Wrap Up for February '15

Spring can't come soon enough for me, this year! Even so I know I have no business complaining, because the biggest part of the really cold weather (not to mention immense piles of snow in Boston) is well north of where I live. The last two winters have been somewhat odd for southeast Texas, where normally it isn't unusual to see a few mosquitoes floating around even in January...

February brought an unexpected emphasis to human capital debates. Somehow in the middle of all this, perhaps aggregate time value might eventually become a part of the discussion. For one thing, there's little point in gauging output potential, while low labor force participation skewers the employment statistics which the Fed and other observers rely on. Coordinated time use has the capacity to become an important component of GDP, and services product need not always be defined on exogenous terms.

Plus, it's no longer just about labor, but what individuals want work to actually become. Restoration of time value would validate conscious decisions and preferences, on the part of individuals. After all, time use options don't always resemble what authorities would otherwise attribute to work norms. Presently, time value is still in the eyes of the institutional beholder. But a free market in time use means a more meaningful happiness quotient, and the chance of recreating economic value on personal terms.

Some links for the month:

Timothy Taylor penned one of the best articles I've come across, re the blurry line between competition and cooperation, and the ways in which they intersect:
http://www.econlib.org/library/Columns/y2015/Taylorcompetition.html

Everyone knew it would happen eventually...The legacy of debt: Interest costs poised to surpass defense and nondefense discretionary spending

Is this a Marxian perspective, or Hayekian? http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/02/why-not-worker-ownership.html

Ranesh Ponnuru asks, Why are Republicans bringing up inequality?

How many politicians have ready answers, this year? Politics Counts: Wage Riddle Has Lasted Decades

Also details some differences in the ways men and women respond over time. There is some useful information in this article:
Basic personality changed linked to unemployment, study finds.

Contrary to what one might have expected until recently, Americans are running out of office space. It's hard to believe now how spacious offices once were, even in the nineties.

In a recent post (Heart of Darkness) Scott Sumner also muses in the comments about the unexpected problems of Pitcairn Island. After a certain point in one's life, "getting away from it all" is no longer desirable for most individuals. Social isolation has its own unique set of difficulties.

Freedom from whom and what? I was concerned that this kind of scenario might eventually play out between cities and states. From the article:

"It has seemed hypocritical that the state wants the federal government to give the states more power, yet at the state level, they want to take power away from cities and counties.

Blockchain could probably be utilized in a record keeping capacity for knowledge use systems as well. The best aspect is no third party would be necessary for ongoing transactions and agreed upon settings for time use.

Note the occasional spaces that are often "needed" beyond immediate living environment. Also: "Only 19 percent of single person households are under 35 years old." http://www.nytimes.com/2015/02/22/realestate/micro-apartments-tiny-homes-prefabricated-in-brooklyn.html

When a city is starving for growth, predictability is important: http://bigcitysparkplug.com/2015/02/27/the-dangers-of-busting-law-breaking-businesses/

A Response For Branko Milanovic

Admittedly I'm a bit slow to directly respond to the initial post he wrote earlier this month, that triggered the recent online discussion.* However, what I need to specifically suggest is that - rather than ditch the term "human capital" - it needs to be embraced and recognized more broadly. Without greater application of human capital, long term growth and prosperity will become increasingly difficult. This, and the remaining fact there's a pressing need to include those who are still forgotten in the marketplace. Presently, human capital is mostly tapped on terms which limit the wealth capacity of time aggregates. Consider Milanovic, here:

Whether using Marxian or neoclassical economic theory, people with greater skills are supposed to be paid more because they produce greater value.

Even though this process made sense for a long time; a point has been reached where everyone's human capital needs to become viable, in order to maintain both sustainability and the present day economy. Only consider that even supporters of the left were forced to create a separate and lower skills compensation path at university levels. This process of income separation at higher skill levels can only continue, particularly as a gradual monetary tightening process by central bankers since the Great Recession, leaves both university administrators and CEOs alike, little choice.

As a result, the need to monetarily compensate those with long educational commitments, has left too little room for growth in the remainder of the marketplace - particularly as services growth has outpaced other forms of production for some time. And yet some still have little access to services. It should be the right of lower income levels to create needed services for themselves, when those who are compensated for high skills have little choice but to mostly provide services for middle to upper class levels.

Also: even though employment appears as though greatly improved of late, consider how labor force participation rates have changed for the worse in the U.S. As Timothy Taylor recently wrote (and his graphs particularly deserve note) the LFPR for prime age working males and females continues to decline in the U.S. relative to other countries. Here's Taylor:

For men, the U.S. was middle-of-the-pack in labor force participation rates of prime-age males in 1990, and now vies with Italy for the lowest level. For women, the U.S. was near the top-of-the-pack prime-age labor force participation in 1990, but since then has been surpassed by France, Canada, Germany and the United Kingdom, and is now about even with Japan--which has not been historically known as a country with high labor force participation for women.

What is especially noteworthy regarding women, is what this says about the "rise" of the healthcare marketplace relative to the rest of the economy. Even with the large presence of women in healthcare, their representation in the marketplace continues to decline! How does one get decreased labor force participation for women, when healthcare continues to grow as a percentage of GDP? This demonstrates the fact that healthcare cannot be expected to substitute for other marketplace factors indefinitely. After all, if people do not have sufficient jobs other than healthcare, they in turn are less able to pay for healthcare as presently defined in the marketplace, when they need it.

Does the claim that human capital isn't important, also imply that the political left can hardly be held responsible for further job creation? If this is part of the reasoning behind the latest volley from the left, I can understand Milanovic's frustration in that it echoes my my own. Job creation was particularly recognized as the responsibility of the right, after the devastating setback of the Great Recession. After all, economic prosperity on supply side terms and a supportive monetary foundation are necessary, before fiscal flows can be maintained for their contributions to job formation. Only consider the difficulty Washington now has with continued funding for DHS, even in a time frame when the economy is supposedly doing "swell". Therefore, the last paragraph from a post by Bryan Caplan back in 2013, "The Grave Evil of Unemployment", appears especially timely now:

I'm proud to call myself a free-market economist. But free market economics can and should improve. Our cavalier and callous attitudes about unemployment are deeply misguided. Free market economists should eagerly share their insights on how to alleviate the grave evil of unemployment, instead of putting their heads in the sand and calling idle misery "optimal."

It is clear that some among the right remember the intent of his message, for these individuals continue to carry the banner for full economic access, even now. Just the same, too many have long forgotten what is still at stake. Bryan wrote those words at a time when people still hoped the supply side would take care of important structural issues - issues which diminish the value of human capital. However, instead of doing their part to assist with structural reform, some simply benefited from monetary easing - even as they derided what economic gains there were, after the fact.

I didn't point out Caplan's earlier post to demean the supply side, but simply to point out that much responsibility for structural employment gains ultimately rests with them, and the contractual agreements they expect governments to provide on their behalf. Granted, monetary policy and supply side coordination are necessary, before fiscal activity can continue its meaningful role. But long lasting gains are dependent on the willingness of everyone in the marketplace to do their part for continued progress. Economic activity ultimately rests and relies on structural considerations which have less to do with tax shifting, than complete economic access in the marketplace.

Hence I view any urge to remove human capital from the vocabulary, as a desire from the left of being absolved of the responsibility of today's remaining unemployment. What's more, some among the right have thrown the ball back in the court of the left prematurely, when the left scarcely had the means to provide the jobs that were still needed.

In short - contrary to Milanovic's reasoning - the full use of human capital is more necessary than ever. Without it, societies end up with an impasse by which neither governments or business interests are willing to forge ahead with continued economic prosperity. Indeed, that is what has occurred in the present. All I am really suggesting is that it serves little purpose to throw up one's hands and insist that we cannot rely on our own intellect and personal capacity, to assist in overcoming the economic impasse of our times.

