Wrap Up for January '15

Admittedly my thoughts this month have been dominated by the Fed's impending rate rises, later in the year. This circumstance has created a rather unique melancholy, for some who are paying close attention. Hopefully, the Fed's discretionary arbitrary actions will not cause real problems, but it all feels so surreal and unnecessary. Why don't they know better? At times I've imagined paying Janet Yellen a visit, so as to ask her to kindly reconsider. But alas, I've yet to put together the resources to do such a thing! Sometimes resources are mostly a roof over one's head, the ability to still piece together coherent sentences, and time enough to take good advantage of a laptop.

As to the "buy local" movement which Don Boudreaux recently noted, local factors matter at a number of levels. Even sentiment for local production can be considered part of experiential product. However, local tradable goods can become problematic if they substantially reduce options for the purchase of tradable goods from elsewhere. Often, the goods which can be obtained for less money, will free up time options in other capacities. Ultimately, the most important good is one's choice sets for personal and economic time use, across a range of possibilities. Hence if put to the test, the local non tradable good of time might take precedence over some options, for "buy local" tradable goods.

A staff report from 2009 which explains "excess" reserves.
http://www.newyorkfed.org/research/staff_reports/sr380.pdf

Here's some useful tips for non fiction writers
https://medium.com/advice-and-help-in-authoring-a-phd-or-non-fiction/top-ten-style-checks-for-phds-or-creative-non-fiction-writers-9ca63542f5d

How the non employed currently spend their time - a well illustrated article:
http://www.nytimes.com/interactive/2015/01/06/upshot/how-nonemployed-americans-spend-their-weekdays-men-vs-women.html?abt=0002&abg=0

The fact that one in three don't have money saved for unexpected car repairs or emergency medical bills, often means temporary setbacks when one is young. But as the decades pass, circumstance such as these cause individuals to change their outlook and possibly everything about the way they approach their lives. Even though these factors negatively affect labor force participation now, with a little luck they could eventually lead to positive results. How so? By influencing the nature of new community formation, so that local coordination for work opportunities, healthcare needs and new transportation options can emerge.
http://blogs.wsj.com/economics/2015/01/07/most-americans-dont-have-savings-to-pay-unexpected-bill/?mod=WSJ_EC_RT_Blog

Economic exchange, as a repeated game one plays with strangers. The more opportunities to play the game, the more social benefit is gained. This is certainly true of one's time use potential, as well.
https://growthecon.wordpress.com/2015/01/09/trust-familes-and-growth/

The more I read from the U.K., the more I realize just how different their policies and political battles are, from our own. Not long ago in the U.S., individuals took their freedom to build for granted. Not so much now, as housing has become more government controlled. British architect John Turner argued that housing is best provided and managed by those who are to dwell in it.
http://www.spatialagency.net/database/john.turner

Plenty of migration statistics in this article:
http://blogs.wsj.com/economics/2015/01/23/the-end-of-the-suburbs-and-four-other-american-migration-myths/?mod=WSJBlog

Economic growth in historical perspective: http://www.econ.cam.ac.uk/people/faculty/sco2/full-texts/Ogilvie-Carus-2014-Handbook%20of%20Economic%20Growth.pdf

For some of us, admittedly all the reasoning in the world doesn't change this story: Is The Economy Underperforming? The Output Gap Says Yes

Randomized field trials such as described in Jim Manzi's book "Uncontrolled", (2012) are one way to think about the stories and economic lessons which new community formation would provide.

While shared spaces have already become an attribute of cities and prosperous regions, they are an important consideration as well for investment and work spaces in (new) small communities (Time): Here's how working from anywhere is changing everything

And, from Albert Einstein, "The measure of intelligence is the ability to change."

Update - some of that rate raising "rationale" from the Fed:
http://blogs.wsj.com/economics/2015/01/30/two-fed-officials-why-very-weak-inflation-unlikely-to-deter-rate-hikes/?mod=blogmod

Productive Inclusion

If two words could suffice for present day economic concerns (besides my other preexisting bias, "market monetarism"!) "productive inclusion" would probably be at the top of the list. This phrase seemed an appropriate post title, after reading a recent post, "Redistribution or Inclusion?" from Ricardo Hausmann.

While his articles are always interesting, his last one seemed surprisingly close to some of my own views. In particular, he's concerned about human capital potential which is lost to poor organizational principles. Not only has this created problems for economic access, but also in terms of lost productivity. What's more, Hausmann believes that Piketty's redistribution thesis could dangerously mislead. Here's Hausmann:

Given productivity constraints, redistribution is only palliative, not curative. To address the problem requires investing in inclusion, endowing people with skills, and connecting them to the inputs and networks that can make them productive.

Think about this quote for a moment. Even the suggestion of more redistribution is a really bad idea, if and when a marketplace is not fully developed. There's a tendency to think of missing markets as a problem for developing nations. However in terms of needed services, this holds equally true for the U.S. After all, the ones who benefit from knowledge use exclusion in the marketplace, fund both political parties. Some continue to rhapsodize in speeches about educational investment, and the fact that as a nation we are worse off without it. Yes...but what about those who already have it? The problems of how and where to include all those time use commitments, are turning time investment into something of a question mark.

As a result, the kinds of inputs and networks which would make more regions productive, are still jealously guarded for obvious reasons. Only consider that a primary component of healthcare is pharmaceuticals, which as a group appears to be focused on achieving exactly the opposite of greater inclusion, in production and consumption terms. Today's protected institutions are not organized in ways that would allow them to optimize time use aggregates. Alternate systems are very much needed, for needed growth to become a rising tide that would raise all boats.

Hausmann continues:

The dilemma is that poor countries lack the means to connect all places to all inputs. They are faced with the choice of connecting a few places to most inputs and getting high productivity there, or putting some of the inputs in all places and getting very little productivity growth everywhere. This is why development tends to be unequal. 

This is exactly the situation with U.S. hospital systems, which in knowledge use terms could be thought of as a three tier system. In this system, most of the productive work occurs in the top tier i.e. prosperous regions. At the bottom are the (remaining) rural hospitals. In the event of emergencies, these often don't have the staff or equipment to tend to more than basic patient needs. Appearances suggest this group is largely able to pay bills, due to a costly (to patient and/or government) fleet of ambulances. Indeed, hospital staff here must rely on scheduling "luck", even to gain a spot in a second tier hospital where they can then transport the patient.

In the second tier (outside major cities and in large cities) the staff can provide more tests and sometimes, procedures. Still, these hospitals often serve as expensive waiting areas, until the patient can gain a location at a first tier hospital which has the staff and facilities available for what the patient needs. In the meantime, patients are lined up like so many planes alongside a runway, waiting for a chance to "take off" for the ultimate destination.

To be sure, many are used to thinking of certain skills sets as belonging specifically to certain individuals. However, this has led to productivity problems in many areas of life. In the case of hospitals, the primary work occurs at a fraction of the facilities involved. Productivity in terms of time use product, is quite different from the product which is separate from time and specific geographic representation (hospital or office). In other words, time use often can't be scaled down for productivity gain, without the actual loss of that marketplace in real terms. And the loss of that marketplace spills over into multiple areas of life.

Fortunately, some aspects of economic inclusion don't have to wade through the thorny issue of knowledge use rights! Locally generated investment pooling for time and resource use, would be one of the truly positive aspects of knowledge use systems. These kinds of investment structures would provide benefits for small groups of individuals who are directly involved. Time use aggregates are difficult to relate to other resource aggregates in constant terms, because time use aggregates exist in a finite range while other resources exist in a seemingly infinite range. Local systems would provide means to monitor time and resource use in relation to each other.

International investment flows scale into the random infinities that make up general equilibrium. That not only accounts for wide income variance, but leaves little room for small investors in open investment opportunities. Knowledge use systems need investment contributions that are capable of freeing up time for endeavor which cannot always be monetarily compensated. This is why local investment would seek to make investment really count for all participants, and it could do so because of the finite scale of investment actually involved.

