Wrap Up for April '15

Baltimore. Only the latest example which makes me ask: why do we abandon people? The dreams of productive employment? Neighborhoods? Main Streets? In this instance, it appears people and neighborhoods have both been neglected. I have never lived in an area where entire rows of houses stand empty, and in reading about Baltimore, I was reminded of the continuing hope for a chance to travel, visit and talk to people where this has happened. However I've witnessed plenty of forgotten buildings on Main Streets, and some aspects of the abandonment process seem similar.

Two articles early this month, one from the Economist and one from Adam Ozimek, finally started me reading a book by Henry George, "Progress and Poverty". While the book is quite interesting and the idea of land tax has its merits, my main problem is that in developed countries, many of the more important land parcels are presently occupied by enterprise of a non profit nature. If these organizations already benefit from governmental redistribution, why would anyone make the process even more complicated by requiring the landowners to pay land taxes? Same principle applies for all that capital which is presently "tied up" by homeowners...

Another aspect of economic life that was so different in 1879, was the fact that labor was still moving towards traditional manufacture and prodution, rather than away from it as has been the case for decades in the U.S. Since life was quite different back then, Henry George spent a lot of time in the first chapters of his book attempting to separate labor from its common associations with capital. Among the many problems with this approach, is the fact that labor also became disassociated with human capital as well - a mind boggling problem which continues to this day.

How long does a business have to live? The Santa Fe Institute takes a closer look and find some surprising results.

The fact that establishments are not necessarily the same as firms, probably skews statistics in some unexpected ways.

An isolated community reaches out to the world for ideas re a dramatic 21st century transformation.
http://gizmodo.com/the-most-isolated-town-on-earth-needs-a-radical-redesig-1694550855?google_editors_picks=true

Spatial mismatch between jobs and people ties into poverty, in ways that require coordinated solution sets among those affected. The geography of jobs greatly affects unemployment. Those who establish compensated knowledge use systems need to consider multiple transportation patterns, that are within the resource means of the residents who would be using them. http://www.richmondfed.org/publications/research/econ_focus/2014/q3/feature2.cfm

Dani Rodrik argues that development isn't a one size fits all matter, and of course the same holds true for the kinds of housing and infrastructure options that are also needed for lower to middle income level U.S. citizens. http://www.richmondfed.org/publications/research/econ_focus/2014/q3/interview.cfm

Chris Blattman responds to the Rodrik interview and adds,

One trouble I have is that I think even very smart and experienced people are profoundly bad at knowing what the problems are in an economy, where the political winds are blowing and what will work. This needs to be said out loud as well.

Something that is too often missed, is the degree to which local and state struggles impact national economic circumstance. In spite of the fact national budgets are different from household or state budgets, people were already wrestling with limits on state and local budgets before the Great Recession occurred. Hence the mindset of diminished options. Yet there's a paradox, because states seek to restrain monetary growth at the national level, even though they need national assistance for resource maintenance at local levels.

An earlier post from Shane Parris on strategy, a new post on strategy traps, and a video from the (first referenced) book author, at LSE. From the initial post:

Coordination is hard because it fights against the gains to specialization, the most basic economies in organized activity.

How do cities end up reliant on fines and forfeitures? http://taxvox.taxpolicycenter.org/2015/04/08/ferguson-city-finances-not-the-new-normal/

If there is real economic distortion to be had, look for it here...10 massive federal tax breaks

"The peak that has the Saudis more worried is peak demand: http://www.bloomberg.com/news/articles/2015-04-12/saudi-arabia-s-plan-to-extend-the-age-of-oil

This WP article from last year which shows how a lot of trust disappeared over four decades: http://www.washingtonpost.com/blogs/the-fix/wp/2014/05/31/watch-americans-trust-in-each-other-erode-over-the-last-three-decades/

(Catherine Rampell) Presently, capping federal funding and giving states more control, would mean abandoning the poor, bankrupting the states, or both. http://www.washingtonpost.com/opinions/passing-the-buck-and-hurting-the-poor/2015/04/16/c1f3a28e-e476-11e4-905f-cc896d379a32_story.html?wprss=rss_opinions

New voices for 2015 - Scott Sumner makes the list: http://www.washingtonexaminer.com/new-voices-for-2015/article/2563183

All of these books would be helpful to have on one's bookshelf: http://www.enlightenmenteconomics.com/blog/index.php/2015/04/the-joy-of-gdp-and-beyond/

Wages over time - some things to consider (Scott Winship) http://www.forbes.com/sites/scottwinship/2014/10/20/has-inequality-driven-a-wedge-between-productivity-and-compensation-growth/

The 2.5 million dollar patient: what happens when knowledge use for mental and emotional needs are left to knowledge use patterns which are still being pared back from city, state and national budgets. "Any cuts the state makes, simply means someone else has to pick up the costs." http://www.wbez.org/news/emergency-room-visits-mental-health-skyrocket-chicago-111890

I'm not sure why the benefit of jobs remains so controversial, but another study points to the benefits for this group: http://blogs.wsj.com/economics/2015/04/24/summer-jobs-program-for-poor-youth-saved-lives-lowered-incarceration-in-nyc/?mod=marketbeat

Unfortunately, hospitals have little choice now but to seek cities and towns which can support them. The challenge is to create new service formations and knowledge use structures which are viable in areas with less money. For the ongoing costs and intense resource use of a hospital, geography is destiny, given budgetary circumstance which now exist in primary equilibrium. http://www.theatlantic.com/health/archive/2015/04/when-hospitals-move-who-gets-left-behind/391412/
And this related article from last year: http://www.theatlantic.com/health/archive/2014/08/why-wont-doctors-move-to-rural-america/379291/

An ongoing problem for decades already - good to see Megan McArdle tackle it: When deadbeat Dads can't catch a break, "Communities are capable of making fine distinctions--between, say, a man who could pay but won't and a man who is doing his best but just can't earn enough to cover his obligations." Right now, communities aren't getting the chance to do that.

More Great Recession evidence of decreased family formation: http://blogs.wsj.com/economics/2015/04/28/just-how-much-did-the-recession-make-20-somethings-delay-children/?mod=WSJBlog

Midweek Market Monetarist Links and Summaries - 4/29/15

Nick Rowe looks at the possibility of a debt to NGDP ratio, and Bill Woolsey points out the fact that a debt to tax revenue ratio would be better, given changing circumstance over time: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/04/deficit-trageting-vs-debt-targeting.html
Nick builds a recessionary model including three goods: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/04/the-mechanics-of-exchange-and-non-market-clearing-prices.html
Of time aggregates, absolute and relative advantage - a beautifully simple post from Nick: http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/04/when-i-really-learned-comparative-advantage.html

(Scott Sumner) An odd rallying cry: give us back our "real work" The Progressive Community defends America's honor
"current state of plenty"? Pop macroeconomics
Who wants all those goods, anyway?? Overproduction, then and now

Scott at Econlog:
Don't forget the "fundamental values" of beauty: It's not a beauty pageant
What would the world look like if bubbles were real? Optimal mutual funds in a world of bubbles
Scott highlights the continuing conversation from his recent discussion with Russ Roberts: http://econlog.econlib.org/archives/2015/04/econtalk_extra.html

Marcus Nunes provides an alternative story for 2002-2004, in charts: https://thefaintofheart.wordpress.com/2015/04/25/the-2002-04-period-in-the-limelight-once-again/
Perhaps Bernanke didn't notice the "tight fiscal policy" wasn't helped by tight monetary policy... https://thefaintofheart.wordpress.com/2015/04/28/bernanke-takes-on-john-taylor-and-his-namesake-rule/
Marcus highlights an essay from Mike Belongia and Peter Ireland on Japanese-style deflation https://thefaintofheart.wordpress.com/2015/04/29/normalizing-monetary-policy-should-be-with-reference-to-money-not-interest-rates/

How will the world handle the second machine age over the next few decades? (David Beckworth) http://macromarketmusings.blogspot.com/2015/04/a-partial-solution-to-income-inequality.html
No need to target either employment or inflation...http://macromarketmusings.blogspot.com/2015/04/about-that-dual-mandate.html