*For any new readers, I have written several posts this month which further detail my approach for human capital and time use potential this month. They are listed below:

Human Capital: The Missing Anchor
Human Capital Also Holds Value in Use
Human Capital Needs a Time Based Marketplace

More Musings on Human Capital

Recently I wrote about the importance of human capital from a value in use perspective. It's not enough to think about human capital strictly in value in exchange terms, for this is only part of the mechanism by which individuals - given the chance - make use of knowledge and resources in their environments. Why is value in use activity so important? This (applied) form of human capital allows endogenous or internal social formation. In turn, these social structures have the potential to augment the (necessarily limited) skills and knowledge sets sought by today's institutions.

For instance, value in use contributions are beneficial in that they allow young and old to maintain strong identity formation. Both groups have complained (in their own way) for decades, of the often patronizing consumer functions now assigned to them by an adult based, value in exchange work world. And yet who has heard? Instead, police have been called into the schools, medications are prescribed to keep students "in line", and senior citizens are simply handed more papers to sign, particularly when they are sick.

Of course, senior citizens get their "calming" medications, too. Yet how can any senior citizen be expected to "behave", when already they may not have not been expected to fully reciprocate or participate with others, for decades? Unfortunately, the value in exchange perspective, capable of rewarding primarily "the best" in the workplace, has gradually led to belittlement of old and young alike. What's more, this not only limits identity and potential economic contribution, the process places unnecessary burdens on adult populations, to care for both.

Value in use functions have a practical nature, and can provide needed services at informal levels on time based terms. The time value we assign individuals for human capital value, need not be the same as what institutions assign individuals who gain time value from set educational standards. Given the chance, people would seek one another out for topics and activities which encompass all walks of life. This shouldn't be any surprise, for anyone who remembers the earlier diversity and complexity of subject matter once held in libraries and bookstores across the U.S.

Time use quality has an endogenous nature which is different for all individuals, which is why investment and income strategies need to be different for everyone concerned. Value in exchange understandably focuses on those who utilize time most productively with a short time frame. However, knowledge value also comes from those who take ten times longer to produce a (knowledge based) product than the norm, for instance. That product might hold considerable value which exists independently of the time investment involved.

One aspect of self employment is the fact no one knows ahead of time whether investment in any form of capital will pay off, from a value in exchange perspective. For individuals with little wealth, it is sometimes better to attempt value in exchange investment which also holds value in the fallback terms of value in use. Once, homes provided fallback in this capacity, in that they could offer both value in use and also space for much needed value from personal exchange with others.

A major problem with present day zoning - for instance - is that it has become more difficult for people to invest in value in exchange endeavor which also holds a personal value in use component as a fallback measure. By way of example, if forced to choose between owning a business and a house, some would gladly choose the business, and yet they can't live on the business premises (how many have slept there at night anyway?). Too many people - especially those who may not have been self employed - automatically assume investment of any kind as some boring and reliable function. Indeed, sometimes this gets expressed in ways that make me want to pull my hair out. (Minskyites I'm looking at you...)

Uncertainty of investment for lower income levels in value in exchange terms, is one of the reasons I question investment and savings models which attempt to delineate what "specifically" happens for investment. No one knows until they try! Even activities which may appear as little more than simple consumption represent personal investment to some degree, particularly after one experiences major setbacks. Why? Because there are multiple forms of consumption one becomes less willing to sacrifice for, if it doesn't appear those consumption decisions can still meaningfully contribute to ongoing goals. Automobiles are but one major example.

Value in use environments offer more diverse complexity for human capital and time use, than what has become possible in too many value in exchange settings. For instance, individuals once coordinated time in ways that they could accomplish multiple activities at the same time, particularly when different generations lived and worked in closer quarters. This wasn't multitasking, this was just normal life!

Perhaps knowledge use systems and the time value in use they hold, might even be thought of in numerical terms. Recently, Brad Delong pointed to the fact that only three workers out of ten are needed to produce the goods we consume. When one considers that fiscal activity became a natural flow of monetary activity, it becomes evident that - if government is particularly efficient - they may expect to generate another three workers to match the initial (production) three which Delong spoke of. Basically, knowledge use value for production value, right? Unfortunately, this mostly works for middle to upper income level services.

What about the remaining four positions which are needed to generate a complete services marketplace? It is not reasonable or possible to expect business to give up profits to create work for those four as well, especially given the fact business paved the way for efficient governments to match three for three. Plus, business creates profit by selecting the "best" human capital...ahh, oh well. That leaves four working positions of every ten, which could generate a starting point for a directly compensated, value in use economy. Value in exchange investment and consumption for the formerly excluded, can then go a long way to make the difference for long term growth. There is no single time investment ratio to other forms of capital investment ratio, because no one knows in advance how much time will be required for the product they want most to present to the public.

Brad Delong suggested "Making Do With More", for Project Syndicate. Why not go much further than "making do", by making time aggregates truly optimal? Value in exchange needs value in use, in order to remain whole and viable. No one need be diminished, just because their perceived (exogenous) value isn't as "great" as those whose knowledge gains augmentation from economies of scale.

Midweek Market Monetarist Links and Summaries - 2/25/15

Would countries hold themselves accountable, if they independently printed their own money? (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/fixed-exchange-rates-and-blame-thy-neighbour.html
When supply side factors reduce potential equilibrium: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/keynesian-cross-as-simultaneous-moves-symmetric-nash-equilibrium.html
More Greek questions from Nick: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/do-the-greeks-need-greek-banks.html
Human capital in traditional value in exchange context: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/ours-the-task-eternal-investing-in-human-capital.html
More capital questions: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/does-capital-income-exist.html
He seems to recognize "Divine Coincidence" has failed. But what might that mean? http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/steve-poloz-on-inflation-targeting.html

Lots of blogging from Josh Hendrickson this week:
https://everydayecon.wordpress.com/2015/02/18/germany-greece-and-rent-seeking/
https://everydayecon.wordpress.com/2015/02/19/resolving-the-glasner-sumner-dispute/
https://everydayecon.wordpress.com/2015/02/20/more-on-germany/

"Unambiguously positive?" Hmm...(Britmouse) https://uneconomical.wordpress.com/2015/02/19/the-supply-shock-is-coming-in-2016/

Choke demand, and supply will follow (Marcus Nunes): https://thefaintofheart.wordpress.com/2015/02/18/demand-supply-are-intertwined/
In Greece, a drop in unit labor costs hasn't eased unemployment: https://thefaintofheart.wordpress.com/2015/02/19/what-price-success-2/
Strong U.S. dollar? Who cares! https://thefaintofheart.wordpress.com/2015/02/21/mr-bullard-is-in-a-hurry/
Was this really the best headline the WSJ could come up with?? https://thefaintofheart.wordpress.com/2015/02/23/oscar-for-best-headline-in-the-reasoning-from-a-price-change-category/
"Celebrating" deflation? https://thefaintofheart.wordpress.com/2015/02/23/oscar-for-best-editorial-punch-line-in-the-monetary-policy-target-category/
Until 2011, all was well...https://thefaintofheart.wordpress.com/2015/02/23/poland-never-really-understood-why-it-didnt-crash-in-2008/
Matt O'Brien's analysis is a bit convoluted: https://thefaintofheart.wordpress.com/2015/02/24/a-price-is-never-guilty-of-anything-its-just-a-variable-that-reflects-its-fundamental-determinants/
There are good reasons why structural reform on fiscal terms is wishful thinking: https://thefaintofheart.wordpress.com/2015/02/24/in-greenspan-rubin-had-his-wizard/

This Economist article advocates level targeting (Scott Sumner) The Economist on good and bad deflation
The textbook description can be confusing: What does MV=PY actually mean?
More musings on Greece: The burden of history
Why aren't students taught more than what is already obvious, about real world circumstance? Nobody understands that nobody understands supply and demand
Already, the Swiss stock market has regained most of its losses: Why Switzerland is such a great country (all's well that ends well)
How to talk about shares of growth? Beware of income inequality data
At Econlog, Scott highlights a post from Kevin Erdmann: The housing bubble: perceptions and reality
Inequality? It's not just about education (Econlog): Power is a residual

From Lipsey's essay on national income (David Glasner) http://uneasymoney.com/2015/02/20/why-theories-of-national-income-based-on-accounting-identities-are-nonsensical-and-error-ridden-part-i/