Productive inclusion is a real possibility, even if it cannot readily take place in today's already existing environments. The targeted growth of knowledge use systems could mean inclusion for those who seek to help one another, when it is not possible to do so within the context of existing institutions.

Update: When societies do decide to allow innovation which leads to greater inclusion, is it because of who is doing the disrupting? http://www.businessinsider.com/eighth-grader-invents-braille-printer-2015-1

How Do Federal Deficits Matter?

Federal deficits matter when they ultimately impose limits on growth and knowledge use, as has occurred since the Great Recession. Rivers of ink have been spilled over the idea that deficits don't matter. If that is so, then why have so many nations cut back on their growth projections for the foreseeable future?? Inquiring minds want to know.

This conversation, courtesy of Brad Delong, is an apt illustration how political wrangling with a constant "Fix the Debt" subtext could ultimately result in fewer knowledge based services over time. While a loss of service formation due to fiscal limits might not bother some, it would bother me immensely. Services need to be subjected to production reform, so that marketplace loss is not a slow motion inevitability. If labor force participation does not successfully shift toward services, other forms of production would eventually become more limited as well.

Governments are limited in the numbers they can hire, much as private industry has also been. As for those who are presently hired, they also need to be able to work and live where these jobs already exist. Eventually, many knowledge based services need to be localized through direct monetary means, so that they are no longer an issue for federal deficits. Fix the debt? Let's fix the missing marketplace, instead. The sooner the better, before even more of the (recent) downshifted growth trajectory is lost.

Washington understandably wants as many fiscal accommodations for the economy as possible. Particularly in the last century, national governments have been able to put their distinctive stamp on much of what has occurred - both at home and on the world stage. But fiscal activity has become a more broad based aspect of economic life than some are willing to concede. As a result, compromise and resolution on many fronts is becoming more difficult by the day.

Deficits often appear quite benign, in part because of the ways they are structured. Many of these government obligations are hidden in today's financial structures and government transfer payments systems - both of which hopelessly skew data comparisons. To be sure, the federal budget has remained fairly stable over time. However, the most recent plan for maintaining that stability has been to slowly cut back on an ill designed healthcare marketplace, and hope the public won't notice. That's a lousy non solution. The main problem for recent government budgets, has been the growing nature of what their obligations now consist of. Circumstance which no longer have a beginning and an endpoint, have crowded out practically all other options.

In many instances, federal deficits of the future may need to be reserved for circumstance which are not ongoing. That also means fewer unnecessary promises to private interests. Governments became bogged down in the twentieth century, by taking central roles in the structures of their domestic economies. While some government activity is always desirable for tradable goods infrastructure, non tradable goods such as housing and services often need to be decentralized. Otherwise, government obligations in these areas only make it more difficult to remain flexible and adaptable in changing times.

The adoption of knowledge use systems could eventually bring a dynamic services marketplace to all. What's more, doing so could free up government budgets for what they are best able to provide. Federal deficits aren't necessarily unwieldy because of their size. Rather, deficits become unwieldy when they grow so complex, that different factions no longer agree on the monetary representation to tend to them. The fact this is now the case, means there is more significance in today's deficits than meets the eye.

Update: an interesting article about the 18 trillion dollar debt: http://blogs.wsj.com/economics/2015/02/01/qa-what-the-18-trillion-national-debt-means-for-the-u-s-economy/?mod=WSJBlog

Also - While I tend to focus on the problem of government debt for operational costs, Dr. Eamonn Butler reminds me that governmental obligations for infrastructure can also be problematic: Munibonds and the National Debt

Midweek Market Monetarist Links and Summaries - 1/28/15

Lars Christensen notes real progress in the recent ECB policy announcement: http://marketmonetarist.com/2015/01/23/draghis-framework-a-step-in-the-right-direction/

David Glasner gives Nick Rowe a "hard time" about his recent Friedman post! http://uneasymoney.com/2015/01/22/nick-rowe-goes-bonkers-over-milton-friedman/
Nick Rowe provides Hume's "Of Money" in comments, and Glasner responds: http://uneasymoney.com/2015/01/25/did-david-hume-discover-the-vertical-phillips-curve/
It's almost impossible to know, how a change in the rate of inflation affects unemployment: http://uneasymoney.com/2015/01/27/the-near-irrelevance-of-the-vertical-long-run-phillips-curve/

In 2011, spending growth shifted down (Marcus Nunes) https://thefaintofheart.wordpress.com/2015/01/21/canadian-blues-when-will-they-learn/
This "victory speech" wouldn't have any validity, either: https://thefaintofheart.wordpress.com/2015/01/21/i-want-i-want-and-i-want-to-raise-rates/
Fiscal policies never fulfilled their "promise": https://thefaintofheart.wordpress.com/2015/01/22/from-the-samuelson-sampler-to-sumner/
If monetary policy can't be used...https://thefaintofheart.wordpress.com/2015/01/22/germanys-reluctance/
Needed: a simpler picture of the world: https://thefaintofheart.wordpress.com/2015/01/25/three-interrelated-quotes/
https://thefaintofheart.wordpress.com/2015/01/26/the-board-keeps-mum-the-regionals-play-tug-owar/
Marcus provides a quote from a paper by Douglas Irwin on Gustav Cassel's Analysis of the Interwar Gold Standard
Unemployment benefits or no, labor markets need to be thought through more directly: https://thefaintofheart.wordpress.com/2015/01/27/data-for-me-data-for-you/

Today, monopoly power is discussed in terms of output and employment reduction (Nick Rowe): http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/01/does-monopoly-power-cause-inflation.html  Nick also links to Friedman's "The Role of Monetary Policy"
For Canadians, the exchange rate is more important than the interest rate: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/01/interest-rates-exchange-rates-and-the-bank-of-canada.html

His stance is close to that of Krugman (Scott Sumner): Kevin Drum on Market Monetarism
One trillion is more than the market expected: The ECB finally acts
A new consensus developed in the Clinton years, only to be lost in the Great Recession: American liberalism, circa 2007

Some Econlog posts from Scott:

The Keynesian shell game
Monetary offset: reply to my critics
Beliefs and value sets aren't matching up very well...Stone Age Economics

(Benjamin Cole) Would David Beckworth's idea work for the Swiss? https://thefaintofheart.wordpress.com/2015/01/23/monetizing-tax-revenues-a-new-calling-for-central-banks/
It could have been worse, but...https://thefaintofheart.wordpress.com/2015/01/26/who-can-blame-greek-voters/

(Robert Hetzel) The idea of a liquidity trap is not at all helpful: http://www.cato-unbound.org/2011/12/12/robert-hetzel/tim-congdon-liquidity-traps-vs-portfolio-rebalancing

George Selgin defends the nominal target in a Cato article: http://www.cato.org/blog/fed-should-quit-making-interest-rate-promises

Home values as risk adjusted deadweight loss? (Kevin Erdmann) http://idiosyncraticwhisk.blogspot.com/2015/01/housing-tax-policy-series-part-1-i-was.html

Ben Southwood highlights and comments on a paper from Nicholas Cachanowsky -  NGDP Targeting: Hayek's Rule

From the risks of the world stage, to the portfolio (Ravi Varghese) http://insecurityanalyst.blogspot.com/2015/01/our-world-of-risk.html

Also of interest:

James Caton details basic economic elements in this post, according to Carl Menger

Responses to CBO Outlook 2015 to 2025. Timothy Taylor notes the stability of the budget over time, and David Wessel says the real issue is that the CBO is growing steadily gloomier about the capacity of the U.S. economy to grow. Of course readers know how I feel about this. Monetarily compensate people, for finding meaningful ways to assist one another in coordinated time. Create local investment strategies to augment the time use base. Mass produce building components, size and simplify them so that even relative "weaklings" can take care of their own environments.

Public and Private Property are Patterns in Use

...and patterns are vehicles for journeys and destinations of all kinds - both of which change over time. That really matters! Perhaps if more people thought about differences in property use this way, less conflict as to public and private property values would be the result.

