Wrap Up for August 2016

The EITC as a family support program, according to Brookings, boosted student grade levels more than other programs which were specifically targeted for that purpose. One only has to wonder: how much of a boost for learning might be gained, if students were monetarily reimbursed for actively assisting one another in the process? From the article:

It turns out that putting money directly into the pockets of low-income parents, as many other countries do, produces substantially larger gains in children's school achievement per dollar of expenditure than does a year of preschool or participation in Head Start. The results throw water on the conventional wisdom.

"Freedom now, it seems, has no clients. The last thing crony capitalists want is a truly free market." While Chris Dillow's arguments re capitalists may be overstated, he makes good points about the loss of freedom. http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2016/08/the-death-of-freedom.html

Marcus Nunes takes a closer look at "full employment" https://thefaintofheart.wordpress.com/2016/08/04/full-employment-is-supposedly-all-around-us/

What Fed-induced financial bubble? It's just not there. Good post from JP Koning.
https://jpkoning.blogspot.com/2016/07/monetary-policy-as-system-of-connected.html

In some respects, the rural divide is similar to that of more populous areas: http://www.csmonitor.com/USA/Society/2016/0730/Rural-America-confronts-a-new-class-divide

Laurence Kotlikoff notes that politicians are "trained not to look at...uncomfortable facts," in his bid for the presidency.

The fact that support for democracy is eroding, is not something to be taken lightly.
https://conversableeconomist.blogspot.com/2016/08/is-support-for-democracy-eroding.html

A long standing relationship between productivity growth and wage growth has become less certain. http://www.newyorker.com/news/john-cassidy/the-great-productivity-puzzle

Is there a mainstream? This post from J.W. Mason of the Slack Wire blog, was picked up by both Evonomics and The Browser: http://evonomics.com/economist-mason-turn-concrete-economic-questions-isnt-really-mainstream/

So many of her themes are still prescient: http://commonedge.org/10-lessons-learned-by-rereading-jane-jacobs/

James Pethokoukis of AEI highlighted this report earlier in the month, "America Without Entrepreneurs: The Consequences of Dwindling Start-Up Activity"

Of late, the cost of economic access has risen more than healthcare.

Not every "proposal" for NGDP targeting is on the level.

States wanted more responsibility in these areas. How well have they done? https://www.aei.org/publication/welfare-reform-progress-states-step-up/

Scott Sumner refers to a battle for rents as the "trade wars of the 21st century". How much will the growing uncertainty over international tax systems affect international business investment?

Of occupational licensing, Ed Dolan asks:

Can a policy that is unanimously opposed by the conservative Heritage Foundation, the liberal Progressive Policy Institute, and the libertarian Reason Foundation last forever?

Rational Markets are Basic Coordinating Functions

One sign that productivity would benefit from redefined organizational capacity, is a growing perception of market "irrationality". This is a problem, because rational markets are necessary for societal stability - not just economically, but psychologically as well. How might one respond to claims of marketplace irrationality? In an Evonomics article, Alan Kirman writes:

As soon as one considers the economy as a complex adaptive system in which the aggregate behavior emerges from the interaction between its components, no simple relation between the individual participant and the aggregate can be established. 

Yet an understanding of aggregate relationships is important, in order for participants to determine reasonable and responsible options in the marketplace. One can only hope this argument on Kirman's part, will be countered on concrete terms in the near future. Even though markets are complex and people sometimes appear as though irrational, basic coordinating functions for personal resource capacity are possible.

Consider for instance: what patterns of activity would specifically contribute to productive complexity and economic dynamism? What - on the other hand - can continue to serve as the "holding" patterns which logically follow primary resource gains? In the meantime, what personal and economic circumstance are responsible, when marketplace participants appear rational or irrational? In particular, I'll highlight two examples of apparent "irrationality": one psychological, and one monetary.

Even though resource aggregate potential tends to be well understood (hence well coordinated via price) in tradable sectors, basic coordination functions are not yet well understood for the time based product of non tradable sectors. As a result, skills capacity is often tapped in isolation, instead of in relation to existing or total aggregate skills capacity. In this environment, one's ability to take rational choice into account, still includes substantial investment risk. Indeed, one's personal time preferences (time value) may come into conflict, with what appears as marketplace rationality in terms of knowledge use. Some individuals will feel compelled to select studies that aren't in line with their natural inclinations or personal challenges.

Consequently, higher education is too often promoted for the economic access it provides, as opposed to the greater reward of experiential gratification and personal challenge. Unfortunately, the practical and the experiential become misaligned, when a majority of knowledge use only exists in secondary marketplace formation. And without a marketplace where personal time based preferences could clear in an aggregate capacity, more students are now inclined to cheat for the ultimate goal of economic access. Cheating is only rational, to the extent that too much of one's life choices have already been severely compromised.

Secondary markets for knowledge use are becoming a problem for monetary policy as well. Much of what appears irrational in terms of monetary policy, could be attributed to a growing political reticence, to support and maintain these secondary knowledge use markets on today's open ended fiat monetary terms. If so, this could partially account for excessive restraint on the part of policy makers and central bankers, in terms of nominal income and aggregate spending capacity since the Great Recession. For instance, the recent decline in healthcare expenditure, in an era of increased healthcare needs, may hold some important clues where the nominal income of time based product continues to be shorted.

It's hard for some of us not to believe that Janet Yellen acted irrationally, in her refusal to acknowledge the need for a new direction, at Jackson Hole this past week. What accounts for such stubbornness? Will not a thousand rational actions on the part of market participants be undone, by the Fed's irrational response to calls for change? Perhaps this quote from Adam Smith in "The Theory of Moral Sentiments" offers a clue, as to the refusal:

The opinion which we entertain of our own character depends entirely on our judgments concerning our past conduct. It is so disagreeable to think ill of ourselves, that we often purposely turn away our view from those circumstances which might render that judgement unfavorable.

Make Room for Incremental Economic Growth

For as long as anyone can remember, gains accruing from economies of scale, meant ever higher expectations for the terms of economic engagement. Yet as standards of living rose from these gains, so too did the resulting marketplace "designs" of countless rules and regulations. Economic participation gradually became associated with environments which - while well suited for  higher skills levels and income - lost the flexibility that made a wide range of activity possible for all income levels.

Why should it be necessarily for formal economies to be solely defined, according to the wants and needs of higher income levels? Making room for new, more incremental patterns of growth, would allow individuals to switch gears as needed, while going through the course of one's life. After all, this important issue is not strictly associated with any specific class or skill set, but the changing conditions which everyone experiences over time.

Only consider the reality that - should non tradable sector requirements not be subjected to cost reducing innovations - many returns on investment have diminished just the same, over time. Less investment return in aggregate, means less ability overall to support rigid non tradable sector structures. For instance, the return on investments has changed in recent decades, according to Managerial Econ:

If someone today invested $100,000 in a balanced portfolio of stocks and bonds, they could expect a return of $21,800 over the next two decades after costs. Ten years ago, that same investor might have expected to make $60,000, and three decades ago $150,000.

One way to respond to this situation of course is, life goes on. And even without structural change: while most individuals would continue to take care of basic issues, many would drastically reduce the time based services of others along with other forms of experiential product. Yet why should such marketplace losses be necessary, when product formation could be preserved through organizational capacity which requires less initial investment?

Further, no one should expect already existing institutions to directly bear the burdens, of what is already reduced revenue for the requirements of today's budgets. New institutions would be better positioned to respond to resource flows which have dramatically changed. By generating formal economic environments which encourage the participation of lower income levels, public and private financial burdens alike can eventually be eased.

Doubtless there'll be plenty of teeth gnashing in the years ahead as more pension programs come up short, reducing other ongoing resource flows in the process. Even though there's plenty of blame to go around as to inflated expectations, the best response now is to move on, and recognize that earlier organizational patterns for capital and resource flows, need to futher evolve. Let's get beyond the blame and recrimination, and find broader means for economic sustainability than are currently in place.

When is Limited Resource Utilization "Hoarding"?

For all the importance of private property, sometimes its legal structure includes passive elements which further restrict economic activity for the resources at stake. Indeed, resource hoarding doubtless contributes to a monetary hoarding equivalent during recessions, to a greater degree than recognized. Only consider how prosperous cities often wish to maintain local environments (and their existing values) so as to discourage greater population densities. When does limited resource utilization become a problem?