Want to encourage a more growth oriented Fed? Benjamin Cole provides some contact info: https://thefaintofheart.wordpress.com/2015/02/22/can-president-obama-yet-appoint-2-and-811ths-of-the-12-fomc-members-maybe/
What to do when hyperinflation stories no longer work? https://thefaintofheart.wordpress.com/2015/02/24/is-john-cochranes-the-banks-just-swapped-treasuries-for-reserves-qe-was-mostly-inert-narrative-a-little-glib-do-right-wingers-confuse-financial-intermediaries-with/

Why does Noah frame Scott in these terms? (Bonnie Carr) https://dajeeps.wordpress.com/2015/02/23/mr-smith-and-the-cruel-mandate/

Lorenzo says what needs to be said...http://skepticlawyer.com.au/2015/02/21/the-nazism-of-our-time/

Koichi Hamada wants to know, Why is Monetary Policy Underrated?
Mike Darda also focuses on Japan

Human Capital Needs a Time Based Marketplace

When intelligent people such as Branko Milanovic begin to demean human capital, I can't help but get nervous at the implications. If not for the capacity of the human mind...what, exactly?? When too many among the supply side have given up on human capital and economic potential, is this also true of the left?

Since lately it's come down to trashing human capital or or reasoning about inherent IQ and innate ability, perhaps so. Whatever happened to the wealth generating capacity of society as a whole? How can anyone possibly feel comfortable, allowing a mass experiment of mental capacity separation, to continue indefinitely? This isn't just a mass division of mental capacity playing out. It's also a vast divide which destroys the possibility of productive family formation, for the "losers".

The potential of human capital is what still gives us hope, given the present long term growth dilemma. Had it not been for an ability to reason and work with resource opportunities, I'd still be at the basic level of the animal creatures, whose environment I share (and there's a pair of wrens I wish had enough sense not to build a nest on the garage wall next to this office...). Without the combined societal benefits of countless minds before my lifetime, I probably wouldn't have had the opportunity to live 60 years already - in spite of numerous setbacks.

An ability to utilize human capital effectively isn't just about money - it's about whether we find means to make the best of our allotted time on earth. It is about getting the chance to interact effectively with people and resources in one's midst. A new marketplace for time use coordination could - over the long run - provide hope that life not become (once again) nasty, brutish and short. Even though individual time is limited, human ingenuity - as Julian Simon noted - holds infinite capacity. In spite of the fact populations haven't always gained from human ingenuity of late, the accumulated effects of earlier gains are still immense. Peter Gordon says of Julian Simon:

Whereas economists love to talk about scarce resources, it was Simon who described how one resource, human ingenuity, is not scarce; it is infinite--in a context of economic freedom

How to approach a rationale from the left that capital belongs to capitalists...yet not to people? James Pethokoukis was the recipient of one of these odd attacks recently, and he addresses it in this reasonable post. I was glad he noted Robert Reich as a proponent of human capital, something I'd almost forgotten after reading Reich's very good book, "The Work Of Nations", in the early nineties. Unfortunately, human capital has gradually become associated with the money and connections it often takes to have one's voice heard - which could have some bearing why it is now being exposed to ridicule.

In a compensated marketplace for time use, the point would not be to generate "perfect" skills product. After all, is there even such a thing? Time use - particularly for education and healthcare - is highly experiential in nature. Not having to assign specific value to specific knowledge in these settings, would make its use more flexible for the purpose of any given moment. Plus, a time based marketplace would provide means - and reasons - for individuals to seek one another out, once again. This is particularly important, given the fact that mass production and technology has meant that many have forgotten the reasons they once came together. A lack of reasoning for coming together in shared economic purpose, is particularly what leaves populations exposed to extremes such as these.

What's more, it is better to monetarily compensate individuals for helping one another, than to compensate them as a consolation prize for being "left out", especially as a long term monetary strategy. The existence of a linked and constant time continuum, means that groups would be able to contribute to societal gains which would gradually build on the initial exploratory efforts of these systems.

Knowledge use has the capacity to carry across a broader spectrum of economic activity, than is presently the case. It can be utilized in far more ways, than is possible within the compensated time use realm which single institutions employ. Knowledge is the component of human capital which has the capacity to transcend time, provided it remains embedded in a continuous time use context. The embedding of knowledge use in present day institutions is not continuous, because it serves the purpose of specific missions and profit goals, rather than the purposes of a given public at large.

However, a time based marketplace with multiple purpose coordination, would provide greater stability for knowledge use preservation. Paul Krugman recently wrote, "Knowledge isn't power." If it seems that knowledge isn't power, it is only because single mission environments make it difficult for individuals to make use of knowledge gains. Knowledge needs environments in which it is able to circulate freely and adapt to multiple purposes. A marketplace for time would give new economic freedom to knowledge, and in the process, allow knowledge to express the power it still holds.

Update: One way to think about the failure in monetary policy which led to the Great Recession is as a coordination failure - a thought which occurred to me after reading a Scientific American article about coordination problems. Even though it appears central bankers are (now) following a trajectory that honors aggregate spending capacity, the fact they remain unconvinced re human capital value, might explain why they stay well below the 2% inflation target, no matter the oil price. The fact that political factions on the left and right downplay human capital representation, appears part of the reason why the zero bound continues to threaten with a monetary policy which now tends deflationary. As mentioned in the linked article, groups don't always decide that it is in their best interests to take action to protect the whole group.

The Austerity That (Ultimately) Threatens the U.S.

I cannot speak to the austerity conditions which continue to thwart Greece, for I simply don't know the nature of their services organization in relation to other parts of the economy. However, the long run austerity threat for the U.S. is easier to ascertain, in part due to the unique patterns of a services structure developed after WWII. As a result, long term budgetary concerns could possibly be more pronounced, than some countries which developed nationalized healthcare systems.

How so? Private industries which have evolved around healthcare, are heavily subsidized in ways that are mostly hidden to the public. Not only have healthcare costs become difficult to discern in real time, artificial limitations also involve the most basic surgical procedures and the right to prescribe medication. Around these limitations, immense and costly complexities have arisen - each layer of which was "supposed" to provide solutions to the core issue of artificial scarcity.

Among these layers of complexity, arguments are growing as to who even "deserves" healthcare. Even though some discussions about the "undeserving obese" have occurred in the UK, one can easily imagine a similar rationale here. It is quite a shame that some skills sets were made so sacrosanct, that they now contribute to unnecessary problems in multiple settings. Most people are far more rational than I, because they dare not point the finger at the real source of the problem, for fear of upsetting healthcare professionals among their own peers and kin. I only do so now, because it's almost as if every person alive has become "undeserving" of valuable services!

At the very least, it took a long time for the artificial scarcity of skills restrictions to affect the overall growth trajectories of nations. But that's small comfort now. And yet even though it should be obvious what happened, people still reason that these problems can be overcome without more contribution to supply. Possibly because so many forms of product exist in abundance, the same is assumed of time based services. But what if supply isn't really widespread, meaning a primary product shortage contributes to a low growth equilibrium? Nick Rowe rightly calls supply capacity into question, in a recent post where he writes:

If the apple producer wants to buy ten bananas, but the banana producer only wants to sell six bananas, then only six bananas get sold.

Why would a banana producer only want to sell 6 bananas, if they could easily produce more? Imagine a banana producer in a two product primary equilibrium, who reasons: if I can make my product important enough that it commands ten apples for 6 bananas, then why shouldn't I price, based on those terms?

For a long time the services supply asymmetry wasn't so obvious. Indeed, insurance and government requirements made the problem manageable for decades. What's more, production allocation asymmetries aren't ordinarily problematic in the marketplace if they don't represent core consumption. Just because everyone seemingly has a smart phone - for instance - does not mean the person without one is likely to be at any real disadvantage.

