Time Based Product: A Different Productivity Component

In a recent Adam Smith Institute post titled "You can't just hand wave the Living Wage away with higher productivity", Tim Worstall backs an argument from Chris Dillow re national living wage discussions. Dillow stressed that "The National Living Wage will impose costs on someone. It is not a magic money tree." Here's Worstall:

As Chris Dillow points out, productivity is the amount of output we get from a particular input of labor. Or, of course, it's possible to reduce the amount of labor and get the same output. Thus the problem if people say that business can simply deal with higher imposed wages, if only they increase productivity.

First, I would note that a living wage represents a tacit agreement to let "sleeping dogs lie". Instead of addressing lagging workplace participation, it is a half hearted attempt to patch over too many institutional efforts to exclude individuals from the workplace. Worse, living wages would gradually (further) exacerbate differences in skill and aptitude, which already exist. I can't stress to my readers enough, that no one should have to go through life without means to build personal identity and reciprocity, with others.

Some nations are now considering a living wage in order to (partially) address aggregate demand. Despite this effort, paying people not to work would still result in lost marketplace output. Any time that labor force participation is partially curtailed, there are fewer individuals who remain able to provide the time based product which so many seek.

While the above linked productivity arguments hold for tradable goods product, there's a different productivity component for non tradable sector activity which has not been adequately considered. Not all time based product can effectively be replaced by technology, nor should society attempt to do so. When individuals do seek out time based product, there are generally good reasons why they prefer the personal attention of others for service product, over the technological equivalents that are possible. While the product of time value is capable of replacement by technology in numerous respects, too many experiential qualities can be lost, when the process is carried too far.

Due in part to budget constraints, non tradable sectors have attempted to utilize technology (much as tradable sectors) to reduce institutional costs. However, whenever labor is removed from services capacity, so too is aggregate time value in the form of time based product. The same lack of aggregate output for time based product, also represents losses in nominal income.

When too much time value is replaced with technology in non tradable services, the result is a do it yourself economy in which customers have no means to gain reimbursement - either for one's expected contributions to institutional product as a consumer, or for one's expected investments in (personal) human capital improvements. Too many invest in time value, only to end up unable to make time investments pay in economic terms.

Unlike tradable sectors, employment capacity for time based product needs to be maintained, if both supply and demand are to be met. Even though asymmetric compensation can't generate further employment without excessive demands on productivity, much of the productivity problem could be alleviated through time based product on symmetric terms. When time value is evenly coordinated, it becomes possible to track and record long term gains, which accrue for both individual and group time value. Hence productivity gains become possible in terms of time use and knowledge use, as well.

Wrap Up for February 2016

The decentralization which is needed, is not so much a matter of state versus national economic decision making processes, but of creating much needed economic complexity for rural areas. And cities aren't the only places with housing problems. From the Atlantic, regarding rural America's silent housing crisis:

Rural areas have been traditionally more dependent upon public subsidies and publicly-funded programs than their urban counterparts.

Some good points from the Economist regarding the measure of GDP.

It takes no account of who is doing the producing, meaning an economy could have a single worker or full employment. It ignores the underground economy to a large extent, guaranteeing that production always undershoots reality...America's recovery from the global financial crisis now looks less impressive.

Angela Rachidi of AEI makes an important observation with this post title, "For poverty, work is more important than wages, but only half of American adults work full-time."

From Marcus Nunes: "The best way to look at the unemployment rate is to analyze it from the perspective of its two constituents. The employment population ratio (EPR) and the labor force participation rate (LFPR)."

Hmm. From unbelievable facts. How many gold buggers know this and what might it signify, if anything? Indian housewives hold 11% of the world's gold. That is more than the reserves of USA, IMF, Switzerland and Germany put together. Perhaps a jewelry standard...

Scott Sumner notes the lessons of the Great Depression for today's economy, in a Fiscal Times article: http://www.thefiscaltimes.com/Columns/2016/02/04/Are-Congress-and-Fed-Repeating-Mistakes-Depression

In "What is the incidence of pet pantries" Tyler Cowen asks "How much better is it to have a wealthier owner?" As to the rationale that it is better for a dog to have a wealthier owner, I find this to be part of a slippery slope argument which basically devolves to reasoning that no form of responsibility is logical, for those without sufficient economic access. Where, exactly, does one draw the line?

The burden of elder caregivers is not yet a part of the national conversation. However this responsibility is often not a spontaneous choice, in the same sense as other forms of domestic home work. Should caregiver activity be measured as a part of GDP?  http://www.theatlantic.com/business/archive/2016/02/working-daughters-eldercare/459249/?utm_source=SFFB

Timothy Taylor compares a variety of different inflation indexes: http://conversableeconomist.blogspot.com/2016/02/breaking-down-us-inflation-rates-by.html

China's link to the dollar, from David Beckworth:

...China's currency has been tied to the dollar and through this link Fed policy gets transmitted to China. Fed policy via the dollar, therefore, is an important determinant of Chinese nominal demand and economic activity.

Bill Woolsey makes a good point about countries which decide to rely on "strong" leaders.

How many interest rates to cut? It matters...(Miles Kimball) http://blog.supplysideliberal.com/post/139340010517/if-a-central-bank-cuts-all-of-its-interest-rates

The "end of cash would give governments almost unlimited power to deny resources to those they consider undesirable." (Chris Bertram) http://crookedtimber.org/2016/02/16/cash-and-freedom/

"If it happens, it would be the ultimate demonstration of the power of finance over people." (Paul Mason) http://www.theguardian.com/commentisfree/2016/feb/15/crime-terrorism-and-tax-evasion-why-banks-are-waging-war-on-cash

It's not difficult to see where the trouble with government budgets is really headed, when one reads stories like this. The sooner that knowledge use systems can relieve fiscal policy burdens, the better.
http://www.independent.co.uk/news/uk/home-news/teenage-quadruple-amputee-told-to-prove-he-is-disabled-to-keep-benefits-a6880526.html

A Bloomberg interview with Larry Summers, considering a nominal target: http://www.bloomberg.com/news/videos/2016-02-18/summers-consider-if-fed-should-target-nominal-gdp

Again, budget problems. Hospitals in deficit, in England http://www.bbc.com/news/health-35608992

It may be a while before small communities are able to reorganize effectively for retail operations.
https://www.washingtonpost.com/news/wonk/wp/2016/02/05/what-happens-to-a-tiny-town-when-walmart-disappears/?hpid=hp_hp-top-table-main_walmart947pm%3Ahomepage%2Fstory

Who Plans?: Jane Jacobs' Hayekian critique of Urban Planning (Market Urbanism) "By allowing individuals to freely organize themselves in relation to one another, natural urban orders emerge without any central planning."

An interesting set of tweets from Clay Shirkey https://storify.com/cshirky/republican-and-democratic-parties-are-now-host-bod

With the help of posts from Ben Bernanke and James Hamilton, David Beckworth "was able to attribute 51% of decline in oil prices to weakening oil demand." http://macromarketmusings.blogspot.com/2016/02/connecting-dots-demand-side-to-oils.html

James Alexander: echoes of 2008? https://thefaintofheart.wordpress.com/2016/02/22/cpi-trending-higher-ngdp-growth-lower-monetary-policy-must-go-easy/

Luigi Zingales has his doubts about Donald Trump: http://www.nytimes.com/2016/02/23/opinion/campaign-stops/donald-trump-crony-capitalist.html

Even thinking about politics is enough to put one in a grumpy mood. Who really wants any of these presidential candidates in office for at least the next four years?  That's not much to smile about. On that note, here's something that made me smile... http://existentialcomics.com/comic/119

Shared Results Can Undercut Asymmetric Compensation

Asymmetric compensation particularly rewards high value skills which are not ubiquitous in the marketplace. This is all the more true, when compensation involves skill sets which go well beyond the role of a prior input for tradable sector product. When research results don't have a direct link to one's ongoing time value, results are more readily shared with other researchers and the public. However, cutting edge research for time based services product, may contribute to both ongoing procedures and the bottom line in terms of revenue.

As a result, incentives for sharing of healthcare research tend to be negatively skewed, compared to research results in other disciplines. When research outcomes are important for (ongoing) future revenues, there is greater incentive for research teams not to share cutting edge information with others. An NPR article, "Academic Medical Centers Get an F in Sharing Research", notes:

In a study powered by the labor of medical students, my colleagues and I found that two-thirds of clinical trials led by scientists at our finest academic institutions, didn't share their results publicly within two years of the study's completion.

