Wrap Up for August '15

While watching the excess volatility in the stock market this month, it wasn't difficult to imagine that some people wanted the carnage to continue! Who remembers the "toughlove" concept? Do people have toughlove for the economy...much as they might for other individuals? Only consider what people believe "should" happen economically, depending on how they interpret events - such as a commenter who inspired Bonnie Carr to start her market monetarist blog, several years earlier.

At first glance, one would get the impression that economic toughlove is little more than letting the chips fall where they may. Hence tight money advocates tend to welcome losses on Wall Street as "needed corrections", in spite of the cause. These are also the individuals who are happy to witness widespread economic deflation, and somehow manage to convince the poor that they benefit as well. Others of us who think toughlove is about creating a stronger and more durable economy, are not quite as easy for the general public to understand. Something needs to be done about that...

Fortunately, some observers with a broad audience, represent toughlove in a more reasoned context. James Pethokoukis, for instance, notes that Republicans are missing their chance, as "the GOP plays with Trumpism", to shape a new economy.

John Cochrane takes a closer look at Rule of Law in the Regulatory State

The biggest driver of increased costs is public employees and retirees. "Growth in health spending is crowding out state and local spending for other services."(Austin Frakt, The Incidental Economist) http://www.nytimes.com/2015/08/04/upshot/dont-blame-medicaid-for-rise-in-health-care-spending.html?_r=0&abt=0002&abg=0

Lorenzo reviews the history of long distance trade:
http://lorenzo-thinkingoutaloud.blogspot.com/2015/08/the-three-ages-of-trade-and-distorting.html

Just what is a recession, anyway? (Nick Rowe) http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/08/on-defining-recession.html

Instead of lower income levels living in areas they cannot maintain, or expectations for them to live among wealthier groups, why not gain their input to generate settings they have the capacity to maintain.  http://www.theatlantic.com/business/archive/2015/08/more-americans-are-living-in-slums/400832/?google_editors_picks=true

The healthcare system is not working: https://www.washingtonpost.com/news/to-your-health/wp/2015/06/05/the-nursing-shortage-and-the-doctor-shortage-are-two-very-different-things/

Cities as "disruptors"? http://techcrunch.com/2015/08/07/cities-as-platforms/

"But why is Labour trapped by a dysfunctional faith in leaders?" http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/08/labours-dysfunctional-ideology.html

Local innovation for local problems: https://www.project-syndicate.org/commentary/counterfeit-medicine-innovation-developing-world-by-muhammad-hamid-zaman-2015-08

https://www.project-syndicate.org/commentary/emerging-market-growth-by-dani-rodrik-2015-08 "Back to Fundamentals in Emerging Markets"

Always good to post this link again - David Hume, "Of Money" http://www.econlib.org/library/LFBooks/Hume/hmMPL26.html

For once an article from Larry Summers which market monetarists could appreciate: http://www.ft.com/intl/cms/s/2/f664a7e0-4978-11e5-b558-8a9722977189.html#axzz3jgyOv9s3

The day the "dollar bloc" fell apart...Lars Christensen provides a much needed reminder http://marketmonetarist.com/2015/08/24/the-dollar-bloc-was-never-an-optimal-currency-area-and-now-it-is-falling-apart/

"Before thinking about why the labor share has fallen, it's worth thinking about the remarkable fact that it didn't change for such a long time." http://conversableeconomist.blogspot.com/2015/08/falling-labor-share-measurement-issues.html

Evan Soltas in "What Ails the American Startup?" writes, "The startups aren't that much worse, essentially, but the economy is much harsher towards them...The decline in new firms seems to be driven by changes that are making new firm survival more difficult in general, not just a decline in the cohort size itself."

Emily Washington (Market Urbanism), in "Engineering in the Dark", writes, "Infrastructure is often built based on shockingly little information about the demands of its users. And while poorly reasoned infrastructure policy in one city is bad enough, the United States' broad adherence to poorly reasoned policies has resulted in a nation in which swathes of neighborhoods are built on poor design foundations."

An article from the NYT that the Fed should "show some spine" and raise rates? Unfortunately, William Cohan interprets that the interest rate is determined by the supply and demand for credit. Paul Krugman sets Cohan straight.

Economically, How Do We "Make Room"?

Though I write about the possibilities all the time, it is with an awareness of the difficult questions which remain, regarding economic access. Like so many, I can point to something and say "that is not working...this could work", but how do I know? Some things in life are easier to pin down as "obvious". For instance, it is mind boggling to me - as a market monetarist - that central bankers do not wish to adhere to a level nominal target, to generate monetary stability. Doing so would at least leave room for the economic commitments which individuals already seek to honor among one another.

It also seems obvious that populations need to make room for knowledge use at a broader scale, to maintain long term growth and economic stability. Unfortunately, the response to a slowing world economy has been quite passive, and there are far too many excuses that future growth is no longer possible. In spite of problems which stemmed in part from the progressive era, many then were pursuing visions which also became important elements in the economy. Today, the desire to generate economic participation has gone into reverse, particularly as conservatives and progressives alike question "materialism" as a driver of wealth.

Materialism is not the problem in all this. Cutting back on various forms of consumption is a personal choice, which is already being affected to some degree by a lack of housing. Besides, too many around the world have yet to experience materialism enough to maintain the necessities of life. Further, the uncertainties about future employment in developed nations, also matter for developing nations which need new strategies beyond traditional production as well. In all of this, time value needs a place alongside skills value, so that economic access remains possible. Why has it been so difficult to envision the nature of time value, as economically viable?

Even straightforward efforts to "make room" through traditional means, are meeting resistance from those who have substantial property values at stake. Some recent arguments to make more room in the cities are reminiscent of arguments from Henry George. I've read more than 400 plus pages thus far of "Progress and Poverty" in recent months, but remain dissatisfied with his arguments for land taxation as a broad based solution. When Henry George observed that not everyone would be allowed into the city, he reasoned that the wealth of land could somehow be redistributed to those who were denied economic access.

One problem for me in this regard, is that land use does not quite appear to be the wealth generator it once was. In recent years there has been plenty of discussion to build higher population densities in sought after cities. But even if this were possible, would cities be able to accommodate newcomers with work, given economic conditions as they exist now? The U.S. is not the only nation with these problems. Paul Romer writes:

The people who work in the global-developing-consulting-complex seem to develop a hard wired commitment to the containment paradigm: governments should contain the size of cities. This means that governments are supposed to create an artificial scarcity of urban land.

Those who have kept up with my writing know that I liken this artificial scarcity of land, to the artificial scarcity of knowledge use, in that they are relatively accurate monetary reflections of one another. As it stands, governments probably do respond to the requests of city populations, to make sure that already generated wealth can remain as intact as possible. It will be interesting in the years ahead to see if cities can make room for the ones who still seek access. Paul Romer hasn't had much luck with charter cities thus far. And even though I dream of mini charter city versions for knowledge use systems, the question as to how populations will make room for their own, may take decades to answer.

Knowledge Use Systems: Symmetrical Underpinnings

This post is mostly a consideration of some theoretical constructs that are important to me. Hopefully these thoughts will assist any new readers who may have experienced difficulties, in trying to determine what underlies my work. In two years of blogging, the symmetry theme has come up frequently. Still, I have yet to come across other areas of economic thought with a similar approach - particularly in terms of labor force participation aggregates.

First, I need to explain how my contextual idea of symmetry is different from symmetric equilibrium as expressed in monetary terms here. Robert E. Lucas, Jr. in "Collected Papers on Monetary Theory" stressed a symmetric equilibrium as one in which "all producers choose the same strategy, and all consumers get the same fraction" of the goods available at a given price.

The symmetric equilibrium as stated by Lucas also reminds me of the one price "law" and something interesting about government in this regard. Non tradable economies exist in tension with tradable and global goods production, in part because local conditions play havoc with one price (hence democratic) concepts. If that were not enough, governments try to enforce one price circumstance, despite differences in local monetary flows which leave unique imprints on local service structure (availability) and asset formation.

Hence the oddity of minimum wage floors tailored for city conditions, planted in the outbacks of wherever - at least in the U.S. But that is only where "one price" problems begin, given government's propensity for subsidized services first subjected to special interest requirements. The above referenced symmetric equilibrium exists, but it is mostly a NIMBY equilibrium which is perfectly happy to function with little further growth or inclusion. This "let's don't change a thing" approach has also done some serious damage to central banker monetary logic. Without a marketplace for time value, symmetric equilibrium does not have adequate means to encourage full labor force participation. As many readers are aware, this is the symmetry I am most concerned about.

