Sunday, November 30, 2014

Wrap Up for November '14

New York Times article about A.D.H.D., explains how a (presently, anyway) psychiatric illness which includes impatient reactions to routine, actually provided benefits for nomadic tribes. This article reminded me of the need for more dynamic local environments, which could be also be expressed in "hunter gatherer" terms.

I'm glad my public school days took place well before today's prescription drug "cures", for I hate to think how my learning patterns might have been altered otherwise. As it was, I still remember being tested to see if my hearing was okay, sometime in first or second grade. My hearing was fine, but there were times when the teacher did not have my full attention! If I had been given a prescription to "focus", who knows whether I would have continued to check out hundreds of non fiction books from the local libraries.

There are many ways to imagine more stimulating (yet still focused) environments at local levels. But most importantly, physical interpretations suggest the experiential outward search, while knowledge based interpretations assist the inward search. The latter suggests more in depth learning for individuals in specific areas, and local economies could create unique imprints and repositories for applied knowledge use. New connections could be generated for the use of tacit knowledge. And, as this paper from Richardo Hausmann and Dani Rodrik suggests, local economies can approach economic development as self discovery.

Tyler Cowen noted an experiment which asks: Is it harder for high-caste men to coordinate? However this is a normal circumstance to be expected, when monetary compensation or equity substitutes for time equity. The lack of ability to coordinate with others is not necessarily problematic for those who do not particularly need to. Rather, the lack of environments where willing participants can choose to coordinate economic activity, is what needs to be addressed.

Perhaps the world is not as connected as it was only recently - Justin Fox:

What might they tell their children, one day? My Dad experienced the Great Depression, so I can think of at least two possibilities. Be frugal. Don't set your "star" too high.

When business people prescribe policy, are they really promoting narrow self interests? This is an important question, which has bearing on the fact both supply side and demand side representatives need a better focus on growth which benefits everyone. (HT Ryan Decker)

How has homelessness  changed? (AEI) 4 charts that expose the invisible side of homelessness.

From Time: "Political competence is the ability to understand what you can and cannot control, when to take action, who is going to resist your agenda, and who you need on your side to push your agenda forward." Walter Isaacson does a great job of touching on these aspects of leadership in his biography of Benjamin Franklin: An American Life. I'm about halfway through the book and it is quite an interesting read.

Boston as "poor"? At least according to some indicators from Time:

It's good to see an approach for housing access that isn't just about finance, for a change.

"Landing a job is still heavily based on personal connections." Fortunately it has not always been this way, and hopefully will not be so in the future, either.

Interactive maps for changes in employment, state by state:

Some charts to provide context for the housing market:

If only I had saved a recent article, which spoke of the lack of work availability in Ferguson, and the fact this contributes heavily to Ferguson's recent turmoil. Bonnie Carr recently noted the lack of resources available for mental illness, which doubtless plays a role as well. Let's get the emphasis away from race, and towards the economic and social issues which have led to so much struggle and suffering. Let's hope that in the years ahead: when other cities go through similar problems, it will be easier for these areas to reorganize for a better economic future, than it is in the present.

Saturday, November 29, 2014

Time Equity Versus Monetary Equity

What do I mean by time equity? Consider Investopedia's first definition of equity: "A stock or any other security representing an ownership interest." Individuals can generally utilize personal time as equity, insofar as they remain gainfully employed. Whereas once, individuals were also able to parlay time equity value within family, when families were more directly involved in economic production roles. Presently however, familial time equity options are most often limited either to the raising of children, or possibly assisting older family members.

In many respects, family arrangements in developed nations are primarily parallel (and yet somewhat separate) consumer roles, rather than producing relationships or other direct relation to resource use. (Indeed, this pattern was already in its early stages when I was young.) As a result, even when family members strongly desire to substitute time equity at home for monetary responsibility, doing so may not be a realistic option. All too often, the attempt to do so strains family relationships, which have become almost completely dependent on the money circumstance of all involved.

This has considerable bearing as to why low income family formation is so difficult, when time equity cannot substitute for monetary forms of equity. For instance, in the Great Depression, family formation was not as negatively affected as in the Great Recession, in that multiple means of time equity were still possible beyond employment. Time equity availability also played a role in the ability of the growth trajectory to return to normal after the Great Depression - something which remains in doubt in the present.

So long as economies are capable of sustained growth, financial equity often serves as a proxy for time equity, because it makes so many time coordination processes unnecessary. In these instances, insurance strategies and other forms of monetary pooling, work reasonably well. But when growth slows down and demographics begin to work against investment models, money alone cannot always cover for an overall lack of time equity options.

The twentieth century saw many earlier forms of time equity displaced, as production moved towards more centralized models. While these centralization processes worked relatively well for standard production, their application to services formations turns out to have been misguided. Once again, time equity needs to become a real component of wealth creation - particularly in the services marketplace -  in order for growth to continue.

During one's prime, it is often easy to coordinate primary time use decisions with others in the traditional workplace. Indeed, today's workplace can still proxy as time equity replacement, so long as one has full use of both physical and mental capacity. Just the same: in recent decades, individuals have needed to rely more and more on monetary equity outside of one's own personal circumstance. However, as an increasing portion of the population needs to do the same, Social Security and other investment alternatives start to appear as though Ponzi schemes, because everyone was relying on the same time use replacement strategies.

What's more, individual needs vary for retirement to such a degree that one size fits all measures don't work well, as Frances Woolley notes in a recent post regarding mandatory retirement. When investments exist in common pools which the beneficiaries aren't expected to personally manage, this is one of the more significant problems which can result.

Think of the interrelated areas of life, in which we are personally expected to contribute. How difficult this task can be! Unless - of course - one is able to make money "do the job" for what is often a lack of time equity - whether one's time is valued by others or not. While higher income levels can meet societal obligations through monetary equity, other individuals need a stronger ownership interest in the use of their time, to remedy otherwise impossible societal obligations. The fact that so much of the services marketplace developed without time equity, is what makes so many services feel inadequate and incomplete.

To be sure, time equity is often not needed for the kinds of production which provide more efficient means for resource use. However there is no substitute for time equity, when it comes to many of life's experiences and intellectual challenges. This is where the production reform which includes time equity, could do the most good.

Thursday, November 27, 2014

Tax Capital? no. Restore Human Capital? YES

In a recent Project Syndicate article, "Education in the Second Machine Age", Dalia Marin wrote:
Until the 1980s, about 70% of income went to labor income and 30% to capital income. But, since then, the share of income going to labor has declined in all rich countries. It is now at about 58% of GDP. According to research by the economists Loukas Karabarbounis and Brent Neiman, half of this decline is the result of cheaper information technology... 
The implications are serious...It is possible we have been fighting the wrong war. As the scarcity of human capital declines in importance, the rapid expansion of education may not be the answer to the challenges of globalization that we hoped it would be.
And yet, capital as a whole is not as dynamic or substantial as it may appear. Even though human capital can be restored as the missing wealth dynamic, no one should mistake the process of getting there to be "more of the same", i.e. skim the best and disregard the rest.

Human capital formation need not be considered a scarce quantity, in spite of what present day credentialing might appear to insist. Plus, human capital could still provide the best means to a greater end, just as formal education was once able to promise. However, the development of human capital potential needs to be approached more directly - particularly as population growth is moving into a global slowdown phase which could otherwise stall innovation and investment. As Karl Smith notes:
Lower population growth rates have the potential to undermine the virtuous cycle of risk taking and innovation. Without policy changes, economies will find themselves trapped in rapid boom and bust cycles that net out to pathetically slow growth rates even in per capita terms.
Fortunately, tapping into the potential of time use aggregates would provide many of the same benefits in terms of investment and opportunity, as a growing population. What governments can't afford to do in today's mature marketplace, is to continue parking time use value in housing formations, just to make up for time aggregates which are supposedly not "needed".

