Wrap Up for March '15

March felt quite eventful in the blogosphere, perhaps because of the short February. I started off the month looking for recent information on innovative housing, hence these first two links. One wonders how long it will take for more ideas such as this to take off, especially in the U.S.
http://3dprintingindustry.com/2014/01/22/worlds-first-3d-printed-house-begins-construction/
http://www.businessinsider.com/3d-printed-houses-are-here-2014-9

A WSJ post provides some interesting visuals, as to general affordability (or not) in various cities. Just the same: given differences in lifestyle and the like, some suggestions may be taken with a grain of salt! http://blogs.wsj.com/economics/2015/03/04/where-should-you-move-for-a-decent-job-market-and-affordable-housing/?mod=marketbeat

Why would Noah Smith want to give readers the impression that while economics can do many things, it cannot help the economy? Wow, a lot of us could be doing something better with our time if that were really true! From his Quartz post:

Three big changes stand out in particular: Econ today is more data-driven, far less politically conservative, and in general much more like engineering than it used to be.

He also proceeded to bash philosophizing and theories. What's wrong with theorizing? Particularly given the fact that scientifically driven data often applies to up close and specific circumstance. This, in a world where the larger economic circumstance of our lives are quickly changing. Plus, economics needs more of a people orientation, not just an engineering perspective. In fact, people are economic beings, and economics matters at a personal level. What's right or left wing, about that? Also, regarding present day statistical matters, Noah says:

What this means is that, more and more economists are demanding of each other "Oh yeah? Prove it!"

To which I would simply reply, "Give people a chance to prove what they are capable of!" Last but certainly not least, economics can help the economy. Darn good thing, too.

Rural areas need help in multiple ways:
http://www.boston.com/health/2015/03/09/rural-youth-suicide-incidents-close-double-urban-rate/xRM1wjb31pLkJON8Fb7LcO/story.html

How many of these were you already familiar with? (99 sites) http://www.businessinsider.com/sites-every-professional-should-know-about-2015-1

Already a "problem", well over a hundred years earlier!
http://conversableeconomist.blogspot.com/2015/03/fear-of-cheap-foreign-labor-in-long.html

Improving house values isn't exactly the point. Do enterprise zones really work to lift inner cities? (James Pethoukoukis)

Vivek Wadhwa (Washington Post) Here's why patents are innovation's worst enemy 

How can it be so difficult, to settle the fact once and for all that these individuals are no longer alive!
http://www.ctvnews.ca/business/dated-social-security-data-suggests-6-5m-in-the-u-s-have-reached-age-112-1.2280022

"The bones of a city are hard to reset, so the decisions we make today will affect how people live in the future." http://www.nytimes.com/2015/03/17/opinion/designing-private-cities-open-to-all.html?smid=fb-share&_r=0 Here is Tabarrok's MR post with additional links: Designing private cities, open to all

Could this town gain a new start? I am reminded of a picturesque town in Arkansas nearly a decade ago, when a local bridge was closed so as to open a new one, several miles away. Perhaps a domestic summit candidate...http://www.wsj.com/articles/donora-steels-itself-for-the-loss-of-its-bridge-1426536848?google_editors_picks=true

Another oddity, when production is purposefully kept low: http://blogs.wsj.com/economics/2015/03/16/heres-the-real-reason-medical-residents-make-just-47000-a-year-study-suggests/?mod=blogmod

The latest Econtalk with Paul Romer, this time on urban growth: http://www.econtalk.org/archives/2015/03/paul_romer_on_u.html

The biggest problem with the graph in this post? Healthcare is outpacing other forms of job growth, and yet the way much of healthcare is currently structured, it relies on other forms of job growth for the biggest part of its compensation. This puts a tremendous crimp in future growth aggregates, until the problem is resolved.

How does one convince central bankers to move towards the sanity of nominal targeting instead of the firefighter role of putting out innumerable fires? Perhaps the willingness of some politicians to assume firefighter roles doesn't help...http://www.theatlantic.com/politics/archive/2015/03/the-paranoid-style-of-ted-cruz/388391/?google_editors_picks=true

"...disruptive competitors only enter if they have the right to do so." (John Cochrane) As one commenter noted, wage competition is "allowed" at the lower end of the pay scale. Perhaps sticky educational costs are a factor! Another commenter reminded everyone that Medicare caps the number of medical residencies. http://johnhcochrane.blogspot.com/2015/03/hospital-supply.html

A good rant against "bubbles": http://equitablegrowth.org/2015/03/24/rant-use-word-bubble-context-bond-market/

Perhaps blaming the construction problem on delayed infrastructure is a bit too convenient! http://blogs.wsj.com/economics/2015/03/24/where-construction-continues-to-struggle-years-after-the-bust/?mod=blog_flyover

Great answer from Alex Tabarrok: https://www.quora.com/Whats-the-relationship-between-the-economics-blogosphere-and-academic-economics

Good to see this link - an important factor which doesn't always get the attention it deserves: http://blogs.wsj.com/economics/2015/03/24/the-long-distance-relationship-between-americans-and-jobs/?mod=WSJBlog

The first commissioned paper from Brookings based on a blog comment, or a story about Matthew Rognlie: http://www.washingtonpost.com/blogs/wonkblog/wp/2015/03/19/meet-the-26-year-old-whos-taking-on-thomas-pikettys-ominous-warnings-about-inequality/
Noah Smith spells out the Rognlie contribution to the Piketty debate. http://www.bloombergview.com/articles/2015-03-27/piketty-s-three-big-mistakes-in-inequality-analysis

Some of that "data" sharing, long before the present day problem, was disregarded in the twentieth century as old wive's tales! http://www.aei.org/publication/data-silos-health-cares-silent-tragedy/

One way to think about the "return" to suburbs and exurbs is not so much the Great Recession in the rearview mirror making this possible, but the temporary lull in oil/gas prices which encouraged households to purchase new vehicles so as to continue their earlier transportation patterns. New community planning now would make the eventual shock much easier to withstand, once oil and gas prices once again begin to rise in earnest. http://blogs.wsj.com/economics/2015/03/26/recessions-ebb-fuels-a-slow-return-to-the-suburbs/?mod=WSJBlog

"...America's hospitals have become predatory monopolies. We have to break them before they break us." (Reiham Salam) http://www.slate.com/articles/news_and_politics/politics/2015/03/america_s_hospitals_our_system_lets_big_hospitals_charge_exorbitant_prices.html

Finland looks at some educational alternatives: http://www.bloombergview.com/articles/2015-03-26/finland-is-bored-with-school

Megan McArdle writes about "My Love-Hate Relationship with Gentrification"

Generating New "Fast Flows"

A recent blog post from Shane Parrish re improving one's luck, reminded me how important it can be, to remain near "fast flows" where productive endeavor is readily found. He writes:

...The idea here is to be where things are happening and surround yourself with a lot of people and interaction. The theory here being that if you're a hermit, nothing will ever happen.

Yes...but...what if everyone cannot relocate near the downtowns which - among other things - exist as experiential goods? Some sleepy environs are finally left behind, while others remain in various stages of economic limbo as "affordable living".

In contrast, successful cities and regions include dense networks of social coordination - particularly services of all kinds. Much of which can serve as fallback positions, should personal endeavor fail for any reason. New social media for economic activity relies on this already existing network as well, and mostly adds additional options to already prosperous areas. This fortuitous network means it is easier to create economic value for one's personal time, than it would be where economic activity has been "hollowed out".

However, all of that spontaneous coordination has evolved from long term systems, and it comes at a price. Plenty of luck is involved, just to maintain the resource commitment levels which are expected in a given local equilibrium. Should the gamble prove a bit excessive for some, this serves as a reminder that there are not enough dynamic regions for all potential comers. Might it be possible for groups to generate greater "luck" potential, than has been possible for individuals to generate on their own?

