Wrap Up for May 2016

More than anything else this month, I've thought about missed production potential. In spite of the efforts of governments and private donors to support a time and knowledge based marketplace, there's no getting around the fact that asymmetric compensation - whether public or private - can only create a secondary (or beta) market. Until knowledge use is approached more directly, it will be difficult for nominal income to maintain a strong link with other forms of capital, in an age of automation.

Even though one could easily argue that time/knowledge based product is not "necessary" (in today's survivalist framework), time based product remains the most important contributor to longevity and experiential reality. Just the same, it has not been easy to categorize time based product. Unfortunately, when time based product is not considered separately from tradable product, experiential components become more difficult to quantity. This is when "results based" programs become all about taking care of public and private budgets, rather than coordinating the marketplace for actual human preferences in production and consumption of time based product.

Russ Roberts talks with Arnold Kling about his latest book, "Specialization and Trade: a Reintroduction to Economics"  http://www.econtalk.org/archives/2016/05/arnold_kling_on_1.html

"Ramos Leite says that while other countries also suffered from depopulation, in Portugal it started later, with the bulk occurring after hefty investment in road, power and water networks in the past two decades." (emphasis mine) I'm still trying to sort out how best to think about this occurrence, which is vastly different from rural circumstance in the U.S. However, given lower population densities in U.S. cities, it seems mobility issues might be more pronounced for U.S. citizens in general.
http://www.reuters.com/article/us-portugal-villages-widerimage-idUSKCN0XP1HC

"Trump is an extinction level event", claims this NY Magazine article, "Democracies end when they are too democratic". Regular readers know how I feel about this. With better understood separation between the coordination of time based product and other forms of product, direct democracy could coordinate economic options for time based product at local levels. Whereas representative democracy should be able to provide economic options to coordinate capital intensive infrastructure for tradable sector support, at national levels.

Timothy Taylor takes a look at U.S. healthcare spending in an international context.

City Hall's impact fees are one of the primary reasons, why builders aren't particularly inclined to build homes in a starter range.  http://blogs.wsj.com/economics/2016/05/05/how-city-hall-exacerbates-the-entry-level-housing-squeeze/?mod=WSJBlog

From an AEI article, "Increasing the employability of poor people must accompany job creation efforts", Angela Rachidi writes:

...a difficult reality is that in poor communities is that most most non-workers give reasons for not working that have little to do with the availability of jobs. In fact, less than 10% of poor non-workers (18-64 years old) report that they are not working because they "could not find work". Instead, most report being ill or disabled (32%) or not working because of home or family responsibilities (25%). 

In response to Rachidi, I also believe that incentive to return to the workplace means reestablishing the worth of time value, for those who might participate. When health is involved, one has to be careful that work commitments don't lead to extensive health setbacks, once again. Creating a mutual self support workplace would mean a process of exploration for all involved, as to what time based product might even consist of.

"Embracing Radical Localism", from Brookings

Time and again - and in nation after nation - central governments have failed to confront difficult social and economic problems, causing responsibility to informally devolve downward to cities and metropolitan areas. Yet official power has remained vested in central and state governments, primarily in siloed, anachronistic bureaucracies...which national political parties will willingly devolve official power to their rising cities so that the design and delivery (and even the financing) of solutions can happen closer to ground?

In 1900 Georg Simmel published "The Philosophy of Money". As noted in "The Mind and the Market":

In this and other works, Simmel explained how the development of the market economy made for new possibilities of individuality...Simmel reminded his readers that money allowed for the cooperation of individuals who would otherwise have nothing to do with one another...Unlike the guild, a "living community" that "included the entire person, socially, politically, and legally," modern life was based upon looser, more temporary associations, and demanding of the individual only a small part of himself"...As a result, the modern individual can belong to a greater range of groups, but groups that are looser and less encompassing. What Adam Smith had pointed out was "becoming true to a greater degree than even he had imagined: individuals were increasingly interdependent, but ever less dependent on a single group or individual. 

From Michael Bloomberg: "Here's Your Degree. Now Go Defeat Demagogues"

According to JP Koning, medieval money was a bit more complex than one might think: http://jpkoning.blogspot.com/2016/05/what-makes-medieval-money-different.html

Steve Horwitz provides a quick summary of Hayek's "Use of Knowledge in Society"

George Selgin, Monetary Policy Primer, Part 3: The price level
Part 4: stable prices or stable spending?
Part 5: the supply of money
Also, Interest on reserves and the Fed balance sheet and the recent youtube presentation

Lots of productivity tables included in this post, from Dietz Vollrath: https://growthecon.com/blog/More-Decomp/

An Econlog post from Scott Sumner, includes a link to an ebook, "Currency and Credit' by Ralph Hawtrey, and a Mercatus video which highlights Scott's rationale for his recently published book.

Lars Christensen notes the sharp slowdown in G20 money base growth, since early 2014: https://marketmonetarist.com/2016/05/15/the-verdict-from-g20-money-base-growth-money-is-tight/

David Beckworth recently presented a paper on the international impact of the Fed, at a conference on international monetary stability at Stanford's Hoover Institute.
http://macromarketmusings.blogspot.com/2016/05/the-us-as-banker-to-world.html

As Justin Fox emphasized, "Millions of Americans can't afford even the cheapest housing." http://www.bloomberg.com/view/articles/2016-04-18/what-makes-housing-too-expensive

George Selgin's productivity norm talk with David Beckworth: https://soundcloud.com/macro-musings/george-selgin

Almost all the good jobs created since the recession have gone to college graduates. http://www.theatlantic.com/business/archive/2016/01/white-working-class-poverty/424341/

From a recent post by David Glasner:"...cost is no less an equilibrium constant than price. Cost cannot be logically prior to price if both are determined simultaneously and are mutually interdependent." Glasner's reasoning also has bearing on any "presupposed" value for time in a knowledge use system setting. Indeed it is simpler to quantify time in relation to a mutual time use framework, than to determine time value in relation to otherwise random resource capacity. Even though time value needs to function as a constant in the sense of both commodity price and full participation, the length of time required to generate asset formation, would also depend on the initial description and characterization of infrastructure patterns.

Notes on Expanding Non Tradable Sector Horizons

Recently I finished the 1937 edition of "Economic and Social History of Medieval Europe", by Henri Pirenne. I enjoyed this book and it also provided an apt starting point for my summer reading, which will include the "Wealth of Nations" (in its entirety) by Adam Smith and some other classics.

Towards the end of his medieval history, Pirenne notes that nations were gradually assuming more prominent roles, which included loosening production restrictions placed on rural areas by the medieval towns and cities. Governments were inspired by the self contained organizational patterns of medieval cities, but wished to broaden what in some respects had become a closed economic framework. Hence one could categorize this national government "awakening", as a moment in time when increasing production rights also meant the expansion of tradable sector horizons. Pirenne's descriptions provided an interesting contrast to Jerry Muller's description of Hegel's rationale, for a growing state presence, in "The Mind and the Market".

Henri Pirenne provided a useful perspective, and he packed some important information into a relatively small book. For instance, he highlighted crucial differences between tradable sectors (including monetary flows) either intended for local consumption patterns, or the altogether different agenda of international trade. Even though the relatively closed economies of medieval cities provided more stability for (resident citizen) workers than the changeable cycles which international trade workers were exposed to, those patterns of stability were lost, once economic stagnation began to set in.

As nation states of the late medieval era gradually assumed greater roles, national governments also extended new privileges to rural areas. This process included a greater extension of production rights, which had been suppressed by medieval cities and towns that claimed those rights for their own citizens. Even so, the impetus for doing so was not solely based on a free marketplace ideal.

Rather, broader private property designations would strengthen national consolidation of economic power, through greater quantification of resource use. Even though it's easy for libertarians to be cynical re certain aspects of private property origination, negotiations such as this were nonetheless a win-win, for the flood of economic activity made possible as a result. The gradually emerging national governments knew they would gain from increased total output, by granting production rights to those who were struggling to participate in a changing economy.

Given what was made possible for tradable sectors centuries earlier, why not production reform for non tradable sectors in the present? Indeed, the primary argument against broad innovation for today's non tradable sectors, is that production rights (for rural and other areas) would need to be accomplished without diluting the value of the non tradable sector wealth now enjoyed by today's prosperous regions. Fortunately, by creating an internal loop between asset and time based services formation, knowledge use systems should not pose a problem for the non tradable sector wealth of prosperous areas. Still, knowledge use systems would not form a closed economic framework in the sense that was once the rationale of medieval cities and towns.