While the "housing as primary wealth" strategy worked temporarily, it should not have been expected to provide a permanent wealth solution for the future. Housing is only a passive investment which is an end result of dynamic activity, not the beginning of a wealth creation process. The private property which was once such a driver of progress, has declined in practical (usable) terms as compared to knowledge use property.

Just the same, individuals do not own knowledge use rights in the same way they are allowed to own other forms of property. Investment for knowledge acquisition mostly "pays" to the extent it can be tapped in the event someone is hired in the marketplace. Except now, possibilities for hiring often do not exist among individuals wherever they reside, but by public and private interests which are but a fraction of the population. This is why it has not been possible to treat human capital - thus far - as real wealth. However, the process of creating better pathways for knowledge use has not even begun.

Instead of needed services production reform, governments continue to reach for more taxation to pay for services. What's more, would be consumers receive much of the societal blame, if they can't pay for housing definitions they never even asked for. Governments can no longer expect the most "qualified" citizens to carry the burden of societal responsibility of services for the rest, through housing formation monetary flows. And yet, this is what happens, when the "rest" do not have adequate economic access to participate either in services production or investment opportunity.

Those who cannot readily contribute to the prevailing equilibrium, need a chance to define services and production through more locally driven means. Not only would this allow lower income levels to help themselves, it would allow the primary equilibrium to regain balance in production and services formation. What's more, this could gradually restore the earlier portion of income going to labor, and the apparent discrepancy of additional capital (as parked in housing) would return to more normal levels.

Regular readers are familiar with my insistence on restoring human capital to the marketplace. That's the main reason why I was dismayed with Thomas Piketty's arguments, even before completing his recent book. Why did he dismiss human capital as directly important for wealth creation? Possibly - just possibly - because that makes it all the easier, to insist on further taxing the capital monster under the bed which isn't really there. Even the attempt to do so, simply glosses over the fact that capital needs to be more closely associated with human potential, instead of dismissed out of hand as unimportant.

Wealth as human energy in motion, was reflected in the creation and definition of GDP in the 20th century. There are a number of reasons why housing began to supplant human activity as wealth. One of them, is that no one saw fit to make certain human activity remained at the center of the wealth equation, as automation gradually supplanted the need for production to subsidize labor.

Did anyone think that production residuals or government redistribution were the only ways knowledge use could be tapped? Apparently so. Indeed, Piketty scarcely worried about the role of human capital as wealth, for his primary concern was with the way that corporations appeared to be getting the "best" of governments. Given the degree of wealth that already exists in Washington compared to the rest of the U.S., how is such an argument even possible?

Missing in these arguments is the fact that governments are negligent in creating the marketplace people need for services formation. There is little about the further taxation of capital, that would improve this situation. The more governments became dependent on traditional manufacture for services and knowledge use, the more production became necessary to fulfill those services needs. And yet - how is this even possible - the more the political left complained about "excess" production. Argh.

Now that traditional production has slowed somewhat in the developed world, it is sorely missed as knowledge use remains caught in the grip of special interests of both political parties in the U.S. If only the gains of innovation and traditional production had been recognized for the freedom they have offered for so long. Imagine the direct knowledge use formation which could have taken place, already.

Still, the potential time freedom from an automated workplace, would have meant challenging the knowledge use guilds, which also require heavy resource use to maintain the way their institutions are presently structured. Unfortunately, the "easy way out" of refusing good deflation in building construction to generate wealth, has met its limits. As less labor was needed in the marketplace, fewer consumers were available to purchase either low innovation housing or services.

The decline of labor income from 70 percent to 58 percent of GDP wasn't "inevitable", nor does it have to be, now. But the desire to keep knowledge use under wraps, has also meant a slow decline for knowledge use work since the start of the 21st century. 58% is not a number which is the result of corporations sitting on holdings and the luck of the one percent. It is a result of the guild formations which came to define knowledge use services.

That missing 12 percent is simply the portion of knowledge use which has been held back thus far. It is also the missing marketplace which became apparent in the output gap in the Great Recession. And without production reform for services and knowledge use, gaps in knowledge use and GDP potential will only grow wider. Human capital is the crop that all who can, invest for and hope to harvest. This crop also relies on the right of each of us to use the time we actually have on any given day. Skimming the best, while throwing out the rest is sheer folly.

For Thanksgiving, I want to thank my readers for having the patience to put up with my ongoing rants. I would also like to give thanks for the potential of the human mind, and I continue to pray for the aspirations so many hearts hold, just to belong to the world in their midst.

Wednesday, November 26, 2014

Midweek Market Monetarist Links and Summaries - 11/26/14

"The real problem with the sales tax increase is that the money is being used to finance additional government spending." (Scott Sumner) Were market monetarists wrong about Japan?
When the natural rate of unemployment is close at hand, things get more complicated. Scott addresses concerns which have come up recently in comments: A time for nuance
Overreach on Obama's part? Sure. But like Scott I noted the utilitarian aspect of more individuals willing to toe the line: That's outrageous!
Neo-Fisherism has Keynesian assumptions: Neo-Fisherism in a world of multiple policy tools

Some posts from Econlog (Scott Sumner)
These wars don't have common themes: The smart against the dumb: The new Cold War
The Democrats aren't the only ones with expensive programs: Why America can't have small government (and China can)
Needed: a monetary regime completely divorced from the banking sector. Still, Izabella Kaminska made some completely off base comments about free banking: A few thoughts on free banking
Here's George Selgin's response to Kaminska

Pathetic! (Marcus Nunes)
(Bonnie Carr responds here)
Is labor market slack low...or high?
They've got it where they want it:
At "low" pressure...
Not quite ready for policy normalization:

David Glasner argues for the U.S. Treasury over gold:
A response from Bill Woolsey: Reserve Currency Status

However, quantitative easing is only a temporary "fix" (Bill Woolsey): Hummel on Quantitative Easing

Is the Fed committed to a 4% level NGDP target? (Lars Christensen)

Ravi Varghese considers the role of the ECB in the recent Irish crisis:

Inflation is dead (Benjamin Cole)

An interesting post from Lorenzo:

Police should not plunder the weak and the powerless (James Caton)

Monday, November 24, 2014

Inflation and the Endogenous Factor

What monetary factors lie within a nation's ability to control? Actually, "control" is too strong of a word. Still, reasoned management is important, in terms of gauging the money populations need in order to maintain economic stability. For instance, nominal targeting on the part of the Fed would not be "planning" in the normal sense of the word. Instead, a nominal level target would simply be a commitment to stabilize ongoing contractual expectations, to the best degree possible.

One reason the Fed remains "off course" with inflation targeting, is the fact it went along with numerous top down proposals for wealth generation in recent decades. Some of the financial structures in this regard also served as efforts to maintain a centralized economy. The Fed's unfortunate desire to steer the economy on financial (instead of monetary) terms, has led to more wealth capture than might otherwise have materialized. Inflation or deflation in these circumstance, mostly exists insofar as economic access is not adequately considered.

As a result, there is too much emphasis on prices and asset values, instead of overall monetary representation. Only consider the recent Billion Prices Project, which tells some misleading "inflation" stories. This project data can be easy for gold bugs to cherry pick, as JP Koning emphasized. And just as many remain overly concerned with inflation, others grapple with the vagaries of finance - instead of the circumstance which gave finance the power it still holds.