Meantime, there's enough unnecessary uniformity in property use patterns, to bore even those least inclined to explore their surroundings. As a result, property use - and the experiential realities associated with it - is less than optimal in many circumstance. When property use becomes defined within limited patterns at all government levels, both public and private property end up underutilized and often under maintained as well.

People have been encouraged to think of public and private property in static and combative terms. Consequently, individuals often have to decipher public or private benefit through arbitrary divisions where little benefit exists. The time/knowledge use property of fiscally provided services is the worst scenario imaginable, within a large tax base. Why? Every service possibility becomes an imposition on someone else. When time and knowledge use are mostly conceived in fiscal terms, real economic growth potential is stunted before it can scarcely begin.

"Property as theft" arguments can miss the environment and time use patterns which people are trying to coordinate. David Duke, in "Propertarian Hokey Pokey", continues some recent discussions about property and Adam Blackstone has a good response to his posts. Whether public or private property is involved, multiple income levels need to be considered, so that infrastructure can be designed which caters to different needs. Where higher income levels do not have space to include for lower income levels, lower income levels need different plans altogether for their own use. In domestic summits for knowledge use systems, citizens would also be involved at the outset for crucial planning stages.

Even where flexibility exists for property use patterns, some planning elements invariably need to be tended to before other Coasean bargining is possible . After a visit to a private Indian city, Gurgaon, Alex Tabarrok explained in a recent Econtalk that private coordination for city development proved to be partially successful. However, issues remained - which might have been easier to address - had they been tended to beforehand. For instance, transportation between various parts of the city was sorely lacking.

Michael Hobbes at The New Republic, wrote about difficulties which ensue when governments attempt to scale up strategies which work quite well...in some places. Pattern repetition (regulations, zoning, infrastructure) can be tempting after a successful project because it seems so easy to replicate. But that's just the problem: rules and expectations which work well for some groups, may not work well for others. When overall rules - rather than locally planned "recipes" - become the norm, life can become boring, stifling and worse, limited in important aspects for some lifestyles.

Inherent in every struggle to maintain "sameness" for everyone, is the fact one person's ideal economic circumstance is problematic for someone else. When democracies in developed nations begin to pull back on public options, they also tend to place further restrictions on private options.

As a result, broad based innovation is becoming more difficult in established regions. Creative destruction of any kind may present problems for sunk costs and earlier patterns in property use. Hence new business starts may be stopped in their tracks before they get a chance. Sometimes it's better to encourage entrepreneurial innovation and unique plans in new locations, where creative endeavor does not have to destroy someone else's efforts. Targeted growth does not have to threaten entire national game boards.

Struggles over national social and cultural issues are unfortunate enough, and often seem unnecessary. But one size fits all economic definitions are even worse, because they affect the living and working circumstance of all individuals on a daily basis. It's one thing for governments to explain how citizens should live. It's altogether another to impose economic limits, which make it difficult for individuals to help one another on an ongoing basis.

Everyone has different incentives and lifestyle patterns. Just as local preferences and endogenous structures are important for international development, they also matter for new communities in developed nations as well. May a thousand property use patterns bloom, for community formation! Even though planning for property use patterns has yet to reach the level of average citizens, hopefully this will be the next step.

Update: James Manzi's advocacy of randomized field trials (RTFs) is relevant to this post: http://jasoncollins.org/2015/01/28/manzis-uncontrolled/

Free Trade: Still "Civil" After All These Years?

In a recent Upshot article, Tyler Cowen notes recent world violence, and considers whether economic freedom is still capable of sustaining social tolerance. That provided impetus for me to return to some thoughts which ended up getting edited out of yesterday's post. While civility and tolerance aren't quite the same thing, they're certainly close enough to suffice, here. Cowen also mentioned the fact that education didn't correlate with tolerance to the degree one might expect. Alas, all those classroom suggestions to be civil "just because"...aren't quite enough!

Does a benevolent attitude towards others depend on one's neighborhood, or perhaps one's income? To some extent, these factors color perceptions of trustworthiness and willingness to engage with others. Supposedly all is well and civility is real, after all these years of prosperity. Adam Smith was among the earlier economists to note the propensity of "truck and barter" to encourage civil behavior. But do individuals still engage in commerce in the ways that provided these early social benefits?

It depends. So long as one's work involves negotiation on personal terms with others, the same drivers of civility and positive relations are likely there. However - in too many instances - entire groups of individuals are expected to abide by the decisions which experts and others make on their "behalf". Problems can arise for both social and personal development, if the ways one interacts with others all day are determined by someone else.

With little ability to negotiate in one's work or home life, individuals become unable to discern what is actually reasonable, in relationship terms. It's often difficult to reciprocate well with others, if personal circumstance does not include reciprocity for one's own needs. By no means is this just a problem at the level of family, if there is little ability to negotiate effectively in one's working environment.

Autonomous forms of work such as the "butcher, baker, candlestick maker" of yore, were the epitome of those early arguments for increased civility. Even so, hard factory work was still means by which one could build a life. Most of the mind numbing aspects of factory work are now a part of the past. And yet, the new freedom to pursue a better future is dogged by continuing uncertainty. For anyone who spends decades following orders, the new autonomy - desirable though it may be - doesn't have understandable context. How does one work with others according to individually determined needs, if there is no existing marketplace to make this happen? No one really understands what to negotiate for, until work on individual terms is better understood.

Much about civility depends on what people are actually doing, rather than simply thinking. Some mistakenly think that people are civil to one another in society just because they are "expected" to, and forget the degree to which civility is a learned reflex. Cultural norms have also become confusing, in that a tremendous amount of economic activity now exists well beyond local circumstance.

Individuals have the chance to negotiate, when they take direct part in the trade that is actually occurring. But how to accomplish that? For one thing, work is no longer so much about what needs to be done, but what people want to be done. That is a crucial difference which takes some getting used to. When globalization does so much of the work for everyone, it's time to think about more desirable work and life settings which once seemed impossible to create. Tradable goods now need relatively little human effort, and the challenge is to pursue what individuals collectively imagine.

New services roles would be a logical part of this reality. However, some of the most important elements of knowledge based services formations, were created outside of normal free market processes. As a result, their secondary role left services definitions susceptible to excess authoritarianism, at the very moment when production processes for tradable goods were becoming more horizontally structured.

When knowledge based services structures are indirectly funded, hierarchical organization makes sense. However, direct compensation for knowledge use systems would allow horizontal organization to also evolve within local settings. One of the more important aspects of such a development, is that it would allow civility to return to places where scant little has been possible. Such formations would also bring new vitality, to sparse settings which have suffered for decades.

Part of one's ability to be spontaneously civil to others, simply stems from confidence in the future. Who can't help but notice that parts of the world prone to violence, are also places where hope has been lost. Until now, developed nations offered the example of free trade as a way forward and a beacon of hope. However, as traditional production no longer provides the level of employment that was once possible, nations now need to generate full employment by bringing services formation into a free market capacity. In order to do so, services formation has to be accessible not just in consumption terms, but also in production terms. Nations need to be a beacon for their own citizens first. Then - and only then - can they really remain a beacon, for others.

Economists "Dominate". Is That Beneficial?

It could be, but everyone has a long way to go before this dominance makes a crucial difference. Why so? Presently, economists continue to methodically work within the institutional paradigms which other social sciences have been captured by, in their turn. As a result, economics - as a discipline - could miss the fact too many lines are presently being drawn in the sand, around populations as a whole. It is not enough to say the future is bright so long as it improves locations X and Y and oh...nevermind about the other regions or nations for they're "beyond hope".

Nevertheless, Justin Wolfers is reasonably proud of the growing dominance of economists. And while he didn't mention it in the NYT article "How Economists Came to Dominate the Conversation", much of the educational focus for economics majors is in macroeconomics, as well. Alas, I can't locate an earlier link which "backs" the macroeconomic dominance! Wolfers writes:

Two hundred years ago, the field of economics barely existed. Today it is arguably the queen of the social sciences. 

Through a process of extracting article mentions from the New York Times, he noted the rise (particularly from the Great Depression forward) of economists in the social sciences as compared to historians, psychologists, sociologists, anthropologists and demographers.