Artificial services scarcity might not be so obvious now, were it not for the fact a larger portion of the population anticipates health costs in the near future. Many of us who mostly avoided the doctor's office for decades, are not sure whether our good fortune will last (and for too many my age...it hasn't). This and a confluence of other factors means primary equilibrium growth is finally threatened by a six (services) banana sales total to a 10 apples (manufacture product) sales total. While some don't find this a threat in moral terms, it is nonetheless a threat in terms of growth potential.

One wonders: is this as far as the supply side argument for healthcare will ever go? If knowledge use for medication and surgery needs cannot be accessed by lower income levels, present day growth cannot be revived to its earlier trajectory. Indeed, the stubborn insistence of central bankers to remain below 2 percent inflation, makes it questionable whether the present growth trajectory can remain on an even keel. Because of the still present danger of the zero bound, future recessions could mean further production setbacks for both services and manufacture.

If the torch for economic responsibility has been passed from the supply side to the political left, the latter needs to recognize the built in growth limitations which services now hold - particularly in healthcare. In the meantime, few mention the American Medical Association as the originator of this quandary, even as virtually everyone else gets blamed for services shortfalls. Among that list but not limited to: illegal immigrants who "steal" needed services from others...poor unwed mothers...the one percenters...and baby boomers who are "stealing" the future of younger generations! As to debts which aren't going anywhere, anytime soon, consider Brad Delong's response to Diane Lim among a recent round of austerity posts. In a six point rebuttal, fortunately he thought to list healthcare first:

1) We believe that medical care is a special commodity - one that should be delivered to those who need it, not just those who can afford to pay for it out of their private means - and thus as health spending becomes a larger part of the economy the proportion of GDP spent by the government on its healthcare programs will grow.

Where to even begin, in response? Of course I agree with Brad Delong that healthcare is among the most basic of commodities. But in the U.S. it has been defined as a special product, and there is no changing that definition in the short term. Special equals exclusive, not inclusive. As a result, any access beyond what is already available will not only remain limited, future access will gradually become more constrained, if no services production reform is allowed to take place.

Fortunately, many individuals have become aware of the long term issue of healthcare as it impacts the deficit. However the reason no progress has been made, is the fact few sane individuals dare to speak to the obvious supply side restraint. This is why I suggest that physicians be allowed to train low income individuals how to heal, for knowledge use systems which will not directly compete with the existing healthcare system. Should this occur, real economic growth will once again become viable, and individuals will gain hope that they won't be completely undone by medical expenses at some point in their lifetimes.

Dreams of a More Dynamic Reality

It occurs to me that after almost two years of blogging, in spite of attempts to maintain a distinct identity, I have been pigeonholed as right wing. To a degree this is understandable because I espouse free markets and monetary solutions over fiscal solutions. I worry that governments don't understand the problems faced by those who are mostly alone in the world, and that governments force circumstance on them which convey a tremendous lack of respect for the poor and disadvantaged. However, I also question how many among the supply side dream of better economic realities, even as I wonder whether it's possible for governments to do so.

Therefore, I don't "fit in" with political right categorizations as easily as one might think. It's been almost six years since I first became acquainted with online blogging, and in that time I've managed to become a bit of a nuisance to all concerned. Still, I need to do a better job of communicating on left leaning blog sites, and hopefully I can do so without being so confrontational in the future.

In spite of my desire to remain non ideological, identity and affiliation are of course inevitable. That also holds true for economists as a group, along with the messages economists convey to laypeople such as myself. While some online participants have moved on to other activities, there's still plenty to glean from the discussions that remain. Might all this outpouring of online energy, eventually translate into new local economic energy and dynamism?

Alas, not yet. The blogosphere appeared to shift about a year earlier, once monetary policy at the Fed began to move towards a "normalization" position. Was a torch being passed to the left? In retrospect...perhaps, for it would have been difficult to imagine Washington speaking of a general economic slowdown, had they not directly received this message from private enterprise. Over time, the U.S. regained some of the confidence which was lost in the worst days of the Great Recession. For all practical purposes, "victory" was being declared, in spite of protestations from market monetarists and others who were more attuned to circumstance on the ground.

One reason it was easy to declare victory was the fact Wall Street has taken the place of Main Street in many ways. After all, who really associates Main Street with macroeconomic anything?? All the dynamism one would supposedly want, could be found in the numbers, the statistics, the gains in wealth that were quite real. Hence, some right leaning blogs returned to topics more microeconomic and at times even superficial in nature. That doesn't mean everyone suddenly lost their interest in macroeconomic concerns. On the contrary. What's more: surely it's not just me noticing, that quite a few newer blogging voices lean left.

Sometimes the rhetoric gets so caught up in technical concerns that it's difficult to find the connections to reality. How can economies become more inclusive, in growth based terms? The problem I have with the present fiscal/monetary debate, is a lack of clarity. After all, the inclusion of the forgotten is where real growth and stabilization is possible, yet this fact just gets demolished in the constant static of middle class fears. It is the lower classes which - given the chance to prosper - could help the middle classes - not the more limited local participation of the upper classes. In particular, any discussion of infrastructure desperately needs better context, just as regulatory discussion needs specific and understandable context. Just as the supply side never delivered the more dynamic marketplace I dreamed of, it's hard to see how roads and bridges infrastructure is going to hire or make a future, for the millions of compromised individuals no one notices anymore.

What's really at stake in all this? When I advocate for human capital, I do so based on potential self worth, not the arbitrary worth that is assigned to individuals by institutions. Are capitalists any different from countless other power mongers? Of course not. The faux problem of capitalist "aggression" is hardly the reality of most individuals who simply want a chance to use their mind to better their lives and surroundings. The power mongers to worry about are those who use legal means to keep individuals from freely sharing their skills with others. When this occurs, all the petty power mongers then emerge, to take advantage of those who were denied the economic means to support themselves. The best way to defend human capital, is to defend it at the core, before it gets exposed to more belittlement than necessary.*

Human capital is the original economic reality, of which capitalism is but a late derivative. It holds a vital link with time - in spite of the negative labor/time association stressed by Branko Milanovic. Say what one will about time - it defines our existence for better or worse. Don't get me wrong, for I understand the capital minus time argument he posed in the above link. Still, I have to ask: if we lose the experiential element of the time component, what else do we have?

Time is the part of our reality which matters most. Whereas if human capital doesn't matter, time use doesn't matter and the automation which frees our time to live life as we desire, doesn't matter. Do we really want automation to completely assume the negotiation capacity and experiential aspects of our time based position? Should anyone remain convinced (!) that the human capital concept is demeaning, time value could be lost and we are uncomfortably close to losing it as it is. Should human capital be claimed for the importance it holds in a marketplace for time, automation would augment our lives and abilities - not the other way around.

Thus far, growth since the Great Recession has mostly taken place on exclusive terms. In other words, gains continue to be made on the part of intact families among the middle class. Even though these gains are not presently showing up in income, they show up for instance in the still considerable monetary flows between housing wealth and education at local levels, such as the walking path in a pecan grove near my neighborhood which was recently leveled to create new baseball and softball fields. Near term future wealth will likely continue to take place along these lines. While these fiscal improvements have real value, they do little to address relatively deserted Main Streets or the fact that marginalized citizens still seek means to participate in the marketplace and public areas.

The means to participate with others for the full course of a lifetime, is the human capital I want back. That's the economic dynamism I still dream about: tiny capillaries of Main Streets everywhere that can keep entire economic bodies vital and alive. Reciprocal monetary flows, which allow people from all walks of life to have reason to interact with the world in their midst.

When I think how some are convinced that human capital is demeaning, I cry inside - indeed that is why this post has gone "over the top" sensitive and a bit shy of logical. When people give up on one another as in the present, they give up on immigration as well. As to the robots, one could say they have already surpassed us if we insist on competing on their turf. Do we still believe in the integrity of experiential product? Do we still believe in the value of our time, and the time of others? We are the only ones that can provide those answers and meaningfully act on them. No product has to be "perfect" - whatever that is - and neither does the time we choose to share.

