Economic Stagnation: Build a "Fire" That Will Last

Even though there are multiple structural factors, today's economic stagnation has a strong monetary policy component (the Great Recession as beginning point) with a continuing residual effect, due to tight monetary reasoning. Central bankers never fully honored aggregate spending capacity when it was most needed, during the negative shock of rising oil prices. In all of this, the financial fallout was an effect, not a direct cause. Nevertheless, what would likely have been a garden variety recession, consequently turned into the Great Recession. What, however, are also some real economy contributions to this unfortunate circumstance?

There is a lack of understanding about the organizational capacity which contributes to direct wealth creation, as opposed to economic activity which presently "piggybacks" earlier wealth in order to take place. Consequently, there are problems for overall output in relation to debt structures. While a certain degree of secondary marketplace activity is a positive in terms of economic complexity and income levels, it is dangerous to rely on this mechanism without sufficient first market activity, for too long. First market activity might also be thought of as the kindling for a sturdy fire, along with the application of logs which burn for the longest periods.

Today's economy is reminiscent of a fire which is blazing brightly, but not enough sturdy hardwood has been contributed to make the process long lasting. Suddenly, such a fire, while appearing quite substantial at the time, could quickly die down. Indeed, the secondary market wealth of nations is vulnerable to these conditions, if and when primary market organizational patterns are not sufficient to maintain economic "warmth". What about the "filler" responses that policy makers are resorting to, for a quick blaze?

1) The mercantile response is one of the more unfortunate, given the fact Adam Smith explained how protectionism could reverse wealth creation processes, before the United States was recognized as a nation. What could explain a reversion to this antiquated reasoning? Again, think of the fire. Even though what is sought is sturdy hardwood (primary market activity) tradable sector activity that is reduced at an international level can be likened to a fire in which the damper has been shut, so the fire does not have sufficient oxygen, to burn. In particular, present day general equilibrium needs a tremendous amount of "oxygen" in order to work properly.

It has proven easier thus far, for politicians to take the short sighted and backward mercantile approach, than to initiate a serious public dialogue regarding growing automation in today's basic employment structures. Automation ultimately affects every job description, if and when a public does not work together to redefine employment on new sets of terms. And it's the response to automation which nations and their citizens need to fully address now. There is a simple way of doing so. Acknowledge the importance of time value as valuable as any other product in existence. Do so, before time value is essentially done away with in more aspects of productive organizational capacity, than is already the case. Turn time value into a local hardwood well suited for burning, so that policy makers back away from the idea of "reclaiming" hardwood from other nations.

2) A low interest rate environment as a "bonus" for government spending, response. Both private and public debt become problematic, when secondary market formation threatens to overwhelm primary market activity. This secondary market dependence can also quickly dampen what appears as though a sturdy fire, should populations find reason to doubt their nation's ability to fulfill collective fiscal obligations. The low interest rates of the present are not an economic positive. Not only does this low interest rate environment contribute to confusion regarding monetary policy theory, it lends false hope to fiscal responses and financial reform as structural means for problem solving.

Too much of the marketplace has become structured along secondary market lines, which greatly contributes to the initial investment problem, and (in this instance) the low interest rate environment. Again, planting more hardwoods (organizational capacity for knowledge use) for a sturdy fire, would contribute the needed real economy response which could eventually lead to more investment, and a higher natural rate of interest.

3) The negation of the importance of supply and demand in a changed economic environment, is also wishful thinking writ large. Whereas the wrongheaded response of mercantilism at least recognizes the reality of primary market activity for fiscal transmission, this supply and demand reasoning ("money doesn't matter"), misses the importance of supply side organizational capacity. In fact, public and private organizational capacity can both be problematic, when they take advantage of resource constructs that are not their own to rightfully assume.

Negation of the importance of supply and demand, also goes hand in hand with the wishful thinking that governments are able to tend to long term growth and output via their own means, when real market actors prove recalcitrant to do so. One reason it can be easy for progressives to bash supply and demand, is the fact too few free market advocates on the right have highlighted the lack of free market supply, for knowledge based wealth creation. And the size of the fire (an economic environment) will ultimately be limited by the good hardwoods which are planted for this purpose. Let's plant more hardwoods for the fire.