Production rights (for the alternative equilibrium of knowledge use systems) would hinge on the ability to quantify time value for services creation and asset formation. Why would any national government consider this possibility? By far the most important incentive for doing so, are the looming long term budgetary concerns which have yet to be addressed. Presently, there is no relief in sight, for the 21st century burdens of national responsibility - especially given the reality of economic stagnation.

By expanding non tradable sector horizons, governments could finally respond to what has become a growing lack of economic access - one which many nations face to varying degrees.  I don't particularly recommend production reform for today's non tradable sectors because it's the humane or moral thing to do. Nevertheless, my approach to reform must seem a bit dry, to some readers who are more accustomed to the arguments of the heart. I remain convinced just the same: addressing economic access is the economic thing to do.

Production Rights Versus Consumption "Rights"

If only it were possible to connect the dots, between so called consumption "rights" to healthcare and education, versus a far more logical framework of production rights in the marketplace. In a recent Dissent magazine article, Patrick Iber and Mike Konczal ask:

Should healthcare and education be rights, or products that those with enough money can purchase in markets?

Iber and Konczal also referenced the additional services gains which occurred after the Great Depression. However, it helps to remember that much of the twentieth century wealth - as it once existed - has basically been tapped, while today's wealth holdings are greatly changed. For instance, some of today's most important wealth holdings involve knowledge based product. Much of this wealth has little to do with increased gains in scale, such as tradable goods production once made possible. What's more, other aspects of today's wealth exist in the relatively passive holdings of housing and retirement accounts. For instance, as Timothy Taylor noted:

It used to be that most US corporate stock was held by taxable US investors. Now, most corporate stock is owned by a mixture of tax-deferred retirement accounts and foreign investors.

Again, governments are trying to find more money (more promises of consumption "rights" in education and healthcare?) from revenue sources which are already highly distorted from earlier subsidies and handouts. Barring any further consumption promises, governments still disregard the slow motion budget train wreck of earlier consumption "right" promises. The only real beneficiaries in all of this - the ones most responsible for today's fragile civilization - are those who benefit from purposely limited production rights.

What's wrong with this picture? Besides the civilizational aspect (cough cough), progressive hopes will be dashed, since non tradable product is a completely different dynamic than the expansive wealth of twentieth century tradable sectors. In other words, the supply of time/knowledge based product is possible, only insofar as society elects to make it possible. Nothing of this sort has yet occurred. One cannot grant consumption rights to a time based product which in relative population terms, scarcely even exists. Indeed, consumption rights are never truly possible, except in temporary supply side conditions. In fortunate circumstance, production rights are - at the very least - a possibility.

The hidden and somewhat confusing nature of today's wealth creation, represents a danger zone for any nation which might attempt fiscal measures to address inequality. Even though many nations would not allow substantial inflation to occur (this time), some political candidates - and I'm not convinced it would strictly be a progressive national leader problem - will nonetheless attempt to "promise the moon" to their preferred constituents.

Inequality that results from the limitations of time based product, is a problem which extends across the entire spectrum of supply and demand. Hence it can only be addressed by the creation of more time based product. Remember that arbitrary limits on production rights, have also meant limits this time on housing and access to the regions which continue to prosper. Should nations choose to generate more production rights, they would make possible a broader and stronger marketplace foundation.

But what happens, if policy makers and the elite choose instead to continue limits on the production rights of time/knowledge based product? Should policy makers and leaders decide to pursue "greater equality" in today's mature general equilibrium conditions, they may attempt to do so with little increase in inflation. But what if private interests become spooked just the same? Bad deflation could result, such as Taiwan is now experiencing. While I understand the desire to address inequality, this time - in the 21st century - inequality needs to be addressed on supply side and monetary terms.

My Biggest Concern

I'm afraid we're losing our perception of what a diverse and truly desirable marketplace actually consists of. Also, we appear to be in danger of losing the vitality of the one which still exists. There is a certain amount of over confidence in particular, regarding the ability to maintain strong economic conditions in spite of lagging labor force participation and excessive requirements for access. Equally concerning, are growing negative reactions to capitalism as concept - most of which are actually reactions to the forces that threaten to destroy true marketplace freedom and economic mobility.

Even though no major economic depression has (yet) occurred in my lifetime, sometimes I'm still reminded of the last one. Yesterday, while sitting down to sandwiches and some fresh vegetables, Dad recounted a memory from 1932, that was triggered by a jar of Miracle Whip dressing on the table. Perhaps his recollection would not have been so vivid, were it not for the unfortunate combination of depression circumstance alongside an unexpected hurricane in the coastal town where they lived at the time.

That storm took place well before the days of what one might consider sufficient advance preparation. Everyone - including some less fortunate neighbors - was lucky indeed that the old wooden frame house was not blown apart. Instead, during the storm, it fell off the block supports which were underneath. For days afterward, there was no electricity or gas. Meanwhile, the only meals for the kids were a loaf of bread and - yes - the aforementioned jar of salad dressing. "I couldn't eat Miracle Whip for a long time after that! Times were hard.", Dad said. Then he mused, how on earth did Grandpa get by without coffee?

It's too easy now, to assume that high levels of social unpreparedness are no longer a problem for most populations in developed nations. But is this really so? Multiple systems of social coordination appear to be slowly breaking down. Each time something negative occurs, people react to the results of the problems that weren't previously resolved, instead of responding to issues as they present themselves.

There is too little recognition of the mutual responsibilities between government and private interests, which would otherwise help people maintain the liberties and freedoms they take for granted. Private interests use governments to destroy competition, while governments continue to maintain infrastructure expectations that were based on historic high points of tradable sector revenue.

As a result, young individuals are increasingly priced out of the very places where they would normally expect to begin their lives as adults. I can scarcely imagine how difficult life would have been for me, if I had not been able to gain good work while starting out in the seventies - even without the completion of a college degree. There is no comparison for those attempting to enter the workplace now. Even though there were periods when unemployment was high, the levels of economic access were still far greater for all concerned.

We need to rethink how it will be possible to work with one another in the near future, and closely consider what it takes to maintain our personal freedoms. I fear that our political representatives have lost the ability to coordinate the resource capacity among populations which would allow the gains of recent centuries to remain intact. This political season only illustrates how high the stakes actually are, in terms of an economic and social trajectory that is anything but normal. I know it's not easy to think about economic basics when everyone is in a state of reactionary fervor. But there is simply no other time to do so, because the next election season always overrides anything else that is going on. It's time to back up and reassess our situation while we still can.

The Economic Problem With Technocratic Rule

Perhaps we shouldn't be surprised - what with today's political "silly seasons" - when some authors suggest democracy is outdated, hence it's time for a change. Arnold Kling in a recent post highlighted a new book,"Against Democracy" by Jason Brennan. From the review:

Brennan argues that democracy should be judged by its results - and the results are not good enough...democracy is the rule of the ignorant and the irrational, and it often falls short. Furthermore, no one has a fundamental right to any share of political power, and exercising political power does most of us little good. On the contrary, a wide range of social science research shows that political participation and democratic deliberation actually tend to make people worse - more irrational, biased and mean. Given this grim picture, Brennan argues that a new system of government - epistocracy, the rule of the knowledegable - may be better than democracy, and that it's time to experiment and find out.

Some of Kling's commenters were glad that Jason Brennan had written a new book, nevertheless weren't happy with the gist of his argument. One noted, "I was initially excited...However as soon as I learned he would like to see democracy replaced with rule by arrogant technocrats, I despaired."  From another response, "Indeed, although the cynic might argue that this is already the situation we have. If so, the question remains whether it would be for the best if this truth was formally acknowledged."

"Democracy is outdated" arguments have multiple dimensions, and the best way for me to respond is that a world without democracy is also a world where many would gradually lose their economic freedom. Without sufficient rights to create product for the marketplace, social and political freedom would suffer as well. Alas, the task of "proving" democracy's worthiness is beyond my time and ability. However, I'm concerned that a technocracy such as Brennan prefers, would not lead to a good economic outcome, especially in a mature economic equilibrium that needs to further evolve.

Presently, some among the elite - regardless of ideological motivation - are united in their desire to maintain production rights as they currently exist. This motivation has resulted in marketplace limits which are not only difficult to overcome, but would likely worsen if not addressed, soon. Even though knowledge use limits aren't necessarily problematic for the resource management of tradable sectors, they are, for non tradable sector formation. Why the difference?