In particular, economics contrasts institutional contributions through mathematical and statistical comparison. Prior to this focus, history captured details in illustrative form, a relevance which only shifted after the monetary difficulties which led to the Great Depression. However, it is the rise of dispersed information which led to greater emphasis on the the "big picture". If there is one crucial difference between earlier economic calamities and the potential calamities of the present, it would be that a lot more people are paying attention.

Still, important events and details are being neglected for the important information they hold. Most important among these is a growing inability for people to remain civil to one another, in multiple circumstance. In its defense, economics is certainly not the only discipline to neglect larger implications in this regard. Sociology - in particular - never presented useful material for me, because of its insistent focus on activities within institutions, rather than the (rapidly disappearing) activities among individuals in everyday life.

Even microeconomics has missed some broader implications in this regard, for it takes a passive approach to what could be productive applications in numerous settings. It particularly disappoints me that psychology has missed part of its calling, which leaves its practitioners ill equipped to help those who suffer from lack of economic access. Even though economics (still) continues to fall somewhat short, many individuals such as myself have turned to economics for solutions. At the very least, economics touches on the importance of the individual in economic life, and could do so to a greater degree.

Psychology is also in an unfortunate position, given the fact that - as Wolfers mentioned - there are approximately 3.4 million psychology majors in comparison to 1.5 million economics majors. This tells quite a story what matters to people, which remains to be connected to ongoing realities. If only these psychology hopefuls could be matched up with the millions of individuals who would benefit from their desire to help! When knowledge use remains indirectly compensated, time investment remains a lottery ticket - for there are too few local marketplaces which allow productive time use to take place. No discipline is truly stable, if it cannot provide settings for ongoing participation at local levels.

Indeed, today's school systems were a result of the most recent enclosure movement. As the new school guilds captured and defined knowledge components, knowledge came to be associated less with applied use, and more with consumption. As education became associated with institutions instead of individuals, a limited number of cities took on the primary role of knowledge use, in spite of the new ability for knowledge to disperse to all corners of the world.

As Ivan Illich wrote so eloquently in "Deschooling Society", formalized education separates individuals from the economic and social processes which play vital roles in personal productivity. And all too often, formal schooling encourages individuals to conclude that they have little control over the trajectory of their lives. Even though this book was published in 1971, the premise is as vital as ever - as is the need to address its concerns.

While it is understandable that governments seek control over economic circumstance, by doing so they take great chances on the loss of their own civilizations. Many economists have yet to consider the economic dangers of excessive centralization. Just the same, effective decentralization is not a matter of reaction and anti government sentiment. There is beauty in productive economic environments, which rivals the beauty of nature in its complexity. When governments give in to the desire to limit economic complexity to cities and "special" regions, they create instability for their own populations.

When individuals lose their intimate connections to production processes, their higher aspirations are also lost. They become more susceptible to hate and blame, convinced as they are that the present day system cannot be healed. When economic vitality is not deemed possible for the world as a whole, the world slowly encroaches on the holders of that vitality. Then, the "outside" finally threatens the cities which sought to preserve the use of knowledge on limited terms.

However, when knowledge use and productive economies thrive in every corner of the world, terrorism strongholds begin to lose their grip. Economists could play a tremendous role in this worthy cause. Economic complexity for all, is still a worthwhile dream.

The Knowledge Problem in Time Use Context

A recent post from Nathan Snow, "The Raving Bully Model of Property", is a good rebuttal to Matt Bruenig's insistence that property is theft. The "property as theft" assertion on Bruenig's part, is one that readers may also remember from several Scott Sumner posts. Nathan Snow frames his thoughts in a way that will be familiar to those influenced by Hayek's arguments.

In many respects I agree with Hayek's interpretations of knowledge use applicability. Given the chance, individuals and groups alike will instinctively assign merit to those who clearly deserve it. Even so, merit has become too narrowly defined, within price contexts which have gradually demonetized the value of time aggregates. Too many aspects of services organization are unnecessarily centralized and hierarchical. This leaves little room, for folk to determine value for the kinds of abilities which others in their midst would like to put to use.

Worse, no local marketplace currently exists - at least in the U.S. - which would allow greater diversity in time use. If knowledge use is the most important property of the present, why isn't it more widely distributed and recognized? Something about the way Nathan sums up his post makes me feel I owe my readers a couple of explanations, regarding my present stance on knowledge use. Here's Nathan Snow:

Bruenig is wrong about property. Workers are not atomistically interchangeable. We have specific talents. The only way to get rich, apart from political abuse, is by making other people better off. The right way to deal with injustice is not by overturning the whole system. Rather, the right approach is to work under the system, to subvert it, to be an agent of grace and mercy. Be the exogenous shock you want to see in the world, stop blaming other people. Yeah they are wicked, but so am I, if I'm honest with myself.

The knowledge problem exists at a basic level of economic coordination. As a result, critical differences in outcome have been missed, regarding knowledge use strategies for tradable and non tradable goods. How so? High value skill sets pay off best when product is mass produced at optimal levels. When a given product exists separately from its initial (high value) time use input, product costs can be lowered to an extent they become quite competitive. This form of production has been more responsible than any other, for improvements in the standard of living.

Unfortunately when time use is built into the actual product - as is the case with services - everything changes. Even though aptitude for the task at hand is a tremendous plus, skills value in this instance may not scale for further profit or otherwise add efficiency. While it is possible to achieve desired institutional services goals through automation, sometimes the human component is lost in the process. Already, automation is beginning to limit what were once considered normal social functions and responses. In some instances, the ability to relate to others in everyday (economic and social) environments may now need to be learned in new ways.

Hence when time use is a part of each intended product, the desire for strict allocation of (perceived) "one size fits all" merit begins to break down. Governments have made the mistake of assigning merit to knowledge use positions which cannot possibly fulfill the roles they currently attempt to provide. Unlike tradable goods which only need to be produced in relatively few environments with relatively little labor, services product is needed in all local environments, and not just the most prosperous regions of the present.

Some readers are likely wondering about the times I've mentioned skills sets as interchangeable components for local knowledge use systems. How to think about Nathan Snows' comment in this regard? "Just in time" knowledge is already affecting the long education trajectory which has been expected for knowledge use work. In some instances, educational investments can go quickly out of date, which suggests that broader knowledge sharing across disciplines as a good way to adapt.

Also, interchangeable skills makes it possible for local citizens to work in combined capacities which would otherwise not be possible. Much of the merit decisions of the twentieth century involved environments where individuals were brought together from geographically diverse areas. A similar process needs to develop for work environments in which individuals are already living and working in close proximity to one another.

Sure, some interchangeability within local systems would involve compromise and - at times - even sacrifice. But important to all this is the fact many time choices can remain both personal and meaningful. The most important criteria for knowledge use systems is that time management - and choice sets - are endogenously driven. No one need be "interchangeable" according to someone else's definition, but by their own means within the frameworks of community activity that is possible. Anyone who has worked in areas not densely populated, knows that one's work responsibilities are often more varied, because repetitious functions are not needed as frequently.

Strictly speaking, productivity and efficiency could be best achieved in cities. But this dehumanizes too much of the human experience which needs to remain economic. No one minds the occasional trip away from home for occasional goods, which have themselves come from other regions and parts of the world. But it is unreasonable, to expect important services time to always be carried out in regions other than where one lives. This is particularly true, given the fact that digital capacity could quickly adapt for this purpose.

Ultimately, for skills value as linked to tradable goods production, the system isn't broken at all - in spite of recent uncertainty given world trade. As Nathan Snow indicated, the system needs to be transformed, not overturned. Too much protectionism among nations exists because of unresolved issues for knowledge related time use. In a sense, the only part of the system which truly needs change, is that part which remains to be built.