Some aspects of resource utilization are far more passive than others, hence hidden from view and rationalized a bit differently. For instance, when governments allow specific companies to hoard knowledge application for themselves, the natural result is going to be higher prices.

What is not recognized in the current Epipen debate for instance, is that even though the herbal remedy ephedra was widely available to the public for centuries, in the U.S. we lost the battle (2004) to use this vitally important herbal remedy, via our own resourceful means. While my allergies weren't so strong as to to need ephedra, I suspected this latest regulation would hurt limited income folk who suffered from severe allergies - or worse - anyone experiencing severe allergic reactions, such as the Epipen is intended. The only surprise is that it took twelve years for this problem to surface.

Now, if ephedra gets used at all it is likely tucked away in doctors prescriptions, intended for those fortunate enough to have the discretionary income to visit doctors when they are sick. Worse, now there is not even a competing pharmaceutical company left standing to provide a similar product, to Epipen. Unfortunately, I doubt that many individuals in this debate have connected the dots between the loss of ephedra in a "free" marketplace, and the current situation. Hence I would say that the protection of the public from itself in using ephedra, is nothing but knowledge hoarding. Perhaps we deserve the high prices we get for "protecting" ourselves! Of course I don't think so, but sometimes it is hard not to be cynical.

Bonnie Carr revisited an apt historical example of hoarding in a recent post, which we had also discussed some months earlier in a related context. Thomas Jefferson had written to James Madison, just prior to the beginning of the French Revolution:

In the letter, Jefferson discusses the land use situation in France at a time when the population was facing inadequate stocks of food, noting that much of the land had been claimed by the French nobility, and that it was illegal for anyone to hunt or fish on the land that may only be used for recreational purposes...

Jefferson did not say government had a responsibility to feed people or guarantee land, or game, or what have you. In my interpretation, he said government should prevent hoarding, a supply side policy aimed at the availability of raw materials for subsistence. It is what I would call the ultimate in what today we call a libertarian approach to practicality that answers the question: are people entitled to do what they like when it harms or deprives someone else of a means of survival. Jefferson's answer was, obviously, no. 

It's not easy to imagine knowledge hoarding in the same sense as land hoarding. But ultimately, the result can be the same. And when practical, freely available knowledge is disregarded in the constant efforts to protect us from ourselves, that means more lost discretionary income, and possibly even less food on the table for middle income families whose children suffer from strong allergic reactions.

Granted, some resources are not as important as others, for daily life. But governments and special interests aren't good at telling the difference, as they continue to define how resources of all kinds can be applied in the marketplace. Perhaps citizens would not clamor so for protectionism from other countries, if special interests and governments weren't so interested in the domestic protection of everyone from themselves. Meanwhile they imagine doing so on our behalf, as practical knowledge continues to be undermined for wealth capture. Clearly, this strategy is not working.

A First Mover Illustration of General Equilibrium Limits

Some readers may recall my praise of Hernando de Soto in an early post. Hence the title I chose here reflects an inadvertent service he has also accomplished. De Soto's extensive work exposes the fact that secondary market limits in knowledge use, pose issues for land and property ownership as well.

No one ever claimed that increasing economic access would be an easy process! Being a "first mover" in real life has its dangers, hence the more influence one has in the course of their lifetime, the more this may need to be taken into account. Tyler Cowen notes a paper which considers a set of results from de Soto's efforts, in "How useful is it to formalize land titles?" Here's Cowen:

This piece helps explain why Hernando de Soto's ideas, however useful they may be in some regards, have not quite transformed either the world or for that matter the practice of development economists. 

Here is a good sentence from the paper. "The cost of processing the inheritance of an asset valued at US $11,700 is about US $2,300." Legal systems are a normal good, and legalizing everything too quickly leads to burdens as well as benefits..."When property rights are transformed to very poor people, preserving legal tenure will likely entail onerous expenses..." 

If there is anything that can be said about general equilibrium conditions: a secondary marketplace framework for time based services, has little choice but to conform to discretionary income values appropriate to high income levels. Otherwise, present day time investment commitments would involve too much risk, to adequately secure asymmetric compensation. Unfortunately, the knowledge limits inherent in these guidelines, means a great deal of impracticality is involved across income spectrums, in the provision of legal, health related and educational services.

These disadvantages would be taken into account by equilibrium corporations, which would simplify the use of knowledge based structure, in particular for those who would gain from linking time value with asset formation. It's a process which would give knowledge use a chance to gradually evolve - over time - as a major productivity component in a primary marketplace for time value. However, knowledge use simplification would take place so as not disrupt the valuations or pricing structures of today's prosperous regions.

It helps to remember that what appears as though poverty (at first glance), is a result of many causes. Some of this varied commonality is also voluntary, in the sense distilled resource capacity allows individuals to focus on certain life challenges which aren't necessarily available, on general equilibrium terms. Hence the equilibrium corporation would provide alternate equilibrium options for people who struggle for whatever reasons to meet the demands of general equilibrium.

Land ownership needs broader definition, to assist this process. In a recent post I discussed the possibilities of land as symbolic coordination value. Often, land value is tied to a continuum of previous organizational capacity which experiences strong serendipitous gains. By making room for flexible coordination points as a part of ownership processes, people gain choices that go beyond the either/or framework of ownership in the present. In particular, legal ownership constructs need more choice sets not just for lower income levels, but also for multiple aspects of ownership which include ongoing business risk.

The struggles of developing nations in this regard are instrumental, in part because they point to unresolved issues between income levels and knowledge use in developed nations. Indeed, potential solutions for 21st century problems need to be devised in ways that meet a wide range of economic circumstance, regardless of the nation involved.

The Hidden Value of Discretionary Income

Statistically speaking at least: we've been told that this is the best possible time to be alive, in terms of overall quality of life improvements. Clearly, free markets have greatly contributed to a positive outcome. Why then, is so much societal angst directed towards free markets and globalization alike, in such a fortunate historical moment?  In today's developed economies, a growing lack of discretionary income (due to regulatory non tradable sector crowding out), contributes to much of today's uncertainty. And a lack of discretionary income, also means a lack of possibilities in terms of major life options.

Some of our most significant quality in life gains, have taken place on terms which leave too little room for personal negotiation in the marketplace. Further: important though they are, some of the more significant earlier improvements have been blocked from further innovation. I am particularly concerned about a lack of plumbing and electrical innovation, as contrast with ongoing technological gains elsewhere. Indeed, Robert Gordon's emphasis on plumbing systems and electrification as some of the most beneficial aspects of 20th century innovation, highlights this irony. Instead of collectively throwing up our hands and insisting innovation's best days are past, why not redefine building component functions on more accessible terms, and in ways that allow building technology to respond to changing economic circumstance.

Since building innovation processes have yet to occur  - either in terms of mass manufacture which includes built in tech design or 3D print local adaptations, everyone's freedom in terms of discretionary spending and personal choice, has been compromised. Low tech and resource intensive housing for all, was a realistic response when given population sets had more exposure to international resource capacity than is presently the case. It was that additional exposure across multiple income levels, which accounted for some of the discretionary spending that made the twentieth century a high water mark for a myriad of life options, among lower income levels.

Community design with flexible components would restore discretionary choice for lower income levels. More discretionary income, means more spontaneity and more life challenges become possible. It should go without saying that people simply feel better when their ongoing obligations are balanced with interesting variations in routine. But this fact may not have had adequate consideration, since non tradable sector wealth capture has reduced spontaneous marketplace choice, time and again.

As a baby boomer, I can attest to the nature of greater discretionary income in earlier decades which contributed to the allure of many a Main Street, in communities of all sizes. I suspect it is easier for everyone to feel more positive about free markets, when a sufficient degree of discretionary income can alleviate daily burdens at all income levels.

Another important aspect of discretionary options is in terms of knowledge use. Knowledge has valuable experiential qualities, for individuals from all walks of life. However, when the most "valuable" knowledge is sold purely as a form of economic access, for many this will crowd out the desire to learn, simply for the love of learning. Already, too many aspects of experiential knowledge have lost much of their allure and wealth potential in the marketplace. In order for knowledge acquisition to continue as a vital economic function, societies need to make certain that the primary knowledge use of non tradable sectors, doesn't crowd out the allure of knowledge as discretionary choice and experiential good.

