Use Production Potential to Create a Better Foundation

Organizational patterns determine the roles that human capital can play in an economy. They can also provide much needed balance between aggregate supply and demand, which is presently out of balance.

In particular, those who have been marginalized in some capacity, need a chance to redefine production potential on more inclusive terms. But it has been oddly difficult to envision the lack of a marketplace for skills capacity, given much of its (present) fiscal definition. Instead, more schemes are continually hatched to "grant" access to existing services systems, while it is left to housing shortages to reflect a lack of overall participation. Please...no more artificial access strategies! Fortunately, the underlying lack of human capital in productive capacity, is starting to get noticed. For instance, consider this discussion about input versus output, from Dietz Vollrath.

What we've got going on in the last few years is that MFP reflects our economy using fewer inputs to produce the same output, rather than producing more output using our existing inputs.

Dietz Vollrath makes an important observation, how multi (or total) factor productivity has changed, more or less since 2005. Too many have either insisted that this won't happen, or that it somehow doesn't matter if it does happen. In a recent post link, Tyler Cowen even referred to Vollrath's findings as "a scary form of productivity growth". Just the same, this present lack of input is partly intentional, given the special interests which seek to dictate the terms of knowledge use for service product, instead of replicating knowledge use through time based input.

It helps to remember: this "lack of input" phenomenon also reflects the lower growth trajectory of aggregate spending capacity, of which the Fed has yet to come to terms with the public. Thus far, the ridiculous focus on interest rates and imaginary inflation, has allowed policy makers to get away with obscuring a dramatic shift in economic activity. Just the same, this discussion needs to take place sooner, rather than later. Honesty from central bankers is greatly needed, to assist the process of improving production potential.

How to think about a better economic foundation, for human capital? In some instances - especially where economies aren't sufficiently complex - people need to work with knowledge in relation to one another as independent economic actors within local organized groups. Knowledge use systems, through symmetric compensation, would allow service formation as new wealth on monetary terms, instead of (wealth dependent) fiscal terms.

This process would also allow local corporations to introduce knowledge based service activity in developing nations which would otherwise need entire systems of complex economic activity, in order to generate broad services formation. Even though special interests and governments alike would question the process, budgetary relief is sorely needed at all governmental levels. The time has come, to create much needed new growth.

When people worked more directly with resources (as independent actors), the organizational patterns they adopted were locally organized and spontaneous in many instances. For instance, time spent working the soil was compensated time value - both in value in use, and value in exchange terms. Even if someone was not "completely skilled" in gardening (perhaps as compared to one's neighbor), one's efforts nonetheless contributed to sustenance. The system did not have to find a way to "deal" with the less skilled because he/she was still economically responsible. Plus, the actively engaged individual didn't have to worry about being "fired" for relative skill differences, because resource use was still structured on productive terms.

Can groups organize to make multiple skills levels count, economically? This is the production potential which needs to be recaptured: time value as a direct contributor to wealth creation and sustainability. Meanwhile, economic time use mostly exists in an either/or capacity for one's own personal responsibilities and participation in life. The system - not to mention countless families - struggles to make room for the many who sought access and failed.

Too often, value in use activity has been left out of sustenance equations, when means to make these skills sets matter economically have been lost. Symmetric compensation needs to echo the organizational patterns which existed prior to employment as externally determined. The best part about symmetric compensation, is that it allows time use to exist both as measured input and product. This is exactly how - and why - service formation has the complete ability in productivity terms, to overcome Baumol's cost disease.