Wrap Up for September '15

How does one know whether or not what appears as though a recession, is the real thing? More countries will likely experience some of the pseudo type in the near future, not unlike Japan. Scott Sumner looks into some of the particulars in pseudo-recessions and actual recessions, at Econlog.

I feel for the people who have even more worries on their mind, just because of the uncertainty of their health insurance requirements and coverage.
https://www.washingtonpost.com/national/health-science/coverage-in-affordable-care-act-health-plans-wanes-since-january/2015/09/08/a8cad442-563d-11e5-b8c9-944725fcd3b9_story.html

Wikipedia has a description of The Theory of Justice by John Rawls, which was originally published in 1971.  For those thinking of purchasing the book, this entry may help:  https://en.wikipedia.org/wiki/A_Theory_of_Justice

It can be difficult for individuals with high incomes to build new traditional homes, in some prosperous regions of the U.S. Likewise, lower income levels don't easily find innovative housing options in other areas. http://blogs.wsj.com/economics/2015/09/10/why-is-home-building-lagging-job-creation-realtors-builders-disagree/?mod=WSJBlog

Perhaps more denial exists on the part of builders instead of realtors, but then what needs to occur is actually beyond the reach of both groups. Another slowdown is due to a lack of construction workers. Readers know what I would suggest: why not mass produce flexible, lightweight and portable building components, instead of waiting for a larger construction workforce which would only have to be whittled down again in the next downturn?
http://blogs.wsj.com/economics/2015/09/11/the-construction-industry-struggles-to-rebuild-its-worker-ranks/?mod=WSJBlog And until something radical takes place in terms of building construction: http://blogs.wsj.com/economics/2015/09/21/renters-will-continue-to-struggle-for-the-next-decade-harvard-study-says/?mod=WSJBlog

Ricardo Hausmann, in Does Capitalism Cause Poverty? has a suggestion for the concerns Pope Francis holds regarding capitalism: eliminate the barriers which thwart its expansion. From Hausmann:

The developing world's fundamental problem is that capitalism has not reorganized production and employment in the poorest countries and regions, leaving the bulk of the labor force outside its scope of operation.

Matthew Yglesias explains why a resurgent, unapologetic left is on the rise globally. http://www.vox.com/2015/9/16/9322625/sanders-corbyn-mulcair  Of course this development echoes the growing political shift to the far right, as well. The fact that the Fed continues to tighten monetary policy, certainly does not help.

Even though the additional information will hopefully assist patient needs, it represents an extreme burden on an already overwhelmed system. And some of these healthcare facilities have already experienced cash flow problems due to sluggish government compensation...http://www.nytimes.com/2015/09/14/us/politics/one-symptom-in-new-medical-codes-doctor-anxiety.html

Tim Harford looks at some historical aspects of city development: http://timharford.com/2015/09/what-cities-tell-us-about-the-economy/

Two on price:
A post from Robin Hanson http://www.overcomingbias.com/2015/09/beware-intuitive-econ.html
and a textbook from Deirdre McCloskey, The Applied Theory of Price

Lars Christensen will be speaking at the Federal Reserve Bank of Dallas in October. Hopefully some of my readers will be able to attend! http://www.dallasfed.org/institute/events/2015/15evening.cfm

Scott Sumner recently highlighted a new paper on NGDP targeting, from the Kiel Institute for the World Economy: https://polcms.secure.europarl.europa.eu/cmsdata/upload/5bcc04fc-0ce1-4934-a240-da5d5249c6a6/KIEL_FINAL.pdf

What Is Meant By An Inclusive Marketplace?

A recent post from Don Boudreaux, "How Realistic is Non-Inclusive Growth", provides ample reason to revisit this subject and offer a bit of explanation, as to my emphasis on economic inclusion. While Boudreaux spoke of growth in somewhat general terms, my concern is that the hard definitions of non tradable sectors (also reflected in costs and business overhead) can nonetheless crowd out growth in more innovative sectors.

This translates into fewer customer purchases (overall) of mass produced and innovative product which is quite reasonable in cost, because of already existing obligations which have less cost flexibility. For the most part, consumers need a real foothold in non tradable sector activity, in order to participate in tradable sector activity at what could be considered normal levels. Central bankers have made the possibility of crowded out tradable sectors even more realistic, due to excessive monetary tightening since the Great Recession.

For centuries, tradable sectors have provided a continually expanding marketplace which has meant greater prosperity for citizens around the world. However, nations and their central bankers are now throttling back on growth potential. For developed nations in particular: when insufficient options exist for different income levels in non tradable sectors, this can also limit long term growth prospects for tradable goods production.

How to think about the often "exclusive" settings of non tradable sectors? Note that there is nothing "wrong" with the exclusive nature of given local environments for services and asset creation, and it doesn't really help to frame these discussions in moral terms. For the most part, local citizens have arrived at these settings through long processes of commitment and careful planning. Locals have vested interests in their shared circumstance, and in the ways that local values are determined over time. If local economies were expected to become inclusive to the point of including multiple income levels and lifestyle options, in some instances they would not function properly.

Hence inclusive economies need to be thought of in terms of multiple options for community formation. Governments could assist their citizens in generating new templates for infrastructure choices, which would provide structural means for new growth. Broader guidelines for economic engagement is a much better plan, than imposing new rules for economic access on areas which already serve well defined economic purposes.

New definitions of economic viability are needed, so that multiple income levels can generate infrastructure, assets and services formation. Thus far, this has not been possible, when governments and special interests define producer/consumer realities by the same rules for everyone. As individuals wait for their chance to enter a still limited marketplace arena, total growth continues to slow. It's not much of a stretch to suggest the marketplace has been less inclusive, as a result.

Rather than forcing arbitrary densities or specific income levels in already established locations, it would be better to provide alternative settings to begin anew, for long term growth potential. Even though tradable goods sectors will continue to expand, they cannot be expected to accomplish marketplace innovation entirely on their own. Without careful attention, restrictions in non tradable sectors could crowd out other important sectors, and reduce the chances of restoring long term growth in the global economy.

Reasonable Taxation: Is It Possible?

In a recent Econlog post, Scott Sumner questions a number of government taxation policies for capital, and I want to highlight his first point.

It's difficult to think of a more bizarre and foolish policy than the practice of taxing capital. Consider:
1.  If it were appropriate to pay taxes on capital gains, why wouldn't it be appropriate to pay negative taxes on capital losses? Economic theories tend to be symmetrical. And yet capital losses do not result in negative taxes, except in certain limited cases. And why only those cases?

The reason my focus is somewhat narrow for this post, is that I will likely need to approach thoughts regarding tax policy in small chunks. Like it or not, tax policy has important implications in the "blank slate" of local corporate structure, which would need many exemptions in order to create new organizational capacity. Having gotten halfway through "The Great Tax Wars" (Steven R. Weisman), for instance, the only thing I can say with any certainty is that I am going to have to reread the book again, once I finish.

Scott's post points to an asymmetry in risk sharing. How many are deterred from making investments which include the possibility of substantial loss, given the investment rewards which accrue to government? Of course only governments involved in nationalized companies would play roles in placing bets (proactively assuming risk), which is not desirable either. Just the same, tax policy would be far more rational if investors were compensated when they incur losses.

Rigid tax structures - wherever they are placed - can present real problems for wealth creation and long term growth. Too many in government assume relative constants in terms of marketplace activity, even though much of what occurs is not possible to maintain for any length of time. Too much investment for skills capacity now faces this problem, as well. If only the average individual could count on the marketplace to grant certainties! Of course this does not stop special interests and governments from trying to create their own certainties, but the result is by no means a free marketplace. Life is always going to change, as is resource availability and consumption preferences. Hence no arbitrage position can be expected to remain the same, in spite of the human desire to make it so.

Local corporations need a simpler framework for all concerned, in order to share responsibility for local infrastructure and services. These groups would share risks as combined local investments, but each participant would build over time a diverse portfolio. One could liken this portfolio to a garden. Some crops stand a chance of failure in a given year, yet there will still be other crops to sustain both individuals and the group.