Tradable sectors greatly contributed to marketplace expansion, because of earlier gains in scale. Product that is mobile in nature can always be replicated, even though less employment may be needed to make it happen. Whereas less employment in non tradable sector formation, only leads to less knowledge/time based product in aggregate. Less participation in non tradable sector employment, means less marketplace capacity in terms of both supply and demand. If a lack of time based services employment were not problematic enough, these lower employment levels are reflected in insufficient housing formation. This helps to explain why technocratic preferences for knowledge use limits, means limits in total marketplace capacity and output.

In short, just because a knowledge wielding elite may be smarter than the average voter, does not mean they would be naturally inclined to deliver the economic results that nations need. Indeed, if more citizens were given the chance to use the knowledge which has become so important in their daily lives, perhaps they would not appear so "stupid"! One can only hope that arguments to limit personal freedoms, will not win the day.

Instead of taking away citizen responsibility, it's better to let citizens know what is really at stake, and doing so is all the more important now for governmental budgets, pensions and retirement expectations. Today's governments need the help of all their citizens for long term growth, if they are to overcome the natural inclinations of special interests to divide the spoils of economic stagnation.

Economic Time Value is a Perishable Commodity

Of course, all time value is a perishable commodity. However, economic time value deserves special consideration, in part because of today's general equilibrium demands on the part of non tradable sectors. Unlike the majority of other resource capacity, the time we "spend" on anything, is time we can't regain. Yet the fact time is a perishable commodity is often missed. Indeed, one's personal time use options get little respect, if and when they aren't backed through monetary representation. Fortunately, we have the potential to make time value count on economic terms - a possibility that should not be lightly dismissed in an era of automation.

Some would say that time value is a precious commodity as well, and I agree. That said, precious is not to be confused with exclusive, which defines the nature of asymmetric (partial aggregate) compensation for time value in general equilibrium. Exclusive is that which has been "proven" in terms of personal stamina and worthiness. When we arbitrage for skill preference on general equilibrium terms, we lose the ability to arbitrage for aggregate skills capacity. The primary inequality in all of this is not one of general resource use, but of lost aggregate time value which is now beginning to impact nominal income levels.

And even though the broader compensated mutual assistance of time based product would not always appear as though "precious", that does not change the fact everyone spends time in personal effort with others that cannot be regained. In other words, time availability for productive and economic endeavor is the ultimate scarcity. This is important as a reasoning base, for compensating mutual assistance as a basic commodity good. Further, more that is truly precious can be found, in a marketplace for time value capable of greatly expanding the definition of practical and experiential time product.

For anyone who needs the full economic value of their their time as a starting point for personal responsibility, mutually compensated assistance would serve as a social contract - one which could help populations preserve the broad economic gains of recent centuries. By defining time value as a perishable commodity GDP component, the economic role of time value could address today's confusion, regarding long term growth potential.

Lost time value is all the more evident, for youth who consequently have few means to accumulate assets for future goals. In particular, arguments against childhood labor which gradually prevailed in recent centuries, are a mixed blessing. While formal schooling is valuable up to a point, childhood mandatory schooling does not correlate with the kinds of learning that provide either the most practical life skills or personal challenges.

The separation of children and young adults from the marketplace has gradually led to diminishing returns. Part of the confusion in this regard is the nature of labor itself - little of which is "hard" in the same sense as that which took place centuries earlier. Hence today's students have been expected to spend years on efforts which have little economic/social reinforcement or impact with others. The result is like trying to build a strong net, but through the early years of net building, not allowing the strands to connect with one another.

If education is to contribute to future economic gain, policy makers need to recognize time value as the perishable commodity it actually is. Years spent sitting in dutiful rows taking notes, is time that could have been spent applying the fruits of education and exploring them on terms that make sense to one's spirit. A quote attributed to Benjamin Franklin illustrates the much needed integration of education with daily life, quite well:

Tell me and I forget, teach me and I may remember, involve me and I may learn.

Involvement is not a matter of classroom respect on the part of teachers and students. Involvement won't count until students are monetarily compensated for assisting their peers, on terms that allow them to coordinate the process among themselves. Until young people are able to do so, the belittlement of one another, the crude imitation of the meritocratic and hierarchical structure of their elders (i.e. "I'm at the head of the class, she's at the tail"), will only continue. No one can afford to keep pretending that the "important things in life are not about money" (especially for purposes of national accounting!), when absolutely everyone recognizes money as a life structuring priority for obvious reasons.

Even though there is a humane aspect to bringing economics and money into the social mechanism of mutual support, rationale also exists for doing so at a broader level. Specifically, by treating time value as a perishable commodity for purposes of GDP, it becomes possible to support the present evolution of production capacity not just in the sense of technology for tradable sector potential, but also that of non tradable sector potential. By bringing time value into the realm of long term capital gains, societies may gain the confidence to free the productive potential of environmental design, as well.

Some Rationale for Production Reform

Production reform would give individuals the right to produce, or the right to design and create product for themselves and others in specially designated settings. One's ability to take part in product outcomes can be more effective than a fixed income level - especially for anything that gets used in regular consumption patterns. Greater participation in local production/consumption design, could help prevent the distortions that often occur with minimum wage requirements in general equilibrium conditions. Production rights would also mean being able to respond and adapt to the constantly changing nature of resource patterns.

Granted, production reform is more of an issue for non tradable sector activity, than that of tradable sectors. With some exceptions, many forms of tradable product aren't perceived as "necessary". Hence tradable sectors have experienced fewer production restrictions, than non tradable sectors. Many technological gains in recent centuries, are due to the freedom and flexibility of the tradable sector marketplace.

Production options for non tradable sectors - particularly housing and time/knowledge based services - became severely constrained by comparison, in the twentieth century. Even though municipalities continue to prefer traditional housing, they are less able to provide it for lower income levels, which lack the resources necessary for new infrastructure costs.

Since lower income levels (thus far) face requirements to purchase the same professional services, housing and physical infrastructure as others, that means less discretionary income in aggregate, to support the tradable sector activity which is everyone's economic growth base around the globe. Yet lost retail opportunities are only the tip of the iceberg, as fewer individuals remain able to form families, own property or otherwise maintain an active presence in the marketplace.

Even so, it's not just the plight of lower income levels, which has led to more fragile economic conditions, of late. Why? The burden of today's non tradable sector organizational patterns, falls equally on citizens and governments alike. Despite the fact governments still tap into vast revenue sources, the monetary flows necessary to fulfill non tradable sector responsibilities have become too unbalanced, in relation to other existing resource capacity. Production reform is needed for non tradable sector activity, in order to provide economic stability well into the foreseeable future.

Consider some "big picture" factors in this regard. Too many pensions are becoming an endangered species, even as municipalities continue to come up short in revenue for infrastructure maintenance. And a recent Bloomberg article provided an apt reminder, why more sustainable services formation is needed in the near future:

A 65-year-old couple retiring this year would need 57 percent of their Social Security payments just to cover their health-care expenses. For a couple 10 years younger, with plans to retire in 2026, that jumps to 88 percent. For a 45-year old, it's 116 percent.

At this rate, how would any Social Security be left for retired individuals to provide the taxation necessary for the local municipalities in which they reside? Let alone anything else, especially for a 45-year old? Or...if pensions can't be relied on as a fallback (for Social Security) to continue paying property taxes, what is? Does anyone really wonder why a 68 year old woman was glad to be able to "pass into the eternal love of God", instead of having to vote for either Clinton or Trump as the candidates to remedy domestic concerns? God knows I wish my outlook were as positive as that of Deirdre McCloskey, but the facts of recent years suggest otherwise.

All the more reason, why I stressed in my last post that innovation needs to take place across multiple disciplines, so individuals and governments alike might regain the capacity to coordinate their ongoing responsibilities. Only consider the legal dimension, which in some instances can derail low income levels as surely as any health crisis. Alongside the need to directly confront unemployment issues, is the equally large issue of bringing aggregate resource capacity into better alignment - regardless of public or private labels.

Thus far, political factions do everyone a disservice by pretending these problems are all about victims and aggressors, instead of confronting system imbalance problems head on. Among other glaring discrepancies is the "maker taker" reasoning, which would turn everyone into a "loser" if they have not maintained economic access. It's time to back off the hysterical judgments, for too few now hold the vital production rights which continue to destroy time value on the part of everyone else. Governments have already tried to make up for extreme differences in time value, for too long.