More "fast flow" regions are needed, to generate the broad social cooperation which increases everyone's odds and fallback positions. How to think about new starting points for wealth creation and complex local economies? The good news is that the process can begin with knowledge use systems, as a central point from which other forms of production and asset creation can gradually emerge.

Purposely coordinated time use at local levels, would allow knowledge based services to provide a stronger and broader growth trajectory. Time value would of course continue to be reimbursed more asymmetrically in today's prosperous areas, than in other regions. Just the same, government and business budgets alike would finally gain relief, from pressures to provide services for those who (till now) haven't been able to reciprocate.

Knowledge use systems at local levels could serve as new points of wealth origination. What's more, they would provide means to encourage the "elephant" process which Dietz Vollrath referred to in a post about sustained growth capacity. One positive aspect is that the responsibility of family would once again become shared with local community. While community responsibility appears as though a reality in today's schools, the process gets completely cut off upon high school graduation. Unfortunately, students have little means to apply the education of their youth to the economic vitality of their own communities, afterward. In "Did we evolve the capacity for sustained growh?", Dietz sums up:

Suggesting that poor countries need to get their genetic mix right in order to grow is like suggesting they need to adopt steam engines and telegraphs before they can step up to gas engines and mobile phones. The question of how to catch up to the frontier is an entirely different question than explaining how we got a frontier in the first place.

Expecting individuals to go through today's hurdles of educational barriers and other costs of economic access before they can even get a job, is reminiscent of the expectations now placed on poor countries. It's not about catching up to the frontier, but accessing the frontier of knowledge wealth at the level it already suggests to populations as a whole.

One reason that growth potential is difficult to understand, is that rural areas of developed nations face many of the same catch up issues as anyone else. It's not that anyone wants or needs to take away rural beauty for that matter. Rather, that the wealth of the present needs to be envisioned in the virtual reality which structures of all kinds now suggest.

Economic vitality needs to be more closely associated with environments which are not so much about elegant and extravagant buildings, but instead the mind's curiosity. It's great to visit elegant buildings but no one needs to have them every day of the week. Whereas premium knowledge use is needed every day. Personal challenge can provide measurable value, just as surely as any wealth the world has to offer.

Services and the Productivity Factor

In recent decades, services have become a more important part of economies in general. Still, there are lingering questions as to services productivity. How does one meaningfully measure services productivity, compared to manufacturing labor divisions which are easier to understand and compensate? That's not an easy question to answer.

One needs to account for whether customers expect time to be fully represented, in the final product. For instance: in food production services, entrepreneurs make choices between labor and automation which include easy to measure outcomes. In instances such as these, productivity gains result when less labor is required for the final product. What to do then, about the circumstance when personal time is the most sought after product element? Particularly when service roles are now the primary employment option in the marketplace? Might time based services eventually disappear, for the "sake" of greater productivity?

Many organizations - particularly those which serve a wide range of customers - see little choice but to take the route of less personal assistance wherever possible. In the meantime, the kind of personal service that matters get relegated to those who can pay a premium for it. While customers may not mind automated restaurant service, no one likes automated recorded messages, when they need to tell a real live person that someone neglected to record a properly paid bill. Ultimately, services need to more closely approximate what people want, if individuals are to keep the faith in free market integrity.

But where to begin? First, productivity needs to be thought of differently for services formation. Institutions need local and overlapping sets of coordinated missions, capable of making time aggregates central to the process. Fortunately, production reform is generally not needed for product that exists separately from personal time. Traditional factories can organize activity just as they always have, no matter where they are.

Rather, change is needed for the services functions which smaller groupings and communities have not been able to generate until now. Unfortunately, this has left too many populations dependent on regions elsewhere, with little means to reciprocate economically. Today, many communities lack the economic complexity which allows important service functions to take place. Knowledge use systems would seek to restore vital forms of coordination and trust, that small economies have not been able to generate since the changed circumstance of agriculture.

Through local services systems, it would gradually become possible to bring measurable productivity to time based services product. A self sufficient approach that leaves no remaining time or monetary debt, would make it possible to bring back services which have been persistently taken away at the margin for decades.

Consider public schools, where today's emphasis on core education largely replaced once routine options such as home economics, art classes or music theory. Even though core studies are vital, it is wrong to take away other practical and desirable elements of education, particularly in the years when they matter most. Equally important is the need for healthcare - in all its variety and nuance - to be studied and provided for at local levels.

By reintroducing time as a directly compensated service factor (where time is the relevant product) service markets can once again flower with true economic diversity. Knowledge use differentiation has the potential to turn around a complete lack of economic complexity, in low population areas. In the growing search for decentralization, it helps to remember that not all forms of decentralization are as necessary or desirable as services diversity. Fortunately, free markets are still relatively strong in terms of tradable goods, and this is where globalization and national markets still hold a valuable place in the economic realm.

Start With "Okay", Become Consistently Better

How to move from investment structures which are too passive and reliant on (now sluggish) credit formation, to more dynamic investment structures which would need less credit to begin with? Too many factors in what could be considered a primary equilibrium, have long since matured. Unfortunately - instead of building from new horizons - governments have instead attempted to put long term growth on hold. The fact that today's investment strategies were intended for a limited number of participants, means new systems are needed for others who are ready to take on vital economic roles. Of course, new strategies wouldn't always look polished or "smart" in the beginning...

No doubt, starting over processes can be difficult to visualize! Plenty of stumbling and experimentation would be involved. Even so, there's more at stake for society as a whole, than the goals of productive investment and greater economic dynamism. Hence this is one time when goal setting isn't quite enough, because daily routines are what will eventually provide important clues regarding incremental progress. Perhaps since I neglected to consider the role of systems a few days earlier, I ended up scrapping a version of this post which mostly focused on future investment goals.

What's the difference between systems and goals? Shane Parrish of Farnam Street, links to an earlier (2013) post which highlights Scott Adams, creator of the Dilbert cartoon which made the rounds this week. He provides examples from Adams how goals can backfire, in "How to Fail at Almost Everything and Still Win Big":

If you do something every day, it's a system. If you're waiting to achieve it someday in the future, it's a goal...One should have a system instead of a goal. The system-versus-goals model can be applied to most human endeavours...Goal oriented people exist in a state of continuous pre-success failure at best, and permanent failure at worst if things never work out. Systems people succeed every time they apply their systems, in the sense that they did what they intended to do.

Consider for a moment: how has land become the prime expression of capital, instead of other capital components? Today's most valuable land benefits from a long term systems process. In other words, land prices are the highest in places where economic coordination by large groups of people has paid off to the greatest degree possible. However, these locations are limited relative to populations as a whole, in part due to how the coordination process has played out - particularly in terms of knowledge use. Any growth goals for the future need to take this knowledge use limitation problem into account.

Rather than expecting citizens to increase population densities in the most prosperous regions (which are not always clamoring for new residents in the first place), new communities and cities could provide better options for all concerned. New chartered communities - utilizing tighter living and working densities to begin with - would start with "okay" results and with a little luck, gradually become better over time.

But in order for this to happen, some knowledge use "urban crowding" factors still need to be resolved. Some institutions are going to be dubious, because they will have to be convinced charter communities will not be in direct competition with them. And some onlookers may charge that "starting from scratch" is needlessly reinventing the wheel. Just the same, it has become increasingly apparent that today's knowledge use/services structures cannot be expected to carry entire populations, much longer.  Hence knowledge use systems would begin with plenty of questions, and they can hardly be expected to duplicate the economic or cultural patterns which came before.

Today's investment challenges include coordinating human capital to build wealth capacity over time. That's a long term strategy, as apposed to the short term strategies some still seek in terms of redistribution. For instance it can be tempting to tax "special" land further, given its esteemed wealth creating status. But what does land have to do with it? What caused land to gain that position in the first place? Another important aspect of this dilemma is the fact that much "special" land has been occupied all along, by not for profit, knowledge based institutions.