Most people, given the chance, don't want the handout of a condescending transfer payment - a non solution so poorly thought through it is not even a valid component of GDP. All too often, a transfer payment reminds someone they've arrived on what can be a really scary dead end street, where no one really knows or cares what happens to them. Most individuals try their best to remain a part of the world around them, as long as they are still able to get out of bed in the morning. There's nothing wrong with professional offices and big box retail holding valuable real estate on well traveled roads and the public places we hold in common. But there still needs to be plenty of room on these public byways for everyone else to participate and find positive experience as well. That is the message too many people of every political inclination thus far, have missed.

*Update: Here's a good example, how it is best to protect human capital "at the core", i.e. make certain that consumption definitions remain flexible and amenable to potential innovation. A post from Nick Bunker suggests the supply side remedy of "reforming  finance" so as to make the economy more productive. However, his reasoning is backwards. When individuals are free to utilize human capital to improve their surroundings, they need less financial assistance in all areas of their life.

Time Aggregates and Growth Potential

While there are means to maintain growth, reducing time aggregate representation in the marketplace is not one of them. Governments and central bankers are playing with fire, when they tolerate policies which ultimately lead to fewer hours worked. Indeed, the recent decline in oil prices provided a perfect cover (cheap gas is great for the consumer? hmm), for the fact that deflation is being actively encouraged, to lower aggregate spending capacity.

Even though the U.S. has experienced supply side growth from oil production, "total petroleum consumption is down 21% from its 2005 peak". This, in a time when populations continue to grow, and more economists are becoming aware that growth cannot simply occur on consumption based terms. How might nations be encouraged to once again include their citizens in vital production and services roles?

Production of the future needs to be approached differently, because time also holds value as a primary product - not just product input. Consumption decisions also depend on the paths utilized, for production potential. If citizens aren't buying gas, what does that say about their other time use choices? Lower gas consumption holds vital clues about the marketplace many individuals now desire.

Knowledge use systems would allow more concentrated organization for work and life diversity. In many instances, these systems would not require the same infrastructure associated with automobiles and related transportation. Indeed, some services oriented communities could be built around interior bicycle and walking paths for normal workday routines, and more traditional transportation structure around the perimeters for the times when local citizens seek to connect with other cities and regions.

These forms of density and diversity planning would bring many back into the workplace, who simply can't afford the terms of economic access as they are presently structured. What's more, these systems would mean a new form of growth which could prove capable of returning to a more robust growth trajectory. This is particularly important because deficient demand is slowly leading to its own deflationary spiral. As to persistent below target inflation, Simon Wren-Lewis says:

You do not sit back, tell yourself that below target inflation is probably temporary, and do nothing. And of course, you do not plan for more fiscal austerity.

There are two things about his sentiment worthy of note. First, fiscal austerity is having more difficulty getting at the root of the problem, than monetary policy. Also, because non profit and for profit endeavor follow similar guidelines, the real monetary/fiscal problem is a lack of organizational capacity to generate new growth potential. Fiscal policy has become a catch all phrase in a world which can now scarcely distinguish between governmental and private activity.

The main thing that can be determined from these circumstance is that time participation is still dying on the vine, as various camps argue over the particulars of economic stability.  A discussion between W. Peden and Wren-Lewis in the above linked post, touched on the importance of ascertaining a reasonable level, when the output gap is considered. W. Peden also noted the fact that time aggregates or hours worked, may be more important than unemployment levels.

One thing that concerned Wren-Lewis, was the difficulty of maintaining both productivity and measurement capacity for the self employed. This is something that a knowledge use system would be able to address in a number of ways. In a coordinated time use marketplace, the self employed would have more takers for the skills sets they offer, and they would have better luck with their offerings than if they had to fight for a limited market share in primary equilibrium. As a former piano teacher trying to find and maintain students outside of regular school systems...just trust me on this one. It would be quite a difference, if only in attitude towards community members as to the skills they could share.

Another benefit is that time matching would take place within close time frames and recorded at the outset. There would be no need to wait for end of the year tax returns to ascertain the work activity and income of the self employed. Granted, hourly income in time arbitrage would be of a more limited nature than income in primary equilibrium. Still, ongoing local investments could also be recorded on an ongoing basis within the participating groups, so that real time monetary measurement for local economic activity would remain possible.

A primary benefit for knowledge use systems is that they could gradually bring time aggregates in the U.S. back to their recent levels of labor participation. With a little luck, the fiscal/monetary battle can die down as it becomes more apparent that what is needed is real change in organizational capacity, so that the paths to growth do not continue to be blocked at every turn.

Midweek Market Monetarist Links and Summaries - 2/18/15

Will rates go back to zero in the next recession...or before? (Scott Sumner) The Phillips Curve and interest rate targeting are dead. What next?
Why doesn't the model work well in this instance? The musical chairs model in the UK
Britmouse responds: Musical chairs in Britain, Revisited
The bond market suffered in 1994: Do central banks worry more about the bond market or the labor market? Bill Woolsey responds: What do central bankers want?
Core PCE level targeting is better than (the current) PCE inflation targeting: Reducing Fed discretion (dedicated to John Taylor)
Scott finds seven (!) ways to "repair" a Robert Waldmann post: Let me know when critics respond to our actual ideas
Explaining a nominal target at a press conference would be less bother: Making life easier for central bankers
Austerity cannot be helped, if there is no help for monetary growth: Obama's horrible advice to Germany

Econlog posts from Scott:
The Wittgenstein test
Have an opinion about string theory? How about macroeconomics?
A response from Noah Smith - Why do non-experts think they know about macroeconomics?
If government has little pressure to do the right thing...Reasoning from a price change, example #341

"We just saw it from a different point of view" "Tangled up" in identities:
CAUTION Accounting Identity Handle With Care (David Glasner)
There's no point in arguing over definitions (Scott Sumner)
Sumner and Glasner on Identities (Bill Woolsey)
Savings and Investment Aren't the Same Thing and There's No Good Reason to Define Them As Such (David Glasner)
More Basic Macro (Bill Woolsey)

...but will this change the (fiscal) conversation? (Britmouse) https://uneconomical.wordpress.com/2015/02/13/bank-of-england-no-longer-at-the-zlb/

Too many similarities to the 1930s (Lars Christensen) http://marketmonetarist.com/2015/02/13/now-the-enriched-country-merely-declares-it-is-insolvent-and-spits-on-its-victims/
Things are improving at least for monetary policy...http://marketmonetarist.com/2015/02/16/mikio-kumada-tells-the-right-story-about-the-japanese-gdp-numbers/

Will monetary policy become more expansionary? (Marcus Nunes) https://thefaintofheart.wordpress.com/2015/02/12/sweden-the-sins-of-the-father/
His voice has become somewhat muted: https://thefaintofheart.wordpress.com/2015/02/12/et-tu-carney/
Some board members take monetary policy very personally... https://thefaintofheart.wordpress.com/2015/02/12/tight-monetary-policy-can-be-truly-deadly/
"extreme accomodation" it wasn't: https://thefaintofheart.wordpress.com/2015/02/13/7-years-crying-wolf/
NAIRU does not make sense: https://thefaintofheart.wordpress.com/2015/02/14/why-insist-on-searching-for-the-holy-grail-aka-nairu/
Marcus illustrates the difference between the two: https://thefaintofheart.wordpress.com/2015/02/16/there-was-no-first-great-depression-just-the-great-depression/
1981 versus 2007 in graphs: https://thefaintofheart.wordpress.com/2015/02/16/contrasting-recoveries-from-an-mm-perspective-an-alternative-to-john-taylors-machine/

Overlapping generations and further literature from Roger Farmer (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/teaching-olg-models-and-the-phenomenology-of-perception.html
Nick debates a bit of (Piketty inspired) nonsense: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/human-capital-and-land-capital.html
Of governments and banana machines... http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/do-economically-illiterate-slobs-use-duality-theory.html

Benjamin Cole has some fun with Cochrane's "econo-judo": https://thefaintofheart.wordpress.com/2015/02/14/my-blog-u-ment-with-john-cochrane-or-et-tu-ken-duda/
This is particularly surprising for those of us who remember Japan's heyday: https://thefaintofheart.wordpress.com/2015/02/16/john-cochrane-dream-vs-reality-in-the-far-east/

Politicized well past the point of being effective...(Bonnie Carr) https://dajeeps.wordpress.com/2015/02/13/interest-rate-quandary-sooner-rather-than-later-or-let-sleeping-dogs-lie/

Supply Side...Perhaps "Direct Side" Economics?

