Tuesday, August 2, 2016

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.

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