Lifestyle Illusion is Stagnation's Best Friend

Why so? Often, it comes down to how we believe we're supposed to live and act, which stands in the way of innovation's greatest potential. Even though I've not often defined "lifestyle illusion" specifically, it deserves inclusion as an eventual glossary term. As a blogger, I remain convinced that today's economic stagnation is almost entirely due to cultural and social perspectives. It's not particularly problematic for everyone to live and work in resource intensive construction and rely on specialized professionals for most important knowledge use needs, so long as economies are strong and growing. But when economies falter, it's time to reconsider, what are beginning to become luxuries in that regard.

Essentially, lifestyle illusion stands in the way of productive capacity, which would otherwise extend marketplace formation and benefit millions. Instead of real innovation, most of what is now suggested in its place, adds additional options for higher income levels. Even though more product differentiation may result, little of it has proven capable of expanding economic access or greater economic viability.

There's another important aspect of meaningful innovation as well. A mature economic equilibrium requires a sufficient response to take place on multiple dimensions, i.e. a series of interlinking networks. Unfortunately, meaningful innovation is no longer the matter of a single response to existing circumstance, but the ability to generate new sets of conditions that work in concert with each other. The lack of this kind of response thus far, helps to explain why general equilibrium is becoming fragile, as economic access is limited both by monetary tightening and structural rigidity in nations across the globe.

Stagnation is often a result of populations not knowing how to respond, when a given set of general equilibrium conditions (and resource allocation patterns) has matured. Policy makers are especially reluctant to deal with root factors which could alleviate the situation, this time. Meanwhile, as one political candidate in the U.S. pretends she'll bring more people into general equilibrium conditions, another remains convinced that it is still possible to do so. While this approach has proven effective in the past, the combination of today's regulatory environments and existing budget obligations, make it unlikely now.

Another common response: "nothing can be done, so just deal with it". However, there's a real problem with this form of resignation. No population will wait for very long, before they begin shifting resource allocations, in response to an inadvertent zero sum environment. An interesting example comes from "Medieval Households" by David Herlihy. In the early Middle Ages, existing resource allocation was fairly abundant, hence property was generally passed down to both male and female heirs. It was only as existing resource patterns gradually matured (over a period of centuries), that more groups responded by reducing property ownership for women whilst giving them stronger marriage roles.

Only consider the "new equilibrium" circumstance offered by New World settlement, which once again broadened property ownership patterns. Even so, it is today's extensive housing requirements which mean hard compromises for family heirs regardless of gender. Hence the reality of property which simply can't be divided - due to the illusion this way of life is "necessary" - means a continuing problem for asset management among family members.

Lifestyle illusion also revolves around the notion that some forms of service participation are not "desirable" (hence the struggle for high income service employment), while other sets of knowledge based services need to be protected so as to preserve income for those who now participate in them. From a recent post by Scott Sumner, Gregory Clark's review of Robert Gordon's recent book echoes this fatalism:

The core of Gordon's pessimism about future technological advance is that the modern U.S. economy is now heavily based around services, accounting for about 80 percent of output. Manufacturing, traditionally a sector with higher efficiency advance, has shrunk to 12 percent of the economy...A surprising share of the modern jobs are the timeless ones of the pre-industrial era...Even outside services, we can find jobs with no gain in productivity since the Industrial Revolution. Builders price books in eighteenth century London show the rate at which bricklayers laid bricks in house construction. In 1787 this was 75 bricks laid per hour. For modern England the rates are lower, 225 years later, at around 50-70 per hour.

The last part of this quote is particularly stark. Why is anyone concerned about how fast individuals can lay bricks, given technology's ability to completely transform living accommodations and building components? The heavy resource use that populations continue to rely on for almost all development, only illustrates how lifestyle illusion has seemingly upended the possibility of bringing non tradable sector activity into the realm of reality.

When populations reason that a given lifestyle is the only one possible or desirable, they end up struggling to maintain their own position in a suddenly stagnant economic reality. Unfortunately, the innovations that were needed most, came to represent a threat to the special interests which grew rich because of the ways they themselves contributed to lifestyle illusion.  And when civilizations attempt to remain in place, everyone becomes relentless in securing their own gains. Historically, time and again, civilizations have taken too many steps backward when this has happened. Like many, I grew up believing that the fact we were taught about historical atrocities was enough to prevent them happening again. Turns out that was quite false. People need economic means, so as to not repeat them. As Edmund Phelps summed up in a recent post:

It is the impediments to adaptation and innovation - not fiscal austerity - causing our stagnation. And only renewed dynamism - not more fiscal irresponsibility - offers any hope of a durable way out.

Merit Compensation: Some Nominal Income Considerations

Merit based compensation can also be thought of as asymmetric compensation for skills arbitrage. And it's not always possible to coordinate for a complete services marketplace, when economic activity relies mostly on relationships between resource aggregates and preferential skills capacity. Merit based employment also affects sticky wages, which can lead to further unemployment in recessionary conditions. While asymmetric compensation makes it possible to coordinate some time based services markets at national levels, it can't provide full employment capacity for many sought after time based services.

Nominal income results from both tradable and non tradable sector activity. Tradable sectors are more responsive to market conditions in the short term, because this form of nominal income adapts to ongoing changes in aggregate output. When tradable sector wealth dominates in a given economy, links between time value and resource use can be easier to follow, since the asymmetric compensation involved, directly accrues from marketplace product.

However, the relation of time value to resource capacity isn't quite so simple, in today's non tradable sector employment. In some respects, non tradable sector activity is slower to respond to market conditions, while possibly more responsive to price levels than changes in aggregate output. A number of factors contribute to the difficult to quantify nature, of today's non tradable sector income aggregates.

For one, non tradable sector compensation does not readily correlate to actual product, hence pricing is often politically determined. Since much of non tradable sector income is dependent on a fiscal transmission mechanism, coordination takes place according to available revenues, which in many instances are not immediately obvious. Hence compensation for time based non tradable sector activity, does not exist in direct relation to tradable sector marketplace capacity. Even though service sector activity has outpaced tradable sector activity in developed nations, consumption preferences are highly skewed, due to the non linear nature of this marketplace as compared with tradable sector goods.

As the services marketplace of non tradable sector activity grew, so did its dependence on tradable sector revenue. What no one really knows for certain, is the degree to which governments are still able to provide employment on asymmetric terms, when less revenue is available for ongoing obligations. Are governments meeting budget priorities by substituting other forms of capital, for income compensation?

And if so, would this circumstance have bearing on the gradual loss of nominal income - albeit in slow motion? While one often thinks of the private sector as substituting robots, technology or non time related knowledge product for employees, there's a good chance this process shouldn't just be thought of as a private sector phenomenon.

Even though some forms of non tradable sector product will always be difficult to quantify, time based product can still be locally generated and quantified on more understandable terms than is presently the case. Given today's budget constraints, governments do not always get the choice as to which time based product is best to support, given the way their obligations have grown in recent decades. And what governments provided in the twentieth century, is not always immediately recognized as a valid market on private terms.

The present relative decline in nominal income levels, is just one reason why knowledge use systems are needed. These systems could act as a gradual relief valve for overly monetarily tight conditions, by increasing growth for time based product which could be better quantified locally. By including time based wage compensation alongside merit based compensation, governments would ultimately be able to move nominal income back into a more positive direction.

New Corporate Structure and the Stop Loss Contract

Often, success is presented as a matter of grit or perseverance. But when does one actually try "too hard"? Tim Harford explained "grit" in a way which - unlike other online discussions in recent months - gave me a chance to relate this topic to my own life circumstance:

The odds are you won't know when to quit. The truth is that there are no foolproof methods for knowing when to hold'em and when to fold'em. 

According to Harford, psychologist Angela Duckworth " has plausibly argued that grit is more important than talent, in predicting a successful life." He continues:

The idea is appealing in principle but one must ask what Duckworth's brief "grit" questionaire is measuring. (Perhaps I am just sore because I took the questionare and discovered I have less grit than the average marshmallow).

He made me laugh with that last observation! But his humorous point is an apt reminder of the importance of the cards one "holds" in the first place, for the game of life. Consider personality, for instance. If this attribute isn't necessarily an ace, at the very least it's a king or queen. Some of us lack communication skills (cough cough), hence may end up in repetitious cycles, trying to make up for what is really an initial shortcoming.

Just as Tim Harford explains, loss aversion is a real problem, for not knowing when to quit. It will cause individuals to persevere on a chosen course of action, long after it is logical to continue doing so. I realize now how unsettling the "grit" discussion can be. Progressives and conservatives alike built (and benefit from) a massive edifice everyone needs to scale, in order to gain economic access to general equilibrium. But while progressives may remain convinced "grit" means an ability to reach the ultimate economic goal, conservatives are more likely to say, no, there is precious little room left.

