Wrap Up for January '16

Probably the best that can be said about January 2016, is that a lot of us are looking forward to a better February! As it turned out, stock market declines in the U.S. were close to 5.5 percent for the Dow and almost 8 percent for Nasdaq. From one internet meme,

decided my 2016 starts again on February 1st...this was a trial month

Scott Sumner provides excerpts in an Econlog post, from Robert Hetzel's 2009 Fed paper. Robert Hetzel was a Fed insider who understood that tight money - not financial distress - was the cause of the Great Recession. http://econlog.econlib.org/archives/2016/01/robert_hetzel_e.html

Which states are the most reliant on Federal aid?
http://taxfoundation.org/blog/which-states-rely-most-federal-aid-0

Some alternative policy suggestions for education on the part of these Vox authors: http://www.voxeu.org/article/re-thinking-education-alternative-policy-lessons
However, in order for "more education" to make a difference economically (and otherwise), organizational patterns already need to be in place which don't force people to stand in line for the knowledge work they seek. Time arbitrage would allow people to utilize skills, without the constant need to categorize their value in exclusive terms.

And considering the things that can go wrong with one's car, especially after it ages, $500 is certainly not a high repair bill to begin with...http://blogs.wsj.com/economics/2016/01/06/a-500-car-repair-bill-would-send-most-americans-scrambling/?mod=WSJBlog

Like time based services, investments also need more options, for small investors whose time value is directly involved in the process. http://time.com/money/4168633/retirement-huge-threat-security/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+timeblogs%2Fcurious_capitalist+%28TIME%3A+Business%29

Scott Sumner makes a good point in this post that the possible (and undesirable) adoption of growth rate targeting would be too convenient of a Fed excuse, such as the ones they use now:

Under growth rate targeting they can always point to temporary shocks, unexpected events. "It's not our fault."

Kevin Dowd is concerned about the potential abolition of cash.
http://www.cobdenpartners.co.uk/pdf/HaldaneCashesOutonCashOct102015.pdf
I am concerned what would happen to anyone with a small income, who regularly loses consumption options from the finance charges that already exist. What would those charges become if this were the only way to access money?

Marcus Nunes highlights some important trend lines in this post: https://thefaintofheart.wordpress.com/2016/01/17/the-plunging-economy/

44 percent of recent college graduates occupy jobs which do not require a college degree. Even so, this is not a subject which lends itself to easy explanations or responses.
http://www.economics21.org/commentary/free-college-sanders-obama-preston-cooper-01-21-2016

Clark Johnson reviews Scott Sumner's new book:
https://marketmonetarist.files.wordpress.com/2016/01/midas-review-clark-johnson.pdf

David Beckworth and Ramesh Ponnuru for the New York Times
http://www.nytimes.com/2016/01/27/opinion/subprime-reasoning-on-housing.html?smid=tw-share&_r=1

If only I shared the optimism which the Economist continues to hold for the U.S.! But they are right about the reality show that has become American politics.
http://www.economist.com/news/leaders/21689543-marvel-jaw-dropping-spectacle-then-worry-american-politics-has-taken-dangerous?fsrc=scn/fb/te/pe/ed/thebrawlbegins

Notes on Human Capital and Monetary Equivalence

While I've not often referred to the phrase "monetary equivalence" since beginning this blog, the concept of equivalence for time aggregates remains central to what I believe is necessary for monetary representation. Not in the sense of specific valuations for given skills (as is presently the case for asymmetric compensation), but making certain that individuals eventually have a choice to contribute economic value through symmetric means, for the course of their lifetime. People need the option of time based wealth which need not make demands on other existing resource capacity. Such organization could also arise without distorting the functioning capacity that is general equilibrium conditions.

Presently, monetary representation for nominal income is not only missing, but a growing lack of this central marketplace factor has yet to be openly acknowledged. Fortunately monetary authorities have often provided sufficient representation for economic activity in the past, even when they weren't necessarily straightforward about doing so. However - during the Great Depression - and once again since the onset of the Great Recession - lack of sufficient monetary representation is starting to take its toll on the populations of multiple nations.

Some have responded with suggestions to remove the independence of central bankers, in the U.S. However, I'm not convinced that governments would automatically provide better monetary representation on behalf of their citizens, as things currently stand. Even as central bankers have skewered the rationale of monetary policy towards banking interests, governments harbor their own built in obscurities, often in the form of knowledge use shortcuts as substitutes for accurate recording of time based product.

The result of these knowledge product shortcuts, are government imposed limits on knowledge use, where "well being" measures supposedly make actual time aggregates unimportant. Not only is this a dramatic restraint on freedom of choice in services provision, it is a restraint on growth potential and a slap in the face to the sacrifice of personal time investment. As a result - until time value is once again closely associated with services product and monetary representation - Washington might not choose to provide the broad monetary representation which the public needs, should they gain the power to do so.

It was not always so difficult, to hold in one's mind the idea of human capital in aggregate as a direct contributor to wealth creation. For centuries, even as knowledge contributed to wealth gains in advanced sectors, more mundane forms of human capital still contributed to the economic activity which provided the consumer base so necessary for these gains. In all of this, aggregate time value existed as a direct component of supply chains, even when time value was not reflected in the statistics.

As governments have taken on larger roles in today's economic systems, they've also grown more reluctant to fully share monetary equivalence with the public. Much of the discussion which revolves around GDP as a "lost cause", reflects this reality - given that GDP (including its nominal component) is the measure of all economic commitments which are held on the part of populations.

In yet another recent discussion about the supposed lack of merit for the GDP measure, one commenter noted (at Askblog), "I get suspicious now that people are suggesting we reduce our interest in GDP now that GDP is going to stagnate." Mark Thoma's article in particular, mentioned the lack of association of GDP with well being, as reasoning for a GDP downgrade. However, the idea that government can be responsible for overall public well being - even as it benefits from the wealth capture of today's knowledge use limitations - is sadly an illusion.

Discussions about the lack of value in terms of GDP are dangerous, because they further remove the possibility of economic vitality away from all of us. It is dangerous in particular to point to (supposedly) less need of money because of technology gains, when said digital gains have not been allowed to evolve, so as to decrease the costs of services product which money is needed to represent. This broader debate around a supposed lack of GDP value, is a larger philosophical concern regarding market monetarist views, than I suspect is widely realized.