From here I'll construct my initial thoughts for this post. Symmetry - as expressed above - does represent spontaneous economic coordination - up to a point. After that, equilibrium becomes murky, and economic access becomes limited or otherwise informal. This is to be expected, for a tremendous amount of resource coordination has already occurred which follows the patterns of external (global and tradable) wealth generation. In other words, each addition or component of GDP is incorporated into previous patterns through asymmetrical flows. Where it is not possible to maintain economic diversity through these externally driven flows, wealth generation could also utilize the internal coordination of time aggregates, as a starting point.

Internal coordination would provide an immediate and recognizable symmetry, through matched services time. This organizational method holds promise not just in terms of new wealth for human capital, but also for purposes of accurate representation of services and knowledge use activity.  Skills capacity is asymmetric and normally compensated as such. However - through the symmetric means of local organization - a greater degree of knowledge capacity can be preserved, alongside full economic representation at the same time.

So I will suggest a symmetric theoretical interpretation, which relies on human capital additions to wealth creation. This contribution can be measured in time based (hourly) units and accounted for directly as a monetary component. The asymmetric approach to skills compensation would normally not be problematic, but too much of it has hidden government subsidies which have led citizens to question democratic processes in the U.S. For instance: even though many citizens do not question the authority of physicians, they do question the right of governments to apportion taxpayer funded physician time to those who do not have the means to pay, which only exacerbates supply side limits in this regard.

Even though physicians can hardly be expected to make dramatic changes for supply structure in primary equilibrium, some would have the time and ability  to assist in efforts to generate alternative equilibrium for knowledge use. Doing so would relieve the work and government deficit pressure of all concerned. Even though additional wealth formation would not compare to normal high skills compensation, doing so is not the point. Rather, individuals would be compensated for their time and efforts in assisting one another - a valuable societal contribution indeed, as voters and central bankers alike clamp down on efforts to extend present day economic conditions to those who still seek access.

Local knowledge use systems would also provide a more precise monetary option than is possible through credit formation, even though the process would take decades to develop. This monetary stabilizer could also begin the process of restoring the output level which existed prior to the Great Recession. A primary benefit for monetary policy, is that a time based symmetrical approach would be accountable at the outset, for its contributions to economic conditions.

Also, knowledge use systems would legitimize informal capacity which extends beyond one's immediate family and friends at local levels. These systems would allow small groups to envision the processes which exist between monetary representation and the efforts which individuals extend to one another for services and other forms of production. Because the wealth creation is contained in a complete cycle of local asset formation and services production (non tradable goods), local processes can be set into motion which over time would relieve the pressure between non tradable and tradable sectors of the economy.

Doing so would erase some of the confusion which now surrounds government economic participation. Even though asymmetric compensation for valued skills sets is highly logical, so many knowledge based services are government compensated and subsidized, that system wide imbalances have resulted which now affect the outcomes of bond formation. Further, what appears as problems in productivity, can also be attributed to the fact that too much redistribution occurs which cannot be directly attributed to knowledge based product.

Knowledge use systems would seek to redress these problems. Not only would the confusing asymmetries of time aggregate utilization gradually decline, but also the need for debt accumulation of asymmetric services compensation (and its associated asset structures). Symmetric compensation would allow individuals to purchase time value through their own quantitative time, rather than the unknowable depths of specific skills values. The result would be a product which is worthy of direct monetary representation, albeit of a limited nature. Most important is the fact that millions would once again have a foothold in the economy by which to expand their horizons.

One way to sum up my perspective on future growth potential, is this: many important forms of knowledge based services have natural growth limits when they are constrained by secondary and asymmetric forms of compensation. Once any society reaches a certain point of maturity in terms of traditional production, asymmetric skills compensation - and the asset formations this approach relies on - can contribute to tight monetary conditions around the globe.

Several aspects of recent economic circumstance should give anyone pause. For one, services growth has been more important in developed nations for GDP than other forms of production for decades. Not only do developing nations expect services to eventually outpace traditional production, but many nations utilize a high expectations consumer framework by which to expand services further. Alas, these government directed consumption strategies are reaching natural limits. Consumers now need greater roles in their own destinies. Many groups need the options of both direct services formation, and the ability to define consumption (and infrastructure) needs in multiple environments.

Will nations be willing to accept these realities? Future growth depends on it, and symmetric services formation would make more accessible forms of growth possible. In the past, services depended on the secondary support which traditional production made possible. Many institutions were once able to reward high skill levels through concentrated resource means. But now, representatives of the supply side must recognize the fact they need to expand the definition of growth potential, in order to maintain economic stability across all sectors of the economy.

Knowledge Use Systems: Prosperity's First Rule

In a sense - crazy though it may seem - the social and knowledge based components of mutual assistance, might be the easiest part of the process. Why? Establishing a wage compensation base is where things can get tricky. Participants would have to resist the urge to set the hourly wage base too high, in order to maintain complete coordination patterns. Any attempt to rely on compensated hourly wages alone, i.e. without income supplements (local ongoing investment patterns), would gradually lead to reasoning that not everyone is capable of participation.

Only witness the gradually developing exclusion of today's workplace. Someone recently joked that the requirements for an entry level position had become "5 years of experience, 6 Olympic gold medals, and superpowers." There's no getting around the fact, that a rising minimum wage floor can contribute to lower labor force participation over time. In certain instances, this also limits the kinds of small business formation which have small profit margins to begin with. While some would shrug off any worries about seemingly minor businesses losses, the reality is less marketplace choice, overall. Instead of using rising wage floors as a consumption "survival mode", why not strive for solutions which provide better lifestyle outcomes?

Hence prosperity's first rule for knowledge use systems, would be to generate access by encouraging environments which reflect existing wage and income capacity. This is a more logical approach than attempting to force wages closer to arbitrary consumption requirements. Granted, too many of life's necessities have become difficult to achieve through low wages. But a rising minimum wage mostly encourages governments and special interests to make the requirements for access more rigid than ever.

Knowledge use systems would integrate base wage capacity into local investment structures, from the first compensated hour that young students learn to provide for one another. These matched wages are simply how participants begin the process, through measuring and coordinating time use among everyone concerned. How would a given group determine a base wage? It really comes down to what everyone who participates, feels comfortable with. The opinion of the average individual matters greatly in this regard, because present minimum wages are already beyond what many adults are comfortable with, as starter wages in the workplace.

Hourly wages would represent the measured contribution of local time aggregates, instead of skill levels. Wages would need to be measured separately from income for all participants, in any knowledge use system that is established. Even though the hourly wage is small, its purpose is twofold. On the one hand, it is newly generated wealth because of a purposeful match which leaves no time debt. Just as important, it is the monetary representation of the services security these groups would gain, in lieu of government provided services.

Income potential - on the other hand, would depend on how individuals choose to interact with other forms of resource use and asset formation. There would be a minimal (expected) investment "floor" in the sense of basic living quarters, should anyone experience difficulties which negatively affect personal circumstance. The primary goal is to make certain each individual is able to maintain economic access in their community over the course of a lifetime, even if their active participation eventually becomes minimal.

How to think about economic access, as compared to "equality of opportunity"? Those who promote equality of opportunity, often promote mobility as being able to move where good jobs can be found. Whereas economic access - at least for this blogger - is about the capacity to generate local economies which provide opportunities for individuals where they already are. The paradox in this regard is that when local economies have a chance to flourish, there is less concern about immigration "taking away" jobs and services from local citizens in the first place.

One built in system advantage, would be the time based support for those who may not prosper financially in their later years. Suppose one is close to "retirement", albeit with few savings -  not to mention few remaining social connections. Through the group coordination of time arbitrage, one would still have others nearby for mutual assistance, even when family and friends are no longer close. Individuals would gradually be able to exchange earlier housing investments for simple building components that are easier to maintain as one ages, and closer to needed services.

Historically, people understandably prefer to seek security through the certainties of guaranteed income and wages. But much about capital flows has changed in recent decades, in ways that have yet to be understood. As a result, security needs to be sought not just through the investments which money can make possible, but also the reasoned security of time commitments on the part of local groups. Decentralization is greatly needed, even as governments have moved further in the other direction. If governments can embrace decentralization for needed services and local economic prosperity, it will also be easier for nations to remain open with one another for the continued prosperity of tradable goods markets.