Loss aversion turned out to be a substantial problem for me in earlier business ventures - not once, but twice. Both times, I had the option of selling my retail business inventory to others, only to turn them down. Why? I enjoyed the work so much, that it was worth whatever risk I had to take, to maintain what was also a lifestyle preference. And I craved a workplace which allowed me to partially make up, for the social interaction that was getting progressively harder to find as I aged.

As a result - among other things - I finally lost the majority of the inventories which mattered to me most: at least thirty thousand non fiction (and some fiction) books, along with a sizable fraction of songbooks. The first loss was almost twenty years ago, the second just prior to the beginning of this project. More than anything else, those losses hardened my resolve to find better methodology for stop loss potential. From Harford's suggestions:

...look resolutely away from sunk costs and towards future prospects...persevere flexibly rather than stubbornly...view decisions as experiments.

Harford encouraged me to pin down some legal specifics. Can any institution help to make up for the fact we simply don't know when to quit trying, to "call it a day"? Once, bankruptcy provided means for individuals to start over, but much of the remaining flexibility in this regard is intended for corporate structure, rather than the economic life which involves individual effort. A new institutional structure is needed, which could make it possible for individuals to start over - when necessary - from an economic position of still remaining relative strength. Otherwise, society ends up supporting too many individuals who had more than a chance of supporting themselves, given means to do so.

Greater flexibility is particularly needed for property ownership. Populations are entering a period in which the idea of product is gradually evolving, from the production of "stuff" to the production of what is often time based knowledge use. Yet today's costs for knowledge product are also associated with rigid requirements in both building components and infrastructure, in general equilibrium settings. And in contrast to earlier forms of factory precision (extended to schools and hospitals) which required large groups to come together at the same time, today's services structures would benefit from individually designed and dispersed activity - both spatially and in terms of time use. Such changes in production and consumption for service product, could also point the way towards more carefully thought through ownership patterns.

New corporate structure needs greater flexibility for land use options. Those who participate, would benefit from property use potential that isn't crippled by the decision making processes of competing owners - especially those of family co-ownership. It is particularly difficult for lower income levels to manage the legal maintenance necessary to coordinate co-owned assets. Greater flexibility in land holding is all the more important, since family structure now serves mostly consumption functions instead of production functions, at all income levels.

Consequently, property holdings in knowledge use systems would be individually based, through existing contractual arrangements between individuals and communities for mutually desired economic outcomes. Think of it as a process of communities once again becoming more economic in nature, as families continue to become less economic, given present day economic circumstance. The process of individual land holding creates an automatic stop loss function for anyone born into the system - one which lasts for the course of a lifetime.

From a young age, matched time value (time arbitrage) would accrue to two sets of local holdings for one's eventual living and working needs. These property holdings don't necessarily represent a specific property, since individual to community contracts would reflect property use that is well suited to one's living and working preferences as they change. Those preferences would also reflect both long term and short term economic changes among local citizens.

Once one's personal work space is acquired and put to good use (before adulthood), time arbitrage would also begin to accrue toward space one eventually may seek for separate living quarters. By the time adulthood is reached, one's goal is to have a basic set up for both, so as to make this life transition easier. Once purchased through time arbitrage, this amount of square footage (not necessarily the specific geographic land holding) belongs to the individual for the course of their lifetime, before reverting back to the community.

What if someone does not want to live in a hometown all their lives? Property owners would have an unimpeded legal right to rent their personal holdings of square footage, should they decide to live with others either locally, or perhaps travel and live elsewhere. This right - along with a lifelong ability to match economic time value with local residents - would provide means for individuals to start anew, when the choices of discretionary income in other aspects of life turn out to be too much risk.

Rental of property (not building components) would often provide an initial source of discretionary income beyond the internally based wages of time arbitrage. In other words, rental of land serves as the primary connection point between the local currency of new corporate structure, and the surrounding currency of state and nation. Economic mobility is important for all concerned: renters would not necessarily desire the square footage which comes available for instance. When owners make the decision to rent their property holdings, other areas would be explored to find the best property match, to assist newcomers who "sample" living opportunities in a given community through rent.

Building components would be approached differently, in that they likely would not be available for rent or considered a permanent part of a particular piece of land. Many building components would be locally bought and sold, given the fact little incentive has ever existed for landlords or renters to maintain rented structures. However, matched time value could accrue for building components when they are locally purchased, locally manufactured or are otherwise part of local recycled components made new again with 3D manufacture.

Some exceptions may apply in which local value for building components is provided from exogenous (or discretionary) income. While individuals wouldn't need to personally will property to offspring unless those offspring were incapable of time arbitrage (communities might make exception for property reversion in this instance), they would be able to will anything they desire to offspring that results from discretionary or exogenous income.

While the aforementioned rental possibilities are individually held property, rental pools are another possibility. These groups would gain exogenous or discretionary income, by utilizing time matched property holding for commercial purposes. However, local corporate structure would seek to maintain balance between time and resource use, so that individuals would not eventually be questioned as to their ability to contribute to community outcomes. In other words, time value in relation to local resource value, would serve to preserve the integrity of full employment.

Tim Harford's post was helpful for me, because it gave me further rationale to begin exploring some legal concepts I've been trying to determine how to present. Even though I never sat at the gambling tables like some I've known over the years, my life otherwise has been a complete gamble. While a new corporate structure would not put all the "right" cards into one's hand, better provisions for stop loss could definitely help the hand that some are dealt in their lives.

Time Backed Money, Knowledge Use and the Productivity Enigma

Why are productivity gains so important for continued progress? For populations as a whole, it's not just about maintaining standards of living, but also important strides in knowledge use. And when knowledge use is limited to a subset of populations, important facets of it tend to be lost, during historical periods when populations experience extensive setbacks in some capacity. These have also been times when services formation is seen as a drain on wealth, instead of a valuable contributor to wealth formation.

During recent periods of nation building, the wealth of commodities and goods served as a point of origin for (economic) knowledge use dispersal, while governments have used fiat monetary formation to support a knowledge based elite. Unfortunately, access to higher education is hardly the same, as access to knowledge use and vital services formation. Further, this fiscal transmission process remains dependent on continued production gains, to maintain the services marketplace of production and consumption which already exists. What happens then, when productivity slows and negatively affects the structure of a government defined marketplace?

Essentially, smaller pools of revenue from highly productive activity are available, for today's fiscal transmission processes. Are there better ways to boost total factor productivity, given this unfortunate circumstance? Time backed money is one option, which I briefly explained in a post last year. Time backed money would create a base wage to generate local time value, infrastructure and building formation (non tradable sector activity), as contrast with the personal income from all other aspects of (global) resource capacity.

Knowledge use need not be limited to population subsets, because time backed money would make it possible for knowledge use to act as a wealth building component. This form of monetary compensation would allow time value to function as a common denominator to coordinate the scarcities of time use constraints, alongside the normal function of national monies as representative of total resource capacity. Time value would gain the ability to become a reliable local multi-use commodity, for a new form of corporate structure with a dual public/private nature.

Most important, is that time backed money could turn the complex fiscal transmission mechanism for knowledge markets (for small, decentralized groups) into a simpler monetary process. These are the conditions I've referred to as alternative equilibrium potential. When employment for time/knowledge based product can be paid for once instead of twice, there is potential for aggregate output gains. Indeed, similar possibilities existed all along for time based product in general equilibrium conditions, but special interests intervened to prevent the wealth formation of broader knowledge dispersal. This fact has contributed to the mass confusion of today's Republican party in the U.S.

Time backed money would also provide means to support what is often perceived as low productivity activity - particularly that associated with a multitude of maintenance functions. Symmetric compensation can make time value a point of origin for knowledge use, so that other revenue is not constantly necessary to generate knowledge dispersion for economic purposes.

As luck would have it, knowledge - important though it is - is also a highly random variable in terms of perceived value. Not only does a wide range of external factors determine whether time/knowledge based activity is deemed useful, essential or non essential, the reasoning often changes. By creating an economic space where time based coordination is prioritized over perceived values for personal aptitude or knowledge choices, knowledge dispersal can remain a constant economic function.

Thus coordination for time value would provide greater productivity for time based services endeavor, since full skill and/or aptitude is not needed in every instance of knowledge use. While time backed money would support routine elements of economic maintenance, it also provides a base of mutual support, for knowledge use which is difficult to qualify when individuals commit to time investment in personal challenges.