Is there a way to move the emphasis away from prices and financial constructs? What matters most beyond monetary factors, are the ways in which individuals, groups and other concerns organize the tasks of production and services formation. The ways these organizational factors interact and overlap, are among the most important measurement indicators which take place within a nation's borders.

Often, what appears as though inflation or disinflation, has more to do with how local structures for production and services are generated and maintained. Whereas the small community relies on limited taxation capacity, prosperous areas often augment services formation well beyond expected base structures. Still, in both settings, non tradable goods tend to be chosen for the consumer on their "behalf" as part of a non negotiable package. Presently, too many pricing structures remain hidden, which presents unnecessary economic instability down the line for individuals and communities alike.

Thus far, prices for non tradable goods have not been as easy to standardize, as goods traded across borders. Just the same, the standardized pricing of tradable goods does not accurately reflect the primary spending patterns of local economies in many instances. Even "local" or national manufactured goods may only have production in a number of regions, and yet experience sales around the world. Production of tradable goods - which seems easier to quantify than non tradable goods - isn't quite the helpful endogenous measure of GDP that it appears to be.

Presently, the Fed often fights the wrong battles, by looking for economic signals in too many of the wrong places. As a result, they miss the structural problems which still stand in the way of maintaining a smooth growth trajectory. Even though structural issues are not the Fed's responsibility, those concerns cannot simply be left untended - particularly while the Fed also shoulders the blame for what lies outside its realm.

Special interests tend to look the other way from the imbalances they generate, and the result is undue pressure on other parts of the economy. This is why it is helpful, for citizens to gain some understanding regarding structural factors which can negatively affect economic stability. In particular, some entrenched interests likely suspect the pressures they generate... hence are glad for everyone to be obsessing over a billion prices, instead!

How can further clarification be brought into local services structures, for the measurement of GDP? Even though inflation in these areas is problematic, (and it certainly shows up in the figures) it helps to ask: in relation to what, exactly? Does the use of one's time count as viable product...or not? How society ultimately answers these questions really matters. In any complex economy, services and the asset formations which exist alongside them, are central to economic activity.

When civilizations break down, a lack of understanding regarding knowledge use roles can cause skills networking complexities to disappear for centuries at a time. Of course, that's a long term consideration. As to immediate concerns: when services and knowledge use roles are not well defined, any production norm which might otherwise apply in traditional manufacturing terms, only results in arbitrary caps for economic access and continued progress.

A number of issues need to be considered in this regard. For one, a point of production reference becomes possible, when skills arbitrage allows the measure of time aggregates for services formation. Not only does this provide means by which to gauge knowledge and skills capacity, it allows time use - hence individual capacity - to be considered as product in its own right.

Services inflation is mostly problematic when it is approached through indirect means, which generate hidden and overlapping cost structures. In recent centuries, many forms of knowledge use were subjected to the indirect compensation of redistribution and production processes because this was the only approach institutions could reasonably take to generate further economic complexity. Fortunately, knowledge now has the capacity to be dispersed through digital means, which could make direct services formations possible. Not only would this be beneficial for the measurement of GDP, it would also bring the endogenous factors of local economies into better balance with tradable goods and international monetary flows.

Saturday, November 22, 2014

No "Maker" or "Taker" Designations Necessary

...After all, communities which internalize time use aggregates for local production and services, would be able to ensure that citizens become one and the same. In my last post, I posed a question: Why are citizens and policy makers inclined to apply "maker" versus "taker" identities in struggles over government benefits, instead of providing more accessible means for economic prosperity?

Even though some Republicans are quick to point to the "takers" of society, the fact remains that plenty of "makers" have been able to strengthen their hand for a long time, with government's help. Some markets become quite lucrative when limits to entry are imposed. But eventually, it's a process which eventually begins to exclude further economic formation. Hence knowledge use limits have plenty of bearing, as to why some takers players are in a bind with scarcely any cards left in the game of life.

Granted, many prosperous areas in the U.S. do not have enough room to bring in new citizens and productive endeavor. In some instances, local citizens should not be expected to greatly increase population density, given previous commitments for the environmental definition they already have. This is particularly true, where unique geographic formation has lead to higher and more complex services valuations. But many open spaces exist in the U.S., where new starts or "games" would be possible. Primary knowledge use need not be limited, to the main economic regions of the present.

By "growing" the pie - i.e. knowledge use marketplace along new margins - citizens need not be threatened by anyone - including immigrants - who still seek economic entry. Exit and voice can be generated in new settings which do not directly compete with the old. This could broaden the horizons and wealth potential of anyone who lacks ability to gain entry, elsewhere.

In these new settings, monetary compensation for services coordination, would serve multiple purposes. How so? Those who gain a place to start anew, have a chance to escape other less positive identities which often impose burdens on government budgets.

Consider the services approach for municipalities in the present. Economic complexity in this regard is often lacking, with the exception of primary economic regions and cities. Otherwise, local economies face a series of constraints which limit them to the most basic services levels. (High skills use thus far is mostly possible in areas with international monetary flows.) This has left most local economies dependent on adjacent regions, for both services access and wealth holdings (especially housing) that result from earlier income. With coordinated time use aggregates, a considerable amount of dependence could eventually be relieved.

What are the primary existing service obligations in any community? In the U.S. the first is most often public schooling. After that comes public safety (police, fire, emergency medical), then roads, sewer and water. By far, the biggest expense for these is operating and maintenance budget in the form of salaries. Whereas capital (what one thinks of as infrastructure) is in single digits. Much infrastructure expense in capital terms occurs very seldom, and has little assistance from state or federal levels.

How to think about monetary flows, in terms of what needs regular attention? Thus far in the U.S. public schooling has especially relied on property taxation, while other services (most often) utilize sales taxes. The good news in this regard? These ongoing expenses are salary related, and internalized compensation for local services generation would make much of the taxation to services transfer unnecessary - particularly for property taxation. Directly matched time as new wealth creation, makes a more complete services agenda possible. In other words, by turning time arbitrage into a starting point, a whole range of services formation becomes possible which otherwise could not be sustained in small communities.

What's more, the services-as-wealth process leaves resource windfalls available, for the materials most needed for infrastructure building and maintenance. That means windfalls become recognizable as the random benefit they actually are. Why is this important? Windfalls would not be grabbed for the constant needs of time use, nor would locals be regularly taxed for monetary flows they simply may not have in the present. Like so many other things in life, optimal income gains will remain random in nature, even when societies organize to make certain their members are economically included.

Resource windfalls - if truly appreciated - have the potential to create and maintain the economic paths best suited for those bearing responsibility for community.  Infrastructure options exists along a wide spectrum of possibility. That also translates into multiple density and work/living options. Some would require more investment than others and - as a result - represent more commitment and fixed resource use. It is probably a good idea to "sample" some areas with portable infrastructure and flexible time use commitments, to see if the proposed working and living environments prove viable.

Every community needs to generate ongoing monetary flows on the part of all its citizens. However, the present task is to find more efficient and considered ways of doing so. Too much emphasis has been placed on schooling for instance, with too little societal reward - or follow up plans - for the effort. Internal time use coordination among locals means not every home needs to be a resource intensive structure. Since fewer taxes would be necessary to generate needed infrastructure maintenance, considerable flexibility would be possible for work/life options.

Voting mechanisms for local citizens would take place in stages. Initial votes for new community would take place in a series of domestic summits, in order to match like minded individuals (and families) for common preferences in terms of infrastructure and desired community amenities. At the same time, a broad framework would be sketched out for initial commitments for services and production formation. After communities are formed, ongoing voting processes during the course of the year would calendar time use proposals for both services and production projects.