Just as one should not reason from a price change, it can be misleading to reason from wealth based results. Land value benefits from a series of systems building events which have been taking place for a long time. In other words, be careful regarding the seemingly easy solution of taxing land value - which was also a suggestion from an otherwise excellent post from Noah Smith. The option of generating new economic growth from time arbitrage, is a better solution. Time arbitrage simply has more new wealth to offer, than taxation from valuable land which already benefited from coordinated knowledge and time use. Human capital went missing in action, when land wealth came to the fore.

Even though prosperous regions are highly professional and successful beyond anyone's wildest dreams, there is a sharp dividing point. The ideological divide between these regions and everyone else is downright scary. One hears in casual conversations from residents (if not Chambers of Commerce) of prosperous U.S. locations (including those that are still expanding): "This city is already 'full'. Don't move here!" Well...I'm perfectly willing to respect "full": if and when people do not insist knowledge use is "full" hence everyone else needs to settle for being a little less than human. As Scott Sumner noted:

Intellectual property rights are barriers to entry that tend to create a winner-take-all situation...And other types of regulations (financial, human resources, etc.) are especially burdensome for small firms, and this favors the growth of inequality-intensive large firms...Industry is dominated by knowledge intensive sectors.

Inequality will not be overcome by taxing land or forcing wage smoothing within large companies, but by allowing people to utilize the forms of knowledge which are standard expectations for relating to others in the 21st century. In order to resume growth in the present, new rights will be needed - not just for the use of one's time, but also to utilize the common knowledge anyone requires just to take care of the basics of life. Too much time has been spent generating societal wealth from education, all the while not allowing enough economic environments to apply formal education once a student finally graduates.

Only consider that economic gains from human capital (in aggregate) have slowly and quietly been "disallowed", practically since education "took off" in the mid twentieth century U.S. This is doubtless a factor in the supposed "stagnation" of the present. In the above linked post, Scott Sumner stressed that business promoting capital formation has been stalled for at least three decades. Meanwhile, too much wealth and income remains parked in housing. It's time to move past passive holdings of wealth, into a more dynamic state.

In order to do so, allow knowledge use systems that encourage those who actually live in close proximity to one another, to help each other. Allow charter communities to innovate in ways that one person's new innovation need not be the "death" of another, because it exists in the same local unified framework. Schedule daily time for the spontaneous, the seasonal, the ongoing, the immediate need, the planned, and the changed circumstance. Oh, and knowledge use? If you really love knowledge...

Free free, set them free

An NGDP Target Rule is the Right Commonality

On March 30th, the Cato Institute will host an event to discuss possibilities for a Fed monetary policy rule. Scott Sumner - one of three speakers - will of course be advocating for a level nominal target. From the invitation:

The Federal Reserve Accountability and Transparency (FRAT) Act, introduced in the 113th Congress would have required the Federal Reserve to adopt a monetary policy rule. A new version of that bill will almost certainly be introduced in the 114th Congress. Could an unchanging monetary policy rule actually improve upon discretionary monetary policy? Many economists believe so, and several have proposed specific rules that each claims would foster greater economic stability than the Fed's current procedures.

As readers well know, I have "kept my fingers crossed" for the acceptance of NGDP level targeting. Those who have followed Scott Sumner's arguments, know that a nominal target is certainly not central planning on the part of the Fed. Rather, it is an acknowledgement of the kind of commonality that matters most: what any given society commits to economically and monetarily, at a given moment in time.

Acknowledging those commitments is not the same thing, as discretionary targets which could arbitrarily change marketplace conditions - as sometimes occurs with inflation targeting. Not only is it important to maintain aggregate spending capacity in an immediate sense, maintaining a steady level is also key to the stabilization process.

Part of the problem for any rule adoption, presently, is that central bankers are influenced by uncertainty in Washington as to long term growth potential. Are governments willing to commit to the stabilization of income aggregates, for instance? Or will they remain insistent on parking income in tightly specified asset formations, instead of supporting broader labor force participation?

Too many central bankers are caught at the "knife's edge", exhibiting firefighter responses to what sometimes appears as jobless growth. Inflation targeting was in part a response to the uncertainty of maintaining income aggregates. Even though inflation targeting has proven quite inadequate, it provided temporary cover for a changing set of labor force participation realities which have yet to be addressed. One reason that labor force participation has suffered, has been the imposition of a sticky market equilibrium for all income levels. Unlike the good commonality of a nominal target, the imposition of narrowly defined parameters for all participants is a negative commonality. Imposed by both governments and special interests, sticky markets remain a real threat to long term growth.

All too often, the harsh bust cycles of oversized financial sectors are simply the result of earlier damage, which slowly builds up from harsh consumption and production requirements. Those requirements result in mass failures, which often should not have to be necessary. Why are people willing to knock one another down - time and again - with depressions and harsh recessions, instead of allowing room for true economic diversity? As it is, the requirements of a sticky marketplace scarcely leave any room at all, for the stability of incremental growth.

The danger now is that central bankers will continue to use inflation targeting as a means to slowly "let the air" out of aggregate wealth potential and labor force participation. Don't let them do it! With a little luck, we can convince them not to continue down a desolate road where little hope can be found. Key to all this is restoring faith in the capacity of time value, as the central component of the economy it actually represents.

How, then, to think about potential growth levels? Much depends on what happens in the supply side sector in the years ahead. Will services become defined in more inclusive terms, for instance? Will knowledge use become more widespread? A decade may pass, before definitive answers appear certain for a stronger - possibly upgraded - growth trajectory.

Hence those who advocate for a nominal targeting rule, can hardly be expected to hold similar opinions as to growth levels. Much divergence is opinion as to presently existing market conditions. Plus, as Scott Sumner noted (in comments) recently, decisions re growth rate would be a group consensus. Even though it's good to have a commonality of viewpoints for an appropriate growth target, that commonality would be a benefit, instead of the necessity that aggregate spending capacity might represent for monetary stability.

Not only would the nominal target rule become the shared commonality that matters most, it provides the greatest clarity for how to think about the future of both monetary activity and the economy as a whole. Even though a nominal target is subservient (i.e. responds) to actual economic growth, whether or not it is adopted could still affect the long term growth trajectory. How so? Central bankers would not be able to continue using discretion either way (expansionary or contractionary) in favor of credit based goals.

What are the chances for an NGDP level target to be adopted in the near future? It's hard to say. But one thing is for certain: once this happens, it will be like a breath of fresh air. Everyone will finally be able to concentrate on the kinds of supply side reforms which mean real economic growth, for all concerned. Hey, it doesn't hurt to dream a little. Here's hoping that this week's Cato event goes well.

Midweek Market Monetarist Links and Summaries - 3/25/15

David Beckworth highlights a recent National Review article by Ranesh Ponnuru on the "test" of Market Monetarism

(Lars Christensen) "...start out discussing what we want our monetary machine to produce. Furthermore, we also want to discuss what the monetary machine cannot produce." http://marketmonetarist.com/2015/03/19/ramblings-on-neutral-money-and-the-workings-of-the-monetary-machinery/
In a deflationary environment, central bank competition to ease monetary policy is a good thing: http://marketmonetarist.com/2015/03/20/an-intra-european-hot-pot-effect/
Lars provides links for an inspiring lecture series: http://marketmonetarist.com/2015/03/23/adam-toozes-great-insights-into-the-history-of-europe/