Contrary to Thoma's assertions re government responsibility, well being results when societies provide ample room for individuals to fully interact with resource potential in their own environments. When people are given room to measure (for GDP) and monetarily compensate their own personal contributions, citizens finally become free to fully participate in their lives. And in today's world, knowledge use lies at the heart of our economic realities.

Money needs to become more closely associated with the ability of individuals and groups, to create closely woven nets of social stability and wealth creation. Today's far flung nets - valuable though they have been and continue to be - largely originated through the wealth creation of tradable goods structures. In spite of the strength these nets still represent, the "holes" in the nets are - crucially - too widely spaced. Consequently, even as society has progressed in recent centuries, too many individuals are underrepresented, even though they experience some degree of participation.

Among the examples of "holes" in the net, is an over reliance on broadcast means as a stand in for the now burdensome (asymmetrically compensated) time value in today's budgets. By putting broadcast information to better use in personal settings, societies would gain the ability to reconstruct nets with a tighter "weave" than is presently the case.

This would also restore the possibility of longevity to all income levels, not just those who are able to access asymmetrically provided services product. Symmetric time value would also give individuals a chance to connect with others on levels that go well beyond the expectations of today's services product. In the process, the value of time aggregates would be restored in ways which asymmetric compensation simply cannot be expected to provide.

Services product on asymmetric terms will continue to face limitations, as traditional forms of production are expected to pull back in a time of reduced growth. But this doesn't mean human capital can't come to the fore, to gradually make up the difference and restore growth potential. The possibilities have scarcely been tapped, for human capital to become a direct component of wealth creation and by extension, provide hope for the future. But in order to do so, human capital needs to return to the beginning of the wealth creation chain, instead of the end of the employment line where much of it has been squandered in a race for highly exclusive skills preferences.

Human capital has to become more directly associated with money, if freedom is to remain a reality in our lives. Fortunately, there are ways to set this process into motion, and individuals will eventually realize how important money is in the quest for personal freedom and ability to become fully human. Not in the sense of being "rich", but in the sense of gaining the means to use one's time availability in a more meaningful capacity. Not in the sense of "removing" competition through value in exchange battles, but by making room for more competition in a broader, value in use economic arena.

There are vested interests which would understandably hesitate, at the prospect of average individuals discovering how important the time/money connection really is. But think about what happens otherwise, when people either reject money or else find themselves rejected by current economic conditions. Think how we take for granted getting things done in life through gainful employment, only to lose what we build and all that is associated with employment as well. As someone who has struggled to maintain personal freedom and identity the last 60 plus years, I sincerely hope that these vital connections between money and personal ability are not lost. Our future potential as fully functioning human beings, completely and utterly depends on our personal ability, to secure accurate and vital monetary representation for the bulk of what we seek to accomplish in our lifetimes.

Hopefully this post provides readers with a better understanding, how I think about monetary equivalence. I was asked earlier this month to provide a glossary of some of the terms I use, and this phrase is one which began the course of the blog, by serving as its identification online. My health has left a lot to be desired all month long but if I can just get my bearings, I will try to continue the process of adding my own personal interpretation to other phrases I have used in recent years. Eventually I hope to provide a glossary page for the sidebar, and whenever I do a blog post which touches on these concepts, will provide links to the relevant posts in the glossary page.

For Long Term Growth, Proactive Responses are Needed

Unfortunately, Robert Gordon's dismissal of long term growth potential, is emblematic of a passive approach which has likely contributed to changes in economic circumstance since the Great Recession. His rationale is but one example, how long term growth needs a more proactive response, than has been the case thus far.

But in the meantime, there's supposedly "solace" to be had, in resignation! People are encouraged to believe that in terms of the real economy, "little" can be done. Paul Krugman also reviewed Robert Gordon's recent book, for the New York Times. One of the things which struck me about Krugman's review, was the fact he wasn't inclined to question Gordon's assertions about the lack of future growth potential ("Is he right? A definite maybe.") Krugman continues:

Robert J. Gordon...has been arguing for a long time against the techno-optimism that saturates our culture, with its constant assertion that we're in the midst of revolutionary change. Starting at the height of the dot-com frenzy, he has repeatedly called for perspective. Developments in information and communication technology, he has insisted, just don't measure up to achievements. Specifically, he has argued that the I.T. revolution is less important than any of the five Great Inventions that powered economic growth from 1870 to 1970.

Also, here's Robert Gordon in a recent Bloomberg View post (part one of two), entitled "Goodbye Golden Age of Growth":

The rise in the U.S. standard of living from 1870 to 1970 was a special century--and won't likely be repeated...Future growth in output per person, therefore, will fall short of growth in output per hour. 

And he reasons:

The good news is that the economy will be able to maintain relatively full employment as the fruits of computerization cause work to evolve slowly, rather than in a great rush. I'm optimistic that job growth will continue and that new jobs will appear as rapidly as technology destroys old ones. 

Regular readers likely know where I find fault with Gordon's assertions, as to a supposed lack of potential for future growth and gains in living standards. Technological gains created the possibility of a completely new foundation for communications, knowledge use and physical infrastructure as well. This foundation could transform our burdensome non tradable sectors, which now sap the collective will and resources of governments, citizens and tradable sectors alike.

Yet organizational patterns which could contribute to widespread gains in knowledge use application, have scarcely begun. The same I.T. revolution which Gordon has downplayed, is the same infrastructural mechanism which could act as the conduit for a completely new services based economy. As to those "horrifying" aspects of slow Southern development he described, I can attest (as someone old enough to remember baths in a washtub), that it is more horrifying to be left out of economic loops at some point in one's lifetime, than to experience living structures which don't necessarily have every basic amenity.

I also need to address Gordon's apparent confidence that the economy can maintain relatively full employment, should structural shifts in organizational capacity (innovation) not be given a chance to take place. Granted: for a long time, new jobs appeared as quickly as old ones disappeared. However, a gradual decrease in knowledge based work as tradable sectors shift to non tradable sectors, has not been acknowledged. Given the fact that so much of non tradable sectors are supposed to be about knowledge work, this is what is truly "horrifying" so to speak.

The future growth in output per person which Gordon mentions, is directly tied to the knowledge use potential which could make human capital a direct component of wealth creation. Further, this is the missing element of capital as a whole, which has so many onlookers still mystified. Another important factor is that current services formation places too many participants outside of actual production capacity, at all stages of life.