One goal would be to make certain that no individual becomes pigeonholed into certain activity sets just because of competitive advantage, or a perceived lack of skills elsewhere. Everyone lives a healthier life - whether relatively high or low skilled - when not required to perform a given task beyond a certain point of natural tolerance. So long as anyone seeks new work challenges, coordinated time use makes those challenges possible. The only reason society ended up with makers and takers is because of a lack of imagination. Fortunately, this arbitrary designation can be overcome.

Thursday, November 20, 2014

No More Innovation Or Growth Necessary...Seriously??

There are good reasons, why more people these days feel as though the odds are stacked against them. What's more, governments scarcely seem worth the tax dollars required for their upkeep, when they tell citizens it's time to give up on continued growth. Amazingly, this odd tactic has not been questioned to the degree one would expect. Perhaps some take comfort in "who needs growth, it's time to get back to a simpler life". Hmm...except what's "left" isn't exactly simple or reassuring. Meanwhile, others have a different story: "Innovation "isn't what it used to be. All the big, important stuff is already done."

How would anyone really know? I'm more inclined to think "innovation for me but not for thee". Did everyone wake up one morning and just decide: hey, this is as good a stopping place as any, for further progress? The person who is ready to kick back and put their feet up, is not the same person who is still hoping for a meaningful career - or life for that matter.

If no more innovation is "necessary" (except perhaps that latest chronic illness treatment or tech gizmo), how is present day production supposed to maintain the circumstance and populations of the present? Who would still commit to further education, if the job market does not improve? Is anyone really comfortable with the thought that humanity could easily "make do" without the use of three quarters of its mental capacity? I don't think so. Just the same, modern day versions of guilds control much of the ideas, research, new production definitions and process methods which are allowed to see the light of day.

Excessive regulations are cited as problematic. But how to dig through the quagmire, to determine where the worst problems exist? Structural circumstance needed to be faced squarely, before they get any more out of control than they already are. Sure, some money will continue to be spent on innovation if nothing gets changed: the kinds of innovation one hears about on the evening news. But much of what is heard in this regard, has little chance to benefit populations as a whole.

What about the innovation funded by governments? Many nations seem to be growing more reactive and defensive by the day, making it more likely that U.S. dollars for innovation will ultimately end up in defense related areas. Given the costs of research and development, private interests mostly want "sure thing" innovations. For pharmaceuticals, that means resources are geared primarily for ongoing needs of chronic illness, rather than acute illness and its related conditions. When research for medical needs was more broadly shared and dispersed, the latter was also well represented, particularly in alternative care.

Hence, if innovation for broad based societal gain remains likely in the near future, the possibility of making it happen rests with individuals, instead of present day public or private interests. Populations as a whole, need to restructure so that a wider and stronger net can be cast to capture innovation potential. Knowledge use systems are needed, which can be internally coordinated to support citizens in mutual time use pursuits. With ongoing calendaring for production and services proposals, costs for new forms of research and development could be internalized and greatly reduced.

Innovation networks are still strong, but much too thin and with too few connecting points, to really capture human potential. One could say that while the "long tail" applies online, it has few local economic equivalents thus far, in knowledge use terms. Unique services and production structures are mostly concentrated in cities, but this need not be the case. There is a world of knowledge and information which is just waiting to have relevance in local endeavor, and the digital realm needs to be put into motion so that populations can once again regain confidence for the future.

Wednesday, November 19, 2014

Midweek Market Monetarist Links and Summaries - 11/19/14

...but will the politics hold? (Lars Christensen)
Behind each war, an economic cause:
Depressions all, just a matter of degree:

Some monsters under the bed refuse to go away (Britmouse)

Apparently...Pascal Salin had it coming!
(Scott Sumner) Please respond to our arguments
(Bill Woolsey) Pascal Salin's Confusion: Inflation or Money
(Bonnie Carr) Piling on poor Pascal Salin

And somehow, Neo-Fisherism has become the latest fad:
(David Glasner) This label would not please Fisher: John Cochrane explains Neo-Fisherism
(Nick Rowe)
If the sign is wrong, the equilibrium is not robust (Nick Rowe):
(Bill Woolsey) monetary policy ought to operate? Neo-Fisherites
(David Beckworth)

John Cochrane...advocating deflation??
(Scott Sumner) Wrong question, wrong answer
(Marcus Nunes) Deflation Targeting at 2 percent
(Benjamin Cole)

"Interest rate rises do not stifle investment" (Scott Sumner) Other things equal, lower prices cause consumers to buy less of a good
Even with IOR, quantity of money cannot be ignored: Josh Hendrickson on the problem with "moneyless" NK models
How would fiscal stimulus in one country benefit a currency zone? The real "beggar-thy-neighbor" policy
Business cycles aren't what they used to be, or are some VATs worse than others? Is Japan in recession?
Everything shifts when RGDP growth stalls...The USA doesn't have any debatable recessions. That's about to change.
And, when RDGP is better than recent employment figures: At the other extreme...

Econlog posts from Scott Sumner:
Rather, the guy who insists money has been tight since 2008...I'm not "the NGDP guy"
Of course this rationale hasn't stopped some folk from trying! No, low interest rates do not call for more public investment
When governments respond to (lesser valued) credit on offer...Sticky wages and sticky fed funds rates

Friedman could have enlightened Malkiel (Marcus Nunes)
And the Kocherlakota 2010 argument led to...
A job market comparable to 2004. Seriously?!
Only recently was there real deviation from trend:
"What made Temin change his mind?"
In charts - NGDP, RGDP and inflation:

Musings on Hayek, Mises and surprisingly enough, internet Austrian "Major Freedom" (David Glasner)

A vague target has been the primary problem (Bill Woolsey): Selgin on Keynes and Quantitative Easing
Fiscal policy intentions are also behind this dilemma: Monetary Policy and Fiscal Policy

Nick Rowe just needs a little help with the math!

Inflation targeting serves what purpose exactly?(Bonnie Carr)

The study of Buddhism can be a great help, re the concentration required for the skills of the mind (Ravi Varghese)

Will they be successful? (Justin Irving)

Also of interest:

"The long term unemployed also show much stronger attachment to the labor force than nonparticipants." Measuring Labor Market Slack: Are the Long-Term Unemployed Different?

How might economic aspects of this situation actually play out in the near future? Will government "come to the rescue"? The Problem With Millenials, In One Staggering Statistic

Tuesday, November 18, 2014

"Keep Reaching Out"

What happens to our connections with others as we get older? A recent series of posts from the blog "Sweet Talk", brings the issue of aging into sharp focus. David Duke, in two encounters with nonagenarians, comes away with several conclusions. His first post wraps up with one, of which I heartily agree:
Better in poverty to have friends than to have a house sunk with costs.
Regarding the suggestion to have "as many babies as possible": yes, a large brood can certainly help smooth those lonely moments, as one ages. My grandmother spent long hours in the kitchen preparing meals whenever she had company, and to this day I've had a compulsion to do the same. There's just one difference...I didn't have children. The inevitability of old age seems a lot closer these days. The last time I saw extended family, they were wondering how it was possible so many family members now live alone. What's more, why do so many economic options for my cooking "compulsion" - at least in a small town - exist mostly in "all or nothing" capacities? Hmm...

Even if I had "invested wisely" decades earlier (in term of the aforementioned "Sweet Talk" advice), today's spread out cultures mean few guarantees, when it comes to visits from children and grandchildren. As Ayya Khema stressed in "Being Nobody, Going Nowhere", people die or otherwise "go away" when we least expect them to, and even marry the "wrong" people! Ayya is scarcely alone, in her spiritual recommendation to let go of expectations in order to find peace and happiness. Nor is she alone, in stressing that no single relationship need be thought of as anyone's "lifeline".

