Wrap Up for May '15

May...a month of historic floods in Texas. There are still areas in the local park which have basically turned into wetlands in recent months! Of course, one good thing about parks, is that people can more easily adapt to changing conditions in weather and whatever else Mother Nature decides to dish out. Unfortunately, the same isn't always true for private property. People still build extensive structures in places where the survival of buildings is questionable, at best. Why is this practice encouraged, when beautiful but challenging areas could be approached on different terms? From a recent article about the Texas floods:

Cities in Texas are already curbing development along waterways, while other areas are increasingly taking steps, especially in terms of building codes. But the current floods point to a need to inject fresh energy into efforts, some say.

Perhaps there are learning curves and collective memories involved. This video about future restoration along the Blanco River in Wimberley, suggested that some environments would thrive better, if allowed to heal on their own. Coastal areas particularly call for more flexible options, or - at the very least - carefully placed bets. For instance, Hurricane Carla quickly changed the ways that people chose to build along the Texas coast, when I was quite young.

On a smaller scale, there is much that individuals can do for their own property as well. Of course, local education would need to play active roles in the ways water management is approached, because the effects don't just stop at one's property line.  http://www.urbanfarmonline.com/urban-gardening/random-acts-of-gardening/build-rain-garden.aspx

"My sense is that over time, hospitals will become places that you go only to get really specialized, really hi-tech care". I definitely look forward to this approach. http://well.blogs.nytimes.com/2015/04/27/admitted-to-your-bedroom-some-hospitals-try-treating-patients-at-home/ Speaking of healthcare, there is still a lot of overkill in the marketplace.

Megan McArdle explains that new starter homes have hit a dead stop.
Builder Online asks: Are start up homes history?

In 80 years, views about happiness have changed.

Ross Douthat: Two Premises on Poverty and Culture "The modern welfare state has not succeeded in producing clear improvements in opportunity, mobility and human flourishing."

When planning goes wrong: Tax increment financing as the new urban renewal has some definite drawbacks, according to Scott Beyer.

More than just jobs in driving will be affected by the rise in automated cars. http://gizmodo.com/the-rise-of-automated-cars-will-thousands-of-jobs-and-n-1702689348?google_editors_picks=true

Market Urbanism takes a closer look at the concept of an attractive city.

A lack of children or other family members, could cause a rise in what is also referred to as elder orphans.

"It's not about the schooling, it's about experiences." The Rise of Alt-School and other Micro-Schools

John Stuart Mill's thoughts on conformity and individualism are still timely.

While I have not been able to keep up with all the discussions re Romer and "mathiness", here are some of the recent posts:
Simon Wren-Lewis - Consensus in macroeconomics
Stephen Williamson - Don't get mathy with me or I'll give you a good shunning
Two from Dietz Vollrath, Mathiness versus Science in Growth Economics, and  More on mathiness
A well thought out response to Vollrath from Romer: http://paulromer.net/more-cowbell/

Yichuan Wang takes a closer look at debt to GDP ratios.

Are women more "philosophical" about a lack of success, money or resources after a certain age? After all, differences in longevity can be sharp, given differences in income. Whatever drives these results, they may give women who have limited economic access more hope about living a long life, should they desire to do so - even in "hard times". http://www.voxeu.org/article/socio-economic-adversity-kills-men-women-are-more-resilient

Ricardo Hausmann has written some good posts, but he "nailed it" with a Project Syndicate article regarding the central flaw of educational goals. This post deserves to be read in its entirety. Here is part of the summary for which I can only say "bravo":

...Evidently, "something in the water", other than education, makes people much more productive in some places than in others. A successful growth strategy needs to figure out what that is.

Make no mistake: education presumably does raise productivity. But to say education is your growth strategy means that you are giving up on everyone that has already gone through the school system - most people over 18, and almost all over 25. It is a strategy that ignores the potential that is in 100% of today's labor force, 98% of next year's, and a huge number of people who will be around for the next half-century. An education-only strategy is bound to make all of them regret having been born too soon. 

This generation is too old for education to be its growth strategy. It needs a growth strategy that will make it more productive - and thus able to create the resources to invest more in the education of the next generation. Our generation owes it to theirs to have a growth strategy for ourselves. And that strategy will not be about going back to school.

Education is one of the most vital aspects of life. However, it is nothing short of a travesty to be tossed out to the curb upon graduating from high school, as now happens far too often. When communities devote the vast majority of their resources to maintain local schools for their young, too few options remain for those who choose to stay afterward. Education not only needs to be approached as a lifelong experiential product, but also as means to provide practical solutions for everyday needs. Everyone should have the freedom to offer services, skills and knowledge for local community, for the full extent of a lifetime.

Some Thoughts on Sharing Economy Potential

Timothy Taylor notes that the "sharing economy" nickname is a triumph of public relations artistry, particularly since much of the digital realm has given rise to "low pay" and temporary work. It's not that there's anything wrong with this. After all, people are utilizing creative means to gain economic access which otherwise might not be possible. What's not to like?

Eventually, these changing trends could evolve from their present "negative" uncertainties into more stable and positive formations, at local levels. For instance, some features of the sharing economy alignment are relatively horizontal, in terms of resource utilization. This suggest further capacity for economic alignment in a horizontal direction, particularly for knowledge use. Once local groups are better able to capture the potential of horizontal alignment, more stable growth becomes possible. Even though the digital beginnings of the sharing economy are fragmented, they are already having effects on economic activity in areas of high population density and economic complexity.

Sharing economies are also part of what the Government Accountability Office refers to as a contingent workforce. While one might initially think of cashiers and day laborers, the contingent workforce category now includes high skill workers such as business consultants, as well. From Lauren Weber at the WSJ:

The GAO found that contingent workers, broadly defined, comprised 40.4% of the workforce in 2010, up from 35.3% in 2006. Most of that growth came not from typical freelancers or temp workers but from an increase in permanent part-timers, a category that grew as employers cut hours and hired fewer full-time workers during the recession.

One of the main features which cuts costs for the digital sharing economy, is the internalization of important trust factors. Knowledge use systems would also seek to internalize means for reliance on group members. Perhaps most important, knowledge use systems would seek to provide internal stability and cohesive structure which go beyond the temporary nature of today's sharing economy. Not only would the horizontal nature of time arbitrage make it possible to coordinate skills in lower population densities, the time arbitrage relationship would be one of mutual benefit. In other words, no "boss" involved. Not "natural"? Recently, Mark Perry highlighted a relevant quote from J.R.R. Tolkien:

...the most improper job of any man, even saints (who at any rate were at least unwilling to take it on), is bossing other men. Not one in a million is fit for it, and least of all those who seek the opportunity.

Just the same, many individuals have long been willing to accept bosses. After all, working for others meant stability, as long as many who are still alive can remember. Hence it is confusing now, to find those earlier promises gradually slipping away. Even the imperative to take responsibility for one's life trajectory, no longer quite means what it once did. What's more, recent developments are not just a matter of seeking out the "right" places to work, because the time has come to extend economic complexity well beyond the prosperous regions of the present.

Fortunately, the efforts involved in such an endeavor are more closely aligned with the work of the mind. Horizontal - or equal - wealth flows don't always seem advantageous because they don't offer the same differences in income which have driven previous economic activity. However, much of this problem can be overcome by treating matched time as new wealth which can be directly reimbursed. It would not be possible to fully utilize today's vast knowledge potential, without a similar approach.

After all, once someone requests higher time value in relation to others, their skills sets have to be reinforced by secondary means, such as redistribution or preexisting wealth. Economies have been able to rely on this approach for long periods of time. But ultimately, monetary flows become distorted and overly reliant on further long term government backing for knowledge use. The standard approach has also become problematic at local levels, for it is increasingly difficult to coordinate "special" skills sets in other local group formations, unless the economic region is also "special". Unfortunately, the seemingly reasonable calls for higher wage levels, continue to exacerbate this problem.

Key to moving ahead, is maintaining understanding regarding the vast differences between horizontal flows of knowledge, and the more vertical flows which remain the province of product which is separate from personal time use. After all, the vertical flows of production's first order, are what could continue to provide further choice in economic life. These choice sets extend beyond the valuable settings which coordinated time value can create. Perhaps one could imagine local time arbitrage as production's second order, in the sense of value added knowledge use.

