumner recently pointed out in an Econlog post, how can I be confident about my own views on immigration?

Sumner provided a thoughtful response to Bryan Caplan, who posed a scenario in which those with less than median income, would be forbidden to have children. What Caplan imagined, is unfortunately more to the point than it may seem. While at least one commenter told Caplan that there is a difference between a poor child here, versus a poor child who has come from elsewhere, I'm not sure everyone would see it that way. If people feel sufficiently backed into a corner regarding a lack of available opportunities, what would stop some from seeking such a law?

As many readers are already aware, I argue that extreme differences in time use valuation lie behind what people perceive to be a zero sum reality. Not to say that greater compensation for greater skill isn't warranted, because it is. But problems come into play, when variances in reward are based on the same limited time set which everyone has. As a result, some individuals below the median, fall into lifetime patterns where they never catch up to their responsibilities. Not only might they feel they have little to contribute, others will often feel the same way about them.

This is why differences in monetary compensation need to be about the resources we interact with in our environments, rather than the use of our time. The best way to approach such compensation would be through sets of local investment options, in terms of ongoing projects and building components. Knowledge use systems and their associated services, need to be an option for anyone who is below a median income. Otherwise, people can go an entire lifetime not being able to make up for what they need from others - no matter how hard they try.

Issues with immigration, are only one of the external indicators as to unresolved questions of the present. We have an incomplete marketplace, where time use inequalities have needlessly pitted people from all walks of life against one another. There are ways to overcome this state of affairs, but neighbors will have to feel good about their neighbors again, before they are confident enough to welcome others. Fortunately, problems with immigration in the U.S. are of a more recent nature, than many concerns. Let's hope that Washington can at least find some resolution, for them.

Update: Tyler's question also ties in with the thoughts of this post.

Midweek Market Monetarist Links and Summaries - 6/11/14

Students need to know about more, than just the here and now. (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/06/teaching-general-principles-of-macro.html
Even if one doesn't read Piketty, just hearing about him might cause some unsettling dreams!
http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/06/dutch-inequality-theory.html

How much will the ECB be willing to do? (Lars Christensen) http://marketmonetarist.com/2014/06/05/the-ecb-is-way-behind-the-curve-the-one-graph-version/
Poland - 25 years of freedom and economic success! http://marketmonetarist.com/2014/06/05/leszek-balcerowicz-on-polands-success-and-christensen-on-balcerowiczs-success/
This second ECB graph is a lot more scary...http://marketmonetarist.com/2014/06/05/the-massively-negative-euro-zone-money-gap-another-one-graph-version/
A "broken" monetary transmission mechanism? It's not about bad debts: http://marketmonetarist.com/2014/06/09/the-ecb-should-give-bob-hetzel-a-call/
As Bill Woolsey noted, the first rule of monetary policy is not to confuse money and credit:
http://marketmonetarist.com/2014/06/10/money-and-credit-confused-again-again-and-again/
First in a series of posts about Bob Hetzel: http://marketmonetarist.com/2014/06/11/celebrating-robert-hetzel-at-70/

Mike's backing theory versus Scott Sumner's quantity theory: Reply to Mike Sproul
I like that "eliminating paper money" was waaay down the list: So much for the zero bound
There are good aspects about this as well...The job market is improving faster for the least skilled
This correlation is never quite as simple as it may seem: Government spending and public services
These kinds of admissions are a bit rare: Kudos to Christine Lagarde
Scott looks at Piketty's second chapter in The First Fundamental Law of Capitalism (Econlog)
More Piketty thoughts - those big pots of money are not as endless as they may seem: http://econlog.econlib.org/archives/2014/06/liberalism_unbo.html

Demand side recovery? Check. Supply side...(Britmouse) http://uneconomical.wordpress.com/2014/06/11/are-we-nearly-there-yet/

Why would central bankers insist they cannot fight deflation? (Benjamin Cole) http://thefaintofheart.wordpress.com/2014/06/05/central-bankers-say-prosperity-its-not-my-job/
There was a time when Friedman blamed contractionary monetary policy, and conservative right wingers took heed: http://thefaintofheart.wordpress.com/2014/06/08/three-times-friedman/

When Simon Wren-Lewis calls contractionary fiscal policy the "major factor", argh...(Mark Sadowski) http://thefaintofheart.wordpress.com/2014/06/07/what-simon-wren-lewis-thinks-he-knows-is-not-true/
http://thefaintofheart.wordpress.com/2014/06/10/simon-wren-lewis-tries-to-explain-how-it-is-possible-the-u-s-hummingbird-can-fly-despite-not-following-his-policy-advice/

In 2003, Steven Cecchetti was worried about inflation (Marcus Nunes) http://thefaintofheart.wordpress.com/2014/06/06/the-sort-of-reasoning-that-got-us-into-trouble-and-helps-keep-us-there/
It took a long time for employment to get back to "normal"... http://thefaintofheart.wordpress.com/2014/06/06/indications-that-monetary-policy-failure-has-caused-permanent-damage-to-the-economy/

Will the ECB do everything...except what needs to be done? (David Beckworth)
http://macromarketmusings.blogspot.com/2014/06/tinkering-on-margins-ecb-edition.html

James Pethokoukis didn't let the "all time peak" go unnoticed:
May jobs report - America's leftovers: 7 million missing workers
It took Obama recovery 5 years to regain lost jobs. Reagan recovery: 11 months. What's going on?