Plus, a large brood only provides a partial portfolio of time use possibilities, as many grandparents well know. Even in the best of circumstance, what about the vast quantities of time that remain? And how many thousands of (housing) square feet "wait" for those annual or biannual visits? All the more a paradox, given the fact older baby boomers once crowded into (comparatively) tiny living and dining rooms on a regular basis, for family get togethers.

"Excess" time availability tends to be one of those things that creep up on individuals when they least expect it. For the better part of a lifetime, it seems as though most of one's time belongs to others and then suddenly, unexpectedly, time availability returns. Hardly anyone is really ready, when this happens. How can they be? Even the fortunate in this regard are going to need to rely on a lot more than family to spend days productively. What does this mean, then, in a broader sense?

For one thing, personal planning for those "Golden Years" only goes so far, even in the best of all possible worlds. One can "do" for others - "be there" for others - to the best of one's ability. But ultimately, that will not stop anyone from being alone in some important capacity. Many folk who live into their nineties (such as my Dad) have long since learned to be comfortable with this fact of life.

Was government somehow attempting to make "promises" for the elderly? If so, those promises were mostly in terms of healthcare, plus a little spare change for weekly consumption and local taxes. Was there a rationale that governments could "rescue" time use potential, or was this vital part of life never considered? When people of all ages lived and worked in the same spaces, no one needed to think about it. And while a return to such a state would be desirable, much about present life would need to change, first.

In the meantime, too much of a blank slate exists (sometimes decades), of which one's children realistically cannot be expected to fill. Indeed many elderly do not wish to be rescued by children or government, and they seek to do whatever is necessary to maintain their autonomy and self sufficiency. Just like the rest of us, older folk want to keep reaching out to others. But they quite understandably want to be able to do so on their own terms. Otherwise - just like the rest of us - they lose too much of their self respect.

What about organized religion as a "solution"? When it comes to social isolation, advancing age and chronic illness, organized religion certainly has a good track record. But visits from these kindhearted folk are as sporatic as any other. If not one's children, family, religion, government...

By now the reader probably knows where I'm going with this line of thought. I believe that the desire to maintain lifelong connections can best be filled through economic roles. Perhaps compensation for time spent helping others is not "economic", in the sense of normal businesses endeavor. Who the heck cares, that's not the point.

Rather, the point is there are moments when a little personal time with friendly "others" who don't tell us what to do or judge us in some way, beats just about any product one can buy. As much as family members love one another, "live and let live" can be difficult at times, when too much time is spent together under the same roof. Family expectations are quite understandable. However, the fact they exist is what keeps family relationships from having a true, voluntary economic basis.

Anyone who spends considerable time around older individuals (or those with chronic illness), knows these folk attempt to remain economically viable as long as possible. Then why not generate a real marketplace for the vast wealth of time use potential that exists? A marketplace which would allow every individual to keep reaching out, even after the point when a few might judge that it's not possible for some individuals to do so. Believe me, when there are places where one can go with good reason and not feel out of place - some of which one might even get "dressed up" for - that means quite a lot. Sometimes it's difficult to realize how meaningful economic choices really are, until they are lost.

Economics is well prepared to address isolation, because it can connect the dots in generating a marketplace of choice in time use. In old age as in any time of life, the more choices one has, the freer and stronger one can remain. Few individuals wish to remain dependent on others, in spite of what a lot of public rhetoric might insist. The marketplace can still allow people to reach out in the ways that matter to them most. While this is understood in terms of money, it is equally important in terms of time use value. It's time to make real economic pathways to help overcome the limitations of getting older.

Monday, November 17, 2014

Does "Perfect Competition" Hinder Growth?

It depends. Does competition exist in the form of complete product representation, or is "competition" more a component (such as knowledge or infrastructure links) which further enables the entire process? In a recent post ("Perfect Competition is Bad for Growth"), Dietz Vollrath, via the bullet points below, provided a fairly standard summary of the innovation which generates growth.

  • Growth is ultimately driven by innovation
  • People will innovate if they have incentives to innovate
  • The incentive to innovate comes from economic profit
  • Profits only exist when the innovator or firm has some market power

Because worldwide consumers often access tradable goods production, this form of competition has proven more beneficial (thus far) for consumers, than competition in non tradable goods. While Vollrath's first two points are general in nature, the last two factors became more important in the last century for growth potential.

Perhaps missing from the traditional growth economics perspective, is the spontaneous innovation which once occurred. Individuals enjoy both the challenges of innovation, and the sharing of those challenges with others. This natural inclination was only diminished by institutional claims to knowledge. Even though organizations are better positioned to utilize knowledge use, the costs of research and development thus far have been far more extensive than in the past. While spontaneous innovation often did not generate large profits, it provided the rich soil from which economies continue to grow in the present.

How to think, then, about the relative lack of innovation for developed nations in recent decades? While innovation still exists in some institutional capacities, that which is capable of scaling up for societal gain has been primarily in digital communications. What about the "imperfect" competition which stands in the way of innovation? From a commenter at The Growth Economics Blog:
So the issue isn't one of "perfect competition bad for innovation" as much as it is the rate at which market structure transforms from perfect to imperfect competition influences both the pace of innovation and the rate of diffusion.
The easiest way to think about this process is what has actually occurred at local levels, which has also stood in the way of substantial innovation for quite some time.  There is little diffusion of knowledge use in some economic environments, and scarcely any diffusion of innovative infrastructure or building component capacity in many environments. Even a recent post from left leaning Project Syndicate indicated the need for building and construction to be exposed to economies of scale.

Again, innovation in building components and infrastructure would be desirable for all income levels, not just individuals with lower incomes. Few other aspects of consumption would be as freeing, as this single factor. In a sense, it's odd that such an important scaling process should even be still be needed, in one of the most basic areas of our lives.

Perfect competition would not even be necessary, for the innovations which could free both our time use and services options in the future. How to make that possible? Who or what stands in the way? As mentioned in yesterday's post, the wealth of non innovated building structures also provide additional monetary flows for services formation. However, consider...If some recent statistics are taken seriously, one in thirty children experienced homelessness in 2013. How is that even possible?

As part of the product generation process, knowledge use has scarcely been given the chance to compete. While it's understandable that many institutions wish to limit knowledge use, this is no longer practical or realistically possible. Too many populations do not have access to the services they need. All individuals need the right to intellectual exploration, real challenges and meaningful work. All individuals need the right to assist one another for daily needs - credentials or no. Not only do governments need to recognize this, but private interests need to do so as well. Otherwise, a growing polarization in knowledge use and economic access will only become more difficult to reverse over time.

Fortunately, many aspects of knowledge use can take place without imposition on other existing knowledge use structures. Unlike the marketplace where too many copies of a tradable good would destroy profits, knowledge use adapts to specific geographic settings, and is also time dependent. Quite often, the result is a unique product: a result of local circumstance and resources.

Often, when competition is taken into account, it's too easy to focus on tradable goods instead of the altogether different circumstance of non tradable goods. As for the latter, neither competition or innovation have truly emerged. Of course, that really is the good news in terms of growth potential, because starting the process is equivalent to opening a whole new frontier. Should this happen, few would need to worry about perfect competition again, for the foreseeable future.

Sunday, November 16, 2014

Why Do Services Need to be Monetized?