Even though time based product is recognized as important, the fact it only exists in limited free market form, tends to convince populations that time based product does not actually need to contribute to marketplace growth. There's just one problem with this rationale: the overwhelming majority seek education and time investment for the purpose of engaging in and producing time based product as a desired form of employment. This is why a marketplace for time value is needed, so that individuals are better able to discover mutual employment which better approximates the life challenges they imagined.

In all of this, the productivity enigma has a partial solution. Fortunately, the present decline in productivity does not have to result in a indefinite loss of aggregate output. With directly matched time value, higher productivity would not invariably be diminished, by the need to support (also important) lower productivity activities. The option of horizontal economic activity is important, given the fact many aspects of scale have been fully utilized in present day equilibrium conditions. A new form of scale for knowledge use can be built, through locally coordinated time value.

Just the same, time backed money would only be intended as a local base, to provide conditions for living and working alongside coordinated forms of lifetime services and social security. For the first time in half a century, individuals would have good reason to learn and remember the names and economic capacity of their personal neighbors. A time backed monetary base provides a point from which participants can contemplate global possibilities for investment risks and potential income generation. Among the positive attributes of separating wage from income: doing so makes participants aware of the nature of the resource arbitrage gains they would like to secure, and why those arbitrage gains may actually exist in any given moment.

Insofar as productivity value is concerned, often the best arbitrage gain for personal income (via traditional monies) is creating new product where no product existed before. How to think about differences in perceived productivity, especially given the fact what appears productive sometimes represents political capture and arbitrary marketplace limitation? Dietz Vollrath recently wrote a post which looks at productivity levels by industry, in which he understandably questions the ethical nature of apparent productivity.

Despite the fact "apparent" productivity isn't always representative of market broadening innovation, "ill gotten" market gains have - in their own indirect way - contributed to progress over time. Consequently, captured wealth gains aren't always a total negative in terms of marketplace outcome, since captured revenue can contribute to positive government results as well.

To sum up, time backed money could assist total factor productivity by spending once for knowledge use generation, where governments require twice the revenue for the same output. By far this government transmission mechanism was more effective, when total factor productivity was still benefiting from the accrued gains of scale increase. Fortunately, some knowledge transmission can now take place directly and locally, in an era where vast quantities of information and knowledge have become easy to access This fact is good news, for the potential of social organization as a contributor to total factor productivity.

"No Growth Needed": The General Equilibrium Response

Depression was only narrowly averted, in the last decade. One way that it's easy to tell, is the fact present day stagnation talk resembles dialogue from the Great Depression - albeit with a few twists this time, given important changes in the makeup of economic activity in recent decades. The "traditional" stagnation view also comes across in a recent post from Timothy Lee, who looks at the maturation of scale and consumption fatigue (of physical goods or "things") as contributors to slow growth. He echoes the thoughts of many, that supply side growth is supposedly not even necessary. Only consider that fiscal infrastructure arguments aren't exactly compelling, either. Who wants to invest in human capital, for a job in bridge and road maintenance?

Regular readers know I find talk of economic stagnation, concerning. "No growth necessary" arguments ignore the reality of those who still invest heavily to access a general equilibrium setting not structured for full high income access. New institutions are needed for broader inclusion, and economic stability could also be sought on terms which don't require sticky wages. However, many remaining problems regarding economic access aren't widely recognized. The fact they are not, comes across in reasoning from a commenter in Lee's post who opined, "we need new strategies for excess money to support our economies".

None of this is about a need for "excess" money! The circumstance of a rapidly evolving economic environment is still being missed. And what about the fact nominal income still needs stronger support from central bankers just to maintain present economic stability, let alone the issues of long term growth and inclusion? Okay, I'll take a deep breath and back up a bit. First, think about what is happening politically. "Too many" consumer goods or no, there's heavy irony in "spent out" reasoning, given the fact that so many want tradable sectors to "come home" so a baseline of fiscally provided service structure can be maintained. The threat of protectionism has returned, and it has been roundly discussed of late.

But another problem looms on the horizon. Economists - whose reasoning is in many ways based on quantification - appeared to be arguing in high places recently for what amounts to less quantification. Granted, there are aspects of economics which do need to be expressed on less quantitative terms. Only consider how we continue to rely on centuries of economic reasoning, prior to today's statistical approach.

Just the same: there's reason for concern, when Davos movers and shakers muse about happiness and the supposed inadequacies of GDP, instead of the vital 21st century services economy which desperately needs greater clarification in GDP terms. Let's don't use "faulty or outdated GDP" to obscure the fact that making sense of time/knowledge based service product is hard work. When services are not well understood in terms of wealth contribution or long term growth potential, accurate monetary representation for citizens is also lost.

In fairness to all concerned, the measure and understanding of services formation (in total resource aggregate context) is not a straightforward process, because what is asymmetrically compensated does not exist in the same linear dimension as product which directly generates new wealth. However, without careful quantification for time based product, it becomes more difficult over time to coordinate the time based services product that people wish to produce and consume. The fact that many time based services remain ensconced in government activity, obscures the marketplace coordination factors which could contribute to more productive organizational capacity.

How to think about the time based product that has proven difficult to quantify? These services are asymmetrically compensated in general equilibrium. In other words, time based product which includes knowledge use, has not yet been generated as a direct source of wealth, but is funded either through either privately or publicly held wealth. This is why time/knowledge based product hasn't (yet) been able to "grow" the market for knowledge use diversity, at an aggregate level.

Consequently, too much knowledge (in time based product) is compelled to prove "superiority" over other forms of knowledge which are competing for the same pool of public or private wealth. Since this form of knowledge competition is in a beta position (to the alpha position of existing wealth/revenue), knowledge use competition has been expected (thus far) to drive out other knowledge use options, instead of growing a knowledge use market in aggregate. And with the loss of knowledge use, goes the loss of employment potential - especially given the fact government pays twice for each product unit of time based knowledge, whereas private industry only pays once.

The latter should mean greater efficiency for time/knowledge based product, right? However, organizational cost efficiency was lost, due to the fact private knowledge use compensation in aggregate was limited by design. Hence government provision of knowledge based product was mistaken at the start. Even though the government beta limits on knowledge use growth are involuntary, the alpha limits on a broader knowledge use marketplace are intentional. The sought after production and consumption of the 21st century can't gain traction in terms of marketplace growth. Fiscal policy has no choice but to pay two dollars, for employment that could have been had for a dollar on monetary terms, had the supply side been willing. Indeed, if governments could "magically" pay once, knowledge based work may have been viewed as the best fiscal option for the recessions of the 21st century.

What about growing the knowledge use marketplace on private terms? Unfortunately, for presently existing private institutions, that would mean diluting the salaries that already exist. This is one reason I suggest creating an alternative equilibrium, to make it possible to grow knowledge use without damaging the wage structure of general equilibrium. It is difficult for all concerned, to directly address the reality of time based services as the most important GDP component of the present. Small wonder it's too easy to bash GDP and talk about happiness instead! At the very least, service provision can be quantified through compensation for mutual cooperation and assistance, so that general equilibrium can better meet the obligations for knowledge production it already holds.

Notes on Value in Use vs Value in Exchange

In a value in exchange world, is there still room for value in use in any real context? To a utilitarian such as myself, that matters. Often, one hears that not everything in life is - or even "should" be - economic. But given the fact that people structure the majority of their lives around value in exchange routines, too few patterns remain, for value in use activity to contribute to important outcomes. A marketplace for time value, would help to restore personal habits and routines which include value in use functions.

Here's a Wikipedia definition for value-in-use:

Value-in-use is the net present value (NPV) of a cash flow or other benefits that an asset generates for a specific owner under a specific use. In the U.S., it is generally estimated at a use which is less than the highest-and-best use, and therefore is generally lower than market value.

While this description is more cash oriented than my "time as meaning" interpretation, "a specific owner under a specific use" is on the mark. Internal definition for consumption potential, could lead to cost savings for both service formation and building components, in group settings specified to meet that purpose. Participating groups would be able to consider a full range of resource potential, to generate new non tradable sector growth.

Contrast the above definition of value-in-use with value in exchange, from InvestorWords:

The ability to trade an asset, such as money, for goods and services. Money has no "value in use". In itself, it does not satisfy wants or needs. To satisfy wants and needs, it must be traded. Although money has no value in use, it has value in exchange.

Money needs to be exchanged in order to have value, just as time needs to be exchanged in order to have value in use. A new form of corporate structure could legally back value in use functions, for purposeful time based activity. In this setting, time value would exist as a basic production commodity, available to almost everyone who is willing and able to take part in a marketplace for services, knowledge and skill.