In fairness to Gordon's continued observations, however, much of what attempts to pass as innovation in public dialogue is not real. Only consider how vested interests frequently promote what amounts to artificial "disruption", so as to prevent the real thing from happening, as was pointed out in this Techcrunch Davos presentation:

It's clear that the Forum gets whats happening and the Fourth Industrial Revolution is a critically important topic, but it's being filtered through a corporate reality of these large players carefully controlling the conversation...This is dangerous.  

By continuing to operate under the assumption that the biggest multi-national corporations are on the cutting edge of disruption, we risk not acting on globally significant opportunities like radical reform of education systems, government bureaucracies, energy management and transformation of transport systems...In the words of Buckminster Fuller, "We need to build new models that make the existing models obsolete."

Exactly. It's not so much I am intent on "destroying" outdated models, because oftentimes that's not the point. I just don't want outdated models to have the chance to needlessly destroy us. And right now, some of them (including wrongheaded monetary reasoning at the Fed) would do so, if nothing is done to short circuit all the hand waving and high profile excuses.

Time Value: It's No Sacrifice, At All

An old song from Elton John provided some inspiration for this post. It's no sacrifice, for those who would be willing to coordinate for time constraints (market scarcities) in group settings. And doing so would provide a valid beginning point, for a marketplace in time value. Indeed, much would be gained through this process which otherwise isn't possible to achieve in terms of services formation. By honoring the actual possibilities of local time availability, populations would gain means to contrast resource preferences between time based resources versus other resource options.

Too many time based services aspects of life, are experienced through settings which lack means for mutual reciprocity. And life makes more sense for all concerned, when more of it can be experienced through quantifiable, replicable economic means. Those who have freedom of economic choice, also have the freedom to be more fully human. If a broader range of services activity were recognized as viable product, fewer individuals would experience the frustrations which often result when services are sought on non economic terms.

In particular, knowledge use has become a central theme of services processes and the ways they are actively experienced. While broadcast means of knowledge and information will always be important, knowledge still needs the element of personal experience. Groups and individuals alike, will take all the time needed - the "bother" so to speak - to make certain that communication goes beyond the tentative assumptions of first appearances.

What examples do we have of time "sacrifices" in the present? Consider one of the better examples: ongoing trip expenses which allow people to meet in person around the world, to more effectively get things done. Might it be rationalized that these trip expenses are unnecessary, for agreements which could perhaps be arrived at digitally? Ricardo Hausmann addresses this issue, in "Should Business Travel Be Obsolete?" It's an article I probably would have missed this week, were it not for an appreciative post from Tyler Cowen. Here's Hausmann:

But why do we need to move the brain, not just the bytes? I can think of at least two reasons. First, the brain has a capacity to absorb information, identify patterns and solve problems without us being aware of how it does it...Second, the brain is designed to work in parallel with other brains. Many problem-solving tasks require parallel computing with brains that possess different software and information but that can coordinate their thoughts. 

Hausmann continues:

The amount of travel should then be related to the amount of know-how that needs to be moved around. Countries differ in the amount of know-how they possess, and industries differ in the amount of know-how they require...The fact that firms incur the cost of business travel suggests that, for some key tasks, it is easier to move brains than it is to move the relevant information to the brains. Moreover, the fact that business travel is growing faster than the global economy suggests that output is becoming more intensive in know-how and that know-how is diffusing through brain mobility.

While much travel is of course associated with the internal mechanisms of tradable sectors, the same approach to one on one time value would yield benefits in the local group settings that (could) comprise non tradable sector activity. In both, the principle remains the same: knowledge is to some degree dormant, if dispersal is expected to take place solely through broadcast means (print and/or digital capacity). It is the capacity of minds working together, which makes time value count all the more. A marketplace for time value, could gradually bring more knowledge based services to those who need them the most.

Tradable Sectors Would Benefit From a Marketplace for Time Value

As monetary tightening continues in the U.S. and a stronger dollar contrasts with other economies - Walmart is among those now feeling the effects. In at least one instance, this major retailer will even close a recently opened store, which had replaced local family businesses. However, those former businesses could be hard pressed to begin anew, once their all too recent competition closes its doors.

Oddly, the Walmart closings hasn't gotten as much attention in the news as one might expect. However, Walmart isn't just any retailer. This development matters in part, because Walmart became representative of a broad range of retailers and organizational structures. In recent decades, this corporation transformed the stage for tradable goods manufacture in the marketplace on a number of levels.

Will many groups among these business operations face further setbacks, as Walmart contends with its current retrenchment in overall capacity? Walmart certainly isn't alone, as a tradable sector component that faces new vulnerabilities. States in the U.S. have been feeling the effects of the downturn in the oil industry as well, and this downturn is starting to spill over into other industries. How to think about these issues at a broader level?

For one, declining labor force participation has not received enough attention from policy makers, as a long term growth issue. Also: for decades, many have assumed that developed nations could continue to develop their services economies, once tradable goods sectors could not be counted on as a primary source of local wealth.

However, the service economies which represent important facets of knowledge use, need organizational capacity in ways which make direct wealth formation and greater employment possible. A time based marketplace which coordinates time product on symmetric terms, is one way to achieve this. Without the possibility of wealth capacity through services product, tradable sectors would still be expected to provide further revenues for governmental fiscal needs. This, even though tradable sectors are now suffering, and not enough citizens have the economic access to provide the customer base which tradable sectors need.

Ultimately, aggregate supply in the form of full employment is central to the equation of fulfilling aggregate demand, and the most important services exist in relation to time based product. Even though tradable sectors will still provide future revenue for asymmetric compensation up to a point, they cannot be expected to do so for services sectors as a whole. If a smaller services marketplace was the only issue at stake, perhaps this would not be so problematic. But when labor force participation is low, tradable sectors also suffer. This is why production also needs to be approached directly and symmetrically, so that services and tradable sectors can each contribute to the health of the other, well into the future.

When The Political Chickens Come Home to Roost

Perhaps - crazy as it seems - today's unsettled political climate has been a long time coming, given the amount of discord and refusal to cooperate in high places that has already occurred. Now, as governments are increasingly forced to spend less, Jim Geraghty of the National Review asks, "What if the American people don't want smaller government that spends less?"

Scott Sumner responds:

It's meaningless to talk about public opinion on "big government". The public doesn't even know what the term means...And since their views on taxes and spending are impossible to meet, in a very real sense they have no opinion.