Too many needed services are held back today because of supposed "austerity" circumstance, in spite of the fact that service formations represent great potential for economic growth. While some growth potential remains missing because of slowdowns in traditional production, gains in services formation would eventually expand the marketplace for manufactures and commodities formations as well. After all, it is difficult for citizens to fully participate in the marketplace when services access remains limited.

New services generation could be defined either as nontraditional or alternative production, should services be created so as not to generate further debt or societal obligation. In effect, these services would become a valid part of the supply side structure, in that they would not incur hidden societal obligations. Whereas traditional high value service formation often relies on proceeds from traditional production and international monetary flows, in order to take place.

As to the latter, the growth they generate is more interdependent, than would be necessary with nontraditional services production. While further growth would be a benefit of alternative services formation, services and production would not be "joined at the hip" in growth based terms. That would make it easier to accommodate supply side shocks as well - whether "good" or "bad" - because time use would become relatively more important than other resources which define environment.

How could services formation exist more independently of production? The fact that services become self supporting, would mean that production can move at different levels without completely upsetting transmission structures. The prime example in this regard are the ways in which assets are used to provide services flows. If asset structures are not completely bound to these roles, that in turn frees asset structures to more closely approximate what people want them to be.

The best part? Asset formation can in turn be readily subjected to highly productive (i.e. good deflation) innovations which would otherwise be held back both by special interests and services needs. If communities can generate services wealth directly, their infrastructure, asset and building component options immediately become more flexible. What's more, internally defined coordination patterns makes it far easier to accommodate higher population densities in a small core.

Consider the normal travails of declining production in recessionary times. In a larger sense, production aggregates should be increased because people find real gains in doing so, instead of being compelled to do so (i.e. maintain production) for needed services formations. By the same token: with fully developed time arbitrage, production levels could be relatively low (in given settings) without undue harm.

That would be possible, because of good deflation measures in currently existing assets and building formations for both living and working environments. Some individuals would choose to work less because lower cost living accommodations would not require a full work week. Or, they could opt for work which does not provide monetary compensation in a normal sense.

Presently, the entangled nature of traditional production and services, is part of the reason why governments struggle to make up for lost economic activity in recessionary periods. After all, governments are dependent on the proceeds of traditional production (which falters in recession) in order to generate the limited quantity of services which production aggregates provide. This also has bearing as to why a low interest rate doesn't imply government gains in borrowing for infrastructure provisions. Monetizing service formations - hence "setting them free" from production restraints, could assist governments in overcoming this fiscal recessionary quagmire.

Regular readers know that I use the term "monetized" in a specific sense: as compensation for local organized services formation and access, in coordinated time aggregates. Much of the austerity which limits work formations is arbitrary in nature, because of how services have been defined. What's more, some services are overemphasized because of legal and structural issues, even as service formation for the public as a whole continues to languish. Too much services access is also limited by hard credentialing* processes.

High skill knowledge use of the present is more often monetized (not backed by government redistribution), when it exists to serve middle to upper range incomes. Growth in this area became evident - for instance in the nineties - when legal offices emerged in central locations which were previously zoned for residential use. Commercial retail areas in that time frame were also increasingly replaced by tax preparation offices and the like. In more recent decades, what once would have been retail areas was instead given over to large freestanding structures for specialized medicine. However, these marketplaces cater more to a given portion of the income spectrum, than the marketplaces of the earlier twentieth century.

A lack of desirable or productive services formation is all the more problematic, given the fact that many with degrees also end up accepting work which exists below their skills capacity. Some of this, however, is due to higher education as an all too easy source of wealth capture. Again, the primary problem for education in the present has become its isolation from actual marketplace conditions. One result is a now inadequate services marketplace, for knowledge use engagement.

So long as many vital services exist mostly in a fiscal capacity, they will continue to be limited in relative terms. In a sense, one could think of fiscally provided services as existing in half the capacity that might otherwise be possible. Not only is their fiscal nature indirect in terms of job formation: it also involves a debt formation process which means the service is paid for not once, but at least twice. In some instances, perhaps half of the population is employed than might otherwise be possible.

Time arbitrage would not only monetize new services formations, it would make them possible in areas lacking in economic complexity. Furthermore, time arbitrage could alleviate the burden of sticky wages which contributes to unemployment. By compensating time use as anchored to local asset and production formation, citizens gain a better idea what compensation is actually possible. While these forms of employment are more self directed than traditional employment, the fact that locals support the inherent safety net structure is what provides work security, rather than job security. Much as individuals once tended gardens well after retirement, individuals would tend their local gardens of economic connections, well after more strenuous forms of work have been set aside.

The fact that production aggregates have been held back because of limits to marketplace access in general, is what makes it difficult to determine what a long term growth trajectory might actually consist of. Once populations achieve better balance in terms of asset formation and services structures, it will become easier to determine what future possibilities could be.

Monetizing services would also provide greater opportunities for returning time use aggregates to a central role in the economy. Not only would this be a tremendous plus for measurement in terms of a nominal level target, but it would also make economies more resistant to the dutch disease which can be problematic when nations become too reliant on commodities instead of individual input. Presently, many still view production as more important than individual participation, but any continued focus with this mindset only generates further economic imbalance in the long run.

I could easily continue, for the question posed by this post title is quite general in nature! Monetizing services could go a long way to establish normalcy, even though it would be a slow process which occurs mostly at the margins of primary equilibrium. Indeed, that is a good thing, because inevitable mistakes would be small scale. Plus local "victories" would present potential knowledge and land use patterns that populations might dare to undertake, if the risks of doing so are better understood.

*Hard credentialing is a major contributor to wage stickiness - hence a lack of overall work availability and knowledge dispersal in services formations. Soft credentialing would allow local populations to credential based on voluntary project and skills proposals, alongside ongoing negotiation for services needs.

Thursday, November 13, 2014

Time Arbitrage and the Nominal Factor

There is a chart of changes in the NGDP growth trajectory for the U.S. that Marcus Nunes often portrays, which illustrates a slow but steady drift from an earlier growth line. While the chart is indicative of Fed monetary policy realities, it also serves as a reminder that time aggregates continue to be pulled away from total spending capacity - as represented by falling labor participation rates. Falling participation rates affect the time aggregates which are so important for total spending capacity. Is this why some are not willing to commit to an anchor which includes time representation, as viable?

If this were not problematic enough: economic time value holds a smaller role in current measurements, even as the healthcare component of U.S. GDP continues to grow. Chalking this up to demographic changes, tends to miss the larger point of general equilibrium imbalance. These changes in economic norms are presenting problems for healthcare measures which further distort what aggregate spending capacity represents. Available monies vary to such a degree, that healthcare now distorts quarterly GDP reports.

This also matters, because healthcare is a major (and growing) contributor of any consumption basket that might be compiled - with or without a nominal target as a viable consideration. As James Caton is discovering through a recent series of posts, his ideas for a fixed reserve ratio aren't quite as simple as he'd hoped.

Indeed, the same problems healthcare adjustments create for income measure (or) aggregate spending capacity, mean similar complexities in determining the composition of a basket of consumption goods. These problems occur primarily because healthcare is being nudged to increase representation beyond the (primary or central) pricing equilibrium which is actually possible. From part of my response to James in the first above linked post:
A nominal target recognizes how asset formations and commodity flows coalesce around the use of time aggregates. Which is why a nominal target already has a fixed component which is more reliable than other variables because it has a constantly dependable relation to money use, unlike other resources and commodities which gradually change.
Of course, there's somewhat of a problem with the (still wishful) nominal target defense which I provided for James. Even though time use needs to be our most reliable economic factor, it has been increasingly been called into question: which is one of the main reasons I started blogging in the first place. No one can afford to forget that economies would not exist without the actions of individuals - robots or no. James Caton is one of a growing number who recognizes that a nominal target is far better than what currently exists. The challenge is not only to define why this is so, but how it can best be delineated.