Wrap Up for November 2016

There were two really good quotes this month I'd like to note, first. Lars Christensen tweeted this:

Republicans are Austrians when they are in opposition and Keynesian when they are in power. They are never monetarists.

Yes, apparently being a monetarist, would be too logical and sensible about the actual nature of monetary representation for the public! Yet central bankers presently appear keen to maintain the same discretion factor, which allows special interests to take excessive advantage of money when it is in their favor to do so, while denying sufficient money representation to all, when it is not.

Also, from a Vox interview with Jonathan Haidt:

We haven't talked about social media, but I really believe it's one of our biggest problems. So long as we are all immersed in a constant stream of unbelievable outrages perpetuated by the other side, I don't see how we can ever trust each other and work together again.

Of course one problem in this regard, is when we explain to others that we also see the other side's point of view, we may come across as not tribal enough, for those who know us. A word of warning about the personal isolation this approach may engender: apparently it can worsen as one grows older! Nevertheless, I tried Facebook for a year or so, before finally closing the account last June. From the start, the political "warfare" was unsettling, so I sought out beautiful pictures around the world, which made the social media experience more enjoyable. Not long afterward, I noticed that most of the odd (to me) things that Trump emphasized in his campaign, had also been highlighted in Facebook.

Miles Kimball highlights an important book, on societal permissions:

From Vox:
"The one thing Trump and Clinton agree on is infrastructure. This economist thinks they're both wrong."

Interesting pictures of a walkable city. Another take on walkable cities, this time along the border between Texas and Mexico

"The Low-Skilled Labor Market from 2002 to 2014" Measurement and Mechanisms

"Does Technology Substitute for Nurses?"

David Ader explains, how vastly fewer people today are eligible for unemployment benefits.

As George Selgin noted, unfortunately there was no good political outcome this presidential election, for monetary freedom.

JP Koning puts India's (somewhat unusual) aggressive demonetization into perspective.

"To be fair, the pretrial settlement of a legal dispute is often a desirable result, and state court judges with their heavy dockets actively encourage settlement. But the fact that civil cases are being settled at an ever greater rate suggest that something else is bringing pressure to settle, and it is probably the great expense of litigation."
http://www.nybooks.com/articles/2016/11/24/why-you-wont-get-your-day-in-court/

No U.S. recession expected. If only that were good news. From Lars Christensen:
"Make America Keynesian Again"
"Make America Keynesian Again" part 2

This is the economic reality that is so difficult for presidential candidates - whether winners or losers - to address.

Automation does not have to destroy jobs. But people need to begin what will be an ongoing dialogue about the work that feels worthwhile for the future, today. Otherwise, presidential elections will continue to be full of false promises.

Good argument from Tim Haab:

We can't make arguments about the popular vote outcome of this election because both campaigns would have acted differently if the system (and the inherent incentives) were different.

Robin Hanson explains how bottlenecks inhibit institutional innovation: https://www.overcomingbias.com/2016/11/needed-social-innovation-adaptation.html

For most of my life, the costs of owning, insuring and maintaining an automobile were within the reach of any income level. That is no longer true. I noticed that (almost hour long) commutes with older cars, started to become a problem for workers, around the beginning of the new century. That's also when computerized systems made it more difficult for rural mechanics to make auto repairs, hence auto owners needed to adjust their schedules to have this work done in cities. I suspect the gradual transition away from what was once practically automatic auto ownership, is part of the problem for what some have labeled the skills gap, especially when many jobs require long commutes. Which is why - while higher income levels often appreciate walkable communities, for lower income levels they could become a practical necessity in some instances. http://www.thefiscaltimes.com/2016/11/14/Its-Not-Skills-Gap-Why-So-Many-Jobs-Are-Going-Unfilled

From the San Francisco Fed:
"Job-to-Job Transitions in an Evolving Labor Market"

Timothy Taylor:
"It seems to me that the possibility of a dramatic expansion of active labor market policies through aggressive experimentation deserves more attention in the current US economy."

The Online Platform Economy: Has Growth Peaked?

While I understand this assertion of "getting rid of all school subjects" has been challenged, it sounds like an interesting start.

There are reasons why those with low income levels may think twice about purchasing today's healthcare options, unless they already have chronic conditions.

Diane Coyle: Is there a category mismatch?

Where automation is headed:
"Lots of tasks will be reframed as prediction problems."