With a little luck, personal choice sets will continue to be augmented by the still vast options which mass production has created, alongside access to the intellectual energy which the world has to offer. The challenge ahead is to create understandable links between horizontal flow potential for knowledge use, and the lateral flows of product which remain separate from time.

"Ditching" GDP Is Not A Good Idea

Since the Great Recession, monetary policy has become confused to a degree that arguments can echo those voiced in the years of the Great Depression. However, the argument to drop GDP in favor of various other measures, doesn't go back quite so far, for GDP as a concept was developed during the Great Depression. Dirk Philipsen adds to the GDP bashing in his book "The Little Big Number: How GDP Came to Rule the World and What to Do About It". From the book description:

In one lifetime, GDP, or Gross Domestic Product, has ballooned from a narrow economic tool into a global article of faith. It is our universal yardstick of progress. As "The Little Big Number" demonstrates, this spells trouble. While economies and cultures measure their performance by it, GDP ignores central facts such as quality, costs or purpose. It only measures output: More cars, more accidents, more lawyers more trials; more extraction, more pollution - all count as success. Sustainability and quality of life don't count. Losses don't count. GDP promotes a form of stupid growth and ignores real development. 

Philipsen's attack is a broad one, and I simply need to hone in on a few particulars in this post. The primary purpose of the Fed is to provide monetary policy, in spite of other responsibilities it has gradually assumed. GDP aggregates are the main means of measurement central bankers have, to provide monetary representation on behalf of citizens in a complex economy. Not only is the marketplace as a whole taken into account, but government activity as well.

Those who suggest doing away with this important measure, do not realize that it is the most useful means central bankers have to maintain monetary policy in a stable framework. Even though GDP measurement has become more difficult in recent decades, improvements for services capacity can be made in the years ahead, which should make it easier to determine monetary flows for services activity in real time.

While Philipsen's concerns shouldn't be discounted, he is mistaken in thinking that a discontinuation of GDP measurement would somehow "solve" the problems he is concerned with. GDP simply takes into account the economic activity that is currently taking place - i.e. what already is. It is up to citizens, to generate the kinds of economic activity they are ultimately more comfortable with. No change in measure can do that job for them. Change in measure can't provide practical assistance, if it doesn't record the activities individuals currently take part in - whatever goals they may seek. The value in exchange context concerns what happens in the present. Outcome is only measurable to the extent it is represented in a given recorded exchange.

Possibly the best means to improve GDP, would be to create a value in use marketplace, for local time use. This would allow more of the personal concerns individuals wish to measure, to be recorded in terms of time value alongside the monetary compensation that would support a time arbitrage base. Eventually, local marketplaces for time value could also make up for some of the missing elements of domestic activity and household production in GDP as well. There are doubtless other ways to measure national goals. But hopefully, none of them will detract from the central role that GDP still holds for monetary stability. 

Needed: A More Practical Side of Macroeconomics

A tremendous amount of effort goes into macroeconomic thought and activity on an ongoing basis. But how practical are the results, in terms of applicability for populations as a whole? What's more, how important is this consideration, in the minds of those who debate and research these issues?

To date, the most important applications of macroeconomics are of a monetary nature, because monetary policy has the (most obvious) ability to be proactive in a broad sense. Even so, governments and markets do not always coordinate their activities so as to allow monetary representation to remain proactive. Plus, the fact that monetary policy should represent entire populations and aggregate time potential, has been blunted by the centrality of governmental economic activity, which came to dominate in the twentieth century.

While government activity has been able to provide marketplace substitutes in some instances, its ability to do so exists only up to a point. This is particularly true in regions where marketplace scarcity - in terms of important services formation - is threatening more regions with the passing of time.

Thus far however, dialogue concerns mostly what occurs in primary equilibrium. In other words, few actually discuss how to include those with insufficient economic access, or what is increasingly a missing marketplace for time, services, knowledge use and interdisciplinary coordination. What continues to fall away from primary equilibrium, is by far the most pressing concern - not just because of obvious social and cultural implications, but also because of general equilibrium distortions which have only grown since the Great Recession.

The fact that this is not being discussed at national levels, has considerable bearing why the average citizen has few means to proactively engage in the discussion. Granted, much of the ongoing macroeconomic conversation is supposedly on the public's "behalf".  But citizens are not particularly impressed with the results. How could they be, given the fact some of the most pressing problems are concealed by political disagreements? When economic issues are politicized, they are framed in ways which make them all but impossible to productively address.

As a result, citizens exercise the main option they actually have, which is to refuse more of the same. But refusing more of the same without a change in overall focus, does not mean being able to preserve the previous status quo. Just the same, policy makers have also been inclined to apply the brakes in multiple capacities without fully understanding what is at stake.

How do think about this? For one thing, it is not possible for macroeconomics to be "all about" government activity, because governments rely on a thriving marketplace for what they wish to accomplish. Importantly, fiscal activity has little choice but to slow, any time that monetary activity is cut back in some capacity. But just as supply side gridlock continues to affect monetary policy, governments are reluctant to acknowledge the extent to which they also rely on marketplace vitality.

Political parties are not able to address these problems, because they represent different special interests which in turn are holding fast to their own staked out positions. Even so, reacting to the fact this is happening, will not move anyone forward in terms of production reform. The help of all factions is needed now, to overcome the present marketplace stalemate.

For all that monetary policy can do, it cannot provide the supply side impetus and motivation which would spur long term growth to more sustainable levels. Just the same, the capacity of supply side reform belongs to entire populations - a fact which has been missed. It is time for policy makers and economists to approach economic problems by more practical means. Macroeconomics needs to be proactive not just monetarily, but also in respect to structural coordination and organization. Otherwise, citizens will still find it difficult to gain perspective, regarding what is at stake. Ultimately, the marketplace needs to be approached through more inclusive and personal means.

Midweek Market Monetarist Links and Summaries - 5/27/15

When central bankers choose not to decide, they still have made a choice. Governments and markets need to be on the same page. (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/05/what-the-non-lunatic-right-believes-about-macroeconomic-policy.html
Nick responds to a recent post from David Andolfatto http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/05/fiscal-shocks-as-relative-demand-shocks.html

When QE "blows bubbles" (Scott Sumner) What happened to the QE skeptics?
It is difficult for central bankers to blame themselves Seeing Lu Mountain
What is an accurate "takeaway" for industrial production gains? America's industrial juggernaut

Scott at Econlog
The concept is linked to each country's monetary unit There's no such thing as global aggregate demand
An "inherently unstable economy" is a poor excuse: Questions that don't get asked very often
Central banks are unique because of what they sell, not because of what they buy. Apple's open market purchases

NGDP linked bonds could reduce the pain of structural reform (Lars Christensen) http://marketmonetarist.com/2015/05/25/yanis-varoufakis-has-a-point-the-greek-debt-crisis-is-mostly-about-the-collapse-of-ngdp/

...and the author started out so well! (Marcus Nunes) https://thefaintofheart.wordpress.com/2015/05/20/one-good-paragraph-and-two-awful-ones/
The Divisia broad money series provides clues which otherwise might not be obvious: https://thefaintofheart.wordpress.com/2015/05/20/the-monetary-view-of-the-great-recession/
Stronger growth, any day now? Perhaps not: https://thefaintofheart.wordpress.com/2015/05/22/the-wishin-hopin-fed/
Yellen's recent speech was not encouraging: https://thefaintofheart.wordpress.com/2015/05/22/the-ff-target-rate-is-just-a-placebo-but-it-can-be-toxic-if-too-much-is-ingested-at-a-low-level-of-stamina/
Japan's long running example is seemingly forgotten: https://thefaintofheart.wordpress.com/2015/05/23/fiscal-deficits-continue-to-be-the-best-advice/
Initially, the conditions for Greece were worse: https://thefaintofheart.wordpress.com/2015/05/26/to-yanis-varoufakis-the-ez-bed-is-not-comfortable/

What can be learned from the stance he has taken? (Josh Hendrickson) https://everydayecon.wordpress.com/2015/05/21/understanding-john-taylor/

