Wrap Up for December '15

From Eduardo Porter, saying what needed to be said in "Imagining a world without growth"

Whatever the ethical merits of the case, the proposition of no growth has absolutely no chance to succeed. For all the many hundreds of years humanity survived without growth, modern civilization could not. The trade-offs that are the daily stuff of market-based economies simply could not work in a zero-sum world.

And he continues:

Economic development was indispensable to end slavery. It was a critical precondition for the empowerment of women...Zero growth gave us Genghis Khan and the Middle Ages, conquest and subjugation. It fostered an order in which the only way to get ahead was to plunder one's neighbor.

Why have so few remained optimistic, about the kinds of growth which matter most for the world? For instance, future growth in terms of knowledge use, could also take place without undue strain on the environment. Physical aspects of growth would be less problematic in developed nations, if more populations had the options of physical infrastructure and assets that are strong, mobile and lightweight.

Fossil fuels could be utilized more effectively, with transportation design which improves time use options for the activities people want to do, and for those which they generally have to do. By way of example, fewer fossil fuels and expensive transportation requirements would be needed in central areas for living and working, with more traditional transportation infrastructure at the peripheries for activities that don't have the same daily deadlines. These patterns would reflect the fact that many individuals wish they didn't have long commutes to work, whereas they enjoy long trips using traditional transportation, when they are not in a rush for daily work needs.

Development economics is taught quite differently in developing countries. http://blogs.worldbank.org/impactevaluations/how-development-economics-taught-developing-countries-what-we-learned-looking-more-200-courses

http://chrisblattman.com/2015/12/01/this-graph-says-the-welfare-state-is-to-blame-for-belgian-isis-recruitment/ Chris Blattman explains, "It does not seem to be poverty, but exclusion...Another possibility that I find quite plausible: the shame and injustice of exclusion, not poverty, is what leads so many to rebel." I would only add, exclusion is not just a reaction from neighbors or strangers, but can also come from one's own immediate and extended family.

Another example, how the not so efficient non tradable sectors continue to crowd out more efficient tradable sectors, especially in environments of tight monetary conditions. http://blogs.wsj.com/economics/2015/12/01/what-americans-spent-more-on-last-year-housing-health-care/?mod=WSJBlog

Peter Boettke highlights a lecture from Mary Morgan, who wrote "The World In The Model", in 2012: http://www.coordinationproblem.org/2015/12/imagined-worlds-and-economic-science.html

Chris Blattman notes an important issue for field experiments, regarding publishing difficulties in the years ahead. http://chrisblattman.com/2015/12/07/if-you-run-field-experiments-this-might-be-paper-that-will-make-it-harder-to-publish-your-work-in-a-few-years/ Many of these individuals will generate important work which needs to be preserved in the future, and I continue to hope that knowledge use systems would be one means for doing so.

Not everyone wants, needs or can otherwise procure a driver's license. It may be a while before environments in the U.S. reflect this reality. http://blogs.wsj.com/economics/2015/12/08/the-fastest-growing-group-of-licensed-drivers-americans-age-85-and-up/?mod=WSJBlog

Finland's basic income experiment http://www.vox.com/2015/12/8/9872554/finland-basic-income-experiment

"These are dangerous times for the study of the past." Paul Bartow (AEI) "The growing threat of historical presentism"

George Selgin with Russ Roberts on monetary policy and the Great Recession: http://www.econtalk.org/archives/2015/12/george_selgin_o.html

It is becoming more difficult for non profit hospitals to compete with for profit hospitals. http://www.valuewalk.com/2015/12/nonprofit-hospitals-hedge-funds/

Simpler ownership options are especially needed. This is a higher percentage than I expected, which would prefer ownership: http://blogs.wsj.com/economics/2015/12/16/nearly-95-of-young-renters-want-to-buy-but-many-say-they-cant-afford-it/?mod=WSJBlog

Given the importance of better services definition in the near future, women especially need more representation. http://timharford.com/2015/12/economics-still-a-job-for-the-boys/

Roger Farmer now supports Scott Sumner's NGDP futures markets proposal, although he is not "sold" on a level target: http://rogerfarmerblog.blogspot.com/2015/12/scott-sumner-and-musical-chairs.html

An important post from Scott Sumner: Lower interest rates are contractionary

Lars Christensen explains why so many oil exporters have chosen to float their currencies this year, and why doing so is the best option for all concerned: http://marketmonetarist.com/2015/12/23/oil-exporters-do-not-devalue-to-boost-exports-but-to-stabilize-public-finances/

Steve Randy Waldman makes a well reasoned argument, as to why it is not so easy to redistribute land value. Also, from his post:

We encourage people to take on highly leveraged, undiversified exposure in homes with promises that they are good "investments" meaning they will increase or at least retain their values over time...Much of the work we have to do if we wish to increase housing supply is to deemphasize the housing as investment narrative in favor of the housing as consumption good.

Stop the war on drugs. The opposite of addiction is human connection.
http://themindunleashed.org/2015/12/the-likely-cause-of-addiction-has-been-discovered-and-its-not-what-you-think.html

Nick Rowe considers an argument made by Vincent Geloso, regarding variations in output and NGDP: http://notesonliberty.com/2015/12/28/dont-target-ngdp-target-ngo/

Happy New Year, to all of my readers!

No Way to Treat An Economy

Decades earlier, I occasionally heard in casual conversation, how recent wars had been a tremendous boost to the economy. After all, war "got us out" of the Great Depression, didn't it? But I had my doubts. Granted, WWII generated quite an uptick of economic activity in the U.S. But how - exactly - did that represent a net gain? War is another good example of reaction (destroy and rebuild) when it proves too difficult to envision economic growth which does not have to destroy something still valuable, in order to take place.

Real gains occur when economic activity augments our time value (through innovation), in relation to other forms of resource capacity. These per capita gains occur when a given market expands through voluntary (i.e. not mandated) consumption patterns. Consider healthcare. Even though healthcare markets previously were not mandated, knowledge limits already prevented them from expanding through organizational innovation. This is why healthcare obligations are a contributor to ongoing losses in aggregate time use potential.

All too often, non tradable sector consumption settings are presented so as to further impact our remaining time use options. For similar reasons, interest on loans can't contribute to actual wealth gains, because they draw from a pool of time availability that is relatively fixed. This process of consumption subtraction (or substitution) occurs across the entire spectrum of consumption potential, for those who take out mortgages. Small wonder that government subsidies for loan formation, have been a major component of tax policy in the U.S.

Non tradable sectors have become notorious, for taking a sledgehammer to the markets most capable of generating prosperous economic conditions. Even though they have generated mass wealth for governments and special interests alike, non tradable sectors have done so through means which have subtracted time value from everyone involved in economic processes. Both asset and services formation represent an ongoing negative shock, in that they now require additional time and monetary support, at all levels of society. This has left tradable sectors little choice - especially with ongoing monetary tightening - but to accept smaller roles in today's economic environments. When tradable sectors lose their footing, nations can also lose their primary rationale, for maintaining positive economic and political relations.

Sometimes, the language of shocks scarcely touches the surface of positive or negative effects which ripple through supply side circumstance. Positive shocks tend to be of a technological nature, but they come in other forms as well. These shocks provide gains in time value, as contrast with other forms of resource capacity. This is in contrast to negative shocks, which also include earthquakes or terror attacks which also require repairs and rebuilding. Lars Christensen describes shocks in a recent post as a component of forecasting:

...a shock by definition is exactly that something you didn't see coming.

Shocks of all kinds can affect growth trajectories, but some do so in more obvious ways than others. Whenever a given growth level is reduced from a recent trajectory - such as occurred with the onset of the Great Recession, shocks take on additional importance. How does one discern possible effects on a given growth level? It depends on how supply shocks interact with with other resource capacity, in its current configurations.

Generally, when the price of oil declines, this appears as a positive shock. However, the most recent drop in oil prices did not encourage consumption as before, given the fact that a larger percentage of the population had already fallen away, from the production capacity they held prior to the Great Recession. Governments have yet to come to terms with the fact that in order to consume, individuals need the ability to produce something of value for the economy as well. For time based services, aggregate demand also requires additional aggregate supply. The present lack of labor force participation, partly explains why some were unable to fully participate in the transportation gains of lower oil prices.

Oil as commodity, is just one example how non tradable sectors have become long running negative shocks, which now impact consumption potential for tradable sectors. When individuals do not participate in major expenses, chances are they minimize their minor expenses as well. Again, the broken window fallacy shows that seeming positives, are not always positives. All the more true, when wealth consists of wealth capture. According to Bastiat:

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another.