In summary, lack of discretionary income becomes problematic, when loss also translates into fewer life options. Already, political struggles regarding public choice options in particular, have become quite intense. What if less non tradable sector regulation meant more discretionary income and lifestyle options? What if people became less compelled to dictate their beliefs and preferences to one another? Perhaps there is a connection between these two seemingly unrelated circumstance.

Specialization and Trade: Adam Smith's Priority

When asked what model would adequately consider patterns of specialization and trade, Arnold Kling responded (in part):

The most important aspect of specialization and trade is that we specialize in just a few tasks but we enjoy the product of millions of tasks. This fact was noticed by Adam Smith, but it has not been "formalized" in any useful way that I can think of.

One reason that urban agglomeration has become so important in today's more prosperous regions, is that specialization and trade now extends to organizational patterns which were not considered particularly important on economic terms, in Smith's time. In other words, he would have called many of today's time based services "unproductive" - vital though they may appear, otherwise. While high skill human capital holds considerable value, it has yet to be organized in ways which directly contribute to wealth creation. As a result, one's skills capacity which is not associated with tradable product, is mostly arbitraged in a secondary market of already existing wealth, which is only indirectly associated with primary wealth formation.

Unlike the forms of specialization Smith spoke of which contributed to tradable sector productivity, much of today's specialization in terms of time value has an entirely different purpose: offering sets of knowledge use in the most "concentrated" form possible, via extensive investment in one's early years (normally), to be followed by skills repetition in high population density environments which can reward the investment risk involved. Even though skills repetition leads to greater efficiency, this sacrificial investment approach - which includes long initial years of uncompensated effort - has led to a dearth of important time based services capacity in regions not capable of providing a similar level of compensation for high investment risk. It's an efficiency result which detracts from the coordination efficiency potential of total factor productivity.

Kling's post provided a helpful reference point for models that take organizational divisions of labor into account. One could say that specialization and trade was relatively "pure" in Adam Smith's time, since so many divisions of labor contributed to the actual wealth of tradable product. Indeed, one of the most overlooked aspects of models in general - given services dominance over tradable sectors in developed nations - is that time based services have yet to be organized in ways that contribute to wealth. Alas, budget deficit formation for time and knowledge value is not the same thing. As a result, the fiat monetary structure which supports so much knowledge use and time based endeavor in the present, is not trusted by many political constituents.

Smith - and other early classical economists - recognized themselves as standing "outside" of the actual wealth creation model which they highlighted. Only remember that Adam Smith referred to those who were hired for activity in which time was the only discernible product, as "unproductive". In this framework, one could say that Adam Smith became "productive" not when he was hired to mentor or lecture, but when the separately existing product of his books sold in the marketplace! What would Adam Smith have thought about the changed nature of today's economic realities? One has to wonder, especially when entire markets are built which present problems because they were not conceived as wealth creation structure in the first place.

We Create Our Own Freedom

In "The Intellectual as a Celebrity", Alberto Mingardi wondered why the latest economic "pop stars" (according to the Financial Times), lean decidedly left. Are they iconic because they are beautiful, or because they are so persuasive? Indeed, the anti-market bias sounds "sensible and authoritative", which is why so many people take these individuals seriously.

Too many hours have been lost already this morning in my attempts to respond to his post, so I'll just leave it at this. We create our own freedom. Should we choose not to do so, no government, no private interest is going to secure our economic freedom on our behalf, no matter how much we imagine their willingness to do so.

We can pretend we don't like icky free markets all day long, since it is apparently the cool thing to do, but as someone who lives on a very limited budget, I dare any reader to voluntarily go a month without the economic ability, and/or the right to produce what is meaningful for himself or herself. Believe me it's not as much fun as some imagine. Should we choose not to support the kinds of markets one recognizes as capable of providing true choice, ultimately the result is that we lose our own freedoms - economic or otherwise.

One dangerous aspect of today's economic stagnation, is that governments can't be expected to hire (or otherwise reimburse) us all, even as they attempt to steer markets on our behalf with the "blessings" of private interests. Indeed it is difficult to tell in a time of captured wealth, where any real difference exists between the captured wealth of public enterprise and private enterprise, in the non tradable sectors of the economy.

And the tradable sectors which made freedom and democracy possible in recent centuries, are gradually losing their ability to provide the wealth that the elite of today's non tradable sectors still rely on. If non tradable sectors do not become more inclusive and innovative in an era of growing automation, everyone is going to lose this struggle. No one can expect anyone else to guarantee their freedom, especially if societies remain forced to use knowledge in miniscule segments of approval from high skill sectors. Prosperity will not last long if nothing changes. Democracy would certainly not survive for long. We can do better than this. Let's create a marketplace for time value.

Healthcare and the Value of Facing Reality

Among today's news headlines, Aetna has scaled back on Obamacare exchanges. According to CNN Money:

The insurer will stop offering policies on the exchanges in 11 of the 15 states where it currently operates...

The company noted Monday that it has lost $430 million in its individual policies since the exchanges opened in January 2014. 

Aetna said its policyholders are turning out to be sicker and costlier than expected. 

Of course, even though Aetna is a major insurer, as Jim Pethoukis noted, "All five insurers are now shrinking their footprint." That being the case, what might be expected of U.S. healthcare provisions in the near future?

Facing the reality of what has played out in recent years, is not easy. Even though healthcare has not operated as a free market: as healthcare is currently structured, a truly competitive marketplace would hardly be a straightforward process. Indeed, healthy competition at this point could pose a threat for investments at multiple levels, in general equilibrium conditions. Not only because of the degree to which healthcare markets have reduced competition among their own ranks, but also because of the hurdles that providers have to overcome, just to participate.

Regular readers know this is why I have suggested creating a free market for healthcare, but on terms which don't pose direct threats to mainstream structures. After all: when competition is possible, institutions gain the chance to further evolve, when the need to do so becomes particularly obvious. More competition means more choices, and more product output as well. Consider a positive example in this regard from Shawn Parrish, who highlights what proved to be a win-win scenario via Andy Grove, former CEO of Intel:

As late as 1981, Intel Corp. had massive dominance of the worldwide semiconductor business...They got designed into the IBM PC, one of the first popular computers, in 1981. Life was good.

The problem was that everyone else wanted into the same business...by 1988 Japanese manufacturers had over 50% of the global market. 

Think about it. Healthcare in the U.S. has been able to prevent everyone from getting "into the same business", many times over! But to what end? Parrish continues:

At first, as most all of us do, they tried to cope with the old reality. They tried running faster on a treadmill to nowhere. This is the first true difficulty of facing a new reality. Seeing the world as it truly is. The temptation is always to stick to the old paradigm. 

Even as Andy Grove slowly woke to the new reality, he faced tremendous resistance from those who weren't there yet. Eventually, he was able to convince others to move on, from the memory business into microprocessors, where Intel could once again differentiate itself and effectively compete.

Ultimately, the result for all concerned in the above example, was more product and more choice in the marketplace, especially since protectionism was not a limiting factor. In other words, no one was stopping Japanese manufacturers from contributing to the marketplace. The fact no one stopped them, also encouraged Intel to further evolve.

Unfortunately, this is not the case with U.S. healthcare, which in terms of costs and reduced output has become a victim of its own seemingly fortuitous monopoly. One could say that Obamacare is the latest rendition of an old paradigm of purposely reduced supply, the treadmill to nowhere. Today's healthcare providers are the last ones "standing" - the last ones to preserve and utilize a vast array of valuable knowledge - much of which is scarcely even tapped, given present circumstance. Why go through the pain of adapting or further evolution, if there's no competition that makes it necessary to do so? Given this set of affairs, more individuals are likely in the near future to opt out of professional healthcare, unless they find it to be absolutely necessary.

At stake are millions of lives that could be cut short, if means are not found to bring this vast wealth potential out of the forgotten vault in which it is now stored. Facing reality is not something that can happen overnight. But the sooner that healthcare is given a chance to evolve, the greater the hope for a better future.