While there's nothing unusual about diverse portfolios, until now they have applied for far flung business investment, rather than a unique setting of local non tradable sectors. Plus, local corporations would have the added benefit of services through coordinated time aggregates. This services network would take the place of pensions in most respects. Rather than an income tax, one's time would be available for group services in ways which also allow personal choice. Direct democracy can be a viable option for local services formation, even though it is not well suited for centralized forms of government.

For local corporations, the costs of infrastructure needs would be built into shared local investment holdings, instead of existing separately as taxation. Likewise, time arbitrage would mean no need to tax property for education. In the above linked post, Scott Sumner once again voiced his wish that the whole taxation system could be scrapped for a progressive consumption tax. While this potential solution seems unlikely any time soon, at least efforts can be made at the margins, to find simpler means to achieve the desired ends between public and private endeavor.

Some Notes on Time Backed Money

In a recent online discussion re the fact money seemed "infinite" - so why not just formalize it as such - I briefly explained why I didn't think this approach would work. However, I found myself also relying on a term to do so, which I've not adequately explained in previous blog posts: time backed money. Time backed money is one way to describe directly compensated time arbitrage, on the part of local corporations which fulfill both business and local government roles. Time backed money could ultimately help to "fill the gaps", where the organizational capacity of fiat money (and the present supply side) fall short in terms of employment. The conditions in which this takes place would also represent a small scale alternate equilibrium.

While some continue to question the viability of fiat monetary policy, I view fiat monetary representation as a necessary and appropriate function of large scale economic formation. That said, I don't believe fiat money is fully capable of representing aggregate time value at the margins, particularly since aggregate resource capacity should still be able to outpace the contribution of time aggregates in the foreseeable future. Under any circumstance, it is difficult to anchor time value across the entire economic spectrum, to the other contributions of resource capacity which make up a nation's wealth.

During the twentieth century, fiat monetary policy assumed the responsibility of coordinating multiple resource structures on the part of national governments. Even so, unemployment remains a problem for rural areas and cities which have been "left behind", hence these areas would benefit from a different approach. It's not a stretch to suggest that were it possible to do so, the mysteries of residual unemployment would have already been solved in normal equilibrium conditions. Granted, nations have at times come close to full employment, but not without concerns re overheating - even though such worries are unwarranted in today's tight money environment.

NGDP level targeting on the part of central bankers would go a long way to address current monetary shortfalls, and it is a crucial first step in providing better monetary representation for the public. A nominal target would also serve as a reminder that aggregate income capacity need not be set aside for the priorities of either governments or financial interests. Just the same, a level nominal target cannot generate complete employment in terms of full labor force participation, even in the best of conditions. Time backed money could assist fiat money in generating more employment, but the ultimate measure of both depends on what happens in the real economy.

Fiat money of course represents time value alongside other resource aggregates, but mostly in the sense of time value claims from specific skills sets. Unfortunately, those earlier claims on time aggregate representation were often staked out during periods of rapid growth and fewer obligations overall on the part of governments. As a result, it is increasingly difficult for governments to assist in services coordination through fiscal means. Time backed money would grow the services marketplace, where fiscal policy is no longer able to do so. One of the best aspects of time backed money is that it would begin the process of generating vital services through monetary means, instead of fiscal obligations.

Time backed money would not be created by the Fed, but rather acknowledged by the Fed as it is generated through local corporations. It could also be thought of as a bridge between monetary policy and the ongoing circumstance of the real economy in primary equilibrium. Whereas fiat money is well suited to coordinate centralized activity from a broad perspective; local settings involving time backed money, would make it possible to take a closer look at economic conditions.

When Asymmetric Service Formation is Not Enough...

Asymmetric services formation, i.e. the compensation of high skills levels through the transfer of wealth from resources other than human capital - just became more difficult. How so? As monetary conditions continue to tighten, the ramifications are already being felt in healthcare, where further consolidation is underway. According to Scott Gottlieb at AEI in an article entitled "As number of insurers shrink, patients face dwindling choices"

When it comes to the mergers among health plans, the bigger issue isn't the consolidation of the nation's five largest insurers into three. It's the fact that far fewer new health plans are forming to replace the plans that have been acquired. New regulations, many of which were ushered in along with Obamacare, have made it too hard and too costly to start a new plan...around 40 plans have also left the market over this same stretch of about seven years.

This is not a good moment for the government funding of many forms of time based services - only consider John Boehner's pending resignation from Congress. Even so, services formation needs to exist in balance with other forms of production, in order to maintain economic stability for the conditions of the real economy. While asymmetric service compensation will continue to apply to the spontaneous equilibrium which supports the elite and some of the middle class, its viability for everyone else is threatened - given the dependence of governments on a vast array of resource capacity which has recently lost value.

While consolidation in tradable goods sectors can often lead to greater production efficiency, consolidation in the non tradable sector of time based healthcare, just means a smaller marketplace than would otherwise be possible...period. Much as consolidated schools have forced long commutes for students in recent decades, consolidated hospitals and physician locations now mean extensive traveling for many whose health is often not in good enough condition to be doing so - particularly when chronic illness means having to travel to healthcare facilities repeatedly. It is time to generate services creation where people live, instead of forcing them to rely on the already stretched capacity of still prosperous regions.

Symmetric time coordination - on the part of local corporations - would do far more than just generate new wealth. This form of organization would reduce the burden of time and resource investment constraints, which have been necessary for services formation in today's prosperous regions. When services formation is asymmetric, individuals often spend decades preparing for economic entry, in multiple disciplines. Even so, many professionals cannot always pursue their own knowledge based priorities, or help those they had hoped to assist in the first place. In the early stages of symmetric services formation, participating individuals would still need to travel to cities for advanced healthcare options in some instances. However, the overwhelming majority of healthcare needs could be organized in the heart of places where people seek to live and work.

I felt more positive about the significance of "under one roof" services formation, after watching the Dani Rodrik live interview with Tyler Cowen, at the Mercatus Center on September 24th (here's Tyler's link to the discussion). "Just in time" knowledge use and application, would mean greater flexibility for divisions of labor: something often not possible in traditional services formation. The same monetary rigidity of price structures which exists for high skill services, has also meant labor rigidity which has negatively affected the real economy.

In his interview, Dani Rodrik spoke of the difficulties for transferring or generating services capacity for developing nations, because of the multiple systems which need to work in (fortuitous) sync with one another, in order for the process to occur. Whereas, traditional manufacture has been easier for the "blank slate" of simple organizational circumstance, because of the "under one roof" coordination which allows flexible division of skills sets. Further, tradable goods production did not need a local market for product, to be able to contribute to local economies.

Non tradable service sectors - by definition - are all about potential production and consumption for local economic conditions. The slow adaptation of services systems in the places they are needed most, is all the more problematic, now. At a historical moment when populations seek greater participation in services markets of all kinds, nations are increasingly compelled to cut back services without an adequate response from private industry for innovative services capacity. Were it not for this fact, there would be a (somewhat) limited "need" for my blogging in the first place.

One of the best aspects of local corporations, is that they would be able to coordinate what are normally multiple systems into single coordinated local networks. Not only would this make complex service organization possible in rural regions, local corporations could also provide growth options for developing nations. When the process of high skills formation involves too many different logistics to work effectively at the margins, it is time to provide better wealth options for the margins of existing equilibrium.

Notes on Wicksellian Considerations

At the heart of the Neo-Fisherian dilemma, one also senses a determination to find out if the natural interest rate can be made to "conform" to those who want better returns on their investments! Indeed - as Bonnie Carr recently pointed out - is Janet Yellen even taking the Wicksellian equilibrium into consideration? And after a particularly frustrating CNBC interview with James Bullard, Lars Christensen responds, "Jim, it is not complicated. NGDP tells you NOT to hike."

How much does the Wicksellian natural interest rate matter? In other words, what does today's low level suggest, regarding the current post recessionary equilibrium? Like other observers, I continue to sort through the "fallout" of these discussions. From the Wikipedia page for anyone who might benefit from a "refresher", re Knut Wicksell:

Wicksell died in 1926 while writing a final work on the theory of interest. Elements of his public policy were taken strongly to heart by the Swedish government, including his price level targeting rule during the 1930s...Michael Woodford has especially praised Wicksell's advocacy of using the interest rate to maintain price stability, noting that this was a remarkable insight when most monetary policy was based on the gold standard...Wicksell invented the key term natural rate of interest and defined it as that interest rate which is compatible with a stable price level...If the interest rate falls short of the natural rate, inflation is likely to arise; if the interest rate exceeds the natural rate, this will tend to produce deflation.