Undivided Attention is a Worthy Product

This should be obvious, right? For any number of reasons however, it isn't. One hears occasional references to "the gift" of undivided attention. But a more likely scenario, is frustration with individuals and circumstance when they demand "too much" of one's time and attention. Again, one's "free" time either tends to be in high demand or scarcely any demand at all, depending on the skills sets that individuals are able to utilize in the marketplace for monetary compensation.

Some personal skills - as a result - can become arbitrarily devalued in one's personal networks, even if they bear little relation to one's paid work. A marketplace for time value, would seek to remedy this, by reaffirming individual choices which have been all but forgotten in - and sometimes because of - normal workplace settings.

Economically, the undivided attention of others can be a most beneficial consumption option. We often seek out personal attention, when our ongoing activities shift into a different phase which needs to be examined before proceeding further. The undivided attention of others is not a service which is continuously needed. Even so, too many educational settings are a mixture of divided attention between teachers and students, which are not truly conducive for either.

Since many services activities occur in regular maintenance routines which do not need continuous observation, it is not always obvious, when ongoing patterns need some form of adjustment - hence undivided attention. If there is no response (or adaptation) at crucial moments, system breakdowns can result. When left too long, system breakdowns can require tremendous effort, just to discover where problems have originated. Where are the critical junctures? How does anyone know when undivided attention would provide the most benefit? In a marketplace which seeks to economize on skills compensation, it's not always easy to determine how much space or time to provide for undivided attention.

The first part of this post considered undivided attention in a production based sense. But what about undivided attention from a personal consumption standpoint? Think about the vast array of products one buys over the course of a lifetime. Undivided attention is often one of those memorable products (or experiences) which stands the test of time. More often - however - when consumption includes higher skills sets, skills/time value is diluted to some degree, to provide access for lower income levels (high skills on a low skills budget). Results may range from teachers with auditorium sized classrooms, to doctors who have but five minutes to spend with a patient.

Even though undivided attention is sometimes considered "priceless", this is not necessarily a good thing, because it also means that not everyone expects undivided attention to be an available economic option. Indeed it may not be, which is something that a marketplace for time value would seek to remedy. Without that option, assistance is often sought for knowledge based matters from family, friends, and the internet.

While there's nothing wrong with self reliance in services on the part of lower income levels, consider the economic attrition that would result, should tradable goods also be limited in this manner by governments and markets! Part of the growing self sufficiency backlash of the present in tradable goods, is due to government and private interest imposed limits on an open market for non tradable services and asset formation. Eventually, further limits in services formation would mean further limits in traditional production. With a little luck, neither of those limits to long term growth should have to be necessary. Time arbitrage would provide a more diverse marketplace as a compensated economic function, so that individuals can reach beyond their personal network for both tradable and non tradable goods formation, well into the future.

Whether or not one considers informal services needs as economic, this time use matters because it gets to the heart of services functions which need more flexibility in provider and consumer expectations. Presently, people often end up accessing unnecessarily high skill levels to gain undivided attention for services questions. Or, people try instead to extrapolate from broadcast media channels intended as generic information. Time arbitrage would give groups the chance to better manage knowledge resource capacity on voluntary terms.

A few stumbles along the way would be inevitable, in the attempt to recreate a marketplace for undivided attention. Even most classrooms are not well suited for this form of teacher student interaction. In recent decades, digital media has allowed the U.S. to become a DIY society in many ways.

People in the U.S. have become conditioned to tend to many personal issues - and the related services - on their own. But asking for assistance re moving to the next level of proficiency - or working through a problem - should not be considered a sign of personal weakness, or treated as such. Indeed, aggregate skills capacity would gradually improve, through better coordination and organization for time value. It's odd that progressives complain how we are an individualist society - determined to take care of things on our own - when a lack of access to services formation has plenty of bearing on this reality. We haven't had the kind of marketplace that would allow us to work together more cooperatively.

Time arbitrage would enhance our own continuous efforts at self improvement. No one needs the undivided attention of others on an ongoing basis, but the marketplace needs to be aligned so that it remains possible for individuals of multiple skills levels to interact with one another for services needs. Also, time arbitrage could possibly provide more room for undivided attention, in the moments when it is needed most. In a marketplace which too often has to cut corners on labor costs, that fact alone could make quite a difference.

Employment Futures...Left to Chance?

Often, the rationale that everyone "managed" to successfully evolve from time intensive agriculture to other forms of broad based employment, is taken for granted - without further ado. While that was true in many respects, some economic circumstance were negatively affected and yet never confronted. Hence there are residual (unsolved) problems for organizational work patterns which date back almost a century. As such, rural areas will need substantial representation in discussions regarding future employment potential.

No one should expect the evolution of work to proceed "normally" at this historical juncture, if everything re definitions of work and responsibility isn't carefully considered in the years ahead. Left to chance, workplace developments will likely not go well, for either employees or employers. In spite of the twentieth century transitions from agriculture, it also turns out that many workplace transitions of those years weren't left to chance, either. Many efforts to make knowledge use a part of society were only partially successful, given the knowledge commons which once benefited free market conditions and wealth creation.

As technology proceeds apace, there tend to be two versions of the future employment scenario. One of those consists of unsettling versions of a new "Dark Age", which some in the blogosphere are oddly looking forward to. It's a dystopian future where the multitudes are kept alive (if so desired, perhaps) by crumbs and handouts, because their efforts in society are supposedly not needed. The other side of the discussion one often hears, is that somehow we'll all "bumble" along till we reach a more positive phase of employment potential, once again.

Political factions have obscured the fact that people need to act now, in order to preserve economic stability. Not only do these political factions distort economic thought and monetary policy, they are sowing the seeds of hate and distrust among populations, families and neighbors. It is concerning that the elite continue to publicly blame the tribes they profess to be at odds with, instead of looking for solutions to the problems at hand.

Indeed, the elite carry on their faux battles with one another, knowing full well that by doing so they only make further prosperity less certain. There were musings in comments to the above linked MR post (and referenced essay), as to organized religion tending to charity in the future. But why not give individuals back their right to the knowledge commons, so that they can take care of themselves? If religion carries the burden of the weak, history tells us they are going to want the power as well. Meanwhile, many in the U.S. have become convinced that anyone who does not carry their own weight is just another deadbeat, dependent on the taxpayer dollar. But we are left with the fact this problem was built in, by the loss of too many production rights in the last century. Otherwise, the numbers of deadbeats in society would be far less, than they actually are now.

Granted, taxpayers should not have to foot the bill for deadbeats and others among the unfortunate. But if it is left to religion to tend to charity in the future, religion will only end up fighting with the state for power once again, in a marketplace which gradually becomes smaller, less diverse and more brutal. Even though states and special interests could successfully keep power to themselves in the short run, religion would likely take back that power, after populations have been reduced to sub optimal skills capacity and few means to tend the garden of their own humanity.

What bothered me most about the progressive movement of the twentieth century, was the fact it was willing to separate education from both the practical and experiential realities of life. It left too many people severed from their community roots, essentially stranded after high school graduation and more than a decade of false promises. In spite of these shortcomings, school environments were sometimes capable of promoting a love of learning. My love of learning, and the desire I have today for free markets in services and knowledge use, confuses conservatives, libertarians and progressives alike.

Progressives gave in to the urge to make higher education all about economic access, early on, and never looked back. In the process they made a travesty, of the love of learning. Many progressives don't quite understand their complicity, or the active roles they played to close the gates of economic access. As a result, there is little room for the love of learning, in the marketplace of the present. Even though elite libertarians and elite conservatives profess to dislike progressives, they benefit from the complicity of progressives for hard limits to knowledge access. These groups have been enriched, by the fact that much of education became a ruse which was never intended to benefit the masses.

Likewise, governments have been complicit in their power sharing with both elite libertarians and conservatives. Anti government talk is more intended to stir the emotions of the public, than to find actual solutions or accomplish anything in Washington. When the emotions of the masses are stirred, and family members spar politically with family members, how can they realize the tribal divisions from Washington are mostly high level entertainment.

For some years now I have been a very gullible libertarian who believed in the potential of free markets for knowledge use and service formation. But calls are now growing, for people to stay away from higher education if they don't have the money or social backing for it. For anyone with insufficient income or social support, this could make a love of learning, possibly the most solitary endeavor in the world.

A prosperous future, would be a future which still brings knowledge use back to the table for the 100%. But in order to do so, education cannot be sorted and sifted apart apart from other economic realities. Education needs to become part and parcel of economic life, not just one's imaginings as a young student for a life in the workplace. Economic life belongs not just in the cities, but in all the places where individuals desire to work and live - both in the pragmatic and experiential sense.