For Peter Turchin, Trump's win is simply a part of the bigger picture.

Also a Bloomberg article by Peter Turchin from 2013 was "recycled", HT Arnold Kling

A thoughtful article from Mark Lilla (NYT), "The End of Identity Liberalism":

If you are going to mention groups in America, you had better mention all of them. If you don't, those left out will notice and feel excluded...Liberals should bear in mind that the first identity movement in American politics was the Ku Klux Klan, which still exists. Those who play the identity game should be prepared to lose it. We need a post-identity liberalism, and it should draw from the past successes of pre-identity liberalism. Such a liberalism would concentrate on widening its base by appealing to Americans as Americans and emphasizing the issues which affect a vast majority of them. It would speak to the nation as a nation of citizens who are in this together and must help one another.

John Cochrane connects the dots between housing issues and inequality.

In "The Reality of Rural Resentment", Sommer Mathis writes:

The main thing I heard was this feeling of not getting their fair share of power or attention. They feel like the important decisions, whether in government or industry, were made in cities. And then they had to deal with those decisions, and no one was listening to their concerns. It's partly about resenting that lack of power. People really do say "Look at how much the city people have driven us in the ground"...People in cities look down on us, they think we're stupid, they think we're racist, they think we're voting against our own interests.

When does collective action matter most?

An interesting "confession": Janet Yellen Doesn't Know What Determines Inflation
Also from Timothy Taylor, what no one can afford to forget: The Plague of Long-Term Unemployment in Europe

One of my biggest concerns about arbitrary divisions of knowledge use in society, is the loss of adaptability which humanity as a species, experiences from this division.

Finally, a Glossary

Sure enough, there was a lot more reworking of the terms than I had expected, and then a series of local internet connectivity problems over the holiday weekend, slowed things down as well. Here's the link, which is also located at the top of the sidebar in the Pages section:

An "Uncommon" Glossary

The only reasoning I've got, as to why the glossary took so long to complete over the course of the year: often when these terms came to mind, I'd still be caught up with some specific example associated with the term, instead of a core definition which could help the reader. Indeed there will still be a few problem areas in that regard, which will need some light editing from time to time. Occasionally I'll provide further explanations as well, since some descriptions are actually a bit too brief.

Of course the best part, is now I have a chance to move further ahead, in bringing this project to completion. That's not to say I wouldn't want to continue posting online, only that 2017 will mark the 14th year since the project began, and I've grown anxious to have all this work in a form that someone can understand without needing to "wade" through multiple blog posts.

Fortunately, as I was putting the glossary together, some overall aspects of this work were also beginning to take shape. As far as I can tell, there will be five books in one, three of which should be more accessible for a general audience, and two that will be more specific in terms of technical issues. That will hopefully make a difference for my occasional readers, who are not "economically inclined". So in the months ahead I'll be further organizing book outlines and of course, blogging as normal. I'm anticipating the outlining processes should not "steal" so much time away from blogging, as has been the situation of late.

Liberty For All, Regardless of Income

Is it possible that lack of freedom in the marketplace for those with limited incomes, negatively affects the freedoms of those who have more? I believe this is a fair question. However, my framing in this matter, could possibly account for the fact some right leaning folk likely question whether my "claims" to a libertarian point of view, are valid.

Meanwhile, others on the left are just as likely to question my defense of a free market approach. I believe that market dynamism is central to well being. But how can markets be considered truly dynamic, if they don't function well for a wide range of income levels? Further: how can individuals expect to reciprocate for societal responsibility - for anyone - if they have little valid purpose in the economic constructs that define their lives?

Some say they wish progressives knew what it was like, to be responsible for running their own business. Fair enough. Sometimes I also wish more people on the left understood how scary the process of survival can become, when there are too few remaining economic options, by which to actively take part in life. Granted, plenty of folk on the right totally get this, but find the matter too frustrating to actively contemplate. And many who are not needed by other individuals or institutions, are living on borrowed time. Chances are, they are keenly aware of that fact.

Consequently, I advocate for free markets not just for the rich, but also for the poor in spirit, along with anyone else who may also have a limited amount of money to spend. For these individuals, both their income potential and time value deserve more respect than they have received thus far. Even though I disagree with constant minimum wage increases, it is quite pointless to react to them, if non tradable sector representatives are constantly seeking higher prices for terms of economic engagement across the board. In all likelihood, the lack of free marketplace options - especially in terms of time based services creation - now contributes to a growing vulnerability for the personal liberties of all citizens.