There's a difference (Scott Sumner) Don't mix up tactics and strategy (The straight story)
They even needed a consultant to defend themselves! Hawks try to rewrite history Marcus Nunes responds: https://thefaintofheart.wordpress.com/2015/03/18/in-sweden-hawks-hide-behind-consultants/
Ryan Cooper's piece about market monetarism in The Week was somewhat confusing: Conservatives are not abandoning market monetarism
Scott notes several articles: The New Yorker on monetary policy
Plenty of profits: It's good to be the Fed
In 1964, China was even more poor than India: Global Growth
Scott contributes to a NYT discussion on the strong dollar: http://www.nytimes.com/roomfordebate/2015/03/23/the-fed-and-the-dollar/the-dollars-value-isnt-just-affected-by-us-policy
"But gosh darn it there must be some reason the Fed needs to raise interest rates because...well, just because." The WSJ wants to raise interest rates; now they just need to find a reason
Making the case...best of luck to all! http://www.cato.org/events/economic-case-monetary-policy-rules

Some Econlog posts from Scott:
Brad Delong on the "sell by date" of Krugmanomics
A post definitely worth taking the time to read - The Fed: What's the minimum acceptable accountability?
Bonnie Carr responds: https://dajeeps.wordpress.com/2015/03/20/the-fed-accountability-and-the-general-welfare/
Differences between Western Europe and East Asia...Hard Asia, Soft Europe
Fischer's optimistic outlook is not warranted: Is Stanley Fischer too complacent?
Marcus Nunes responds: https://thefaintofheart.wordpress.com/2015/03/24/crap-from-fomcers/

Bill Woolsey rebuts Joe Salerno: Salerno on Market Monetarism
Since 2008, intentionally so: Are open market operations distortionary?
Ben Southwood responds to Woolsey's OMO post: Quantitative easing isn't a distortion
George Selgin also has a post re Salerno: http://www.freebanking.org/2015/03/20/where-was-the-tom-woods-show-when-hayek-needed-it/

Still lowering the unemployment threshold (Marcus Nunes) https://thefaintofheart.wordpress.com/2015/03/18/an-elusive-target-is-no-target-at-all/
Theoretically impossible outcomes? https://thefaintofheart.wordpress.com/2015/03/21/india-brazil-expansionary-fiscal-austerity-vs-contractionary-fiscal-expansion/
In January 2009, 6 months into the NGDP crash, Blinder was "blind" to the real reasons behind the economic downfall
Even though Fed credibility has been "shot to pieces"... https://thefaintofheart.wordpress.com/2015/03/22/the-somc-speaks/
Inflation targeting was waiting in the wings, long before it took center stage: https://thefaintofheart.wordpress.com/2015/03/23/fed-limited-and-tentative/
Marcus highlights the recent dollar discussion in the NYT: https://thefaintofheart.wordpress.com/2015/03/24/the-dollar-back-in-vogue/

What did the bond sellers do with their $4 trillion? (Benjamin Cole) https://thefaintofheart.wordpress.com/2015/03/22/with-qe-the-fed-digitized-12539-for-every-u-s-resident/

A telling FRED chart for currency holdings...(Bonnie Carr) https://dajeeps.wordpress.com/2015/03/22/much-ado-about-nothing-and-something-at-the-same-time/

Will the Fed repeat the 'Mistake of 1937'? (James Pethokoukis)

"What's possible for one is impossible for all." (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/03/asymmetric-home-bias-and-the-transfer-problem-1.html
How difficult is the trade off? http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/03/buyers-liquidity-vs-sellers-liquidity.html

Charter City vs Charter Community: Some Comparisons

After listening to Paul Romer's latest interview with Russ Roberts at Econtalk, I wanted to sketch out a few differences between charter city or community approaches in this post. Econtalk also includes a link for a brief Romer interview from 2010, ("Give poor people a chance") which provides additional perspective.

Of course the primary difference would be in terms of scale. Whereas a charter city needs to commit to a well understood approach at the outset, charter communities could be more flexible and experimental in nature. And while charter city infrastructures may need to accommodate millions of citizens, charter communities would often be laid out for walkable and other non motorized options. This would allow the inhabitants to coordinate ongoing schedules and activities in ways that are also capable of overlapping, where needed.

Charter communities would rely on direct democracy for service formations, in part due to ongoing time use choices which involve long term educational planning and local resource use. Whereas services formations in charter cities would probably utilize traditional division of labor structures and representative democracy. The difference is also one of density optimization: divisions of labor in knowledge use communities would reflect the varied needs of a much smaller population at any given moment in time.

In the 2010 article, Romer spoke of increases in land value which would stem from the authorities providing public goods. For a charter community, land value would likely increase slowly, due to gains from increased ability to coordinate services and production more effectively over time. Local investments could be apportioned so that gains can provide fallback options for citizens as they age, as well.

Participants are more likely to be involved in initial planning processes, than would be possible in charter cities. Especially as the concept starts to take shape, more individuals would be able to play "founding" roles in domestic summits which seek to create new chartered communities. Domestic summits would also focus on the formation and definition of public spaces. These would vary widely, according to common interests and the kinds of infrastructure formation which best match investment options for potential citizen groups. As Romer noted, public spaces facilitate the interactions which make cities valuable. Certainly the same would hold true for charter communities.

A common characteristic of both city and community would be the fact that multiple interests would be brought together and harmonized. While broader sets of income levels would be able to live in charter cities, to some extent chartered communities would be able to make provisions in this regard as well. As Romer noted in the Econtalk interview, "An attractive climate is a luxury good." To a degree this is also true for other attractive geographic features. However, the U.S. still has vast stretches of property which could be made attractive in multiple capacities. What's more, some communities would include time commitments which lend to unique land use characteristics.

Only consider how long it's been since many cities were formed in the U.S., for the twentieth century mostly saw suburbs added to already existing cities. Not all big city infrastructure is going to hold up well in the decades to come. There are a couple of things to consider in this regard. Not only do future infrastructure patterns need to be more versatile, they will not always require require the same spatial dimensions of the present.

City formation slowed in part, because of origination patterns which were reliant on manufacture and traditional production. The fact that chartered communities could use knowledge based services as a point of origination, suggests new models for town centers and conceptual ideas for Main Street. Would a single primary street remain vital to communities of the future? In part, it depends on the designs that individuals find appealing, once domestic summits become a reality.

Last but certainly not least, chartered communities represent self supporting internal economies, which would be approved within given nations as the special exploratory zones they represent. In the U.S., states would agree to honor the same exemptions for these communities that would be honored by nations. Likewise, long term economic efforts on the part of these citizens would be recognized and compensated, as the new wealth they would bring for all concerned.

What Really Stands in the Way of Freedom?

A few centuries earlier, liberty didn't seem quite so elusive. Indeed, freedom in a newly formed United States was possible, due to the presence of private property in the form of land. That land not only meant ownership rights for personal production, but protection by an otherwise minimalist government. However, that basic framework included some wealth creating economic circumstance which have shifted considerably in the last century. Personal production is no longer quite so simple, in spite of an infinite variety of ownership options which seek to reduce risk in this regard.

Freedom is difficult to ascertain without the meaningful economic access that production allows. And back then, land was the economic access that mattered most. Liberty was a relatively simple concept, so long as one's holdings included adequate means to make a living - even if only through subsistence means. For instance: once individuals became landowners, even subsistence gardens tended to be more reliable to maintain personal circumstance, than subsistence employment. Time ownership has become extremely fragile (whether rich or poor), compared to the time that could once be dedicated to land ownership with understandable reward. And yet, subsistence gardens are no match for the consumption requirements of developed nations in the 21st century.

Today people can be misled by calls for greater freedom, if and when recent shifts in wealth creation and societal participation are not taken into account. The kinds of property which one associates with wealth formation, have completely changed since today's democracies were formed. In the meantime, time use in coordinated relation to others has become the primary key to economic access. If no one was an "island" before, that characterization holds especially true today. Unfortunately, today's marketplace has yet to define property protection for time use options. This means there are no individual time and knowledge use rights, even though both have become necessary to make freedom and economic participation possible for populations as a whole.