Algorithms in Endogenous/Exogenous Time Value Context

Even though the concept of algorithms has existed for centuries, it has gained importance of late. From the mathematical definition, in Wikipedia:

...a self contained step-by-step set of operations to be performed. Algorithms perform calculations, data processing, and/or automated reasoning tasks.

Algorithms could also be considered interchangeable with machines, in the sense of being rules based and consistent. Hence "man versus machine" becomes "man versus algorithm". While people are still employed in this framework, work tends to be exogenously defined, as sought after skills become less amenable to constant rules. Even so, traditionally defined production seeks to provide relatively "less" quality labor over time, in relation to other resource capacity, to achieve the desired result.

 As economic stagnation continues, algorithms of all kinds will play a larger role in the wealth capture that remains possible within traditional means. In some instances, this means more algorithms can be expected to replace workers where it is possible or otherwise appears necessary to do so. Yet the effects this has on productivity can be mixed, when lower labor force participation also means fewer consumers for the further production such algorithms provide.

That's the bad news. The good news is that where exogenously defined employment appears lacking, endogenously defined employment could make up the difference in terms of labor force participation. However, internal or endogenous time value will also focus on whether one's time value can contribute to a product result which exists in an independent capacity. In other words, this time value is somewhat different, from that which provided the partial sets of activity associated with traditional divisions of labor.

The primary benefit of algorithms thus far has been for tradable sectors, which in turn their wealth has extended to nations in general. Not only do exogenously defined divisions of labor make sense for end product that exists separately from time value, the nature of these divisions provides understandable connecting points with other production systems.

Not so, however, for the secondary markets of time based product, which do not readily respond to exogenous time use definition in beneficial ways. Here, productive capacity is lost within overall time aggregates, where individuals can only partially maintain the labor commitments required for externally defined production settings. More internal coordination methods are needed to capture endogenous production gains. However, these are more complicated, because they involve overlapping sets of algorithms (as network connection points), instead of the simpler version of connecting algorithms that occur within tradable sector networks.

One reason democracies have increasingly come under strain, is that nations attempt to approach welfare states as though time based product can be provided via the simpler connecting algorithm points of tradable sectors. While no nation should attempt to scale up overlapping systems for time value, governments do need to provide the option of local overlapping systems for time value, which take mutual sets of coordination into account. By so doing, it would become possible for lower income levels to rebuild and access primary services, instead of putting undue strain on currently existing systems.

These are things to consider, when anyone tries to determine how to personally define work options. Should someone ask, "What are algorithms good at, and what are humans good at?", there's a simple answer. Humans are best at providing product, of which the most sought after quality could be defined as personal attention to the matter at hand. Fortunately, it is possible to provide local and decentralized small scale coordination overlap, for groups which are willing to opt out of the benefits of a welfare state.

Notes on Time Value as a Commodity Market

Time value is one of those rare economic resources, which has yet to be well defined at an aggregate level. However, a marketplace for time value could eventually provide a better understanding of time potential, via its commodification. Even though today's corporations only utilize partial time value, a new form of corporate structure could be designed to function so as to harvest full time value potential, on meaningful terms for the individuals involved.

Of course, this form of commodification would need to be distinguished from a somewhat different partial accounting, which emphasizes what are far more specific sets of skills in the marketplace. In other words, what today's institutions presently ask for, is but a fraction of the skills potential which individuals could likely appreciate from one another. From Wikipedia:

Commodification is the transformation of goods, services, ideas, and not least, people into commodities or objects of trade. A commodity at its most basic...is "anything intended for exchange," or any object of economic value. People are commodified - turned into objects - when working by selling their labor on the market to an employer....Commodification is often criticized on the grounds that some things ought not be treated as commodities - for example education, data and knowledge in the digital age.

Let's consider this explanation. Do people really become "objects" when they sell their labor? Whether or not someone agrees with what is essentially a subjective interpretation, could depend on the nature of the work at hand, the degree of control one has in any given setting, and one's desire to hold on to a particular work opportunity.

On the other hand, commodification of education, data and knowledge has actually become a necessity, to the extent these components provide sufficient (profit originated) income for all concerned. This is the nature of asymmetric compensation, when individuals are compensated via discretionary income and government redistribution. While it is certainly possible to generate working environments where education and knowledge need not be commodified to this same extent, more direct means for wealth generation need to be in place, in order to do so.

Regular readers may already recognize such a possibility, as symmetric compensation. Symmetric compensation would allow time value (arbitrage) to become commodified or prioritized as value in exchange, albeit in local value in use settings. In these settings, specialized knowledge sets and specific educational components would not have to be the primary limiting factors, for productive activity to take place. In knowledge use systems, time value could serve as a specific commodity market - one which would function simultaneously as monetary units and measures of time/resource value. While the monetary value provides a given constant, the time to resource value would always vary.

Granted, some don't understand why I advocate time value as a commodity. Doesn't that "cheapen" time value? Oddly enough that is precisely the point. When time value is held dear, knowledge use, data and education have little choice but commodification, so as to meet the costs of labor expectations. Presently, not only is it difficult to trade one's time value in the marketplace, it is also becoming more difficult to gain access to the time value of others. Further, when governments attempt to amend this situation, they too often do so in ways which don't take existing supply limitations into account. As a result, more money (in the form of redistribution) "chases" an already limited supply, which only adds to the initial problem of access.

It does not help that some reactions towards commodification, can also be too general in nature - even on the part of economists. Of commodification and his concerns about the temporary settings of a gig economy, Branko Milanovic recently wrote:

The problem with this kind of commodification and flexibilization is that it undermines human relations and trust that are needed for the smooth functioning of an economy.

Diane Coyle responded to his post, and while she agreed with the above sentiment, she challenged his questioning of the commodification of what had once been domestic activities in the home:

While I absolutely agree that there ought to be limits to what resources are allocated by markets as opposed to other means, Branko lost me in this early paragraph. "The most obvious case is commodification of activities that used to be conducted within the extended families and then, as we became richer and more individualistic within nuclear families. Cooking has become outsourced and families do not eat meals together. Cleaning and child rearing have become more commercialized than ever before."

The trend towards buying 'domestic' services outside the home dates back decades now, linked to urbanization and women's participation in the paid workforce. The switch from home cooking to 'outsourced' meals, and similar market activities, has saved women millions of hours of labor in the home. I'm all for it.

Indeed, one of the social advantages in general of a switch toward markets (or 'commodification') is precisely the anonymity of the market as compared with the personal (patriarchal) power relations involved in from home production and household/village economic activity. 

Like Diane Coyle, I find the economic freedom aspect of commodification extremely important, especially for anyone who presently lacks economic access. Meanwhile, we are hardly at a point of true economic possibility, so long as time value is not recognized as valuable production potential in its own right.

A marketplace for time value would provide new horizons for voluntary economic engagement. Time value as a central anchor for service capacity, would allow more flexible settings for knowledge, skills and data, than what is now possible. By measuring aggregate time value - instead of always having to make random (disaggregated) judgement calls regarding skills capacity, skill sets and knowledge gains can occur within continuous and measurable timelines. This is important, since there are few benchmarks by which to measure services productivity in relation to tangible commodities.

Also consider time value as a given potential, depending on the years one may actually live. It has proven difficult in part to put a monetary value on life, because only a portion of aggregate time value is accounted for monetarily on general equilibrium terms. For instance, time value potential particularly matters, when considering whether to go into debt for what could be a lifesaving surgery. Indeed, such a decision will depend on whether one has already had previous major surgeries, along with the success rates of surgeries on the part of one's family and friends.

By incorporating time value into mutually desired services, lower income levels could eventually realize gains in life expectancy, much as has already occurred for higher income levels. By far the best way for low income levels not to impose on the existing resource capacity of today's general equilibrium, is to generate additional wealth capacity within a low income spectrum, in the form of valuable skills sets and local asset formation.

As a commodity market, units of time would gain a common monetary value in the form of a commodity price - one which would hold across other knowledge use system capacity within a given nation. With this price as the primary constant, local quality of life adjustments in asset and skill formation can readily be ascertained, since aggregate time units become a base measure for productivity gains over time.

For building components, it helps to remember that many quality of life adjustments come in the form of innovation that minimizes the need for constant maintenance and expensive replacement costs. While these structural innovations would reduce basic housing costs, they would particularly reduce overhead costs and risks for local business formation.