Bill Woolsey defends the GDP deflator: Asset price inflation

Optimal...with falling industrial production? (Benjamin Cole) https://thefaintofheart.wordpress.com/2015/05/25/thinking-about-martin-feldstein-again/
Why is he so certain the economy will "overheat"? https://thefaintofheart.wordpress.com/2015/05/22/jim-paulsen-of-well-capital-management-becomes-defeatist/
Yellen is ready to tighten...https://thefaintofheart.wordpress.com/2015/05/24/the-imf-tells-the-bank-of-japan-to-hit-the-gas-what-about-the-u-s-federal-reserve/

No, central bankers are not handing out "favors" (Bonnie Carr) https://dajeeps.wordpress.com/2015/05/24/peeves-journalistic-malpractice-regarding-central-bank-interest-rate-cuts/
Yes, the interest rate hike is a big deal! https://dajeeps.wordpress.com/2015/05/26/idolatrous-fischer-on-looming-fed-rate-hike/

Never reason from a price change - A good example from Caroline Baum: http://www.economics21.org/commentary/oil-prices-decline-supply-demand-effect-05-19-2015

David Glasner highlights recent efforts on the part of Luigi Zingales: http://uneasymoney.com/2015/05/22/is-finance-parasitic/

Free access to Internet utilities...another form of household production? (Evan Soltas) http://esoltas.blogspot.com/2015/05/is-growth-understated.html

In response to Zingales, Taylor and Glasner (Kevin Erdmann) http://idiosyncraticwhisk.blogspot.com/2015/05/if-loving-finance-is-wrong.html

An Economic Suggestion, in Two Words

...for governments in particular. Look inward. Stop the blame game, and focus on moving ahead. (Recently I've kept up with historic levels of flooding in Texas, and blogging has been a bit light. So many areas have been affected - not only where there are family and friends, but where old memories reside as well.)

Look inward. So many positive actions could still be taken, so many changes could still be made, which would greatly improve economic conditions. However, doing so means that governments need to be willing to seek out their own citizens for solutions and answers to seemingly unsolvable problems - and often at local levels. Policy makers have become increasingly stymied, in their efforts to continue with one size fits all remedies. For a long time, it was possible for a representative democracy to do so. But increasingly: large scale planning efforts which expect entire populations to live the same way, can only go so far.

Some national introspection could go a long way, to tone down the reactive nature of today's political rhetoric. For instance, Harold James in a Project Syndicate post, notes the backlash towards migration which has developed in Europe. Of course, Europe's example is indicative of a reaction which has become typical for many nations. Many problems regarding social mobility, stem from the fact that few citizens feel as secure as they did, prior to the Great Recession.

Citizens do not feel their governments can adequately take care of their own, which is why many have become reluctant to assume further taxpayer responsibilities. The U.S. in particular, struggles with inadequate service formations at both national and state levels. Even as spending flows for services need to be maintained, politicians and economists alike are divided, how to do so.

Plus, the asset wealth of present housing stock depends on the ability of monetary policy to maintain aggregate spending capacity, in order that present debts and contracts can be honored. Much of this capacity also depends on maintaining labor force participation as well. Unfortunately, policy makers remain anxious to pull back from those commitments too quickly, as if doing so would somehow make the underlying structural problems go away without further ado.

Instead of reducing monetary flows prematurely, a structural shift needs to take place in both production and consumption capacity. Structural shifts are not just about the need to reduce dependence on pensions and create more flexible wages, but also about addressing the problems that both governments and special interests created for spending capacity, to begin with. Even though it isn't possible for today's institutions to provide wages and benefits as before, it's not rational for anyone to expect populations to be okay with these losses, if basic consumption patterns in services and housing do not also change.

Look inward. Find less to blame, and more ways to make certain that everyone remains economically engaged and has responsibilities which are actually possible for them to meet. No one should have to seek economic mobility to escape what does not work. Look inward to fix what does not work. Travel and mobility are best when they are about exploration, curiosity, and the desire to see the world. By recreating vital economic conditions at home - wherever home is - people can travel to explore, not escape. For any economist who believes a prosperous future remains possible, that should be the ultimate goal.

Long Term, Productivity Needs Full Employment

In a recent post, Diane Coyle highlights "The Social Framework", a book which John Hicks published in 1942 about national income accounting.  His book also served as a marketing tool, for what was still a new perspective. Coyle explains:

It's an introduction, for the general reader, to the then-new fangled concept of national income accounting - beautifully clearly written and very straightforward. The book is upfront about the limitations of the exercise. For example, Hicks explains that it is progress if people work on average fewer hours to produce the same quantity of goods and services, even though the national income or output will not rise. Progress can be "deliberately taken in the form of increased leisure".

If economic participation can only become "naturally" limited over time to generate further productivity, how is it possible for economic growth to remain representative of populations as a whole? Production reform for services coordination is needed, which can further clarify productivity through knowledge and time based means. Otherwise, reliance on decreasing time aggregates for all production gain, could eventually cause progress to go into reverse.

Consider Hick's focus on leisure, which plays out quite differently, depending on income levels. For instance, high income levels often purchase leisure as experiential goods. Whereas, "leisure" for those who lack economic access, might turn into the planned containment of prison at a system wide level, or abusive circumstance at the personal level. "Leisure" might be the loitering that property owners don't want, instead of someone considered trustworthy who is merely "hanging out".

A lack of economic access can slowly short circuit the most basic benefits of productivity, when individuals are not meaningfully engaged in economic participation. Productivity on present day terms has managed to provide centuries of economic growth, but it is slowly coming face to face with its own negative externalities.

When knowledge use is secondary to traditional production processes, this represents the natural growth limit which Hicks noted in his book. The problem is not so much the natural growth limit, but that it takes place in a way that employment is slowly being replaced by consumption. Knowledge use systems would also represent another natural growth limit to some degree, albeit with an important difference. The growth which represents all of a given population, would be more reliable than the growth which only a population subset can provide.

What's more, full economic participation could make monetary policy simpler, in that it would be able to faithfully follow nominal income alongside aggregate spending capacity. The services productivity of a time based marketplace, would provide real gains through both knowledge use and social value. By finding means to bring greater productivity to services structures, populations would not have to rely on leisure alone, to protect the stability of long term growth.

Time Value and Utility in Rival and Non Rival Knowledge Context

One reason the differential marginal utility of money can appear so strong, is the fact there is presently no marketplace for time value. Tyler Cowen sparked a discussion about marginal utility in a recent post, Bob Murphy provides summaries of the discussion and highlights the ordinal and cardinal contexts for utility. David Henderson responds to Murphy's post and notes:

I oppose government taking from the wealthy and giving to the poor, unless the wealthy people first took it from the poor people.

Think about Henderson's response. It is not at all obvious whether something is "taken" from a poor person by a wealthy person, in many instances. What kinds of resources are at stake? Resources which exist separately from time, often can be readily quantified or thought of as cardinal. Sometimes, these separately existing resources appear as though infinite. Quantity is often unknown - or at least uncertain - to a degree the resource becomes a poor candidate for "equitable" distribution.

On the other hand, time value is the exact opposite in this respect. We know exactly how much time potential (i.e. hours) we have - individually and in aggregate - which could contribute to our condition and that of others. Plus: whenever time value is lost, one may not always be able to amend those deficits in the course of a lifetime - in spite of what may be tremendous effort. This is why the "riches" of off-limits knowledge use can make some groups poorer in aggregate, if and when the knowledge product is integral to everyone's survival.

Whereas if someone were to limit knowledge use which doesn't affect general consumption and production patterns (say, space exploration), rival or monopolistic restriction would only mean knowledge use "poverty" or equilibrium distortion in a very limited sense. In this instance, the "unnecessary" knowledge would more closely represent product separate from time value - nice to have, but generally not necessary. Long story short: limits in knowledge use for basic product formation (healthcare), amount to knowledge use theft which matters across general equilibrium levels.

These limits also manifest in more than a cardinal or aggregate sense. One's time value is ordinal, to the degree time value is derived from positioning within series of economic interaction. In other words, most individuals are not actually free to schedule time with others whose time is already in high demand. Rather than attempt to force high demand individuals to provide knowledge to entire populations, it is far more reasonable to disperse knowledge more widely, so that demand can more easily be met within the given time series of economic interactions which are actually possible. In other words, services productivity involves both consumption and production coordination, not just demands on the part of a limited supply of production.