No one really seems to know how to "connect the dots", for positive action which is actually feasible. Take just one issue of the (earlier) small government agenda: entitlement reform (since audits of Defense weren't likely...). Even though such reforms are needed, they pose real threats to those who maintain solid access to general equilibrium conditions. Democrats and Republicans alike, strive to uphold the promise that these more prominent forms of access will not be lost. Territorial grabs wouldn't be so problematic, were it not for the fact their revenue conditions are increasingly built on economic exclusion.

For those who are concerned about the economic access which has already has been lost: should nothing be done, today's reduced labor force participation is but a sample of what could occur in the near future, without a marketplace for time value. But where to begin? At what point in a given equilibrium, can one begin to make the structural adjustments which would also mean dramatic improvements in monetary policy?

It's complicated. For one, no broad based structural changes should be imposed on any entire public, given the different circumstance with which so many live out their lives. This helps to explain why "one size fits all" government attempts in recent years have gone nowhere. Only consider earlier discussions re phasing out social security, and how difficult it was to agree upon cutoff points or potential replacements.  And, the fact that the U.S debt situation is looking about as good as will be the case for the foreseeable future (according to James Pethokoukis) is another indicator that the chickens are coming home to roost. There's still time to act. But these issues need to be addressed now.

Smaller governments are needed. But they are needed on terms which can gradually fold services capacity - and people - back into the marketplace, as direct contributors to wealth formation and economic activity. Until this occurs, everyone will remain uncertain how governments can reasonably apportion services capacity to the "deserving", and voters will be asked at the polls to make increasingly harsh judgments in this regard.

Why haven't economists been able to address these circumstance, already? Twelve years earlier when I started this project, I was still in awe of economists, in that I believed they were capable of rising above the social and political fray. Consequently, I believed (and still do) that potential solutions for world issues can be found in economic ideas.

Since then, I've slowly had to learn that economists don't particularly relish the role of system wide confrontation, which in retrospect makes sense. Why would economists want to jeopardize their standing with the special interests which also have considerable bearing on their livelihood? To what extent does ideology stand in the way of broader growth potential? However, it isn't so necessary for economists to be able to forecast every recession, as to do a better job of indicating when economies become too fragile because of access issues. These issues also lie at the heart of nominal income representation.

In fairness to economists - perhaps - it has not been easy to suggest solutions in general equilibrium, because doing so means pointing out supply side circumstance that occasionally run counter to a need to maintain flexible wages and overall access. Hence it's often easier for economists to suggest partial adaptations (specific to individual circumstance), instead of taking overlapping effects into consideration.

Minimum wage discussions are an example. It makes good sense to argue against minimum wages and I've done so plenty of times. Why, then, has the public (and increasingly more economists) moved instead towards support of a "living wage"? This is not the solution it seems, because wages need to be considered in equilibrium context. However, the focus tends to swing back towards "living wages" when general equilibrium has too little means to adjust for income potential.

Instead of forever "chasing" small wages with government subsidies or mandated employer dictates, income potential needs environments which are conducive to the actual sources of revenue that they represent. In order to make this possible, individuals need more say, in defining the primary non tradable consumption components of their lives. Everyone needs valid roles in the production of their own environments. But who has really been able to suggest equilibrium level strategies?

Otherwise, even though the great majority of tradable goods can be had by low wages, much of the non tradable sectors are not accessible to lower income levels. It is the lack of inclusive reforms in these areas, which now makes it difficult to find logic or reasoning in the political sphere. I believe that political solutions could be sought at the margin, through alternative equilibrium where it is possible for people to create more accessible services and asset structures.

Even though this post touches (once again) on long term growth issues, the U.S. growth trajectory is still in doubt, due to the seeming insistence on the part of the FOMC of undercutting nominal stability. In a post entitled "The Sky Is Not Falling...Yet", David Glasner notes:

The 2008 financial crisis ensured the election of Barak Obama as President. I shudder to think of who might be elected if we have another crisis this year.

Indeed. Will the Fed continue to overreact to - hence magnify existing problems in structural issues? Let's hope not.

Economic Freedom, in Public and Private Context

Are societies more free, when organizational capacity is geared towards private settings? This matters in part because public and private delineations for economic vitality, are not as clear cut as they might seem. Rationalizing that something "should" be designated private, to maintain freedom of choice and personal action for as many as possible, assumes that organizational capacity automatically strives to make it so. We reason that private enterprise is ultimately responsible for economic growth and vitality, because it is.

In reality, economies slowly break down, when private interests choose personal gain over the growth creating conditions of marketplace inclusion. Further, when private enterprise chooses personal gain over economic vitality, this occurs with government "blessings" at a basic structural level. As personal and social freedoms are lost, the process takes place in ways that are often not easy to recognize.

Why are these structural and supply side circumstance not better understood? Instead of seeking more freedom for production and consumption options, political interests align to procure more of the proceeds of an artificially restricted marketplace. In other words, political parties clamor for a bigger portion of a pie; one which they have already played a role in making smaller to benefit their own members. How to create new marketplace growth, instead, which includes greater means for economic freedom?

It wasn't always this way, and the constitutions of today's nations were often written when individuals had more freedom, to produce and consume what they sought in the marketplace. Those earlier freedoms tended to make clamors for "living wages" unnecessary, for wages and income went further when individuals could define and create product through their own means.

Slowly but surely, restrictions in the definitions of production and consumption, led to less freedom and economic opportunity. The Great Recession should have been a major indicator that something was wrong in this regard, but policy makers and economists alike proceeded as though little needed to be addressed - either in terms of economic theory or organizational capacity.

Even though the details of cronyism have begun to make their way into public dialogue, these discussions have yet to offer any structural remedies. Cronyism becomes possible when too many individuals assume that someone else is always willing to look out for the public interest - even if the public isn't really concerned about the particulars. But how can anyone - public or private - be expected to remain conscientious about resource management, if no one is paying attention? Hence the ways in which groups agree to coordinate and account for resource capacity, need to be better understood by all concerned. In order to rethink production and consumption priorities, economic time value also needs to be at the center of the process.

Fortunately, a greater degree of freedom remains, in terms of the production and consumption of tradable goods. Indeed, a college degree is not always necessary in these sectors, in order for individuals to gain active and leading roles. The greatest problems for economic and social freedom, are in the rigid requirements of the non tradable sectors, both in terms of asset and services formation. Indeed, public or private status designations do not presently get at the root of the problem, which is a lack of time based services product - in both production and consumption terms. If economic freedom is to be regained, reclaiming time value would be one of the first steps taken on this hopeful path.