Will the Fed induce deflation in the near future, by insisting on prematurely raising interest rates? After all, the so called "strong" economy remains dependent on an incomplete equilibrium, i.e. built on lower labor force participation than what existed prior to the Great Recession. Ultimately, inadequate employment results in problems for both aggregate supply and aggregate demand. As James Alexander recently noted, "The stance of monetary policy can only be measured by looking at whether demand for money is outstripping supply of money, and that can only be seen by looking at where nominal growth (aka Aggregate Demand) is headed." And yet the ongoing requests for central banks to follow aggregate spending capacity, continue to be ignored.

Once labor force participation began to decline, governments "compensated" by utilizing housing stock as means to "park" income for needed capital flows. While this was a reasonable temporary response, production and investment needs to be increased for all income levels. Further, traditional housing construction has been suppressed, well below actual marketplace demand. Decentralized investment strategies are now needed for new housing options, given the fact that centralized (and government) investments are more closely aligned with upper income levels.

Mass production of building components for lower income levels, would be among the most reasonable means to grow the economy on terms which matter for all consumers. It's unfortunate that policy makers haven't seen fit to encourage this development, given the fact more supply and demand for housing would eventually increase the Wicksellian rate of interest on normal terms. Indeed, real innovation which expands the marketplace is precisely what would build the strong economy, which the Fed wants to believe exists, now. Don't raise rates "just because". Raise rates when the work of making a stronger real economy has actually taken place.

Services Barter? It's No Substitute for Poor Monetary Policy

What happens when monetary representation gets overshadowed by banking interests such as housing, particularly when housing is a major component of capital for developed nations? It depends on the nation involved, and two things in particular. For one: how much production is accurately measured within a nation's borders? So long as wealth creation (production capacity) is well dispersed in a given population, housing wealth at least has some counterbalance. Also: is the country in question able to rely on its own central banking system? If not...

Greece is just one example, how problems in this regard affect employment, the maintenance of services formation and - more recently - even the ability to sustain tradable goods flows, as capital controls have led to increased reliance on barter economies. Barter - such as Greece has attempted to make do with in recent years - is no substitute for monetary representation which takes aggregate spending capacity and production potential into consideration.

Even though services barter in Greece might appear as though a marketplace for time, this form of barter is little more than a scramble for skills sets which have faced hard limits on production formation in the marketplace. For instance, it never takes anyone long, to discover that most doctors are not going to be able to exchange healthcare for babysitting hours. It simply is not feasible for today's doctors to overcome this time value asymmetry, given the circumstance surrounding one's personal obligations and costs of doing business in the marketplace.

When central bankers maintain tight monetary conditions so long that even local tradable goods flows start to break down, physicians may have little choice but to emigrate to nations which can support the level of financial engagement they need in order to maintain economic access. These physicians are part of a captured marketplace for skills value, which vastly overrides any marketplace for time that traditional barter might provide. Even though a marketplace for time value would eventually provide healthcare options for nations in dire straits, services barter - sometimes referred to as "time banks" - is faced with far too many asymmetric barriers in time use obligation.

Consider the fact that citizens are not well represented monetarily (as discussed in yesterday's post), because of a lack of integration for services production capacity. How to think about a marketplace for unmet aggregate demand? One good example would be the limitless numbers of local programs which - like so many local businesses - give up their missions when communities don't find suitable marketplace configurations to support them. Even so, more people need to be directly involved in services production and commerce formation - not less.

Wealth creation cannot simply be a matter of enforced consumption or business overhead patterns, which populations are expected to uphold. Even though this should be obvious; the fact it is not, has bearing on the current resignation regarding growth potential. Worse, governments are implicitly encouraging central bankers to cut back on aggregate spending capacity as though economic processes were slowly winding down, instead of continuing as normal while millions attempt to secure roles in the marketplace.

If only for the purpose of political and social stability, wealth creation needs to be restored at a basic level. However, loans and credit use should be optional to the process, instead of being a necessity for economic access, This is all the more important for lower income levels, which need incremental growth options. So long as loans and credit are treated as central components of prosperity, citizens will experience difficulty, gaining the monetary representation which central banks were supposed to provide. How much of the Neo-Fisherian dilemma is just the desire of governments and central bankers to maintain a credit defined, consumer driven equilibrium? Ultimately, consumption is only possible to the degree that production is also set free in the marketplace.

Fortunately, services production can be locally generated as newly created wealth. Not only would this process ease the burden on government budgets, but millions would rediscover ways to build resource capacity at local levels. It is nonsensical to imagine that services production is not "needed", given the fact that governments have had little choice but to toss services provisions time and again, due to budget constraints. This is the missing aggregate demand which supposedly does not exist. If it's difficult to envision the missing marketplace where one lives, only think of the millions at the borders, who are still looking for a chance to participate in global wealth creation.

Why Does Monetary Representation Seem "Unimportant"?

While this subject continues to get short shrift in public dialogue, monetary representation has also been overshadowed by non-monetary concerns where it matters most: monetary policy. Somehow, I get the feeling it wasn't always this way. Only consider dialogue from U.S. historical accounts, before governments became so heavily involved in the economy. Even though many individuals only partially understood what was at stake, presidents, policy makers and citizens alike appeared more concerned with monetary representation, than policy makers or citizens of the present

Whereas today, monetary representation takes a back seat to practically everything else imaginable. This makes it too easy for the Fed to obscure from the public, that they are gradually pulling away the monetary foundation of aggregate spending capacity - albeit in slow motion. Even now, too few realize what is happening to the long term growth trajectory, or how tight monetary conditions could generate further political instability.

Given the abundance of present day statistics and measuring capacity, why is it difficult to recognize where monetary representation exists? Even though there was less measuring capacity during the Great Depression, many forms of product still existed in simpler terms. Traditional manufacture played a much larger role, and the measurement uncertainty of services product was far less of a concern. As a result, aggregate wages and income were easier to correlate with overall product formation. So long as this was obvious to the average citizen, monetary representation for the average individual was doubtless more important in the public's mind.

Even though the challenges to GDP as "appropriate" measure must seem odd to market participants, the lack of correlation of GDP with understandable product formation is not lost on the public. Plus, much of GDP represents intangible wealth such as housing - also difficult to recognize as the primary capital formation now held in common. Just the same, calls to find something more "meaningful" than GDP do not take into account its central necessity for monetary representation. In other words, were it not for the ongoing capacity of GDP measure, monetary stability would be even more difficult to achieve, than has been the case already, particularly with a Fed which appears to have lost its monetary bearings.

Complexities regarding taxation, could also play into the seeming lack of concern regarding monetary representation. Even for students of economics, the quantity theory of money may not necessarily square with what is perceived to be government's role in the economy. Add in the difficulty of visualizing what gets spent on real product, and one does not even know how subjective values can be considered in context. When product formation becomes unrecognizable in economic activity, monetary representation cannot be far behind.

Another area of confusion regarding monetary policy, is that aggregate numbers are beginning to overwhelm the average individual. How does one think of monetary representation in personal terms, when the amounts are in the trillions? Indeed, this may be part of a growing rationale, to throw up one's hands and rely on "infinite money" (no backing) to tend to the enormous responsibility of financial matters. Even though trillions still make sense for the aggregate resource capacity of the world, it is difficult to understand where or how to match this capacity to the finite and limited capacity of time aggregates. One internet joke put it thusly, "CNN just said the world is 40 trillion dollars in debt. Who the *#&% does the world owe...Jupiter?"

Some of this might explain why central banks insist their current monetary policy has been "expansionary" when it most definitely has not, and have gotten away with this declaration for so long. For the average layperson, it has been easier to take the opinion of pundits at face value, than to dig deeper to discover what is actually occurring. Plus, the task of digging deeper - while rewarding in the sense of discovering the truth - is not going to make anyone popular at dinner parties!