Hence while time value for knowledge use systems would held constant in monetary terms, other resource and time value capacity would vary - initially and over time. Different equilibrium corporate structures would generates varying sets of resource capacity, which would also reflect the level of innovation they are able to tap, both through internal means (local invention) and external sources. By making time value a given commodity value on monetary terms, knowledge use systems would be able to generate structural reform which would eventually contribute to productivity gains as well.

Notes on the Nature of Time Based Services Product

In a sense, time based services product is no different, from product which exists independently of current time value. After all, both are intended for practical or experiential ends, and occasionally both. However, tradable product - thus far - has proven more tangible and quantifiable, than the nature of our human capital.

Perhaps this helps to explain how time based services product is increasingly trapped in a poor market position - one which also stands in the way of long term growth. These forms of product tend to be harshly judged, especially since asymmetric compensation does not directly contribute to wealth. Not only are too many knowledge based services severed from the benefits of free market coordination, their costs and exclusive nature increasingly detract from the efficiency of markets in general.

Time based product is not well represented or dispersed, either in terms of supply or demand. No one really knows how product preferences would be prioritized (as human capital primary wealth) since today's secondary markets for time value are funded solely through discretionary income and redistribution. As such, without a designated marketplace for time value, human capital is not yet capable of functioning as a direct source of wealth creation, or marketplace integration.

Should time value become possible as a primary market option, people could more readily tap aggregate time value, along with the extensive investment human capital requires even in minimal circumstance, for mutual coordination functions. In particular, today's supply and demand problem for knowledge product needs to be addressed, before nations become even more inclined to retreat into mercantilism, as a response to economic stagnation.

Whereas tradable sectors provide production growth via smaller sets of quality time value in relation to other resource capacity, time based product would contribute to productivity with larger sets of quality time value in relation to other time value potential. In knowledge use system settings, coordinated aggregate time value would gradually lead to higher quality knowledge use options. This internal organizational structure realizes productivity gains (minimal service product costs) precisely because it internalizes time based supply and demand for the participating group.

Of course, the hardest part is finding a way to begin the process. After all, exploring the nature of service product potential would feel crude, initially, in contrast to our expectations conditioning for a secondary marketplace which dictates the majority of our service product options. Even though consumers are vocal about product choice, it's not easy to pinpoint precisely how people relate to time based product. Plus the dynamic interaction between individuals for knowledge based production and consumption, does not readily adapt to scale and replicated settings.

Present day arguments for basic income, don't address the fact that gainful employment is one of the most important forms of 21st century time based service product. In some instances, those who advocate for basic income may see passive compensation as a way to "make up" for the lack of meaningful work. Unfortunately, if someone has a great job they know others desire but may never experience, this advocacy makes a certain amount of sense. Which is all the more reason to generate meaningful work on a new set of terms, instead.

Just as personal investment doesn't always match up with desired employment opportunities, so too the logistics problems which make it difficult to coordinate even the most basic time based services with others. All too often, people have to make hard choices regarding time use, because of the ways these travel and time related logistics play out.

How to think about this? Is it possible to work more closely with mutual logistics issues for productive gain? Only consider how corporations have organized groups in recent centuries to carry out time coordinated patterns for supply. What has been missed, is that institutions could design local living and working arrangements not just to facilitate supply coordination for a given product set, but for supply and demand coordination for multiple product sets as well. A purposeful design such as this would assist local groups in overcoming multiple logistical problems that otherwise limit their time based service options - not just in the course of a day, but also a week, month or given year.

Another important factor for time based coordination, are the ways in which time based tasks are differently valued. While some of the differences in valuation are imminently understandable, they still need to be approached in ways that make it possible for people to effectively arbitrage their time in relation to one another. One way to approach this process is noting that families often share tasks of multiple skill levels as a matter of course, in order to accomplish desired ends.

While a strong association with given sets of skills is understandable, this association limits one's options for engagement in any environment geared towards small scale economic complexity. For instance, many forms of today's time investment patterns, automatically limit the circumstance by which one can readily coordinate their time with others. By way of example, the highest valued skills sets of the present, primarily exist in a limited number of regions. This would not be such a negative, were it not for the fact those limitations often involve skill sets for time based services which are sought by millions of individuals beyond those regions.

Wealth is especially associated with spontaneous agglomeration for knowledge based activity. Even though this makes sense, organizational capacity for asymmetric compensation is too limited, in relation to the personal investments required for these knowledge use patterns. Symmetric compensation for time based services product, would make it possible to maintain today's high expectations for human capital. Even though the financial rewards would not be the same, reduced risk and greater economic stability, would more than offset any monetary "loss".

"Forgetting" How to Grow

Ingenuity is not "dead". Why, then, has it become so difficult to create product which more closely approximates what people actually want and desire, across the entire spectrum of their lives? After all, this is what economic growth is really about. If there were a simple way to sum up the uncertainty of the present, perhaps the above title could qualify. Economic growth - disparaged though it has become of late - is nonetheless the best means we collectively have, to manifest the kinds of choices which also translate into personal freedom and a strong desire to live.

Even though some pundits and policy makers are still willing to support free markets as they currently exist, the potential for truly free markets - particularly those of knowledge based services formation - is scarcely in the beginning stages of what is actually possible - especially in a digital age. The fact such possibilities are forcefully being held back, given the countless investments in this capacity, endangers the entire edifice of today's wealth structure to a greater degree than it may seem. Hard restrictions in knowledge use, make it easy for all concerned to dismiss a wide range of existing resource capacity which - if given the chance, could contribute to a better reality than what we inhabit now. Few have had the chance to discover the desirable nature of economic growth, as it also relates to the potential for personal growth.

Indeed, special interests disallow innovative product creation in non tradable sectors on a regular basis - a process which increasingly limits knowledge use in populations as a whole. Furthermore: to what degree does a corresponding refusal to innovate our physical environments, influence the higher labor costs which also impact productivity? It is impossible to say.

Too many have forgotten that economic growth via innovation, is the best way to ensure that reasoned logic and practical knowledge remain a part of political and social dialogue. Hope for the future - in the form of growth and new product potential - could ensure that combined societal efforts are about coordination of useful and innovative ideas, instead of the present reality of public personalities which mostly fall back on demagoguery and/or empty promises.

Economically speaking, growth is new supply side contributions for aggregate demand, which means new product and the requisite monetary representation this additional choice entails. Thus far, however, even the dialogue which is supposedly about growth, is really about shifting claims on what is essentially already existing wealth. For instance, from John Cochrane's response, to a call from Larry Summers to create more "demand for the product of business":

Leave aside the last 30 years of growth theory, which is silent on "demand", we can do nothing better than move around 1970s era IS and LM curves, and revive ideas from the 1930s?

Granted, Cochrane was pleased that Summers wanted the Democratic party to take greater notice of a need for growth. He was just disappointed that such a call could mostly take the form of a fiscal wish list, which may or may not correspond with any actual marketplace gains. When policy makers begin to discuss various ways to raise income so as to meet the consumption requirements of business, why is this not a red flag for corporations that something about supply side structure is not working properly?

Worse, government fiscal wish lists are a drop in the bucket of staked claims on existing wealth - claims which take a myriad of forms. It is proving too easy, to confuse wealth capture with productive gains in aggregate demand. But the more insidious problem in this regard, is a growing public and supply side response, which seeks claims on already existing wealth via trade protectionism. Truly, both fiscal wishful thinking and protectionism, are indicative how easy it is to forget, that it is still possible for our society to grow.

History has reminded us too many times, that when growth and economic options are limited, political factions fight all the more over what remains. Finally, citizens grow so weary over the constant feuding, that they become ready for someone to put an end to the struggle. Hence support only grows for an authoritarian state which will do so, even if on terms that everyone does not agree with.

As Timothy Taylor notes, this support is also growing among younger individuals, who in some respects have not experienced the same freedom to express opinions and ideas that was possible, only decades earlier. They deserve better than the limits we have arbitrarily imposed on ourselves, in recent decades. Hopefully it is not too late to turn this unfortunate circumstance around. As a libertarian, it is not enough for me to simply believe in free markets. I have to do whatever is possible to help bring them about, even if it sometimes seems impossible to do so. Life without the spark and dynamism of economic freedom - the solitude and burdens such an empty life can create - is not something I would wish on anyone.