George Selgin provides video from a recent forum, and also additional information: http://www.alt-m.org/2015/04/22/should-the-gao-audit-the-fed/

(Benjamin Cole) Is the global economy "oversupplied with everything"? https://thefaintofheart.wordpress.com/2015/04/24/a-challenge-for-supply-siders-name-the-industry-to-invest-in-for-next-five-years-answer-print-more-money-and-maybe-i-can-tell-you/
Monetary policy has threatened financial stability because it has been too tight: https://thefaintofheart.wordpress.com/2015/04/27/monetary-policy-creates-financial-instability/
Germany's example: https://thefaintofheart.wordpress.com/2015/04/28/hooray-for-the-supply-side-germany-labor-markets-and-demand/

(Kevin Erdmann) "If we really want to solve the housing problem, we need to reduce regulatory obstacles to building, increase access to mortgages or other methods of home ownership, and stop second-guessing prices." http://idiosyncraticwhisk.blogspot.com/2015/04/housing-tax-policy-series-part-27-free.html
Secular stagnation as partly a result of restraints on housing supply: http://idiosyncraticwhisk.blogspot.com/2015/04/housing-tax-policy-series-part-30.html

How to think about finance as a part of the economy? (Ravi Varghese) http://insecurityanalyst.blogspot.com/2015/04/is-finance-eating-world.html

Ben Southwood highlights a paper from David Beckworth and Josh Hendrickson in The modest case for nominal income targeting

Also of interest:

(James Pethokoukis) "The number of new companies as a share of all U.S. business has dropped 44% since 1978." The American economic problem that is nothing short of a national emergency
This WSJ article also details the change in patterns between small and large business after the Great Recession: http://blogs.wsj.com/economics/2015/04/27/two-speed-recovery-small-firms-lag-big-business/?mod=blogmod
A recent post from Ryan Decker helps to put both these links in perspective: Thinking about family firms

Time Value: An Evolution From Labour Value

Time value needs a more careful economic assessment in the near future. How so? Labor value is what institutions still need (to some degree), and labor in the traditional sense is closely associated with the needs of primary equilibrium. However, labor definitions are insufficient as indicators of human capital value, in what some refer to as the second machine age. This holds particularly true, given the fact time value needs to remain a central component of GDP.

One way to think about this: the time aggregates of populations as a whole, have to overcome at least two present day problems in the marketplace - a shrinking labor force participation rate, and the fact that new small business formation has been on a gradual decline. And as Ryan Decker recently noted, small businesses remain a more important part of any local economy, than is often realized.

The economic value of personal time, could potentially capture elements of GDP which are otherwise difficult to represent through the gains of the digital realm. If this is difficult to envision, time value would be closely associated with efforts to generate a (continuous) local group value growth trajectory, in terms of knowledge use and other local investment safety nets. A base monetary compensation would emerge from local group cooperation, which also reflects the ways in which a group becomes responsible for a wide variety of activity sets in a given environment.

This is also an alternative equilibrium, which would utilize a production norm somewhat differently from how it might be envisioned for primary equilibrium. How so? Unique price levels for local non tradable settings, would "float" as direct correlation for local asset formation and time based services. Populations would improve "income" capacity by directly tapping into innovation to improve their own living conditions.This would directly affect locally owned assets so that a community benefits from good deflation, instead of seeking price inflation to improve local living standards. On the other hand, any desire for a production norm or zero inflation in primary equilibrium, has to contend with the fact not all populations find benefit through good deflation for non tradable factors such as services wages or asset formation.

A psychological adjustment is also needed, in order to overcome the tendency to discount time value of those not presently economically engaged. So long as no one is convinced (regarding the worth of underemployed or unemployed), the economy will remain fragile and resources in danger of being lost. Without the "blessing" of societal monetary compensation for personal effort; in the future it would become increasingly difficult to serve, assist or otherwise help one another if one is not already gainfully employed within primary equilibrium.

Fortunately, the societal divisions of the present could still be mended. What's more, the process could contribute to economic activity which is not bound by the limits of government backed services formation. But first, think how time value is already recognizably different from earlier definitions of labor, and what that implies regarding the potential of time value in the future.

As labor gradually shifted from agriculture to manufacture, labor was increasingly thought of as a component which contributed to a final product, but was not directly correlated with that product in any time based sense. In other words, it became possible in recent centuries to diminish time aggregates from specific product formation without any noticeable effect on product quality. For centuries, time aggregates could be shifted towards knowledge use work without problematic debt loads on the systems that compensated knowledge use indirectly. This also became part of the standard definition of increased productivity.

Now, productivity needs a broader definition set as well: one that is capable of accounting for the contributing factor of direct knowledge use compensation. Not only are psychological considerations necessary for the restoration of time value, so too is the idea of productivity as a potential continuous trajectory for local group gains.

Think how labor value contributes to product in the standard institutional sense. People using machinery to create a ditch, does not necessarily mean the ditch is the desired end product. Rather, the product might be part of a project for an improved system of water flow. In traditional labor, one's primary time use is mostly subordinate to the plans of single institutions. Whereas time value is horizontally coordinated in knowledge use systems, by allowing a single institution to take on the functions of many. This means individuals would need to manage and be personally responsible for their time in a management capacity, even if one's time is used in relatively simple ways. Time arbitrage - as determined by ever changing product definition - would be structured based on both group and individually coordinated decisions.

Here's a way to think about time value as it relates to local group activity, versus individually matched time value. There are two sets of base group projects in the course of a given year for a "full" knowledge use system. These two sets are what represent time arbitrage coordinates beyond matched activity for personal needs. First, the services set is representative of what often occurs through taxation in primary equilibrium. Whereas, local assets include one's personal investment and responsibility for initial production capacity. As a result: in the latter, the entire group benefits from innovation gains through machinery and other technology that is utilized for both building components and infrastructure.

Hence time value comes into play not just when personal time is most desired component of the end product, but also as it relates to local group investment for for base production needs, and the production needs of ongoing projects. When matched time closely relates to local group projects, this is where machinery and automation have a chance to augment time value, instead of detracting from or otherwise taking personal time value out of the picture.

Likewise for investments in machines that local citizens might choose to augment ongoing healthcare needs. Indeed, one's cooperation with others to increase innovation and decrease costs, would play a large role in the flexible (internal) price points which result. This is where consumption definitions (and even certain price levels) become possible on the part of consumers, because the institutional function becomes internalized in local production and services structures. In normal equilibrium it is more difficult for the consumer to affect greater productivity in the same sense.

In knowledge use systems, time value becomes an important arbiter of outcomes - not just for the more immediate association of time value as end product between local citizens, but also for the indirect value of time as it relates to group investment of both time and resources. Machinery and other technology are considered by citizens for local group projects when that technology is capable of contributing to outcomes which are capable of freeing the time of all participants for more purposeful economic pursuits. Instead of local communities being limited by monetary budgets for pressing needs, the main limitation would simply become that of the time local citizens actually have at their disposal.

Time value grows as it contributes to the knowledge which reinforces and adds meaning to local support systems. In other words, one does not need to assign a certain monetary value to time value, because the coordination value of time proves capable of distributing knowledge and information where it is needed most. What's more, quality of life is gained by the fact that the group organizes in a way that neither innovation or technology is a threat to "jobs" or status.

Why is it not possible to think of time value through similar means in primary equilibrium? Monetary transmission in terms of asset and service formation does not operate smoothly across a wide variety of local equilibrium settings. This can also lead to problems for production norm application in national macroeconomic context. Resource sets do not always align well with time aggregates. As a result, time value needs monetary representation which can reimburse one's time use efforts over lengthy periods.

Locally coordinated equilibrium allows skills sets to become interchangeable, and reimburses time value throughout the entire socialization process. No one needs to become indebted in their youth or as they prepare for high skill levels, because they are compensated for sharing skills and knowledge sets with others as they move through the educational continuum. This allows time value to closely align within local economic settings - even as these communities remain connected with the tradable goods economies of primary equilibrium.

Update: Pete Boettke has an excellent post regarding the riots in Baltimore, which indicate how there is no time to waste, to start turning things around. Much as I stress the need for real work in rural areas, the same remains equally true for urban areas which have remained forgotten for too long. In terms of knowledge use, services creation and production potential, both rural and urban areas need to be able to utilize some of the same methods to regain economic access and vitality.