Sandy Ikeda has spoken of the fragility of liberty, and the fact it can too easily be lost for centuries at a time. In "The Urban Origins of Liberty", he wrote:

The idea of liberty emerged in the struggle between the forces of collectivism and individualism. It is the idea that each of us has a rightful sphere of autonomy in which we may be free from aggression. In politics this manifested itself as liberal democracy, in economics as market competition and in the broader social realm as scientific advance, artistic expression and religious tolerance.

Most important, liberty is not so much about anyone's right to consume specific forms of goods, as it is one's right to produce for - and actively engage - in the marketplace. How can anyone expect to consume, what is purposely prohibited from production? And the fact that too many rights of production have been lost, accounts for the fact that policy makers are anxious to be rid of programs which became excessive burdens because the rights of production were too limited, to begin with.

Indeed, for Obamacare, there is presently no rational "replace", other than a reversion to the twentieth century form of healthcare, which supplanted all other previously existing options available to most income levels. The twentieth century health care of the U.S. created investment incentives and provisions which were primarily, and understandably, aimed at middle to upper class levels. But consequently, it is pointless to expect "healthcare for all" from this system. Meanwhile, the coming years are likely to be filled with the struggles of the "not so poor" to retain their own, increasingly fragile healthcare access.

More than anything, my aversion to government redistribution for the poor, can be attributed to the initial mistakes of granting too much marketplace responsibility to too few individuals, for some of the most basic time based product of our lives. There are simply too many places where government largess needs to reach, before it ever gets to the small wage levels so many will experience in the years ahead.

Which is why I believe much more would be gained, if the forgotten, the frustrated, the "redundant", the misunderstood, the "supposedly" untrustworthy, the ones with health based challenges, the socially inept, in short, all those who are poor in spirit, at least be given a chance to recreate economic life on their own terms. There is simply too little room for these groups in the near future, as politics is more likely to become a battle among competing special interest groups for the spoils of the economy that exists, now.

There's little liberty to be had for those who are unemployed or are on a small income, too little freedom to live by one's identity and purpose, if one is without the "appropriate" college credentials or the career that gives the green light to do so. Liberty is also hard to come by for those who are "freed" from prison, only to find themselves in a different prison of society's making.

Where for millennia there were value in use knowledge networks which people from all walks of life could tap into, these have been mostly reoriented into the channels which those with the "right" credentials can use. If redistribution were an actual possibility for all, perhaps this limited knowledge use framework might be understandable. But there is not sufficient redistribution for everyone who wants it, nor is such imaginary redistribution likely to occur in the near future. Therefore, it is time to define wealth on broader terms, than what currently exist.

Those without credentials, and indeed some who can't put credentials to good use, need to be able to create alternate knowledge use networks. It is too difficult for many, who - even though they are diligent and prepared - to make the necessary connections with others in the knowledge based networks that already exist. Practical and useful knowledge once again needs to be freed. Liberty for all, regardless of income, starts with a knowledge use network that is not limited to those with college degrees and the "appropriate" jobs. Otherwise, there is too little means to heal the divide between rural and city life, even as rural voters recently sided with the political party which at least appeared more willing to take their personal concerns into account.

At least some Republicans would like to face cronyism head on, but doing so is not easy. Too much government redistribution, much of which is initially intended to assist lower income levels, only ends up parked at higher income levels. Hence the very act of redistribution, quickly goes out of control and out of reach of any logic. This raises the bar of economic entry for all concerned, along the entire spectrum. Presently, it's impossible to assist the poor, because of the massive government obligations that are already "baked into the cake" for everyone else. Hence a suggestion: before anyone loses their cool at the enormity of the task, please give the disenfranchised a new chance to recreate their own economic realities. Doing so might actually be easier, than making sense of the subsidies tangle in Washington.