Greater knowledge use dispersal and more precise services production are possible through a time based marketplace. Coordination would take place through both individual and group aggregates, instead of the externally defined skills limitations which have distorted services equilibrium. Even though present day institutions coordinate time use, these knowledge applications are only representative of population subsets.

Indeed, this has bearing on the fact that non rival knowledge is treated as though rival. In particular, the tendency is all the more pronounced, given the fact that knowledge use remains in a secondary position to other forms of production. Knowledge use as rival, seems more "efficient"! Dietz Vollrath responds to recent discussions involving Paul Romer, in this regard:

One thing we have come to a consensus on is that economic growth is driven by innovation, and not simply accumulating physical or human capital. That innovation, though, involves non rival ideas. Non-rival ideas (e.g. calculus) can be used by anyone without limiting anyone else's use of the idea. But modeling a non-rival idea is weird for standard economics, which was built around things that are rival (e.g. a hot dog). In particular, allowing for non-rival ideas in production means we have increasing returns to scale...But if we have increasing returns to scale, why don't we see growth rates accelerating over time?

Even in knowledge use systems, growth rates for non rival knowledge use would not contribute monetarily to the representation of skills capacity, other than the time use base. The most obvious gains would be increased knowledge and skills quality in group settings over time, so long as the chain of cohesive group structure is not broken. However, monetary gains would also result from the production formations used to generate local economic activity. The system creates its own form of desirable product (secured human capital), which in turn generates a new marketplace.

Non rival knowledge use is not everyone's "cup of tea", and would take some getting used to. Knowledge use systems could be thought of as a contract which honors the ordinal or positional component of knowledge use in a time based framework. In this setting, it would be rational to "take" the  knowledge one needs and leave the rest. Of course, it helps to remember that no "stored" knowledge or skill sets would be "collecting rent" in the form of asymmetric time value. One simply utilizes the knowledge which fits the current circumstance and environment.

While knowledge use would not be compensated on its own merits, the real value lies in quantifying how it is used in given context, and recording how settings change. The fact that time value is immediately quantified with no residual, provides certainty which otherwise isn't possible for services systems. Low growth for GDP in terms of compensated time arbitrage may not be all bad, if human capital can be secured and protected. There are real advantages, compared to the present low growth economic environment of services uncertainty, and rival knowledge use as far as the eye can see.

Time Value, Marginal Utility and the Hierarchy of Needs

While the Maslow pyramid is more suggestive than representative, it still provides clues regarding individual motivations and aspirations - both at personal levels and in the marketplace as well. Why, then - given the incredible degree of innovation which propelled nations forward in recent centuries - do healthcare and housing place place such extensive (i.e. non innovated) demands on the two bottom sections of the pyramid?

A complex economy suggests real choices along the entirety of the hierarchy of needs - instead of clustering around the base of human expectation. True: with a little effort, middle to upper income levels are still able to pursue higher aspirations. However, it's fair to suggest that economic circumstance have been unnecessarily weighted towards the lower portion of the Maslow pyramid - for all income levels. Often, lower income levels struggle with time and resource management to a degree they have little energy left, to seek out life's higher aspirations.

What's more: the lack of a designated marketplace for time, means that existing time values are either at a premium, or sorely lacking in arbitrage capacity. Too much economic weight on basic needs, skews government redistribution in terms of marginal utility for lower income levels. In particular, the labyrinth of government subsidies for service needs and home mortgages - regardless of income level - distort what marginal utility might have been possible for basic assistance in the first place. When limits are placed on knowledge use, extensive time use asymmetry can develop. In these circumstance, government redistribution can no longer smooth time use management among populations as a whole.

Without adequate representation for time value, general equilibrium also tends to take on a one dimensional aspect. Time coordination adheres to institutional needs, which take precedence over family/social organization and structure. It's easy to forget that before the industrial revolution, individuals often engaged with multiple forms of resource use over the entirety of their lives. When populations were directly involved with production processes, they also remained responsible for time management at an internal level.

Those with higher income levels have some degree of internal time management, when they are able to hire others to carry out responsibilities on their behalf. However, lower income levels are often not able to access these already existing forms of time arbitrage. That means too little time to spare, if one is employed full time yet with limited income. Whereas, too little or no employment, can mean too few available resources for using one's time productively. Either time deprivation or excess time "leisure" has been the result, and neither are suitable for coordinating one's responsibilities - let alone seeking out higher aspirations.

Given this circumstance, what can be done? Severe production restrictions in both housing and healthcare have made it more difficult for lower income levels than is actually necessary, to move beyond the hierarchy of basic needs. At the very least, seeking innovation in building components and services creation would allow lower income individuals to make their income go much further. A marketplace for time, would allow lower income levels to coordinate services with one another which otherwise may not be available to them.

Even though a certain amount of wealth formation can continue as before, economic circumstance have already shifted in some respects. Some communities will need to more accurately reflect the income capacity that has become possible. Ultimately everyone is in the same boat, when it comes to determining how to thrive together. Not every municipality will be able to continue building wealth through exclusive offerings which pit income levels against once another. Even so: by budgeting for more reachable basic goals (the pyramid base) as a group, that leaves more room for local citizens to strive for broader life goals. By embracing both human capital and the value of a time based marketplace, local communities can move towards fuller representation of the hierarchy of needs.

Midweek Market Monetarist Links and Summaries - 5/20/15

David Glasner examines a working paper regarding inflation expectations in the Great Depression: http://uneasymoney.com/2015/05/15/a-new-paper-on-the-short-but-sweet-1933-recovery-confirms-that-hawtrey-and-cassel-got-it-right/

Lamfalussy knew that fiscal union would be problematic, early on...(Marcus Nunes) https://thefaintofheart.wordpress.com/2015/05/14/an-old-professor-of-mine-dies/
Where exactly is wage growth going to come from? https://thefaintofheart.wordpress.com/2015/05/14/where-does-the-fomc-get-these-ideas/
So far, not so good: https://thefaintofheart.wordpress.com/2015/05/15/the-wsj-bets-on-red-black/
Still a contained depression: https://thefaintofheart.wordpress.com/2015/05/15/the-depressions-great-moderation/
There's a reason this long business cycle doesn't get a lot of respect: https://thefaintofheart.wordpress.com/2015/05/16/proud-to-be-depressed/
What might the rationale be this week? https://thefaintofheart.wordpress.com/2015/05/17/reasoning-from-gdp-component-changes-a-media-macro-favorite/
A "self correcting" economy? https://thefaintofheart.wordpress.com/2015/05/17/secular-stagnation-larry-summers-is-wrong/
Not a good sign! https://thefaintofheart.wordpress.com/2015/05/18/the-ecb-will-not-change-strategy-even-if-that-means-marching-towards-and-falling-off-the-precipice/

The markets still need more confidence in the ECB (Lars Christensen) http://marketmonetarist.com/2015/05/14/mario-stay-on-track-and-avoid-the-mistakes-of-1937-and-2012/
Lars provides highlights: http://marketmonetarist.com/2015/05/17/sunday-notes-three-working-papers-and-three-prediction-markets/
As he prepares for upcoming speeches...http://marketmonetarist.com/2015/05/18/talking-about-the-polish-economy-on-an-airport-escalator/

Beijing is changing very quickly (Scott Sumner) Report from China
Recent news on the new Greek government The view from Vilnius
Scott's recent interview with Timothy Lee: https://www.vox.com/2015/5/12/8590993/currency-manipulation-tpp-explained
Some quick work took place on this paper which also has an MM feel: Jonathan Pedde on the UK election and fiscal policy
"Central bankers are grossly underpaid." The most underpaid profession on earth
How much truth lies in the Neo-Fisherian claim? Neo-Fisherism, missing markets, and the identification problem

Scott at Econlog:
What about policy changes to reduce inequality? Low hanging fruit and the inequality question
It takes time for output to adjust during reallocation: Reallocation and growth
Data doesn't tell us whether income is sufficient for consumption needs Shocking new data on wealth inequality
Many arguments against consumption taxes are arguments in favor of progressive taxes: A consumption tax is a wealth tax