When governments and special interests impose harsh restrictions in terms of production capacity and innovation, economic malaise and frustration is the result. That's no way to treat an economy. Let's hope that recent rumblings regarding a third world war will subside, and nations will once again embrace growth and prosperity while there is still time to do so.

Post Highlights From 2015

For the most part, the following linked posts received the most traffic in 2015. This time I started with January and moved forward through the list, which gave me a better feel for traffic fluctuations over the course of the year. I decided to keep the list fairly short, since a substantial number of viewed posts fell into a similar range.

Needed: A Vital and Inclusive Marketplace To what degree is income a result of spontaneous marketplace factors, as opposed to being arranged? Income which does not accurately reflect free choice in product selection, tends to exclude aggregate income potential.

Globalization and the Non Tradable Sector Dilemma Time based services and asset structures are no longer in sync with the wealth capacity of tradable goods formation. Within nations, this becomes problematic for lower income levels. At international levels, for monetary flows in general.

Time Value as Defined Product When it is difficult to ascertain what time value contributes to product formation, it can also be difficult to determine time value in terms of output. Options are needed in which time value can be approached more directly, through services product which can be defined at individual to individual levels.

Time Based Defined Product - Meritocratic or Egalitarian? Merit based compensation for knowledge use - by definition - limits participation in time based services structure for low income levels. Whereas merit based coordination in tradable goods organization is not problematic for most income levels, because these product aggregates are not time dependent.

Notes on Innovation, Rival and Non Rival Time Value Knowledge diffusion needs the option of symmetrical organization in time based services, which could expand the compensation of time value in non rival settings. Asymmetric compensation generally requires individual time value to exist in competition with other time value.

Local Economic Diversity: Worth Preserving Local corporations would recreate Main Street for the knowledge investments of the 21st century, and reverse the hollowing out process which has occurred at local levels.

Notes on Wicksellian Considerations In September, discussions about the natural Wicksellian interest rate and its effects on monetary stability, were in full swing.

Sorry, But Maintaining the Status Quo is not "Courage" It's been said that Bernanke would have selected a less boastful book title if he could have. However, Ben Bernanke did not do enough, when he had the chance to keep the recession from becoming "great". As a result, the Fed's actions have greatly contributed to a sluggish and questionable recovery.

Considering a Macroeconomic Framework "In order for the macroeconomic discipline to further evolve, it needs better definition and production capacity for services formation, than has been provided thus far."

Energy Technology as "No Need to Work" Rationale  As technology claims a broader role in the workplace, labor force participation levels remain in question. In order to keep labor force participation levels high, individuals would need to reclaim - and rediscover - the value of time based product.

Notes on Basic Income, Meaningful Work and Equilibrium It is not easy to integrate the marginalized into the production and consumption requirements of general equilibrium conditions. Local forms of alternative equilibrium, could revive long term growth.

Some Thoughts on Economic Stability Economic stability begins with accurate monetary representation, which takes all of aggregate spending capacity into account. However, in order to ensure long term economic stability, supply side considerations are also important.

Happiness "Lives" in Time Value

I chose this title, not because this post is about happiness, but because of the fact happiness is experienced in - and through - time value, at a most basic level. In other words, the same happiness which is capable of sustaining personal relationships, would benefit from time based product of both practical and (more) experiential nature. Yet few can reach for further experiential product, if basic (pragmatic) needs aren't met in the time aggregates which are actually within reach. And happiness is a valid component, of both.

All too often, those who insist that GDP "ought" to be about happiness, are more concerned with measuring outcomes or destinations, instead of the economic input which could belong to the "journey" of GDP in real time. Just as life is about the journey instead of the destination, the same is true of the economic input which becomes measured activity. Through symmetric (or mutual) compensation, time value could contribute to greater economic stability, as a valuable measure. Wherever it is reasonable or possible for monetary activity to gain a reliable constant, happiness has a greater chance of becoming a relative constant as well.

In the weeks prior to Christmas, I had intended to write a holiday post about time value as a gift. Better late than never! If there were a gift I could choose for the world, it would be that people have the chance to gain productive economies not only where they begin their lives, but also where they ultimately live out their lives.

If economic time value could be created where people already reside, money would become more closely associated with personal effort, personal assistance and positive results. Should people choose to leave the environments where they begin their lives, it wouldn't have to be because they couldn't make a living, but simply because they seek new challenges. As things stand now, too many individuals are compelled to leave loved ones behind in order to build a successful life, or else become stuck in places which hold little economic promise.

Consider the many ways it matters, when overall time value is insufficiently economic. In particular, if someone says they "are" alone or that they "feel" alone, something in that statement is not about victimhood, especially if one rightly perceives this as a need for some form of product which simply isn't available. While "feeling alone" is typically cast in psychological terms, the psychological effect is also a result of a lack of societal coordination for daily life needs, on the part of all income strata. The result is default institutions for various income or age groups which are not capable of reflecting their humanity in a broad sense.

Economic time value is needed for those moments when it was once possible to reach out to friends and neighbors, in order to get feedback on a wide range of personal activities in one's life. Anyone still fortunate enough to have family and friends nearby, knows that seeking assistance isn't always about needing a particular skills capacity, so much as a desire to address concerns regarding one's own perspective on a present matter. It is sometimes said that in terms of knowledge use, what one generally wants is corroboration for their own instincts and prior efforts.

But when time value is asymmetrically compensated, corroboration for one's efforts is not what one normally gains from a time based service product. Whereas symmetric compensation - i.e. that which coordinates time time value on equal terms - would makes this a possibility. Even though people can train themselves to rely solely on their own instincts and skills sets without the help of others, why is this approach necessary? Why should humans - born as social animals who benefit from mutual assistance - resort to the odd economic conclusion of independent service provision as technology proceeds, instead of time based services product?

Even though self reliance is necessary for survival up to a point, people have unnecessarily traveled down this road a bit too far. Oddly, those who are inclined to denigrate self reliance, don't realize how much the insistence on a high bar for knowledge use norms, makes a greater degree of self reliance all too necessary.

Nothing in this post is to suggest that all time value should exist on economic terms. In particular, many activities among one's closest family and friends, can fortunately remain both spontaneous and non economic in the foreseeable future. However, many individuals - particularly among the marginalized - need viable options for services coordination that they are not able to access, otherwise. Indeed, one's non economic time value tends to correlate with the way they are actually compensated in the marketplace. Because of this, many who are successful, have too little time to assist others who do not have sufficient access to resource capacity.

Compensated time value for mutual assistance, is a gift which people now have the option of providing, for themselves. An internet meme puts it well: Sometimes the best present is being present. Anyone who has caring family and friends, can be forgiven for thinking that caring attention should not be attached to money. Just the same, should people be willing to take a chance on monetarily compensating one another for mutual assistance, many among the marginalized would be able to create for themselves, what others tend to take for granted. Knowledge is the flame that a candle burns, yet a candle loses none of its light, by lighting another. As to the times when individuals might seek the time value of others? Another meme explains in terms that are quite simple to understand:

Be strong enough to stand alone, smart enough to know when you need help, and brave enough to ask for it.

Notes on Physical Infrastructure

One of the notable government/supply side responses to the Great Depression (in the U.S.) were extensive efforts to improve physical infrastructure in the South. Many who were born in the fifties such as myself, remember older homes from childhood which had only recently benefited from their first electrical installations.

Often, these homes had a single bare bulb in the middle of each room, hanging from the ceiling with a pull string attached to turn on the light. Some of us still have pictures of outdoor bath time (as babies), in metal washtubs! Likewise, outhouses could still be found behind the homes of many a grandparent - many of which were still being used. Generally, it was the new mid century homes of rural areas which came with indoor plumbing - a time when many a dirt road was finally paved over, as well.

Measures such as this, brought the South into the formal economy on far more productive terms than had previously been the case. Even though real progress was associated with the entry of women into the workplace, the importance of mid twentieth century infrastructure can not be denied. While Washington could scarcely achieve a similar feat today, fortunately these are not the kind of physical infrastructure efforts that are most needed. More flexible forms of physical infrastructure could greatly assist those who need broader economic access. Even better, these efforts can be organized without centralized planning.

While today's physical infrastructure network is extensive and in many respects stable, the costs to set up and maintain similar forms of infrastructure, are beyond the capabilities of those with lower incomes. All too often, there is little room in prosperous regions for these individuals, given the fact these areas need higher income levels just to maintain the environments and services they already have in place.