Of course a lot more is at stake than popularity contests, and this is particularly true for the Fed. As David Beckworth recently indicated, it is time for the Fed to end their guessing game, and get back to a rule based framework which once again places monetary representation front and center. Granted, there are other important considerations for economic stability in the months and years ahead. Just the same, the Fed needs to get real with the public, as to what its most important job actually consists of.

"Don't Let The Sun Go Down" on Long Term Growth

As Lars Christensen notes in a recent post, it is becoming increasingly clear that Janet Yellen is a strict adherent of the textbook Keynesian model. As such, she does not have much faith in thinking about the economy in terms of the markets, and risks a further drift from a nominal target than has already been the case. Indeed, the determination to further tighten, and the fact that she would not directly address the issue as posed to her, feels as though a sunset, in what should have been the sunrise of the 21st century.

Thus far, visions of 21st century progress are still missing, as governments try to move ahead on the outdated terms of the 20th century playbook. Even the musings of a potential Singularity, have little role for the citizen in the creation of wealth. Why have too many nations refused to engage their own citizens as to what they think is possible, for long term future growth? Not only has this made matters more difficult in the political arena, the backward looking focus of the Fed only makes it more vulnerable to recession in the months and years ahead.

So long as pent up demand exists, the potential of what could still be a higher growth trajectory, will remain unmet. It has proven too convenient for the Fed to ignore pent up demand, by focusing on the distractions of inflation and interest rates instead of the marketplace. However, it is the marketplace where the potential for growth still exists - not Washington, which has its hands quite full with the ever growing obligations it has taken on for well over a century.

Long term growth remains threatened by the rigid conditions of both present day supply and demand. Increasingly, the education of one's youth is becoming a travesty, for there is little room in the marketplace to include the vast potential of human capital investment. It's time for governments to face the fact that they have left too little space for the inclusion of their own citizens, to participate in the wealth creation of the 21st century. It's time to do something about this, instead of further ratcheting down monetary policy as is continuing at this moment. Don't let the sun go down on the promises of prosperity that were made, in the 20th century, when citizens trusted their central banks to do the best monetary job on their behalf.

Local Corporations Could "Recreate the World"

While standard corporations - i.e. those with national or international capacity - provide specific categories of product, local corporations would generate unique imprints of what is "on offer" in the world. While such offerings do not always have a place in primary equilibrium; just like the marginalized, they can find "room to breathe" in alternative equilibrium. Even though the investment structures of these corporations would be local in nature, the communities which result would not be closed to "outside" ideas which could positively impact their diversity and growth capacity.

Local corporations would have some important government attributes, even though they would remain part of national government structure and monetary systems. Chief among these attributes is the ability to grant local production rights for local citizens in services, asset and product formation. These production rights are the attribute which make it possible to provide services and infrastructure, that minimal wage compensation otherwise could not support. Local production rights also make it possible for populations in the hundreds and thousands, to provide services formation which otherwise would be primarily associated with large cities.

Physical infrastructure in particular, would be amenable to international ideas, particularly those which result from student innovations which have generated rewards and acclaim. Several aspects of infrastructure would hold additional importance for local corporations. Whereas digital media has mostly been utilized for communication and entertainment until now, it could finally be tapped to aid the time based coordination patterns of workplace capacity.

Organizational capacity across multiple disciplines, would be able to generate "more for less" consumer structures (environments). How to think about this? A wide range of resource sets can be coordinated and defined in ways that reduce the burden for costs on the participants of the system. The reason this is so important, is that when non tradable sectors are not exposed to innovation and coordination among different groups, their costs tend to crowd out more innovative sectors when central bankers tighten monetary conditions, as has been the case since the Great Recession.

Local corporations are particularly needed, to encourage citizens that long term growth is still possible. When potential growth is held back, governments become more like those that Paul Romer speaks of in this recent post re Europe and immigration:

When doing the right thing ("be generous") seems to make the problem worse ("more will come"), it is time to pull back and reconsider. What is the real problem? What would actually be the right thing?  

The real problem is not that people are queuing up to get into Europe. Rather, it is that tens or hundreds of millions of people live in a place where a failing government precludes any chance at the basics that any person wants: "safety, dignity, opportunity, hope."

Romer added, "turn all these people into the resource that solves the problem", and I couldn't agree more. While he envisions cities that can scale spontaneous coordination for citizens, I imagine small communities that utilize a marketplace for time, to achieve coordination as a central starting point for wealth creation.

The worst thing in the present would be to do nothing at all, particularly because of the worsening political situation around the world. I am grateful to Lars Christensen for highlighting the fact that classical liberals on both the left and right cannot be complacent now:

It is time for a counter-revolution against the politics of fear and hatred. It is time for the liberals of the left and the right to speak out against those who would like to close the borders for goods, capital and people. It is time to speak out against the authoritarian tendencies in Europe and US politics...

Like Lars, I am greatly concerned about the potential loss of freedom and the warnings of the past. It is posts such as the one he just wrote, which help to free me from lethargy and give me the incentive to redouble my own efforts. We need to heed the warnings of the Great Depression, given the fact that in monetary policy, too little has actually changed.

Face Poverty By Addressing Work Creation

Angela Rachidi of AEI noted that in the recent US Census Bureau income and poverty data, there was "no change in median income or poverty", even when government transfers are taken into account. There was little change in poverty (15.3%) in either 2013 or 2014. In the quote below, her concerns also echo my own:

But a deeper look at the data shows that a lack of work all together is the bigger culprit. We typically focus on the poverty rate (percentage of people in poverty), but looking at the makeup of those in poverty reveals a great deal about who is poor. Of all working age people (ages 18-64) in poverty in 2014, 61.7%  did not work at all and 26.7% worked less than full time. Shoring up low wages, whether through minimum wage increases or the EITC, will do little to help these working age adults in poverty. What is needed is more work.

Addressing work creation has become the hardest part of finding solutions in the present. Even so, this is hardly the first time that lingering unemployment has gone unaddressed. The reality of low labor force participation continues to weigh on economic statistics which otherwise would appear healthy in many respects. Even though governments have mostly moved beyond the non solution of "make do" work, there is no societal consensus regarding new work formation which could be beneficial for all concerned. Why has it become difficult to create something so basic to life, as work?

Governments and special interests alike, have captured organizational dynamics in ways which leave too many people unable to produce either needed services or other goods. Over time, further requirements have become more burdensome for business creation, work formation and living conditions. As a result, political debates mostly sidestep the vital issue of new work creation, which would be meaningful on supply side terms instead of government dictates. In the "missing words" of last night's Republican debate, as James Pethokoukis noted, economic "growth" was mentioned five times versus the seven mentions of building an anti-immigrant wall. "Opportunity" fared even worse.

Work not only needs new definitions; it needs a green light from those in power who mistakenly keep the most basic forms of economic assistance behind closed doors. However, this is precisely what has prevented those in poverty from finding means to assist themselves - especially as services marketplaces assume primary importance. One can only hope that the new left does not attempt to force free schooling in the U.S., because this would do absolutely nothing to solve the underlying problem of insufficient access.

Education is only a part of the issue, because it's the organizational capacity of services - built to rely on other forms of production for monetary compensation - which make it impossible for all to participate in their chosen endeavor once they receive their degrees. Of all the things I learned in my first semester of college, the palpable fear of my first voice teacher stood out the most. The fact that she would need to go back for her doctorate in order to continue teaching, was a harsh warning about my chosen subject. Even in the early seventies, I could see how dedicated (high school) music teachers were compromised in income and living conditions, as compared to the teachers who were teaching what students "needed".

Once unemployment becomes an issue for anyone for at least a year, work reentry becomes more difficult - especially as one ages. This means unavoidable stigma for anyone involved, even if and when they do their best to main a respectable life. As the prospect of normal life further recedes, these individuals often become incarcerated, homeless, and/or struggling with some form of addiction. Think for a moment, about the perspective of those who are assigned to help these individuals, however possible. What does a social worker hope for them? If some of their charge do not appear beyond hope, it would be that at least some among the marginalized can return to living a good life.