What counts as capital investment for the self employed? (Britmouse) https://uneconomical.wordpress.com/2015/05/18/the-hidden-2011-2-investment-boom/
Britmouse contrasts two periods: https://uneconomical.wordpress.com/2015/05/19/what-would-irving-fisher-say/

The human capital problem: no "guarantees" in this regard (Kevin Erdmann) http://idiosyncraticwhisk.blogspot.com/2015/05/our-discomfort-with-reward-from-risk.html

Is the idea of zero unemployment just a crazy dream? (Benjamin Cole) https://thefaintofheart.wordpress.com/2015/05/17/thinking-about-the-unthinkable-on-nuking-unemployment/

Also of interest:

Jeremie Cohen-Setton provides some summaries: http://www.bruegel.org/nc/blog/detail/article/1627-is-the-economy-stationary/

Tim Worstall offers some good reasons re why not: No, let's not try to abolish cash

Direct Wealth Creation, Growth and Aggregate Supply Potential

How does direct wealth creation affect growth patterns in general?  Even growth from the obvious wealth of commodities, depends on the degree to which product can be realized at any given moment from raw materials. Asset formation also reflects these same aggregates. Physical wealth is what one generally thinks of, as new wealth "entering" an economic system. Hence monetary policy tends to focus on these these areas and the equilibrium they suggest. What about the role of human capital as aggregate supply, in equilibrium?

Nominal income also needs the active consideration of monetary policy, but some have been reluctant to acknowledge the roles of human capital and labor force participation, in the economy. Just the same, more substantial knowledge use and labor force participation are paramount, for continued growth. How could human capital be more closely associated with growth potential? Knowledge use, human capital and time aggregates need direct roles in wealth creation.

Knowledge use and high skill services in the marketplace are presently limited, in two distinct ways. First, human capital was initially defined as a secondary - or residual - component of product creation. In this setting of external knowledge use definition, production gains are also a result of less labor input, over time. Or: an alternate route to production gains through knowledge, has been through regimented or otherwise protected formats. Without a specific marketplace for time value, already existing knowledge sets have often been duplicated, instead of being adapted to specific circumstance. These knowledge use patterns have also been problematic, in that they attempt to place knowledge in categories with arbitrary value which does not readily transfer across disciplines.

There is also the problem of knowledge use limitation in the broader equilibrium sense of time coordination. Knowledge applications which are part and parcel of final product, either tend to be government backed, or in use primarily for higher income ranges. Both of these factors have created (what are now) natural limits for knowledge use in the marketplace. Private knowledge application settings experience limits due to a small high income population, whereas public knowledge application experiences limits from fiscal spending capacity.

In other words: because of the asymmetry uncertainty of coordinated skills residuals in the marketplace, it has been difficult to assign knowledge use a primary role in either wealth creation or growth potential. Externally defined knowledge applications had little choice but to rely on backing from preexisting sources of wealth and/or power. This is one of the main problems that endogenous knowledge use systems would seek to overcome. Presently, even though some fiscal backing remains for knowledge use, it comes with hidden government subsidies and other murky transmission features. In these circumstance, the growing attempt to control fiscal costs often ends up sacrificing the "good", along with the "bad".

Fortunately, time value for knowledge use, does have the capacity to be matched directly and internally with no debt residual. These systems would rely on a unique production process that is both social and knowledge based, recorded in a group/time continuum. Endogenous coordination would still realize production gains through full employment and idea adaptation, which otherwise might not be possible.

Time arbitrage in knowledge use systems, would also offer product value which goes well beyond what individuals actually exchange in any given hour setting. The fact that comprehensive internal support structures could be realized without time debt residual, is why knowledge use systems would make a formal bid to be recognized as targeted new growth. It has not previously been possible for economic activity which also exists as compensated income, to generate newly created wealth - for multiple reasons.

Consider that externally defined wages which rely on government redistribution, mostly have additional product value in the sense of "charitable assistance" - a category which sometimes seems applicable to fiscal measures in general. What's more, fiscal activity of all kinds has an increasingly questionable role for long term growth, as populations already struggle with present tax levels. However, 1) fiscal activity in its present form, supports knowledge use structures which are often inaccessible for lower income levels in terms of production and consumption, and 2) fiscal activity - even in the best of circumstance - does not necessarily provide the services which populations believe are still available...until they need to seek them out.

Knowledge use systems can provide more comprehensive services formation where both profit and non profit activity have failed to do so, for additional aggregate supply capacity. The social contract of coordinated local support, would provide backing for both individual and group endeavor, as well as broader representation for knowledge use. Time arbitrage would provide reliable backing for asset structure, and recorded local history for the changing circumstance of interdisciplinary knowledge use.

As a social safety net which reduces overall risks in a long range capacity for individuals and groups, knowledge use systems could provide services organization more effectively than governments. Time aggregates and individual purpose are better aligned, and the safety net factor is paramount. It means that through consideration for others and concerted effort, people of all ages would remain part of the ongoing economic activity of their community, so long as they live. Even though investments can ultimately provide leisure for some, others would continue to tap active time use value for their obligations.

Another product component of knowledge use systems is that of planned redundancy, which operates as a knowledge use backup system for the regions at the forefront of  economic activity. This would make knowledge use systems valuable to nations as a security benefit. Not only would they provide "second opinions" and alternative responses, they would become a repository of knowledge wealth which other institutions cannot always support.

Best, the growth of knowledge use would no longer be dependent on commodity wealth, traditional production or other existing financial structures. Long story short, human capital could assume its rightful place at the forefront of the wealth creation process. Knowledge use can become an originator of aggregate supply, not just a burden on aggregate demand. Ultimately, the process would provide a stronger role for monetary offset than has been the case thus far - particularly in a time of diminished fiscal contribution to monetary policy.

Human capital would thrive, given a primary role in economic activity. Until now, time based compensation in relation to other resource potential has suffered neglect - given its existence in a secondary capacity. So long as production continued to rapidly expand, the secondary role of knowledge use was understandable. But once nations became dependent on consumption and aggregate demand for further wealth creation, that was a signal to take a closer look at the obstructions of aggregate supply which can affect economic systems in their entirety. Fortunately, there are means to begin the process of normalizing aggregate supply, through additional knowledge use capacity.

Notes on The "Hidden" Equilibrium

Was the recent recession a learning experience that we haven't fully absorbed? Tyler Cowen suggests this could be the case in a recent NYT article, "Don't be so sure the economy will return to normal". In particular he stressed ongoing changes in wage structures across sectors, and suggested that rather than fight these ocurrences, it might be better to work with them. From the article:

Institutional rigidities don't permit adjustments to occur all at once, but by studying continuing changes we may be able to peer around a corner and see where a sector is headed. Such processes are scary because we may be watching a slow unfolding of a hand that, in its fundamentals, has already been dealt. There are signs that a comparable story may apply to the American economy more broadly. 

The "slow unfolding" which Cowen spoke of, could be thought of as a broad equilibrium shift - albeit one which remains partially hidden. Some former patterns no longer hold, but it is difficult to understand why they don't. In spite of shifting wage patterns, other elements of the economy remain suspended in what Scott Sumner describes as an "era of unprecedented non-change". Sumner also notes:

Last year, the US saw a 0.73% increase in its population, the slowest since 1937.

Even if economists are not in agreement regarding a long "recovery" which doesn't feel right, the fact that family formation remains subdued, speaks volumes. Structural issues have been difficult to address, and they also involve first mover responses for which there are no "blueprints" to follow. Initiating change is generally viewed as "someone else's responsibility", particularly when governments are not well positioned to guide the process. A recent cartoon sums up the point nicely, in which a speaker addresses the crowd and asks "Who wants change?" Of course the crowd enthusiastically responds, with a show of hands. However, when he adds, "Who wants to change?" no hands are raised, and the audience suddenly appears self conscious.

One of the more immediate concerns which has yet to be addressed, is a lack of response to evolving wage potential in terms of community infrastructure and maintenance needs. It is sad to think that many municipalities may find themselves at the brink of bankruptcy, before they are able to seriously contemplate what changing wage structures among populations could mean for expectations and long term goals.