Growth and the Productivity Conundrum

Where to begin...after reviewing a recent spate of posts and related material about productivity issues and the need for further growth. Concerns about work in an age of automation have also made their way to Davos this year. One good visual of late is Exhibit 2 of a recent McKinsey Report, which illustrates a sharp decline in the need for labor in the decades ahead. The graph projected 1.8% productivity growth from 2014 forward. What's more the need for labor (supposedly) falls away, well before the year 2064.

Regular readers know, that I don't believe this sorry state of affairs to be an inevitability. However, with no substantial change in reasoning in the years ahead, further social breakdown could ensue. Which is why I talk nonstop, about knowledge use systems for potential employment and an improved growth trajectory.

However, this would be a project for citizens in their own environments, instead of yet another layer of responsibility for government environments. While many on the left continue to hope for combined (i.e. more inclusive) investment in government and private industry, too many competing interests are involved for real growth to be freed at national levels. And private interests on the right don't necessarily prioritize the role of services as a growth component.

What's more, not everyone thinks of services in the broad, indeed desirable terms which they actually exist. Hence I was pleased to find a good, explanatory post from Dietz Vollrath several days earlier, in this regard. He's not the only one who is giving the services sector a closer look. Of service sector jobs, Timothy Taylor writes:

The jobs question all around the world is the extent to which service-sector jobs can provide a broad base of careers for a wide range of skills levels.

Until recently, developed nations were able to generously contribute to the service sector through fiscal means. However, what Dani Rodrik refers to as "premature industrialization", made it more difficult for developing nations to rely on a similar strategy. Only consider the additional growth gains of the twentieth century, when the "home advantage" of traditional manufacture on the part of developed nations gave them greater fiscal freedom. During the social democrat period according to Chris Dillow, the UK experienced growth at 2.5% (instead of 2%) between 1946-79.

Indeed this was a golden window of opportunity moment, when governments found it easier to pay for knowledge (as a growth component) through fiscal means. That makes it all the more difficult, to imagine the need for knowledge use to "step out on its own" through direct and monetary means. Another question - as Chris Dillow noted - how to increase growth without simply feeding every special interest which promises more jobs? I would add: how to envision growth - and work potential - which addresses what individuals want on direct monetary terms?

While labor force participation faces continued challenges from automation, some aspects of knowledge use exist at a more personal level. In these instances, personal time is among the most important products that individuals seek. What's more, a marketplace for time value is important not just at a social level, but also in monetary policy terms. Time arbitrage also makes it possible to measure knowledge use gains as they accrue to specific populations.

A rise in services productivity, translates into a rise in the overall quality of the services hour as measured in knowledge use systems. Applied time use settings which utilize high skill levels are quite different from other product formations. The value of high skill positions has not only been increased by their relative scarcity, but also an ongoing struggle for both participation and access. Unfortunately, this has contributed to the growing reality of a missing marketplace.

Dietz Vollrath spoke of a similar form of missing marketplace in developing countries. When a marketplace does not exist for available resources or product, this limits the production separation functions for families, between social production and family consumption. While reading his post, the comparisons to the limited knowledge use marketplace of the U.S. immediately sprang to mind. Think about this quote:

If markets are missing completely, or so unreliable as to effectively be missing, then household separation fails. The extreme case is easier to think of. If a household is completely autarkic, and can trade with no one else, then it can consume only what it produces.

To some degree this holds for the missing marketplace of time value in today's developed nations. How many skills sets do we now rely on for our own use that we cannot utilize effectively in the marketplace? These may or may not be skills sets that are even useful for our families. The list has been growing over time, and now includes far more skills sets than what many workplaces once required.

Exchangeable skills capacity is further compromised if one is not effectively employed, or else employed trying to use time in the "wrong" (!) ways - that is, ways which threaten the value of someone else's time (see link at bottom of post). If our ability to produce is not up to certain standards, or is otherwise not wanted for other reasons, time use is mostly beneficial in a singular sense, in spite of whatever investment is involved. It's autarky all the way down, for the most precious resource we've got. Why would governments which have thrived from the tremendous coordinating benefits of capitalism, want the rest of us to lose the ability to coordinate among ourselves?

More thoughts from the Vollrath "Market Failures" post:

In a non-separating economy without markets, giving a family a tractor and technical training is kind of a waste. If they're well off for a developing country they've got two hectares of land...Yes the tractor can alleviate some of the workload but it's overkill. You'd spend more than half your time just turning the tractor around trying to plow that small of a space. Moreover, the tractor would sit idle for the vast majority of the year. Without markets, most investments and improvements in technology are not worth it.

Pure investment strategies (let's give everyone a bag of fertilizer!) are unlikely to be as effective without the markets in place that allow people to take advantage of that investment.

It's not much of a stretch to imagine the lack of a local marketplace for vegetables in a developing nation, as the lack of a local marketplace for time use in a developed nation. Vollrath's "fertilizer for all!" example immediately reminded me of Obama's recent "community college for all!" announcement. More investment! Yeah that's the ticket! And the marketplace for this additional mind "fertilizer" exists...where? It exists where we allow it to. And that's the problem, right now. Can I say this enough? No.

On that note, this post about productivity conundrums wouldn't be complete without an example of the destructive desire, to keep knowledge perfectly and wonderfully scarce. One can only hope that the authorities in question do not win this battle:
http://www.washingtonpost.com/news/morning-mix/wp/2015/01/14/this-88-year-old-doctor-treats-the-poor-out-of-his-toyota-camry-mississippi-wants-to-punish-him-for-it/

Midweek Market Monetarist Links and Summaries - 1/21/15

"Whether some bit of news is good news or bad news depends on what you already know, and on how you expect policymakers to respond to that news." (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/01/is-low-inflation-good-news.html
And yet it doesn't seem that long since Galbraith was (more) widely read... http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/01/there-are-no-friedmans-today-except-maybe-friedman-himself.html
Nick examines two consumption smoothing models: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/01/negative-money-in-an-olg-model.html
Once everyone realized monetary policy could bring inflation down, price controls were forgotten: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/01/the-new-keynesian-case-for-price-controls.html

Another one bites the dust!
(David Glasner) http://uneasymoney.com/2015/01/14/bitcoins-are-tanking-today/
(Lars Christensen) http://marketmonetarist.com/2015/01/17/guess-what-currency-underperformed-the-rouble-in-2014/

The Swiss - plenty of questions remain:
(Scott Sumner) The SNB on the SNB's recent move
If it walks like a duck and quacks like a duck and If you do it they will believe
(Britmouse) https://uneconomical.wordpress.com/2015/01/15/a-central-bank-does-nothing-swiss-edition/
(Justin Irving) http://economicsophisms.com/2015/01/15/what-are-the-swiss-thinking/
(Bonnie Carr) https://dajeeps.wordpress.com/2015/01/15/what-to-make-of-the-snb-decision-to-end-its-1-20-euro-peg/
(Marcus Nunes) https://thefaintofheart.wordpress.com/2015/01/15/the-swiss-go-bezerk/
https://thefaintofheart.wordpress.com/2015/01/16/report-on-the-fallout-of-the-snbs-h-bomb/
(David Glasner) The SNB just thought the euro peg was "uncomfortable"! http://uneasymoney.com/2015/01/19/credibility-and-the-central-bank-balance-sheet/
(Lars Christensen) Needed: a "perfect" ordering of targets and instruments http://marketmonetarist.com/2015/01/20/what-the-snb-should-have-done/

A thoughtful review of Adam Tooze's new book, by David Frum, prompts David Glasner to revise his thoughts from an earlier post about the 1920-21 depression. http://uneasymoney.com/2015/01/16/thoughts-and-details-on-the-dearly-beloved-bright-and-shining-depression-of-1920-21-of-blessed-memory/

If only things were still "boring" (Britmouse) https://uneconomical.wordpress.com/2015/01/15/ons-mocks-britains-vain-search-for-as-ad/
Britmouse updates some faulty data: https://uneconomical.wordpress.com/2015/01/16/correction-inflation-partly-a-petroleum-phenomenon/
Why isn't this explanation already common knowledge? https://uneconomical.wordpress.com/2015/01/20/hawtrey-on-the-wide-fluctuations-in-the-money-value-of-output/