A new blogger from the U.K. is Giles Wilkes. He's been busy this week:
http://freethinkecon.wordpress.com/2014/06/09/the-fiscalists-vs-the-monetarists-lacking-a-common-language/
http://freethinkecon.wordpress.com/2014/06/09/when-did-the-great-recession-start/
Giles looks at David Laidler's concern (Econtalk, last year) about the lack of timely data for the NGDP target: http://freethinkecon.wordpress.com/2014/06/10/listen-to-david-laidler/
"I think macro debates need lots of little stories."  http://freethinkecon.wordpress.com/2014/06/11/the-maddening-removal-of-money/

In response to both Giles Wilkes and Mark Sadowski (Simon-Wren Lewis)
Monetarist versus Fiscalist

David Glasner looks at last weeks' discussion between Scott Sumner and Mike Sproul: http://uneasymoney.com/2014/06/09/the-backing-theory-of-money-v-the-quantity-theory-of-money/

Update: Scott Sumner will give a lecture for the Adam Smith Institute in London on the 17th, and Lars Christensen has the pertinent information on his blog:
http://marketmonetarist.com/2014/06/11/scott-sumner-will-be-in-london-next-week/

Economies of Scale: How Important are Aggregate Effects?

Lately I've been mulling over this issue, especially after some discussion with Bonnie Carr in comments, in a recent post which touched on scale effects. To be sure, centralization and decentralization play roles in how people and institutions adapt over time. Economies of scale can't help but affect both income distribution and business formation - which have gradually moved in the "wrong" directions so to speak. Is something being missed, regarding that correlation?

Think about the gradual decline in business formation in the U.S., and the great need for supply side measures to address this problem. How might local economies consider scale adaptations, should they consider decentralization measures to allow greater inclusion? How might national government think about changing needs in economies of scale? Before support for new directions can be offered, scale needs to be considered in multiple, integrated scenarios. Variance in income levels, population densities and lifestyle choice also matter. One can't just arbitrarily place given lifestyle or business formations in certain environments and expect them to work out every time.

Some recent pushback in business formation (i.e. Uber, Lyft, Airbnb, and food trucks), involves scale asymmetry which does not "match" the established local equilibrium, given the sunk costs already present. However, much of the existing equilibrium now entails heavy financial commitments for business or skills formation - much of which wasn't necessary a few decades earlier. Thus, some who seek access (through employment or self employment) by operating in a lighter financial context, actually pose a threat to those commitments.

Is creative destruction even possible in such environments, or does it need to migrate to different areas altogether, so as not to disrupt the existing equilibrium? Regular readers know that I suggest creating business opportunities, in environments where low cost start ups (alongside ongoing local projects) would not present these problems. It may be a while, before some recent start ups find acceptance in the communities of their choice. Whether or not room is created for disruptive start ups, will determine how the realities of the near future may play out.

At the very least, a "high expectations" equilibrium appears to have strong correlation with income differences and lower levels of business formation. I'm old enough to remember when not only were income differences less pronounced, but people from all walks of life had businesses of their own. While plenty of self employment and business start ups still happen, a lot more careful planning is involved and the "falls" can be more difficult to endure. Even basic level work seems oddly out of reach, at times. I never would have expected to see office work - once easily learned on the job - as required college courses before someone even lands a job.

Perhaps the recent inequality debate is heating up, because everyone has (seemingly) thrown up their hands regarding what might be done on the supply side of things. What on earth do arguments such as these have to do with government assistance and tax incentives, anyway? Supply side realities come down to how people actually interact with one another in the marketplace. One recent pro-growth agenda even suggests expanding the child tax credit. (???) The best incentive I know for increased family formation is honest to goodness economic access. There are already plenty of would be parents, who are searching for the work that will make having a family possible.

Thus, Main Street remains stymied with the burden of its expectations, apparently etched in stone. Along with government and related finance interests, too many Main Streets now envision a low growth future. But to me, talk of a low growth future is nothing more than a crisis of imagination - a "crisis" which could still be overcome. Part of the problem is that both public and private concerns believe that everyone needs to live in the same ways, in spite of income differences.

Sometimes income levels need to scale differently in order to gain economic access. Just the same, these different groups also need to be a part of the conversation before anything positive can happen. Otherwise, it's impossible for anyone to know, how those with lighter budgets might choose to respond, to the challenges of their own economic destiny.