Is this possible? I know I'm a broken record on this subject, but just the same it remains my fondest hope for humanity. A love of learning should not have to be a cruel joke for anyone to be saddled with, i.e. just another sacrifice on the altar of economic access. If economic access remains at the forefront of group efforts, knowledge will still have a chance to flourish in the centuries to come. Knowledge use could still be a part of our employment futures, if it is not left to "chance".

Musings on The Growth That Matters

It's been quite a rough week for the stock market. Even so, despite the recent mistakes of the Great Recession and a still evident output gap, central bankers will probably not respond to the realities on the ground. James Alexander outlines the unfolding scenario, in Taper Tantrum 2.

What we are seeing now is the very long and slow recovery from the Great Recession being threatened...What Market Monetarists and markets cannot grasp is why this should lead to active monetary tightening. All monetary theory says that you should tighten when nominal growth is too rapid, too far above trend. There is no conceivable data in the US or UK to show that we are above trend growth. Yet the very same central banks who messed up in 2007-08 are on the verge of doing it again. Markets can see this and are reacting badly, correctly.

One reason the Fed could be so anxious to "normalize" - misguided though the term truly has become: hardly anyone in a position of power can imagine economic growth, beyond the boundaries of what the elite expect to continue. Think NIMBYism, only at a grand scale. As a result the Fed is also willing to short rational expectations, which includes contractual agreements already in progress. Indeed, the growth which is needed most - for those with insufficient economic access - isn't even on the radar of the Fed right now. Today, Scott Sumner titled a post "Fed Policy is Bankrupt". The resignation of that title surprised me, especially given the years he has had such patience with Fed actions.

Many who remain on the sidelines in the U.S., do not necessarily have the (earlier) consumption capacity one normally associates with these groups. How many without work, no longer drive - for instance? With little provision for infrastructural considerations, output potential becomes somewhat of a moving target. Thus far, commodity producers are attempting to maintain their own output levels, even as monetary stability remains uncertain. From The Economist:

The real curse for producers is over-supply in almost all raw materials, yet they continue to act as if they are blithely unaware of it. Capital is still pouring into holes in the ground, creating a hangover that may last at least a decade. Jeff Currie of Goldman Sachs...says past cycles suggest it can take up to 15 years to work through the over-investment. "The world has just flip-flopped", he says.

And those demographic explanations re older individuals, which supposedly contribute to reduced labor force participation? Josh Zumbrun reminds us in this WSJ article:

Employment rates among those 55 and over actually are rising. As recently as the mid 1990s, less than 30% in this age group worked. That's since risen to 40%.

Another source of confusion regarding growth potential, is political. Even though Keynesian thought has seen better days in the political arena, many ascendant Republicans - and the internet Austrians they tend to espouse - have not adequately considered the importance of services formation in the marketplace. Populations may indeed suspect this, given extreme reactions in the media, to immigrants and other "unworthies" who "steal" needed services. Not until services formation is generated through broader and more direct means, will these kinds of reactions finally get a chance to calm down.

Even though privatization of many government functions is needed, today's version of services formation would cut back growth capacity even further than what has already occurred. The privatization which is needed is that which can grow economies, instead of holding them back. For market monetarists such as myself, the fact that much of the country scarcely notices monetarist contributions to the political debate, is also worrisome.

Services are an important component, of the kinds of potential growth which matter most. Further, the recording of services activity should provide means to recognize knowledge dispersal, as noted by Dietz Vollrath in a recent post. Much service formation is hidden within organizational structures which don't measure time based product in recognizable ways. Part of the problem of course is that many services are an undefined contributor to product formation, as Arnold Kling discussed in a series of posts in June. I wrote two posts on time based defined product, in part as a response to Kling's posts, here and here.

Local corporations could help solve recording problems for services functions in a number of ways. Any time based product which occurs between two individuals could have specific recorded designations. For one, there is the nature of the activity between participants, but also the larger context (either group or individual goal) in which the services take place. Even though recording in a sense would involve two separate designations, it should not be difficult to combine them for ongoing records.

Fortunately, local corporations would not involve extensive reform challenges on the part of governments, because they would exist in a context which does not change the nature of knowledge use as it is currently practiced in prosperous regions. Making room for the growth of local corporate knowledge use systems is not so much about policy change or reform, but simply a growth safety valve for those who do not have sufficient economic access through normal means.

Safety valves such as this are urgently needed. As citizens fear for their own services access, they become more skeptical of immigration from other countries, because they know that more immigrants means more competition for a still limited services marketplace. With a truly free marketplace for services formation, such fears would no longer be necessary.

Needed: Marketplaces for Skills Value AND Time Value

Keynes could not have known, that people would choose to work so much in the twentieth century, at least when they got the chance to do so. From a survey on the evolution of American work and leisure between 1965 and 2005, Tim Harford notes:

The best educated and the highest earners, both men and women, had less free time than ever. Starting in the mid 1980s, this elite began to drop everything and work furiously...Perhaps the real story, then, is that we are trying to keep up not with the Joneses but with our work colleagues. By pulling the longest hours and taking the least leave, we climb the corporate ladder. It may be no coincidence that the collapse in leisure time began in the 1980s, at a time when inequality at the top of that ladder was surging. The rewards for working hardest are large.

It helps to remember that this is a logical extension, of what was still a growing marketplace for skill value. Even though much of the value in these services was time related, it was the skills component which provided additional value for both tradable and non tradable sectors. When skill levels indirectly assist specific product creation as contrast to other product, corporations understandably seek to maximize the skill sets they find preferable. However, this approach - without the inclusion of a formal marketplace for time value - means time value imbalances depending on who gains economic access, and time value losses for aggregates as a whole.

A marketplace which primarily exists for skills value (instead of time value, as represented by purposeful direct resource interaction), means one's time is either in demand, or not. For those whose time is in demand, a lack of personal time tends to result. This, even though well compensated skills mean more leisure options appear as though possible. The paradox for those whose skill sets are in less demand, is that they no longer have other sufficient access points to the marketplace, as was once the case.

As a result, part time workers have more time for leisure, but fewer means to otherwise make productive use of extra time. When few options exist for leisure time, this translates into problems regarding one's ability to participate in normal relationships or lifestyle options. Hence "voluntary vacation" time as an aggregate concept - even in periods of seeming low unemployment levels - could mostly be in the eye of the beholder. That's not to say that some of today's unemployed don't have meaningful lives, and I know individuals who have been quite fortunate in this regard. Only that the permanent retirement/vacation is not necessarily a preferred choice, for those who leave the marketplace prematurely.

In the U.S., a person did not always need to be "gainfully" employed (by others) in order to maintain personal obligations, particularly if one was able to maintain resource connections through land ownership. Even a century earlier, personal time value could still contribute to a good life. After all, there were more than adequate means to fulfill obligations for oneself and others through personal initiative. Too many of those means have either been removed through regulation, or designated as production rights for the few.

To some degree, the twentieth century contract for Social Security, was a recognition on Washington's part that earlier self employment options were beginning to disappear. Access to outside employers gradually became a life necessity, on the part of entire populations. It is possible that Social Security in the U.S. was enacted to address some of these lost options for survival, for older citizens were now competing with technological gains in agriculture, for instance. In the twentieth century, one could imagine Social Security as a payoff for staying connected to city life throughout adulthood if necessary, then retiring to other environs for (what could have been) the reduced costs of retirement.

Now, those "other environs" need a chance to prosper as well, given the no vacancy signs which city marketplaces are signalling in the present. Prosperous regions take the skills marketplace for granted, and other regions need the ability to compete, based on the possibilities of formally coordinated time value. Earlier means of informal coordination, inadequate though they may have seemed at times, were still able to provide economic access to individuals through the course of their lifetimes. When time value is directly invested with resource value, there are local means for production and consumption smoothing, which otherwise are not always available.

In a marketplace for skill, knowledge use and skills sets can become sticky, for they involved sacrifices and compromises which make it difficult to consider other options which might be better for given sets of circumstance. This is one of the best advantages to a marketplace for time, in that it allows more flexibility for the knowledge and skills sets which are ultimately used. The local corporations of knowledge use systems would coordinate multiple product capacity for non tradable environments. Since product creation does not have to be contrast with (specific) other product, aggregate time value - instead of skill value - has the chance to become the primary contributor to corporate and group gains.

Corporations can also be structured to benefit from aggregate time values. Knowledge use systems would compensate participants based on the time value which they coordinate with others, rather than the specific skills sets or knowledge that they utilize in the process of doing so. This allows more flexibility for the system, overall. One paradox of the sacrifices required for present day skills capacity, is that skills sets can still be "pushed" out of the marketplace by technological gains. Better to rein in costs by generating a marketplace for time value, so that technology can be utilized alongside knowledge use, instead of taking its place.