Economics: It's About the Journey, Not The Destination

Michael Boskin asks, are the good times over? Well, it depends. Who is still willing to accept the uncertainty and risks that much needed change would entail? Who still wants populations as a whole, to move ahead together? Like so many of late, Boskin cites the fact that Moore's Law cannot go on indefinitely. Did he even need to? I get really grouchy every time someone cites that law. For no version of it has yet been applied to innovation for building components, or knowledge use in applied group settings.

Broad based innovation and economic flexibility, are the long forgotten center of the economic journey. But where is any national commitment to the journey? Right now it's all about bragging rights for the destination. The journey is completely missing from both sides of the political aisle, and the destination for every American girl and boy now appears as though predestined from an early age. You're either "in" or you're "out" so get a grip and deal with it. Grrr...

Why should any of this matter? The journey is where meaningful growth could still occur. It is where people still get second chances and are not forced to reconcile themselves to numbing sameness. It is where the willingness to take risks can mean new beginnings. The journey is where the mysteries continue to unfold...it is where the noteworthy aspects of human life play out. Unless - of course - today's upscale version of destination zombies, have the last word so as to completely stop the vital processes of economic evolution in its tracks.

True, there are uncertainties in every journey. Who doesn't want certainty? But carried too far, economic certainty stifles both imagination, and the ambition that is part of human empathy. Certainty squanders the gains which the future otherwise could hold. Uncertainty means waking up in the morning with anticipation as to how the day might unfold. It is human nature, to find great energy in the quest to greet the unknown. Whereas a focus on the destination can be sleep inducing, even as it represents the slowly deteriorating end of growth. History tells us that no desired destination ever remains intact, and that things generally turn out much better when no one insists that everyone live the same way.

It is sad that present generations aren't getting the chance to experience life on broader economic terms, and the threat of any closed economy is always a threat to an open mind. Indeed, America was once known as the best place in the world for starting over. The U.S. was known as a place where life felt as though "wide open", and could be defined through a multitude of economic options. Today's America has little room for the journeys which the world still seeks. This also means local economies which have little ability to bend or heal. And when the winds blow strong, what cannot bend or heal, too often breaks.

So long as there are new generations, there needs to be economic activity which remains capable of evolution. Otherwise, the new generations cannot expect to take part to the degree that earlier generations did. Anton Howes makes an excellent point about economic growth, such as I attempted to make in a recent post but he does a much better job of it. From his post, which is also a reprint of a magazine article for the UK:

By far the most important issue for modern economics is the ability to achieve and sustain economic growth. This does not necessarily mean the level of Gross Domestic Product, the total value of goods and services produced by an economy in a given year, but rather the annual increase in the actual living standards conferred by the full exploitation of technological advances...The key point here is that economic growth trumps all other political concerns. 

In this article, Howes also advocates NGDPLT, and notes that monetary policy "potentially renders the debate around austerity meaningless from the point of view of general economic growth". Howes recognizes the fact that innovation remains held back to some degree:

In the long run, finding out what boosts innovation in a society could have transformative effects.

When services formation and building capacity cannot innovate, too much energy is lost in attempts to preserve participation rights for already existing destinations. If there is anything that spirituality can impart to economics, it is the journey of discovery. This is why I have such a strong degree of respect for GDP as economic measure, because fortunately it was formulated with the journey in mind. One can only hope that time value will eventually become a central component of GDP. And also that the GDP measure is able to withstand the withering criticism it increasingly comes under, as multiple observers insist on the markers of destinations, instead.

The journey is also that part of money which can be designated as flow, much as destinations can be thought of as stock. Normally, we "take stock of a situation" in order to preserve flow, but central banking processes have diverted towards protecting stock, while pretending the flow can be (temporarily?!) circumvented. But none of this is about outcome or stock - it is about the ability for populations to contribute to the flow of economic journeys. It is about everyone's ability to take part in - and remain responsible in one's own way - for the outcome.

"...the will of the group is not the outcome. The will of the group is the way that it constitutes itself to decide." - Mike Munger.

Democracy...Closed for Repairs?

How is it that democratic processes can get so thoroughly bungled up? A recent interchange between Alex Tabarrok and Joseph Heath, still has me thinking about the "U.S. as Rome burning" implications they touched on. Of course as most readers know, I remain stubborn and resistant regarding any inevitability of decline. Specifically, here's Tabarrok about the decline of reason:

...it doesn't pay to be informed about politics nor to think about politics in objective and rational terms.

Think for a moment why this has actually become the case. Governments assume that taxation is capable of providing a services base for all citizens. In time aggregate terms, many political arguments revolve around who has the right to benefit from specialty time use on the taxpayer dollar. But why should it be necessary for knowledge use and economic participation to remain on those terms? Few individuals can expect to claim what is inevitably in short supply. How does one vote for - or otherwise choose something - which is not even there to begin with?

Difficult realities for knowledge based time coordination, are beginning to set in. National governments cannot be all things to all people, and knowledge use needs a chance to thrive in decentralized settings. No one could have known, prior to the developments of the 20th century, the extent to which U.S. citizens would come to rely on government provided services. National governments need to return to simpler and more basic structures, so that real democracy has a chance to thrive where it can do the most good - at local levels.

In particular, services need to become part of the economy, instead of a burden on the economy. But in order for this to happen, services of all kinds would need to be built into local work and educational structures. These organizational patterns would eventually generate broad knowledge use complexity, in the places where it is needed most. Knowledge use systems would act as a form of direct democracy, through which citizens vote for the services they desire with the application of their own skills potential.

Without a true marketplace for time use potential, one's vote is a drop in the bucket of hoped for service offerings, which elected officials have little control over. Even though today's service offerings are limited by design, they still represent real burdens to both taxpayers and the businesses which are expected to support them.

Knowledge use systems would be able to increase labor force participation, through the process of local services creation. Services can be generated in ways that need not impose a burden on anyone. Not only can time use be coordinated equally, local investment can be structured so that even those with low income levels can remain responsible citizens. Democracy may seem as though presently "closed for repairs". That's okay. The important thing is to not let it slip away completely.

Globalization and the Non Tradable Sector Dilemma

Will globalization survive a worldwide economic slowdown? Only a decade earlier, it would have been difficult to imagine the degree to which international trade benefits would become broadly questioned. Of course, answers depend on who one asks. On the "good news" front, Timothy Taylor notes in a recent post that Americans have become more comfortable with free trade. But how does that square with negativity on the part of economists? For instance, globalization as "bad news" is represented by posts such as this one from the Economic Policy Institute, which argues that the Trans-Pacific Partnership will hurt the middle class.

Part of the problem is due to a lack of understanding, regarding important correlations between time use wealth aggregates, versus the wealth of product which exists separate from time. Instead of organizing so as to capture international productivity gains, local economies have often viewed the good deflation of innovation and productivity as a threat. Knowledge use is needed for both traditional production and services formation. Even so, knowledge use is often approached on terms which mean unnecessary inflation, less labor force participation, or both. Traditional production and knowledge use need to exist in balance with one another, and that balance is slowly being lost.

Thus a growing asymmetry between knowledge use and other forms of resource use, contribute to constant budget constraints. Consequently, governments find themselves forced to cut back on their support of human capital. The somewhat unexpected lack of ability to support knowledge use, also means a gradually declining labor force participation rate. As a result, governments have come to rely on relatively passive wealth formations to generate redistribution, instead of the active wealth component of human capital.

Worse, this development was already ongoing, as developed nations gradually become more dependent on the non tradable sector. Because knowledge based product is often time and (local) context dependent, human capital tends to be non tradable. However, instead of tackling a growing workforce participation problem head on, the U.S. opted for increased homeownership as a last ditch means to "park" wealth. Sadly, this strategy could have actually proven somewhat reasonable for the American public, had innovation and easing of regulatory burdens been allowed into the mix. Instead, gains in the non tradable sector mostly accrued to special interests and governments in general.