Shifts in general equilibrium will of course impact some communities more than others. Some may be able to reorganize financially, while retaining the look and feel of the present. But others will need to reconsider ongoing transportation needs and other local infrastructure, at very basic and occasionally simpler levels. The good news in this regard is that when populations approach long term infrastructure issues head on, the results have more integrity than would be the case with a partial and reluctant response.

Perhaps one of the more difficult adjustments will be the fact that wages cannot always be maintained at the levels which seem appropriate. There are too many interconnecting factors affecting wage structures which will need to be closely examined, particularly given the fact that labor force participation needs to be increased in the years ahead. At the very least, production reform in services and building components could make wages go further without decreasing economic access overall. What's more, innovation and experimentation at local levels could provide some "missing links" in the evolving equilibrium, as well.

Update: This letter is one example of the reset: http://chronicle.com/blogs/conversation/2015/05/12/an-adjuncts-farewell/?cid=cr&utm_source=cr&utm_medium=en

How Does Diversity Matter?

"Desirable" circumstance in terms of diversity, can be confusing. For instance, consider how diversity exists in nature. In natural landscapes, one often finds groupings of flora and fauna in symbiotic relation with other groupings, rather than different kinds of plant life totally interspersed with one another. Integration efforts mostly attempt the latter. How can recognizable diversity even continue to exist, if one's goal is to completely mix "contents" so that few remaining characteristics stand out? When governments and special interests reach for homogenized sameness in the marketplace, that sameness can either lull the mind into unthinking oblivion, or create needless struggle over defined outcomes.

Wouldn't it be better to encourage symbiotic economic relationships between diverse groupings, instead of struggling over differences? If regulations were envisioned as subsets - meant to generate gateways for multiple group options and capacities - life would be more interesting, and meaningful as well. Why not allow a thousand life options to bloom? One size fits all laws and regulations are turning much of what was supposed to be representative democracy, into forced compromise which feels appropriate to no one.

Decades earlier, I took part in library programs which also sought to assist local minority groups. Fortunately for those of us who were involved, many individuals who benefited from these programs provided helpful feedback. While participants voiced their appreciation for our help, something else gradually became apparent. They wanted to maintain a unique status as individual groups, without complete assimilation into organizational patterns which were not quite their own.

Plus, these individuals wanted to be able to reach out to other groups based on positions of strength. Doing so would mean maintaining both a distinct identity, as well as personal integrity. How might such perfectly natural desires be honored on a wider scale? I've been reluctant to write about diversity, and have already tossed out several related posts in recent months. However, due to a discouraging take on diversity in a recent Atlantic article, I decided to try again with this one. In "The Weakening Definition of Diversity", Gillian White begins:

What qualifies as a "diverse" workplace? Does it mean that employees are of a variety of different races and genders? Or does it mean they've had a variety of life experiences? Millennials seem to be tilting toward that latter, more easily attainable vision.

What's wrong with that millennial "version", for Pete's sake? In terms of personal and economic potential, I would certainly hope this evolving definition of diversity could be the stronger one, in spite of the author's reservations. More economic inclusion is certainly needed. But the way to greater inclusion is to make certain that real economic growth and economic access remain possible for everyone.

How to think about diversity from a knowledge use system perspective? The use of local time aggregates would allow individuals to coordinate for basic work and study needs, while gradually progressing towards discretionary preferences. At a young age, basic education provides a "trunk" or grounding point. From there, students can choose among the "branches" which local educational entrepreneurs (from all walks of life) would be able to offer.

The entrepreneurial assisting/learning method would also mean no more struggles as to what "should" be taught in school settings, and no more needing to be in the "right" schools to gain a good education. Local citizens would be able to make new educational choices on a regular basis, and also have the option of seeking out entrepreneurs from other knowledge use system settings.

Services options in particular, have been seriously hampered by differences in cultural interpretation. Some laws now coming on the books, are of a nature that the lives of millions should no longer be subjected to the opinions of special interests. By internalizing services formation and knowledge use, it would be possible for local groups to exercise more direct forms of democracy, by providing and voting for the services which matter most to them. Again, the use of coordinated time aggregates can go a long way, to provide the kinds of services which different groups find most important.

Something to remember: when services can be arbitraged internally alongside local production, there would not be a remaining budget burden for local groupings in relation to the larger (national) whole. The services coordination of local knowledge use systems would not make additional fiscal demands on the larger system, and these local arrangements would be created through monetary means. As a result, even highly diverse outcomes in terms of services formation, would not present fiscal problems for governments at any level. A thousand different visions for diversity, could overcome limited definitions which do little justice to diversity in the present.

Further Notes on Knowledge Use Rights

In "The Puzzle of Liberal Democracy", Dani Rodrik and Sharun Mukand write:

Liberal democracy rests on three distinct sets of rights: property rights, political rights, and civil rights. The first set of rights protects owners and investors from expropriation. The second ensures that groups that win electoral contests can assume power and choose policies to their liking - provided these policies do not violate the other two sets of rights. Finally, civil rights guarantee equal treatment before the law and equal access to public services such as education.

What's missing, from these three "distinct sets of rights"? The lack of knowledge use rights is a relatively new problem. Without a protected right to utilize knowledge on behalf of others, many forms of time investment end in more risk than reward. Democracies can be difficult to maintain, if a marketplace for services becomes limited due to limits on knowledge use.

While knowledge use has nonetheless provided economic benefits in many capacities, there is growing need to utilize knowledge more broadly - especially given the fact other forms of labor continue to be replaced by automation. Knowledge use also needs to be measurable and quantifiable in local time aggregates, so that it may once again provide what has slowly become a missing component of GDP.

Knowledge use - in spite of its vast production potential, has been subjected to limits in a services marketplace which populations have yet to come to terms with. All too often, discussions regarding growth do not consider how to approach services so as to empower individuals, groups and communities. Services are not just important for consumption or (supposed) outcome, because time and knowledge based product are experienced by all involved. The ability to provide services based on one's unique capacity, could also reverse the growing class divisions of the present.

Furthermore, the roles of knowledge based services and time based product have not been well established or understood, in economic models. Even though knowledge use is often centralized, it has not been subjected to the kinds of innovation that traditional production and manufacture have so often received. Meanwhile, knowledge use in its most valued forms, has become largely confined to thriving economic zones and the wealth holdings of special interests.

Few were impaired by the lack of knowledge use as a specific property right in the past, because plenty of other options for production existed in the marketplace - options which still relied on more physical forms of capital. This however has changed, as knowledge use has gradually become the most sought after means of economic activity. Now, a general lack of knowledge use rights can actually impair both political rights and civil rights. The earlier rights of a liberal democracy can no longer be considered complete, because the lack of knowledge use rights often means an inability to remain economically engaged.

Consider the forms of production which sufficed for so long, before knowledge use came to the fore. Land, labor and capital have long been viewed as necessary components for economic activity. In some respects this too has changed. Increasingly one thinks of place, time and knowledge use. How to think about this?

Sometimes, place is little more than digital accounting or a similar "bookmark" for a singular economic event. Even server locations are somewhat tangential to the process. In knowledge use systems, place for economic engagement would have similar local flexibility. Time measure would take the place of labor, and knowledge use would occur within the designated time frame in the form of human capital. In a sense this local formation would reflect an already occurring process at an international level.

With knowledge use rights, local groups would be able to learn how to come together for meaningful purpose, on economic terms. Any time that such terms are not available, foundations for trust and civility can be lost. Even though it would take considerable time to rediscover meaningful economic relations, the rewards would be substantial. Money needs to faithfully represent human intent in its more positive forms. Knowledge use systems which include the efforts of all citizens, would give it a chance to do so.

Previously, we were able to reach out and assist one another as citizens, neighbors and family because of the degree to which we were already productively engaged in the economy. In the future, as automation takes over more of those functions, we will need to reach out and help one another in order to remain productively engaged. Just as positive intent needs to be measured and compensated, voluntary good faith efforts need to be recorded and preserved over time. Doing so could provide means to successfully adapt to the economic changes of the present. A dedicated time based marketplace and knowledge use rights, are both needed for long term growth.