Income Representation is Central to Economic Stability

Without accurate monetary representation for nominal income, economic stability would suffer - in part because production structures remain dependent on continued income capacity in all time periods. For instance, asset formation - despite the Fed's attempts to maintain economic stability in this regard - is nonetheless an end result of ongoing income capacity.

Income representation is not the automatic mirror of aggregate spending capacity, that it may initially appear. Labor compensation and other income structure, serve as a point of origination for what become broad variations in monetary flows. While these different sources of income flow strongly affect one another, their sector activity does not directly correlate with one another. As a result, this creates system wide non linearity, so that products don't automatically or necessarily provide ready substitutions in the marketplace.

The income capacity which is representative of general equilibrium, occurs in what are already non linear paths of private and public endeavor, alongside further variation in tradable and non tradable organizational structure. While I have spoken often of the services capacity of non tradable sectors, the services capacity of tradable sector income follows a somewhat simpler growth path. How so? Tradable services formation (think sales or restaurant work) is more directly reimbursed, hence closer to the (primary) wealth origination of traditional production. One could think of growth capacity for tradable services income as akin to income in finance and assets, in that it directly relies on (non redistributed) income from all sectors for additional growth.

Non tradable sector income, i.e. that which thus far seeks broad redistribution outside of specific institutions, is also part of the secondary marketplace which is nested within existing wealth. When these forms of non tradable services income experience growth capacity, this reflects gains from the primary markets of traditional production. Secondary markets are largely dependent on primary markets. However, should growth decline in the latter - as has presently occurred - non tradable services income can be especially dependent on accurate income representation from monetary policy, in order to maintain nominal stability.

Not everyone is convinced, that monetary representation is important for economic stability. For instance, in a recent post, Dietz Vollrath asks, "Do you need more money for growth to occur?" First I'll address his question in an immediate sense. Monetary growth may not necessarily need to accompany real market growth conditions in the short term, should the supply side provide broad and innovative means to expand markets through good deflation. However, this has scarcely been the circumstance, given the forms of economic activity which the Fed now take excessive efforts to restrain. The monetary needs of non tradable sectors have led to arbitrary caps for production in multiple capacities.

Towards the end of the above linked post, I unfortunately have some serious issues with his reasoning. Again, Vollrath:

...The level of nominal spending is irrelevant. The stock of money is irrelevant...For any modern economy, it is effectively impossible for there to be "not enough" money to let growth occur.

The stock of money is not at all irrelevant, for that stock needs to closely maintain balance in income and resource capacity. This is what a nominal target can specifically provide. While supply side circumstance might not provide sufficient (wealth) balance between services formation and other forms of production, monetary policy has an easier job in this regard than central bankers have been willing to let on.

Maintaining nominal income levels is important not just in the sense of asset formation and loan responsibilities, but also the stability of income flows which regularly contribute to general equilibrium. No one should dismiss the importance of income aggregates and the ways they affect long term growth outcomes. For instance, Paul Krugman notes the non-linearity of present day oil markets, and the fact that expected product substitution in this regard, did not proceed smoothly as expected. Oil price declines do not provide income or product substitution, when individuals do not have income or transportation strategies to begin with.

As it turns out, specific quantities of money are not the ultimate arbiter of economic measure, because the organizational capacity of supply side factors determine ultimate pricing factors in relation to income capacity. However, the mistake is to ignore the important relationship that exists between income potential, and the marketplace capacity which is actually being honored for total resource potential. This is the relationship which a level nominal target would seek to uphold.

Intellectual Property Issues: A Single Example

Regular readers know that I prefer posts with more than a single example. However, my strength is quite limited in recent days by a chronic pain issue which I hope to take care of sometime this week, after six months of self management that are no longer working. While I've needed to manage headaches the last fifteen years with over the counter medication, it became a daily process as of last July. Hence I hope to find someone who will remove the two teeth which are responsible for making these headaches (and now neck aches) a daily concern. As of recently, all I want to do is sleep.

Herein lies the problem, in terms of intellectual property. Tooth pulling in the U.S. - important though it might still be - is not a task that just any self respecting dentist wishes to perform anymore. But other individuals are not able to perform this service in their stead (as far as I know) on economic terms. Tooth pulling could be considered an "ordinary" aspect of intellectual property wealth captured by default I suppose - missing marketplace and all. Perhaps there are supply side options in some U.S. cities, but the need to find means for travel is additional stress which someone who has already been in pain, does not need - especially for such a basic services issue.

So I have a question: if professionals are understandably less eager to perform mundane - but necessary - chores as part of their repertoire, why not give the marketplace back to others to do so? (I know, this is a general equilibrium suggestion re further labor division, not time arbitrage) Apparently teeth pulling is a negative signal regarding one's professional status, and indeed the task may no longer provide sufficient revenue to pay the office bills, in areas where dentists seek to gain the most return for their extensive investments.

Of course, value for time based services is also in the eyes of the beholder. Reliable teeth pulling is right up there with "the best" value in use services - should anyone find themselves resorting to slurping down broth and cream of wheat, because it hurts too much to chew real food. And life can feel even more dicey all around, should others need to rely on anyone who ends up in these circumstance.

Plenty of trips to the ER, are also the result of a general lack of access to dentists. Granted, I could apply for government assistance for some reconstructive dental work. However, I've had to seek out time based services on these terms several times over the years, and have long since grown weary of the process. In fact...If I never have to ask for government help again I will be perfectly happy. Hah, perhaps that should be a tombstone inscription for those who are "dead" serious! All joking aside, I've already been reminded that it was dangerous to wait, as long as I did. With a little luck, I'll find a dentist this week who will do the job, so I can get my strength back.

What brought this subject to mind, was a paper about the fact intellectual property has increasingly substituted for labor. While one thinks of intellectual property rights as important for cutting edge material, author protection, and also experiential goods, these protections also exist for the mundane aspects of time based services (i.e. life) which everyone needs but providers can't charge the fees which pay for general equilibrium. Since the paper is in the form of a file, I provided a link to Arnold Kling's (referencing) post, so that readers can download the paper as they wish.

Even though the political left and right may actually agree about intellectual property problems, their ideas for coping with this reality could scarcely be further apart, at present. I hope to spend some time with the above referenced paper, and share some further thoughts about it soon.

Notes on Solow Model Effects in General Equilibrium

I had begun a post yesterday on this subject only to delete it, links and all. Yet today these thoughts remain uppermost in my mind, so I'll try again from a different angle. The Solow model in general equilibrium, is an instance when microeconomic effects also play a substantial role in macroeconomic outcomes. The (internal) labor force substitutions implied by the Solow model, have played out in slow motion in recent decades, as tradable goods formation has given way to the growing wealth of non tradable sectors.