However, these forms of exclusion are beginning to take a toll, as economic output and participation could be lost - slowly but surely at the margin. For instance, the continuing tight money conditions of general equilibrium are representative of this process, as illustrated by the binding output quota recently discussed by Nick Rowe and David Andolfatto.

If the stagnation of supply side limits is to be overcome, new forms of infrastructure networks would be an important part of the process. The good news, is that many possibilities for physical infrastructure need not entail the costs associated with the infrastructure investments which occurred after the Great Depression.

Alternative infrastructure is one of the best solutions possible for inequality, given the fact present day infrastructure tends to isolate the marginalized. In many instances, the all or nothing expectations of traditional settings, translates into all or nothing scenarios for workplace and personal relationships as well. While many among the marginalized continue to live in some form of housing, their lack of ability to share experiences with others on similar terms, prevents them from maintaining strong relationships. Hence a primary goal for alternative physical infrastructure settings, would be to maintain system wide mobility, for all who take part.

Recession as a Monetary Phenomenon

Recently, Nick Rowe explained that recessions need a strictly minimalist model in order to work well for general equilibrium:

Recessions are not about output and employment and saving and investment and borrowing and lending and interest rates and time and uncertainty. The only essential things are a decline in monetary exchange caused by an excess demand for the medium of exchange. The rest is just embroidery.

Why, then, does the "embroidery" get confused with what is most important - especially in the moments when supply shocks are most evident? For one, recessions can have multiple connotations. A quick Google provides the more technical term, i.e. the one which matters most for policy makers in terms of response:

1) A period of temporary economic decline during which trade and industrial activity are reduced, generally identified as a fall in GDP in two successive quarters.

Strictly speaking, a statistical (technical or cyclical) recession needs to be dealt with solely through sufficient monetary representation. As to supply side and structural concerns which may affect ongoing conditions, Investopedia provides a less technical definition - one which indicates how an economic decline may "feel", in spite of statistics or technicalities:

 A significant decline in activity across the economy, lasting longer than a few actual months.

...and months can seemingly drag into years. One reason the latter concept of recession has become relevant, is the slowdown in long term growth, worldwide. Just the same, the Fed does not serve any productive purpose by stressing economic circumstance which lie outside of its control. Doing so is also problematic, insofar as policy makers use the general idea of recession in ways which sometimes allow them to thwart accurate monetary representation.

Were it not for the fact that central bankers are responsible for both financial concerns and monetary aspects of the economy, the role of accurate monetary representation would be more obvious for all concerned. As to transparency: If supply side factors could be thought of as curtains over a window, financial activity - when confused with monetary activity - would be the heavy drape which is capable of cutting out all the light.

A lot of confusion could be put to rest, if it were better understood that recessions - in the strictest sense of the term - are a monetary phenomenon. This means that when an excess demand for money arises, the Fed's primary responsibility is to meet that demand, instead of using supply side factors as means to confuse the public regarding what is at stake.

Perhaps most important, is that structural concerns are not so much the concern of the Fed, as of the individuals who wish to take part in and contribute to the marketplace. The supply side factors which determine output and long term growth, need representation in the marketplace which goes well beyond the policy makers of the present. Otherwise, central bankers may only continue to create more financial burdens which limit long term growth.

Housing as a Vessel for Knowledge Wealth

More than anything, traditional housing stock is intended as a holding pattern for reliable income, and income potential. Much of present day housing particularly reflects knowledge use which is well compensated, in asymmetric terms. Even though human capital is represented - however - only certain aspects of human capital are considered economically viable, for today's default rigid investment settings for housing stock.

Perhaps this conceptualization could help, given frustrations over what have become widespread housing constraints. To some degree, attempts to "get at" housing constraints through redistribution for better economic access, miss the point. One may imagine more taxation on land, for instance. Or argue for the inclusion of more population in (already existing) vital cities, so as to be at the heart of economic action.

But it's not quite that simple. Growth is needed on terms which can expand equilibrium, instead of attempts to push redistribution through an already defined, relatively stable equilibrium. When housing values reflect wealth holdings which replicate existing knowledge use patterns, how does one know that greater population density could - or should - change this dynamic at the heart of equilibrium? Much of this form of knowledge wealth, has been generated through product replication on terms which don't necessarily utilize broad time aggregates. In other words, given employment densities have bearing on the ways that city based equilibrium patterns are established.

Housing holds a passive role, as an "after the fact" reality given the economic activity which precedes it. As such, housing has become a primary stabilizer in today's general equilibrium, particularly as expressed in today's prosperous cities.

Consider the calls for change, in this context. In a recent post, Steve Randy Waldman explains how economic conditions rely on already existing constants, in terms of long term wealth formation and environmental structure. One of the interesting things about his perspective, is the fact I have been as stirred by market urbanist arguments as anyone in recent years, in spite of their impracticality. Here's Waldman:

My view is that the "market urbanist" diagnosis of the problem is more persuasive than its prescription for addressing it. On normative terms, I'm not sure that they should. The market urbanists present themselves as capitalist deregulators but I also think they can be described with equal accuracy as radical redistributionists...Economists describe houses as a form of capital that provides a stream of services, rather than a cash flow, to owner-occupants. We should also describe the arrangement of neighborhoods as a form of capital that provides services people value.

As to the last two sentences, his sentiments would hold equally true for local corporations and knowledge use systems, which would contribute far more environment and lifestyle consumption (infrastructure) choices than presently exist.

Housing as a vessel for the action and definition of knowledge wealth, is better news than may appear at first glance. Freer use of knowledge in the marketplace, would simultaneously create freer application of housing options. While some might describe me as a radical redistributionist for knowledge use (as opposed to housing), I don't propose to generate symmetric knowledge use where it already holds specific asymmetric value, in relation to general equilibrium.

Rather, I would like to see knowledge diffusion which builds overall wealth potential on alternative equlibrium terms. Fortunately, what matters most in all this is that economic activity prior to housing formation, is what needs to be loosed in the marketplace. By front loading the process with new knowledge wealth, there would no longer be a zero sum struggle, for the prosperous regions of the world. Through expansion of knowledge use to areas where it need not distort existing patterns, new knowledge wealth would mean room for new housing wealth, as well.

To all of my readers, a Merry Christmas!

Infrastructure: A Matter of Connecting Networks

In a recent Harvard University article, Ricardo Hausmann approaches inequality from a somewhat unique perspective. He stressed that the real problem concerning capitalism, is that people have not been able to create capitalism in the places where populations could benefit from it the most. All too often, infrastructure needs have proven greater than what governments are able to provide, or what other institutions thus far have been able to generate. Here's Hausmann:

The poor are not being exploited. They're being excluded from the higher productivity activities. It's not that the capitalists are taking a very large share of what they produce. It's just that they produce very little in the first place. 

Hausmann continues:

Modern capitalist production requires the simultaneous access to many different inputs. The lack of any of these inputs has disastrous consequences...The conditions for high productivity are very hard to achieve everywhere, but much easier to achieve in a few places.  

He notes that governments are forced to pick and choose, which locales within a nation's borders can benefit from additional infrastructure. In summing up the article, Hausmann also makes some suggestions. Not only could technology reduce infrastructure costs (so as to provide more access); but where possible, those who benefit from infrastructure gains could share in the costs. In recent months I have stressed that local corporations would be able to generate broader economic access, in part based on those suggestions.

However, much more than innovation and reduced costs are involved. Local corporations would need to link together different networks into a single "package" - one that could reconfigure non tradable sector activity through a common perspective. Normally, fully functioning economies are difficult to construct "from scratch", because of the complexity of multiple factors.

Such factors need more than a little serendipity to occur, in that they generally operate as separate institutions with completely different goals and missions. How could multiple efforts - which so often work at cross purposes to one another - instead be internalized and combined? For the remainder of this post, I'll touch on five areas, which local corporations and their participants would seek to integrate.

1) Local monetary and fiscal union, for non tradable sector activity. In contrast to the complex organization of national government in this regard, local corporations would create a simple monetary economy (albeit with complex knowledge use) built on incremental growth, rather than loan capacity. By generating new wealth through matched time capacity, local corporations would no longer need to draw on outside time based services, subsidies, or other forms of entitlement from their surrounding governments.

