Friday, December 19, 2014

Total Factor Productivity and Community Potential

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

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

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

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

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

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

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

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

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

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

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

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