Could Time Linked Productivity Contribute to Output?

While I'd like to answer in the affirmative, time linked productivity - as concept - is still hypothetical conjecture. And it took more time than usual to write this relatively short post, because of the latest set of discouraging productivity statistics. Still, it could be advantageous to design sets of stronger resource links for time value, that are capable of providing a durable system option for economic access. These links would provide additional economic support, for those who either lack work, or lack a level of monetary compensation in their work normally associated with normal routines and responsibilities.

Productivity - as linked to time value - would certainly be a different route to achieve quality of life gains. Nevertheless, simply having this choice could also reinforce institutions which will continue to rely on traditional productivity means, well into the future. Ultimately, by generating more production, consumption, and mutual support for time based product, greater services demand would eventually translate into other marketplace gains as well.

Time arbitrage is also preferable to leaving labor force participation levels to chance, in a time of growing automation. Time linked productivity is a easy reference point in association with time linked money. These directly related concepts serve as reminders that humans are social animals, who benefit from personal attention and mutual assistance. Without time based product as a part of daily economic exchange, it would eventually become more difficult for individuals to appreciate many technological benefits, substantial though they are.

A primary advantage of time linked productivity, is that service generation would take place as a coordinated structure over time, so as to accurately record services product and leave no residual debt. This process could increase social capital, along with basic knowledge and service based functions which too many individuals now tend to perform on their own behalf - if at all. Time arbitrage could eventually assure that when individuals have inadequate access to asymmetrically compensated labor, they are still able to function in cohesive economic settings capable of contributing to life and longevity.

Admittedly, these are different ways of thinking about productivity and output. After all, a basic function of time arbitrage is one of maximizing compensated time value - rather than minimizing the amount of compensated time use necessary in the marketplace to achieve productivity gains. Until now, maximizing time value has been a matter of tending to one's own personal investments and commitments. While this would still hold true, these ongoing efforts would also accrue to group gains in knowledge use and services capacity, as well.

Thus far, greater productivity has been achieved by decreasing the amount of compensated time that is necessary, in relation to other forms of resource capacity. This has indeed been a rational process for centuries, since nations have simultaneously been able to increase the amount of existing product which need not include time value as a part of the final good. This gradual increase in tradable goods options and the secondary markets they made possible, meant more options for employment as well. Only as this fortuitous process has begun to slow, does it seem a parallel means of social support for time value is also needed, in order to continue growing the productivity that is a direct component of time value.

Otherwise, productivity statistics may continue to mystify, especially when incentives are sufficiently skewed that institutions gain by seeking access to those who gain from rigid limits in compensated time value. Instead of limiting economic time value to a special few, why not extend useful time value to as many individuals as possible, via marketplace positioning instead of yet more educational "tickets" sold to gain economic access. Ultimately, doing so could unravel some of the present mysteries that surround the problems of productivity.

Aggregate Demand - Some Monetary vs Real Economy Factors

The real economy creates product, while central bankers are responsible for supplying the money that represents said product. It's what aggregate demand is all about. Yet even a basic economic construct such as this can become garbled, when policy makers and supply side factions end up obstructing what should be a straightforward process regarding GDP output.

In spite of occasional appearances to the contrary, accurate monetary representation for aggregate demand is the primary responsibility of central bankers. Their monetary policy role is all the more important, given the fact no other institution is equipped to remedy the problems central bankers can generate - problems which often continue to ripple across the entire economic spectrum.

For instance: aggregate demand as monetarily representative of final goods and services, is not to be confused with changes in specific income sources. Nevertheless, Hillary Clinton and others have reasoned that that wage gains for certain workers, could substitute for the wage gains that would otherwise result from greater labor force participation and output. And from Scott Sumner's response:

This is voodoo economics on steroids. Most economics textbooks are written by left-of-center economists, and I don't recall this sort of argument in any of them. For good reason.

Even if wage growth led to more demand (it doesn't) the Fed would simply raise interest rates enough to prevent demand from rising. I was especially disappointed to see some famous economists endorse her message.

Of course, something similar to this reasoning only exacerbated unemployment, during the Great Depression. John Cochrane also was not happy, about what he calls the federalization of labor.

We are getting a good hint that a centerpiece of economic policy in the Hillary Clinton administration will be an increase in Federal control over labor markets.

All of which reminded Arnold Kling of the earlier "cutting taxes will reduce budget deficit" rationale, hence his retort:

So where we once had supply-side voodoo economics, we now have demand-side voodoo economics. Just what we needed.

Why has so much lousy reasoning surfaced, instead of concerted efforts to regenerate long term growth potential? Regular readers aren't surprised that I blame some of this unfortunate dilemma on supply side intransigence, which has gone on long enough to finally cause real problems for the Republican party. There's too much willingness on the part of special interests all around, to leave blame, inaction and economic gridlock at government's door.

Yet this unwillingness to generate a broader and more inclusive marketplace, only means further problems, as policy makers continue to make completely unrealistic promises to constituents. Why, instead, don't governments give their citizens more means to assist one another on economic terms? Little did I know, in one of those overexcited early posts, how many obstacles stood in the way of "creating our own demand". Indeed, an article from Peter Thiel serves as a reminder, how "old school" I must be, with my (apparently) irrational hope for the future:

Technology means doing more with less. In the absence of technological progress, we end up with a zero-sum world, in which there must be a loser for every winner. It is not clear whether a capitalistic economic system could function without growth; and it is unlikely that a representative democracy, which requires the give-and-take of win-win compromise, would continue to function.

Instead of learning to do "more with less", special interests sometimes prefer to hold already existing incomes hostage, to rigid sets of standard of living expectations. For building construction, product "choices" mean "more with more" building requirements, which mostly view technological innovation as an intrusion on "the way we've always done it" non tradable sector activity. Hence the challenge for production reform in building and construction, is getting innovation to do more with less where doing so isn't a threat to the status quo.

That said, how would "more with less" - in terms of production reform potential, be possible via time based services product - which requires more time input, instead of less? Indeed, "more with less" in this regard requires thinking a bit differently. A common time template (game board) would make it possible to capture personal and group time investment commitments on incremental terms. By generating incremental gain (compensation) for in process personal time investment, fewer knowledge and skill based commitments would be lost from the marketplace, as individuals and groups work together to generate new time based services product.

Symmetric coordination means a restoration of maintenance functions for knowledge use, which have become increasingly threatened by limits to asymmetric compensation. A coordinated base for ongoing knowledge and skill based activity, provides more productive output in terms of both personal value, and the contributions of a given participating group, over time.

By using human capital investment as a stepping stone through the course of a lifetime, it becomes possible to smooth consumption between generations, particular for the product which is most in demand for the 21st century: knowledge use. Potential for aggregate demand growth need not be a mystery, so long as individuals can participate in the forms of aggregate supply which matter the most, on real economy terms.

The Asymmetric Limits of Quality Labour

One of my chief concerns about asymmetric compensation, is that in spite of the fact it is a rational response to wide variations in skills capacity, asymmetric compensation for time based product, completely depends on other forms of wealth (discretionary income or government redistribution) to occur. What's more, some of what appears as though new growth in terms of goods and services provision, is in reality further claims on existing growth, which may or may not maintain a given wealth creation structure already in place.

Just as individuals once depended on agrarian societies for incremental growth, personal time value as a resource, needs more definable forms of incremental and ongoing supply at local levels as well, in the present. Unfortunately, however, this important service product option is held back by static versions of knowledge use, as today's institutions cope with a definition of services productivity in need of a 21st century update.

As a result, many aspects of knowledge use have become overly dependent on private industry and government, as benefactors. Consider how even in a time of slow progress, labor quality growth has been strong in the past fifteen years, although it is now expected to decline in the coming decade. In the above linked working paper from the Fed, the authors note:

Strikingly, the growth and acceleration of labor quality since 2002 has a very different source than it did in the half century before that. In the 20th century, the primary driver of labor quality increases was rising educational attainment. In contrast, since 2002, the source of labor-quality growth has been a shift in the composition of employment away from low skilled and toward higher skilled workers.