The lack of research sharing in healthcare doesn't surprise me. However, the reason I find it problematic is that so much healthcare research is taxpayer funded and receives massive support from volunteer efforts. This, on top of government subsidies, employer healthcare requirements, massive insurance industries, not to mention plenty of patient responsibility for healthcare costs as well, in the U.S.

Presently, asymmetric compensation for skills sets in healthcare, accounts for some of the most highly valued knowledge use in the world. Consequently, it may not be reasonable to expect recent healthcare research to be widely shared among either researchers outside one's immediate group, or the public at large. Even so, this dearth of knowledge dispersal is not just limited to current research, but also applies to healthcare needs at basic levels.

How so? In the years I spent as a bookseller, it didn't take long to realize that vital, life saving aspects of healthcare were intentionally withheld from the public marketplace. In spite of a vast array of healthcare subjects, too few of the available offerings actually cover the kinds of knowledge use that one might need in emergency situations, for instance. Indeed, the overwhelming majority of healthcare books marketed to the public, tend to be along the lines of self help and preventative care.

One problem for asymmetric healthcare compensation, is the fact an immense body of widely held knowledge was corralled into an intentionally limited marketplace. Much of what once held real value is discounted, or even completely disregarded. Unfortunately, as government budgets become more unwieldy, asymmetrically defined healthcare can no longer be expected to tend to the needs of entire populations.

Eventually, knowledge use systems could provide symmetric compensation for time based healthcare needs. Fortunately, a symmetrically organized approach would be closer to knowledge use patterns from centuries earlier, when individuals approached research as a personal challenge. Prior to the twentieth century, knowledge dispersal was more spontaneous, because individuals gained income from resources other than personal time value. With a little luck, individuals might gain the chance to return to work patterns which encourage shared results for healthcare research.

Tradable Avenues, From a Non Tradable Base

Based on what I have explored thus far, regarding local corporations: Participants in local corporations would use time backed money (an hourly wage for coordinated services provision), for personal asset formation and infrastructure maintenance. But how could they generate discretionary income? 

Compensation for time arbitrage, provides an internal non tradable base (local money), which serves as a starting point to branch into the normal monies of local tradable sector activity. As local corporations mature, the tradable sector activity they engage in would become monetarily porous with surrounding locales. In some respects, tradable business formation would not be directly connected to local corporate activity, but instead subjected to the normal monetary conditions of surrounding states and nations - a process which would also include external taxation for personal profits in these areas.

Whereas there is no need for internal taxation, because internal monies would be connected to both time based services formation and asset/infrastructure maintenance. Instead of non tradable sector loan processes, money originates through matched time value, and gradually accrues towards personal ownership goals.

A non tradable base can provide growth impetus, by reversing the normal pattern of tradable sector production as a (necessary) beginning point for economic activity. In particular, when widespread job losses occur in some commodities or tradable sectors, participants of local corporations would still be able to transition into knowledge and services based work. Even though this could mean losses in discretionary income for a while, local corporation participants would not be threatened with asset losses which are tied to time based monetary activity.

For local corporations, time value would serve as a raw commodity (hence one price) which is "processed" through knowledge utilization as a mutually shared product. Through this decentralized internal structure, local corporations could revitalize areas which have suffered from a lack of economic complexity for some time. If one were to think of today's centralized economy as a tree, much of its energy presently resides in the trunk and primary branches. As a result, there is insufficient energy (think time value as photosynthesis), originating from the leaves and outer branches.

Much of today's backlash from the political right, stems from the fact that many live in places with a tenuous hold on economic participation, in terms of time based services and employment. Local corporations could eventually generate new economic complexity, where it is needed most. One of my fondest hopes is that knowledge use systems can make distant areas less dependent on city based services and wealth, so that opposing political factions will (ultimately) be less likely to tear each other apart.

Areas with low population density have often lost retail opportunities, because expected infrastructure costs and commitments can make it difficult for many would-be retailers to turn a profit. Not only does this mean lost aspirations, but also lost economic choices for all involved. By utilizing innovation to reduce overall costs of doing business, retail could finally make a return to small towns and cities, which have struggled for survival. Innovative options for building components and transportation infrastructure, could increase the tradable sector options locals would need, for discretionary income.

Even though local property would not be sold to those who are not part of the local corporation, participants would be able to set aside a portion of land (and building stock) for non locals to rent on commercial terms. A local rental pool would especially help local participants who are not actively engaged in tradable production. Participants would gradually be able to buy into asset rental pools once their personal ownership needs have been met (i.e. both living and personal work quarters). These rental asset pools would provide a source of discretionary monies for those who prefer to spend the majority of their working lives in the local monies of time arbitrage. However, gains from these rental pools would be subject to external taxation, as is also the case for tradable goods production.

Notes on Savings, Inequalities, and Global Arbitrage

How might anyone who needs to save for future expenses, do so when their wages and/or income are small? As individuals find themselves needing more money for retirement, overall investment gains have become less certain. In "Nudges Aren't Enough for Problems Like Retirement Savings", Eduardo Porter writes about a problem which is larger than government policy nudges:

But here is the reality check: We haven't yet nudged ourselves out of a retirement trap. Traditional defined benefit plans have all but disappeared in the private sector, but only 40 percent of American families in the bottom half of the income distribution have any form of private savings plan. And even those who have one, their savings total, on average, is just $40,000.

Regular readers would not be surprised that I find the retirement trap to be another general equilibrium problem in the U.S. Believe it or not, $40,000 may sound like a lot to some individuals on fixed incomes. Still, this limited amount can mean hard choices have to be made, in general equilibrium conditions.

For instance, consider someone with $40,000 (other than one's home) who has been retired a decade or so. No outstanding debt, but whose future expenses for (older) home, auto and of course health needs, are uncertain. Which home, auto or health cost concerns, might be reasonable without financial repercussions? With a little luck in the long run, perhaps two out of three maintenance costs will prove viable. One problem with maintenance needs is we don't always get to choose. As a result: for those who are married, substantial healthcare expenses may be an option for only one partner. This is just one of the reasons I advocate for new organizational patterns, re knowledge based services formation.

Decades earlier, higher interest rates provided more assistance in terms of lifetime savings. However, the long term decrease in the natural interest rate, is not something the Fed can remedy by attempting to maneuver a higher interest rate on its own, all the while hoping the economy will "fall in line" with the wishful thinking of policy makers. Broader monetary representation is needed in the form of sustained monetary support, before the natural interest rate can finally rise of its own accord. Timothy Taylor recently asked, "Will the causes of falling real interest rates unwind?", and noted:

Notice that the decline in interest rates is global, which suggests that global economic factors are the driving force rather than national-level economic factors or policy decisions.

I would add: the fact this circumstance is global, does not remove the onus from central bankers, in terms of their ongoing responsibility. Their overreaction to what is mostly imaginary inflation at national levels, is now beginning to damage tradable sector activity. Arbitrary inflation caps have already reduced GDP worldwide, which only leaves less room for employment and marketplace capacity in non tradable sectors, on fiscal terms.

As fiscal budgets become more limited, non tradable sectors are responding by emphasizing knowledge product as (supposedly) more important than the value of time based product. However, these losses of aggregate time value in the marketplace, are a hidden supply side contributor to insufficient aggregate demand. Knowledge product - as a substitute for compensated time value - affects broad variations in wage structure which limit marketplace formation. In all likelihood, a dearth of matched time investment (i.e. aggregate time investments versus aggregate employment options), contributes to a low natural (Wicksellian) interest rate.

However, changes are also needed in local and global investment patterns. How so? For lack of a better way to express imbalances in wealth holdings, today's methods for global arbitrage in financial structures are actually too efficient. Consequently, the global "game board" is set up so as to make it possible for the most skilled players to accrue much of its wealth. This is another factor for the lack of overall time value, in relation to other forms of resource capacity.

Rather than attempting to redistribute concentrated wealth - which is hardly easy to do under any circumstance, it would be best to move some game boards for financial activity to local levels. And while global financial structures for tradable goods are positive in that they generate a broader marketplace, the same does not hold always true for non tradable wealth, which needs to maintain strong links to nominal income and time value. Hence non tradable sectors are in need of local financial networks, which can generate internal monetary flows for asset and services formation.