2) Knowledge acquisition, maintenance, preservation, research and ongoing utilization. Knowledge use systems would coordinate knowledge sets through other communities with the same structure, and remain open to international dialogue as an integral part of long term growth strategies. These systems would also serve as repositories for knowledge sets which may not have other "homes" that they are readily associated with.

3) Physical infrastructure platforms for core and periphery. In particular, core infrastructure is where innovation and costs need to provide economic access which otherwise might not be an option for anyone with limited resources. Primary usage patterns (basic lifestyle options) would be determined at the outset of new community formation, and the core would gain its initial (unique) structure from these. Peripheral connecting networks - and the local investment patterns that are associated with them - could be completed, once communities become confident and gain their footing.

4) Asset formation. While some elements of environmental definition would be determined at the outset, building components for living and working would often remain flexible, in the sense they could be reorganized and/or possibly replaced as needs change. Incremental ownership includes the physical shares of building components, alongside the financial component in the form of local land shares which can be internally traded with other system participants.

5) Tradable goods formation. As local corporations start to mature and take on recognizable form, production possibilities beyond local community also come into play. In some instance these might include openings for non residents who wish to gain a local retail presence. Other times, either knowledge use or physical resource capacity would be coordinated for both experiential goods and tradable product that contributes to wealth beyond the actual community.

Shifting Organizational Patterns: How To Adapt?

In the broadest sense of the term, organizational patterns don't really shift all that often. Only consider how long societies organized much of their daily work around the seasons. Indeed, the shift away from seasonality was a gradual one, as people came to organize (their most) time consuming activities around common institutional patterns. However, something important about these more recent forms of organization, is beginning to change as well. Perhaps in the new century, remaining seasonal patterns will hold to a greater extent, than the twentieth century routine of arriving to and from work at essentially the same time.

Part of what is driving organizational shifts, are the ways in which product generation are changing. Even before the Great Recession, corporate voices were voicing not so subtle hints, that organizational patterns would need to once again converge with individual resource capacity. Often, it was stressed that people would need to become entrepreneurs of their own abilities. However, one problem regarding this need, was the fact that many forms of arbitrage had already organized for centralized economic activity, which had also generated an incomplete form of marketplace.

Prior to the Great Recession, the idea of entrepreneurial adaptation wasn't quite so unsettling. Indeed, younger individuals were looking forward to the challenge, hence were beginning to orient their education towards this goal. Only as it became apparent that business start ups had been on a gradual decline, did those expectations wane. And where full time employment had otherwise once been the norm, gig economies sprang up in prosperous regions, to fill in some of the missing employment gaps.

Is it possible to generate new forms of relative permanency, out of today's changed economic circumstance? Hopefully, yes. But in some instances, not on terms that are recognizable as present day benefits or entitlements. Entrepreneurial activity is needed at local levels - particularly for knowledge based services - but everyone still needs a recognizable group context in which this could occur.

Further, time value needs recognition as product in its own right - a process which would also require a certain degree of psychological adjustment. For decades, individuals have been given the message that product definition for time value, was something which mostly existed outside of their own personal domain. Not only would knowledge use systems represent exploration in a monetary sense, but also in a social and psychological sense.

Local corporations could generate a different balance between flexibility and permanency, part of which would mean less need for alarm clocks in the morning. In place of 9 to 5 commitments, the services formation of knowledge use systems, would take place in spontaneous organizational patterns. By making working environments multi purpose and - in many instances - suitable for walkability, local living and working densities would not contain the traffic jams, that are associated with transportation in spread out densities.

In all likelihood, a compensated thirty hour work week would be the best strategy for all concerned. Individuals would enter this "full time" work setting, once they become sufficiently comfortable with basic studies and are ready to branch out into more personal forms of educational endeavor. Set aside time for vacation and personal needs would occur at the outset of a given year's work schedule, with a certain degree of time allowed each week for the spontaneous work needs which arise on an ongoing basis.

What happens when individuals are not able to match 30 hours in a given week, and they want to be able to do so, in order to smooth time availability at a later point in their year schedule? These would be the moments when individuals could "donate" time (both would still be compensated) to those who are currently unable - for whatever reason - to provide matched time to the person who initiates the interaction. For the most part these would likely be circumstance of illness and related forms of incapacity. Even those who suffer ongoing conditions, nonetheless have many time frames that they are able to economically participate.

Through knowledge use systems, individuals would be able to keep organizational capacity in balance with the desire to explore their world. This form of desire is of course stronger at various points in one's lifetime, which don't necessarily correspond with twentieth century expected patterns of work and retirement.

Some Thoughts on Economic Stability

Recently, Scott Sumner asked, "Is the free market economy stable?" While there are a number of ways to think about this question, economic stability begins with accurate monetary representation. Even though supply side factors can contribute to overall uncertainty, some components of economic stability have been the sole responsibility of central bankers, for the past century.

What has been problematic since the Great Recession, is that the Fed has not openly acknowledged the centrality of the monetary role, for economic stability. Instead, policy makers have allowed important monetary considerations to be derailed by other issues in FOMC debates. In the above linked post, Sumner notes:

Friedman, Hetzel and I all share the view that the private economy is basically stable, unless disturbed by monetary shocks.

I believe that the Fed contributes best to stability, through faithful representation of what the supply side seeks to accomplish. While the supply side can be notorious for contributing to gradual (long term) economic instability, central bankers remain responsible for maintaining monetary conditions for existing general equilibrium in the short and medium term.

So long as supply side conditions do not dramatically change, accurate representation on the part of central bankers (NGDPLT) can maintain stability for both monetary policy and real economic conditions. However, part of the present difficulty is fiscal overreach, in areas where the marketplace could benefit most from additional growth. As a result, too much time investment in knowledge product, has had little opportunity for practical application in the marketplace.

As it became more difficult to generate revenue (from traditional manufacture) for knowledge based services, governments resorted to increased consumer obligations (particularly asset formation), to make up the difference. Unfortunately, central bankers moved to tighten monetary conditions on those same asset formations, even as they moved to stabilize this source for banking interests. If alternate means for services and asset formation are not generated in the near future, long term growth will suffer. Too much knowledge based product is still defined on fiscal terms, which makes it difficult to completely escape the threat of the zero bound in the near future.

Even though central bankers could commit to a level nominal target, they need additional growth capacity - which means real assistance on supply side terms - in order to return to the earlier growth trajectory. Without that help, ongoing deflation is possible. Only remember the zero bound conditions of the Great Depression, and the fact nations can find it easier to resort to war with other nations, instead of "looking inward" to address the economic fallout which results from intractable non tradable sectors.

Long term deflation is always a possibility, when there is an insufficient degree of time aggregate value, to balance other forms of resource capacity. While negative interest rate territory could be a short term solution, the possibility remains that this form of economic maneuever may make little sense to populations as a whole. For long term growth, it is better to bring time value back into balance with other forms of resource value, in order to ensure economic stability.

Notes on Basic Income, Meaningful Work and Equilibrium

Recently, Andrew Walker at BBC News (HT Lars Christensen) noted some details about the basic income approach, as it is currently being debated in the UK. This dialogue is commendable, in that it seeks solutions on a number of levels. What I find useful are the attempts to strip away some of the legal complexities, which make it difficult to sort through welfare costs and obligations.

Even so, while basic income might simplify overly complex systems, real barriers remain. Policy makers are trying to find ways to integrate the marginalized, in the already existing consumption expectations of general equilibrium. Or, one way to frame the issue is this: how does one "fit" small wages into the high wage expectations of today's prosperous non tradable sectors? For the UK, these obligations overlap in at least three areas: housing costs, insurance and taxation. Tim Blackwell of the New Statesmen, considers what might happen to someone dependent on a basic income:

...the combined effect of tax, national insurance and the withdrawal of housing benefit and council tax support was to leave the individual with just over 10% of any additional income they might earn.

Equilibrium variance in terms of income, is why I've suggested that local corporations take on the task of sorting local wage and income structure away from the expectations of state and nationally defined economic equilibrium. It is not always easy for anyone with small wages, to participate in the non tradable sectors which provide much of today's wealth for both governments and private interests.

As to another consideration regarding the above link, there is good news in the form of a recent Gallup poll. First, from closing comments in the above article:

Some argue that if there is a guaranteed basic income, some people will choose not to work. For many the idea of simply giving people cash is very unpalatable.

 Here's what Gallup recently found (HT Sarah Gustafson at AEI):

What the whole world wants is a good job. This is one of the most important discoveries Gallup has ever made...Our World Poll across 160 countries found that over the past 100 years the great global dream has changed from wanting peace, freedom and family to simply wanting to have a good job.