Also, consider the timing, for a further shift from tradable to non tradable formation in the U.S. In particular, effects of important policy changes run counter, to arguments about monetary policy being "too loose" in 2003. In a post from 2011, Marcus Nunes explains:

Whilst in Asia and emerging markets resources were being diverted from the non tradable to the tradable sector, in the U.S. the opposite movement had to occur. In 1997, in addition to all the "incentives to homeownership" the U.S. government abolished capital gains taxes on homes sold after two years. Given the need to transfer resources to the non tradable sector, this opportunity was too good to be ignored so not surprisingly a "housing boom" ensued. 

The timing of this dynamic is also important, in terms of its contribution to housing considerations on the part of those who lost investments in the dot com bust. Some individuals took advantage of housing gains, but much of this occurred well before 2003. Even market monetarists are somewhat divided as to whether monetary policy should have tightened in 2003. Even though I can't technically "defend" loose monetary policy in this time frame, personal circumstance suggested that people in these years needed all the monetary assistance they could get.

Why so? The early 2000s were a continuing series of quickly changing events in the lives of many baby boomers. This group had basically been faced with changing employment strategies since the technology gains of the 1990s. And in the early 2000s, many baby boomers such as myself, made what turned out to be last attempts at small businesses and other self employment. This was frightening beyond belief, given the fact that many of us had more or less been steadily employed at least since the mid seventies.

Some individuals also borrowed against the equity in their homes, as means to prop up personal business efforts. Part of what bothered me about this (frequently) losing strategy, was the degree to which home equity loans contributed to new bank growth, at the precise moment other forms of small business were actually in decline. Anyone who remembers how many small businesses had to close their doors in these years, also remembers the odd circumstance of new banks - some of them quite luxurious - opening in these locations while many small businesses were saying goodbye to Main Streets for the last time. Many baby boomers went through a flurry of efforts in subsequent years to remain employed. After countless unanswered resumes were sent out, some finally made the decision to apply for disability...

Regarding human capital: some months ago, Dean Baker argued that wage stickiness at the higher end, was not exposed to the same globalizing income levelers which lower wages tend to experience. Initially, it almost seemed as though he was making an argument for greater wage flexibility among higher wage levels. Alas, this is not actually possible in primary equilibrium, for a number of reasons. To some degree, protectionism is reasoning from wage level changes. Now, economists who had been supportive of free trade, appear to be having second thoughts.

Perhaps wage rigidity at upper income levels, contributes to rigidity at lower income levels as well. Both sides of the political aisle are coming forward to reinforce or raise the wages of low income levels. But this is a losing strategy, compared to what would be possible through production reform. If broad scale innovation were given a chance, countless products and services would move closer in affordability, to the actual capacity of lower income levels.

Today's non tradable sectors pose a substantial challenge, to the ability of nations to sustain the economic gains of recent decades. The marketplace has become so rigid, that many policy makers refuse to consider either logic or reason. Artificial limitations and restrictions in the housing sector, continue to closely reflect the artificial limitations which still exist for knowledge use. As a result, many onlookers assume that there is little capacity to support further aggregate demand potential for the U.S., even as further recessions occur in the near term.

However, aggregate demand is only repressed, to the degree that knowledge use is repressed on the part of whole populations. People everywhere still need to be helped, and people everywhere still need to be compensated for helping them. What's more, processes of helping and being helped are vital components of both aggregate supply and aggregate demand. There is no "great" stagnation. There is only a refusal to make the most, of incredible quantities of both human capital and resource capacity.

Update: Greg Mankiw has a recent article in favor of free trade, much of which I agree with. I would add - as I had originally intended to do in this post - that tradable goods imports which are most amenable to good deflation, are also capable of increasing the value of time aggregates. The lower costs and economic functions of imports give individuals greater choices as to what they prefer to do with their time. However, the reason those gains for time value are not yet obvious to all, are due to the fact there is no marketplace for time value, yet.

I do have one problem with his article. Mankiw says, "People tend to underestimate the benefit from conserving on labor, and thus worry that imports will destroy jobs in import-competing industries." No, we have a torn society because institutions have been conserving on labor for a sufficient period of time that the labor force participation rate continues to drop. Services need to be directly created, so as not to generate either budget uncertainties or public responsibility beyond the reach of said services. Every society needs services for all their citizens. With a better understanding regarding time use aggregates in relation to resource aggregates, nations would not have to worry about other nations "stealing" their traditional manufacture jobs, which are limited in the first place.

That earlier fetishism about gold? It is also replaced with a "services for me but not for thee" mentality. Knowledge use systems are needed to take care of this problem.

Zero Marginal Productivity? Not So Fast

Tyler Cowen recently linked to a post from Arnold Kling on self-control and unemployment, with the phrase "Evidence for ZMP labor". But how true is that, really? Even though zero marginal productivity discussions have mostly run their course at Marginal Revolution, commenters at Kling's blog were willing to consider a number of interesting aspects regarding self control in the workplace. As one observer noted, truly successful people aren't easily "bossed" by others. I would add that individuals who have otherwise "made a difference" can easily be categorized thus. Another commenter, who appreciated the access to some basic services from the self employed, said "It takes all kinds".

Indeed, individuals who sometimes have difficulty following orders, also tend to be more willing to accept risks in general. Sometimes risk taking pays well, other times...not so much. As a result, people with "overly strong wills" can easily fall on opposite ends of the income spectrum. Does this mean that more willing middle class "followers" automatically exercise more restraint? Not necessarily. For one thing, are they being asked to do so? Much depends on the trust, that employers have regarding the degree of autonomy they are willing to assign to specific individuals.

Employees of middle class status may also chafe at workplace expectations, but are more willing to follow the lead of others when the reward includes financial stability. In spite of all this, think about the expectations of the workplace. The real problem expressing what is "desired" on the part of employees, is precisely the kind of workplace which is slowly becoming more difficult to sustain in the 21st century. In other words, "strong" wills and ability to lead have more potential to provide economic stability in the near future, than is now realized. Yet this reasoning is counterintuitive, to social expectations that continue to reflect the realities of 20th century institutional needs.

Hence it's time to give the reasoning for so called ZMP designations a second look. How does it make sense to imply that many do not fit the needs of today's institutions, when today's institutions are no longer capable of meeting the needs of individuals? If anyone needs proof that populations are not convinced as to economic stability in the near future, one need look no further than the implications of movies such as The Hunger Games. If these kinds of extremely negative visions are to be overcome, individuals will need the chance to become entrepreneurs - entrepreneurs who are firmly in charge of their own potential time use capacity.

Much about the near future, depends on how product comes to be defined, in terms of time use and time value. Arbitrage structures as a whole are rapidly changing, and one indication of this process are the increasingly intangible components of capital. The meaning of capital will need to be reconsidered in the years ahead. What's more, active - as opposed to passive - components of economic activity, will need better representation in GDP measures.

Individuals will also need a chance to be able to relate to one another on more meaningful and civil terms, if the positive economic complexity of the present is to remain stable. With a marketplace for time value, zero marginal productivity will no longer be a valid concept. That single fact could go a long way, to assist other social issues which now appear to be insurmountable. With a little luck, many of the social and economic uncertainties of the present could still be overcome.