(Marcus Nunes) Galbraith neglected to consider the growth level of the last century: https://thefaintofheart.wordpress.com/2015/01/14/the-end-of-normal/
Message for Robert Reich - I miss the "good times" nineties, too. Still... https://thefaintofheart.wordpress.com/2015/01/14/eschew-economic-analysis-and-go-straight-for-the-conspiracy-theory/
Even though Gustav Cassel sounded the warning, few took heed: https://thefaintofheart.wordpress.com/2015/01/15/the-danger-in-ignoring-money-and-monetary-policy/
Did David Smith miss the part about falling demand? https://thefaintofheart.wordpress.com/2015/01/18/yes-the-tire-is-flat/
Marcus highlights "The Meaning of Internal Balance" https://thefaintofheart.wordpress.com/2015/01/19/ngdp-level-targeting-james-meade-understood-it-almost-40-years-ago/
Re their exchange rate peg, the pictures tell the story: https://thefaintofheart.wordpress.com/2015/01/20/meanwhile-in-denmark/

Three turning points (Scott Sumner) It's only logical: NGDPT is the next big thing
Scott gains inspiration from a Bennett McCallum publication: Playing with toy models
"If the SNB was having trouble meeting its conflicting mandates, then it should have gone to the government long ago to discuss options" Think in terms of policy regimes, not gestures

Scott at Econlog:
Other commodity declines suggest lower demand: Reasoning from multiple price changes
Scott also considers what MM has already achieved: What's wrong with macro?
A counter-intuitive reality Monetary Policy: The more ambitious your goals the less you have to work
Central banking in a negative seignorage world
A great choice for a chair name...complete with pertinent quotes Ralph Hawtrey

For the investor, macro concerns are also important (Ravi Varghese) http://insecurityanalyst.blogspot.com/2015/01/commodity-isnt-dirty-word.html

From Brookings: http://www.brookings.edu/research/opinions/2015/01/15-central-banks-target-growth-not-inflation?rssid=LatestFromBrookings (Warwick McKibben)

Update: a "must read" post from Lorenzo, which I almost missed this week:
http://lorenzo-thinkingoutaloud.blogspot.com.au/2015/01/good-appeasement-and-bad-appeasement.html

Time Arbitrage as Commodity Wealth

Wouldn't it be better to generate growth through new means, instead of further subsidizing the populations which are already playing active roles in the economy? Tonight, President Obama speaks of his high hopes for the middle class. While this sentiment is understandable, it's a continuation of the same old twentieth century consumption patterns - patterns which can only go so far, in today's world.

Even though Republican complaints to Obama's speech will sound familiar, the Democrat's approach isn't all that different from their own. In the meantime, one still hears some lingering debates in the background, regarding basic income for those supposedly "not needed" in the marketplace at all. Since the latter issue is a more difficult conversation starter than the middle out approach, that might explain why it's so easy to forget where inequality actually lies...

These political arguments continue to miss the slow building changes in the economic landscape. Hence they are not on the right track, to recover the kind of growth which could boost marketplace confidence well into the future. What is really needed in order for this to happen, is to turn time use into a viable commodity in its own right. New communities could rediscover meaning through the compensated efforts of time arbitrage. It's an approach which would not only lead to more broad based consumption patterns, but much needed services production as well.

Matched time is capable of generating new commodity wealth, in part because it leaves no residual debt. Another reason time arbitrage would qualify as direct wealth, is the fact it takes place in investment patterns which combine asset formation and services into complete systems. These local frameworks coordinate individual time use preferences among groups which live and work in close enough proximity to one another.

One of the more useful aspects of matched time, is the fact it turns what would normally be operational expenses, into sustainable ongoing activities. In other words, services become possible which do not make demands on other budgets or monetary needs. Even better, the result is newly created wealth which serves as a point of origination for new communities.

Only consider the work of so many non profits, which can be limited by the fact donors prefer to back capital expenses, rather than operational expenses. A similar problem now exists for Washington, as the added burdens of ongoing expenses of all kinds rule out the flexibility which once existed for infrastructure projects. When knowledge use and needed services become an actual point of wealth creation, it becomes easier for all concerned to preserve needed resources for new and important projects.

Possibly the best thing about time arbitrage, is that it could make possible so many new options in the economic landscape. Indeed, far too much invested potential has lain dormant till now, just waiting for a chance to come to life.

Structural Econ Concerns: One More Time, With Feeling

It was too easy for Noah Smith to make light of and "dance" around structural interpretations, a couple of days earlier. Yet how often does one find concise articles with structural concerns as a basic tenet? In a recent post, I wrote that even the most ardent anti-government factions run to government for cover when they want to protect their own interests. Given this marketplace setting, many assume structural issues as something that - as Noah's post seemed to suggest - is impossible to change.

How to take structural concerns seriously, if today's marketplace seems as though carried down on a tablet from the mountaintop? Even Tyler Cowen noted recently that if discussions become "structural", chances are the meaning is anyone's guess.

Hence no one is surprised, if the U.S. (among other nations) doesn't take structural concerns seriously. For the most part, governments have not felt it necessary to do so. Tax reforms don't particularly quality, because they don't contribute to gains in needed innovation and production reform. And even though U.S. monetary policy is sorely lacking in growth based terms, it looks positively rational by comparison to the antics of some central bankers. If the Fed sees serious structural efforts, one one only hopes it will respond, monetarily. While structural concerns are not the responsibility of central bankers, the fact no one else has stepped forward to assume this vital role, presents problems for central bankers just the same.

Japan is a telling example, as to what happens when structural concerns are set aside too long. No nation should feel overly confident that it is capable of avoiding the same fate. As Scott Sumner noted about Japan, supply side policies have yet to be tried as the third part of a planned strategy (Abenomics). In a sense, Japan serves as a representative canary in a coal mine, for the structural concerns other nations might expect to contend with in the near future.

A missing marketplace is difficult to comprehend, and in its place is plenty of blame. While I understand the desire to politically compromise through tax reshuffles, ultimately this is a non solution. Meanwhile, too many parts of the nation have seen little improvement in economic access since soldiers left the farm for the Great War. Even though rural residents receive a disproportionate amount of government aid compared to other parts of the population, many regions never regained vital economic complexity, once agriculture benefited from the Green Revolution.

If local support systems do not exist to keep people fully engaged, populations come to doubt the ability of logic to assist in the ongoing improvement of humankind. If people in charge are expected to do the knowledge use "heavy lifting" for everyone, people start to ask: why bother doing the hard work to gain economic access if it's not going to happen? In economies which suffer from a lack of complexity, learning the use of logic may not assist those who seek to improve their lot. Individuals or groups with relative advantage may view "excess" logic or ability to think critically, as means to undermine their own power. Lest someone dismiss this as mostly a developing nation issue...think again.

When local economies are not able to maintain economic complexity throughout the population, power plays of every kind imaginable win the day - over and over again. This could include anything from power asymmetries at the level of family members, neighbors or any other groups who have zero incentive - or economic purpose for that matter - to conform to anyone else's wishes. When there are not enough valid economic structures, almost everyone eventually needs to resort to dubious tactics (or possibly force), be they "victim" or "aggressor", for survival.

Long term avoidance of structural concerns has greatly contributed, to the pockets of terrorism which now exist around the world. It has been all too easy for terrorists to gain strongholds in areas basically abandoned in economic terms, by people in power for as long as anyone can remember. Too many knowledge use limits have occurred at local levels, for some of the most important work of our time. Knowledge use limits can destroy civilizations just as surely as knowledge use dispersal can create them.

Nations cannot afford to wait until things go from bad to worse, to look more closely at the structural issues which underlie the global economy. In particular, citizens should not be treated as one homogeneous group which supposedly has the same set of economic needs and values.

Also, the economic life of cities cannot be the only important work there is, for people to take part in. Recent digital gains could bring the full complexity of knowledge based work, to places where people already have the ability to live out their lives. Often it is not reasonable to insist that prosperous regions "double" up in density for the knowledge work that is available, when knowledge work could become a part of life anywhere in the world.