Time as value in use, still contributed to value in exchange activity, as recently as the twentieth century. Familial value in use functions began to decline, as the production patterns of agriculture changed. This is also when women began to enter the workplace in large numbers, and marriage became more associated with consumption roles instead of production roles.

Given the present lack of organizational capacity for value in use functions, the majority of aggregate time value has been structured according to the wealth of other existing resource capacity. However, organizational patterns for time value don't exist in direct relation to marketplace representation for services and goods.

Instead, present nominal income depends on how profits for tradable sector production are diffused through other means. How many time based services - for instance - have to be paid for twice through fiscal policy? Roughly speaking, when time based services are fiscally generated and have to be paid for twice, the result is half the time based services product in the marketplace than would otherwise be possible. Which is an unfortunate result for both potential producers and consumers of time based product.

This also helps to explain why there is limited utility in revealed preferences, which do not sort by direct or linear patterns with the goods and services that are actually available. A marketplace for time value, which would create a base price structure for time use alongside income potential, could help to alleviate the resource disconnect between preferences for services and goods. By generating new value in use patterns on monetary terms, value in exchange activity would be reinforced as well.

Incremental Growth, Incremental Ownership

In too many instances, today's requirements for economic participation can be steep. While it's easy to recognize the difficulties for individuals, the problem also extends to numerous communities and even some regions of the country. How to address this problem? Even as prosperous regions begin to consider a more decentralized approach, the incremental ownership of knowledge use systems could also provide local means for decentralized viability. Whereas prosperous cities gain their economic efficiency through carefully culled skills capacity, i.e. by hiring the "best and the brightest", knowledge use systems could bring more economic viability for - yes - the rest of us.

Instead of making further demands on existing resource capacity, knowledge use systems could use local aggregate time value as a starting point, for further wealth generation. Incremental forms of growth and ownership, would make the requirements of economic access more flexible. A marketplace for time value would allow incremental growth - for instance - by making it possible for peers to (economically) assist one another, through "stair step" learning processes from a young age. Even though the means to do so would be relatively simple, the system can gain complexity by capitalizing on the numerous forms of knowledge and information now available in the digital realm.

Incremental growth would generate economic patterns that make it possible for those with less stamina to achieve their goals, and become more self sufficient in the process. However, it is important not to confuse learning patterns such as this with the requirements of prosperous regions. For understandable reasons, the concept of easy economic access in any form, could antagonize those who were expected to put their lives on the line, in order to take part in state and nationally driven requirements. Indeed, many of today's health costs for higher income levels, are associated with maintaining the long term stamina required to participate on general equilibrium terms.

Hence I've suggested alternative equilibrium conditions for economic participation, so that greater ease of participation in more marginal regions would not pose a threat to the stricter requirements individuals face, in order to take part in today's prosperous regions. This is another reason why time based wages for services coordination would accrue internally for asset formation, as well.

Knowledge use systems would also increase what is termed "employability", for some who have experienced little employment thus far. Angela Rachidi of AEI responds to a recent bipartisan effort to revitalize communities left behind with this post and writes, "Increasing the employability of poor people must accompany job creation efforts." In order to do so, a wide range of considerations apply, which include everything from spatial work/life arrangements to the kinds of mutual employment for services that matter most.

When time value is neglected in aggregate, too many come to believe their time value is insufficient as compared with that of others. A marketplace for time value would provide means to once again believe in one's personal worth in relation to others. Increased confidence would provide further incentive, for people to make the constant effort that is required to remain in productive economic relationships.

And by making the terms of economic engagement simpler, the process can be likened to a lockstitch sewing pattern. In other words, earlier "stitches" (efforts to acquire useful procedures or concepts) are reinforced through matched economic replication with others before moving ahead. It's an approach which makes it easier for individuals to hold earlier efforts "in place", so those efforts will be less likely to "unravel". Not only would this method provide benefits for long term memory, it could alleviate some of the stress that contributes to any number of health issues.

Whereas incremental growth is associated with economic time value on personal terms, incremental ownership is linked to the spatial components of land and environmental definition. Economic time value is linked to a secure base for ownership in local land and building components, without need of a loan structure within the system. Most important, is the ability to link personal time value to life's most basic needs, for living and working with others on economic terms. However, the secured portion of time value is also recognized as a starting point, to transition towards other forms of resource arbitrage which contribute to discretionary income, greater personal freedom, and the global links to continued progress.

The Knowledge Prior in Action

While I've not referred to the knowledge prior recently, it is one of several dual terms I began using some years earlier. This one exists in relation to what could simply be thought of as a monetary prior, for wealth formation. A knowledge prior would allow time value to work in concert with monetary arbitrage, to generate further economic momentum. Through its value in use (alongside the value in exchange of money) function, knowledge can serve as a initial wealth building component, by directly linking time value to local resource use patterns.

Whereas a monetary prior refers to a point of economic origin which generally begins with production of physical product. In turn, these activities gradually progress (at least in relatively complex economies) to non profit activity which culminates in a certain degree of support for knowledge use. Often, the fact that some areas cannot readily support knowledge is obscured by the fact revenue often comes from elsewhere. System structure which incorporates a knowledge prior, could make useful and experiential knowledge use less random - regardless of region.

Through symmetric time coordination, important elements of wealth generation can be turned "inside out", by tapping additional knowledge capacity at the outset. Knowledge use systems would coordinate and - over time - magnify existing resource capacity and time value in small decentralized groups. While the monetary prior is associated with general equilibrium conditions, knowledge prior use would be associated with alternative equilibrium growth capacity, which includes flexible definitions for both time value and environment.

In particular, innovation for flexible physical infrastructure would be key in these settings. When people age in place in their environments, so does their housing and local infrastructure. The ability to replace old components with new components can be vitally important in these circumstance. The object for small wage patterns working in concert is not to seek out "low quality" infrastructure and housing components. Rather, it is to mass produce less costly components which can be readily changed out when it is clearly time to do so. Indeed, the vast majority of tradable product has been created with similar intent for as long as anyone can remember. While some of this process is disparagingly referred to as throwaway product, the changing circumstance by which one makes best use of a given product, cannot be denied.

No fiscal budgets are going to get any real relief, until non tradable sectors are willing to make room for innovation. Non tradable sectors have already benefited from the innovation of tradable sectors for centuries, and now it is their turn to contribute to the process. Consider today's municipal dilemma, in which aggregate time value for populations as a whole, is no longer sufficient to meet today's requirements for infrastructure. Much of the appearance of lost income gains in recent decades, is due to the stubborn nature of non tradable sectors, as they continue to resist innovation in their own ranks. And the fact that policy makers have grown weary of printing more money for what basically amounts to infrastructure rigidity, is now reflected in a growing lack of ability to fund time based service capacity.

Consider also what has happened to aggregate time value, since a subset of the population now holds the majority of economic time value. If one were to roughly surmise, what policy makers imagine aggregate income potential (for all ages) to be in terms of available revenues, basic income for all citizens is a reasonable way to arrive at such a figure.

However: the basic income that governments might actually be able to provide citizens (say, in the event of an automated future), is a far cry from the revenue governments actually need to maintain their already existing building and infrastructure requirements! An apt context for this approximation is the fact municipalities no longer include many new start up homes. From a recent WSJ article, "How City Hall Exacerbates the Entry-level Housing Squeeze", regarding the need for impact fees:

These fees fund the local infrastructure needed to support a growing population - schools, transportation, environmental mitigation and utilities.

Basically, the above article implied that for most municipalities, their hands are tied and it has become difficult to provide (housing) room for those who are just starting out, or have otherwise become marginalized in some capacity for that matter. Knowledge use systems would not only provide a point of economic entry for lower income levels, but coordinate time value so as to allow greater economic and social cohesion. At the outset, knowledge use systems would set up and maintain a lower cost threshold for all local non tradable sector activity, which would be reinforced with symmetric compensation for time value.

A basic tenet for knowledge prior contribution to employment potential, is that general equilibrium conditions aren't capable of providing a given asymmetric wage across entire population sets. Domestic home activity is an excellent example, why asymmetric wage structure does not automatically apply for all who might otherwise just stay home to take advantage of market wages.

For example, how many parents could realistically pay their children for housework at the going rate of home cleaning services? It helps to remember that only so many employers can meet the requirements of an asymmetric wage, and that ability remains dependent on availability of additional revenue at any given moment. This could partly explain why housework did not become a part of the GDP measure, given the fact sufficient revenue did not exist to pay voluntary domestic labor in a routine workplace capacity.