Looking through a series of Wikipedia economic entries, I happened on the entry for supply-side and found the emphasis interesting. Here's how it begins:

Supply-side economics is a school of macroeconomics that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services as well as invest in capital. According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices: furthermore, the investment and expansion of business will increase the demand for employees.

Sounds reasonably promising thus far...right? Except the means for this encouraging quote mostly comes down to:

Typical policy recommendations of supply-side economists are lower marginal tax rates and less regulation.

Aah, less regulation: the ever desirable situation which seldom translates into realities for greater economic access. Readers are already aware of my dubious response to ongoing tax shuffles - political and legal stalemates are "made of this". At first glance, the Wikipedia quote appears to address some of the structural issues alluded to in yesterday's post. But...regulation changes for who? Do those changes seek to create a pathway, or obstruct existing pathways? In other words, what are regulation specs intended to accomplish, and is that obvious to everyone involved? Do more individuals gain the chance to participate, or less?

As to tax rate changes, they serve as a fallback method not just for business interests, but for everyone else as well. Economic progress? Hmm, depends on which party is in power and how one feels about the party. In all of this, actual structural issues tend to be swept aside, and the initial impetus to provide economic access gets lost. Perhaps this is why some supply side efforts are disregarded as trickle-down economics.

When discussions turn to inequality, a partially broken or missing marketplace makes it difficult to determine any reasonable course of action. Governments can't provide something that may not even exist - particularly services. In what sense are service related supply side factors "responsible" for inequality? It depends. Hence, even though it's obvious where some price rigidities reside - such as rising prices for cancer drugs - where does one even begin? A high tax on the profits of successful pharmaceuticals is not going to solve the medical access or production problems they have created for everyone else - businesses included.

Nor is a low tax on their profits likely to encourage them to lower prices or hire more researchers. It's painful for me to witness media accounts of people making walks across the country (or related efforts) to raise money for research into cures. How many precious research hours will those hard won dollars actually provide? The way these institutions have specialized time value, the (traditional economic) value of time such as my own - similar to that of many people around the globe - would hardly represent a drop in their valuable bucket. And yet for centuries, research was performed because people wanted the challenge and scarcely gave a second thought to the time involved, not because a few isolated individuals were christened with the special privilege of healing, on the "supposed" behalf of taxpayers and everyone else. What kind of rationale is that?

Step back for a moment and consider where today's pharmaceuticals gained their protected position in society. They were able to do so in large part because of the already existing prestige of physicians associations. As a result, pharmaceutical companies were also able to slowly wear away at the ability of local environments to produce and partake in countless means for healing, until healing at low income levels and in rural regions has become practically nonexistent in the U.S.

However, the reason they gained this competitive advantage in the first place was the fact that the service formation of physicians - over time - had gained the status of a superior good. While in a sense there is nothing wrong with such status - given the years required for the education and intense commitments required for doctors, the problem is that the marketplace was effectively removed for everyone else. Yet governments have been foolhardy enough to insist on somehow apportioning to all, the generous rewards of extreme artificial time use scarcity. Good luck with that.

This removal of the alternative marketplace is so thoroughly entrenched, that it continues to threaten what remnants still exist. When the media recently warned of of an altered substance in some herbal capsule formulations, the warning came along with an admonition to never rely on herbal remedies in the first place! And my alternative as a low income consumer - other than the far more limited realm of over the counter drugs is - ??? I've never received a warning from the media to cease and desist taking (the constantly TV advertised) prescription drugs as a general rule, should any of these companies be foolish enough to tamper with their own product. And in several instances over the years, I've not come across either prescriptions or OTC medication which take the approach I actually need.

Circumstance such as these are why it is difficult to overcome the complete takeover in the marketplace, by what is now considered traditional medicine. However, the fact this has occurred holds considerable responsibility for the worst inequality and economic access issues in the services marketplace. Most important is that - particularly in an age of growing automation and concern about employment prospects for the future - it has become dangerous to assume all services work can be assigned either superior good status or else leftover "dregs for dummies".

To be sure, the law of one price is problematic in this regard. People in the U.S. who can afford to do so, travel to other countries to access affordable (i.e. "differently" priced) medicine, instead of expecting to find it somewhere at home. It's often not reasonable to expect pricing differentiation for services product, locally. Why? Unlike more obvious quality indicators of tradable goods, time based "cheaper" service variants call expensive time based variants into question. How does one know what is actually different?

The fact that knowledge use systems would work completely differently (through coordinated time arbitrage) is precisely what allows them to sidestep the law of one price problem. Fortunately, consumers tend to be more forgiving about pricing in other non tradable good formations. For instance, it's not difficult to understand differences in land valuation and the non tradable good of buildings. The geographic component makes it easier to understand differences in price for these.

At the very least, a marketplace for time would mean the possibility of services on normal and not just "superior" terms. The worst thing about services as designated "special" good for middle upper and upper income? In spite of the time scarcity everyone holds in an individual sense, overall time aggregates are grossly shorted in value, which creates asymmetries everywhere one looks. A marketplace for time use would "right" many wrongs in terms of services exclusion, in places where it is needed most.

Knowledge use systems would in effect be a "direct side" approach, to much needed marketplace formation. Any time that societies reach a point where immigration is discouraged and eugenic references creep back into any national dialog, it becomes clear that more than taxation and political strategies are needed. Knowledge use systems would also be able to maintain information and time use structures digitally, so that new methodology can be shared with others who seek to establish knowledge use systems as well.

It's not that commonly used knowledge couldn't be available for all. However, the inability of either government or existing businesses to supply adequate knowledge use and services, needs to be addressed. Increasingly, large swathes of existing knowledge and underutilized humanity need to be tapped, to narrow what has become a growing intelligence use gap, between the rich and the poor.

What Do We Want From Our Environments?

Generally, if this question gets asked at all, it tends to be in single issue formats. Countless groups stand at the ready, to assist a specific circumstance or need. Everyone it seems, is ready to find a way to "bend" the environment to their demands. And yet nothing about life exists as a single problem to be solved. Why not a more comprehensive and integrated approach - a multitude of possibility?

In the meantime, governments have attempted to continue 21st century progress on the outdated expectations of the 20th. One of the more obvious flaws in this non strategy is "sluggish" investment. How can anyone get excited about investing, with so little certainty what anyone wants? Low interest rates are a significant part of this scenario, but some remain confused by low interest rates just the same. Doesn't that indicate a good time for governments to borrow? Not necessarily so, as Scott Sumner notes once again.

Even though monetary conditions are better, the structural debate for long term strategies has scarcely begun. Indeed, some are convinced what passes for discussion in this regard is mostly handwaving. For instance, as Lars Christensen notes about Japan's somewhat improved scenario:

Now Prime Minister Abe has to deliver on structural reform, but that can be said about every industrialized country in the world.

Oddly, when countries are slow to consider the needs and circumstance of their own citizens, domestic concerns end up overshadowed by changing world events. It's a pattern which repeats all too often. Why should war have to be the factor that finally mobilizes populations?

There are still investments which governments could make on behalf of their citizens. However the opportune moment for any government to make new commitments, is when its citizens are already inspired to do the same. The fact that no one is making any substantial first moves, suggests it is time to figure out what people want from their lives and and their circumstance. While the answers of course will differ, there are nonetheless patterns that can be distinguished in the dialogue.

For one thing, changes - particularly those involving infrastructure - can't just be imposed on already existing environments. While some adaptation can take place (i.e. density adjustments for instance), it's best not to expect too much for regions which have long since matured into unique identities. Instead, governments and citizens need to look for economic potential either in adjacent or even entirely new locations. Rather than committing to expensive infrastructure at the outset, groups can experiment with flexible infrastructure and working arrangements, to see where new production and services formation may take hold. In some instances, individuals who wish to take part may be able to lend time and skills commitments, particularly when they don't have sufficient monetary resources at the outset.