...Our work reinforces the view that labor-quality growth will add less to growth in productivity and output than it has historically. That said, the actual path of labor-quality is sensitive to uncertainties about trends in employment rates and, to a lesser extent, educational attainment. These differences will show up in productivity growth, but whether they matter for output growth depends on the degree to which they are offset by hours growth. This highlights a takeaway from our analysis, namely that labor-quality growth and hours growth are often negatively correlated. An important implication of this is that forecasts of overall labor input growth, or quality adjusted hours, are preferable to independent projections of labor quality and hours.

Notice the tension in what is sought and what appears as though possible, in terms of productivity and hours in the above quotes. And for the most part, work indicative of productivity gains has been more closely aligned with higher income levels, as opposed to aggregate hour quantity. Yet how does this square with the fact that a broader range of population needs economic participation in the near future, for a longer duration in the course of their lifetimes? Is it possible to achieve outcomes with relative gains for knowledge use, without substantial losses in productivity and quality labor? Again, consider the tension in the fact that education now provides diminishing returns, even though it has provided the most logical course of action for greater productivity gains over time.

At root, there is a growing problem with asymmetric compensation for desired levels of productivity (in standard terms), and the resource sources (in aggregate) this form of compensation has benefited from, for so long. Present day education investment structures have been structured along the same lines of wage and income expectation, in terms of personal commitment and responsibility. Even though higher education is still perceived as vitally important for economic access, a higher degree of investment risk is involved, as institutions find themselves in the odd position of suppressing applied knowledge use in real time where possible, to maintain standard productivity outcomes and budgetary needs.

There's a way to overcome this problem. But in order to do so, time value needs to become more closely linked with group coordination and asset formation, to alleviate the lack of resource capacity which contributed to high level income representation for so long. Otherwise, recent gains in skill quality and time investment could be lost, as individuals shift toward more basic and less productive means of survival, should they lack sufficient economic access to remaining knowledge based work. It is all the more important to prioritize new wealth creation and output in time based services product, since services also play a greater role than manufacture in overall demand levels.

Symmetric compensation could eventually support high skill knowledge use, without the extensive resource capacity and investment which is necessary now. The need for symmetric knowledge compensation is becoming more important, as an ever growing percentage of today's asymmetrically compensated capacity is now designated as response to emergency circumstance and settings. Such default settings for knowledge use, leave little remaining compensation (from discretionary income and redistribution) for daily maintenance and ongoing knowledge functions.

What if knowledge use were to become more scarce, than what is presently relied on? Indeed, the Fed paper linked above, seemed to worry about that possibility. Is knowledge wealth more fragile than it seems, when it is mostly defined through the value of knowledge providers who came to define the most important boundaries of knowledge rent and use? Once, knowledge in its infinite variety, experience and usefulness, seemed as free as the air we breathe and the water we drink. A quote from David Ricardo inspired this post, and I have included it below. Some may also recognize his quote as my own (somewhat hackneyed) attempts to explain, how time aggregates as a whole are diminished by the definition of healthcare provision:

It is true that a man in possession of a scarce quantity is richer, if by means of it he can command more of the necessities and enjoyments of human life, but as the general stock out of which each man's riches are drawn is diminished in quantity by all that any individual takes from it, other man's shares must necessarily be reduced in proportion as this favored individual is able to appropriate a greater quantity to himself. 

Let water become scarce, says Lord Lauderdale, and be exclusively possessed by an individual, and you will increase his riches, because water will then have value; and if wealth be the aggregate of individual riches, you will by the same means also increase wealth. You undoubtedly will increase the riches of this individual, but insamuch as the farmer must sell a part of his corn, the shoemaker a part of his shoes, and all men give up a portion of their possessions for the sole purpose of supplying themselves with water, which they before had for nothing, they are poorer by the whole quantity of commodities which they are obliged to devote to this purpose, and the proprietor of water is benefited precisely by the amount of their loss. The same quantity of water, and the same quantity of commodities, are enjoyed by the whole society, but they are differently distributed. This is, however, supposing rather that a monopoly of water than a scarcity of it. If it should be scarce, then the riches of the country and of individuals would actually be diminished, insamuch as it would be deprived of a portion of one of its enjoyments. The farmer would not only have less corn to exchange for the other commodities which might be necessary or desirable to him, but he, and every other individual, would be abridged in the enjoyment of one of the most essential of their comforts. Not only would there be a different distribution of riches, but an actual loss of wealth.  

More Defense of Capitalism and Say's Law Potential

Today's thoughts are, in part, an extension from my previous post. Again from Wikipedia:

Say's Law has been one of the principle doctrines used to support the laissez-faire belief that a capitalist economy will naturally tend toward full employment and prosperity without government intervention. 

Some who question the validity of Say's Law also have their doubts about capitalism in general, so I googled capitalism and found "An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than the state." Which in turn reminded me of a long-lingering question: have capitalism's critics taken into account, that much of what defines present day wealth, actually lies outside of this (basic) definition of capitalism?

Or, put another way: if capitalism "gets the blame", what exactly is "at fault"? Are we to blame capitalism for the shenanigans of finance, which is an entirely different set of problems? Perhaps the most concerning issue for "trade and industry" is that these institutions can't always be relied on, to maintain jobs in specific places for specific populations. But by the same token, neither can populations be counted on to want any given product that these industries may produce, for any length of time!

Carried a bit further: why should any population be expected to consume a particular product they no longer want? Or, how often has local employment and investment flourished for decades, due to a corporation's fortuitous ability to command a global market, even though such gain ultimately proved temporary? For twentieth century corporations, mass production often meant that local consumption was simply not enough to keep going as a business enterprise. The latter thought is also the other side of the coin for protectionism, despite the fact that citizens associate companies as national entities.

Instead of expecting the traditional corporate entity (with its relatively fixed supply structure) to provide lifetime employment, why not build a new corporation for local communities, one for which survival need not be put at risk by shifting consumer preferences? An internalized supply and demand framework could provide local economic stability, and an inclusive knowledge use continuum over time. However, a completely different set of organizational factors - hence expectations in terms of outcome - are at stake. Organizational capacity such as this has yet to be set into motion.

Whereas many resources are capable of mobility, time based product is in many respects location dependent. Products which include time value and knowledge use, have yet to benefit from extensive local support and mutual commitment. Thus far, however, both public and private education have moved society in precisely the opposite direction. Indeed, education is often perceived as means to "escape" underperforming communities and regions, instead of generating positive economic complexity in the midst of our actual habitats. Today's formal education contributes to this escape mentality, by externalizing or isolating skills potential, and further exacerbating what are already existing differences in human capital.

No good purpose is served, to suggest capitalism needs to be replaced because it appears deficient in providing long term employment stability. Especially whenever a definitive aspect of product supply, calls for a relatively mobile set of organizational capacity, in order to take place. For all intents and purposes, the organizational capacity which generates tradable sector flows, functions fairly well at a basic level.

Rather than imposing further restrictions on the resource mobility of tradable sectors, governments need to closely reexamine the nature of their involvement in non tradable sector activity. Non mobile characteristics of non tradable sectors have been hijacked by wealth capture too many times, which explains why income potential has stagnated in recent decades. In many instances, the crony coalitions of government and non tradable sectors have flatlined income, in ways that threaten to undermine centuries of prosperity.

Citizens, not governments, hold the ultimate responsibility for defining demand, even though the monetary systems of their governments are solely responsible for backing already existing aggregate demand. In particular, a higher level of demand based growth than is presently being experienced, is something that individuals will need to rediscover, and recreate, for themselves. This growth potential is not to be confused with arbitrary wage increases or more government involvement in the economy.

It's time for governments to make more economic room for their citizens to use the knowledge that they have invested in so heavily, especially in recent decades. Otherwise, the rationale for higher education will slowly become more dubious over time. There is little point in deriding the concepts of capitalism or Say's Law, especially given the fact considerable room was made for more employment in the twentieth century, via an expanded educational structure. Now, the fruits of all that knowledge investment, deserve their own place in the sun, with a marketplace for time value.

Say's Law, Time Value and the Secondary Market Problem

The subject of this post deserves a lot more attention than I'll be able to give it today. However, at least these thoughts serve as a renewed starting point, in response to Say's Law "denial" reasoning. While I've not found the typical objections of recessionary "general gluts" or withheld savings particularly compelling, what amounts to a secondary market for time based knowledge product, is compelling, in terms of employment and shifts in output.