Structural solutions are a "don't hate, create" response to the world's problems. This is a mindset which asks, what continues to hold back potential, and why? Why is it necessary to hate, when resources of all kinds can be reappraised for their ability to overcome problems of poverty and insufficient employment?

Any time that nations and governments insist on maintaining the status quo, too many voices are left unheard, and too many aspirations never get a chance. It would be better to seek forms of economic and social inclusion, which do not force the desired approach of some groups on everyone else. Don't hate. Instead, continue to create. Give peace, and serious innovation - for and by the masses - a realistic chance.

Skills Valuations and the Productivity Factor

Productivity mysteries abound, regarding the applications of knowledge and services in the marketplace. Where does one even begin to sort out the wheat from the chaff? In yesterday's post, I considered the advantages of alternate equilibrium settings (locally coordinated investment in time and non tradable goods) for more directly targeted growth. Productivity matters, and matched time use would provide greater clarity about the resources involved for the creation of new product.

But wouldn't these new services arrangements be inefficient in the beginning? Certainly. Anything at the outset is going to be a long way from optimal capacity! However, matched and coordinated activity over time would become more efficient, not less. Unfortunately, the opposite has often occurred, for indirect compensation of knowledge use.

So why start with a blank slate for time use? Direct compensation for directly matched time would generate a new growth trajectory, for labor input which has gradually been lost from the economy. Only this time, "labor" won't be quite the right term, for the work many would seek to coordinate on individual terms.

By returning time value to the marketplace, renewed aggregate demand would also allow traditional production to regain strength. Even though traditional production gains are associated with less labor, this process can backfire when time is an important part of what customers seek. Often, the time of others is most valued when individuals seek to confirm or augment processes which they already have in motion, to tend to their own needs.

Productivity in terms of knowledge related services is seldom clear, for numerous channels are involved before compensation comes into play. When time use is compensated through indirect means, it's difficult to discern how output and costs relate to the resources which are actually involved. Hence the greater the complexity in this regard, the greater the possibility of a negative supply shock. From a recent article by Warwick McKibben at Brookings, in support of a nominal target (HT Marcus Nunes):

Falling productivity would cause both a rise in input costs and a fall in output. An inflation targeting central bank would tighten monetary policy as input costs rose but in doing so would reduce real GDP in the economy. Thus monetary policy would lead to a worse outcome for the real economy than caused by the shock alone. 

This is already an issue for healthcare costs, which crowd out other choices in knowledge use, and other monies which could contribute to the economy. Would the "crowding out" healthcare effect still be an issue for a nominal target in primary equilibrium? Perhaps, but the costs of healthcare would not limit growth to the same degree. In other words, a nominal target should prove capable of stopping the losses which are still accumulating.

Over time, knowledge use systems could relieve the problematic inefficiencies of indirect time compensation. That in turn would encourage more diverse growth, which had previously been "put on hold" by the growing needs of the healthcare system in particular.

There are differences between applied knowledge use and experiential knowledge use which need to be more closely examined. Granted, some knowledge does not gain its value from directly applied settings. In many instances, knowledge might be considered product insofar as it represents either indirect or personal value. However, experiential knowledge has "uncertain" value. Therefore, when no marketplace exists for time coordination and compensation, experiential knowledge value can be lost - at least in an economic sense.

Experiential product has meaning because it contributes to the value of our time. But in primary equilibrium - where time values are compensated according to merit, skill variance, education and tightly defined "needs",  the marketplace for time and the space for experiential knowledge product are lost. So when productivity is considered within the perspective of time use, alternate equilibrium provides additional pools of knowledge use potential which primary equilibrium is not at liberty to provide or support.

Today's healthcare budgets contribute to monetary crowding out, with knock on effects that add to an ongoing, slow motion negative supply shock. The healthcare dilemma is one of the main reasons why knowledge use systems need to begin their journey as a practical and applied discipline. To some degree this only makes sense, because experiential knowledge and product flourish once central marketplace options have become fully engaged. Once local citizens gain a shared, practical skills base, it becomes easier to branch out into broader educational and experiential settings.

In summary, coordinated time use could "lessen" productivity somewhat, during the initial phase of systems start ups. As the process continues, output and real GDP would eventually begin to grow again. Equal time use allows for practical and applied elements of time arbitrage to come into balance with supposedly "impractical" elements. Productivity is about more than what can be achieved within given institutional settings, for it also involves the gains of populations as a whole.

Wealth Transmission: Equilibrium Matters

How to think about the monetary transmission between asset flows and services? Ultimately, these vital functions need to exist on terms which are easier for the public to understand. Otherwise, it will become increasingly difficult for national governments to assist in the kinds of economic coordination that citizens need most. This is particularly true, in terms of needed infrastructure.

There's no time like today to begin the process of redefining government roles, given the long term budget concerns of the present. Once again, governments need to focus on maintaining open pathways for tradable goods, both domestically and around the world. However - if they did not insist on defining the terms - governments could also become conduits for knowledge use potential between nations, as well.

What, then, about the growing cycle of entitlement and operational expenses, which now stand in the way of optimal government activity? Some of these (primary equilibrium) economic burdens, eventually need to be transferred to local level knowledge use systems. Even though governments often have adequate resources to compensate time use indirectly, uncertainty about the process is always a factor in the marketplace.

Shifting time use to alternate equilibrium would restore needed links between income and resource use, and make it more obvious what work is actually taking place. Over time, this process would relieve pressures on pricing structures - which can only go so far to include today's marginalized. In particular, resource decentralization needs to happen for both time investment, and the investments which contribute to (relatively) non tradable asset formations.

By way of example, consider the growing difficulty of maintaining labor force participation rates at desired levels, in the developed world. This process of downgraded time use aggregates needs to be reversed, so that governments can get back on more solid footing. As it is, central bankers in developed nations are already reacting to time aggregate degradation in the marketplace, with varying degrees of monetary destabilization.

It helps to remember that this is the same dynamic which developing nations have inherited from the existing global structure. Fewer hours spent in production processes, has meant fewer citizens with vital spending roles. This makes it difficult for developing nations to "come up to speed", given their inability to globally compete with the same higher level of time use aggregates which were once needed in the marketplace. Even though developing nations often have fewer hurdles for innovation in general, they will still need more direct means of accessing services formation, just as is true for the developed world.

Even so, one of the benefits of alternate equilibrium (in the form of knowledge use systems) is that a simple transmission process between asset formation and services formation would become recognizable. Not only would this benefit local citizens who directly take part in these economic processes, the results would provide a natural laboratory of experimentation for the more complex monetary transmission which takes place at a national level.

Unlike indirect time use compensation which can be difficult to discern, directly compensated time use - just like new commodities - provides a starting point to generate new assets and services flows. Where people once generated time value in relation to production processes, assisting others in coordinated activity would become the new production process - with time use as the (first) compensated product. Most important, this would allow time use to resume its rightful role in economic models.

Without adequate time representation, both price and output potential can be distorted in economic models. As luck would have it, price levels and output levels make more sense when time use and income aggregates are not falling away from the equation. Even though price and output may seem sufficient when models are framed in terms of government capacity, this is not enough. The aggregate spending capacity of a nominal target is needed, before full employment and alternate equilibrium can become real possibilities.

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

First, congratulations to Scott Sumner for his new appointment, as Director of Monetary Policy at the Mercatus Center! Among the other reasons I'm excited to see him assume this position, is that his work will become more accessible for individuals who are just beginning to take an active interest in economic issues. When I finally got online (2009), my first search for economics blogs turned up the Economics Roundtable. Then I found Econlog, where I learned about Scott Sumner from Arnold Kling. For many who have kept up with Scott Sumner in recent years, it's fair to suggest their lives haven't been quite the same, since. What a happy start for market monetarists in the New Year.