Time Enhanced Technological Change

It struck me upon reading the intro in a paper from Elisa Giannone, " Skills-Biased Technical Change and Regional Convergence", that "time enhanced technological change" could differentiate the dynamic between (future) time arbitrage, versus today's skills arbitrage realities. A long term focus on coordinated time value in continuous (and replicable) group settings, would mean greater dispersal of knowledge use with less internal cost inflation and (consequent) inequality. However, I'm getting ahead of myself, for in her paper, Giannone highlighted the problems which today's skills arbitrage poses: not just in terms of growing levels of inequality, but the polarization of regions as well.

What is different about today's skills dependent inequality, as contrast with the wide range of skills once required by tradable sector organization? Multiple skills levels for the latter, continue to contribute to both marketplace output and growth, translating into real gains for income capacity as well. Whereas the organization of today's non tradable sector skills capacity, not only limits the potential of knowledge use in the marketplace, it demolishes the discretionary potential of small wages.

Further, the skills arbitrage of non tradable sector activity, has not only limited the marketplace reach of imminently practical time based product, this product is actually perceived as a societal burden, of use primarily to give over to automation or be fought over by competing power bases. Non tradable sector inequality is far more problematic than tradable sector inequality ever was, because the skills divisions it continues to designate, only further divides the mental capacity of populations for the long term, all the while in settings of gradually decreasing marketplace supply of time based services, in relation to population levels.

How might one think about the potential of "time enhanced technological change", for greater marketplace production of time based services? Perhaps the very term "labour", could be said to belong to externally defined concepts of a person's time value. Initially (i.e. the Industrial Revolution), in terms of whether one had the physical capacity or soundness of mind to perform basic functions in externally defined workplaces; and more recently, for the more specific and often knowledge/skill based workplace functions.

Indeed, it may be useful to completely dissociate the term of labour, with what people actually desire from mutual self employment with others, in a time arbitrage environment. After all, the employment potential of time enhanced technological change is more closely associated with the entrepreneurial offerings of experiential and useful time, than with the boss/employee dynamic or arbitrary institutional knowledge use requirements. The personal incentives for work options are also more closely related to what people have willingly provided for others all along, on their own preferential and occasionally non economic terms.

Does A Good Life Depend on a Good Job?

Some months earlier, Michael Lind at the NYT (HT Miles Kimball) asked, "Can You Have a Good Life if You Don't Have a Good Job?" I was encouraged by the post title because - for me - that was the right question to ask, in a time when good jobs are increasingly hard to find.

However, regarding the earned income tax credit he highlighted: it helps to be cautious, in supposing this subsidy can play more than a limited role to assist small wages. In and of itself, the E.I.T.C. is not enough to suffice for the production and consumption requirements of today's general equilibrium. Regular readers know I believe that alternate equilibrium design for production and consumption, could provide better options in some instances. Too many government programs obscure the fact, that today's non tradable sector organizational capacity is basically out of reach for lower income levels.

Indeed, some commenters at Lind's post, stressed that high wages are necessary for a good life. Which may help to explain why so many politicians promise "good jobs" to citizens, despite the fact policy wonks are now less convinced the "good jobs" expectation still applies. Even the best policy intentions may not generate well paying or meaningful work, and warnings in this regard surfaced prior to Ryan Avent's concerns in "The Wealth of Humans". Just the same, many continue the necessary preparations, for what they hope to be a high level of economic access. Will the societal response worsen, should too many become blocked from the middle class?

Yet the frustrations of those with a reasonable start in life, are echoed by those who lack a similar beginning point. Indeed, I probably should have weighed in on the subject of earned income tax credits shortly after beginning this blog, since I benefited from the E.I.T.C. for a while after losing access to normal office work (mid seventies to mid nineties) with normal benefits. The earned income tax credit is mostly experienced as a once a year benefit, with little real impact on spending decisions. Helpful though it may be at tax time, this approach is hardly in the same league with other forms of basic income, which of course is a poor "solution" in a broader sense. As a long term approach, basic income would be deleterious to self esteem.

Michael Lind summarized his article with these thoughts:

Until most American workers are persuaded that they will not be worse off in a system characterized by flexible work arrangements and partly socialized benefits, they may continue to make unrealistic demands that 21st century politicians restore something like the occupational structure of the 20th century. Politicians should tell working Americans what they need to hear, not what they want to hear. And what they need to hear is that it is possible for all Americans to have good lives, even if they can't all have good jobs.