 Gallup's research has found that of the 7 billion people on earth, 3.2 billion are adults who dream of having a good job. That is what they want more than anything in life. We define a good job as 30+ hours a week for a paycheck. The problem is that when our World Poll asks how many people have a "good job" as defined this way, only 1.3 billion do. So the world is currently short about 1.9 billion real jobs, or what we would call "good jobs".

One thing to consider, is that those "good jobs" have been generated on asymmetric terms. In other words, secondary funding channels for knowledge use (through asset formation and traditional manufacture) are not a monetary flow result which is capable of full integration. One only need look at remaining pockets of either poverty or inadequate service formation in developed nations, to see how this has been the case - time and again. Symmetric compensation - in the form of knowledge use systems through local corporations, could go a long way to fill the gaps.

However, these local systems would alleviate what would necessarily be small wages, through alternative equilibrium structures. By separating the requirements of local non tradable sector activity from primary or general equilibrium, local populations could generate vastly reduced internal costs, for both time based product and local housing/infrastructure needs. What would have been taxation for infrastructure and services needs, becomes local group investment and time based coordination strategies. Hence primary connections to surrounding economies, would be through the (already existing) frameworks of tradable sectors.

Whether or not governments are able to bridge the needs of the marginalized (through basic income) with those of general equilibrium, remains to be seen. What is interesting in this regard, is that common ground is being forged between different factions - some of which are presently concerned about a lack of meaningful work, versus those who would like to be rid of unnecessary legalities and complexities in a time of strained budgets. Tight budgets make it difficult to recreate the kind of "good jobs" that so many believe to be necessary for a good life. Even so, real innovation in non tradable sectors can still bring a good life and meaningful work, to small wages and small incomes.

Time Value: A Measure of Economic Freedom and Stability

Today the Fed finally raised its rates. While I've managed to misplace the source of one pertinent quote on today's news, it probably wasn't the only one to imply that monetary policy had been loose, ever since the Great Recession. How could monetary policy have possibly been loose, when it was only covering existing obligations, after many obligations had already been cut off at the knees?

If some "unexpected" degree of money needed to be printed which seemed as though "too much", that is only because in aggregate, more obligations existed which in turn needed to be honored. Just the same, central bankers have not been clear with the public that populations are routinely getting shorted, in a historical time frame when few are willing to accept the actual expenditures that everyone is creating. Like Marcus Nunes I am concerned that the decision to finally go ahead with the (long awaited) interest rate rise, is not going to end well.

For me, these circumstance also indicate that too few policy makers are convinced of time value as representative of economic outcomes. In order to imagine monetary policy as loose since the devastating losses of the Great Recession, one also needs conviction that personal participation in the economy can simply be replaced by other resource capacity. I don't think this is possible, without causing real problems for both economic stability and continued growth.

It's also difficult to understand how some believe that today's interest rate increase, is "the way to rising wages and higher consumer spending power", when the Fed's move could remove much needed resource capacity from the marketplace. Economic freedom - and long term monetary stability - are both at stake. Why do policy makers continue to scrap the hard won monetary policy lessons of the Great Depression? How long will it take policy makers to discover that a successful economy is not likely, when ever fewer individuals are expected to participate in the outcome!

Throughout the twentieth century, knowledge use contributed to wealth creation, because it was broadly applied for overall institutional capacity. Today, knowledge use potential is being sidelined, as productivity mostly takes place on asymmetric compensatory terms. When time value can't be matched with the time value and intention of others, knowledge use eventually becomes a minor component of other resource capacity. Small wonder that the broader purpose of education is now being questioned.

Without a specially designated marketplace for time value, economic freedom could eventually be lost as many forms of labor are gradually replaced by technology. Few have stopped to consider how in these circumstance, societies might revert to cultural atrocities which seemed as though abandoned. For me, economic time value is the most important measure of economic freedom. But first: product as an idea or concept, needs to once again embrace the potential value, of time.

In a post entitled "Measuring and Markets", Diane Coyle notes:

For instance, part of the debate about productivity is about what it measures, but also partly about what it defines.What is productivity when products play a minority role in economic activity?

A primary mistake has been the discounting of product "purpose" in the marketplace, as somehow less important than it once was. Only stop to consider what has occurred. When it seems as though there is no purpose for product, people forget how to maneuver relationships in productive ways. In particular, interaction with resources and the consequential exchange of product, gave individuals the chance to learn how to negotiate and reciprocate with one another. This in turn, gave greater meaning and freedom to their personal relationships. Policy makers are mistaken to think that the bulk of human exchange can somehow be handed over to technology and government, all the while expecting individuals to remember how exactly they came to be civil and respectful to one another in the first place.

Rather, it is skills capacity and the ability to meaningfully relate through exchange, which makes freedom possible in group context. Before anyone can remain responsible, they often need more options than just finding work through others who are still able to arbitrage gains. When people lose too many means of direct interaction on economic terms, they become dependent on others in ways which is helpful for no one.

As traditional manufacture makes it possible for many forms of product to take place without human assistance, there is plenty of room for knowledge based services product. Time value needs better definition, as a valid component of economic measure. Productivity gains could come into sharp focus, when populations gain the chance to mold knowledge sets in relation to one another at local levels.

When personal and economic options are lost in the marketplace, something happens which is difficult to convey through historical stories alone. In other words, it's not always easy to decipher how people end up in unfortunate circumstance, either at individual or group levels. All too often, societies aren't able to avoid the recurrence of negative events, just because those earlier events appear culturally "impossible" or at least undesirable. Even though root causes need to be deciphered on multiple levels, sometimes there are conflicting incentives which prevent this from occurring.

Likewise, the economic base of historical troubles is often not evident. Granted, policy makers do not have sufficient reason to stress the importance of economic sustainability, because it can be too tempting to bottle up production potential for limited gains. Too often, it is assumed that specific institutions and groups will remain benevolent with the resulting wealth, hence distribute the largess fairly. At this point it would not matter how benevolent any leader wants to be, because too much marketplace potential has been short circuited.

One can only hope the new phase of monetary tightening on the part of the FOMC will be temporary. In the years ahead, time value needs to be restored in the marketplace, as a completely valid form of service. Through such means, the earlier growth trajectory which existed prior to the Great Recession, could eventually be restored.

Time Value: The "Use It or Lose It" Problem

Why has it proven so difficult for markets to coordinate between time based resource sets, versus other forms of resource utilization? Put simply, there is an imbalance in this regard, which continues to accumulate. Time based products have time and location specific characteristics, that set them apart from other forms of resource capacity which theoretically can be traded within any time frame. Even so, monetary representation presently treats all forms of product as though they are viable through the same mechanisms.

So long as economies maintain sufficient growth trajectories, balance between time based product and other resource capacity is possible under the same "umbrella" (of monetary transmission) for populations as a whole. But consider what may happen, otherwise. As governments gained power in recent centuries, they granted exclusive knowledge based rights for skills production to certain groups.

As it turns out, too much of the knowledge that was subjected to strict limitation, was also a central component of expected consumption. After special interests gained these privileges from governments, other groups in their turn were granted initial claims for consumption of this knowledge based product - particularly in the form of government pensions. Today, even though pensions can bankrupt municipalities at state and local levels, the staked claims for time/knowledge product that are contained in pensions, are where many budgetary problems originate.

Consider the situation, in terms of overall time aggregate potential. Unlike other consumption possibilities, everyone's time based product options exist in a single continuum of time use potential. When time/location slots in that continuum are missed for any reason, it may not be possible to make up time "cancellations" elsewhere, for participants who lost their position in the present round. The result is not just individual loss for production and consumption, but also aggregate losses. This is true not just in the sense of healthcare as potential (immediate) time match by provider and recipient, but also in terms of deteriorating health conditions, when such needs go unaddressed for years or even decades at a time.

The problem for money as representative of a single marketplace for all goods - whether time based or no, is that it cannot readily coordinate accumulating imbalances when they occur, without a specially designated marketplace for time value. Without a parallel (money represented) marketplace for symmetrical time coordination, money has no "choice" but to purchase all resource capacity as if it can be traded at any given point in time. However, time based product occurs along a single ongoing continuum. This holds true in the sense of time value which is sought at personal levels and is generally location specific.

While bestowed favors from governments in skills based production are understandable, that does not mean it is realistic to assume a full marketplace for healthcare options can exist under these conditions. However, instead of simply reacting to this unfortunate circumstance, it would be reasonable for governments and healthcare providers to share knowledge, with those who otherwise can't expect access to healthcare over the full course of their lives.