Midweek Market Monetarist Links and Summaries - 4/22/15

"This week, we learned that Bernanke does not view NGDP level targeting, price level targeting, or a higher inflation target as the best way to deal with the zero lower bound (ZLB) problem." (David Beckworth) http://macromarketmusings.blogspot.com/2015/04/it-takes-regime-shift-to-raise-economy.html
2003-2005, revisited: http://macromarketmusings.blogspot.com/2015/04/was-monetary-policy-too-loose-during.html

Is price stickiness an "ad hoc and superficial" concept? (David Glasner) Plenty of interpretation in the comments as well: http://uneasymoney.com/2015/04/17/price-stickiness-and-macroeconomics/
"...he wants the instrument target to preempt the policy target." http://uneasymoney.com/2015/04/21/what-is-the-historically-challenged-rule-worshipping-john-taylor-talking-about/

George Selgin highlights an article which he co-wrote with a former student, David Beckworth: http://www.alt-m.org/2015/04/17/how-the-fed-ended-up-fueling-a-subprime-boom/

Scott Sumner: "Patrick, I wonder if a former Fed chair is completely free to speak his mind."
Patrick Sullivan: "Well, he started a blog." http://hisstoryisbunk.blogspot.com/2015/04/bernanke-bernanke.html

In 2008, many economists changed their beliefs (Scott Sumner) Is modern macro to blame?
Scott takes the "glass half full" perspective...Bernanke on monetary reform
The Fed believes in lower potential GDP and "lower potential inflation"? Ouch...Lost in translation
More reasoning from an interest rate change: High interest rates are not "ammunition"

Scott at Econlog:
Considering some of the particulars: Is the Fed allowed to create GDP prediction markets?
Clarification between mandates and targets: Congress sets the goals, the Fed sets the intermediate target
The recent paper from Selgin and Beckworth prompts Scott to ask, Did the Fed cause the sub-prime boom?
A coffee versus tea example: Substitute goods and reasoning from a price change
Also, Russ Roberts interviews Scott on interest rates

Has Blanchard forgotten that Greece remains in depression? (Marcus Nunes) https://thefaintofheart.wordpress.com/2015/04/15/continued-negation-of-monetary-policy-imf-version/
2% IT as the "magical" figure https://thefaintofheart.wordpress.com/2015/04/16/ben-blade-runner-bernanke/
Marcus responds to Wolfgang Schauble's NYT article: https://thefaintofheart.wordpress.com/2015/04/17/germany-is-not-fit-to-lead/
NGDP tells the story, in charts: https://thefaintofheart.wordpress.com/2015/04/19/three-coins-in-the-fountain-of-the-monetary-policy-stance-unanimously-they-say-interest-rate-does-not-define-the-stance/

"The official data is increasingly inaccurate..." (Benjamin Cole) https://thefaintofheart.wordpress.com/2015/04/17/the-right-wing-should-be-sweat-drenched-hysterics-about-deflation-soak-the-rich-who-cares-will-be-new-global-anthem/
Maybe that letter wasn't so "funny" after all: https://thefaintofheart.wordpress.com/2015/04/18/fed-as-interest-rate-crackheads-the-funny-letter-received-by-former-fomcer-bob-mcteer-regarding-cocaine-junkies/

There are subtle differences between liberals and progressives (Kevin Erdmann) http://idiosyncraticwhisk.blogspot.com/2015/04/institutions-individuals-and-american.html
Kevin takes a look at the similarities between 1990 and 2007

"Is Woodford's 'cashless' economy a model of a monetary exchange economy, or a model of a barter economy?" (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/04/noah-vs-steve-a-suggested-interpretation.html

Lars Christensen muses on the political business cycle: http://marketmonetarist.com/2015/04/21/rational-partisan-theory-elections-fiscal-consolidation-and-exchange-rate-determination/

Ramesh Ponnuru notes Blogger Bernanke's abundance of caution: http://www.bloombergview.com/articles/2015-04-20/why-does-the-fed-insist-on-targeting-inflation-

Why is Growth So Important?

Why has everyone become so divided over the desirability of continued growth? Deflation is becoming a real threat, even if it is hard to visualize as central bankers continue applying the monetary brakes in a slow motion process. Now, even Bernanke can speak openly about "lower potential GDP" while scarcely eliciting a startled reaction. Some are convinced that recent monetary gains are more than sufficient - a view which is mostly backed by the Fed. Yet, as this recent Reuters article indicates:

The public mood remains sour. Sixty percent of Americans in March said that the economy was on the wrong track, according to Reuters/IPOS polling data, although that was an improvement from 71 percent in May 2014.

What's more, as political candidates gear up for the next election, they tend to seek out economic advisers who are anything but pro-growth. Even though some economists recognize that monetary policy remains tight, as Adam Ozimek recently noted, the stories being told are too different to gain a unified public response. As a result, even though Ozimek writes for Forbes, this publication often presents the exact opposite argument. Forbes staff member John Tamny, for instance - responds to a plea for continued growth from Greg Ip with the assertion that "Recessions are absolutely beautiful, and should be renamed recovery."

Policy makers can be tempted to resort to monetary deflation when growth becomes imbalanced, in part because structural adjustments require mutual understanding and societal coordination. When structural change seems "impossible", a process of denial can set in, as Scott Sumner has observed regarding changes in core beliefs among economists. Policy makers have taken to reasoning with the public that a slowdown in growth is nothing to "worry" about. But deflation can easily get out of control, in spite of careful management to maintain economic stability. All the wishful thinking in the world cannot make an economy "stand still", when monetary policy pulls away from preexisting commitments for aggregate spending capacity, without creating a new series of economic arrangements.

Thus if central bankers wish to make an economy "stand still" on monetary terms, structural arrangements need to have been made beforehand to make certain that economic access and labor force participation remain stable. Otherwise, a growing number of individuals find themselves excluded, over time. There's a lot of truth in a sentiment also highlighted by Lou Holtz: We are all either growing or dying - unfortunately there is no in between. The same is true of economies. What's more, the growth most capable of providing economic stability, is that which occurs on gradual terms - think of the race between the tortoise and the hare. While one would think of incremental growth as completely logical, the "winner take all" and "all or nothing" options of the present, insist on growth being otherwise.

Fortunately there are ways to address a lack of economic access which need not mean more pressure on primary equilibrium. In other words, it is possible to target growth which would not place further demands and burdens on either governments or taxpayers. One means to do so would be the creation of more inclusive finance structures. However, it is important to distinguish these from what exists in primary equilibrium, because lower income levels often need to experience ownership on completely different terms.

Rather, allow innovation to structure product so that consumption becomes more tailored for the consumer, instead of always expecting the consumer to have to "reach" for the product in question. Otherwise, one gets results such as ill advised mortgages with small down payments on non innovated housing. This approach is part of the process which leads the Fed to assume the process of "walking a tightrope". As it turns out, the tightrope is completely unnecessary. The idea that economies must hinge on credit access - instead of economic access - is part of what leads economists to place undue emphasis in interest rate targeting.

In spite of real gains since the Great Recession, economic access around the world remains problematic in multiple capacities which have yet to be addressed. The remarks made about economic migration by the EU border chief in this article, are almost word for word what one hears about illegal immigrants in the U.S. In too many instances, people from all walks of life are still trying to navigate their way through what appears as though closed doors. This is no time for monetary policy makers to be self congratulatory and claiming all is well. After all, when they do so, other policy makers tend to do the same. History in the coming years will be shaped by whether nations are able to envision growth on more inclusive terms for their own populations. As Michael Barone summarizes in a recent AEI post regarding today's uncertainties:

Let's hope the post-2007 negative trends are temporary and limited. But let's start thinking hard about how to reverse them.

Is Washington still willing to do this? Again, we can only hope so.

Productivity Gains: A Time Aggregate Perspective

Could personal "bests" for greater productivity, play a role in the potential of group "bests"? Through the establishment of a marketplace for time value, group based productivity gains would indeed be possible. When it comes to personal productivity, schedule management and the ability to say "no" (to requests beyond time capacity) are quite helpful for individual productivity. But how might one apply these same principles to the bigger (economic) picture? Shane Parrish has advice that is quite relevant:

When you schedule things, you are forced to deal with the fact that there are only so many hours in a week. You're forced to make choices, rather than add something to a never ending to-do list that only becomes a source of anxiety.

When scheduling patterns are mostly organized through exogenous means, many individuals and groups are left with inadequate time for either productive resource use or interpersonal coordination. In particular, externally defined time use is not capable of coordinating services distribution for aggregate supply and demand. Indeed, there have been shifts in public attitude towards government redistribution - in part because redistribution can't adequately address the need for better coordinated time use aggregates.

Because of problems in this regard, government programs have the feel of a never ending to-do list that has - yes - become a source of broad based anxiety. What's more, the struggle for public representation is slowly being lost, one well meaning government program at a time. It's time to give lower income levels and others among the marginalized, a chance to approach service formation from a different perspective. The same calendaring methods which can assist individuals, have the capacity to assist groups as well. Communities with knowledge use systems would create yearly calendars with a series of overlapping schedules, so that a marketplace for time value becomes possible.