However, a political obstacle lies in the fact that the present day Fed does not find these ongoing considerations important. Thus far the dialogue has taken place without their input. Many in those exclusive halls remain convinced that the elite can run things without the help of everyone else. Unfortunately, that is no longer the case. While some seek to determine the direction and intent of fiat money, further population representation on the part of money is lost in the meantime. Governments can forget that fiat money is only possible, so long as the representation of whole populations remains in the mix. In other words, the real strength of government relies on the strength of individuals.

While time arbitrage (compensated time use in coordinated time settings) is not a complete economic representation by any means, it would return balance to an equilibrium which continues to falter in time use terms. Compensated time elements would be standardized (compensated) in relation to local resource use patterns, hence serving as a focal point for economic activity. One's time use would leave an imprint on other economic components, hence unique local nominal "imprints" would gradually form. Time use would be an ongoing choice by which to engage with others in compensated activity. Matched time use would also correspond with local investment options, which give flexibility to time use decisions.

Time arbitrage settings would provide further economic momentum by extending local investment access to all citizens, instead of having them need to rely on government redistribution for one's retirement needs.* Since non standard (services production) time aggregates directly correlate with local standard production, the benefits of a fiat standard are easier to recognize. Once populations begin to coordinate services formation in direct relation to normal production formations, the ongoing struggle to return to a gold standard (in some quarters) could well lose the better part of its intensity.

Money becomes capable of providing growth capacity, when individuals are (once again) given the right to define product. How so? The innovation which counts most, is when individuals transform resource use so that large scale time use gains are realized - something that most single mission institutions have little incentive to provide.

When innovation occurs, monetary growth can sometimes be stepped up to accommodate resource gains, depending on whether innovation triggers further (local aggregate) resource use other than fixed time quantity. Even though the horizontal nature of time arbitrage does not directly contribute to the growth pattern, it provides the setting in which knowledge use becomes capable of remaining front and center stage of a given (local) economic environment. Since time use freedom is desirable, local economies would sometimes opt for infrastructure which would not be possible in a national setting.

Among the details which need deciphering, are some very basic questions as to what the economy even means today, for all concerned. Time use has been externally defined for so long, that few really know how they would prefer to spend their time - in any number of capacities. Even though many accept this as normal: when one's time use is externally defined for a prolonged period - particularly if other social access is at stake - control over one's destiny can be lost.

The best way to determine monetary representation at a personal level is to directly compensate the "search" itself, through time arbitrage. What's more, doing so provides a recognizable point of economic entry which is not possible in normal income terms. Where other forms of time arbitrage have been notoriously difficult to determine, these would be locally recorded and measured. This particular point of entry would not easily be challenged, by those who claim that (today's) QE does little to help where it is most needed. Today, QE is often challenged in terms of inequality for instance, by those on the left and right who insist it does not get to the intended "targets". (Of course an ongoing rise in low wage job availability indicates the argument is not that simple.)

Locally coordinated time and investment options would provide more direct means to counteract arguments against full monetary representation. As a result (at least one would hope), monetary representation would be less likely to be shorted in the larger whole. In other words, even the utilization of "tiny" production/services economies as viable growth, could help to prevent arbitrary caps in the larger equilibrium. One of the best aspects of local production, flexible asset holdings and services coordination is that the ties between the three would make it evident what "inflation" actually consists of. "Provable" small scale macro? To a degree, yes.

Importantly, the idea of equal time use cannot be separated from access to local investment, personal innovation capacity and ability to define resource use. Why? Cuba serves as a primary example in this regard. While they held up the desirability of equality in time use and knowledge gains, real knowledge use capacity was utterly broken, because of an inability to link knowledge use to resource use in marketplace settings. While their example is extreme, institutions in many countries accomplish the same negative knowledge use result, to a lesser degree.

What's more: the further hypocrisy for Cuba, was the fact their government finally took advantage of marketplace circumstance to generate more personal freedom for government representatives, while personal freedoms on the part of the population remained lost. Much as limited elements of the free marketplace exist for Cuban government officials today, the inverse also exists in the U.S. Here, many who are monetarily compensated for the use of high value knowledge sets have personal freedom, which is quite unmatched by those with low skill sets.

Knowledge use need not be defined either as winner takes all or lose lose scenarios. To be sure, time arbitrage in local investment settings would illustrate the desirability of a nominal target. Just as important: eventually, time arbitrage could also bring back much needed balance in personal freedom, for individuals of lower income levels.

*Should a local community "fail" at some point, locals would still have valuable skills sets that could quickly integrate into other settings which utilize time arbitrage. This could cushion the blow of failed local investments which one was counting on for retirement. The fact that knowledge use would also comprise skills sets portfolios, means being able to work well into one's later years.

Update: New communities which bring production and services into a cohesive whole would certainly be studied. Advantage? Applied studies get plenty of cites!

Wednesday, November 12, 2014

Midweek Market Monetarist Links and Summaries - 11/12/14

Divisia M3 for the US and EZ in charts (Marcus Nunes)
No significant wage pressure since 2009:
Money supply needs to reflect what is actually occurring:
Janet, the Fed bailed the water out of the ship this time, but neglected to repair the hull...
A meaningful debate?
The English language could use a colorful word like this!
Why did Arizona and Ireland diverge after 2010?

Deciphering a paper with the Neo-Fisherite result (Nick Rowe)
"Ask what happens to inflation and nominal interest rates if the central bank permanently increases the money growth rate"
"Neo-Fisherite fun. Plus concrete steps fun."

Crowding out aggregate demand really isn't the point (Scott Sumner) : Did the monetary environment change in 2011?
Perhaps there's a reason these students are so good...The Bentley Fed Challenge team wins the Northeast Regional
Determination to complete the "prescription": Haruhiko Kuroda = Franklin Delano Roosevelt
Interest rates are also a price - the price of credit: In economics, price changes don't have any effect, they are effects

Scott Sumner at Econlog:

Too many "repeats" in this story: How Europe did a "1937"
Is the monetary policy expansionary, or contractionary? Low interest rates do not cause low inflation, or high inflation
"QE is marginally better than not QE" Is George Selgin defending Keynes on liquidity traps?

One wonders what is actually behind this (David Glasner)

The question on a lot of minds (Benjamin Cole)
Tim Duy "proves a point" for Benjamin:

A day for celebration (Lars Christensen):
Lars provides quotes from the recent Zsolt Darvas paper:
Fortunately, Russia won't be bound by the price of oil:

Also of interest:

Cass Sunstein provides some thought provoking advice for the Republicans

And...Republicans tend to shoot themselves in the foot (regulating each other) as long as they can.

Tim Harford looks at inequality:

Tuesday, November 11, 2014

Some Musings on Supply Side Conundrums

Commenter "James in London", in a recent post by Scott Sumner, asks, "How many classic supply side recoveries have been accompanied by falling long term yields?" Scott replied that this had also been a concern of his for some time. It's one of those questions which highlights a need to approach investment through different means, among other things. In that spirit...some of the musings in this post.

Investment outcomes depend on existing supply side structures, which have not changed enough in recent decades to provide a full array of options. Were supply side issues somehow responsible for the recent liquidity trap? In a literal sense, no. Liquidity traps are monetary phenomena which result from the actions of central bankers, and there is little reason they should be perceived as "necessary". Still, while private interests aren't (literally) to blame, lackluster attitudes regarding growth greatly affect the attitudes of those responsible for monetary policy.