Time value is a "use it or lose it" form of resource capacity, in both production and consumption terms. Time specialty gains on the part of the few, have slowly but surely undermined other forms of time value at aggregate levels. These losses - while also monetary in nature - are nonetheless personal, because they represent potential which might not gain the chance for representation. Only consider the cumulative effects, in terms of social devaluation and lowered expectations. Perhaps this helps to explain why governments are becoming more reactive to those who are marginalized - whether native born population or immigrant. In the process, populations are being compelled to judge who does not "measure" up.

What a shame, that governments and special interests inadvertently encouraged their own populations to become judges as to who is "deserving" of anything, and who is not. It's time to take a closer look at potential time value, and find better ways to put it to use, for populations as a whole. With a bit of luck, there is still time to back out of this psychological quagmire.

Needed: Greater Flexibility in Housing

Non tradable sectors include what can be considered core elements, in living and working environments. Economically and otherwise, rules for these areas of life often become more rigid than necessary. Granted, there are good reasons for standardization, in that commitments to routines in resource use generally pay off. Regular habits become culture over time, and lead to centuries long residual effects for land values as well.

Hence a general equilibrium may intensify societal norms, through both increased regulations and expectations. Regardless of one's actual abilities or economic access, asset designations may be formulated as though individual abilities don't vary, while family and charity are expected to make up for the difference. As it turns out, there are historical moments when this logic can backfire...

This appears as though one of those moments. Is it possible to scale back some of these excessive demands on the part of government and special interests? If there is to be real economic growth in the near future, something needs to shake up today's stodgy non tradable sectors. In particular, housing needs to adapt to the changing circumstance of the present. Who is ready to create a much needed housing market from scratch, instead of pretending that housing is still on the verge of overheating.

Granted, the solid nature of housing, reflects the solidity which is understandably sought as a backdrop to life in general. Most individuals with the income to do so, will continue to build traditional housing which requires a substantial degree of resources, well into the future. Even though he designed lightweight housing components during the course of his lifetime - for instance - Buckminster Fuller continued to live in traditional housing.

But there is only so much room in many prosperous regions for more traditional housing, and many of these citizens resist new apartment complexes as well. Part of the reluctance on the part of municipalities to make room for lower income levels, is the fact these individuals don't have as much to contribute, to the kinds of infrastructure that traditional development requires.

Fortunately, new communities can be established which make flexible ownership a central component of local opportunity - both for asset formation and infrastructure needs. In many instances, excellent designs which are strong and lightweight are already waiting to be put to good use in the marketplace. There is no reason why respectability can't be "built in", when new owners become part of the process of participation and mutual responsibility for the results.

Societies seem to suffer from a lack of imagination, when it comes to creating ownership options in more places through better means, for those with small incomes. For one, landlords scarcely benefit from low wage renters who aren't personally invested in their living quarters. Likewise, those same renters may suffer, if and when those landlords let their properties deteriorate. With some higher income exceptions, renting just doesn't have good incentives. Neither rentals or traditional housing constructs, are quite sufficient for present day housing needs.

Flexible ownership options could provide the incremental means which are needed by those with small wages, for gradual paths toward individual responsibility. One thing to consider, is that these densities will be somewhat different from present day city patterns. Often, knowledge use communities would likely include walkable areas near the core, with more traditional forms of transportation along the peripheries. Even though basic infrastructure patterns would be built into the environment, many of the building components would maintain a degree of mobility for changing ownership patterns.

Alternative Equilibrium as Long Term Growth

Why is long term growth so difficult to think about, in the present? Many have become resigned to a now slower growth trajectory, which has prevailed since the Great Recession. However, this slower rate of growth means that fewer individuals will gain economic access, if supply side constraints do not substantially change. I came across a quote this morning which aptly sums up the situation, "Sometimes we run from ourselves by staying put." Is this what has happened to economic progress in general?

Central bankers thus far are making things worse, by trying to maintain general equilibrium conditions on what are basically no growth terms. Like other policy makers who refuse to take chances on needed structural reforms, they seek "normalcy" through doubling down on earlier bets, instead of utilizing a level nominal target. But attempts to maintain earlier economic gains, will not be enough for long term growth. It's a passive approach that contributes to a negative (unexpected?) side effect, as political parties scramble for remaining resource options which don't appear "pinned down".

Hence in spite of endless communication about economic normalcy, these don't especially feel like prosperous times. For too many, the earlier conditions of general equilibrium can no longer be taken for granted. In some instances, slipping away from general equilibrium is such a gradual process, that it can be difficult to even explain to others what happened. Once "out of equilibrium", individuals no longer have the same economic options to remedy their circumstance. Just the same, they may be judged as though they can still use the same tools as everyone, for their decision making processes. Different forms of alternative equilibrium are needed when they cannot, so that personal efforts to succeed will not simply go to waste.

Recent slowdowns in growth, present problems for nations at basic levels. Too many non tradable sectors have refused to innovate, in the very areas where those with small (or nonexistent) wages need better solutions for living and working. As a result, growth on general equilibrium terms is now more difficult, than should be the case. And monetarily - in too many instances - central bankers continue to tighten the screws further. As Marcus Nunes recently noted, regarding the FOMC:

On the 16th, they are likely to throw salt in the wound. Any pain will likely be temporary because the economy has been "duly prepared"!

Indeed, one can only hope that the worst of monetary tightening is behind the U.S. and other nations as well. Granted, some governments are striving for greater inclusion, despite rigidities in general equilibrium conditions. But look at the hurdles they face, as indicated in this recent Adam Smith Institute post re an upcoming basic income experiment:

The Finns believe that basic guaranteed income could allow people to take low-paying jobs without incurring personal cost. At the moment, taking a low paying job may result in lower welfare payments and many temporary jobs go unfilled as the welfare benefits system is not agile enough to cope with the temporary employment that reflects the changing nature of work.

Note the issues at stake, including the resources which actually represent welfare benefits. Might this Finnish experiment be successful? Also at issue, is "the changing nature of work". Again, here's Mikko Arevuo of ASI:

The nature of work has changed and unfortunately some of our citizens will not be able to acquire or maintain the necessary skills to gain meaningful employment in our post-industrial societies and hypercompetitive globalized economy. Assuming that we do not object to our societies providing support for those in poverty, basic universal income is the best policy to replace our outdated welfare systems.  

The desire for simplification is to be commended, and while I believe the basic income premise doesn't adequately address the task, at least efforts for greater economic inclusion are being made. Perhaps these examples will make it possible to begin the experimental processes which local corporations could provide, in terms of a marketplace for time use options. A marketplace for time value, would help to redress imbalances between scarcities in time use, versus the random nature of other resource potential.

Plus, local corporations would approach this process through what are basically libertarian means. One might think of knowledge use being applied on "live and let live" terms. Granted, knowledge use systems would start small, as contrast to the more broadly applied efforts of general equilibrium. As Arnold Kling recently noted, historically this is not a good moment for libertarians - alas I've misplaced the post with his remarks.

However, even small openings for economic freedom would be cause for hope. It is so important for central bankers and policy makers to resist the urge to cling to recent policy mistakes, in spite of their extensive investments in those belief patterns. Applying the same mistakes time and again, is not going to improve economic circumstance so as to preserve economic stability. If and when those mistakes are openly acknowledged, nations will finally be able to begin the process of moving forward. And good riddance, to the convoluted reasoning which is raising interest rates, before the underlying issue of growth is actually addressed.

An Economic World, in an Indicator

The nominal indicator - which is NGDP or nominal gross domestic product - combines the relevance of income aggregates with total resource capacity, in the economy. Why should this matter? Despite changes in inflation or deflation in the course of a year, the nominal indicator is capable of maintaining accurate income capacity at a complete macroeconomic level. As a monetary policy indicator, NGDP is far more valuable than RGDP, because the latter can't account for wage or income transitions, relative to resource representation as a whole.

By refusing to acknowledge the importance of total spending capacity, policy makers have damaged income potential to a considerable degree. In the process, they have provided insufficient reasoning for what is now a lower growth trajectory, than existed prior to the Great Recession. As James Alexander notes in a recent post:

The question of trends is important. If we took the trend from 1996 to 2007, then the current Euro Area NGDP and RGDP growth rates looks awful. What should be unquestionable is the dangers of too low NGDP growth, the only unanimous conclusion of fifty years of macroeconomics. Low or negative NGDP growth causes unemployment and welfare loss - as we are seeing now occurring in Switzerland and have seen in many monetary areas since 2007.