By recreating non tradable sector investment at local levels, those who participate through small wage and income structures, could make their investment options really count. Another important consideration, is that internally held financial structures would provide more liquidity, than what has been possible for those whose savings exist mostly as housing stock.

Defining Alternative Equilibrium

While various forms of alternative equilibrium are (theoretically) possible, I've attempted to portray a specific example which could address a variety of pressing issues. Why would today's economy benefit from additional options, beyond the limits of general equilibrium? Three problems in particular stand out: declining labor force participation (in the U.S.) poor marketplace definition for time based services which people value, and growing long term budgetary problems.

Some of the most important aspects of today's services capacity are poorly organized, in general equilibrium. So long as knowledge based product is partially inaccessible (for both production and consumption), aggregate demand and aggregate supply will both remain problematic. Alternative equilibrium could provide much needed wealth creation, without the first mover problems that are associated with general equilibrium. Nash equilibrium is a helpful way to think about first mover problems. From Wikipedia:

In game theory, the Nash equilibrium is a solution concept of a non-cooperative game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only their own strategy.

Or simply stated:

Informally, a set of strategies is a Nash equilibrium if no player can do better by unilaterally changing their own strategy.

Even though many aspects of general equilibrium are resistant to change, production reform is possible at the margins, through a form of money built to represent local non tradable sector activity. Both time and resource use would respond to internally structured coordination patterns, particularly for low population densities. Even though knowledge use systems would provide economic complexity where it is sorely lacking, it would exist in a simpler, more compact form than what occurs spontaneously in prosperous cities. Most important, local corporations would manage time value in ways which preserve vital links between aggregate time value and other forms of resource capacity.

General equilibrium is primarily structured to facilitate the coordination of income at higher levels. Alternative equilibrium would generate more basic connections between time value and resource use, and maintain them as a baseline for overall stability. Alternate equilibrium would also be able to utilize non tradable sector activity as a starting point for economic activity, and gradually expand into other areas of production potential.

During periods of strong economic growth, claims on the time value of knowledge product often reflected the relative status of various groups, in relation to government. As a result, individuals and associations alike negotiated prices for skills value which in turn limited their marketplace formation. Unfortunately, this prohibited the dispersion of entire knowledge groups, in ways which could not be alleviated in general equilibrium. Housing stock values also increasingly reflect the artificial limits in knowledge use, which had earlier taken place.

Too many vital aspects of knowledge use also became dependent on the role of fiscal policy, as well. What should have been capable of wealth creation in its own right, became constrained by both budgets and claims on artificial restrictions in general equilibrium. Given the fact too much knowledge product is defined on exclusive and fiscal terms, it has become a drag on productivity - and in increasing instances assumed as not even necessary in the marketplace.

Time based product is quite different from the product of tradable sectors, in terms of supply, demand and marketplace capacity. Were it not so, basic issues re future growth would be difficult to reconcile, and time based services need a more responsive marketplace on monetary terms. In particular, a monetary setting for time based product, would provide relief for government budgets - especially when other revenue isn't forthcoming. How many other potential solutions for long term budget problems are waiting in the wings? I would wager there aren't very many.

Economic Freedom and Intentional Outcomes

Are free markets more of an expression, than an actual reality? Often it is said that free markets work well (compared to "everything else") because they are not centrally planned or designed. Still: even though "master" planners supposedly don't exist, plenty of inadvertent (and often permanent) designs routinely take place behind the scenes, through the convergence of government and its most successful participants. Then, the results surface in the form of what is frequently ill begotten legal rules and regulations. Somehow this mish mash is expected to provide a cohesive whole, to serve as a hard standard across wildly divergent circumstance in general equilibrium.

This post is also intended to explain the rationale for my blog name, "the intentional marketplace". While I would have preferred "monetary equivalence", the latter phrase represents the dream, more than the reality. And presently, the dream is mostly aspiration on my part, that time value could prove adequate (when necessary) to make a good life - given sufficient effort. As things now stand, the time value of too many individuals is not capable of fulfilling that role.

Wouldn't it be great if economic freedom - that is, one's personal right to inclusion in production and consumption definitions - could be maintained without constant effort and diligence. If only! Whenever it is painfully obvious what stands in the way of economic freedom, I believe societies should step back, reassess laws and regulations, and try again as often as necessary, to achieve more freedom for all concerned.

A marketplace for time value - particularly in a time when knowledge use is vital - would also make a difference. Presently, individuals have few means to assist one another - even after years of personal time investment - on economic terms. Time value would build a new frontier in the form of alternative equilibrium, just beyond the walls of today's NIMBY borders.

Markets are defined by intentional actions on the part of individuals and associations. Both will sometimes shape market use patterns for their personal preferences and intentions, in spite of free market rationale which may reason otherwise. Small wonder that capitalism routinely comes under ridicule!

Hence even though the blog name wasn't my first choice, I take its meaning quite seriously. Over time I'm slowly learning to let go of reactive responses, whenever someone insists that "free markets aren't broken and there's nothing to fix". Likewise, when claims are made that any form of marketplace planning is "detrimental to free markets".

For the record, I haven't been reactive because I think capitalism is a problem. Rather, I've been reactive because I am concerned that long term growth is increasingly endangered. And because I'm concerned that cities might become the only viable places for goods, knowledge use and most forms of services. Many who have spent part of their lives in rural areas, know how devastating such a development could be.

While more voices are being raised across the political spectrum for greater inclusion, the problem is that some of the most important forms of economic exclusion in today's society, occur by default. Once a given set of marketplace rules are set into motion (and built upon), they serve as choices for those who hold similar sets of income levels and preferences. Consequently, few other marketplace design options are given a chance to emerge, which could serve other sets of income and lifestyle preferences. Not only has this mindset led to a crushing sameness in physical infrastructure, it also generates shortcomings in the infrastructure patterns which generate knowledge use and services formation.

Even though tradable sectors remain the first movers of economic activity, they need to be first movers for knowledge wealth as well, in order for growth trajectories to remain strong. And for knowledge wealth to qualify for inclusion (with time value as a first sector raw good), product definition cannot be dictated by the few.

One reason the battle between Democrats and Republicans in the U.S. has become so intractable, is the fact both sides remain determined to carve out an entire economic equilibrium in a specific image, in spite of the great variety of humanity that actually exists. Worse: rather than being considerate enough to allow further options within equilibrium, each side would now rather take a chance on diminishing equilibrium, if that's what it takes to prevent success for one's opponent. Interestingly enough, Charles Koch spoke about the problems of cronyism in a Washington Post article, as he noted what he actually held in common with Senator Bernie Sanders:

The senator is upset with a political and economic system that is often rigged to help the privileged few at the expense of everyone else, particularly the least advantaged. He believes that we have a two-tiered society that increasingly dooms millions of our fellow citizens to lives of poverty and helplessness. He thinks many corporations seek and benefit from corporate welfare while ordinary citizens are denied opportunities and a level playing field. I agree with him.

What is not recognized, is the degree to which centrally defined economic activity contributes to problems of inequality and a lack of economic access. The stakes are simply too large, in terms of what is to be gained by the participants who are allowed to take part. Fierce struggles over marketplace design outcomes are ill fated because it's not just about groups with personal agendas, but the entirety of general equilibrium conditions. As it turns out, Charles Koch recently provided an apt example, just through rumors that he (and his brother) may provide funding for a group which in turn will advocate against electric cars. How is the freedom of economic choice even possible, when certain forms of infrastructure are always expected to win out against all others at nationwide levels?

Where governments also falter, is the fact that once they design pathways with the help of special interests, policy makers have a difficult time accepting the fact such pathways may not remain useful, indefinitely. Further, when patterns of economic access start to bog down, people lose incentive to invest in them. Why should they? Charles Koch made a good point in the Washington Post article when he said, "It is results, not intentions, that matter." Indeed. However, too many pathways for economic access are blocked by what have turned into the wrong results - and in some cases, the wrong results at the outset.

It is still tempting for governments to take control of markets, which may have already faced artificial limits in the private sector. This too can be an intentional outcome, on the part of government. Unfortunately it is a pyrrhic victory. Why? Because governments are then the ones left standing - forever seeking the revenue to build a knowledge based marketplace which nonetheless reverts back to higher income levels, when marketplace innovation is turned back for too long.

Indeed, when governments begin their retreat with entreaties that future growth might not be promising, that's a tacit acknowledgement that further innovation has become too threatening for all concerned. This is no time to assume that technology can somehow continue to do the work of economic progress on our behalf. The hard work lies in generating an open marketplace where technology assists all of us, instead of a mere few of us assisting technology.