As new pathways for knowledge use wealth emerged, they were staked out as holdings which resembled the claims of kings for their countries, as new nations were discovered centuries earlier.* Only consider how long it took for the private (real estate) property which became associated with democracy, to emerge from those earlier massive holdings! One only hopes that local knowledge use holdings - in the form of time use rights - do not take centuries to unfold. After all, knowledge use and the success which accrues to populations as a whole can be quite fragile, compared to changes in the use of land over time.

Even though royalty has largely given way to meritocracy, the latter nevertheless still stands in the way of personal freedom, when knowledge use comes to the fore. How so? Without a distinct marketplace for time use, "one size fits all" meritocracy has little choice but to monetarily fill in the skills gaps for information, technology and the digital realm which individuals could otherwise put to use for services in local circumstance. As Friedrich Hayek noted, "Competition...means decentralized planning by many separate persons." One of the more counterintuitive aspects of a thriving economy is the greater the inclusive nature of what is allowed, the greater the degree of competition, coordination and personal choice.

When meritocracy stakes the primary value of time use in association with knowledge, the ability to ascertain time use value for complete time aggregates is lost. However, that time value could gradually be regained. Should those with meritocratic claims on knowledge choose to make room for chartered knowledge use communities, people could rediscover freedom they scarcely knew they had: that of (1) real choices for time use organization, and (2) experiencing time choice in ways which generally lie within one's control, and (3) rediscovering economic personal time use value, as opposed to institutional time use value.

One could describe freedom as a right to participate in the kinds of "planned" institutional settings which Hayek spoke of. Still, participation in these institutions has become limited, particularly given the fact meritocracy leaves too few remaining avenues for growth in services formation. What's more, Hayek's arguments for decentralized knowledge were largely understood in a tradable goods production context. It was not as easy to apply decentralized knowledge for services, because - without a designated marketplace for time use - too much compensated time can be extremely problematic for both profits and monetary flows in general.

Therefore, knowledge use decentralization has not been adequately understood for present day services product formation - which unlike other forms of production - needs to maintain time as a central element. Unfortunately, meritocratic structure has little choice but to limit compensated time aggregates, in order to maintain knowledge values as they are defined in primary equilibrium.

The arguments of this post are not to suggest that meritocracy isn't useful, desirable or even relatively necessary in many instances. Rather, time aggregates need coordination to include those who otherwise have little room to participate in the important knowledge and services of the present. New paths of freedom would allow everyone to partake in knowledge use, in order to maintain personal responsibility and social commitment.

Monetary and time use roles for purposes of freedom, are scarcely complete. Even though barter has no place in monetary economies, economic validation (monetary compensation) for group forms of time coordination would allow the further evolution of freedom for knowledge and time use which are now needed. Not only would time ownership make comparative advantage in services possible, it would mean the validation of personal aspiration, as well. Think about the comparative advantages derived from tradable goods over recent centuries. What if a marketplace for time arbitrage meant the same advantages could be derived from time use and knowledge use? Comparative advantage for personal time use freedom, has the capacity to restore humanity to a better place.

*In other words, a total wealth value of time aggregates can also be defined by knowledge based activity that the group as a whole is specified not to perform, in a given economic setting. This in turn can be a factor in permanent limits on economic growth, if the activity holds an important consumption function.

A Different Kind of Corporate Responsibility

It was interesting to come across two different interpretations regarding corporate social responsibility in the same day: one from Justin Fox at Bloomberg, and one from Kevin Erdmann which noted an essentially cosmopolitan rationale on Milton Friedman's part. Indeed...what to think when a corporation does decide to embrace something which at least ten percent of the population does not agree with? Perhaps it depends on the actual corporate stance!

Both of these posts are revealing, in the contrasts they provide. Practically speaking, today's corporations have little incentive to express social purpose as part of a mission. Only consider the degree to which governments in developed nations - particularly in the twentieth century - managed to constantly expand the missions they espoused. Consider particularly the way this redistribution mess gets in the way of helping the poor, who are in line well behind the others who are always ready for another handout. Governmental desires to "please" most everyone becomes built in tax obligations for businesses - by default. How can private industry be expected to meaningfully tackle additional social missions, when overlapping social purposes are already embedded in their preexisting commitments?

What if corporations and individuals alike, had the option of taking on social obligations which would be capable of benefiting the participants involved? Before anyone insists this isn't "fair"...what about the tangled web of random social obligations that are skewered beyond recognition?? Populations now feel sufficiently burdened by existing tax obligations, that nations have become reluctant to remain open to new citizens. Is there room in any of this nonsense, for people to once again start helping one another?

Local chartered communities could opt for investment structures that have the capacity to provide a safety net for everyone involved. Not only would this strategy help lower income levels, it could generate corporate responsibility based on a highly pragmatic set of needs. A bare minimum of local taxation would be necessary, because maintenance responsibility would be built into locally invested production, asset and infrastructure formation. Services which normally would be partially funded by governmental redistribution, would instead become a part of what local educational structures are actually intended for. In other words, little about the transmission process of resource commitments would remain hidden.

How might one think about corporate responsibility, in terms of organizational structure for knowledge use systems? Even though a strong social component is involved, it would override those random non voluntary commitments which are far less tangible. Plus, intangible tax burdens contribute to the needless failures of countless individuals and businesses - in the workplace and life in general.

Local corporations would be exactly that - inclusive of those who share their geographic location.* Rather than "mining" the best knowledge in a given (wide) area, these corporations would seek to maximize the skills capacity of local time use aggregates. This marketplace for coordinated time use would eventually strengthen individual abilities, alongside knowledge use patterns at local levels. Time arbitrage would allow broader representation of a local marketplace, than money alone has been able to provide through merit based compensation.

Time arbitrage would simply provide a voluntary option for knowledge use, beyond the meritocratic ideal which both governments and present day businesses follow. One way to think about the time ownership this corporate structure would allow, are the comparative services advantages that would become available within dense groupings. In some instances, services formations would become possible, that rival what one would normally associate with prosperous regions or large cities.

Knowledge based communities would have corporate structures whose missions include maximizing local time aggregate values by the most productive means possible. Even though this sounds open ended, there is a recognizable framework which makes the transmission between wealth creation and services formation understandable. Corporations which prove capable of organizing human potential in diverse settings, could help make the future brighter than it presently appears.

*Entry would be gained either by familiarity with the system (by partaking in other knowledge use systems) or study of the relevant group beforehand.

Update: Plenty of confusion regarding how to invest, presently (Pethokoukis on Power Lunch): http://www.aei.org/press/is-corporate-america-too-focused-on-short-term-pethokoukis-on-cnbcs-power-lunch/

How Much Austerity is Illusory?

Before any nation succumbs to "future necessary" austerity, fiscal restraint gloom and economic slowdowns in general, it helps to remember that meaningful action now could still change everything. But first, consider where change might begin. Where money is spent by governments, how helpful is that spending in general? How much does political compromise or hidden tax strategies blunt the effect? How much is simply lost in translation to entities which already had the power and ability to take care of themselves? Inevitably, these groups stand between governments and those who could have put redistribution to reasonably good use. The process isn't just inefficient, it is often counterproductive. So why bother at all?

In a perfect world - should fiscal spending still be deemed necessary after the hard questions are confronted - what can these forms of management and organization contribute, which may be difficult or "impossible" to procure from other vantage points? If said activity is difficult to imagine elsewhere...why, exactly? Granted, if justice is at stake, public management may be better able to represent the whole. But are other determining factors of wealth provision - such as healthcare or building codes - culturally "written in stone"?

Of course, fiscal policy will remain a major component of economic activity - in spite of protestations to the contrary or the limited marketplace results of the present. However, the fact that fiscal spending has entered a period of relative retrenchment - partly the result of a supply side which is damaged from too many government favors - cannot be ignored. And without production reform, privatization of services in their present incarnation, would prove a huge mistake. In all of this, governments are losing their ability to provide the kinds of safety nets that populations need most - particularly in the U.S. It's not so much about where or how the money gets spent, but what is ultimately accomplished.