Presently, there are not sufficient means to provide work reentry for the marginalized. Because the barriers to reentry are high, time value often exists at a premium when it is deemed sufficient, yet worth little to nothing when personal time value doesn't "measure up". Today's "failures" somehow need to be able to reestablish trust among themselves, even as they create a more forgiving marketplace for time value, in a society which has grown too fearful of trusting them.

Knowledge use systems -  once set into motion - would eventually set up an invitation process for individuals who still have a reasonable chance of starting anew. Professionals and others who work with the public, would seek out the brighter prospects among the unemployed, to determine what remains possible. Not everyone would be able to regain the social skills necessary for the work of mutual self assistance. As someone who has been unemployed far too long, I have to wonder about my own capacity for doing so. Still, there would be much to gain, for those who are able to benefit from mutual self employment organizational capacity. Just the fact of being free to work - finally - would encourage new efforts and new hope.

Arbitrage Potential, and Time Based Social Security

Where is the untapped arbitrage potential of the present, and how might it be released? How much of it exists as human capital...or other forms of resource use? For me, these issues have more relevance, than ongoing attempts to divert already existing arbitrage flows. Especially given the fact that norms for resource use patterns are starting to shift.

How would new communities respond to arbitrage potential? Local economies would need to start with the identities which citizens have already formed, the skills and resources they already have, and from there, do what they can. Even though this may sound obvious, presently existing marketplace design scarcely takes advantage of given attributes. One might say that arbitrage is about making options in resource use patterns more explicit, both in sequential terms (time) and spatial terms (place). From the Wikipedia definition of arbitrage:

In economics and finance, arbitrage...is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.

However: differences in price are not the only mechanism which can carry transactions forward. Consider how local calendars, sequential voting and "just in time" adjustments could uncover group variations in time use preferences. Here, profit exists not just in the compensation of matched time, but also the accumulation of recognizable time value and knowledge aggregate gains in group settings.

A marketplace for time value, allows individuals to develop skills portfolios for the needs and preferences of others. Even so, it would leave space for one's own hierarchy of time concerns. Short of emergency situations, family time and vacation time become "built-in" internal negotiation factors. One could say that "deals are struck" with one's one time management priorities. Personal time management does not have to be sacrificed, in order to add meaning to the time of others.

At local group levels, possibly the greatest potential for time arbitrage is in the provision of reliable social security systems. While one normally thinks of social security in terms of monetary benefits, personal attention from others in the course of a day is not always recognized for the immense value it holds, until one unexpectedly finds themselves without it.

While many aspects of life can nonetheless be tended to without assistance, people are social animals for a reason - which means there are times when even simple feedback from others can make a difference for one's sanity. Unfortunately, government attempts to substitute impersonal institutions for familial relations has come up short. Both service providers and recipients need more flexibility in relations with one another, than has been possible thus far. The greater the diversity of services offerings, the easier it would be for individuals to maintain healthy boundaries with others - particularly late in life when such boundaries are equally important.

Governments have become too caught up in other competing large scale priorities, to provide real assistance for older citizens at this critical juncture. Even though many now decry government involvement in the marketplace, there have been few attempts thus far to design time based services at livable/workable scale which more closely matches retirement income potential.

Today's institutional services settings for older citizens tend to either be designed for a high income clientele, or are mostly intended for emergencies instead of ongoing needs. Even though many hope to be able to live out their lives with family, the reality is that it is not always possible to do so. Through time arbitrage, local groups can plan for the inevitability that some will end up without family members, so that these individuals can remain in the company of others for the remainder of their lives.

Small Scale Plans and "Imaginings"

One doesn't often hear, about potential new beginnings for local economies. It's the changes at national levels which capture the public's attention - hence that of policy makers as well. As a result, it's not uncommon to find institutions such as the Fed grappling with unemployment issues, given a lack of counterparts anywhere in the real economy for this responsibility.

However there's a problem, with the idea that solutions for the marginalized should be sought at national levels. Those who lack economic access, are partly in their position because of the ways access has already been limited, in what is mostly a government defined equilibrium. Economic access needs to be redefined on what would be unique sets of local terms. The best way to do so, is to work through means which are part of the real economy.

In other words, small scale plans and "imaginings" are needed at local levels. What if such an approach also provides outlets for the "wish lists" which represent libertarian leanings? Indeed, this post was prompted by a recent set of preferences from Scott Sumner - most of which I am in agreement with, and some which I would take further than his suggestions - such as healthcare and education.

Fortunately it's not necessary to impose libertarian "wish lists" on entire countries - even if the libertarian desire for free markets isn't sufficiently met. For that matter, such preferences would hardly represent freedom if they were in fact imposed on millions of people. What if small groupings of individuals could encourage economic diversity, instead?

Even though these communities would follow their nation's constitution and remain open to national and international tradable goods, they would start anew in terms of services formation, social security needs and corporate holdings which can tend to public needs without taxation. Why might nations find this a desirable option? For one, these citizens would no longer represent national burdens in terms of services provision, subsidies or entitlements. Local educational efforts would more closely align with local marketplace options. Knowledge use communities could "grow" the services marketplace, which governments now struggle to provide.

I'll at least touch on a few areas of agreement with Scott Sumner's post. One of the more important issues for anyone working in an environment of equal time use, is that of societal options in terms of signed agreements for lawsuit avoidance. Why so? Lawsuits particularly take advantage of asymmetries in income and wages, and also corporate profits. In knowledge use systems, time use and coordination is symmetric. Further, local holdings would also be local common investments - another factor which would greatly reduce the logic of lawsuits.

Another important issue for any knowledge use community is a broad understanding of what eminent domain would be intended to accomplish. Scott's example of infrastructure in contrast to condos, serves as a reminder how eminent domain has increasingly been used to break promises and societal trust. How to think about infrastructure for knowledge use systems?

Most important, is the implicit promise to create sufficient public and work space for citizens at the outset. Infrastructure would not be used to divide citizens, but to make certain there is room for their participation in economic life. This translates into two domains: the organization of local time aggregates, and abundant planned capacity for economic exchange on flexible terms. One of the main problems for many cities is that when individuals do not have access to local work, they also do not have the resources to set up business locations and do not have the zoning which would allow them to do so at home.

Therefore, infrastructure holds a particularly important role for local corporations, because it is not just a matter of leaving a certain amount of space for local commercial and non profit activity, but rather multi purpose areas which encompass both - for individuals and groups. This would have bearing on the kinds of infrastructure designs which are ultimately adopted. What's more, those with sufficient living space would also have the option of additional home capacity for both business and services formation.

There are always means by which to encourage needed growth, even if it isn't possible to do so through large scale plans. Many experiments can be tried at local levels, for wealth creation which doesn't require loans or regulatory thickets to carry out. With a little luck, in a few years it could be possible to set the wheels into motion.

Income and Wage Potential: What is Still Possible?

Even though reliable wage and income constructs are no longer a given, it's too easy to chalk up a lack of economic access to "inevitable" factors. Individuals tend to be blamed for their own lack of participation, or "unwillingness to produce". But what else is at stake? Once wealth creation becomes difficult - for whatever reason - more efforts are needed, for the restoration of economic access and resource diversity where people are (often) expected to live out their lives. While the most obvious mobility concerns involve nations in turmoil, there's "silent" struggles for economic access in developed nations, as well.

Most obvious in all this is that global long term growth is uncertain, partly due to changes in economic circumstance which were maintained up to the Great Recession. Contributing to what has become tight money conditions, is a growing consensus that a decoupling has occurred in developed countries. Even though the decoupling is mostly in a relative sense, neither the political left or right is ready to acknowledge their denial (one hears of "demand saturation") of the still unfulfilled demand for both work and service product.

Instead of making economic access easier, special interests thus far have not budged from their efforts to make it more difficult to achieve. This likely has bearing why the Fed does not recognize its own complicity, in the destruction of wealth which has transpired in recent years. Indeed, central bankers assumed the same brutal stance as other policy makers, as they became more focused on limits to growth which were "supposedly" necessary. As Scott Sumner noted in a recent post, the Fed severely shorted Main Street as it bumped up the schedule for IOR - a tool which in my mind never should have been adopted in the first place.