As best as I can tell, interest rates began their long term decline, once the consumption requirements of housing/services and their accompanying credit became more important for non tradable sectors. These revenues provided additional funding for asymmetric compensation, in what could be termed a steady state economy around 1980. Many governments increased their reliance on asset formation during these years, as tradable goods wealth became less prominent. According to Wikipedia,

The steady state economy is an entirely physical concept. Any non physical components of an economy (e.g. knowledge) can grow indefinitely.

Of course - unfortunately - it has quite become obvious that knowledge use has not been able to grow indefinitely, once nations reach a certain degree of maturity in their tradable goods structure. Citizens are increasingly on edge, as the still secondary role of knowledge use, places time based services into the crosshairs of competing groups.

Today's services formation claimed their dominant role in the wealth of GDP, through following the Solow model as it had been utilized by tradable sectors. Again, these organizational patterns kept capital and labor in check, while focusing on output growth. But what about the results? While this time based product approach should contribute to per capita growth, it's the fixed capital and labor (in relation to output), which places internal limits on both time value and knowledge use (human capital) options. These limits - in turn - affect both the nature of time based product, and ultimately the dispersal of knowledge which is associated with time value.

Hence the Solow model for time based services organization, may negatively affect both aggregate participation and aggregate knowledge use gains. Diversity in knowledge use options is at stake, when time value is replaced by separately existing (duplicative) product to protect the bottom line and limit expense in asymmetric compensation.

Instead of knowledge use growth, asymmetrically compensated services increased output by generating product which substituted for time value. One example is the use of prescription drugs, which now substitutes for a wide range of time based healing activities that were employed for centuries. In other words, less time has been asymmetrically compensated for the specific circumstance involved between provider and recipient, to arrive at the desired services product. Likewise for what had been more spontaneous forms of research, prior to the twentieth century.

Why is this problematic, in terms of aggregate output and labor force participation? First, recall that services organization is not yet offered as free standing wealth, and its formation remains nested within the wealth creation of traditional production. Institutions reduce labor costs, in part because asymmetric compensation relies on preexisting revenues. Even though asymmetric compensation is logical - given wide variations in aptitude - this approach remains dependent on a growing tradable sector, in order to maintain employment capacity. Presently, worldwide tradable sectors have become somewhat weakened, by the fact that time value is not a source of wealth creation in its own right.

Consider why the Solow Model was able to maintain strong labor force participation, for so long. The Solow model was perfectly suited for tradable goods formation, given the fact that tradable product value need not be affected with a smaller time component. Also, the Solow model of reduced labor force participation (in time based services) relative to output, was not problematic decades earlier, so long as tradable sectors were growing in relation to non tradable sectors. The present problem occurred, as non tradable sector growth gradually overtook tradable sector growth. Instead of directly addressing the issue as it developed - however - governments in developed nations used asset formation, to compensate for their loss of revenue flows from tradable sectors.

Once the greatest benefits of the Solow model process became sidelined, government compensated by raising the consumption requirements for both asset formation and services product in non tradable sectors. Prior to the eighties, when individuals lost a job, they were often able to gain new work through still growing diversity in tradable goods formation. Finally, tradable goods sectors lost the ability to generate more labor force participation at aggregate levels. From that point forward, services employment developed insofar as these sectors received revenues from asset formation and the remaining redistribution of traditional manufacture.

Clearly, the Solow model - "workhorse" though it remains for tradable goods structure, is insufficient for the potential growth and stabilization of time based services - either in mature economies or developing economies for that matter. When the most important product is time based, one cannot remove time value from the equation and expect the same result in terms of knowledge use diversity and human capital.

Without a clearly designated marketplace which represents the finite nature of time value, productivity is lost because individuals can't discern time value in relation to one another (i.e. comparative advantage). Without this capacity, civility in general also suffers. Hopefully, production gains for the 21st century can be approached through better organizational capacity, than what has transpired thus far.

Comparative Advantage and the Marketplace for Time Value

In a recent article from The Freeman, Michael Munger suggests that comparative advantage should be downgraded as a primary concept, and that trade has evolved in ways which appear to make other factors more important. Here's Munger:

Comparative advantage is not a separate concept at all. It is simply an explanation of the implications of the division of labor and opportunity cost.

For tradable goods sectors, Munger's arguments are reasonably solid - in terms of untapped potential in these areas. As to non tradable sectors, however, comparative advantage has scarcely been utilized in the immediate or personal sense, where time based services particularly count. Not only would comparative advantage in service formation allow for a freer market in services, this concept also suggests organizational shifts in time utilization which have yet to be explored. Until now, comparative advantage in services has often been replaced with hierarchical expectations which have also substituted for knowledge use options.

There are other market considerations where comparative advantage will continue to hold importance as well. The most obvious example of comparative advantage in tradable sectors, is agricultural product which often needs specific geographic circumstance. Geography is also important for comparative advantage, in locally managed (non tradable sector) wealth endowments such as natural beauty, historical tourism and multiple forms of group coordinated experiential product.

How to think about comparative advantage in terms of time use, when time value is an important part of the final product? Unlike product which essentially exists separately from time use, service product not only includes how we feel about the production or consumption process, that impression becomes an actual component of the economic interaction.

This is why comparative advantages between providers, consumers and their mutually associated time/place agreements are so important. Whereas coordinated time and place for tradable goods is often not a central component of these forms of exchange, because tradable goods are mostly utilized - or otherwise experienced - separately, after the point of purchase.

Internally (group) coordinated time based product, would include comparative advantage of one's "basket" of time use options, in the decision to produce or consume. Personal concerns for production and consumption of time based product, would not be about "best bargains" or the like, but rather meaningfulness and effectiveness for mutually shared time. Even so, comparative advantage would benefit from a marketplace for time value (alongside money), for these elements of personal choice to be possible.

A marketplace for time value, would generate local conditions for time to serve (alongside money) as a medium of account, a medium of exchange and also a store of value - albeit in far simpler terms than these associations carry through monetary exchange. Granted, a time based marketplace would be neither possible or desirable, in the normal value in exchange conditions of general equilibrium. Just the same, the spontaneous nature of external coordination also carries asymmetrical costs which automatically limit the services that are possible in general equilibrum.