The ECB really needs a price level target (Scott Sumner) Level target now
Finding suitable candidates for the FOMC is now a bit of a mystery...Plumbers, Hawaiian community bankers and the FOMC
The recent upsurge in job creation came with slow wage growth: No, strong labor markets don't cause higher wages (never reason from a quantity change)
It remains to be seen whether structural reform is possible: Will Abenomics work? wrong question
Mainstream media contemplates the "unthinkable" They aren't coming back
Lately they have been difficult to "pin down": Questions for Keynesians
Special thanks are also in order for Ken Duda and Mark Sadowski! My new career

Scott at Econlog:
Currency is important for people with low incomes: Tax dodging and currency
One hopes that hyperinflation hasn't been the only emphasis: Are German schoolchildren taught about the 1929-32 deflation?
Simon Wren-Lewis on expansionary austerity
The Fed hasn't provided enough stimulus this time to boost wages: It's all in EC101

Both core and headline inflation remain too low for a rate rise (Marcus Nunes) http://thefaintofheart.wordpress.com/2015/01/08/will-they-be-confident-in-six-months-time/
Avinash Persaud writes a helpful article for the FT http://thefaintofheart.wordpress.com/2015/01/08/finally-reason/
Sweden continues to suffer: http://thefaintofheart.wordpress.com/2015/01/09/when-will-the-riksbank-realize-its-urgently-needed/
Marcus puts the wage question into much needed perspective: http://thefaintofheart.wordpress.com/2015/01/09/the-viscera-of-the-labor-market/
Before banks can lend, someone needs to be spending... http://thefaintofheart.wordpress.com/2015/01/10/when-the-economys-macro-foundations-crack/
A minor quibble with Eichengreen's "Hall of Mirrors" http://thefaintofheart.wordpress.com/2015/01/10/eichengreen-there-are-dangers-embedded-in-persistent-stability/
...then why the crisis? http://thefaintofheart.wordpress.com/2015/01/10/the-dsge-fetish/
What might the LFPR be now, had a nominal target been maintained: http://thefaintofheart.wordpress.com/2015/01/11/a-hell-of-a-coincidence/

Is economics becoming more "leftist"? (Bill Woolsey) Politics, Ideology, Micro and Macro
Presently there is not enough inflation to increase wages: Some Aggregate Supply and Demand Diagrams

The real risk-free rate has been on an upward trend (David Beckworth) http://macromarketmusings.blogspot.com/2015/01/dont-worry-be-happy-falling-treasury.html

(Bonnie Carr) Abraham Lincoln was well versed in economics, maybe more so than a few members of the FOMC...https://dajeeps.wordpress.com/2015/01/09/excerpt-abraham-lincoln-speech-on-the-sub-treasury-december-26-1839/

(Nick Rowe) "Fluctuations in inflation are a noisy signal of monetary disequilibrium, because the firms that do change prices are not always representative of the firms that don't." http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/01/inflation-targeting-destroyed-its-own-signal.html
Nick builds a "cruddy" little one period model for Tony Yates and sends the Calvo fairy away (heh) http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/01/a-model-where-ngdplt-beats-it.html

A sentimental story about Austrian friends! Includes a memorable line about the Keynesian price level (George Selgin) "Let this little engine of an assumption have its way, and it will handily pull the whole Keynesian freight-train, cute little IS-LM caboose included, along with it." http://www.freebanking.org/2015/01/11/something-nice-about-austrian-economics/

Problematic though it is, the mortgage tax deduction isn't likely to be changed. And "inequality" is built in. (Kevin Erdmann) http://idiosyncraticwhisk.blogspot.com/2015/01/evidence-of-real-estate-credit-problem.html

From the Mercatus Center press release (Lars Christensen) "The "Ralph G. Hawtrey Chair in Monetary Policy" - aptly named, indeed. http://marketmonetarist.com/2015/01/13/great-news-scott-sumner-joins-the-mercatus-center-at-george-mason-university/

Ben Steil and Dinah Walker, Correcting Paul Krugman's Austerity Chart for Monetary Effects Yields Very Different Results

Nicholas Cachanosky provides a new working paper: http://soundmoneyproject.org/2015/01/ngdp-targeting-is-five-percent-too-much/

Also of interest:

Fed ties! http://blogs.wsj.com/economics/2015/01/08/a-cult-following-for-fed-themed-tie-commemorating-end-of-stimulus/?mod=WSJBlog

College advice from Chris Blattman and a response from Dietz Vollrath

Some Musings on Incremental Investment Structure

Incremental investment is certainly needed for future growth strategies, but how to approach the concept? After a recent rant on my part about the ability of finance to undermine monetary policy, I knew it was time to reconsider some structural possibilities.

Lower income levels particularly need innovation in building components, infrastructure and service formations on completely new terms. Many without advanced degrees are locked out of prosperous regions, which are moving beyond what had been middle income levels. Unfortunately, many regions continue with traditional building formations as if pay structures were not diverging towards opposite poles. Where are the up and coming communities, for the kinds of work so many employees will be able to hire for in the near future?

While supply side factions prefer to cater to the most successful, natural income variations make it impossible for this pattern to generate much needed growth. Investment and innovation need to be loosed to reflect quickly changing realities. Strategies are also needed, which make it possible for individuals to move up the economic ladder on incremental and stable terms.

Building components can be mass produced (or locally generated through 3D printing) which make it possible for individuals with low level incomes to maintain sustainable living and working options. Mass production can also assist in creating the local infrastructure grids which would lock building components into place. Where grid components would be brought in by various transportation means, many building components would be portable enough for a single person to carry and work with. Building components can be reconfigured as needed for a wide variety of economic activities. Only consider the multitude of environments everyone seeks out in the course of a lifetime, for ideas in building adaptation.

Why alternative equilibrium, instead of direct competition in general equilibrium? Growth has stagnated in primary equilibrium, where entire marketplace segments are weighed down with inflexible pricing structures. Supply side rigidities lead to business cycle fluctuations which otherwise would not be necessary.

These rigidities are now creating problems for traditional investment. However, the natural inclination is to look at the process and assume these problems are solely financial and monetary. Economists such as Barry Eichengreen believe this to be a major factor for stagnation. In a recent paper,  he emphasizes the relative decline in the price of investment goods as the fourth "cause" of stagnation. Eichengreen adds:

A long term view from economic history is most supportive of the last of these four views.

Rigidities in long term asset structures, could explain why Eichengreen questions the validity of monetary stability, as noted in my last post. When structural reforms don't make the public agenda, "middle out" political solutions tend to be the response. However, further enhancement of primary equilibrium consumption is a continuation of the 20th century approach. The continued imbalance only adds to the Fed's reluctance, to strengthen aggregate spending capacity. The production capacity of time use needs to be brought to the table as well.

Unfortunately, nations can be slow to move forward when they become bogged down with structural issues. Indeed, needed innovation gains after depressions can take decades to materialize, and populations can be quite vulnerable to social unrest in the meantime. Even though the Great Recession was partially contained, structural issues remain which are more reminiscent of those in an actual depression.

It can be hard to think about incremental growth and the monetary stability associated with it, because of the anything but incremental demands of so many finance structures. For instance, non profit housing groups such as Habitat for Humanity are limited in their contributions to economic access, because their customers prefer as close an approximation to primary equilibrium as is humanly possible. While assistance with "sweat equity" means a slightly greater chance of economic access, further growth through these traditional means is only possible at the margins.

Hence incremental investment needs to take a completely different strategy, which would provide more access than is possible in primary equilibrium. Not only would living and working structures look completely different from what already exists, they would be put together with materials which are lightweight and strong. One could buy and sell portions of living and working structures as needed. Separate ownership shares would be held by local citizens, which represent holdings in the overall building component and grid structure of the local community.

This alternative equilibrium would exist as an option for citizens without adequate means in primary equilibrium to meet their life challenges. The best part? There would be more room left within primary equilibrium, for all who remain comfortable with the status quo. This would relieve considerable price level pressure on everything from services needs to real estate in the most desired regions, as knowledge use systems become more widely available. Last but not least, I would be remiss in this post if I did not reiterate the most important investment of all - the investment of our time. With a little luck, time use can become the most important wealth starter of all.