Domestic summits can assist in what would become a gradual matching process: one that would allow citizens to come together for similar strategies in production and services structure. In a sense these environments would give new meaning to entrepreneurial activity. After all, it is possible to think of individuals "hiring" one another for time arbitrage. What's more, some would experience a revival of almost forgotten social skill sets. Newly formed communities would gradually lead to other shared investment strategies, in their turn.

Often, people with varying abilities and income levels need different forms of infrastructure as well. Having life/work choices such as this could mean not needing to claim disability or - for some baby boomers - a way to avoid having to take early social security compensation. For too many, the biggest difficulty is trying to work at the high level of expectation, inherent in many settings. Far better, to generate communities which match aptitudes and goal sets more closely. Far better, to make certain everyone has ways to remain responsible and connected to others.

Human Capital Also Holds Value In Use

Why is this important? Because value in exchange can at times be limited by definition, in terms of both resource potential and economic access. While many forms of scarcities have been relieved, scarcity is still problematic for both time use potential and geographic potential - i.e. the land versus human capital equivalence. This has bearing why it can be difficult to make time aggregates optimal, as a whole.

Because time product is naturally limited (finite), services coordination cannot always be accessed on value in exchange terms without distorting general equilibrium. Even so, people compensate for given scarcities however they can, through value in use means. While value in use can be helpful on a personal level, its potential could be greatly magnified through societal coordination. Value in use services formation would help to address present day imbalances, and (underutilized) human capital potential would play a primary role.

After writing yesterday's, post, I read two other posts about human capital, the first by Nick Rowe ("Human Capital" and "Land Capital") who was responding to Branco Milanovic. To be sure I was somewhat upset by the post from Milanovic, and am reminded that Piketty's recent book gives rise to these kinds of arguments. Milanovic stressed getting rid of the notion of human capital, while most readers are well aware I believe a move in the other direction is needed, instead.

Yesterday's post provided examples regarding knowledge transformation as value in use, through contractual agreement. However value in (knowledge) use needs careful delineation, from a value in exchange knowledge perspective. Many thought processes which individuals respond to, are voiced on commonly accepted value in exchange terms. That is certainly the perspective one finds in Nick Rowe's post.

His land examples as contrast with human capital examples are particularly helpful. For one thing, land holds greater value if it is adjacent to other land which has gained in value. This dovetails nicely with human capital educational investment, which generally holds less risk in the event of family connections. Meritocratic structure of human capital and knowledge use is limited, given a lack of fiscal ability to compensate knowledge under value in exchange circumstance.

Hence when it is not possible to increase economic growth through traditional means, an understandable value in use framework is needed for knowledge use. This would make it possible for a greater percentage of any population, to work with what has become today's primary resource. How has knowledge use value surpassed land value in this regard?

Primary land value tends to be determined by its access to prosperous regions, even though land still holds value in use through small scale agriculture. A century earlier, if few other means of production existed, one could still gain value in exchange through the application of skill, time, muscle and new machinery to work the land. The problem for many was that once agricultural product became less expensive, personal effort in this regard mostly became value in use. Today, knowledge use has supplanted agriculture as the primary means of survival. Even though land associated with knowledge use systems would not gain the value of prosperous regions, it would gain value as compared to land used for agricultural purposes.

Knowledge (in human capital context) which holds additional value of exchange, can at times be devalued when it is contrast with knowledge which might undermine "conventional wisdom" in some way. However, competition of this sort is not at all the intent of any coordinated knowledge use system.

On the contrary, knowledge use simply needs a more respectable position for populations as a whole, beyond existing university systems. While it may be easy to assume that practical knowledge use applies where other knowledge is in short supply, this has not been the case, given political realities in the U.S. Political dialogue is insufficient for solving the problems of the present. If value in exchange means limited services formation, further services growth is also needed on value in use terms.

Fortunately, there are reasonable ways to distinguish whether knowledge holds value in use versus value in exchange. First, a marketplace for time is necessary, before knowledge use as practical in nature has workable context. Within value in exchange, human capital is compensated according to pricing as recognized and also coordinated by primary equilibrium. Whereas value in use is compensated through time coordination within specific groupings on equal terms. That compensation provides seed money for further investment endeavor. The difference in this perspective, provides room for knowledge use and human capital potential, which would otherwise have little room to grow

Human Capital: The Missing Anchor

For much of history, education was associated with the ability to freely impart one's experiences, observations, and personal endeavor with others - whether for practical or more intellectual challenges. Doesn't this informal - yet valuable measure of shared experience - still hold? Not necessarily. Much of life is differentiated to a point that family and neighbors hold few common experiences beyond the walls of public or private endeavor. And those walls contain but a fragment of human potential.

One might not assume a need for economic coordination on a broader scale. But the lack of shared experience has meant lost friendships and lost trust. Too often, people have little reason to communicate with one another, particularly if they don't have the pathways of economic access which make it easier to do so.

Not long ago, Tyler Cowen asked his readers for nominations as to those who should be noted for their contributions. Had I remembered soon enough I would have suggested Ivan Illich, for his thoughts about education remain as timely as ever. Illich seemed to know what was at stake. People would gradually lose important local connections, as education became more rigid and formalized. While many were able to remain social through sports activities, shopping and other shared outings, others became more isolated. Finally, even the consumer role has became difficult to fulfill. More production from everyone, please - not just the "cream of the crop". From Ian Shepherdson, when asked about the future:

We can't have the economy driven just by the consumer. We need capital spending to provide a boost to productivity.

But what about the capital that individuals have already invested in themselves?  Without a marketplace specifically delineated for time use, that effort can be lost. Plus, many of the simpler investments and resources available to those with lower income levels, don't always provide reliable income streams in the present. This can be problematic if one needs to rely on self employment that does not involve continuous physical labor.

How can human capital be thought about in more productive and rewarding terms? When neighbors still had common purpose, the goals of the young also mattered, for what the community was able to become. "It takes a village" (to raise a child), as Hillary Clinton wrote in the mid nineties. Even though Clinton meant well, she used the phrase for the goals of the state, rather than the goals of community. Yet even Republicans who disagree with her arguments, essentially approach education by the same means. While Clinton's book inspired many, it played a role in creating a preschool learning environment which only moved the needle of time value further away, from the limited time value everyone still held.

Children need new ways to be responsible long before they reach adulthood, and they need to be monetarily compensated for doing so. Even if they do not remain in the community of their childhood for a lifetime, they will have gained more meaningful friendships than otherwise would have been possible, by helping others. One of the best things about local investment is that it can be augmented by purposeful time choice. In knowledge use systems, these individuals will have already spent their younger years assisting their own classmates in their studies and ongoing work projects. What's more, access to local community investments from an early age, makes it possible to pursue other goals and challenges when one is ready to do so.

Human capital needs to remain closely associated with the income streams that individuals rely on, on a regular basis. The time value that friends still seek where possible, can become the compensated time value which local residents ultimately discover. As Dr. Madsen Pirie wrote recently, it is economic "nonsense" to assume that there needs to be a winner in every bargain. This holds particularly true for time arbitrage which holds both economic and social value. Investment capacity has been lost, because everyone has forgotten how time value actually exists in relation to resource value. As a result, the purpose of education has blurred considerably.

Just as private enterprise came to share responsibility for healthcare expenses in the U.S., public education relied on housing capital held by individuals (property taxation) to achieve its goals. One could say housing capital remains "parked" in local economies primarily for education expenses which outweigh those of other public service expenses. However, housing capital can be freed from providing educational income streams, so that people could be tapped directly for matched educational income streams. The direct link that once existed between human capital and educational potential, needs to be repaired.

Washington's subsidized support for housing, is the primary link national government now holds with local economies - large and small. Consequently this provides support for today's K-12 educational structures as well. Each Washington supported "bigger and better" house became bigger and better salaries for teachers in recent decades. Indeed, there was never an effective taxation system such as this for healthcare, in terms of local government budgets. As a result, local wealth didn't translate into local healthcare needs. This is one of the main reasons time value needs to become a serious option for healthcare needs, because many still can't afford healthcare in spite of its support from government and countless non profits.