Monetary Notes, Local Corporations and the Quantity Path

Recently I wrote a post which considered possibilities for a new (local) corporate structure - one which could also benefit from a representative non profit "starter" organization. Not only would the starter organization include tools for knowledge use systems, it could also provide research benefits for monetary policy, by following income potential as a source of wealth generation over time. One could also think of this income potential as a linear quantity path, which is capable of representing time aggregates alongside resource capacity.

Monetary policy is in need of perspective which extends beyond the boundaries of central bankers, if only because they are dependent on what happens in the real world for long term growth. The passive response of central bankers is due in part to a passive response from the supply side, regarding economic conditions. As a result, central bankers are tightening monetary policy in ways which will gradually tighten national welfare states, as well.

This wouldn't be so problematic, were it not for the fact supply side interests find it easy to rely on welfare states (in lieu of other options) even if they don't "like" them. Even though small government talk is (still) wishful thinking, a small government with an insufficient marketplace for services would be a catastrophe for knowledge use. If services start to disappear, it will be because of neglect, and the fact no one could sufficiently recreate them beyond the definitions of governments and special interests.

Central bankers - along with most everyone else - are wearily turning a blind eye to the costly realities which non tradable sectors continue to impose for their ongoing activities. Why else the wishful thinking to cut back on aggregate spending capacity because...hey, digital "free stuff"? When is the last time you had digital surgery or a virtual stay in the hospital? Innovation where it's most needed? Sure, you go first... No one likes the expensive consumption expectations, but it's not easy to confront the reasons many expensive "necessities" haven't changed one whit in recent decades.

Further - like it or not - these sources of nominal income - in the forms of welfare state goodies and artificially limited knowledge use - are indirectly responsible for a considerable degree of traditional production output. If there is no room in this vision for lower income levels, long term growth has been held back for other low income options as well. For these and other reasons, monetary policy has become too blurred, in terms of what central bankers actually rely on to fulfill their jobs. Indeed, central bankers are no longer clear, regarding instruments, targets and intermediate variables. Josh Hendrickson emphasizes the need for proper monetary semantics and adds:

Scott Sumner has chosen to think about policy in terms of nominal GDP. This follows from a quantity theoretic view of the world. If the central bank promotes stable nominal GDP growth, then inflation expectations will be stable and price mechanism will function efficiently. In addition, the central bank will respond to only the types of shocks they can correct.

What if central bankers aren't ready to approach monetary policy directly, because of uncertainties regarding a complete and quantitative perspective? Do they find the requirements of a nominal target unsettling, given the recalcitrance of supply side interests regarding long term growth? If inflation expectations were really the primary concern in all this, why would it be so difficult to convince central bankers of the advantages of a nominal target?

Much of nominal income capacity remains tied to the welfare state, which will gradually become more (directly) affected by upcoming recession patterns. Only consider the bounce back of high wage work in the U.S. after the Great Recession. Unlike the lower wage jobs representative of many regions, high skill jobs in prosperous regions are more reliant on monetary flows throughout the world. This is just part of why general equilibrium appears somewhat nebulous. Central bankers may "cling" to an outdated interest rate defined equilibrium, because it feels as though the only concept within their control.

How could local corporations add perspective - let alone potential solutions - to all of this? For one, they would be able to address the need to create a stronger marketplace for the nominal income which is precariously connected to the welfare state. By generating a complete (alternate) equilibrium in terms of asset formation and services needs, local economies would also provide means to think beyond loan origination for economic growth and stability.

One could think of an incremental approach for local investment opportunity, as a quantity path. Time aggregates as a whole (local population totals) would be taken into account, as they contribute to equilibrium patterns over time in small group formations. Local corporations would eventually catch many of the forgotten in a safety net ("woven" of time arbitrage), and provide means for them to make lifelong contributions so these individuals don't have to burden already stretched welfare systems.

Not everyone in the future will be able to gain what is considered high income work. Just the same, there is no need for the negative connotations that tend to be associated with low income levels. Through ongoing innovation in non tradable sectors, even relatively low income levels can aspire to a high quality of life. These groups need reliable means for ownership and resource management, without having to resort to the use of loans.

Those among the marginalized also need to be able to directly observe, how monetary policy can contribute to both individual and group efforts in economic activity. Both asset formation and the knowledge use one associates with formal education, could follow an incremental or stair step investment pattern, from youth. By creating a direct association for time value with economic patterns, income capacity would become directly observable, in relation to resource use.

Local corporations could not only provide alternatives for today's endangered welfare state, but also for the asset formation which continues to be held back in the present. Local corporations can "go first" when no one else dares to take the chance. Eventually, local corporations could provide further rationale for central bankers to rely on a quantitative perspective, as well. By generating a reliable structure which does not include loan formation at the center, a quantity path would provide clarity, regarding income capacity for wealth creation.

Services Markets: Getting Started is the Hardest Part

How to think about lifelong employment and security for local groups, particularly since both goals have proven to be unreasonable for large groups? There is something about the attempt to concretely define "hows", which can lead to uncertainty. I don't often explore my reactions to a previous post, but this time it seems warranted. After all, how do I know what would "work"? I don't. Even though I've explored ideas for spontaneous association since more than thirty years earlier, some haven't evolved to the degree that I'd hoped.

In many respects, "how" to create a better marketplace is what people need to discover for themselves - particularly for services of all kinds. But no one has given anyone a chance to do so. Governments were left with the job. Hardly anyone is happy with the results, and political struggles over the results become sillier by the day. Why - then - if no one likes what government has done, isn't the marketplace given the chance to do a better job? Where are the supply siders who would like to see this happen?

While employment needs to be addressed on structural terms, it is not the only issue at stake, for there are related social and economic concerns which need to be considered in a common approach. People from all walks of life are seeking meaningful employment and meaningful lives, and some are better positioned than others to be doing so. In all of this, many need to generate more stability for their later years than they can (safely) gain from today's stock market - let alone Social Security.

Much about our life trajectories can be summed up as hoping that others will (eventually) be there to help us along when we need it most. However this doesn't always turn out to be the case in spite of one's best efforts, and there are too few solutions from either government or the marketplace for basic human needs. Thus far, when governments and markets provide the actual time of individuals, those skills sets and time value are indirectly positioned in high priced environments. This - for the basic need of someone's time, in settings where the wage levels of full employment cannot possibly expect widespread access.

Getting a rational marketplace started - for people and the value of their time - is the hardest part. Indeed, people would likely be dumbfounded at first. Many an individual would have to go back to square one in their minds, with questions such as "How would you want to help others? How might you help yourself first so that it becomes possible to do so? What stands in the way of your doing so? Would it be possible to overcome what stands in your way? How motivated are you to reconnect with others and find more purpose in your life?"

Even though one may find support in answering these questions, too much of the (extremely important) economic context is still missing. In lieu of appropriate economic context, one more often finds moral rationalizations for the limited marketplace which does exist. Hence one finds plenty of discussion as to why something is right or wrong...why this or that policy maker is "evil" or not, but not enough about how to transcend those perceptions. Despite the fact that knowledge has been freely shared for centuries, few dare speak of long standing knowledge options which could contribute to the workplace outside of present day dictates. Resignation all around - even if unspoken - includes giving up on any decentralized approach.

But without more widespread use of knowledge for problem solving, nations are too likely to continue down the path to excessive reaction and closed doors. When knowledge lives in a centralized world without a sufficient marketplace for time value, too many individuals lose their own sense of worth as a human being, and centuries of logic start to fly out the window.

Sometimes it seems as though both political and economic dialogue have become caught up in an endless feedback loop that keeps playing over and over. When I hear discussions in which the protagonists are supposedly labor, government and free markets I am dumbfounded, because the human economic element is completely left out.

The real challenges of the present for the services marketplace, seem as though an unspeakable subject - incapable of providing solutions. Even William Baumol, who decades earlier fixed his gaze on services sectors and declared them a productivity disaster zone, basically dropped the subject afterward. Just the same, it is this broken services marketplace - which desperately needs to be freed - which makes people assume the worst, regarding the forms of capitalism which have provided tremendous benefits for humanity.

There is a natural impulse for non tradable sectors to make what is necessary in life, a struggle to achieve or maintain. But these sectors have placed roadblocks in the way of success for so long, that central bankers the world over seek to "destroy" those burdens with tight monetary policy. This form of monetary policy is the worst reaction possible, yet no one has stopped the process. Reform the non tradables sectors. Don't limit innovation to marketplace sectors which are not essential for survival. Give the services marketplace a chance to start anew.