When classical economists were still advancing their arguments, many forms of services were scarcely enough of a marketplace component to be taken seriously. And "unproductive" though the knowledge based employment of these earlier economists might have been (according to their own language), their observer role was invaluable. These early understandings of wealth formation, also made it possible to determine what was responsible, for the progression of supply and demand from a given point in time.

Whereas now, the extensive nature of services product in the marketplace, makes this process more difficult to discern. Some problems in this regard are apparent in an Investopedia interpretation, which includes a bit of wishful thinking:

According to Say's Law, when an individual produces a product or service, he or she gets paid for that work, and is then able to use that pay to demand other goods and services.

What's at stake in the above quote? For instance, does this individual's production generate product which represents a new addition to output? Or, is he or she compensated via redistribution, instead of the proceeds from new product? Another consideration: to what degree does one's spending patterns contribute to new product formation, versus other forms of consumption? Asymmetric compensation for time based product on the terms of a secondary marketplace for time value, does not advance the cycle of new supply and demand. Instead, asymmetric compensation provides some means to maintain the marketplace which already exists.

Regular readers may recall my defense of Say's Law from earlier posts, and I apologize for letting too much time get by before making a closer examination of the secondary market problem. Is cynicism or ridicule of Say's Law warranted? I want to say "no", but who really envisions a new unit of tradable goods value as a guarantor of equal value in time based service product - if indeed that is what is sought?

Despite the fact money equally represents goods and services, this does not mean goods and services are automatically interchangeable, in aggregate. As a secondary market, time based service product corresponds to disposable income or redistribution, instead of the broader coordination which takes place via today's tradable sectors. Consequently, it's not possible for asymmetrically compensated time based services, to hold a dominant or wealth originating market position, in the same sense as tradable goods.

Again, as someone who wants Say's law to remain a valid construct, I continue to promote the potential of time based services as a primary market, to address the problem of balance between tradable and non tradable sectors which presently inhibits growth and employment. Also, the Wikipedia quotes below serve as a reminder, just how different the marketplace really was when Say's Law was envisioned:

"A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value...As each of us can only purchase the productions of others with his own productions - as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase." Say further argued that a general glut (the term used in Say's time for a widespread excess of supply over demand) cannot occur. If there is a shortage of one good, there must be unmet demand for another. "If certain goods remain unsold, it is because other goods are not produced. 

I wish I could shout those last two sentences from the rooftops. Despite current services based wealth, there is not enough aggregate participation in the form of production and consumption, for time based services product. As a result, demand for the product of tradable sectors is also lacking.

And the first part of the above quote echoes my description of primary markets, which today happen to be the tradable sectors which serve as a point of wealth origination. In these markets, the value of each product, can readily be met by that of another new product. Time value could accomplish this same function, should symmetric compensation create time based services product in a quantifiable form. However, when time value exists solely as a partial and secondary market, that lack of representation distorts the actual contribution of time based product in the marketplace. This service formation also appears as relative inflation, in contrast with the good deflation of manufacture and tradable sector production.

Fortunately, one process for bringing time value into accordance with Say's Law, is also a process which makes it possible to quantify productivity for time based services product. However, in order to do so, time value needs to be utilized as the standard unit of measure it actually represents, in relation to itself. Once time value is coordinated along a continuum, it becomes possible to match (purchase) new time based product with other (newly emerged) time based product.

Granted, there are plenty of well reasoned arguments against symmetric compensation as an economic option. At this point, however, rationale re underlying differences in ability, could further derail long term growth patterns. Even though aptitude widely varies, it no longer makes sense to purposely exclude individuals from the workplace. Long term growth and gains in output remain possible, through greater economic inclusion.

Notes on Human Capital, Missing Rents, and Manufacture

Today's services markets, extensive though they are, are nonetheless structured in ways which make their lack of human capital participation less obvious. Presently, only a limited portion of human capital is tapped so as to allow individuals to tend to daily affairs on economic terms. And much of the employment in this regard, takes place via the asymmetric compensation of secondary markets for time based product. It is the lack of conceptual space for knowledge participation, which currently limits employment potential, and distorts the capacity of both tradable sector and non tradable sector formation.

Some would ask: why should it matter? Yet among the many reasons it does matter, too many individuals end up structuring both the pragmatic and experiential aspects of their lives, as solitary endeavor. One has to wonder, how many solitary efforts might gain greater personal and social significance, if they could be shared with others in recognizable forms of economic product? Untapped human capital is not just potential employment, it is the best 21st century possibility for greater productivity and output. In many instances, human capital is ending up either as previous forgotten investments, or else lost investment potential. Worse, lost economic potential, equates to loss of human freedom, in relation to others in the marketplace. Why is human capital so underutilized?

Something about marketplace rents is part of this mystery. As Bill Woolsey recently suggested, a scarcity of rents could well be responsible for a lack of labor where it might otherwise be found. He mused that even though jobs aren't scarce, labor could well be scarce because rents are scarce. Let's think this through a bit, in terms of time based service product. Purveyors - or marketplace providers of knowledge - limit the supply of knowledge use (aggregate knowledge rent potential), hence employment, in the marketplace. Their position is occasionally strengthened, via reasoning that a general rise in wages will lead to greater output. However, a rise in wages without a rise in time based services employment, doesn't lead to more time based services output. Instead, already existing rents within already existing income, gain additional benefits.

A similar strategy results in additional government subsidies for education, which can lead to skills beyond what many of today's institutions actually need. Indeed, rent pooling in concentrated form, is reflected by skills acquisition in concentrated form. Today's education is sold as (hopeful) economic access to those areas of concentration, rather than actual increases of marketplace representation for the use of knowledge product. Consequently, "free tuition" will not put more pieces on the game board, in terms of one's options for knowledge based endeavor in the marketplace, upon graduation.

If education is to actually grow the marketplace, time based knowledge product will need to gain experiential and pragmatic use in the same context as holds true for manufactured product, in all places and time frames. Even one's tradable knowledge product (an author's non fiction books for instance) has limited marketplace context, if potential consumers can't use those products to generate economic interaction with others. In other words, educational product can only be sold as economic access only up to a point, and that point may have well been reached in the short term. Meanwhile, today's formal education does not position most individuals to utilize knowledge in either a practical or experiential context. Just as Scott Sumner noted in a recent post, a greater supply of education to expand educational access, hardly gets to the root of the problem.

Employment limits in terms of human capital, also means hard limits in today's supply side circumstance. However, knowledge rent potential needs to be approached with a recognition of the marketplace variations in ability that currently exist. There's nothing wrong with these variations, especially given the fact knowledge use constantly takes place across a wide spectrum of possibility. Only envision knowledge use as the fruits of the field, and the practicality of making good use of all the fruits. Even though common sense often prevails for the product that can readily be seen, a leap of faith is necessary for the product which cannot be seen, until it has a chance to come into existence in the marketplace.

More knowledge based employment, would gradually increase demand for manufactured goods, once again. It is particularly important to remember that a general rise in employment would benefit manufacture, more than any other initiative that governments could possibly take on behalf of manufacture. Yet there are signs that governments are becoming anxious to find means to spur manufacture, given the fact that other forms of economic activity have not "paid off" in productive terms. In a recent interview with David Beckworth for example, Brad Delong expressed his frustration that healthcare had certainly not provided the productive capacity that was needed, in terms of government revenue potential.

All dreams of additional government revenue aside, manufacture can only provide, insofar as a country's citizens are also given a chance to provide. Whether or not future manufacture experiences good deflation or is instead subjected to more bad deflation, may well depend on whether populations are able to generate knowledge and time based product, so as to maintain productivity and output, well into the future. Previously, the rent potential of land came in varying degrees, and the same holds true today, for many aspects of knowledge use.

However, individuals can make up for these small rents in the same ways they did in the past, via acknowledged supplements for time value. Instead of relying solely on the years of employment in one's prime, knowledge use participation could be symmetrically compensated through the course of a lifetime, a cumulative process which in many respects would make up for the lack of a higher income. Much as no one need worry about retirement from tending gardens, no one has to retire from productive knowledge use. There is only a lack of imagination, for a sufficient amount of knowledge rent to maintain populations well into the future.