Midweek Market Monetarist Links and Summaries - 5/13/15

In spite of plenty of negative press, China has made tremendous progress (Scott Sumner) The Economist dispels some China myths
Central banks manipulate currency. What does that mean? Xenophobia plus cognitive illusions = mass ignorance
Meanwhile, public healthcare has been cut to the bone...Bankrupt Greece breaks promise, rehires 15,000 public employees
Perhaps this could make it easier to introduce a nominal target. Thank God for the "Shy Tory" factor
Only certain states are doing well. Update on the American Sunbelt
Still spreading the news that QE doesn't help - About that "impotent" monetary policy
Writing to evoke feelings is not the same as writing to provide perspective: How does it feel?

Scott at Econlog:
Consumption needs to be considered: How would we know if we won the war on poverty?
"...the goal is to change it." There's no such thing as public opinion, example #421
Yet another example why macroeconomic prediction markets are needed: Markets > Polls > GOP Pundits
A lower cost of labor increases the quantity demanded: Labor market blues

There's more at stake than the price of commodities (Marcus Nunes) https://thefaintofheart.wordpress.com/2015/05/08/even-the-economist-falls-into-the-rfpc-trap/
Marcus provides a history lesson in graphs for commenter James in London: https://thefaintofheart.wordpress.com/2015/05/09/supply-shocks-demand-shocks-good-bad-very-bad-monetary-policy/
A "target" which no longer provides useful information: https://thefaintofheart.wordpress.com/2015/05/11/the-fed-should-get-smart-and-stop-targeting-unemployment/

Lars Christensen begins his transition with a series of youtube videos: http://marketmonetarist.com/2015/05/09/me-myself-and-my-phone-1-chuck-norris-saudis-and-beer/
Hopefully, China will not reduce the growth momentum too quickly: http://marketmonetarist.com/2015/05/10/another-look-at-the-chinese-m1-gap-still-a-bit-more-room-for-easing/
http://marketmonetarist.com/2015/05/11/me-myself-and-my-phone-2-pbocs-challenge-monetary-policy-in-a-world-of-slower-trend-growth/

The federal takeover in 2010 set this into motion (Evan Soltas) http://esoltas.blogspot.com/2015/05/student-loans-and-next-crisis.html

Mervyn King gets it wrong (Britmouse) https://uneconomical.wordpress.com/2015/05/08/bank-of-england-forecast-error/
Employment returns to trend? https://uneconomical.wordpress.com/2015/05/13/are-we-nearly-there-yet-redux/
Not quite "unambiguously positive": https://uneconomical.wordpress.com/2015/05/13/update-on-that-supply-shock/
When productivity growth falls...https://uneconomical.wordpress.com/2015/05/13/2015-q1-wages-update-or-there-is-not-much-inflation/

When Bernanke advocated helicopter drops...(Benjamin Cole) https://thefaintofheart.wordpress.com/2015/05/08/ben-bernanke-2002-we-need-you/
Benjamin highlights an encouraging pro-growth paper: https://thefaintofheart.wordpress.com/2015/05/13/bny-mellon-suggests-a-brighter-future-and-why-not-because-of-the-fed-and-anti-business-cranks/

About Krugman...(Bonnie Carr) https://dajeeps.wordpress.com/2015/05/12/someone-who-agrees-with-me-80-in-principle-on-monetary-policy-is-not-my-enemy/

(Kevin Erdmann) "What a strange economy this is. Housing, education and health care have been eating up our productive capacity for some time. The details differ for each sector, but each is giving us a declining share of real output while we keep spending the same or more." http://idiosyncraticwhisk.blogspot.com/2015/05/full-steam-ahead-on-3-cylinders.html

Skills and Time Arbitrage in Liquidity Context

JP Koning has a valid complaint, in that the nature of liquidity can be difficult to pin down. Just as time value does not have its own marketplace, liquidity is resistant to being singled out. Koning likens liquidity to a remora, for it attaches to other goods and assets. As a result, he says, measuring liquidity can be a "pain in the ass"! Here's Koning:

The value of a good, say an apple, is easy to calculate; just look at the market price for apples. Unfortunately, doing the same for liquidity is much more difficult because liquidity lacks its own unique marketplace.

There's an interesting parallel between liquidity relationships, and those which utilize both time and skill value. How to tease apart cause and effect? Even though time - like liquidity - is prized, time value in an aggregate sense has become murky, because skills value is presently tied to a meritocracy framework. As a result, even human capital appears as though diminished to some degree, because of external valuations now in effect. Meritocracy based time compensation can be likened to a source of "captured" liquidity. Even so, meritocracy - like liquidity - is not easy to measure in services systems which cannot take aggregate time values into account.

Koning's post provides a good example, why I gradually moved away from skills arbitrage phrasing in earlier posts, to the use of time arbitrage. After all, it turns out skills arbitrage as a marketplace has already been "claimed". And high skills level arbitrage in particular - instead of being able to respond to evolving marketplace conditions - has become a form of human capital which is mostly useful in limited and specific settings.

However, in spite of so called "guaranteed" liquidity, skills arbitrage relies on what remains a secondary context for growth - the marketplace which is government backed. In other words, the most important settings for knowledge use remain reliant on preexisting forms of wealth. In turn, even nominal income is limited by these fiscal restraints, because merit based knowledge use cannot easily contribute to new wealth formation or readily be dispersed where it is needed most.

Limits on nominal income are limits on aggregate economic participation and services capacity. Think why this matters, in terms of inequality. People of all incomes need access to services, but it is the services marketplace which is already limited. Even if more money were somehow redistributed from the one percent to others, this relatively small amount would not even come close to providing what remains missing from the supply side. The flexible skills coordination of time arbitrage is needed, for long term growth.

Without domestic time based marketplaces, the fixed liquidity value of today's healthcare providers can mean a brain drain for any nation that is disadvantaged in some respect. For instance, approximately 35,000 Greek doctors have emigrated to Germany of late, even as Greece recently restored 15,000 of its other government workers.  In a recent Project Syndicate post, a Ugandan doctor makes a plea for healthcare providers and their nations to remain committed to one another:

There has to be a way to encourage doctors to contribute to their country's health-care system, while offering them an opportunity to achieve their personal and professional goals. 

Unfortunately, some countries are struggling to assist to their healthcare providers on the terms which were once possible. Today, every nation is in need of a broader marketplace for skills capacity. Unlike Koning's liquidity dilemma, it is possible to disentangle skills value from time value. What's more, the process of doing so will not only make it easier to measure productivity, but to maintain vital services creation, as well.

Time Arbitrage and the Gaming Factor

Potential for gaming: that's one of the main reasons I've been slow to configure some specific aspects of time arbitrage, as a workable knowledge use system. Over and over I've asked myself, how is it possible to do a better job of aligning economic incentives and outcomes for groups as a whole? How can individuals plan ongoing activities over time, which also reflect the desired economic intentions of others? These are not easy questions, and so I have struggled with them for more than a decade.

Even though local knowledge use frameworks would need to remain simple, they also have to provide the greatest degree of flexibility possible. They need to remain open to as many infrastructure options and ideas as possible. Not only would the (eventual) results matter at local levels, they would particularly matter at the macroeconomic level. The more freedom that individuals have to align economic time use with their own personal choices, the less need they have to game any system of which they are a part. In order for time arbitrage systems to maintain cohesive integrity, they need as many active participants as possible.

How to think beyond present patterns of services and knowledge use? For one thing, services capacity needs to be understood so that individuals don't have to overthink their actual preferences at any given moment. Just as the "beauty" of any product lies in the eye of the beholder, so too does the subjective value of time use.

By utilizing a single monetary compensation point from which to negotiate, no one need dwell on the supposedly "up" or "down" quality of what they have to offer someone for a specific set of circumstance at a particular moment. How does one know in advance, what other knowledge sets the other participant already accesses for contextual application? Not only would this method free up the focus of individuals and groups, but also the means by which groups can adapt knowledge use and idea formation over time. Plus, the single monetary point can make time residuals and services redistribution unnecessary. Most present system complexity exists because of these factors.

Twentieth century institutions attempted monetary compensation roles as though various relationship structures, knowledge sets and skills capacities were anything but relative. As a result, individuals have had little choice but to accept broad sets of institutional incentives as their own. Unfortunately, those incentives don't always align well, with how one's (lifetime) time use inclinations would otherwise play out. For instance, one's relationship to other family members should not have direct bearing on either monetary reimbursement or skills use potential -  whether from governments or other institutions. Some of the gaming which results from these skewed incentives is quite sad.