Symmetric Compensation: What is Possible?

This is the fourth in a series of posts, which will also serve as links for "backup" to a glossary terms page. I might also refer to symmetric compensation as a concept term, since I didn't find a relevant Wikipedia definition.

Symmetric compensation would allow local groups (corporations) to generate knowledge based services alongside new asset formation and local infrastructure. The best part? Even though non tradable sector activity is involved; as an integrated process, it would take place as a first mover component for new wealth creation. Hence local corporations and their associated knowledge use systems would provide further means for economic growth. While this could gradually provide a stronger growth trajectory for central bankers with nominal level targets, it could also benefit policy makers in the meantime, who have proven reluctant to sustain recent growth through asset purchases.

How so? Local corporations would make it possible for individuals to directly purchase time value from one another, on symmetric terms. Eventually, these groups would no longer be dependent on government provided services, nor would they represent burdens to already strained government budgets. Through mutual effort at local levels, time backed money for non tradable sector formation, is possible. While symmetric compensation may not tempt those who prefer high skill wages, it's a good option for anyone who is weary of "standing in line" for the economic connections necessarily to build a good life.

Local corporations would also have porous characteristics, for the alternative equilibrium they generate would operate alongside general equilibrium conditions. What makes the parallel money distinction viable, is that time backed money would be strictly designated for local non tradable activity. Infrastructure would also be designed - whenever possible - so as to provide access to normal, asymmetrically defined employment.

Time backed or internally generated money, would compensate coordinated time, then be utilized for asset and infrastructure formation. This would provide citizens the ability to take part in infrastructure maintenance, local environment usage patterns and also definitions of locally generated product. Due to a services and asset base for each citizen, internal taxation and reliance on pensions in retirement would be unnecessary.

While individuals would naturally prefer asymmetric wages to low group wage structures, 1) additional asymmetric compensation is not always possible (in aggregate) when people need it most, and 2) asymmetric wages are dependent on preexisting wealth which is readily accessible. Further, asymmetric compensation makes long term claims on other resource capacity. However, this form of nominal income lacks definitive correlation to existing resource use patterns. Consequently, asymmetric compensation is not completely representative of income potential, in general equilibrium.

Asymmetric and symmetric compensation do have one thing in common: they both require considerable organizational effort, beforehand. The good news in this regard is that local corporations can internalize what would normally be many diverse sets of organizational patterns, in non tradable sectors. Likewise, the ability of tradable sectors to organize production through internal means, has allowed them to locate in regions with a minimum of physical infrastructure or services formation.

As to taxation, participants in local corporations would still bear this responsibility when they seek normal employment (asymmetric compensation), self employment or business formation in tradable sectors. Tradable sector activity in some instances, could make some attributes of local corporations appear similar to general equilibrium conditions. However, one of the main reasons for separating non tradable sector activity from that of general equilibrium (via time backed money), is to overcome the problems of budgets and insufficient services which are now becoming problematic in many nations.

Since time backed money would simplify assets and services into a single package, the monetary transmission which is involved would not be complicated. For instance, this form of wealth creation does not require purchases of assets on the part of central bankers, to take place. Instead, participants create new wealth through the purchase of mutual time value, through internally coordinated means. Local corporations would maintain ongoing records for time value, and provide accurate summations for central banks, in the same manner as traditional corporations.

What is Asymmetric Compensation?

For one, it's a term I have found myself increasingly referring to, in the last year or so. This form of compensation has evolved over long time periods, through the widespread use of money. Increasingly, asymmetric compensation has become associated with skills arbitrage in the marketplace. As money began to substitute for more specific forms of resource exchange, coordination capacity among ever greater numbers of groups became possible. Asymmetric compensation follows already existing wealth capacity, and is representative of wage and income in (recorded) general equilibrium conditions.

Asymmetric compensation is further defined by an emphasis on specific skills capacity, instead of aggregate skills potential. While it has been an incredible tool for spontaneous economic activity and societal progress, limits do exist - in terms of long term growth of organizational capacity (i.e. populations moving to cities). Asymmetric compensation is neither "good" or "bad", but simply incomplete as an employment response, when overall growth potential is in question. Indeed, when economic options start to appear limited during times of economic uncertainty, one unfortunate result can be zero sum thinking among political leaders.

Today, nominal income (and speaking as a market monetarist, the associated sticky wage concept) can be thought of as primarily asymmetric compensation. However asymmetric compensation is not a Wikipedia term, I adopted it as means to explain what could also be possible in terms of economic organization. Also, this post will serve as an eventual source of material, in additional links for a glossary page. The first two posts I wrote for the intended glossary are here and here.

Asymmetric compensation shifts the focus of time coordination outward, towards broader group settings than what were possible before the widespread use of money. Where local individual to group time preferences once prevailed, they have been supplanted with time coordination on the part of institutions which organize resource capacity on specific sets of terms. Economic freedom for time use and personal choice were the fortunate result, in that employment provided options to what had often become cultural restraints born of adversity.

In the simpler structure of tradable sectors, asymmetric compensation is also easier to determine, in that it originates from revenue derived from product which is completed and sold. Whereas, asymmetric compensation in knowledge based non tradable sectors, is not as easy to determine - particularly when revenue is obtained through redistribution and financial product. As a result, skills sets have been defined through the preferences of the groups associated with specialized knowledge use, as opposed to the skills which are readily adaptable for product which exists separately from time value.

Because employment patterns are related to non tradable sector definitions of production and consumption, labor force participation is affected in ways which - to a certain extent - can be slow to respond to monetary policy. As a result, some do not believe in Say's Law (full employment potential) as a viable concept. Regular readers know that I find Say's Law important, but believe that it would benefit from a marketplace for time value as means to generate more effective monetary policy. In particular, symmetric time compensation would also be more effective than fiscal policy.

Since non tradable sectors have been slow to allow production and consumption capacity to evolve, there are times when labor force participation can suffer. Just the same: when global growth is strong, a nation's existing labor force potential often has ready backup, in terms of income and employment possibilities. Reliance on preexisting wealth to generate further employment may not problematic under such circumstance.

However: when global growth slows (as is presently the case), asymmetric compensation as the sole means of employment, can pose problems. Due to the fact it is dependent on preexisting wealth, asymmetric compensation struggles to provide stronger growth or productivity, through fiscally created jobs or compromises in (existing) corporate structure. Hence the dilemma that nations presently face.

Tyler Cowen's Challenge: Get "Real"

How so? The way I read it, "real" in the sense of market monetarist persuasion, which could go even further than the rationale presented by market monetarists thus far. For instance, what real economy conditions have contributed to slower growth and tighter monetary conditions? How has monetary policy contributed to problems for the real economy? There are ways to bring more elements into the discussion, without using structural considerations as diversionary tactics - as has often been the case.

Yesterday, Tyler Cowen explained why he didn't feel that present market monetarist arguments were (quite) adequate. He also questioned recent posts from Lars Christensen re tight Fed monetary policy, which makes me wonder if Cowen has thought through the ramifications of a rising dollar on the global economy. For instance, in a recent post from David Beckworth re China, one commenter noted that tight money in both the U.S. and China has prevented the drop in oil prices from having the effects of a positive shock. Beckworth wondered whether these negative global wealth effects on oil, are currently being researched. One can only hope so, because this information is sorely needed right now.

The reason I find Cowen's challenge useful, is while I've been sold on market monetarist arguments for quite some time, I'm not sure they are enough to convince a public which appears to be in greater need of explanatory stories. Whether or not central bankers are following aggregate spending capacity (in different time frames), has real economy effects which I believe the average person could understand - given the chance. In the meantime, those "simpler" - but devastatingly inaccurate financial stories - are still "winnning the day" for both voters and policy makers.

Unfortunately, without pressure from the public (i.e. not just economists), central bankers may not be willing to adopt the logic of NGDPLT. A regime change for monetary policy becomes a greater likelihood, when economists and citizens seek to make it happen. Here are some of the responses to Cowen's arguments, from Nick Rowe, Marcus Nunes and Scott Sumner. And, from Cowen's post:

I would encourage market monetarists to define - now - how tight or loose monetary policy really is. Then stick with that assessment, based on whatever variables you consulted. 