However, the fact that services markets are in need of reform, may play a greater role in marketplace limits than the slowing of material production. A combination of NIMBY factors which stand in the way of economic access, plus growing reluctance to budget services through government assistance, makes internal reform unlikely. Even so, alternative systems need consideration outside this equilibrium, if governments are to avoid a serious decline in wealth creation in the coming decades. Such systems will also have to reconsider how wealth creation remains possible - particularly that which does not require credit.

Part of the problem for income and wages at local levels, is that centralized economic systems mostly bypass individual capacity. Decentralized systems would look radically different from much of the decentralized economies of a century ago, in that they need to focus on time based services as a starting point. Even though some areas would attempt "slow" economies (local artisanal and agricultural production), this option is more viable for tourist oriented regions. Just the same, this approach would not negate the need to reestablish new services economies on more broad based terms.

In all of this, citizens will need to try multiple approaches (often, initially, with lightweight and flexible infrastructure) to discover which forms of production are viable. At the very least, direct interaction with resource use and with other individuals, will give people a chance to rediscover their own initiative in the workplace. Fortunately, knowledge based endeavor can also be approached in ways which make communities desirable tourist destinations. The need for income sources as opposed to wage sources will become more important for all citizens. After all, the most reliable wage streams of primary equilibrium originate from locales where mass production is still staged, alongside the high skills services compensation which these forms of production make possible.

At issue in all of this - in spite of the ongoing arguments between Keynesian thought, tight money advocates and market monetarists as well, is what happens in the real economy. While the Fed is at fault for making circumstance worse, there is no excuse for current generations to concede defeat, knowing full well the numbers of world citizens who will have to find means to make a living. There needs to be an understandable process for dialogue regarding the real economy, even if reforms mostly occur outside the boundaries of what is considered primary equilibrium.

True, governments may be able to supplement low incomes to some degree, for those who still have reliable jobs which also mean reliable wages. But where new wealth is possible, local corporations will likely assist participants in their efforts to discover new income potential, to supplement the common assistance wage base.

The main reason that local corporations (knowledge use systems) would be considered alternative equilibrium, is that they would be self governing - not in the sense of cultural separation from surrounding governments - but in terms of finding new means of wealth creation which is difficult to find in the labyrinth of government and special interest circumstance. Hence these alternative equilibrium would serve a valuable purpose for rediscovery. Even more, they could provide a better understanding for overall wealth generation, to assist populations in their efforts to maintain economic stability.

Local Economic Diversity: Worth Preserving

Often, one thinks of entrepreneurship in a broad context of national - or international enterprise. However, if there are few local opportunities for small scale arbitrage, what happens to economic and social conditions at local levels? Does any real marketplace exist, in many places where voters nonetheless go to the polls? How - in turn - does that affect the ways people choose to vote, given their levels of dependence on government provided services? These are questions which deserve some consideration.

Centralized "efficiencies" play a role, in what has been inadvertently left out of the equation. Many organizational patterns respond well, to the global arbitrage which generates high incomes and profits. However, this holds true for tradable goods to a greater degree, than for non tradable sectors. Not only are non tradable sectors best suited for local production and consumption, they either do not benefit from economies of scale (time based services) or else the economies of scale which would provide real benefit have not yet been applied (housing).

Too often, the services sectors mimicked the efficiencies of tradable sectors, but without the same marketplace results, unless the intended product existed separately from time value (restaurants). While a lean workforce generally means broad product representation for tradable goods, broad workforce representation is needed for the services goods which deserve to be a part of everyday and local life. Even though it is not possible to generate a full range services marketplace in any traditional sense, symmetric coordination could assist the process when the redistribution of arbitraged profit is not enough.

Plus, the desire of many individuals to generate unique product settings has scarcely been tapped. These possibilities go well beyond the services product which is possible in prosperous regions and the international stage. With local corporations to assist the process, individual platforms would also mean income potential beyond a compensated wage base.

Even though few gave it much consideration when local business people largely disappeared (particularly in retail), their creativity and drive to generate unique environments has been missed. Local corporations would experiment with infrastructure which allows entrepreneurs to operate with less overhead than cities generally require. Finding ways for this to happen, would mean greater economic diversity, as well. Consider how the voluntary nature of economic interaction matters at a personal level. Even those who do not flourish in unstructured social settings, are able to become more social when they have economically definitive means to do so. People need the freedom locally, to work with commodities, goods, ideas and resources which could transform what has been real limitations in the non tradable sectors.

Local corporations - instead of existing in competition with other corporations - would represent places where individuals and groups alike would be "in competition" with their own previous achievements and efforts. This is an attribute which symmetric time coordination makes possible. These corporations would assist participants in their attempts to generate the voluntary associations which individuals are most comfortable with. The ability to personally negotiate for time based product, would allow individuals to discover forms of reciprocity which are not always possible in present day institutional environments. Any ability to be a part of active negotiation in one's work environment, also translates into better relationships with family as well.

Participants would eventually create personal "platforms" which consist of a mix of time based services, and product which may exist in relation to service offerings. This involves a gradual "processing" of life lessons, practical knowledge, specific skills sets, organizational capacity, ideas, and other resources. Such platforms would often be experiential in nature. Each individual would contribute a certain amount of personal time and attention to others, in regard to the challenges they seek out on their own.

The problem now is that society expects to find platforms for services production in highly specific configurations. Often, it is assumed that recipients can't contribute - even though most time based activities are multi dimensional forms of interaction. Hence existing services rigidities have stood in the way of optimal knowledge use and adaptation for relevant circumstance.

One task for the local corporation, would be to assist in the coordination of configurations which work for local citizens. By combining a full range of economic activity, it becomes easier to maintain the links between personal expression and workplace presentation. This process would create a template for entrepreneurial services formation, as well. A combination of geographic issues and workplace rigidities, has been partly responsible for the fact that individuals of normal working age have been less inclined to remain in the workplace. By providing more workplace options and eliminating the need for long commutes, there's a good chance that many who abandoned the workplace prematurely (or never took part) would be tempted to try again.

Thoughts on Monetary Policy and the Real Economy

Monetary policy - especially in times of low growth - can be too easily confused with both supply side and financial considerations. If that were not problematic enough, central bankers are presently allowing cutbacks in credit formation to detract from growth capacity in commerce as a whole.

As a result, the importance of monetary policy is often downplayed, when real economy and finance issues are inexplicably discussed time and again...in the wrong arena. It's as if there weren't enough "reasons" already, for central bankers to neglect adequate monetary representation. In a recent post regarding Australia's central bank, Scott Sumner offers an argument for NGDP - one which particularly applies in a time frame when central bankers find too many reasons to short aggregate spending capacity.

Let's clear up some misconceptions. Monetary policy is a panacea for stable NGDP growth. And you need stable NGDP growth (or nominal total comp.) regardless of what else is happening in the economy. Monetary policy does not boost the economy by encouraging lending, it boosts the economy by encouraging more NGDP. Higher lending is a side effect.  

If there is excessive lending (due to moral hazard, tax breaks or debt, etc.) you still do whatever it takes to keep NGDP on target, but you also have tighter regulation of lending, so that more of the NGDP growth is non-credit oriented growth (like restaurant meals) and less is credit oriented growth (like housing). 

Monetary policy is not a panacea for a lack of RGDP growth. Indeed the central bank should ignore RGDP. Instead, policymakers should try to boost RGDP growth with supply side reforms.

Why do central bankers get bogged down with financial concerns and the activities of the real economy? By doing so, they make economic conditions more fragile than would otherwise be the case, especially during negative supply shocks. Struggles between a credit centric view, versus sufficient monetary representation of the real economy, hide another important issue. What is the problem with the real economy, in terms of present day growth? And why aren't there ways to discuss this pressing concern in public, which need not derail what the Fed should concentrate on in terms of monetary policy? 

One problem is that supply side reform is more focused on ways to gain government assistance, than on generating a stronger framework for commerce, overall. If representatives of the real economy could work together to find ways to move ahead, political frameworks might serve a much more useful purpose than is presently the case. Right now, taxpayers are sacrificing a major part of their time and resources for what has become essentially a circus - both in Washington and on the campaign trail. Non tradable sectors in the U.S. scarcely even make a attempt to function as free markets. Where does one even begin?

