Wednesday, December 16, 2015

Time Value: A Measure of Economic Freedom and Stability

Today the Fed finally raised its rates. While I've managed to misplace the source of one pertinent quote on today's news, it probably wasn't the only one to imply that monetary policy had been loose, ever since the Great Recession. How could monetary policy have possibly been loose, when it was only covering existing obligations, after many obligations had already been cut off at the knees?

If some "unexpected" degree of money needed to be printed which seemed as though "too much", that is only because in aggregate, more obligations existed which in turn needed to be honored. Just the same, central bankers have not been clear with the public that populations are routinely getting shorted, in a historical time frame when few are willing to accept the actual expenditures that everyone is creating. Like Marcus Nunes I am concerned that the decision to finally go ahead with the (long awaited) interest rate rise, is not going to end well.

For me, these circumstance also indicate that too few policy makers are convinced of time value as representative of economic outcomes. In order to imagine monetary policy as loose since the devastating losses of the Great Recession, one also needs conviction that personal participation in the economy can simply be replaced by other resource capacity. I don't think this is possible, without causing real problems for both economic stability and continued growth.

It's also difficult to understand how some believe that today's interest rate increase, is "the way to rising wages and higher consumer spending power", when the Fed's move could remove much needed resource capacity from the marketplace. Economic freedom - and long term monetary stability - are both at stake. Why do policy makers continue to scrap the hard won monetary policy lessons of the Great Depression? How long will it take policy makers to discover that a successful economy is not likely, when ever fewer individuals are expected to participate in the outcome!

Throughout the twentieth century, knowledge use contributed to wealth creation, because it was broadly applied for overall institutional capacity. Today, knowledge use potential is being sidelined, as productivity mostly takes place on asymmetric compensatory terms. When time value can't be matched with the time value and intention of others, knowledge use eventually becomes a minor component of other resource capacity. Small wonder that the broader purpose of education is now being questioned.

Without a specially designated marketplace for time value, economic freedom could eventually be lost as many forms of labor are gradually replaced by technology. Few have stopped to consider how in these circumstance, societies might revert to cultural atrocities which seemed as though abandoned. For me, economic time value is the most important measure of economic freedom. But first: product as an idea or concept, needs to once again embrace the potential value, of time.

In a post entitled "Measuring and Markets", Diane Coyle notes:
For instance, part of the debate about productivity is about what it measures, but also partly about what it defines.What is productivity when products play a minority role in economic activity?
A primary mistake has been the discounting of product "purpose" in the marketplace, as somehow less important than it once was. Only stop to consider what has occurred. When it seems as though there is no purpose for product, people forget how to maneuver relationships in productive ways. In particular, interaction with resources and the consequential exchange of product, gave individuals the chance to learn how to negotiate and reciprocate with one another. This in turn, gave greater meaning and freedom to their personal relationships. Policy makers are mistaken to think that the bulk of human exchange can somehow be handed over to technology and government, all the while expecting individuals to remember how exactly they came to be civil and respectful to one another in the first place.

Rather, it is skills capacity and the ability to meaningfully relate through exchange, which makes freedom possible in group context. Before anyone can remain responsible, they often need more options than just finding work through others who are still able to arbitrage gains. When people lose too many means of direct interaction on economic terms, they become dependent on others in ways which is helpful for no one.

As traditional manufacture makes it possible for many forms of product to take place without human assistance, there is plenty of room for knowledge based services product. Time value needs better definition, as a valid component of economic measure. Productivity gains could come into sharp focus, when populations gain the chance to mold knowledge sets in relation to one another at local levels.

When personal and economic options are lost in the marketplace, something happens which is difficult to convey through historical stories alone. In other words, it's not always easy to decipher how people end up in unfortunate circumstance, either at individual or group levels. All too often, societies aren't able to avoid the recurrence of negative events, just because those earlier events appear culturally "impossible" or at least undesirable. Even though root causes need to be deciphered on multiple levels, sometimes there are conflicting incentives which prevent this from occurring.

Likewise, the economic base of historical troubles is often not evident. Granted, policy makers do not have sufficient reason to stress the importance of economic sustainability, because it can be too tempting to bottle up production potential for limited gains. Too often, it is assumed that specific institutions and groups will remain benevolent with the resulting wealth, hence distribute the largess fairly. At this point it would not matter how benevolent any leader wants to be, because too much marketplace potential has been short circuited.

One can only hope the new phase of monetary tightening on the part of the FOMC will be temporary. In the years ahead, time value needs to be restored in the marketplace, as a completely valid form of service. Through such means, the earlier growth trajectory which existed prior to the Great Recession, could eventually be restored.

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