Even as central bankers continue to short monetary policy, they remain sensitive to the favored status of banks in this set of affairs. Hence central bankers are still giving preference to tools for emergency lending whenever "necessary". George Selgin notes a propensity to use emergency lending, in spite of the fact central bankers are resisting full monetary representation for the public, and adds:

...central bank emergency lending can be justified only to the extent that it succeeds in keeping overall spending stable...a central bank that allows the overall volume of spending to collapse has blown it, no matter how much emergency lending it undertakes. Indeed, to the extent that a central bank engages in emergency lending while failing to preserve aggregate spending, it may be guilty of compounding the damage attributable to the collapse of spending itself with that attributable to a misallocation of scarce resources in favor of irresponsibly managed firms. Thanks to moral hazard, the extent of such misallocation, instead of being proportionate to the actual volume of emergency lending is augmented by the expectation that such lending will continue. 

Like Selgin, I am quite discouraged by the fact that policy makers cannot imagine better ways to approach central banking. In particular, asset formation has not changed in any productive capacity, something which has not been acknowledged since the Great Recession. Real reform is needed, in terms of broader ownership capacity. Simpler structures are needed for local asset holdings and building component formation, in order to maintain growth well into the future. Until better economic access is created, the tendency for moral hazard to affect monetary policy could likely remain.

Moral hazard has proven to be a factor, which makes it easier for central bankers to disregard true monetary representation. Perhaps the very accuracy of a nominal target, is what concerns policy makers. If so, why? These are issues which need to be openly discussed. Will citizens finally become more aware, what is at stake in present day central banking? One can only hope that 2016 will be a good year, for the airing these issues deserve.

Why Aren't Cashless Economies Realistic?

Regular readers may already suspect, why I believe they are not. The desirable neutrality of a cashless economy, also assumes that all kinds of resource capacity can be treated in essentially the same way. There's only one problem. In the long run, it's not possible for national government budgets to "match" observable sets of (secondarily funded) time based preferences, with shown preferences in terms of primary resource capacity. Knowledge and time based wealth are already being threatened, as the good deflation of traditional manufacture conflicts with the organizational capacity of non tradable sectors.

Asset creation (particularly housing) also reflects the time based wealth, which societies are attempting to hold in check. Primary and secondary sources of wealth origination could become further unbalanced, if the slowdown in international growth continues. However, a local marketplace for knowledge based skill, could be generated alongside the traditional production and asset creation of general equilibrium. Time based wealth needs not just a secondary role, but also a primary role in present day economies.

Nick Rowe also questions how cashless economies could work, in a recent post:

If you want to talk about a world where bonds are used as a medium of exchange and medium of account, then I will reply that your "bonds" are not really "cash".  

If you want to talk about a barter economy, where any two people can directly swap any fruit with any other fruit...then okay, that really is a cashless economy. But that does not look like where our economy is headed.

Consider why this is the case. Time based coordination is difficult to achieve with other forms of resource coordination, because present day budgets aren't built to align the two for broad macroeconomic purposes. Governments haven't taken the secondary wealth role of today's services into account. As a result, that secondary role matters greatly, whenever services can't contribute to wealth creation through gains in traditional manufacture and asset formation. While monetary policy is more effective - and important - than fiscal policy, too much of today's knowledge based wealth was envisioned on fiscal terms.

Fortunately, it is possible to align time based production/consumption needs at local levels, with other forms of resource use. Local corporations would be able to utilize time value (as opposed to bonds for instance) as both medium of exchange and medium of account, alongside money's primary role in this regard. However, the local coordination of symmetric compensation is as far as it goes, for time value and money in a dual capacity. The spontaneous conditions of asymmetric time compensation are generally necessary, for the coordination of larger economies.

Understanding the difference could be key, for potential services growth. Central bankers are (at least) attempting to maintain the asset values, which help to generate the asymmetric compensated services already in place. The problem - however - is that any spontaneous service formation associated with national budgets, is now limited. This reality contributes to the political free for all regarding services access, which has broken out in too many national arenas.

Asymmetric claims for time based compensation, contribute to the difficult nature of monetary neutrality at the margin. Statistically this can be difficult to decipher, because it also involves determining the representation of a still missing services marketplace. No one knows "true" preferences in this regard, because individuals seek consumption preferences along two dimensions which are further affected by income. One of those is time based preferences, while the other involves choices among resource sets which exist separately from time value.

By creating room for a time based marketplace at local levels, those with small wages could eventually find a better alignment for time based needs and other consumption preferences. Even though a cashless economy could theoretically provide this in general equilibrium, many political constituencies do not appear comfortable with full production and consumption potential, in this context. Already, monetary policy is not being treated as neutral, given the fact that technological deflation may be preferred, to the actual expenditure needs for today's services provisions which are already in place.

Musings on Community and Family Production

One part of the debate around a "need" for less employment in the future (supposedly, that is), is a rationale that women could simply resume duties in the home, as workplace patterns are gradually replaced by technology. However, due to earlier technology in the twentieth century, the work involved that was actually necessary (as opposed to desirable) for home production, was also drastically reduced. Hmm...

Home production as a personal voluntary (consumption) choice, tends to be quite different from what were once time consuming work obligations. When GDP was developed this shift was already occurring, which helps to explain why home based work roles were left out of economic measurement. How to think about this? My argument is that while most family production isn't necessary on economic terms, there is real need for local community production - particularly in the form of a knowledge based services economy.

Should this issue be addressed, it helps to remember that cultural considerations are also at stake. Who would prefer today's production/consumption roles at home, and who desires to stay in the marketplace? The worst case scenario (i.e. in the long run) would ultimately be a reversion to more difficult family home production, should policy makers and supply side interests remain passive regarding production reform for too long. What's at stake is not just a matter of deflation in terms of lost economic activity, but a broad panorama of economic freedom.

In order for traditional manufacture to maintain choice for home environments, communities need the additional wealth of locally created services production. Human capital needs to be directly coordinated and managed, in order to remove extensive burdens from governmental budgets. In the future, it is vital that nations begin to rely on the knowledge use and skills capacity of their citizens at local levels, especially as more national resources are tapped in the near future for external threats.

None of this is to suggest that single income households would not be a desirable option for family formation - only that single income families appear to be somewhat of a luxury.* Even though the role of women (or men) at home could experience a resurgence among higher income levels, it's difficult to envision this as a viable option any time soon, for family formation at lower income levels.

Local corporations would structure for incremental ownership in ways which protect individuals as a single entity. In other words, no legal assumptions would be made about the work a husband or wife may perform in a given relationship, which is not calculated in normal economic terms. In particular, anyone with small wages needs clear asset delineations which are solely their own. Paradoxically, individuals have the chance to maintain better familial relations, when legal protections (and accessible environments) acknowledge the reality of small wages and variable income streams.

Knowledge use systems would utilize coordination patterns which make it easier for lower income levels to juggle the needs of family versus workplace - much as earlier forms of spontaneous coordination were able to achieve. For one, children are willing and able to assume a certain degree of social and economic responsibility, long before they are given the chance to do so in today's society. Greater densities in living and working environments, would also solve many issues which lower income families presently face.

*Prosperous regions would also have less incentive to loosen zoning for lower income levels, and more incentive to provide housing options which makes it possible for higher income families to maintain households with a single income.

P.S. Of the frictions that can limit women in the workplace, Dietz Vollrath notes:

Rich countries are not necessarily any better at limiting these frictions than poor countries.

Getting to Tradable

Among the first, basic questions a local corporation would ask: how can a given set of non tradable components become more tradable, so as to provide more producer/consumer options for all involved? In spite of wide variance between tradable and non tradable sectors, they intersect in ways which hold broader production potential than is sometimes realized. Non tradable sectors can become much more flexible and accessible, by incorporating elements that are normally associated with an innovative tradable sector.

Often, local corporations would not choose to directly compete with tradable sector institutions which already exist for traditional manufacture. The better part of tradable goods production doesn't need many (international) locations to provide sufficient product, for consumers as a whole. In recent decades, developing nations are also coming to terms with this circumstance. Indeed, a reassessment is needed, for populations to proceed in an increasingly knowledge based economy.