Externally defined reimbursement structures are only capable of aligning with individual motivation and incentive up to a point. When that point is passed, there is too much compromise for anyone to remain comfortable with the actual results. Worse, the process either leads individuals to question their own capacity for integrity, or leads to a process of denial as to the rationalization which actually takes place.

While few would want to return to a world before automation when more labor was required for output, there were some advantages to those earlier periods, in terms of one's time use integrity. When time value was more closely aligned with product definition, resource potential and output, individual contributions and commitments were more in keeping with system results. And when people feel more connected, they feel more valued - even if what they are personally responsible for may be somewhat difficult to carry out.

In such circumstance, there is likely less need on the part of anyone to game the system. Knowledge use systems would seek to recapture a similar dynamic - only the alignment would be the more personal nature of time based product from both groups and individuals. On the other hand, much of the earlier connection involved the relation of individuals to specific product formation - which technology now largely provides. A marketplace for time would allow personal integrity to be restored. Only it would be more people oriented on the whole, with less overall need for individual interaction with raw commodities and resources.

Governments can provide much in terms of infrastructure and economic support, but no government should take on the responsibility of substituting time arbitrage on behalf of individuals. People gradually lose the full range of their personal capacity, if they do not have the ability to coordinate and manage their own skills sets and ongoing responsibilities.

Knowledge use systems would seek to maintain the necessary settings for personal and group time use coordination. One way to do this is to aim for the greatest degree of services and production diversity that local groups are capable of providing. Another long term goal of any services system such as this would be to maintain the one to one time match ratio as closely as possible. This would be possible through providing additional educational support, any time that time matching capacity becomes too unbalanced. There is always less to be gamed, so long as personal time value remains a valid component of economic systems as a whole.

More Thoughts on Austerity

Austerity is not the straightforward subject which it sometimes seems. Increasingly, the austerity which matters - and nations need to avoid - isn't necessarily what policy makers are well positioned to address. Unfortunately, Paul Krugman contributes to the general confusion by insisting austerity is inevitable in the UK, due to the fact Cameron won the election. Austerity in terms of what...or whom?

One reason austerity appears "inevitable" during budget cutbacks, is that few policy makers get the chance to prioritize the knowledge based services which populations find most important. In these circumstance, no amount of money seems to ever be enough. Plus: do individuals and private enterprise have adequate means to provide the time based endeavor which no longer has government backing? In particular, the lack of a marketplace for time, makes it difficult to discern services priorities and vital knowledge capacity.

Given this reality, how much of a problem might austerity eventually represent for developed nations, which now experience low economic growth? While monetary policy is capable of overcoming many limitations of fiscal policy, it can't directly address a missing services marketplace. And governments can only partially compensate today's high skill major players, compared to the support they provided prior to the 21st century. Much of the slow pullback on growth that is now occurring, has to do with the changing nature of this earlier commitment.

Some developed nations are already suffering from problems which austerity has created, in the more immediate sense of governmental mismanagement and financial chaos. Just the same, no national government can afford to consider itself immune to eventual budget dangers, so long as the productivity imbalances between tradable and non tradable sectors are not addressed.

Governments and special interests alike continue to undermine the productive capacity of both fiscal and monetary processes. So many long term monetary commitments now exist between governments and special interests, that money is scarcely able to fulfill the needs of populations as a whole. Economists are mistaken in assuming that money need not return to the normal and routine functions it still held, prior to the Great Recession. Once, one associated the disinclination to consider long term economic circumstance ("in the long run we are all dead") with Keynesian thought. To what degree has this mindset also become the attitude of business interests and policy makers?

Instead of defeatism, new economic strategies are needed for long term growth. How can knowledge use and service formation be generated through broader, more direct and monetary means? To be sure, fiscal policy still matters. However, with so many government commitments already at stake, fiscal policy no longer has the flexibility it once did, to address the most important issues of the present.

It will take decades, to gradually step back from contractual commitments which evolved through impersonal and top down means. Meanwhile, populations can build reliable economies on more personal and decentralized terms. Austerity remains a threat for any nations which are compelled to rely on pensions and related entitlements, to address the services needs of advancing age. When time value is tapped alongside monetary value, there is extra support for every safety net. Fortunately, safety nets of the future can go well beyond what populations are able to gain through financial assistance - particularly when demographics don't line up well monetarily, with the needs of aging populations.

The Problem With Zero

Imagine for a moment, regime change at the Fed. Not just any regime change, but one that would include the adoption of NGDPLT. What next? Even though nominal targeting has a wide variety of advocates, that's where the agreement ends. How so? Agreement would need to be reached in terms of a growth level trajectory. Hence even though there would be agreement regarding a monetary policy rule, by no means would the process be complete. In terms of economic outcome, a zero to five percent growth level is a vast difference, which represents a wide set of expectations for future potential.

As Scott Sumner recently noted, many opinions would come into play, and any resulting growth target would not be lightly determined. Can the present stagnation be overcome? What might ultimately happen to economic access, should group consensus settle on either zero level growth or a close approximate? Due to present circumstance and political gridlock, a no growth future remains a possibility. Indeed, much of the present interest in NGDPLT comes either from a no growth or a low growth consensus.

Whether a monetary no growth future would also mean less economic access, however, depends on political and supply side factors. Consider why a stronger growth trajectory continues to be needed, for instance in the present. Instead of sufficient monetary printing, the Fed has tried to "make do" with a bloated balance sheet. As George Selgin indicated in comments to the above linked post, the Fed is supplanting more productive economic endeavor. The means are not only extremely inefficient, but government and supply side intransigence are major factors in this scenario.

Even with a nominal target rule, the good intentions of a zero or low growth path might still lead to bad deflation. How so? The production norm which was advocated by George Selgin in his book "Less Than Zero", would respond to the good deflation of lower price levels, which have been a gradual result of traditional manufacture and production.

Unfortunately, other areas of the economy still present a deterrent to the benefits such a standard would hold, as their relative price points have instead moved higher over time. Without (reasonably equivalent) gains in innovation to bring down costs in services formation and building components, a zero growth path would still mean lost economic access for a growing percentage of the population over time. What's more, zero growth in these circumstance could possibly bring about bad deflation, by cutting into production potential at arbitrary levels to make up for the difference in price points.

If primary equilibrium actually reflected the production advantages of a falling price level from traditional manufacture, a present day zero growth path would not be problematic for the maintenance of economic access. But there have been few falling price levels or technological gains in sectors such as housing, healthcare and education. How much economic potential would be lost, should a low growth level target fail to take into account the lack of a falling price level from non tradable sectors?

Without substantial innovation in non tradable sectors, there would be losses for both production and consumption in this marketplace, with some degree of knock on effects in tradable sectors as well. In other words, far more than labor force participation levels are at stake. Presently, it is impossible to know the full impact that non tradable sectors actually have on equilibrium price levels. Real supply side reform needs to occur in non tradable sectors, before a (potential) zero growth trajectory could be safely considered.

Another problem with pinning down an "ideal" growth rate, is the interminable problem with data interpretation. Regarding economic statistics, Diane Coyle wrote in a recent post that some things really haven't changed very much. She references an updated version of a 1950 book from Oskar Morgenstern, "On the Accuracy of Economic Observations":

Morgenstern also notes the strong incentives many 'creators' of economic data have to give misleading responses to survey questions. What's your income? What price do you charge for this service, oh oligopoly provider? What is the level of your GDP, oh Greek government? "'Strategic' considerations play havoc with reliability."

None of this is to suggest that a better context for growth needs to be determined before a nominal target is a reasonable proposition. On the contrary. However, some of the confusion now coming from the Fed, appears as though inflation targeting mostly serves as a cover for the fact they are not in agreement about future economic potential.

At the very least, agreement regarding a specified rule would set the stage for the kinds of discussions regarding growth which need to follow. Ongoing directives for growth potential need more support: not just in terms of theoretical framing, but also the pragmatic perspective of populations as a whole. After all, George Selgin had the right idea for a productivity norm. However, it needs more precise application in terms of services and other non tradable sectors, both for economic access and marketplace vitality.