If only it were possible to pin down a given set of variables and specific indications of lost output once and for all, to gauge a seemingly appropriate Fed response! There's a problem with this particular request, which also explains the rationale for following a level target rule. Economic conditions and circumstance are always changing. A level target would not leave real economic conditions in a "static" mode, but rather see to it that Fed responses (to changing conditions) are not a series of overreaction to supply shocks.

What would change with NGDPLT, is the present day lack of support for aggregate spending capacity. What has been missed by too many policy makers, is that a somewhat smaller level of damage has been ongoing, since the initial level of high destruction at the onset of the Great Recession. Meanwhile, marketplace capacity is still being lost in ways which aren't readily apparent in the employment statistics.

The need for full inclusion on economic terms is also a fairly recent historical development. This need for full labor force participation instead of redistribution, could explain why some remain unconvinced that faithful representation of nominal income really matters. However, there is an odd wrinkle in the efforts of banks to protect their own interests. When income representation is insufficient, this lack of marketplace support eventually boomerangs back to the banks, even though central bankers are bending over backwards to protect asset formation.

By far the most pressing issue regarding tight monetary policy, are the global effects which are being set into motion. Had policy makers been willing to encourage innovation (i.e. a broader marketplace) in non tradable sectors, tradable sectors would not be paying the price now, in terms of lost growth. The challenge for everyone concerned - not just market monetarists - is making certain that tight monetary conditions do not devalue worldwide wealth anymore than has already occurred. The nominal income of many a nation, depends on monetary stabilization at the international level.

Human Capital in Services Context

How well is human capital actually represented, in present day economies? Answers range widely, and depend on individual perceptions re how human capital contributes to wealth. This post also serves as a continuation from yesterday's post on aggregate time value, and is in part a response to some of the Wikipedia references below.

The Wikipedia post for human capital starts out reasonably enough:

Human capital is the stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value.

Note the emphasis of human capital as equated with economic value. In other words: individual (and group) sustenance which results from personal connections and existing resource capacity, has mostly given way to workplace viability. Even so, value in exchange (as workplace defined) with no corresponding value in use settings, means monetary compensation for only a limited portion of human potential.

It's a process that leads to decreased aggregate time value, which is starting to take a toll on monetary systems as well. There's too little room in today's economies, for time value as a point of arbitrage. Previously, value in use activity was an important part of organizational capacity, in many ways. Consider what losses in value in use activity could mean, now that this is paired with declining labor force participation in the U.S.

A marketplace for time value would not only reorganize human capital for (monetarily compensated) value in use settings, but also alleviate the problem of declining labor force participation. Time arbitrage would gradually assume a greater role, alongside the normal functions of monetary arbitrage. Ultimately - due to symmetric coordination - time based services would no longer be limited to third level or tertiary activity. Fortunately, there is no need for knowledge based services to remain completely dependent on fiscal policy, particularly in times of government austerity.

Time based services would become capable of first mover activity in the marketplace, on monetary terms. How to think about the organizational capacity, which is normally capable of first mover activity? Wikipedia defines services as tertiary, in a three sector theory. What I normally refer to as traditional manufacture or tradable sectors, consists of extractive and manufacturing industries, whose prominence has gradually given way to the wealth of non tradable sectors.

Even though services experienced tremendous growth in the 20th century, time based product needs to further evolve, so as not to lose its earlier momentum. Services capacity cannot rely on asymmetric compensation alone, especially now that global growth has begun to slow. Why did Wikipedia appear to assume that services wealth would remain ascendant over the first and second sectors? In all likelihood, the assumption that services growth could continue its expansion, was made prior to the changed circumstance which followed the Great Recession.

So long as international wealth capacity appeared certain, national governments were able to arbitrage the additional wealth of international asset formation, as well. These international wealth flows were what made fiat monetary policy a reasonable undertaking. But some are now questioning fiat money, and tradable sectors are being stressed as central bankers have refused to maintain aggregate spending capacity and nominal income. Should tradable sectors lose too much momentum, non tradable sectors might not be far behind.

Admittedly, preserving the wealth capacity of knowledge based services would take time. So much has occurred as a result of centralized fiscal policies, which now needs to be teased apart and put back together at local levels. Is it possible to do so? If enough of society is asked to participate in this project, the answer might just be "yes".

The Importance of Aggregate Time Value

Why is aggregate time value such a vital concept? It defines how societies think about social inclusion on economic terms. Prior to the mid 20th century, there were stronger family links between those who worked directly with local resources, alongside those who gained income from employment. Hence it wasn't always necessary to define time value on strictly monetary terms, to maintain connections with others through the course of a lifetime. As those earlier cultural links slowly faded, citizens became responsible for their own destinies.

This reality - a steadily growing need for economic self reliance - meant new challenges, as production became associated with cities and prosperous regions. Developed nations came to rely on a "consumption based economy" in order to provide services - a pattern which continues to this day. Knowledge based service sectors also developed in ways which proved incapable, of replacing earlier forms of societal coordination. As more citizens were expected not to assist others (marginalized, old and young), pressure only grew for those who remained employed, to somehow provide for the rest. Just as freedoms were lost for those who shouldered the burdens, freedoms were particularly lost for those who were no longer expected to provide.

Since the Great Recession, the worth of aggregate time value is becoming less certain, as policy makers debate whether technology could mean even fewer are needed in the workplace. What too many forget is the fact no society remains stable, when people lose their means to provide for one another. Monetarily speaking, aggregate time value is also nominal income. Are central bankers now hesitant to acknowledge the importance of nominal income, because they believe aggregate time value isn't important to maintain wealth? If so, they are wrong.

However, organizational capacity needs to be approached more directly, so that services product can be locally generated and acknowledged. Otherwise, present imbalances between time based product and other resource capacity in the marketplace, will only grow larger. Lest anyone forget, the human aspect of social exclusion also needs to be taken into account, and reduced wherever possible. Ultimately, reviving time value means believing that people can provide real help for one another, in those moments when institutions forget how to do so.

Fortunately, some of life's pressing issues don't always need an active response, in order to find resolution. This is not one of those times. If citizens do not act in the near future, there is a good chance that the strong growth trajectory which lasted well over a century (here in the U.S.), could be lost. Central bankers need to be more responsive to the monetary nature of time value, and citizens from all walks of life will need real means to contribute, as well. Money is freedom, and this is not the negative that some still imagine.

Hopefully these thoughts will contribute to aggregate time value, as one of the terms in a slowly evolving glossary page for the blog. Recently a friend suggested that I create one. Indeed, the project was already forming in my mind, so her encouragement provided further impetus for me to get started. There are times when I need to provide more concise explanations, for readers who are interested but don't have an economic background or perspective.

P.S. Aggregate time value as a concept is not complete without discussion of human capital. However, a Wikipedia reference for human capital, took a services approach which is quite different from my own, and I plan to respond in the next post.

Tradable Sectors are Doing the Heavy Lifting

Lately I've sought to pay more attention to "fine details". Is it just my imagination, or is the dialogue - which now includes the reality of negative interest rates - becoming more complex? Whatever the case, economic events around the world, are occurring at a fast and furious rate. It's a combination which has slowed down posting on my part!

In all of this, tradable sectors are expected to do the heavy lifting for the economy, in spite of reduced labor force participation (to buy these goods) and lower commodity prices due to tight monetary conditions. And even though negative interest rates could be likened to central bankers tossing a bone to tradable sectors, this isn't a very meaty bone. Tradable sectors may become quite thin if this is the only bone they can expect...

Tradable sectors should not have to shoulder the burden indefinitely, given present day restraints on long term growth. And table scraps from the government - should these sectors lose too many battles for aggregate demand - would be the worst Faustian bargain possible. In the meantime, how much "back door" liquidity would be provided on their behalf, through negative interest rates?  Only remember that front door liquidity remains closed, as the real central banker policy (IOR) contracts monetary policy by diverting much needed resources to asset stabilization. As Scott Sumner explained in a recent post, the issue is not that negative interest rates are "good" or "bad". Even so, they would certainly prove an inconvenience regardless of income category. Ah well you can't always get what you want.

As to the meaty bones of IOR - the ones which are being used in lieu of nominal income to stabilize non tradable sector assets, Bill Woolsey writes,

...make no mistake--the Fed's policy of paying interest to banks for holding reserves, is a policy aimed at keeping nominal interest rates up. 

Readers are well aware that I would rather see assets - and the natural interest rate - stabilized over time, with a nominal level target that would gradually restore marketplace potential. Few assets can remain secure until a level nominal target is maintained, so that income provides for asset stability at the outset. What is significant, is that the Fed finds present monetary reality a bit distasteful, even as central bankers try to disguise the fate they brought upon themselves.