Not only does human capital need to be more widely supported in community, housing as wealth needs to become a more flexible part of the equation. Stair step knowledge use could be a "pass it forward" learning method, by which students are compensated for passing on their core studies to the next younger group. This process would allow full utilization of human capital at every step of the process, in ways that generate much needed monetary flows in local economies.

In earlier societies, education often took place through an ongoing time use continuum. Not only does this natural process smooth consumption roles for multiple generations, it would also apply for a similar strategy in building component and land use investment. There is much potential wealth to be captured in the investment process of learning, which until now has been largely wasted in terms of personal identity and economic capacity. The incremental process of learning, pairs quite well with the incremental process of investment activity as one goes through life. By no means should these activities be reserved for only a small portion of humanity, when it is possible for anyone of limited means to grow a better future through a much needed, value in use economy.

Update - Nick Rowe has a good post today about human capital, as well:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/human-capital-and-land-capital.html

Finance, Government, Monetarism: Some Assembly Required

...yet how to put it all together, given the fact these "pieces" scarcely coordinate at all in central banking settings? Even though these areas are vastly different, they remain the expected convergence for present day monetary policy. Truth be told, most among the public are more familiar with the ongoing gyrations of finance and government, than what is at stake in the monetary policies which affect their lives. As a result, market monetarism has more of an uphill climb for broad acceptance, than otherwise might be the case.

This issue has been on my mind since Richard Wagner and Vipin Veetil of George Mason University, dismissed NGDP targeting - basically on "general principle" - in a recent paper. In Bill Woolsey's response to their arguments, he noted that Richard Wagner was his finance professor decades earlier, which at least provides perspective for their rationale. Perhaps this also explains why Woolsey - as a "charter market monetarist member" - seemed nonplussed by their objections!

However, Wagner and Veetil's broad based attack on market monetarism, makes it difficult for some of us to counter their critique on specific terms. Indeed, it almost appears that their lack of confidence in market monetarism is due to a lack of confidence in the monetary role of central banking. For one thing: insisting that NGDP stabilization is a centralized dictate which does not consider microeconomic realities, misses the point. Of all the centralized activities a nation could assume, a nominal target is possibly the most benign of all. Unlike many centralized functions, this is one which seeks to represent all economic participants to the best degree possible.

Among other issues I already have with their assessment, recessions and depressions certainly do not cleanse, as Marcus Nunes also notes. Any lack of monetary stabilization only exacerbates already difficult circumstance in these cycles. In particular, monetary tightening which generates deflation is not helpful, as some Austrians assume. "Bad" deflation is not the result of normal price adjustments or productivity gain. Instead, shorting aggregate spending capacity means negative AD shocks which derail prior commitments on the part of numerous participants. The worst part about this situation is that resource potential is needlessly lost, and is not necessarily regained afterward.

In recent decades, financial and governmental interests have become more closely entwined. In the meantime, important monetary lessons from the Great Depression have been forgotten. One odd aspect of the financial perspective, is that it generates a political common ground among some who would otherwise be ideological opposites. Perhaps this alignment has bearing why the primary monetary interests of central banking appear as though lost in the shuffle. Who will tend to real monetary policy, if the Fed won't?

As Benjamin Cole indicated in a recent post, time aggregates also matter:

The unvarnished truth is that Americans are working the same amount of hours now as they did in 2009 - and also as in 1999.

Whereas the labor force since 1999 has grown by 13 percent. However, these facts are being missed as the media portrays a "back to normal" economy. What monetary printing has been possible, was often disparaged - not just by the right, but many on the left who remain disappointed that more hasn't gone to fiscal activity. Is it possible to return to a central bank which is willing to stress to the public, the primacy of the monetary role? In a sense, the only thing a monetary offset even asks for, is that after financial institutions and governments get their representation, the public gains permission for their monetary representation as well.

Midweek Market Monetarist Links and Summaries - 2/11/15

"Long and variable lags" may well be a holdover from the late fifties. (Marcus Nunes) https://thefaintofheart.wordpress.com/2015/02/05/sitting-in-confortable-perks/
The giant spotlight on the Fed might be worthwhile if there were actually something to illuminate...https://thefaintofheart.wordpress.com/2015/02/05/fed-is-challenged-by-words/
The rise in employment still does not compare to the fall: https://thefaintofheart.wordpress.com/2015/02/06/january-had-the-highest-year-over-year-employment-gain-since-the-90s/
Some escape hatches are better than others: https://thefaintofheart.wordpress.com/2015/02/08/its-no-good-having-an-escape-hatch-if-you-act-stupid-once-youre-out/
There's politics involved in the "great" news: https://thefaintofheart.wordpress.com/2015/02/09/partisan-deceit/
Forward guidance hasn't worked out so well...https://thefaintofheart.wordpress.com/2015/02/09/fed-version-of-jeopardy/
A "cleansing" recession...https://thefaintofheart.wordpress.com/2015/02/10/mean-sobs/

A possibility of NGDP-linked bonds presents some unexpected clarity (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/how-to-lie-with-ngdp-statistics.html
The policy instrument is subject to what is already laid out by the monetary target: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/instrument-independence-vs-target-independence-for-monetary-policy.html
At some point, shareholders would not "own" the assets... http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/money-as-closed-end-mutual-fund.html
Nick remembers the "great debt blog war of 2011/12." http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/debt-does-have-intergenerational-distributional-implications.html
Negative shocks tend to get more attention: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/fisher-calvo-ball-and-mankiw-skewed-bad-news-and-divine-coincidence-failures.html
Making food "travel back in time": http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/02/how-markets-convert-meat-into-vegetables.html

David Glasner's thoughts re a paper from Richard Lipsey: http://uneasymoney.com/2015/02/04/making-sense-of-the-phillips-curve/
Keynes understood the recovery from 40% deflation in the depression of 1920-21. http://uneasymoney.com/2015/02/05/a-keynesian-postscript-on-the-bright-and-shining-dearly-beloved-depression-of-1920-21/

In order of preference, some obvious options (Scott Sumner) : The lesser of evils and the art of compromise
The present fight is over both tactics and strategy: Charles Plosser on Fed discretion
Good news for Kuroda: Market Monetarism in Japan
A "sloppy" Bloomberg article: Noah Smith gets market monetarism wrong
"...if NGDP falls by 4%, consumption might fall by 2% while saving might fall by something like 10%." Think NGDI, not NGDP
Scott has a new paper at the Adam Smith Institute: http://www.adamsmith.org/wp-content/uploads/2015/02/therealproblemwasnominal1.pdf
His article for the Telegraph this week: http://www.telegraph.co.uk/finance/comment/11399762/The-ECB-has-learnt-nothing-from-Japans-lost-decade.html

Scott at Econlog:
The new jobs figures and macro theory
Statist policies in China

Bill Woolsey has a chapter about NGDPLT and free banking in a new book: Renewing the Search for a Monetary Constitution
A response to Richard Wagner's Critique of Market Monetarism

Lars Christensen provides highlights from a paper Harada authored in 2010: http://marketmonetarist.com/2015/02/09/kurodas-new-team-member-yutaka-harada/
"Fragile by Design" is quite a good book, but too fatalistic nonetheless: http://marketmonetarist.com/2015/02/10/selgin-on-haber-and-calomiris/

An "over the top" headline - "It isn't deflation until we say so" (Bonnie Carr) https://dajeeps.wordpress.com/2015/02/06/antics-from-the-grossly-overpaid-and-over-rated/

How much influence does the U.S. have? (Ravi Varghese) http://insecurityanalyst.blogspot.com/2015/02/monetary-orbit-do-we-have-kepler.html

Ben Southwood notes Scott Sumner's paper for ASI, and a related paper from the Harvard Kennedy School Nominal GDP targeting constituency on the rise

While the civilian labor force has grown by 13% since 1999...(Benjamin Cole) https://thefaintofheart.wordpress.com/2015/02/11/the-hourless-recovery-er-recoveries/