Knowledge Use Start-Ups: Putting It All Together

Many of my posts end up making arguments re why knowledge use systems are needed in the first place. This is such an easy mindset to maintain, because a wide range of discussions take place in terms of why something is needed (or not). But sometimes it feels like a passive approach! Autumn can be a good time for new beginnings, and I'm counting on the cooler days for a new "burst" of energy. So this post - at least - will change gears from why to how - if only to get past the seeming impossibility of the task!

When it comes to local context for corporate structure, a clear framework for the initial organization can be the greatest struggle. Granted, a starter organization (for knowledge use systems) may end up as a non profit entity, given the nature of its ongoing tasks which include vetting processes and explaining the legal and monetary circumstance. But everything that follows - with a little luck - will eventually exist as for profit entities, complete with built in "mini banks" to support a lifelong process for human capital. Time value is the untapped wealth of the present, and it is the economic growth needed most.

Organizational capacity holds intrinsic value, which is capable of serving as a source of wealth generation. The hard part is just getting to a point where the advantages of this approach start to become evident! I now recognize that there are people everywhere who would like to contribute in some way, and others would be inspired to take part in the resulting communities. I just haven't found the best means yet, for reaching out and making the necessary connections!

Even though these environments will often be relatively simple and multi purpose, knowledge use systems will still need regular contact with professionals in the fields involved. New community start ups will be able to tap the resources of the "starter" organization, particularly for details re time arbitrage management and material for a services core. Plenty of coordination will be involved, not just between different kinds of skills sets but also in terms of reconciling various approaches into a cohesive whole. I am still a long way from being able to travel and personally communicate with others re these efforts, but continue to hope that I will one day be able to do so. In the meantime I will get as much explanation in print, as possible.

Domestic summits will of course be a part of this process, but they would be needed some years down the road, after the initial legal and monetary hurdles have been overcome. Also, the domestic summit process would be intended for individuals and groups who are actively considering new community start ups, but need to meet others first in order to find out whether they are on the "same page" regarding lifestyle and infrastructure planning.

Further, even though infrastructure is important, provisions for infrastructure design would evolve after other elements of the system have been established. Part of what will help in this regard, is that time arbitrage is always a possibility in already existing communities. The first priority is to create a system of broad knowledge use, which is accessible and workable for either tighter or smaller population densities than is now the case. Each new group would start the process by defining a services core for time arbitrage, and expanding from that point.

Initially, a sponsorship phase is likely to be involved for those who seek to establish knowledge use systems. At a group level, this phase might last a year or more until the services core is established to a degree that most individuals have become comfortable with the working relationships involved. Once a group establishes a reliable organizational structure, they become eligible for internal monetary compensation - i.e. the internal "bank" structure for human capital. All progress in this regard would be recorded both for the records of the starter organization, as well as the governments which are willing to acknowledge these new communities as an active part of their economic structure. The recording process is much simpler than it may sound, in that time arbitrage is recorded by the participants who take part in ongoing transactions.

Two forms of sponsors could assist the start up process for new communities, prior to their formal recognition status. Whereas one would provide financial assistance, the other would be more directly involved in the provision of their own time and skills, as seed capital for new communities. Financial sponsors might select a participant and provide their hourly compensation for matched time, and possibly living expenses if needed.

A basic or minimal "work week" for participants (during prime work years) could be 15 matched hours, which makes for a (minimum) 30 hour week, given the matched time with others. Often these would be 15 different sets of individuals, who would frequently use common services areas in central locations to ease the coordination process. Also, given the fact much of this time also counts as consumption, some will choose a good deal more than 15 matched hours per week. While coordination also extends to living quarters, much of the process will begin in relatively public areas - particularly for those of a young age, and especially for the many groups where trust will need to be gradually rebuilt.

The internal banking structure of knowledge use systems is not one of loan generation, but of compensation for matched time. This process includes an expected base of minimal but ongoing investment patterns, which make it possible to cut back whenever needed for time based obligations. These incremental shares - as a basic form of investment - would exist in the form of local square footage options, as well as for building components. Common working areas - adjacent to public areas - would be a part of local shared investment structures. For instance, in peer to peer educational settings, student entrepreneurs could meet with customers (peers, etc) in their own purchased components of central community areas.

In order for local corporations to maintain the right to monetary origination, they would agree not only to maintain vital service formation for all local citizens, but also to expand and diversify knowledge use options over time, so as not to present a burden on the limited services capacity of present day state and national governments. In the sense these local corporations provide a bank like function, it of course exists in a beta position to the alpha position of the Fed. Also, the Fed would need the timely and accurate records of local and group efforts, in order to faithfully represent them.

Eventually, these local systems would be able to provide accurate measurements not just for services, but also assets and production flows as well. As a part of the measurement process, the differences between local wealth origination and resource flows from other areas would also be observed. Since the non tradable and tradable aspects of these small but open economies would gradually become easier to recognize, they would provide useful information for larger economies as well.

Imposing "Long-Termism" on Tradable Sectors? Big Mistake

More specialists to the rescue? Apparently that's still the hot ticket. Especially given the fact discussions in recent years re decentralized economic possibilities, have gone nowhere. A short FT article from Larry Summers, "Corporate long-termism is no panacea - but it is a start" suggests that what is needed are

...trusted, tough minded investors that will support strong management teams 

As compared to who...what? He continues:

There are not many wholly new areas to open up in economic policy. But in recent months there has been a wave of innovative proposals directed at improving economic performance in general, and middle class incomes in particular - not through government actions but through mandates or incentives to change business decision making. The goal is for companies and shareholders to operate with longer horizons and to more generously share the fruits of their corporate success with their workers customers and other stakeholders.

When the "benevolent wisdom" of one's political leaders isn't sufficient for mutually shared prosperity, the benevolent wisdom of "tough minded investors" will suffice, I suppose. In this well meaning but misguided article, one also finds "mandates to level the playing field". Ouch...no. Notice also the stated (good?) intention of improving middle class incomes, as opposed to seeking more sustainable economic flows overall. At least Summers was honest. But further mandates for business directives is not what one wants to do even more of.

The recent mandates that already exist in terms of legal and financial requirements, are making business start ups an endangered species in many areas of the U.S. This leaves job seekers everywhere overly reliant on city markets and older firms for most job opportunities. There needs to be more accessible forms of business formation - not less - so that regions with limited access to international markets will once again have a chance to participate. Is this growing desire to "shore up" the middle class going to mean even more threadbare economic regions? Why not generate simpler and more accessible business formation, instead?

Also, much depends on the resources at stake. For the most part tradable goods sectors are already well structured and capable of benefiting from economies of scale. Even so, tradable goods production has to quickly respond to changes in marketplace conditions around the world. Not every bet that CEOs make can turn out well, as should be all too clear. Consequently, tradable sectors are not well positioned to make broad distributional promises over the long run, when marketplace circumstance can sometimes change in an instant. Timing for this sort of discussion on Summer's part must seem odd indeed, for CEOs of commodities whose prices have been gradually declining.

None of this is to suggest that long term investment issues aren't a problem, especially with growing concerns regarding Social Security and Medicare in the U.S. However, the main issues are mostly due to the lack of flexibility for investment options (time, money and other resources) in non tradables sectors. Where long range outcomes matter most - if indeed discussions about long-termism actually apply - are the places where people work and live.

Local economies have good reason to take part in long term planning, because doing so would provide strategies for not just the investment of resource capacity, but also local educational strategies. Non tradable business formation needs a chance to evolve into decentralized forms of organization, which are capable of including more participants at the outset.

Fortunately I wrote most of this post, before reading John Cochrane's response to Larry Summer's article. It was definitely worth the wait, hence I'm hard pressed to choose quotes to include. Here goes:

But just who other than the government is going to mandate mandates, incentivize incentives, alter behaviors, impose "robust minimum wages," enact the tax incentives to spur profits sharing, do the regulating aspects of pay and so on? 

Oh dear, it just gets better. Cochrane includes the quote where Summers waxes so eloquently about the "cadre of trusted, tough minded investors" that one could easily fall into a swoon. Cochrane responds:

Where is this cadre (!) of investors going to come from? How are these wise people going to impose the long list of things Larry recommends that only governments can do, including minimum wages, tax incentive, and pay regulation? Just who if not the government is this "crucial challenge" for?