Bill Woolsey also notes that for negative rates, interest rates are a price. It's not difficult to imagine the present price as reflecting the multitudes: patiently standing in line waiting their turn at life, due to imbalances between tradable and non tradable sectors which have gone untended for too long. While negative interest rates sometimes prove necessary, it is doubtful that many populations would be comfortable with them as a long term measure. This particularly concerns me, for too many recent Fed adjustments - when they do occur - are being treated as though permanent.

Regarding interest rate "pricing", Bill Woolsey also notes:

With interest rates, however, the relevant coordination is savings and investment. Saving is that part of income not spent on consumer goods and services. And investment is spending on capital goods. If the interest rate which results in saving and investment matching up is less than zero, then that is the right interest rate.

Even though investment is spoken of as high level (financial) activity, think how this perception is changing for the average individual. Today, some of the most heavily advertised "investments" include time and knowledge based services. These services, by extension, are "supposed" to provide the investment which leads to economic access - whether early in life such as higher education, or (possibly) later in life such as the "right" dental work. How much relevance still exists for the original rationale, given the fact investment is initially approached as personal improvements which might not pay off?

Hence the first set of investments needs real results, before the second investment group can be considered viable options. The problem for many is not that they aren't investing enough, but that initial personal investments don't open the door for "follow through" investment.

Yet the problem remains hidden, because this more recent set of investment expectations revolves around human capital. And human capital remains in the stranglehold of non tradable sectors. And since more seek economic access through investment in human capital than the marketplace can absorb, nations continue to move towards below zero interest rates. It's time to reverse this tragedy, with a marketplace for time value. Let's give the tradable sectors a break, and start the process of renewed growth.

Some Thoughts on Sticky Wage Considerations

Are sticky wages rational? Given the nature of sticky general equilibrium conditions, perhaps. Substantial compensation is expected, when sacrifice and extensive investment are needed to access high skill employment. Consequently: instead of attempting to roll back asymmetric compensation, a different approach is needed. Symmetrically arbitraged time value could generate a broader base of labor force participation over time, and generate more growth than general equilibrium conditions presently allow.

The challenge in alternative equilibrium is to "loosen" high skill requirements (and by extension, wages) for local groups which opt to use time value equally. Both wage and skill requirement "loosening" would gain assistance from "just in time" knowledge use, and active (i.e. not replicative) forms of knowledge product. By substituting time arbitrage for skills arbitrage, time value becomes an actual form of private property. Individuals would gain the ability to personally negotiate for time preferences in the workplace, instead of relying on outside groups to do so in their stead.

However I've gotten somewhat ahead of myself. The immediate concern is existing sticky wages and the extent to which they create negative effects for employment levels, now. Why isn't it possible to "unstick" wages, so as to increase labor force participation (and by extension, growth) in general equilibrium?

It can be difficult to create flexible wages, for the sought after work which is recognizably stable. Plus, these are the workplaces which anchor general equilibrium conditions. There are many interlocking factors which are taken for granted in general equilibrium, hence it is difficult to dislodge some without affecting others. Even though a wide range of jobs have become flexible in terms of time use and income, much of this is the more marginal category of gig employment. Consequently, this more readily available work is considered a temporary measure, until one becomes more fully engaged in the marketplace. Meanwhile, the line for full engagement continues to grow longer...

Relative to non tradable sector employment, tradable sector wages are less sticky because they are more responsive to pricing structure and market conditions. Since time value in tradable sectors is separate from finished product, both skill sets and time use in the workplace are easy to adjust or even transform. Whereas the time based product of non tradable sectors has been slower to evolve.

If that were not enough, non tradable sector activity remains a secondary market. Instead of generating wealth through internal means, knowledge based services rely on redistribution and other preexisting wealth. As a result, skills value became associated with political positioning, on the part of associations which manage knowledge product. These are the stickiest wages of all - the ones most in need of assistance from local corporations, to generate new supply and demand in the marketplace.

New marketplace capacity will also include new rights to produce, or put simply, rights to work. Previously, "rights to work" were sought in tradable sectors. Exceptions to right to work laws were carved out for non tradable sectors, in part due to the greater degree of time investment that was necessary for employment. For non tradable sectors, the issue was not so much one of providing "more" employment, but making certain that existing employment had sufficient protection.

Another aspect of sticky wages is continued pressure for rising minimum wage levels. Employment losses are not always obvious afterward, because of the degree to which further unemployment is shifted elsewhere. The recent closures of Walmart stores in rural areas across the U.S., provides a good example, how retail and restaurants may respond to higher minimum wages. As it turns out, the loss in this instance was not only that of jobs, but also marketplace capacity. Rural residents will now need to pay an essentially hidden price, in that they will need to drive further to access stores (or restaurants) which can keep their doors open after wage increases.

Notes on Endogenous and Exogenous Growth Factors

Endogenous and exogenous factors - while they are sometimes difficult to discern - impact growth potential in multiple ways. Recently, Nick Rowe considered endogenous and exogenous effects regarding immigrants in relation to total factor productivity. Two questions he raised I'll note here:

I wonder if TFP really would be exogenous to the sort of policy experiment I'm using my model for?
I wonder if social/economic institutions really would be exogenous to the sort of policy experiment I'm using my model for?

Institutions exist in both endogenous and exogenous capacities, and total factor productivity depends in part on how different institutions interact with one another - both locally and internationally. Family formation and knowledge/time based services are examples of endogenous institutions, while traditional manufacture and commodity wealth represent exogenous institutions. In particular, tradable sectors contribute to exogenous (international) monetary flows. However, tradable sector wealth tends to accrue in regions with already existing geographic and knowledge product advantages.

How might one think about endogenous and exogenous factors in terms of worldwide economic conditions? Until the Great Recession, developed nations were able to continue the growth of their local, non tradable sectors via connections to still expanding growth in tradable sectors around the globe. As tight monetary conditions now affect exogenous (international) wealth, the implications this also holds for endogenous wealth formation, should be more obvious.

What is being missed, is the degree to which endogenous wealth remains dependent on the exogenous wealth of tradable sectors. For instance, it becomes more difficult for nations to "come to the rescue" with fiscal policy, when international wealth (i.e. sources of fiscal revenue) is steadily losing value in the international marketplace.

No one should lightly dismiss the problems which tradable sectors are now experiencing. While non tradable sectors could ultimately generate growth capacity through more direct means, this process has not yet begun. In the meantime, tradable sector wealth has already begun to slow. Once these forms of production capacity are lost, they can take a lot more time to rebuild, than it ever took to lose capacity in the first place. And no one can safely assume such rebuilding would automatically occur!

Thus far (since the Great Recession) central bankers have mostly attempted to rely on stabilization methods which protect financial interests. But international economic conditions have gradually proven this approach insufficient. Meanwhile, as the Fed remains reluctant to maintain aggregate spending capacity, a too strong dollar is now depressing growth potential, internationally. An article from the NYT points to some of the confusion in this regard:

Did global output rise or fall last year? It all depends on what currency you use to keep track. Measured in dollars, global growth recorded the first drop since the end of the financial crisis late in the last decade, declining by nearly 5 percent, from $77.3 trillion to $73.5 trillion. That's largely because of the dollar's rise, which makes the output of countries with weaker currencies seem smaller when measured in dollars. But if you count in euros, growth soared by 13.6 percent.

Consider what has already occurred, in terms of further monetary tightening on the part of the Fed. As Lars Christensen noted in a recent post, the dollar embarked on a sharp rise two years earlier. This process has gone on mostly uninterrupted, since Janet Yellen's leadership role began in February of 2014.

Due to the dollar's appreciation - particularly given the dollar's additional role as a monetary anchor  - aggregate spending capacity worldwide has been somewhat diminished. While this is reflected in the recent worldwide devaluation of commodities, the problems don't stop there. A growing inability for developed nations to deal effectively with structural issues in their non tradable sectors, contributes to political and social polarization both locally and nationally. Also at stake, are broader questions regarding the capacity for long term growth.

One issue in this regard, is a lack of understanding how a nation's budgets work differently from either local or state budgets. National budgets in particular, tend to have have exposure to the international or exogenous wealth of tradable sectors. In a recent post, David Glasner notes that national budgets are not analogous to local budgets, and he explains: "In the intertemporal context, consumers have a given resource endowment but prices are not known." Potential contributions from exogenous forms of wealth aren't easy to determine (hence price uncertainty), given the fact they are shared by multiple nations for resource coordination potential.