What about the need to say "no"? Even as present day service providers need to say no to excessive government demands, so too does everyone else, in terms of unnecessary service deficiencies. Just say "no" to the hand wringing and consternation that is routinely taken on behalf of the marginalized, and establish means that allow these groups to help themselves. Knowledge use needs to be a unifying bridge for human potential, instead of a weapon which arbitrarily divides mental, social and economic capacity.

This approach would ultimately defuse arguments regarding divisions in personal ability. In the alternate equilibrium of a knowledge use system, personal "best" matters not just for personal gain, but also for group gains. In primary equilibrium, many citizens remain unable to access a multitude of services which are important to them.  It is imperative that multiple skills levels are brought into the larger equation, as government budgets gradually become more constrained. A recent Washington Post article stresses another aspect of this issue:

"Some people feel that if you show the brain differences you're politically condemning the poor," Gabrieli said. "Which is the opposite, I think, of what we need to do. I think we want to understand adversity and minimize adversity."

There are many ways that adversity can still be minimized, and creating a more substantial services marketplace would be a centerpiece of the process. While efforts to improve childhood circumstance are praiseworthy, they do not address what happens in the economic realities of adulthood, once those early efforts have been completed. One way to make certain that childhood efforts bear fruit, is to strengthen local work life connections between children and adults through knowledge use systems. By placing these work life connections into a local time aggregate perspective, substantial productivity gains can ultimately be realized.

The Need for Incremental Growth

All those dreams of "normalization" on the part of central bankers? Well...not yet. Bloomberg, in a post entitled "Where Have All The Consumers Gone", writes:

Since the U.S. began collecting data in 1967, only twice has it seen three-month stretches of waning retail sales in non-recessionary times. This is puzzling. Why would consumers spend less as the economy picks up steam? And why haven't consumers gone shopping with the one percent extra income that collapsing oil prices have handed them?

Consumers are still "doing their part" to support the economy, in spades. However, special interests have already laid claim to the average dollar that gets spent - in multiple respects. As a result, much of what exists in consumer budgets is anything but discretionary. What's more, many spending commitments occur in large chunks which take a toll on other, more incremental spending options that were once taken for granted.

This now affects both Main Street and Wall Street, not to mention governmental budgets as a whole. Is Washington paying attention? Governments need to remember how they have defined already existing consumer obligations. These requirements now contribute to the "high bar" that is increasingly necessary for economic engagement. College degrees - for instance - are considered practically mandatory for the kind of economic access that provides a "normal" lifestyle. However, as another Bloomberg article notes,

While 61 percent of adults believe education beyond high school is available to anyone who needs it, only 21% agree that it's affordable, according to the poll results released on Thursday.

Perhaps governments are coming around to the realization that they are holding too many of the cards for wealth creation, for younger generations to advance their lives on the "required" schedules of the present. As these individuals put off home buying in order to tend to already existing educational burdens, other aspects of the economy are getting bogged down in the process.

Between Washington and Wall Street, choices for producers and consumers have been captured in ways that now limit both competition and participation. The need for more incremental forms of growth, access and participation are quite real. But where to begin?

For one thing, the conceptual framework of investment needs to extend beyond those who are now participating in investment strategies. Not only does investment need more direct and active meaning for many participants, it often needs be take place on more personal terms. As capital has become less tangible, more forms of capital are aligned with human capital than the marketplace has yet evolved to acknowledge. Any consideration as to the decreased investment patterns of the early 21st century, need to take this into account.

Incremental growth also means finding ways to generate incremental ownership. In other words, local groups would seek to profit from investment which doesn't raise the bar for economic access if it's not necessary to do so. Time arbitrage also provides means for gradual growth on the part of individuals and groups, in that equal time use allows all participants to assist one another within the time frames they actually have.

One benefit of this process, is that individuals would once again have reason to come together for purposeful economic activity. All too often, a lack of economic activity at local levels contributes to a loss of trust. Only consider the loss of trust in recent decades which has been observed and documented. Eventually, the new economic patterns that time arbitrage could make possible, would also mean much needed gains in societal trust.

With new means of access that allow space for incremental growth, generational divides could become less of an issue in the decades ahead. In order to make this a possibility, both living and working arrangements need to occur on more flexible terms than the institutional requirements of the present.

Another important aspect of incremental growth, is the need to be free of having to make debt commitments just to take part in ordinary economic activity. Credit and debt both have their place, but they should not be necessary as tools for basic economic access and daily life. More business formation and living arrangements need to be possible, based on the realities of one's time and the resources that actually lie at one's disposal.

Governments and lenders will always be anxious to "up the ante" and make the most of prosperous times to their own benefit. Just the same, they both need to give citizens the chance to proceed on more realistic terms. No government can maintain economic stability for the long run, if it is not willing to allow its citizens to pursue real economic stability. Financiers need to be willing do the same.

Capitalism: What Holds Us Back?

Two recent posts from Alex Tabarrok "suggested" the title of this one. In the first post, Tabarrok noted that he will be speaking at a "Voice and Exit" festival in Austin this week. While the festival marketing seemed a bit "over the top" - which prompted more than a little bemusement on the part of MR commenters - why not take advantage of the spirit it suggests? From the festival info:

We assemble those who ask: What are the systems and ways of life that are holding us back? What can we create to make those old ways obsolete? What innovations enable us to find wellbeing, life meaning and stronger connection to others?

There was a knee jerk reaction on the part of some, who also reasoned the festival is "bound" to be another attempt to belittle capitalism. But why such a quick assumption? That didn't appear as though the intent of the promotional literature. Indeed I remember similar language of hope - going on two decades old already - which was mostly smacked down in the U.S. after the events of 9/11. As to the referenced innovation in the above quote, there's been too little talk of innovation on the Main Streets of the U.S. for some time now...

At Marginal Revolution, other commenters assumed that "systems" inevitably implies meant more government planning. But how has everyone missed that governmental systems are sorely in need of redefinition from elsewhere? Some seek to minimize government, and processes involving scaled back fiscal activity have already begun, often out of sheer necessity. Just the same, does minimized government mean that better services will magically materialize in other capacities?

Not if a fair amount of planning and purposeful reorganization doesn't occur first. Without a radical rethink, a lot of private offerings would not really look all that different from today's government supported services. Not only is it difficult to generate sufficient growth from these existing services structures, but present day organization in this regard does little to address personal needs, incentives and challenges.

Let's at least keep an open mind, regarding events where advocacy for change is not just worn out political slogans. For all the complaints about government spending - let alone the dilapidated local budgets of recent decades - where are real efforts to generate a better services marketplace? And as James Pethokoukis notes, there needs to be a lot more flexibility and choice than what was advocated for services in the 1990s. Before governments are forced to cut social programs even further, there needs to be free market alternatives that are 1) capable of serving many and 2) capable of making continued economic growth possible.

In the more recent post, "Is Capitalism Making Us Stupid?", Alex highlights a review he provided for Joseph Heath's most recent work, Enlightenment 2.0: Restoring Sanity to Our Politics, Our Economy, and Our Lives. I have little doubt that Heath's latest book should be a good read, for he made reasonable arguments in his earlier book "Economics Without Illusions" which I read about four years earlier. Here's a podcast in which Heath discusses some of its themes. Regarding the latter book, here's Tabarrok:

The limitations of reason provide Heath's defense of tradition along Burkean lines...Tradition knows more than reason can articulate. The problem with modern conservatism, however, is that "it has become a defense not of tradition against reason, but rather of intuition against reason." And we cannot found a civilization on intuition. Intuition was built for survival in small, primitive societies riven by "blood feuds, tribal warfare, [and] periodic famine" and these are the societies that we will revert to when reason does not override intuition with second thoughts.

Of course, by no means is the tribal instinct strictly limited to a conservative perspective, for it manifests in the reactions of progressives as well. Often, the dialogue one encounters in social media, does not ask what can be done better. Instead the first impulse is to simply assert (once again) what the "other side" is doing wrong. That's an impulse which thus far has been difficult to overcome.

As to the seeming abandonment of reason in public dialogue, a long series of economic contributing factors are readily traceable. Society was forced to compromise time and again, as artificial limitations in knowledge use prompted more and more complexity in redistribution structures than ever should have been the case. Ultimately, governments have painted themselves into a corner, and now have few means to maintain the 20th century version of a knowledge based economy. As services have become a more important part of the marketplace, so too has time value. Only one problem: While the time value of of the specialized few has been accounted for, it can hardly be expected to suffice for the economic time value of those who remain excluded.