Marcus Nunes has a message for the FOMC in the form of a Joe Jackson song, "You Can't Get What You Want (Till You Know What You Want)". While it certainly applies to central bankers, I suggest this is a broader problem as well, for the governments which appear to be clueless as to the growth and prosperity their citizens still seek.

Where Negative Externalities Begin...

Take a flourishing, vibrant economy, or civilization for that matter...history then shows where problems start. Of course, the abuses of well functioning systems generally tend to start small, and slowly ripple out. A "nip" of regulatory adjustments here (surely no one will notice), a "tuck" of additional requirements there, in order for participants to remain in the economic game.

But over time, little wealth capture subtleties gradually snowball, into larger wealth capture mechanisms. It's a tempting and convenient point of agreement for state and private interests. Each new rule on the books tends to be more reliable employment for some, while others find it more difficult to maintain secure employment. When too many individuals are no longer able to provide support for the equilibrium which exists, systems of production and services may start to break down. However, by the time this occurs, determining a point of origin for the most recent troubles, hardly seems worth the effort. After all, processes of wealth capture began long before the hapless citizens who are left "holding the bag", when social breakdown finally ensues.

Even though wealth capture and lost production rights may not be what one immediately thinks of when it comes to negative externalities, these factors are also important. Fortunately it's not difficult to find references online, even though the edit function in Blogger format still doesn't recognize "externalities" as a valid word. While I am particularly concerned about macro implications, negative externalities tend to be emphasized in a microeconomic context. From Economics Online:

A negative externality is a cost that is suffered by a third party as the result of a transaction. In a transaction, the producer and consumer are the first and second parties, and third parties include an individual, organisation, property owner or resource that is indirectly affected. Externalities are also referred to as spill over effects, and a negative externality is also referred to as an external cost.

To their credit, the above linked post also touched on property rights, in regard to the work of Ronald Coase and Hernando De Soto. However, the battle for a better understanding of property rights in terms of knowledge use has scarcely begun - a problem which has already led to employment difficulties in nations which provide higher educational opportunities for their citizens, but insufficient means for knowledge use in a local marketplace context. In this instance, the defining transactions could be said to occur between state and private industry, with a growing number of citizens as the third party or negative externality.

How to think about a lack of production rights? Wealth capture on the part of (U.S.) non tradable sectors began in the 19th century and continued through the 20th century, when citizens scarcely had cause to notice because of agricultural and manufacturing employment. Indeed, it may have been difficult for anyone to imagine - at least prior the 1970s - that populations would eventually need greater ability to take part in a knowledge based workplace. By that time, many service providers had already solidified the nature of the services roles that were available.

Now, the wage rigidities and entrenched expectations of the services sectors, are taking their toll. Even though the average citizen may not connect one's difficulties to a lack of production rights, the life of the marginalized can become an unconscious reaction to that reality, just the same. Hence in the U.S. there are the "external costs" of excess imprisonment, and increasing pressures on law enforcement as well. Travel a short way down the path of economic and social exclusion, and one finds the "escape economies" of drugs and prostitution. Travel a bit further down that path, and one ultimately finds poverty, famine, war, and broken societies.

While the negative externalities of the marginalized provide plenty of fodder for discussion - alongside an ongoing non profit response to symptoms - the "disease" gets dropped time and again before there is any broader organized response. It is understandable that today's university graduates and professors are the ones expected to deal with these issues, even as local citizens try to find housing for the homeless and wonder what to do next. Just the same: without active public engagement in areas of the economy which matter most, politicians are falling all over themselves attempting to gain votes in ways which only divide populations further.

Consider what happens over time, when human capital becomes less of the economic equation, in relation to other resources. This is where negative externalities begin to grow and gradually spread. When the ripples have not gone too far, it is still possible to turn the process around. But once it goes too far, and trust is lost, societal trust is not easy to regain. At the very least - in the U.S., the breakdown of societal trust has not gone too far. Perhaps with a bit of luck, there is still time to rebuild the trust which has been lost.

The Incremental Option for Continued Growth

While economic "normalization" continues, a handful of arguments (for increased access) from the days of the Great Recession still remain. Among the more common suggestions: more use of Earned Income Tax Credits (EITCs), higher minimum wages, and basic incomes. Earned Income Tax Credits are by far the most reasonable of these, but they are not able to target many individuals who need them the most. Higher minimum wages unfortunately appear inevitable, in large part because of the structural rigidity of non tradable sectors. As to basic incomes, present day budget realities and relatively "normal" unemployment rates make the latter option even less likely than it would have been in any instance.

One misplaced argument, is further extension of mortgage credit to individuals who would often fare better without the use of credit in the first place. By far the most reactive response (from the left) is a desire to declare existing credit, where problematic, null and void. After this non solution, everyone would of course start the same flawed cycle anew, which is also the problem I have with tight money advocates who inexplicably assume creative destruction is best achieved with mass deflation through monetary policy. Too many individuals are struggling to fulfill the high expectations which their environments consist of. Why is it so difficult to consider adapting environments to the needs of individuals, instead?

Incremental options for living and working are a more rational response, than constantly making life more difficult for all concerned. Simple means for "one step at a time" investment building, make more sense than knee jerk reactions of loan forgiveness or credit extension to those who need means to build a life instead of loan obligations. By investing in local land use options and building components a step at a time from a young age, individuals would enter adulthood, ready to move into a higher gear of economic life with others on an ongoing basis.

However, alternative equilibrium is not easy to contemplate, in part because this appears to suggest that primary equilibrium circumstance are somehow a "failure". If I have given anyone the impression I feel that way, please accept my apologies. After all, it is rational for individuals to build environments which reflect human capacity at its fullest. Just the same, there also needs to be options for those who come up short in their efforts to gain full employment and a meaningful life.

Further, it is important to formalize alternatives for living and working to the greatest degree possible - not just for the sake of accurate measure of wealth, but to make certain such alternatives are not treated with disrespect. When informal economic circumstance are simply left to chance, they eventually detract from the broader gains of progress. By allowing viable economic options for the marginalized, these groups are also less likely to be targeted by those who oppose the ideologies of more prosperous regions of the world.

An important aspect of incremental wealth building, is the hourly compensation which provides a base for eventual income potential. Even though the wage base is minimal, it is intended for the time individuals choose to assist one another in their personal and group endeavor. Part of what makes this wage more substantial than it first appears, is that no one has to wait for the first job of adulthood for the process to start. Instead, mutual time compensation becomes a part of lifetime activities which are shared beyond one's immediate circle of family and friends.

In normal circumstance, individuals don't always have the ability to make business decisions on incremental terms. As a result, cities and towns are often left without services and products which locals would greatly appreciate. Local corporate structure would seek to define local prosperity as the greatest degree of product and services diversity that is possible, on the part of as many participants as possible. This approach would allow for broader marketplace definition, than competing local interests are often comfortable with.

Each participant in local corporate structure would have an optimal level of time and resource investment, which affects both their time and resource commitments. In other words, individuals normally would have the final say as to the level of obligation they choose. With flexible investment options and definitions of doing business, if one discovers they have too much invested in space (purchased square footage) or building components, that need not mean bankruptcy or the need to sell one's business options. Instead, building components and local square footage can be bought and sold to the degree one's services/and or product is in demand, in local conditions.

The alternative option of incremental wealth generation is not a panacea. Many who would seek this opportunity, have already attempted other means of making a life for themselves. It is also said, that one cannot sell dreams to someone who has walked through nightmares. Hence building new realities would take place a step at a time. Once individuals gain confidence that such options are still on the table, this process could eventually generate economic momentum, as well.

Notes on the Evolution of "Hunter Gatherer" Domain

While today's versions are decidedly more modern, societies still "hunt and gather" for economic sustenance. There's just one problem: the redistributed bounty of hunters and gatherers has become distorted beyond recognition. How does one know where wealth sources actually reside? Too much knowledge - for instance - is dedicated to obfuscating the details of redistribution, instead of serving any obvious purpose for societal benefit.