Before all the Mars creatures show up to bail us out - or at least to help governments "help" businesses, maybe it's time for mere earth mortals to have a place at the table for long term economic growth. Governments will doubtless continue to help themselves. Tradables sectors should still be able to do the same, in spite of a downgraded growth forecast around the world.  On the other hand...continued marketplace success on the part of non tradables sectors? Not so much. In this instance, give people the chance to learn how to take care of themselves. Granted, it's not something that governments are willing to do. Just the same - for the sake of long term growth and a more prosperous world - it's time to try.

Money Musings in Local and Global Context

If only I had energy enough in this oppressive summer heat, to blog at a more productive pace! At the very least, I want to note Scott Sumner's excellent series of monetary posts this week - in particular his basic point that growth is deflationary. Given the fact I'm a "broken record" regarding long term growth potential, "Growth is deflationary" is the most exciting assertion I've heard in a while. Plus, it helps to explain some discussions at Scott's blog, several years earlier. At the time, I couldn't reconcile the inevitability of inflation with new growth capacity, which appeared capable of reducing prices in certain respects.

Part of the confusion - whenever additional money is warranted in the economy - involves the acknowledgement of new supply side growth. Additional monetary capacity adds to that which should already replicate existing services and production patterns. New economic growth means a greater degree of aggregate spending, which shifts price levels of (already) existing resource capacity downward to reflect the addition of new resource capacity. Hence countless attempts to stifle growth (and inflation) are a paradox, given the fact limited marketplace options can place more price pressure on existing goods.

Some mysteries remain, regarding the quantity theory of money. For one, money "travels widely", and in so doing affects pricing structures around the world. This has particularly been the case for the U.S. since the seventies - a fact which has completely changed the nature of inflation as it was once measured at national levels. In many instances, money that is created locally, moves into a global context which is not yet well understood. Even though there are means to determine the wealth of global tradable goods, the financial instruments which came to represent (otherwise) non tradable asset structures have proven more complicated.

How to think about the local economic circumstance of production, asset formation, wages and income? Nominal income is a more reliable economic constant than asset formation, commodities and other resource use. Without the reliable time based aggregates of labor force participation, commodity shocks become more likely. This is just one reason, why societies need to ensure a place for everyone, in terms of economic participation.

Even though assets, capital and commodities sometimes appear more reliable than income, all of these can be negatively affected, when labor force participation suffers. Only consider the recent commodities bet on the part of oil producers, to produce as much oil as possible in current economic conditions, in spite of lower labor force participation in the U.S. Normally, employment from services formation follows smoothly from the monetary flows of traditional production, but service formation has been dampened to some degree. Many services need to be approached on more direct terms, so that greater labor force participation can also maintain normal production patterns. The fact that commodity prices have declined, indicates the mistake that central bankers have made in dismissing the importance of employment and nominal income.

The best long run strategy for monetary stability is a level nominal target, on the part of central bankers. Inflation targets are a measure that was designed for a very different world than the one which relies on monetary policy in the present. Further, in order to make certain that long term growth remains a real possibility, policy makers need to actively work with citizens to maintain a full monetary representation for time value. Even though monetary compensation for hourly time aggregates would be minimal, local support systems could be integrated into these efforts. In particular, this would also ease the growing pressures on both Social Security and Medicare in the U.S., in the near future.

Services Potential as Wealth Potential

What value do services hold, in relation to products and commodities which "obviously" contribute to wealth? I say obviously, because even though everyone uses services through the course of a lifetime, time based services are generally not thought of as wealth producing. Many forms of services product - important though they are - still exist as burdens for public budgets. As a result - even though time and knowledge based services are central to wealth creation - it has been difficult to think of service formation as a solution for reduced labor force participation in the present.

Fortunately, no one actually has to determine the value of services in relation to other products or commodities, because doing so isn't really the point. Determining what time based services "should" exist - or how their value compares to other goods - is not the problem which needs addressing. Instead, people need to be able to generate a services marketplace which more closely matches the reality of their time availability. By utilizing time value as an anchor, it also becomes easier to determine one's level of potential commitment for other forms of resource management, as well.

One factor which now inhibits long term growth capacity, is the growing impact which indirect services formation has on other forms of production. Central bankers are resorting to tight monetary conditions, possibly in the mistaken belief that doing so could address these imbalances. More growth is needed - not less. A marketplace for time value and knowledge use needs to be directly generated, in order to make full employment a real possibility. Time value - as purposely matched and coordinated within local groups -could generate economic activity which no longer represents further budget constraints. Through increased services levels, other forms of production could also increase. This in turn could encourage central bankers to once again provide sufficient monetary capacity for long term growth.

Too much time based services formation has been approached indirectly, both in terms of production and consumption. Even as Washington provides subsidies for healthcare and its associated industries, employers are expected to contribute to the healthcare "cause" as investors are exhorted to invest during the entire course of a lifetime, in hopes of gaining sufficient spending capacity for the unknown services needs of retirement. Even so, careful savings and investment in this regard is no guarantee, when healthcare issues intervene.

Not only has compensation for services consumption become difficult to sort through, so too the steps that are involved, just to participate. Too much of the services marketplace is structured to benefit from the costs of access. Whereas too little of the marketplace, is actually structured to benefit from the vast quantity of knowledge and skills sets which already should be available. Decades of time investments for education have served more as lottery tickets for societal inclusion, than as means for anyone to assist or inspire others. Marketplace entrants have been treated as workplace "candidates", instead of individuals for whom the time has come to repay their prior investments.

Individuals need a chance to rediscover the relationships between time based services, commodities, asset formation and infrastructure which could better match their lifestyle preferences. This is not something which populations can expect policy makers to do in their stead, if only because many policy makers now live by different sets of resource use than other income levels. For example, it no longer works to think of full employment potential in terms of government or special interest responsibilities, because neither are realistically structured for the marketplace which individuals actually need.

Services potential is the production frontier of the present. However, it needs to be recreated by those who wish to take part in the knowledge based services marketplace of the future. By placing less emphasis on the marketplace which "sells tickets" for economic access, a new services marketplace would gradually have a chance to emerge.

A new services marketplace needs to send the message that everyone has the ability to help and assist others, not just the best skilled who everyone expects to jump the appropriate hoops. The world becomes a dangerous place, when the elite messages everyone else that they aren't "up to the task" of holding responsible societal roles. Services potential is also wealth potential. But services wealth needs to occur on terms which allow individuals to directly negotiate with one another. Furthermore, it needs to take place in relation to local investment structures, so that local non tradable activity can be better coordinated with the tradable wealth of national and international economies.

Thoughts on Rival and Non Rival Resource Use

Sometimes "the hunt" for any ideological differences among economists, seems as though a time honored tradition! In recent months, Paul Romer has also jumped into the fray. In particular, his assumptions regarding Nick Rowe's attitude towards rival goods are still difficult for me to comprehend.

The definitions of rival and non rival goods are hardly "set in stone", plus these designations apply to multiple aspects of economic thought. It's good that rival and non rival resource capacity is being discussed, because this subject definitely deserves a closer look. Not only do rival and non rival designations establish patterns for resource use in the short run, the designations hold important clues as to inevitable shifts in those patterns over time. (For any new readers, I wrote several posts on rival and non rival time value in July, here, here and here.)

One way to think about a rival designation for a given resource, is its potential capacity to generate sets of expectations for patterns of economic flows. Reliable economic flows are of course desirable when possible - if not always a rational expectation on the part of the designated resource. When do rival resource designations generate positive resource flows, in aggregate? It depends, and most important is the fact that a rival designation may not necessarily guarantee a permanent (long term reliable) resource flow.

Worse, arbitrary designations can occasionally usurp monetary flows from other resource structures, especially when designations are intended to create artificial scarcity. So long as a given equilibrium pattern continues to expand through traditional production, these arbitrary designations can be smoothed over through other resource capacity. But eventually, when large percentages of private property are preset for equilibrium "high bets" on resource flows, more resources end up underutilized - or in some instances scarcely utilized at all - if and when given bets prove too large.

Time value aggregates are the least utilized resource (in terms of what matters), in present day general equilibrium. As skills value demanded more resources from the marketplace, time value gradually became subservient to skills value. However, time value needs valid connections to monetary capacity, in order for disparate groups to maintain trust among one another. Time value is naturally rival in the sense of place, time and specific circumstance for specific knowledge use. Skills value is also treated as rival. But when skills value removes too much of the marketplace for time value, coordination patterns are disturbed in ways which become increasingly difficult for monetary policy - and governments - to remedy.