Does anyone really wonder - after decades of snowballing effects from limits on knowledge use - why reason has "abandoned the premises"? Fortunately - if knowledge use is once again allowed its rightful role in the marketplace - reason could ultimately return to public dialogue. Sure, it will take a lot of time to regain lost ground. But knowledge use systems are one way to begin the process, and they would lead to renewed growth potential as well.

Midweek Market Monetarist Links and Summaries - 4/15/15

Some of the recent FOMC minutes were not very encouraging...(Marcus Nunes) https://thefaintofheart.wordpress.com/2015/04/09/i-believe-bright-high-school-students-would-provide-a-better-discussion-on-monetary-policy/
"Could we jolt business from its lethargy?" https://thefaintofheart.wordpress.com/2015/04/09/a-clear-call-for-a-higher-ngdp-level-target/
Still waiting for inflation to "turn up": https://thefaintofheart.wordpress.com/2015/04/09/jerome-powell-monetary-expert/
Divisia M4 remains low: https://thefaintofheart.wordpress.com/2015/04/11/monitoring-money/
Contrary to Wolfgang Munchau's assertion, the tools are there:  https://thefaintofheart.wordpress.com/2015/04/12/another-chapter-on-whats-wrong-with-economics/
Will the equilibrium real rate gradually rise? https://thefaintofheart.wordpress.com/2015/04/13/ruled-by-a-phantom-rate/

Scott Sumner revisits negative IOR, six years later: Second thoughts on negative IOR
Of portfolio rebalancing and "flightly deposits": Monetary policy is not about banking
"Given their insane stance on monetary policy, their stance on fiscal policy makes sense." The ECB has expected AD growth right where it wants it

Scott at Econlog:
Address the root cause of investment deficiency: Low interest rates do not call for more investment
Why do free market economists hold workers accountable for money illusion? Don't blame the workers
Scott highlights a study re downward wage inflexibility and the business cycle: There is no sticky wage puzzle
A response to Governor Chris Christie's suggestion: The wrong way to fix Social Security

The "Saving/Investment Hypothesis" versus the "Liquidity Hypothesis" (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/04/secular-stagnation-liquidity-and-rentprice-ratios.html

Excessive reliance on monetary policy...really? (Benjamin Cole) https://thefaintofheart.wordpress.com/2015/04/10/u-s-chides-europe-japan-for-overreliance-on-monetary-policy/
Benjamin's referenced WSJ article provides rant material for Kevin Erdmann as well: http://idiosyncraticwhisk.blogspot.com/2015/04/odds-ends-and-imh.html
Economic growth? Not on the GOP agenda (Cole) https://thefaintofheart.wordpress.com/2015/04/12/is-the-manhattan-institute-digging-a-hole-for-the-gop/
A growing underground cash economy? https://thefaintofheart.wordpress.com/2015/04/14/at-zlb-deflation-high-tax-economies-go-to-cash-well-duh-the-banana-states-of-america-or-japanification/

If people are trying to learn more about the Fed, they're not having an easy time of it (Bonnie Carr) https://dajeeps.wordpress.com/2015/04/10/another-episode-of-people-can-just-say-anything-anything-goes-cnbc-explains/

David Glasner responds to commenter JKH: http://uneasymoney.com/2015/04/14/jkh-on-the-keynesian-cross-and-accounting-identities/

Wage Growth? Context Counts

Adam Ozimek is concerned, and with good reason, about a growing consensus as to the need for wage growth. Why? Because of the terms by which this reasoning is often structured. When one hears arguments for wage growth, are those arguments to increase wages for some? This framing is incomplete logic, because it has nothing to do with wage growth in an aggregate sense.

By no means do specific wage adjustments imply increased growth overall, or an improved economy for that matter. Whereas, increased wages in aggregate would have the potential to move central bankers closer to the normalization they now seek, and improve labor force participation at the same time. The different is important. From Ozimek's recent post:

So when economists like myself argue that the Fed should let wages grow fast before raising interest rates, it sounds like it has a lot in common with the "new consensus" arguments. In fact, it is a distinct case for higher wage growth, and it is quite possible to believe, as I do, that we should be dovish about cyclical wage growth now, but be very wary about trying to mandate higher wages in the long run. Nevertheless, a chorus of economists making the cyclical case for faster wage growth is useful background noise for those making the "new consensus" argument for higher wages.

Ozimek continues:

This is all to say that those who don't buy the "new consensus", again including myself, have a lot to worry about. While you do read pieces that challenge individual elements of the "new consensus"...there is nothing with the same coherent and oft-repeated narrative...Rebuttals are piecemeal, attacking the minimum wage or unions alone, while the new consensus provides a whole story. Just as importantly, those voicing dissent are outnumbered...Nobody else has a very easy-to-tell story right now, or at least those that do have good stories aren't addressing the recent trends in empirical evidence. 

He concludes that others need to do a better job of presenting their case, particularly given the fact this will be a substantial part of Hillary Clinton's economic agenda. While her focus is in some ways a positive - especially since little about the economy is actually "back to normal", the context is problematic. Wage growth for "deserving" groups as "new consensus" focuses on minor tweaks to existing equilibrium, rather than much needed overall growth strategies.

For instance, consider how different the market monetarist argument actually is from the "new consensus". What is needed is aggregate wage growth that is capable of assisting labor force participation as a whole. More than anything, the Great Recession was an outcome of the fact the Fed abandoned support for already existing income based commitments, just when they were needed most. Even though aggregate spending capacity has followed a relatively stable path since, there's little guarantee the "new consensus" would contribute to gains for the earlier growth trajectory. Especially since the present cap on inflation, could mean that increased wages for some would (instead) lead to further losses in economic access, for others.

Part of what makes it difficult to provide a cohesive message for wage growth, is the fact that real supply side reform is still needed - not public announcements of intention to come to the aid of a "struggling" middle class. A considerable amount of aggregate supply and demand were destroyed when the Fed took the actions which exacerbated the Great Recession. This lost capacity is still reflected in a marketplace suffering from limited investment, and limited options for both producers and consumers.

While the Fed has long since allowed "bygones to be bygones" (the earlier level of output), residual problems in this regard still thwart their desire to raise interest rates this year. As a result, there has been so much reaction to the Fed's intent, that a "windfall moment" for symbolic wage hikes may well be the result. Just the same, it is difficult to imagine targeted wage hikes as the kind of cyclical response which would have actual impact. Hence there is likely to be confusion as to symbolic wage gains, as opposed to the real wage gains, that would indicate the actual growth environment the Fed - and supply side participants - are still reluctant to provide.

Knowledge Use and Alternative Equilibrium

Everywhere one looks, knowledge appears as though in abundance. Yet somehow, not much of it is actually being measured or applied in concrete ways. Even the digital realm suggests better means for economic infrastructure which have yet to materialize. How might these circumstance be changed? For one, both practical and experiential forms of knowledge need to be expressed through more personal means. Over time, pathways for voluntary forms of association, could prove amenable to services growth for the long term.

In primary equilibrium, personal time value is not well represented in any segment of the economy. However the need to explore skills development through individual relationships - and not just existing institutions - is a recent development. For centuries, primary equilibrium evolved through individual relations with specific resource sets. Resources were often personally shaped into product, then presented to others. Gradually, these personal production roles were supplanted by institutions which became intermediary production points. While this process still works to some degree, it is now insufficient for labor force participation as a whole.

Primary equilibrium particularly became dependent on expanding production cycles, in order to fund the knowledge use of high skill services. However, both traditional forms of production and services centralized to a degree it was often not possible to sustain them at local levels. Better targeted forms of wealth creation are now needed, in part because the roles of both Wall Street and governments alike are both increasingly questioned. Main Street has stumbled through its own uncertainties for decades, and many places need to become more directly involved in the wealth creation capacity that is now needed. Fortunately there are possibilities for doing so, through the alternative equilibrium option of knowledge use systems.