Time arbitrage would provide the option of symmetrical costs for time value, which could both simplify and increase the availability of services production. To be an entrepreneur of one's own time production, is to add real value. Indeed, it is fair to suggest that - in the eye of the beholder - possibly as much value as any new tradable good in the marketplace.

Reverse the Decline: Just Do It

Perhaps the good news, is that economic decline is not inevitable. However, few monetary or structural means (to reverse decline) have been actively considered, and NIMBYs of all stripes are still "winning the day". The Fed has not addressed its own mistakes which greatly contributed to the Great Recession, nor have central bankers in the U.S. proposed the option of a level nominal target. And in spite of ongoing contractionary effects, the Fed is doubling down on the harsh tool that is interest on reserves. These monetary policy actions - alongside the premature process of rising interest rates - could lower economic output for the foreseeable future.

Why have policy makers been so determined to continue monetary tightening in a sluggish economy? One way to address this unfortunate circumstance, would be to make loan origination unnecessary for the economic activities of local corporations. Monetary origination in these instances would begin with mutually backed services endeavor, which in turn would also be utilized for local investment in infrastructure and asset generation.

Since banks have seemingly grown "weary" of making loans, it is time to consider new forms of wealth creation which do not require loan formation. While loan processes will always be needed for high volume activity and major economic players, the participants who reside in areas which lack sufficient economic complexity, are ready for new sets of monetary and economic options.

This is one reason I've suggested time backed money, in order to create a broader, more stable foundation for wealth through knowledge based services. Time backed money would provide long term mutual coordination for services needs, which consequently would not need to rely on other forms of existing wealth. Since this approach would also generate further services growth on monetary terms, knowledge use systems would prove capable of assisting governments with long term budgetary issues.

Supply side conditions are such that many market participants have painted themselves into a corner. How many recognize the fact that since central bankers have chosen to limit monetary formation, someone is being shorted? One reason Fed language has become so obscured, is that straight answers re what is occurring, would not be pretty. Indeed, an honest assessment might be deciphered as such: "We can no longer back all of your existing obligations to one another, even if we can't tell you so, directly."

As a result, everyone's existing output and total resource capacity are at stake. Indeed, how could central bankers, who are themselves accountable to supply side interests, have been expected to explain to various interests that they needed to reconstruct their own organizational capacity on more productive terms? Since too few individuals had the professional audacity to promote innovative reform, central bankers are now instead refusing to honor the manner in which non tradable sector costs are routinely presented to the public - even while populations are reassured regarding benefits from widespread good deflation!

Had good deflation occurred to the degree suggested, no central banker would now feel the need to "draw the line" on actual compensation for spending and expenditures, in private. Because of the way this situation is playing out, there's a chance that bad deflation will generate further losses which cannot be regained. It was not my intention to come across as inflammatory with this post. Still, I needed to search for some form of rationale, in order to make sense of what has become broken logic in the political sphere, all around. As Scott Sumner recently noted,

After 2003 the GOP took some increasingly silly positions on a wide range of issues. They became widely viewed as the "stupid party".

If Republicans unexpectedly refused to focus on growth and economic concerns, Democrats would have done so in their stead, were it possible. That's just the problem. As services continue to remain dependent on traditional production, both services and traditional production are held back, since services wealth thus far has not gained the organizational capacity to strike out on its own. Perhaps in the years ahead, knowledge use can remain a stable factor not just for fiscal goals, but monetary goals as well. Let's reverse the decline, and begin the process of envisioning new services formation on monetary terms.

Time Based Markets as Secondary Markets

Why is healthcare, as a time based product in many respects, "differently priced"? Timothy Taylor notes this as a "market malfunction" in a recent post, and he says:

One of the signs of a well functioning market is that prices for very similar goods or services are much the same in different places.

Clearly, similar pricing isn't the case for healthcare, which for purposes of this post will be included in an overall - or theoretical - time/knowledge use services designation. First, I should begin with the fact that the post title is based on an observation which - as someone who is not an economist - has taken me years to decipher. There are many reasons why secondary markets matter, in that they play a relatively new role for macroeconomic outcomes and long term growth potential.

Imagine secondary markets as encased (or nested) in the primary markets of commodities and asset formation, even though they ultimately take different forms and have contributed to wealth thus far through less quantifiable means. Hence there are different outcomes for both output aggregates and pricing structures in secondary services markets, than one might expect from traditional manufacture, for instance. Cultural factors can also play a role, in the monetary values which are assigned to knowledge use.

Since the most important form of knowledge based product remains linked to time and place, pricing for time based services plays out through a wide range of potential resource capacity. Time based services flourish where resource potential is abundant, yet may be sparse and poorly compensated where (economic) complexity is missing. These factors explain why some time based product is not exposed to the price leveling effects of international markets, which rely on common internal characteristics of specific firms. Even though time based services product needs more "tradable" characteristics, it shouldn't be expected to carry the same pricing characteristics across space and time which apply to time compensation in tradable sectors.

Consider compensated time value from a broader perspective for a moment, i.e. one of general employment capacity. In a sense, any compensated time value can be thought of as a secondary market, and today's compensated time value still originates from already existing wealth sources. However, there is a crucial difference for time value which is compensated as free standing and time based services, versus time value as compensated within specific organizational structures that designate time value according to internal resource availability.

It helps to remember that free standing (defined) services product is compensated "externally" (multiple institutions), either by monetary (private) or fiscal sources, which have in common various local/non local preexisting wealth.* While free standing services product relies on multiple institutions to generate unique time value pricing, compensation for time value within tradable sectors relies on single institutions, for similar sets of internal resource capacity. This is what allows salary formation in tradable sectors to come closer to the pricing levels that are also represented by product which is sold worldwide.

Another important aspect of time value as a secondary market, is that supply side conditions have been more conducive for the resource capacity which generates product existing separately from time value. In other words; commodities, products and asset flows can be bottlenecked by limits in aggregate time value - a process which also reduces much needed velocity. Even though recession is associated with excess demand for money, there is also excess demand for time value - particularly when tight monetary conditions are shorting aggregate time value into the foreseeable future.

Importantly, if formal time arbitrage were to be adopted, it would still be a secondary marketplace much as other nominal income is represented. Also, formal time arbitrage would generate compensation (i.e. prices) for time value which don't necessarily correlate with prices for time value in other economic context. As alternative equilibrium, local corporations would internalize symmetrically coordinated services formation, much as worldwide corporations organize time value for product which exists separately from time value.