Austerity would not have to be an inevitable reality for any government, if debts and obligations were better understood by everyone, and provided for at the outset. Today's future austerity threats are a result of accounting obfuscations and the default gridlock which Washington now experiences. Even though monetary policy has proven capable of offsetting fiscal losses, the limited nature of both services and housing provisions continue to distort growth potential. Services growth in particular remains stymied by political opposition, where determination on each side effectively means that no one "gets their way".

It would be better to begin anew, with services that are capable of sidestepping both governmental redistribution patterns and the hard consumption definitions dictated by special interests in these circumstance - particularly for lower income levels.  As noted by Korpi and Palme in "The Paradox of Redistribution", "The greater the degree of low income targeting, the smaller the redistribution budget." Eduardo Porter, in "Patching up the Social Safety Net", says:

Unsurprisingly, the United States government provides one of the most threadbare social insurance nets among advanced nations The question is, as we age and put more demands on Social Security and Medicare, will our dependence on narrowly focused, narrowly financed programs unravel what social insurance we have left?

Only consider the efforts of Republicans to repeal Obamacare when they have scarcely concentrated on the supply side reforms which could greatly improve the marketplace. Many calls for a smaller government are simply the desire to move services towards personal preferences in programs and services, instead of actual improvements for Main Street. For the U.S., austerity would likely be the eventual result of gridlock when no one gets their way.

By now, it should be clear that large scale government is too inclined to favor special interests to be effective at managing programs for services. Likewise, state level governments are no panacea for today's services and effective asset formation. Not only have they extended many of the same privileges to special interests, but they are in tenuous positions regarding safety nets as well.

Long term economic growth needs to be explored one privately structured community at a time, so that small successes can be shared, and small failures can become the learning experiences that governments now need. Austerity need not be an inevitable future. Just the same, marketplaces need to make room for greater participation, so that politically defined austerity can give way to a better growth trajectory.

Midweek Market Monetarist Links and Summaries - 3/18/15

And the economy hinges on...patience? (Marcus Nunes) https://thefaintofheart.wordpress.com/2015/03/11/key-word/
Abe and Kuroda need to keep the momentum: https://thefaintofheart.wordpress.com/2015/03/12/central-bankers-and-comfort-zones/
Even as inflation and the dollar continue to move the wrong way... https://thefaintofheart.wordpress.com/2015/03/17/the-fed-is-just-like-the-baby-who-cries-i-want-i-want-i-want-because-i-want/
There's no "surprise" in this index: https://thefaintofheart.wordpress.com/2015/03/17/payroll-numbers-are-the-exception-but-the-fed-is-love-struck-with-them/

(Nick Rowe) Central bankers need to make Say's Law true in practice, even if it is not true in theory: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/03/says-law-and-lump-of-labour.html
Nick responds to David Levine: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/03/david-levines-accidental-monetarism.html

Even Germany "is growing at the pace of a turtle" (Bonnie Carr) https://dajeeps.wordpress.com/2015/03/15/is-the-eurozone-an-optimal-currency-zone/

A $210 trillion "fiscal gap"...(Scott Sumner) Who do you trust, Kotlikoff or the market?
Presently, the major factor is easier money overseas: The rising dollar will not impact US growth
Whatever metric one may use, The euro is still far too strong
At times, Bernanke was willing to speak up: The biggest basher of them all
This stimulus probably wouldn't boost net exports: Apart from boosting NGDP and RGDP, euro depreciation will not help Italy
"Never reason from a price change" is also a part of Econ 101: Krugman on NRFPC
Only one step from Krugman, to Friedman: Brilliant Krugman, dumb leftists
Wait...that's Scott's argument! Krugman on European growth and the euro

Scott at Econlog:
The public needs to know exactly what the Fed is trying to accomplish: Everyone needs to be accountable
Scott highlights a great nineties essay from Krugman: Krugman's dangerous idea (it worked for me too!)
What's the "sell by date" of Krugmanomics?
Repudiation of big spending? We'll believe it when we see it...Will the GOP once again opt for big government

Lars Christensen highlights the open borders manifesto: http://marketmonetarist.com/2015/03/16/the-open-borders-manifesto/

Even though households may not be able to afford homes, rents aren't falling (Kevin Erdmann) http://idiosyncraticwhisk.blogspot.com/2015/03/the-road-to-housing-recovery.html
Kevin looks at asset values in the U.S. over time: http://idiosyncraticwhisk.blogspot.com/2015/03/housing-tax-policy-series-part-20-never.html

"Cash in circulation has doubled in the last ten years." (Benjamin Cole) https://thefaintofheart.wordpress.com/2015/03/17/cash-in-circulation-a-topic-economists-hate-1-34-trillion-u-s-cash-in-circulation-most-of-it-in-the-usa-up-500-billion-since-2008-doubled-in-10-years/

A circular flow model for income and expenditure (David Glasner) http://uneasymoney.com/2015/03/17/of-bathtubs-drains-and-faucets/

Simon Wren-Lewis worries than an NGDP target is not enough to restore growth: Radical macro lessons from the Great Depression

Tyler Cowen lays out some of the possibilities for Fed tightening: Should we listen to Ray Dalio? Should we taper? Be patient?

Innovation Needs Decentralization

A primary goal of any local knowledge use system, would be to recapture the earlier spontaneity of innovation. Inventions were once associated with specific individuals, and those innovations often proved capable of benefiting populations as a whole. While today's innovations are geared towards internal procedures and long term profits, earlier inventions tended to reinforce previous gains within broad based settings. Future innovation needs more of that same outward, decentralized focus, as a starting point.

What, exactly, about the earlier innovation dynamic has been lost? After some discussion regarding innovation for public welfare, Diane Coyle provided a number of related links in a recent post and she sums up:

(a) we're a long way from being able to make definitive policy recommendations about how to boost innovation...And (b) there's a lot of work economists need to do on standard welfare economics, which has a dusty 1970s (or earlier) feel to it.

It's hard to miss the fact that governments used to be more capable of contributing research for widely held knowledge. Even though no one expects private enterprise to share closely held secrets with the public, tax funded knowledge use was supposed to be a different story. However, governments no longer have adequate reason to publicly support knowledge, in part because they materially gain from privatized knowledge use. Kemal Davis notes for instance that public/private knowledge capture has created its own inequality, with "$84,000 for a twelve-week course of treatment" for hepatitis C.

Unfortunately, the publicly funded capital firms (sovereign wealth funds) which Dani Rodrik suggests for future innovation, would be quite difficult to enact. Kemal Davis also worried that monopolistic industries such as pharmaceuticals "would contribute to the creation of a new aristocracy that can pass on its wealth through inheritance". However, worrying about this particular inheritance possibility is beside the point. What matters is not so much the distribution of already existing wealth, but the fact that important knowledge use flows have been severely disrupted. After all, this impacts wealth creation as a whole.

Even though governments can't travel " back in time" to more inclusive innovation at national or state levels, citizens can do so locally through the creation of knowledge use systems. This would also be a more effective way to address inequality, than centralized forms of innovation which mostly benefit those who coordinate and invest in large scale projects at the outset. More of that commitment and investment - particularly for innovation in services and asset formation - needs to occur locally.

Fortunately, today's technology opens new paths for production to benefit small scale settings - a factor which can make all the difference for local planning. As Alex Tabarrok and Shruti Rajagopalen noted recently, there is a "delicate dance of top-down and bottom-up planning that cities need to thrive".

This "delicate dance" is a process which domestic summits could capture. Those who have new ideas and concepts for infrastructure, would be able to meet with individuals from all walks of life who wish to take part in the process. Most important, the planning component of domestic summits is only the beginning. Innovation is not just about creating unique settings to live and work in, but what happens through the course of lifetimes in these settings as well.