Symmetric wage structure would not be limited by existing revenue in the marketplace, but by the number of participants who are willing to equally coordinate for group time value alongside the option of discretionary income through resource arbitrage. Even so, a small base wage would go far, because knowledge use systems would recreate non tradable sector consumption. By maintaining innovative and flexible infrastructure, knowledge use systems can be built at a fraction of what the costs would be in general equilibrium conditions.

A knowledge prior function can also provide greater social cohesion for knowledge use patterns, which are otherwise difficult for lower income levels to access. One of the most unfortunate instances in this regard has been the ongoing obligation of public school for all citizens. In spite of required attendance for students, not to mention lifetime taxation responsibilities for U.S. homeowners, public schooling provides little if any social or economic cohesion for those who participate, once they graduate from high school. Knowledge use systems would take care to ensure that local responsibilities for education include economic results for time value, so that all participants can take part in knowledge based activity.

As Buckminster Fuller said, "We are called to be the architects of the future, not its victims." While one often imagines the infrastructure possibilities for general equilibrium conditions, imagination also holds promise for environment definition at all income levels. The knowledge prior could provide a much needed point of origin, for new economic communities. Even though symmetric monetary compensation may not appear equivalent to the rewards of asymmetric compensation, aggregate time value could finally gain the respect it deserves, through better links to potential resource capacity.

Asymmetric Versus Symmetric Compensation

While the good news is that employment for knowledge workers is finally on the rise, another aspect of this development is less certain: the rise of non routine work, after centuries of what was most frequently compensation for routine work. Indeed, the asymmetric compensation that is connected to work as externally reimbursed (publicly and privately), is closely tied to the nature of general equilibrium conditions.

As a result, many who gain work in the near future - at any level of skill - will often do so on non routine terms. Further, it is mostly prosperous regions that will realize full employment levels through these means. Even though areas lacking in economic complexity will still have asymmetrically compensated work, much of this work will only be available for a fraction of the local population. Plus, the emphasis on non routine work in less prosperous areas will not be as substantial, as for larger city based employers which have more incentive to tap technology gains.

Many gains in scale have already been realized, for money in relation to the existing resource capacity of general equilibrium. As a result, further automation to replace labor is a primary remaining means of arbitrage for both public and private institutions. However, what does this development suggest, for cities and regions which sometimes lack the necessary capital, to use automation for routine activities?

Some could benefit from the organizational capacity of symmetric compensation - particularly to generate much needed services and time based product. For that matter, time based service product has scarcely been tapped for the wealth gains it represents at aggregate level of economic activity, due to the fiscal constraints of asymmetric compensation. Time based product also exists in relation to the environment that personal time value helps to create. Arbitrage potential can be generated through local definition and internal coordination of production and consumption patterns. As Dietz Vollrath recently noted:

...aggregate productivity growth depends not only on individual technologies, but crucially on the distribution of workers using those technologies.

Symmetric compensation takes place through equally coordinated time availability. Symmetric compensation can also generate new wealth, since existing time value is matched so as to back other time value. Those who participate in the local corporate structure of knowledge use systems, would also have greater choice as to routine work patterns, before investing further in automation capacity. For instance, it helps to remember that maintenance is still the base for many forms of economic activity. Some of the replication that is needed for maintenance - in particular for educational purposes - benefits from personal and individual attention.

Another benefit of symmetric compensation is the fact it allows greater economic complexity for services formation. Otherwise it can be difficult to generate a wide range of time based activity in many areas, particularly on self sufficient terms. Once the initial hurdles of skills variance are accounted for, groups become able to set up and organize self sufficient services activity which would otherwise require either extensive assistance from state and national revenue, or private wealth sources.

Matched time value is not just employment for employment's sake. Unlike externally defined employment options, individuals would take part in an ongoing process of mutual employment, which allows them to determine the kinds of activities they can best accomplish on their own, versus those which they particularly gain from sharing with others. Once the organizational capacity of symmetric compensation is better understood, no one would need to fear the decimation of the workplace by automation.

Knowledge Use: Hegel's Rationale is No Longer Enough

One of the main reasons free market economies don't feel free, is the fact that many forms of knowledge use received special privileges (and consequent limitations), prior to the emergence of modern democracies. The lack of free markets for time and knowledge product, has meant less competition and choice in terms of personal endeavor.

Time based product exists in both practical and experiential forms. What is paramount in this regard? A marketplace for time value would highlight how individuals choose to assist one another, and influence one another, given the vast options that have emerged in recent centuries. Even though both pragmatic and experiential time use are basic in our lives, many individuals end up attempting to offer time based activity to others on non economic terms. How well is this state of affairs turning out? The institution of marriage is a prime example, since it fares poorly when both partners do not have substantive and reliable employment.

Since economic relationships overtook other resource use patterns (especially in the twentieth century), individuals have been slowly losing the ability to negotiate for personal time value. This is especially true as people age - and one's preferences become better understood. Historically, populations become more susceptible to slavery and other non voluntary circumstance, when too few have access to resource capacity or an ability to negotiate time value. Economically, arbitrary limits on time value also translate into reduced non tradable sector activity. Further, there is subsequently less demand for tradable sector activity than would be the case with sufficient economic access.

Knowledge use privilege can be thought of as a form of asymmetric compensation or externally assigned value for specific skill sets. My primary concern is the time based product of non tradable sectors, since diffused social support (taxation redistribution) is beginning to reach a political tipping point. Asymmetric compensation is also associated with the sticky wages which contribute to job loss in recessions, for both tradable and non tradable sectors. Regular readers know that I support the asymmetric time value that fiat monetary policy makes possible. Still, I don't believe this employment and market option is enough, to maintain stable and broad economic participation in the 21st century.

It's been more than two centuries, since knowledge workers began to assume a greater role in developed economies. National governments gradually took advantage of new revenue streams that resulted from specialization in manufacturing. Most important was the fact that national governments gained much of their power from the Industrial Revolution, and Georg Wilhelm Friedrich Hegel provided many important philosophical arguments which contributed to the process.

Four years earlier, in an internet discussion, some commenters compared my reasoning to Hegel. Apparently, they thought I was arguing for more state control! At the time, my familiarity with Hegel was quite limited. And I'd forgotten what I read about him in "The Mind and the Market" some years earlier, due to intervening life events that were quite stressful. So after a reread, I found myself grateful to those commenters, for encouraging me to take note of historical developments in the marketplace I might otherwise have missed. Even though Hegel was concerned about individual freedom, he believed the state was the primary means to greater freedom for the individual.

As a result, many observers have mixed feelings about this important philosopher. Jerry Muller, author of "The Mind and the Market", is somewhat sympathetic to Hegel given the historical framework of his era. The specialized labor of factory work which was transforming the marketplace, also appeared as though permanent economic losses at local levels. Nations gradually became more powerful and centralized further. Hence specialization in tradable sectors, also contributed to the asymmetric compensation (and organizational capacity) of specialized knowledge use as well.

Fast forward two hundred years, however, and "the end of history" which seemed certain only a decade earlier, is in doubt. Indeed, the entire "scaling up" process which provided an economic foundation for some of Hegel's reasoning, is winding down. Unfortunately, this has yet to be acknowledged by policy makers. Even though governments may recognize that tradable sectors can't continue (more of) the same patronage for knowledge based endeavor, policy makers continue to seek further avenues for taxation, in spite of already existing levels.

How to think about the fact, that most gains in scale for tradable sectors have already been realized? Paul Graham - in a recent essay - referred to this reversal as The Refragmentation. Even though consolidation of centralized power appeared to be permanent, decentralization processes are likely to become more prevalent in some capacity. The challenge for all involved in the near future, is one of maintaining the more practical elements of economic complexity and coordination that national governments provide. By meeting the challenge head on, democratic extinction events would also be less likely. However, national governments are best equipped to assist global commodity patterns, while local communities are best suited to maintain and coordinate time value and knowledge based resources.

Part of the challenge would involve a reexamination of today's institutions. Only consider how Hegel once stressed that individuals needed to adapt to the newly evolving institutions of his time. If institutions of the present are to retain their economic viability, it will be because they prove able to respond to the needs and desires of the individual. Vital economic complexity could in fact be lost, should power simply devolve to states which mimic the centralized power structures of national governments.

Knowledge use and time based product could make the transition to a more decentralized world. However, the journey to a dual local to global economy would be a fragile road, due to the levels of local sustainability that are needed to preserve economic complexity. Often, knowledge use complexity has declined in the past, when civilizations were unable to maintain productive resource use patterns. Today's patterns aren't the "wrong" patterns. They simply need more marketplace structure, than has been possible thus far.