Asymmetric compensation for time based services - widespread though it may presently be, remains fragile to changing economic conditions. When the economic circumstance of nations becomes fragile, so too does asymmetrically compensated services formation. In some instances, this form of knowledge based services would no longer be perceived as necessary, should economic conditions not remain conducive for full asymmetric valuations. While individuals would of course continue to desire services, they would nonetheless purchase time based services in relation to personal time constraints and personal resource access. Only consider the differences in this regard for income levels, to note how different services demand could actually play out, in contrast with other forms of product demand.

As a result, time based services are dependent not just on the monetary support of assets or other output, but also aggregate income representation. Hence policy makers should not make the mistake of assuming that time value - as a secondary marketplace - is only a secondary priority. On the contrary, time value should be considered among the highest priorities for central bankers, if economies are to remain stable.


*A bit of perspective: local corporations would coordinate internal resource capacity alongside the compensation of time value for service formation, much as worldwide corporations presently tap internal resources to compensate time value for labor in general. Also, even though time arbitrage would not be dependent on already existing wealth, it would still be a secondary marketplace in the sense that it would need to take place through a system of ongoing organizational capacity.

Both asymmetric and symmetric time value are "unique", in contrast to the common pricing factors of an international tradable goods marketplace. Time value relies on unique conditions and environments, hence unique pricing, and it is highly finite in relation to otherwise "infinite" resource capacity. The danger for asymmetric pricing is to assume that the relationship between time value and other forms of resource capacity is not important.

When Education "Overcame" the Technological Divide

Today, technology (once again) appears capable of reducing labor force participation, in the near future. However, it won't be as easy for fiscal policy - much of which still includes the compensation of knowledge based services - to "come to the rescue". This is problematic, in that services formation has been a greater contributor to growth than traditional manufacture, for decades - particularly in developed nations.

Fortunately, broad educational integration proved to be a strong contributing factor, for greater labor force participation in the twentieth century. Increased services formation also smoothed over losses in agricultural employment, as work on the farm gradually became a small percentage of the population. Small wonder, that the progressive movement gained momentum which resulted in real knowledge based gains. But how much of this desire to "bring education to the masses", was more about the creation of educational jobs, as governments benefited from technological wealth?

Education remains vitally important, in spite of the fact its current configuration is generating doubts. "Education as access" (to a crowded general equilibrium) is less certain, in worldwide economic circumstance which now include excessive monetary tightening. Among other problems, education's current organizational capacity, will prove less capable of contributing to long term growth.

Granted, some degree of formal education will remain tenable, but a growing number of nations may not be able to sufficiently maintain asymmetric compensation for knowledge use. The progressive format for education is no longer enough. Not only is formal education too open ended for a wide range of actual work patterns, but education as experiential product was largely abandoned, in favor of the product of access. As a result, real value is in danger of being lost, for multiple disciplines of which their greatest contribution is in the form of experiential product.

Education needs a more direct connection with daily life, in order to overcome the new technological divide of the 21st century. In an earlier era, fiscal support for educational capacity perhaps made more sense. But today, education needs to come into its own - in terms of pragmatic challenges and experiential challenges as well. A marketplace for time value - in particular - would allow education to become better integrated with everyday life.

If educational capacity hasn't sufficiently evolved, there's also the fact that widespread knowledge use potential is a relatively new circumstance. This value in use potential need not be a threat, to the value in exchange services systems which define today's most prosperous cities and regions. The fact that not everyone can live in the most desirable regions of the world, should be incentive enough to bring knowledge use to those who have inadvertently been shut out from wealth and prosperity. Should this occur, education and knowledge use could gain the ability to overcome the technological - and social - divide of the 21st century.

New Year, New Equilibrium?

In the process of wrapping up notes and blog posts for the (old) year, I realized I'd missed a worthy of note post from David Glasner. His thoughts were also in response to recent discussion from Scott Sumner, concerning economic stability. Here's Glasner:

The false premise held out by Friedman was that it is easy to get monetary policy right all of the time. It certainly wasn't the case for Friedman's pet rule, and I don't think that there is any monetary rule out there that we can be sure will keep us safe and secure and fully employed...We just have no theoretical base for saying that the free market economy is stable.

He also referred to the deflationary spiral concept which Earl Thompson had constructed - a possibility I am somewhat concerned with as well. In certain respects the economy was set so as to grow at a certain rate, for well over a century. However, supply side "rules" for economic participation, have gradually grown more rigid. This is why I believe it might be more reasonable to reach for new growth through alternative equilibrium options. Glasner sums up his post:

...I still agree with Scott's bottom line: if the economy is operating below full employment, and inflation and interest rates are low, there is very likely a problem with monetary policy.

As a monetarist I agree with this, and would also emphasize that adequate monetary representation is the primary economic component which could be managed with any degree of efficacy, from a national perspective. Other aspects of growth potential - including growth levels - remain dependent on supply side circumstance, and to a lesser degree (presently), government intentions. Hence policy makers are remiss, when they pretend that monetary policy is also "helpless" in terms of the appropriate management capacity it actually holds.

Presently, internal aspects of general equilibrium remain relatively stable, and the more pressing issues for equilibrium tend to exist in an external sense. Further, external factors contribute to changing dynamics over long periods of time, hence gradually change the shape of equilibrium in ways that don't readily show up in ongoing business cycles. These include changes in perceived potential for resource use, which can dramatically affect both growth levels and the vital relationship between time value and resource capacity.

The main reason income polarization is problematic, is the fact that little recognizable structure presently exists (in the U.S.) for low income strategies, beyond prison formation, increased use of civil asset forfeiture, and the War on Drugs. As a result, general equilibrium is becoming mostly oriented towards a higher income standard, where economic conditions are sufficiently complex for full societal integration. Whereas lower income levels are often unable to remain engaged, in ways that allow them to fully exercise either personal freedom or personal responsibility. And this is just a domestic aspect, of the problems for general equilibrium which come from external sources.

Why did policy makers find it necessary to generate "normalization" discussion, as though nothing about the economy had essentially changed? In a sense this approach was less complicated, than a full explanation as to why the economy was expected to resume activity at a lower trajectory, than what existed prior to the Great Recession. However, this "new" equilibrium is far from complete, given the fact income polarization has also taken a toll on potential output. If it has become impossible to consider what potential output might consist of, that is mostly because policy makers continue to hope - or reason - it won't be needed. Perhaps 2016 will tell the story, whether or not this is true.