By no means does this imply that local corporations wouldn't have good production options. Rather, mass production would need to be utilized differently - particularly for building components and infrastructure. Even now, a wide array of tradable goods remain in the wholesale and retail environments of non tradable sectors. How might local corporations take advantage of future mass production potential, only as an integral part of local settings? Which communities would be well positioned to take on the challenge? These areas represent a starting point for investment and income generation, beyond the initial wealth generation of knowledge based services.

Local corporations could eventually compete with other regions to create experiential product, as well. The difference between this form of experiential good versus the directed efforts of - say - Disney, is that results would be gradual, from the spontaneous efforts of individuals acting in concert for common visions. Over time, the cumulative results of group endeavor would generate interest on the part of others. Knowledge use systems would maintain regular ties with other communities utilizing this structure. One benefit of this growing network is that local participants would gain broader travel options, than what now exists for those with small wages - particularly in the U.S.

An important aspect of getting to tradable, is the ability for groups (who are actively considering living/working in a given community), to define consumption patterns for the physical environment at the outset. Local corporations would have the advantage of combining tradable and non tradable sectors under one "roof", which means the benefits of lower overhead and costs accrue to the whole group. One benefit to this set up, is the fact these groups would not have to rely on taxation of assets in order to create services. As a result, greater flexibility in zoning, regulation, and consumption definition is possible.

However: in a long term sense, greater flexibility exists for services based options than for building component options. Once a given community adopts a formula for asset formation and infrastructure which works well, it would basically want to stick with that format. Fortunately, shifts in services provisions (with changing population demand), are easier than changing infrastructure and asset patterns - flexible though their physical layout may be. Hence a broader (more tradable) marketplace for lifestyle options would exist across a given network of local corporations (or knowledge use systems), while a broad services marketplace would exist within each node of the network.

One of the best immediate options for production potential, is more local food production than often exists outside of homes in small communities. Many regions remain hamstrung by present day regulations, which can restrict competition to a mere handful of restaurants in small towns. As a result, many will cook at home when they might have preferred to eat out. How many individuals do my readers know, who wanted to cook for the public, but were stymied by what was required? Restaurants and food service in general, are an excellent hybrid example of tradable/non tradable economic activity, which would immediately benefit from lower overhead in organizational patterns.

A marketplace for time value, would lend a tradable quality to services organization which otherwise hasn't been possible. Even before employment became threatened in services formation, both producers and consumers faced limited choice sets, in part because of the ways organizational capacity needed to be met. In knowledge use systems, time value does not need to conform to a single realm of possibility. Individuals and groups alike would be able to work at a pace which more closely reflects their capabilities and time availability.

For instance, those labeled as handicapped, disabled or otherwise, would gain opportunities for matching services based time with one another, when others don't have sufficient time to match services with them. One could think of this process as including multiple racetracks for ongoing economic endeavor, for tortoise and hare alike. Local education in particular, would make certain that more than one track remains open, so that one's personal time remains fully tradable through the course of a lifetime.

A Different Perspective for Economic Inclusion

The good news? More attention has been paid to zoning issues of late. If nothing else, excessive zoning as problematic for inequality, is an area where Democrats and Republicans appear to be discovering common ground. In a recent post, John Cochrane highlighted some encouraging portions of a Washington speech from Jason Furman. Of course, as Cochrane noted, solutions aren't easy, and Furman had little of substance to offer in this regard.

Once locales are zoned in ways which contribute to the wealth of local inhabitants, it can be difficult to change those defined settings - in part because doing so can mean material loss for those who are invested in the outcome. Hence the not so good news, is that even with good intentions, most proposed loosening of zoning requirements would frequently get bogged down in the details, at local levels.

By no means is accessibility to work options, just an issue in the U.S. Dr. Madson Pirie of the Adam Smith Institute, posted about a potential transportation initiative which could assist young people who face steep commuting costs to gain work in London. One commenter noted that youth in the Netherlands were fortunate in this regard, because of their ability to bicycle to work. Another ASI commenter voiced a concern which matched my own: where does one draw the line with government assistance, which would provide yet another patch for symptoms without getting to the root of the problem?

One effective means for doing so, would be to create stronger organizational patterns for work where people already live, or could potentially relocate. Even though some local economic formation would not be practical (such as tradable goods which need few production locations), time based services are needed on consumption and production terms by populations on a regular basis. However, vital knowledge based services tend to consolidate in more prosperous areas, which mostly have room for higher income populations. This, in spite of the fact that the digital realm now makes it possible to utilize - and coordinate - a vast amount of knowledge around the world.

Knowledge use systems would be able to tap into that digital capacity, to organize broad swathes of services integration at local levels. The symmetric compensation of time arbitrage, would make it possible for groups to locally coordinate activity which - till now - has relied on multiple institutional factors in order to take place. New services capacity would also exist as a wealth starter, in that this form of organization would be measurable and quantifiable in an immediate sense.

Prior to the rise of prosperous regions as primary areas of economic activity, more individuals spontaneously coordinated at local levels for economic activity. Time arbitrage would seek to recreate local coordination, only through knowledge based services, rather than the earlier agricultural patterns which once prevailed. Granted, some further economic integration is possible in the prosperous regions of developed nations. Just the same, populations should not be expected to sacrifice too much of the value of their existing environmental dynamics, when it is also possible to generate broader access through decentralization.

Energy Technology as "No Need to Work" Rationale

This post mostly serves to make a simple point - albeit one which has slowly evolved (at least) since the Great Depression without being directly addressed. Growing use of technology contributed to greater government involvement, in the twentieth century economy. However, technological dispersion now encourages a rationale on the part of both public and private interests, that not everyone needs steady work as a lifetime option. I disagree...people not only need work, but work is necessary in terms which matter at a personal level, to have a meaningful life.

In spite of what is said publicly, too many on the political left and right have reached a tacit agreement that not only is the economy incapable of generating full employment, supposedly it doesn't even matter. As someone who became long term unemployed too early (i.e. prior to what one normally associates with retirement), I heartily disagree with that perspective.

So long as traditional manufacture was capable of generating international expansion, these wealth proceeds greatly contributed to time based services growth (hence employment), as well. Only think what energy related production contributed to broad based knowledge use till recently, for a growing services economy. Mark Perry posts a reminder, regarding the life choices this created for populations: "Each American has the energy-equivalent of nearly 600 full-time "human energy servants". Perry's reference is Brian Wang at the Next Big Future blog, where Wang titles his post:

Average american has energy equivalent of 450 human slaves working 8 hour shifts every day

By no means is the concept of energy slave, a new one. Wikipedia notes:

The term was first used by R. Buckminster Fuller in the caption of an illustration for the cover of the February 1940 issue of Fortune magazine, entitled "World Energy".

The Encyclopedia of Human Thermodynamics states that Buckminster Fuller introduced the term circa 1944, (a bit of confusion here!) and defines it:

In terminology, energy slave is an abstract conception referring to the technologic-mechanical energy equivalent that a healthy human youth could do.

Consider for a moment, one perspective which earlier forms of slavery were said to impart to culture. To what degree did ownership of slaves, encourage people to question the necessity of work? Many who owned this form of - yes, human capital, often did not need to do hard work, and intellectual pursuits were taken on for enjoyment. Indeed, many who were too poor to own slaves before the Civil War, must have realized what a luxury those intellectual pursuits actually represented.

As today's economy begins to encounter limits to knowledge use formation as supplied by other wealth, will technology - as a latter day "forced" labor substitute of sorts - become an excuse for rich and poor alike to no longer work, while a few are fortunate enough to keep well compensated intellectual pursuits? Or will human capital - hence knowledge use in aggregate - have a chance to become better distributed wealth in its own right?

Granted, the "no need to work" perspective isn't openly acknowledged, for obvious reasons. The U.S. in particular insists on a harsh work ethic, in spite of an economy which is no longer doing a good job of providing work where it is most needed. Meanwhile, as technology continues in its latest version of work shifting organizational capacity, the left is starting to emphasize the importance of capital ownership, even as they negate the importance of human capital in the process. And others on the right - even while emphasizing the importance of work - are doing little to encourage economic growth, to maintain stable labor force participation.

Energy slaves in the form of energy technology have provided a most fortunate human capital multiplier in recent centuries. However, asymmetric compensation has begun to claim the wealth aggregates, that are possible for knowledge use as funded by traditional forms of wealth. Fortunately, symmetric compensation (or time arbitrage) could retrieve the thread of meaningful work potential, before other threads become unraveled - on the part of monetary policy, government and the supply side as well. Hopefully, knowledge use systems will have a chance to address full employment and continued growth, in the years ahead.