"Necessary Evil"? Money Is Better Than That

One often hears money referred to as something "dirty" - if necessary! However a new book, "Sapiens", has some positive things to say about money. Arnold Kling highlighted this quote from the author, Yuval Harari:

Money...involved the creation of a new inter-subjective reality that exists solely in people's shared imaginations...money is the most universal and effective system of mutual trust ever devised.

Of course, in saying this, Harari defines a vast stretch of time during which money has transformed the lives of countless individuals. More recently, money has apparently lost some of its earlier luster. Hence Arnold Kling writes,

I like to say that money is a consensual hallucination...What about hyperinflation? Think of that as the government needing to pay for its deficit spending through an enormous counterfeit operation. One that ultimately undermines the trust in money and wrecks the protocol for exchanging goods.

Ouch! Arnold is hardly alone in his musings as to broken trust and broken markets. Did government "ruin" money for us...or government cronies...or both? Nick Rowe provides the "money as necessary evil" response to Sandwichman in a recent post re Say's Law shortcomings:

I can't see any practical way to resort to barter, and make Say's Law true in theory. The cure would be worse than the disease. We seem to be stuck with money. Some monetary regimes are bad, and some are even worse.

Where is the inter-subjective reality which Harari spoke of? Once, it existed in the resources which individuals were able to directly work with, and money often provided a simple augmentation of this process. Now, a marketplace for time is needed. Money needs a chance to further evolve, so that it can fulfill the more personal roles which remain MIA in the economy of the present.

Time based coordination roles have the potential to substitute for the kind of intrinsic wealth which land once provided, prior to twentieth century production gains. That earlier (subsistence based) wealth of land has gradually evolved, into a form of wealth which particularly benefits from societal coordination. Whereas some markets fulfill this process in purely price based terms (i.e. minus time aggregate value), others need compensated time value as well, in order to become and remain viable. Time arbitrage could complete a necessary process of adaptation, for economic orientation towards services and knowledge use.

Money has become problematic in part due to services imbalances, which were superimposed on traditional production and asset formation. Over time, governments have usurped too many time use roles, as they have consolidated production gains from the marketplace. One problem with this process is that governments are forced to define employment based on merit, instead of through the actual time aggregates of given populations.

Consider what happens to societal coordination for instance, when skills value usurps time value in too many circumstance. Governments are not well equipped, to compensate for time value which has not been accounted for in the marketplace.

Local populations can overcome this allocation problem, by treating time aggregates as investment fallback positions in local support systems. One benefit of this process is that populations would not have to use their governments to allot needed services beyond what is already possible. Of late, governments are increasingly falling short in their services based promises, and they have attempted to grant too many favors to associations which define the conditions by which services "must" be produced. Now, aggregate demand and the monetary systems which rely on it, are paying the price.

This is why many individuals need a marketplace for time, in order to regain services and personal values which were lost to arbitrary definitions. It is particularly important to do this before the present marketplace further erodes monetary values in relation to other resources. Once services based aspects of monetary activity come into better balance, money can recapture the role for societal coordination that it held for so long.

A marketplace for time value (equal monetary compensation for mutual time coordination) would go a long way to improve public attitudes about money. How so? Money is capable of supporting value in use endeavor, if and when value in exchange does not provide a complete marketplace. Local communities would generate knowledge use systems which pay local citizens for actively assisting one another in the marketplace. Key in all this is not to deny the value of governmental context, but to find better means to coordinate time use than governments (and other institutions) have been able to provide.

Until it is possible to do so, many will continue to blame money for problems which money was never responsible for in the first place. By reimbursing time arbitrage - instead of cancelling time aggregates in favor of meritocracy - a tremendous amount of skill potential can be brought back into the marketplace. What's more, money will finally have a chance to return to the place where it began: subjective reality.

Knowledge Use: Supply Creates Its Own Demand

How might one think about knowledge use in terms of supply and Say's Law? Say's Law has been ridiculed at least since the mid 20th century, for understandable if unfortunate reasons. Those of us who believe Say's Law is important, haven't really had adequate means to defend our position, either. For one thing, employment gains which include more substantial knowledge use are possible. The problem? The organizational capacity which would bring these gains within reach, has to occur on more inclusive, decentralized, and yes - equal terms. That's difficult for many to even imagine, particularly in a time when knowledge use has divided and polarized populations.

Nick Rowe explores some aspects of employment potential (after productivity improvements) in a recent post. Something that's often missed in these discussions: many representative groups would lose their own competitive supply side "edge", should full employment be sought in general equilibrium. As a result - instead of imagining full meaningful employment - some would rather reimburse people either for not working at all, or through a marginal position which "threatens" no one. After all, what happens if everyone gets to use knowledge? While automation continues to "eat away" at traditional production, the resulting leisure time appears as though a nebulous given - even though "leisure" for some is akin to torture, for others.

Perhaps this is why some with strong knowledge use affiliation, argue against Say's Law. Why would they want to consider how full employment might actually be possible? And yet, participants of knowledge based endeavor may not always be fully cognizant that they are also part of the supply side - particularly in terms of what is sometimes referred to as effective demand. Might awareness of said effective demand (due to restricted supply) lead to a desire for hard caps on monetary activity? If so, there may be little difference between some progressives and internet Austrians, in the monetary terms of the present. Examples in this regard include conservative physicians who might vote Republican, as well as progressive educators who tend to vote Democrat.

Regarding Nick's (above linked) post: if output gains from production lead to less employment...what then? Until recently, if less employment was needed in order to make things, populations could compensate by expanding employment in knowledge based areas which would augment and assist traditional production - even if only obliquely. Now, this strategy need to be rethought. What happens to knowledge use, if it cannot actively assist traditional production? Does it decline? After all, if employment declines, so too does knowledge use. How does one know a decline would not lead to a precipitous spiral?

One of the main problems in this regard is with time use value. Services decentralization is needed, in order to internalize and capture personal time value which otherwise gets lost in the shuffle. While exclusive knowledge holdings work for both pragmatic and signaling purposes, they force knowledge to adhere to highly specific functions which may not extend to interdisciplinary interpretation. Worse, the subjective value of knowledge which applies to special time and circumstance, is either minimized or discarded. Also lost in all this - a considerable amount of intellectual and personal capacity. Ultimately - without a full marketplace for knowledge use, traditional production gains eventually mean less employment as a whole. As Nick Rowe noted:

The debate has moved on. But we sometimes need to remind ourselves that money is at the root of questions like these. It is a fallacy to assume that a doubling of productivity will automatically cause a 50% decline in unemployment. It depends. It is a fallacy to assume that a doubling of productivity will automatically cause a doubling of the demand for goods. It depends. It depends on preferences, and it depends on money.

I would add that much also depends on a broader societal understanding, as to what is at stake. In other words: knowledge use strategies of the 20th century are in serious need of reconstruction, if the present day economy is to be maintained. Even though monetary policy cannot provide solutions for full employment, it still holds a vital connection with the supply side solutions which populations need to generate on their own.

Artificial knowledge use scarcity is problematic on multiple levels. Special status for knowledge use not only represents wealth capture - it does so in ways which could possibly reverse centuries of progress. This is why it is so important to make knowledge use more egalitarian, before too much present day wealth is undermined. While some knowledge access will always remain exclusive, the survival of universities is already being threatened. This is an important clue which no one can safely ignore: the sooner that knowledge use is approached differently - the better.

Much of traditional production has gradually been moving towards less hierarchical structures, and knowledge use needs to take a similar approach. Today, services are secondary production structures with limited employment capacity. They are also hierarchical in nature, and mostly reimburse centralized knowledge use at administrative levels.

Those who want full employment which includes knowledge use at all levels, need organization which can bring the process to fruition. Closely held knowledge is a revealed preference, in the same manner as any other form of protected employment status. Now, this protected status leaves society hanging in the balance, in terms of economic participation. Demand need not remain limited. But before demand can be freed, supply has to be freed, as well.