Neither governments or private interests have sought to adapt the marketplace for changing and present day needs. Supply side reticence to make room for productive innovation, has also meant a growing desire to pull back from financial strategies in general - some of which were scarcely the right kind of "innovation" to begin with. This led to increased determination on the part of central bankers, to pull back monetarily as well.

The innovation which is creative destruction - thus far - has had little chance to transform knowledge use or infrastructure components for local environments. Creative destruction is in some respects almost a forgotten form of innovation. Not only does real innovation free one's time use potential, it also opens up aspects of the marketplace to citizens who were not previously included. Since areas of primary consumption have remained all but untouched in this regard, a wide swathe of the population remains unconvinced that real progress is on the horizon.

Even prior to the Great Recession, central bankers were already casting about for tools (in particular, IOR) which could "assist" the supply side by freezing present circumstance into a holding pattern. The main problem with this strategy? Economic momentum is still needed, to maintain the economic patterns of the present. Without real momentum, a "one step forward"  approach from the recent zero bound, could still easily result in two steps back.

Normally, an escape from the zero bound is thought of in demand based terms. When central bankers do not continue to provide sufficient demand, recoveries eventually occur through supply side means. But supply side recoveries are uncertain. In some instances, recoveries only occur after substantial resource loss. The fact that so much resource use was disrupted (and not regained) during the Great Recession, has contributed to the low growth recovery of the present.

While banks were "rescued" in the Great Recession, that rescue often did not translate into gains for citizens. Underlying fundamentals in terms of borrowing opportunities were not substantially changed. If bank lending has been restrained in recent years, so too have been the requests for loans. Normally, interest rate increases are to be expected during periods of heavy borrowing, which has certainly not been the case for some time. Given the fact that interest rates are also a price for credit, how "hot" is the market for credit right now...really?

Hence while central bankers are increasingly anxious to raise the interest rate, doing so could represent a false "business as usual" signal. Part of the problem is that today's "business as usual" is taking place without sufficient representation on the part of those in the lower to middle income range. What's more, few have addressed a growing reliance on prosperous regions for services which are needed in every local economy.

Understandably, everyone is anxious to get back to normal. But the fact that root issues weren't addressed in recent decades by private interests and governments, means important marketplace factors haven't evolved to generate inclusive and more productive growth. Therefore, when central bankers provide further liquidity under present conditions, the process feels insufficient to many who recognize the marketplace isn't as well represented as it could be. This can hold true whether or not those who recognize the problem, desire that such representation actually exists.

Update: Indicative of the credit gap which is also affected by income variance: The same variance is affected by a lack of legal representation for lower income levels.

Monday, November 10, 2014

The "Burdens" of Inheritance

After today, I'll see if I can dismiss the unexpected "burden" theme for a while, so these thoughts serve as a "wrap"! In the post "Are Healthcare Services Even Considered Product?" I highlighted the burdens imposed by limitations on healthcare which - as a result - has been gradually defined in incomprehensible fiscal terms. A second post looked at burdens imposed by asset structures. Among other problems, today's asset structures impose uncertainties in valuation and risk for investors of all income levels. They also generate problems for flow dynamics from the micro level of family, to the broader macro level of the economy.

Inheritance in this post refers to the "windfalls" of personal inheritance, as well as a broader interpretation of taxation windfalls for governments which don't always correlate well with their spending patterns. Both are similar in that they are incidental to economic activity, yet treated as otherwise. While the first instance is not readily observed (or discussed) at a societal level, the second instance gets constant attention, in part because resultant services formation has little rhyme or reason. Whereas the personal windfall tends to be important for many on the right, the social (or total) windfall holds more importance on the left. Just the same, both left and right often place undue emphasis on personal windfalls as drivers of economic activity.

Even though these two ideas of inheritance windfall can appear different, their illiquid nature stems in part from a societal reliance on assets to services flows. In both instances, the random availability of inheritance windfalls makes it difficult for either individuals or governments to plan for their use in optimal terms. As a result, governments attempt to make such windfalls more reliable through hard definitions of asset formation (zoning and regulation). In the process, property use, business formation and hiring potential become less viable than would otherwise be possible or desirable - which generates "win or lose" scenarios for everyone involved. This affects one's ability to negotiate during the inevitability of changing business conditions and/or personal circumstance.

While states have long relied on asset structures for services formation, the process can slow economic dynamism by conceptualizing asset formation and its associated "inheritance" as primary economic activity, instead of work and ongoing commerce. As a result, property and land use requirements can sometimes overwhelm the activities they are intended to support, in terms of time and resource commitments. What's more, the services which asset formations are expected to generate, are not always adequate in terms of local marketplace needs. This has bearing as to why - in some circumstance - services need to be approached on more direct terms.

At the level of individual and family, the combined nature of property holdings can be a mixed blessing at best and a curse at worst. Not only are these holdings monetarily illiquid, they are difficult - if not impossible - to represent in individual terms of usage potential. This is particularly true for lower income levels, if there is not sufficient income capacity for legal negotiations to go smoothly if changes are needed - if indeed one has sufficient leverage to initiate legal processes. Even though the ability to incorporate or utilize bankruptcy are tools for higher incomes, more efficient legal tools are still needed for lower income levels.

Prisons are full of individuals who take matters into their own hands, when they have no adequate means to maintain resource use. Some who survey this reality refuse to marry, when they see that legal systems are not necessarily equipped to provide solutions for property issues. All too often, governments become the recipients of (consequently) neglected properties, when family members are not able to work out legal issues among themselves. Internal incentives are not strong enough for governments to seek reform. But too many negative externalities build up over time, as local economies bear the consequences with partially abandoned properties and broken societal trust.

It helps to remember in all this that one reason why populations acquiesce to government involvement in the first place, is that governments "promised" to streamline property access and negotiation for their citizens. In part because many vital property issues are conveniently shoehorned under the "untouchables" of domestic family law, governments prevent open discussion as to the fact they have not actually been able to do so. Admittedly, I am speaking of the U.S. in this context, and other nations may not have property burdens of the same nature.

Burdens of inheritance also find their way into monetary policies which consequently place greater emphasis on debt formations and asset structures, instead of the ongoing dynamics of economic activity. Indeed this language has lead to more societal challenging of the nature of GDP. That is particularly unsettling in that GDP expresses economic dynamism more than any other measure available. Even as market monetarists point to the importance of nominal stability as a way to honor debt contracts, policy makers all too often see asset formation as a more important component of the economy, than time commitments on the part of individuals and business formation.

How to overcome these burdens? More flexible and incremental forms of ownership would not only generate more family formation, but greatly improve the condition of already existing local properties. Individuals who provide the most substantial financial commitments tend to be the ones who are actually able to tend to the care and maintenance of their property. All too often: when ownership is uncertain, incentive to provide what may be one's only available resources for property needs, can understandably be lost.

The arguments of this post are not to "do away" with the windfall nature of inheritance and taxation. Just the same: going forward, this form of monetary flow needs some budging from its primary position, so that economies can be envisioned in more dynamic terms. Current government calls for more taxation is ineffective, because the "grow the pile first and ask questions later" mentality only raises the stakes of economic access for all involved. The goal is to make asset formation more liquid, understandable, accessible and flexible.

In summary, the undue emphasis on asset structures for services needs, makes populations reluctant to allow innovation that would lead to greater freedom of choice in time use. In turn, this makes business formation, job formation and family structure more difficult to maintain. The stakes are already quite high: both at the point of economic entry, and what one is expected to provide on an ongoing basis to make both business and personal relationships work. Better forms of incremental growth are needed to spur future growth, and legal assistance will certainly be needed for the process to begin.