The relationship of endogenous to exogenous resource capacity needs to be better understood, especially since the former has such a strong correlation with nominal income. The endogenous/exogenous relationship also has bearing on the ability of nations to maintain general equilibrium conditions, which in turn allows sufficient knowledge use capacity to continue on asymmetric terms. These are also the forms of sticky wages which matter most in general equilibrium, for endogenous non tradable sector activity.

Central bankers have fallen short, in part due to their inability to consider the correlations between endogenous and exogenous factors of aggregate wealth. As a result, they have prioritized financial stability over nominal stability, which only destabilizes the relation of income to existing equilibrium. This in turn has the effect of reducing asset valuations, and also the value of existing exogenous wealth. Which is vitally important, because maintenance of international wealth capacity, can preserve the primary links nations hold with one another.

Present economic circumstance are somewhat different than what existed in the Great Recession, because the main problems are more exogenous in nature. By way of comparison, the financial crisis included a lack of response to internal structural problems. Lack of resolution in this regard only contributed to current circumstance. In that central bankers believed they actually "took care" of the problems stemming from the Great Recession, this likely has bearing on their slow response and denial of the fact that little has actually been resolved.

What Prisons and Military Draft Rationale Have In Common

Both have served over time as ways to "contain" individuals, who may otherwise lack economic access. However, a draft free military nonetheless relies on volunteers from rural regions in particular, given the (present) lack of economic complexity in these areas. Many among the marginalized - wherever they are - have few economic means to prove themselves trustworthy, "useful" or possibly both.

While these are generalizations, I believe they still apply in part because of labor force participation rate circumstance such as this. Might today's greater numbers of unemployed youth, mean a return of the draft? Even though a NYT article looked at the possibility of a draft for women in the near future, the danger of a renewed draft exists for all involved, especially now that there is growing pressure to reduce prison populations.

Consider the timing of U.S. prison growth, which experienced broad expansion for nearly four decades. Prison growth gained momentum after the loss of the draft in the seventies. Prison containment was also a factor which reduced unemployment statistics for the U.S., in relation to other developed nations. Even though recent trends toward prison reform are surfacing, as Tyler Cowen notes from a recent Huffington Post article, the War on Drugs needs to be replaced with stronger and more locally driven economic engagement. Plus, the present rate of prison population decline is slow. At 1.8% per year, it would take 88 years for prison populations to return to their 1980 level.

Prisons also became a local response, for areas which found themselves too far removed from economic activities which were becoming centralized in the cities. In a sense, exclusionary tactics on the part of non tradable sectors have contributed to prison populations and the potential for the restoration of the draft in the U.S. Hence the ball is now in the court of today's non tradable sectors, to provide a counterbalance for a growing lack of freedom and economic uncertainty.

There's another consideration as well. How would governments propose to continue providing basic services for prisoners, the military, and others who are becoming marginalized, as limits to growth in non tradable sectors become more prevalent? When I looked on Google to find recent articles about lack of healthcare - for instance - multiple articles surfaced from the early days of the Great Recession. Hence I couldn't be certain, whether there has been overall improvement in services access since that time.

However, I did find several links which indicate ongoing problems - here, here and notably, here as well. It may be that Washington would like to see cutbacks in the prison system because of the lack of healthcare access that prisoners already experience, especially when healthcare for veterans has been on short supply as well. All of this, when healthcare provider limits are still emerging for the payers in today's system (Obamacare) who can bear the most financial responsibility.

Forgive me for one rant in this post, because it needs to be said. Where on earth is all that bountiful physician supply that people seem to imagine? And then there's this. What might these circumstance imply, regarding other marginalized groups whose access is in question? In the U.S. there are strong incentives, for rational individuals to avoid what has become the overwhelming burdens of physician responsibilities. Knowledge use systems would need to generate new means for supply and demand in healthcare, as one of their first priorities.

Hopefully, Washington will resist any urge that some policy makers have to reinstate the draft. Instead of viewing today's marginalized as an inevitable burden on society, it is time to ask for their help in rebuilding society and a stronger economy as well. It is time to find ways to bring the marginalized back into the fold, to generate new wealth and assist in the services they will need in the future.

Authentic Time Value

An important aspect of economic thought is scarcity (yes, even now), in spite of the fact recent gains in tradable goods "abundance" have their own story to tell. Even though time is the most important resource we all have, present day institutions are not well equipped to account for personal time scarcity. Fortunately, local corporations could eventually allow individuals to manage time preferences through mutual employment settings. However, personal time value will need to be carefully thought through, in order for this to occur.

Prior to the widespread use of money, people coordinated for time scarcities through their personal relation to existing resource capacity. Eventually, skills sets became more closely associated with monetary value rather than time or (other) resource value. However, this process (initially) occurred through asymmetric compensation, which gradually made it more difficult for groups to locally coordinate knowledge based activity.

Meanwhile, many skills sets (rather than time value) came to be thought of as private property, but this mindset also made it more difficult to achieve knowledge dispersal through those earlier means of social coordination. Much of the existing wealth of the present, greatly benefited from what had been more spontaneous forms of knowledge dispersal. As economies grew more complex, more skills sets gradually took on private property boundaries of their own. Individuals were increasingly expected to invest for what became chances of access to this new form of private property, rather than for knowledge use as a natural outcome of personal efforts.

This also made it more difficult to coordinate one's time investments with actual time use preferences. Time use coordination in personal and social circumstance, came to be directly correlated with whether one's time already had recognizable value on economic terms. As skills sets were increasingly disallowed in the marketplace unless one had social "clearance" for them, it became more difficult for the marginalized to improve their lot in life, and also for valuable knowledge use to play an active role in economic progress.

Before time value (in relation to resources) gave way to the designation of specific skills sets as private property, personal time use options included recognizable boundaries which backed one's ability to negotiate with others. Today, cultural expectations have grown more confused - not just in the sense of recognizable assistance in local group settings, but also in terms of time based coordination and expectations for family activities.

A marketplace for time value, would restore the authentication of one's personal time use options at an economic level. This would recreate more respectable boundaries for time use options, and allow individuals to more effectively negotiate for mutual assistance in all capacities of life. This is especially important for lower income individuals, who remain much too dependent on now fragmented forms of cultural expectations.

Too many of the earlier means by which individuals once assisted one another have disappeared, even as labor force participation has continued to decline. In turn, many individuals - in spite of attempting to follow rules that once provided economic inclusion - find themselves unable to prosper. Not having sufficient means of economic interaction is dangerous. After all, making oneself useful in the world, is the best way to protect both identity and survival. How many have witnessed this instinctual knowing even in the eyes of children, who are too often turned down in their attempts to assist adults with life's challenges?

The best part of time value authentication, is that a new framework for personal negotiation would be encased in a monetary, services based framework. Personal time use would once again be respected and validated as a form of private property, with recognizable economic boundaries for individuals and groups alike. One might reason that a marketplace for time value isn't really "necessary". But money as a stand in for both personal time value and other forms of resource value as well, would create a more understandable world.

When asymmetric compensation is the only way to reward time and skill, this process eventually leads to excessive replicative knowledge product and other bots, to do our thinking for us. I'm not sure humans are genetically wired to accept such dystopian results. It would be far better to face up to technological concerns while economic conditions still remain at a (relative) high point. Otherwise, the desire of many to escape technological realities they don't feel connected to, could mean the possibility of losing valuable knowledge and economic gains.

In a marketplace for time value, competition for mutually held time scarcities, would also set group coordination processes into motion. Those who develop high skill sets would be sought out, and the knowledge that their time is scarce, would impel local groups to prepare more of the desired skills capacity which individuals would gradually seek through the course of their lives. While this process would begin with pragmatic services needs, it would gradually generate stronger economic complexity, as local groups seek out more experiential forms of knowledge product. Today, experiential product remains held back, as societies struggle with a still growing burden of asymmetric compensation for practical product needs.

Might individuals "waste" their time potential in these settings? A certain quote applies, which if understood, would impel individuals to prepare for the long run. "Be picky with who you invest your time in. Wasted time is worse than wasted money." A marketplace for time value, would clarify this reality in ways that go well beyond the partially confused incentives of asymmetric compensation.