Midweek Market Monetarist Links and Summaries - 3/11/15

Workers have done "poorly in recent decades"...or have they? (Scott Sumner) Real wage bleg
Defining capitalism as "evil incarnate" doesn't help anything - A new argument against libertarianism
Is Evan Soltas right about the convenience factor? The criminalization of currency and the zero bound
Does tax reform stand a chance? Rubio-Lee is great, so why not make it even greater?
I can relate to Scott's outdoors post - one of life's brighter moments was a trip on the "blue highways" of the U.S. for three months, with a small tent to slip into at night. Who's afraid of the great outdoors?
"Don't raise rates until you see the whites of inflation's eyes." Will the Fed undershoot its inflation target?
"In a better world both parties would agree on an efficient tax regime," Clear thinking about taxes
This economist is no internet Austrian: Russ Roberts interviews Lawrence H. White

Scott at Econlog:
Consumption doesn't get enough consideration: The bizarre way economists calculate real income
Is the "inequality" issue a cover for something else?
Two ways of thinking about economics

Justin Irving now has efficient forecast up and running. The site is here

Obama didn't want to be bothered...(Bonnie Carr) https://dajeeps.wordpress.com/2015/03/04/in-the-mood-for-a-rant-astounding-obama-administration-and-fed-incompetence/

Marcus Nunes compares NGDP in two U.S. districts: https://thefaintofheart.wordpress.com/2015/03/04/along-i-35-i-9094/
FOMC transcripts - read at your own (health) risk: https://thefaintofheart.wordpress.com/2015/03/04/the-economy-was-tanking-and-they-played-dumb/
"...real trend growth shifted up after 2003," https://thefaintofheart.wordpress.com/2015/03/05/india-a-missed-opportunity/
What "big data" uncovers: https://thefaintofheart.wordpress.com/2015/03/05/fomc-transcripts-fat-on-inflation-and-thin-on-unemployment/
Job gains! Wait, what? https://thefaintofheart.wordpress.com/2015/03/06/ah-cold-comforting-seasons/
Now the Fed wants support from the labor market... https://thefaintofheart.wordpress.com/2015/03/06/adrift-but-with-an-attitude/
And the "boost" from a falling LFPR particularly helps: https://thefaintofheart.wordpress.com/2015/03/07/lackers-homily/
A fiscal story, in graphs: https://thefaintofheart.wordpress.com/2015/03/08/strange-coincidences-a-graphic-novel/
And the NAIRU band played on...https://thefaintofheart.wordpress.com/2015/03/09/the-great-excuse/
Some clarification for Krugman: https://thefaintofheart.wordpress.com/2015/03/10/krugman-remains-confused/
Will NGDP come back to trend? https://thefaintofheart.wordpress.com/2015/03/11/im-reluctant-to-criticize-the-excellent-rba-but-they-do-need-to-ease-policy-a-bit/

Interest rates are low because of the economy, not because the Fed wanted them low... (David Beckworth) http://macromarketmusings.blogspot.com/2015/03/negative-interest-rates-zlb-and-true.html
The periphery has been through this before...http://macromarketmusings.blogspot.com/2015/03/fool-me-once-shame-on-you-fool-me-twice.html

Bill Woolsey responds to a WSJ article by Greg Ip: No Good Deflation?
Also, a response to a post from Miles Kimball: Miles Kimball on the Primacy of the Unit of Account

Contrary to Andolfatto, the involuntary aspects are quite real (Nick Rowe): http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/03/involuntary-unemployment-as-worsening-trade-off.html
Nick asks for a little help with the math... http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/03/how-much-of-a-deficit-will-in-fact-be-money-financed.html

(Kevin Erdmann) "If the capital asset pricing model is valid at all, then the potential gains from NGDP targeting are enormous." The huge potential value of NGDP level targeting, a CAPM risk taking perspective
"...if we look at the funding of national production, we really do owe it to ourselves." http://idiosyncraticwhisk.blogspot.com/2015/03/the-equity-mystery-in-2006-2008_11.html

Even Soltas is largely on the "same page" with Paul Krugman and Greg Ip: http://esoltas.blogspot.com/2015/03/more-on-negative-rates.html

Lars Christensen is enthused about Hypermind: http://marketmonetarist.com/2015/03/10/prediction-market-fed-on-track-to-hit-4-ngdp-growth-in-2015/

Greg Ip at the WSJ asks, How far below zero can interest rates go?

Where Does Commitment Begin?

And are strong commitments presently possible, in an overall sense? What happens when governments and certain business interests insist on economic conditions for their personal enrichment, which are not conducive for a wide majority of citizens to maintain commitments and goals? Perhaps these seem like odd questions, but they matter in part due to reasoning on the part of upper income levels, regarding lower income levels.

All too often, the former don't fully recognize when they set up game boards which don't allow the latter to effectively participate. As a result, "twenty times" the patience might be required of a low income person, as the amount of patience required by someone with high income, to achieve a related outcome in monetary terms. The person who doesn't have to "purchase" patience quite as often, gets a stronger constitution to pass to the next generation. Yet if consumption possibilities were more broadly defined, the additional required patience to achieve lower income goal sets would not be necessary every single time!

Too many basic consumption requirements are defined on mid to high income terms. As a result, a missed single link can break an entire consumption chain which is needed as a combined set, in order for low income individuals to maintain responsibilities. Today the media overreacts to long term psychological effects, on the part of some who found success in poverty's wake by the skin of their teeth - such as sports figures in unfortunate moments of anger with family members. Buying patience too many times in a day is like drinking too many cups of coffee to stay alert - the effect only lasts so long. It's easy to assume that low income individuals have little patience, resolve or commitment, because one can find examples anywhere they look. Furthermore, impatience or broken patience becomes a logical end result, eventually.

Public dialogue has become somewhat odd in this regard. Recent struggles - particularly those regarding race, immigration and protectionism - surface in ways the media "forgets" are related to still lingering economic concerns. Even so, Washington elite became comfortable with economic circumstance at least a year ago. That's when they began to reason that all is well, hence it's time for everyone to "buck up" and take care of themselves. For instance, the Fed has dreamed of returning to normalcy, practically since the Great Recession began. Now, their earlier monetary commitments are finally coming to an end and "liftoff" is imminent. Normal NAIRU is the latest fad, hence anyone such as myself who remains concerned about lagging labor force participation rate is just a scoundrel, according to progressives such as Bill McBride.

Even so, political campaigns are digging for some government commitment "crumbs" to offer up to the population. The latest reasoning? Some conservatives are realizing that - oh my yes - success in life depends on one's ability to form strong and lasting commitments. This further seems to suggest tax breaks in particular for children whose families were "smart enough" to remain intact. God willing, maybe these incentives will nicely align and the pieces will fit...

Many lower income individuals are quite the same as anyone: they want to commit to life goals, for this is the most human of desires. But not everyone has the same degree of strength or good fortune, to respond to the way major consumption definitions are set by governments and special interests. How does one make long term commitments to goalposts which are purposely placed out of reach of everyone but the strong? And yet one is ultimately judged for the fact they fall short of the goal time and again. Where was the consideration, for the fact a singular societal goalpost might possibly have been unreasonable in the first place.

None of this is a matter of calculated tax tweaks and indignant calls for higher income levels. No tax tweak or income level is ever going to catch up with temptation on the part of governments and some businesses as well, to manipulate certain consumer definitions beyond reasonable hope for lower income levels. Every tax tweak, income increase and arbitrary consumer definition further enriches governments and their crony friends, even as these tactics further impoverish citizens. Will anyone really fool themselves into believing humankind can remain strong by encouraging environments purposely designed to remain out of reach of the weak? In a recent blog post, Adam Gurri wrote these words,

I don't think it's possible to have a good life without commitment. 

Indeed. Indeed. First, do no harm. Do no harm.