Knowledge use is naturally non rival, because it has the potential to freely spread and also be adaptable to different circumstance. However, when skills value is compensated instead of time value, knowledge use tends to be utilized primarily in rival settings. The main problem in this regard is that monetary compensation cannot continue indefinitely for skills value in asymmetric patterns without causing problems for both monetary policy and knowledge use.

Any smoothly functioning economic environment will have elements of both rival and non rival structure, in order for resource flows to be maintained. In her lifetime, Elinor Ostrom was able to highlight local coordination efforts in particular for tradable goods which were effectively managed by local groups. The challenge for the present is to extend similar coordination efforts into the realm of knowledge based services which take place in a time based framework.

Unemployment: Whose Responsibility?

This post title is so basic - at least in terms of my priorities - that I checked to make certain it hadn't been previously used. For the most part, political and economic discussion in the U.S. has "moved on" beyond discussions regarding unemployment. While multiple forms of hidden unemployment (and/or insufficient employment) still contribute to societal problems, they are now mostly spoken of and dealt with in separate cultural contexts.

One reason unemployment still matters, is that its effects are starting to have unexpected cultural ramifications...at least unexpected to older individuals such as myself who assumed "all was well" at a young age! When people have employment options which correlate with earlier time investments, the results can make a difference over the course of a lifetime. It's when too many time investments begin to lead "nowhere", that everyone needs to pause and consider what is happening. When segments of the marketplace for skills value usurp too much of the marketplace for time value, it's not always easy to maintain respect or dignity, especially when others assume that the "losers" aren't trying.

Even in the (recent) years when unemployment became more of a priority, it was never really clear, who could assume responsibility for a more inclusive marketplace. Too many suggestions have instead gone the other way, in that calls for higher wages (relative to other conditions), signify a more exclusive marketplace. As someone who is sympathetic to market monetarist thought, I've often stressed that unemployment is neither the responsibility of central bankers or of governments. However, I have not believed that supply side representatives have done an adequate job of maintaining employment options - particularly since the Great Recession.

Perhaps more confusing, is the fact there is still no true voice for full employment, on the part of supply side interests. Indeed, too many already look forward to a future which doesn't include a substantial amount of human capital - or time value - in the economic landscape.

Further, a number of central bankers appear to have a guilt complex about labor force participation. Where some central bankers seem not to care at all about employment levels, others wring their hands as if unemployment was solely their responsibility - in lieu of governments, supply side interests or anyone else for that matter. Just the same, monetary and/or fiscal approaches to full employment are top down efforts which have little consideration of the relationships at stake in the marketplace. Even though government make-work or basic income arrangements are undesirable and unworkable, both keep coming up in public dialogue, because of the lack of supply side response regarding economic inclusion.

For those who insist full employment is "impossible", unemployment is still easier to address than poverty. Much of what appears as poverty in developed nations is a relative condition. However, the capacity to respond positively through production reform is limited in general equilibrium. As a result, it has become difficult for innovation to contribute to either income potential or the conditions that allow low income levels to remain gainfully employed.

While knowledge use systems need to address production reform, (local) full employment is a starting point by which to do so. Full employment is possible through the creation of a marketplace for time value. Individuals would be able to respond to the decision making capacity of other individuals, for mutual compensation and assistance. These decision making "muscles" would start out weak, and become strengthened by continued use. While there would of course be difficulties in doing so, many ongoing issues can be sorted out as they arise.

By far this is a better method, than top down "solutions" which attempt to impose long term directives for everyday, time based services interaction. In the process, individuals would be rediscovering the value of their time, in relation to the value of the time of others. This would also be a process of rediscovering self respect, and respect for others. Where personal time value once existed in relation to material resources, the present challenge is that of potential resource use for the mind.

The pragmatic part of me believes that unemployment can be addressed, because the same organizational capacity which employs so many in the present, could also be tapped for groups whose time value exists in relation to the time value of others. However, the emotional part of me believes that unemployment is still something which needs to be overcome, because no one should have to go through life with no valid direction or connection to others. Unemployment in many of its guises can be defeated. Let's just do it.

Notes on Services and Long Term Growth Potential

Why does growth remain subdued, particularly given the fact monetary policy has been able to substitute for fiscal policy to some degree? Job prospects have been stronger in sectors which have to rely on other production as a direct point of wealth origination. Even though some aspects of knowledge based services translate into primary wealth, local multiplier effects are mostly real, insofar as actual skills compensation is due to gains from economies of scale.

As a result, highly compensated knowledge based skills sets in both the private and public sectors, are facing some built in limitations. Consider how government transfers are taking precedence over other forms of government spending, and the fact this is due in part to growing Medicare obligations. Even though healthcare is slated for future growth (especially in contrast to other sectors), the fact that much of it remains reliant on other forms of wealth, restricts healthcare from contributing to the growth patterns experienced by the U.S. until the Great Recession. This could explain - in part - why the Fed has not been willing to forecast growth capable of reaching 2 percent in the foreseeable future.

Isn't it possible to generate more than 2 percent growth in a year? For one thing, policy makers and economists alike are remiss, when they forget that growth is not just a matter of adding more to prosperous cities, but also learning to do more in the places where so many are actually able to live out their lives. While many are willing to relocate to thriving regions whenever possible, the fact that many counties in the U.S. have higher unemployment than is recognized by national statistics, speaks volumes.

Those who live, work and breathe the life of cities, don't realize the degree of knowledge that others witness via digital media, but too often do not experience at work or home. In some respects it's a different world, especially in rural settings. While some aspects of life may be experienced as "better", far too much is missing in terms of both economic and social options. Those missing elements are also responsible for the vast cultural - and monetary disconnect - which society now experiences in government legislatures.

Services do exist in rural areas, but they tend to be woefully incomplete, in terms of knowledge use. K-12 education, rather than being intended for knowledge access in one's immediate environment, was structured for access to city environments which already exist in relatively full equilibrium patterns (i.e. "for their own"). Likewise for healthcare offerings. When any emergency arises, the first response is generally to dash to the nearest major city, which can tend to the emergency at hand. Also, of local services, Alexandria Lopez-Cermeno writes:

Today, around 70% of the U.S. force is devoted to local service production. Essential as they are, these services are nothing but a consequence of prosperity, while the engine of growth lies within the tradable services sector.

Consider how vital these time based ("distributional and personal non-tradable...at the same time and place of production") services are. For developed nations, these services workhorses became the base of economic activity, in areas which lie adjacent to more prosperous areas. Yet these are the very services - yes this 70% - which remain most vulnerable to any changes to monetary flows of more prosperous regions. This is the situation which the local corporations of knowledge use systems would seek to address, by making time based services a direct source of wealth. She continues:

In other words, big cities are specialising in knowledge-intensive service sectors - becoming larger and attracting skilled and unskilled workers from smaller cities. As a result, workers from small cities are abandoning their hometowns in fear of becoming part of the rural U.S. County inequality is increasing, although big metropolitan areas in the upper tail of the distribution are becoming more equal among themselves. 

While Alexandria Lopez-Cermeno has an understandable take on this situation, the goals she would seek are not actually possible to achieve on the terms she puts forward. Why so? First, she notes that high skills are where the wealth creation actually lies, as the tradable "engine of growth" of knowledge intensive business activity which provides local multiplier effects. She suggests that more cities make a stronger effort to attract high skill levels, and that lower skill levels be monetarily reinforced.

However, this approach does not adequately consider the dynamic which is already in play - one that also reflects today's low growth environment. Look where job creation exists, and note that the high skills being sought are mostly to reinforce the already existing equilibrium which only generates partial economic access in the present. Note that she does not distinguish (re highly compensated skills) whether the multiple job effect they create is due to positions which benefit from economies of scale, or from artificially limited knowledge use factors. It would be difficult to achieve wage growth on the terms she envisions, because of the position of human capital in the marketplace which has already been constructed.

That's not to say that nominal income has little capacity for growth, but that it needs to occur on different terms, i.e. the places which actually need growth. One reason why today's political battles are so confusing is that even though policy makers know some people are still struggling, it has been difficult to frame this struggle in terms of economic access.

New growth can be generated. But it needs to be achieved by reaching across business sectors for inter-sector coordination at local levels. This growth would be possible in that services can be directly created, a process which would gradually allow labor force participation to return to sustainable levels. To some, the time value that exists in relation to other time value seems as though insignificant, but it is actually the most promising venue of wealth creation that is possible in the present. Further, time value - in relation to other time value - also provides a new frontier, by which local economies of scale become possible.