When General Equilibrium is Not Enough: Recession Debates

The recent supposed "normal" is not an inflation story, even though central bankers still use these threadbare descriptions that resulted from a different era of growth. Today's economic conditions also highlight a hefty dose of social and economic exclusion, which in particular don't do justice to inflation or Phillips Curve conclusions on the part of the Fed. Regular readers already know I don't find these aspects of general equilibrium framing to be sufficient, for the circumstance of the present.

When supply side factors hinder inclusion in general equilibrium, real economy factors emerge which - given the chance - can also initiate recessionary trends, such as occurred in 2008. As a result, circumstance in the real economy sometimes needs to be distinguished from the "recession as technicality" garden variety. The latter is the result of Fed overreach - particularly given excessive discretion, instead of a monetary framework which promotes monetary stability.

Even though the supply side factors of real economy conditions aren't responsible for recessions (statistically speaking), supply side factors do have the ability to strongly affect nominal growth direction - be that direction positive or negative. Plus, one does not always know whether better numbers reflect greater marketplace capacity, or simply more wealth capture. In spite of supply side shenanigans in this regard: what is at stake monetarily, is that the wrong Fed response (or overreach) exacerbates a given supply side "direction". For instance, David Beckworth indicated in a recent interview, how the latest U.S. recession was already underway before the Fed finally intervened, but the Fed made it much worse with an inadequate response.

How to think about the larger real economy conditions, which now impact growth potential in the near future? While I have serious issues with Robert Gordon's resignation about future growth, I must admit that the way Larry Summers sums up his viewpoint in this Prospect article, is one I have harbored for some time, due in part to my own family history.

Gordon's most compelling argument is that the greatest generation was also the luckiest generation.

Over the years, I've noticed that family members from my Dad's generation, usually didn't have the same problems with class polarization that now affect family members. In those historical moments when economic access is similar, there's also less need for anyone to judge. While some will still insist luck has nothing to do with it, my response is simply that general equilibrium conditions may no longer be sufficient for economic access. Those earlier conditions Gordon attributed to good fortune, existed in part because crucial elements of today's general equilibrium formation, were still being defined. As general equilibrium has become more exclusive, people will still play musical chairs, even in (statistically defined) non recessionary instances.

Nominal income factors extend well beyond the circumstance of the short run, which contribute to the nominal growth trajectory over time. What's confusing is even though central bankers influence long term growth through immediate action (especially needless destruction of supply side capacity), real economy elements determine the nature of the trajectory as well. Hence these reinforce each other in ways which move beyond simple calculations of recessionary periods. When market monetarists express the desire for a stronger growth trajectory, they are also promoting greater confidence in monetary policy and marketplace conditions. For instance, as Marcus Nunes indicates in a recent post:

I believe that even if there are no rate hikes in 2016, that will not be near enough to get the economy "unstuck"!...What's needed is a reversal of nominal growth expectations that translates into a reversal of actual nominal growth.

Where things get tricky in this regard, are the ways in which real economy conditions intersect with monetary policy conditions. Market monetarists stress the need to keep monetary policy dialogue as simple as possible, with a rule which would limit Fed overreach and overreaction. Ultimately, the long term growth trajectory does depend on supply side circumstance. Even so, that is no excuse which should allow anyone to get off scot free, by refusing to pick up the torch that is future growth potential. There are means to do so, which have yet to be explored. And those means include the fortunate possibility, of being able to overcome present day limitations in general equilibrium conditions.

Notes on Coordination Issues for Time Dependent Product

Not all product formation leads to the same economic results in the marketplace. And presently, economic capacity - in the broadest sense - still depends on whether product originates from tradable or non tradable sectors. Knowledge based product is largely time dependent, even though some aspects of services product will always be viable with little need of time or labor compensation. Granted, separately existing knowledge product (which is replicative) can reduce labor costs in budgets - a process which also smooths time based coordination difficulties for asymmetric compensation.

Even so, replicative knowledge is not sufficient, insofar as individuals experience knowledge as a truly valuable experiential or practical good. If a strong growth trajectory is to be regained in the near future, organizational capacity needs to make the most of time aggregates as a whole, instead of only utilizing the most skilled in the marketplace to generate replicative and non time dependent product. The most important forms of services provision are about individuals in relation to one another, not just individuals in relation to existing institutions. Monetary policy would also need to make this service product distinction, so that broad based  backing of local services creation would be possible.

Presently, the critical differences between time dependent non tradable sector activity, versus non time dependent tradable sector activity, are not being taken into account. As a result, product from both sectors is treated as though interchangeable. While interchangeability occurs to some degree for the higher income levels of general equilibrium, this process doesn't hold for small wage settings.

As a result, time based services for small wages and income, need additional coordination within a separately existing and time based continuum. Granted, one does not often think about the problems that occur when general equilibrium tries to "fold" in small wage capacity. Possibly the best example in this regard, are painful discrepancies for services coordination at lower income levels, in hospitals which constantly have to make hard decisions whether to even assist people who won't be able to pay for services.

Meanwhile, time based services product is still treated as though abundant, in spite of the fact that relative to other forms of wealth creation, asymmetrically compensated knowledge use will only become more scarce with the passing of time. And yet consider how Brad Delong defines an age of abundance in a recent article:

The challenges we face are now those of abundance. Indeed, when it comes to workers dedicated to our diets, we can add some of the 4% of the labor force who, working as nurses, pharmacists, and educators, help us solve problems resulting from having consumed too many calories or the wrong kinds of nutrients. 

Note the fact Delong doesn't distinguish between the real abundance of tradables product, versus the supposed abundance of purposeful application for economic time value, particularly in a time of declining labor force participation. The 4 percent of the labor force he cites for instance, is not equivalent in terms of actual marketplace capacity in the same sense that is true for agricultural workers. Why? Time based product includes ongoing economic activity in both supply and demand of time value. Delong continues:

More than 20 years ago, Alan Greenspan, then-Chair of the US Federal Reserve, started pointing out that GDP growth in the US was becoming less driven by consumers trying to acquire more stuff. Those in the prosperous middle classes were becoming much more interested in communicating, seeking out information, and trying to acquire the right stuff to allow them to live their lives as they wished.

Does anyone see some problems with Delong's assumptions? Too few are taking into account, a still existing dependence on previous wealth (particularly that of the now less "desirable" material stuff!) and government redistribution, to create the knowledge based services product which is now sought. In order for time based services to contribute to the "abundant" marketplace Delong imagines, they need a front row seat where it becomes possible to originate new wealth through knowledge use. There is no avoiding the fact that fiscal policy of the future will become mostly limited to the higher income needs of general equilibrium, and knowledge based services will need to be generated on more closely coordinated monetary terms for lower income levels.

This post actually began with some thoughts about recent efforts to expand liquidity through negative nominal interest rates. The comments section in a recent post from Nick Rowe, prompted me to retrieve an older post from Miles Kimball, in which he compared negative interest rates with an earlier strategy on the part of Silvio Gessell, for stamped money. Both represent efforts to increase liquidity which are sometimes difficult to provide, otherwise. I need to spend more time with these referenced links, but want to at least express some initial thoughts about the possibilities of a negative interest scenario at national levels, as opposed to the local levels which do not fully participate in general equilibrium conditions.

Coordination issues between time based services and other resource capacity would likely remain unchanged in national economy general equilibrium, through the sole contribution of negative interest rates. However, negative interest rates would allow for economic gains in tradable goods and stabilization of assets - both of which are no small feat. One problem would arise just the same, should governments expect to eliminate the use of cash, in that most finance costs are too high at the margin for those with small wages and income. If nothing else in these potential circumstance, groups with small wages and incomes would need to tend to monetary arrangements through locally managed means, to maintain economic viability.

While negative interest rates wouldn't benefit coordination for time based services nationally, local stamped money settings might partially fulfill this role, given the fact that this money would circulate within specific groups which already seek ways to coordinate time value among one another. This desirable liquidity component is quickly lost at national levels, however, where additional monies quickly enter the exogenous realm of tradable sector activity. Indeed, stamped money would need to note the difference between endogenous and exogenous wealth origin.

Non tradable goods and sectors are those most closely associated with income. Time value, knowledge based services and the assets which reflect them, are often the local environments in greatest need of stabilization. Fortunately, the stabilization of tradable sectors through negative interest rates in the short term (i.e. till more growth becomes possible), could also assist this process. In all of this, the environments which are most important for nominal stability, are those that are also endogenous and time dependent.