Even as recently as the 19th century, land use was central to economic activity. For Henry George, land value appeared to be the most reasonable means to coordinate production and service formation. Like others of his time, Henry George believed governments needed a more significant economic role, and he felt it made more sense for land to be government owned. However, he believed that land was the only thing that needed to be taxed, and taxation should be a simple process as well. From Progress and Poverty, (p. 408, 50th anniversary edition) (1879):

The best tax by which public revenues can be raised is evidently that which will closest conform to the following conditions:
  1.  That it bear as lightly as possible upon production - so as to check the increase of the general fund from which taxes may be paid and the community maintained.
  2.  That it be easily and cheaply collected, and fall as directly as may be upon the ultimate payers - so as to take it from the people as little as possible in addition to what it yields the government.
  3.  That it be certain - so as to give the least opportunity for tyranny or corruption on the part of officials, and the least temptation to law-breaking and evasion on the part of taxpayers.
  4.  That it bear equally - so as to give no citizen an advantage or put any at a disadvantage, as compared with others.

Henry George was concerned about forms of taxation which lessen the producer's reward. Alas, the simple version of taxation he imagined never came to pass, and the U.S. tax system in particular is convoluted beyond belief. However, even though land taxation might have been sufficient for the obligations of a simpler government structure, how would it have fared once governments took on more responsibility for service formation and entitlements?

By the time the National Monetary Commission convened (1908-1912) , doubtless the role of land was already seen as only a partial contributor to wealth - given an increasingly globalization which had not yet been disrupted by the first world war. There was plenty of wealth beyond land (and national borders) which the U.S. could "hunt and gather", and the pending Federal Reserve system likely took this into account. George Selgin (in the above linked post) notes that Federal Reserve notes were made "obligations of both the Federal Reserve banks themselves and of the United States government."

According to Selgin: unfortunately, the Federal Reserve was created in a way that even though money could continue to expand, it was not elastic. This greatly concerned New York senator Elihu Root, who argued that the monetary base would not be as responsive to the public's actual demand for money, as before.

For that matter, not everyone afterward remained convinced that the quantity theory of money was an important consideration for economic activity. Even today, some believe the only thing standing in the way of (government provided) needed services is the political will to make it happen...why shouldn't governments which print their own money be able to do what they want? Hence the quantity theory of money is also an "inconvenient" factor, for those who don't consider traditional production important as a "starter point" for services production, in the current monetary configuration.

Not only is traditional production primary in this setting, the income it generates also defines output capacity for asset formation as well. Monetary flows are ultimately subjected to the realities of two very different dimensions. One is based on finite time aggregates, the other consists of random sets of material resources. Civilizations eventually run into constraints, when they rely on what appears as an open checkbook of material wealth to support time based and services based options.

None of this is just a matter of budgets, which presently do not distinguish the difference between finite time aggregates and random material resources. While time based coordination takes place in finite and fixed sets of possibilities, material resource sets will expand so long as they prove capable of meeting the resource requirements attributed to time value. Time based coordination now needs to directly contribute to the process, since other resource capacity is struggling to meet service income demands in general equilibrium.

Knowledge use systems would utilize a production norm which separates time backed services endeavor from materially backed asset formation and infrastructure maintenance. The best part about this is that growth can occur not just from traditional production but also services production. A simple way to think about the process is time backs time, while material resources back material resources. Budgets would consist of time aggregate balances, alongside the normal monetary budgets of material resource use.

The hunting and gathering of new wealth potential is still possible. But doing so requires the ability to anchor time use potential, alongside what can otherwise turn into indeterminate material wealth capacity. Knowledge use systems would seek the tax simplicity Henry George once imagined, albeit in slightly different terms. Time coordination would provide the role of what would otherwise be taxation and/or subsidies for services. Land still provides a shared focal point for ownership capacity. The ideal is to not end up with indeterminate flows from material wealth to skills use wealth. Why not create alternatives to tax systems that are means to hide who gets the benefits? If "wealth" from legal obfuscation is lost, it is doubtful anyone would really miss it.

Work as Labour, Work as Experiential Good

Even now, it's not easy to contemplate, or respond, to the fact that labor force participation will not return to the highs of earlier levels - at least not in terms of today's workplace structure. Indeed, both Scott Sumner and Marcus Nunes have emphasized a "permanently" lower participation rate more than once. True to form, some at the Fed still express concern about the matter, despite a relatively low unemployment level. Just the same, there's no easy way to undo the monetary policy mistakes which led to the Great Recession and its aftermath. By overreacting to a negative supply shock, the Fed contributed to a now present long term unemployment pattern. Long term unemployment statistics did not improve alongside other indicators, once hiring finally resumed.

If "going back" is no longer an option, how can workplace concepts move forward in the 21st century? Labor Day serves as an apt reminder, that the circumstance of work as experienced in 20th century settings, is changing. Even though more people are free to pursue their own destiny in the marketplace - in contrast to earlier workplace expectations - thus far there is little definition for doing so. As a result, the nature of work needs some serious reconsideration: not just in terms of what today's workplace remains capable of providing, but also the nature of work which people have long imagined for themselves and others.

The work which many marketplace entrants aspire to, is different from labor in many respects. Indeed, it is not just knowledge and specialized skill sets which are the domain of experiential work, but also the diverse activities of personal time management as opposed to management on the part of others. However, knowledge based work became the most sought after experiential work, because until recently it provided more security than was possible through self employment.

Work as an experiential good is an end in itself, rather than a means to an end. Even though it includes many elements of value in use, the lack of a marketplace for time (thus far) leaves experiential work structured for value in exchange as defined by special interests. Hence the vital distinction between challenging work versus "necessary" work has been partially lost.

Differences between labor and experiential work, have distorted the economic context of work in a number of ways. For instance, time value is perceived differently. Does one wait for work to begin, and not think about the clock when it does? Or does one work, and wait for the moment it becomes possible to do something else? Much about one's personal health may also depend on the answer.

In the historical moments when it is possible to do so, people approach much of their work not as drudgery, but as a way to interact with resources, individuals and one's environment. Even though some forms of this activity is transitional rather than recurring, its changing nature is far more stimulating. Among other things, the confusion of labor with productive endeavor, has led to the separation of young and old alike from other age groups. The challenging nature of work as an experiential good would not harm either young or old, in the ways that physical labor has sometimes done in the past.

Knowledge use systems would seek to redress the fact that the work so many seek, cannot really be considered as labor in the traditional sense. The paradox in today's workforce is the fact experiential work tends to be more highly remunerated, than the kinds of work which individuals find tedious or wearisome. This has some bearing why higher education - as the primary means of economic access - became so expensive. What people really sought through the cost of education, were the service production "rights" which higher education made possible, and the financial security that only a good employer could provide.

Despite the fact some labor has been made "unnecessary" because of technology, the experiential work of knowledge use is ultimately threatened to a greater degree than traditional labor. How so? It is the work people most want, even though many service based aspects of experiential work have been indirectly provided through other wealth based means. Given the chance, populations seek the challenges and status of experiential work. Not only does such work mean a chance of greater longevity, it also provides means to maintain options as one ages.

It's odd to think that the ultimate threat to the kinds of work people desire isn't purely technological. Rather, the main problem is how so much knowledge based work came to be funded and provided by governments in the first place. Unlike labor, experiential work has yet to be subjected to the realities of supply and demand. So long as a reasonable degree of wealth is maintained in a given equilibrium, the demand for labor could remain reasonably stable. A marketplace for time value, would also allow people to discover the possibilities for supply and demand in services formation at local levels.

Presently, demand for many forms of knowledge based work is hidden through asymmetric compensation, which occurs across multiple channels at system wide levels. Thus far, it has not been possible to determine economic value for knowledge based work, as it might be perceived locally. In the meantime, experiential work is subjected to political and social pressure which creates uncertainties for fiat monetary systems as well.

Fortunately, local groups can provide mutual support for experiential work at local levels. This process could eventually ease some of the pressure on services budgets - pressure which has some groups questioning what is essentially the (government) fiat backing of knowledge based endeavor.

A marketplace for time value would also provide further incentive for innovation. When people manage the structure of their own time in relation to resources and other individuals, they gain the ability to innovate their environments to make more time for the experiential work they seek. It is only when individuals don't have the ability to manage their own time - when they are dependent on an employer's salary - that technology is often seen as though in competition with work of all kinds.