Alternative equilibrium would allow groups to individually match time based compensation. This process begins with the degree of local environment that a given group is capable of committing to at the outset. Instead of differences in local hourly pay, income variations would (gradually) arise through local investment options which all participants would commit to at some level. While time based services coordination provides an alternative to income taxation, shared local investment provides a viable alternative for other forms of local taxation. These investments would include everything from production and maintenance of building components, to local municipal grids.

While time coordination is inclusive, focused and ongoing efforts would be required, for local participants to gain the time availability of other locals whose time capacity they value most. Given the fact that all desired skills sets can only go so far, this is taken into account for local educational efforts - an important factor if time arbitrage is to be successful.

The finite nature of time means that competition arises at a personal level, to prove "worthy" of what one desires to match in services and other ongoing activities from others. Given these circumstance, "fairness" becomes less of an economic issue. Why? Constraints are more clearly that of personal and group time use options, as opposed to the institutional and educational barriers that one finds in primary equilibrium. Likewise, constraints for monetary compensation overall are more obvious when local participants are invested in the system itself.

How to think about variation in equilibrium? Many knowledge use systems would seek infrastructure which is capable of generating good deflation through ongoing innovation across a wide spectrum. What's more, these systems would seek to make the most of tradable goods, international trade, and innovation possibilities from international sources.  This combination of methods would also provide room - i.e. a form of group support - for the life of the mind, which often lacks settings to manifest in ordinary circumstance.

Most important is the fact that knowledge use systems cannot be built upon either external definitions or controls, because this would take away both freedom and incentive to pursue personal challenges. In other words, any attempts to dictate how individuals divide divisions of labor would only defeat the purpose, because divisions of labor for services need to be arrived at through spontaneous means. Otherwise, it would be difficult to determine the reasons why individuals seek one another for assistance, encouragement and social activity in the first place. This - after all - has been the primary problem with the top down structures of services formations of the 20th century.

Natural Ability in Time Aggregates Context

Something about a recent discussion regarding innate human abilities, feels as though zero sum. Noah Smith and Scott Alexander went further into the particulars of Carol Dweck's growth mindset work than I am prepared to go. Still, I have to ask: is there a hard line between the success factors of innate ability, versus a strong work ethic? There are strong subjective factors in this regard, and "Lady Luck" also plays a role.

For instance: who doesn't adopt a stronger work ethic, when the work or education in question has a reasonable likelihood of eventual rewards (at some level) for one's commitment? Someone may even be trying to convince the student or worker that some reward - however tiny - is forthcoming. But chances are, in order for personal stamina to be maintained, that message needs to be duplicated somehow.

Rewards are also questioned, if it appears that education is all dressed up with no place to go. Why give false hope to those who supposedly don't have the stamina anyway, to follow through with their "highly illogical" hopes and dreams? Let's turn this argument on its head. What if all this negative judgement has more to do with the fact that the elite have become uncomfortable about maintaining a normal degree of aggregate demand? In other words, what if few are ready to generate a broad marketplace of knowledge and time based goods, for both producers and consumers?

Plus - given the present confusion as to economic circumstance - those wasted time investment arguments could still "win the day". Why? Right now, there are only so many knowledge use slots that can be compensated, by the external time use values assigned within primary equilibrium. And with ever more calls for tight money, the knowledge use slots which presently exist, could be further diminished.

Hence, might it be the end of the road, when people do not try "hard enough"? At what point does a public "judging" take place, if the masses do not expend sufficient energy to gain or "deserve" economic access? Is it possible to prevent human potential from needlessly dividing...even further? Today's matching processes for economic access mostly take place between a limited number of institutions and multiple individuals. Work based settings are also needed, which are capable of arbitraging multiples to multiples.

There are problems in the institution to multiples matching model. In time aggregate context, asymmetries now exist between the production and consumption for knowledge based services product. Indeed, one eventually ends up with a peculiar default scenario where due to constraints on healthcare production - as one commenter noted recently at Marginal Revolution - the eventual "cure" for cancer that most insurance companies may be willing to compensate for is...aromatherapy.

Wait...what!? What about the abundance of smart and extensively trained minds who stand at the ready to heal people? Scott Alexander - not the real name of this physician blogger - is among this group. But default positions in the artificially limited spectrum of healthcare are not very promising, right now. As far as career choices go, healthcare is also not going to appeal to every ("sufficiently") bright mind, because of the terms by which it is presently constructed. Some bright minds will not make the necessary sacrifices, because of heavy demands on both personal time and resource use.

It's difficult to express optimal aggregate supply and demand in terms of time based product, when no direct marketplace for time arbitrage exists. How many would consciously choose healthcare consumption for instance, if marketplace size were representative of natural, time based motivation? No one knows. Because time aggregates are missing in both producer and consumer context, individual choice does not line up with with the time based decision processes of any given group.

Observed prices for time based knowledge product, are often the result of political measures. These prices are less flexible, than the prices reflecting product which essentially exists separately from time use. Time use needs to be able to operate as a natural price mechanism. One's allotted hours in a day have a specific finite nature, and they exist as a fixed quantity relative to vast differences in other resource capacity. Without a marketplace for time use, any assumptions as to natural abilities are mostly educated guesses.

What's more, there is a often a "free lunch" of additional resources involved, when compensation for knowledge use becomes externally defined. The additional resource context which contributes to income privileges becomes a part of social patterns. This resulting natural ability and work ethic gets passed down to subsets of the next generation, but through income capacity instead of landholding.

All of which gives rise to natural limitations in knowledge use dispersal across populations as a whole. There are a couple of problems with this model. Populations assume the desired activity is more widely dispersed than is actually the case. It's difficult to envision knowledge use inequality, because knowledge is assumed to be able to carry out most necessary functions in the buildings which seek to represent it.

Governments will understandably continue to have the authority, to designate a number of "free lunches" for natural ability. In other words, they will be able to compensate a certain amount through unknown quantities of additional resources. But when nations endure recessions and budgetary constraints, questions quickly arise as to how many exceptional minds can be rewarded to the degree they appear to warrant.

The problem is not so much that skills capacity is compensated externally in a limited capacity. How else could the compensation of knowledge dispersal have begun, if not through the organizational capacity governments hold? However, government's role in the process is mostly complete. In the meantime the future of knowledge use is uncertain, and it remains suspended in a fragile state until preservation is sought on the part of populations as a whole.

Freedom is a vital part of the knowledge use preservation role. Time use freedom would also preserve the human capital investments which were avidly pursued and encouraged throughout the 20th century. Now that governments are becoming overextended in their obligations, they need to consider alternative means and settings for knowledge use and skills capacity. Varying degrees of natural ability need to be brought into the marketplace. Otherwise, too much human capital potential could die on the vine, for lack of economic access in primary equilibrium.

And it is possible to do a better job of tapping into natural ability, through the internal means of time arbitrage. By organizing activity from local time aggregate calendars, individuals can schedule both short and long range plans for skills portfolios. Personal effort and natural ability would not be questioned to the degree they are whenever skills compensation is limited by design.

Noah Smith begins another recent post:

One time, at a dinner, I asked a famous macroeconomist: "So what really causes recessions?" His reply came immediately: "Unexplained shocks to investments."

However in a sense, the recent shock to human capital is not unexplained at all. In recent decades, passive forms of investments came to replace the more active investments of traditional production. In this environment, it would have been difficult for knowledge use to gain more active positioning (through alternative services production), without disrupting the existing marketplace. As tradable goods production expanded across the globe, non tradable sectors elected to generate profits and windfalls through less innovative, less efficient means. All too often, governments and special interests alike profited by widening the placement of the goalposts.

In all fairness there were few easy alternatives. The process proceeded normally for a long time, and was in part about the improvement of living standards. Many who already benefited from a high degree of natural ability, didn't question the moat that was set up by governments and special interests alike. There are times when nothing is wrong with widening the distance between point A and point B. The problems occur when everyone is expected to bridge that space, or else.

Non tradable goods became the marketplace where innovation with broad gains, dared not speak its name. Good deflation in terms of knowledge use work or building environments, would have mostly meant smaller budgets for governments and fewer profits for local special interests. Just the same, the moat of high expectations has meant more hard questions for both natural ability and motivation. Who is still strong enough, to go the distance? It depends...