Fortunately, higher wage contract workers - even though their jobs aren't quite equivalent to earlier forms of decades long employment - can still access much of the complicated welfare system as it currently exists between today's public and private U.S. providers. It's the lower wage contract workers who do not have these same options, and consequently could use better means to devise production and consumption realities that are better aligned with their income potential.

Update: Basically, lower wage workers are losing too much of their lives too quickly, and they can no longer wait for either governments or businesses to address the cronyism which has made welfare systems so complicated in the first place. Which is why this blog addresses specific potential solution sets for those with limited income who seek a better life - one that could be independent from government handouts altogether. Why so? Political factions waited too long, to address the cronyism which now contributes to social unrest. I honestly don't know if it's too late to turn back cronyism in the U.S., since it was not tended to in the years that counted most, years which might have preserved free markets for all income levels. Which is why I wrote above that (at least) upper level income contract workers can still maneuver the welfare maze. However, lower income levels need a new lease on life potential, in which they finally have the chance to innovate non tradable sector activity to create free markets for services and asset creation, for the first time. From the National Review, the quote which prompted me to add this update, from "It's Time for the Right to Get Serious about Tackling Cronyism":

In healthcare, federal policy frequently privileges large, consolidated hospital systems at the expense of smaller provider groups, and Obamacare is packed full of corporate welfare, particularly for insurers and hospitals. In agriculture, farm subsidies are almost pure corporate welfare. They now cost taxpayers some $20 billion each year, much of which involves upward redistribution from taxpayers to both corporate and family farms whose owners are generally wealthier than most Americans. 

Notes on Primary and Secondary Market City Dynamics

How have cities changed, from those of the recent past? Cities have gradually transitioned from environments in which lots of real estate is dedicated to "making stuff" (primary or first mover markets for wealth creation), to those which now concentrate on providing more spaces to live, work and play. In particular, this transformation often meets the wants and needs of those with higher income levels.

Cities as a desirable location for professionals might be considered secondary market formation at its finest. Yet - for all the wealth of secondary markets (which include finance and healthcare) - it helps to remember how this present organizational structure will remain dependent on the wealth of primary markets, in order to function and prosper for the long run. And tight money conditions across the globe, are now making it difficult for some primary markets to function properly, which in turn reduces their own wealth potential.

Simply put: it's difficult to create more economic or physical space for the production and consumption of knowledge and time based services. The present form of non tradable sector organizational capacity, as the sole means of knowledge use, is beginning to crowd the output potential of tradable sector activity. Not only is this a problem for those who seek either meaningful employment or time based services access in the near future, but also for the growth strategies of cities in general. At a surface level - at least - the Nimby response of today's prosperous regions, seems oddly logical.

Meanwhile, the broad revenue streams of prosperous cities, depend on budgets which are in part determined by broader economic circumstance, that extend well beyond their reach. In many respects, these income flows are different from those made possible through tradable sector activity. And where time based services have centralized to a greater degree than many expected, tradable sector activity instead came to rely on decentralized organizational patterns (including rural), as means by which to remain competitive in the marketplace.

A primary to secondary market transition for cities is also important, since it suggests potential problems with recent efforts to increase their population densities. In the year 2000, Ed Glaeser wrote about the consumer city as displacing the city environments which emphasize production roles. "Consumer cities" are an apt description, how the secondary market transformation has played out across the U.S. Sixteen years earlier, Glaeser already realized it was a losing battle for cities to appeal to manufacture as a growth strategy. He emphasized that cities would do best to structure for greater consumption orientation, rather than traditional production. Even though tradable sectors continue to place corporate offices in city environments for the benefits of agglomeration effects, they generally prefer to place manufacturing facilities where real estate is more conducive to costs.

Consequently, there may be some limiting factors for city growth, in terms of both population densities and long term growth potential. After all, the consumer city by definition has an experiential component, which includes what are often highly preferred physical environments, where the work of knowledge based endeavour can take place.

One problem for additional growth in important cities, are the geographic constraints themselves in which other forms of wealth are ultimately stored. Both knowledge product and income are being "parked" in real estate components which don't especially benefit from higher population densities. When cities were still producing more stuff, social constraints were likely not as strong against making more room for employees, as they are in the present. However, today's secondary markets don't need the high level of employment once associated with traditional manufacture.

Most important are the present monetary policy constraints, which suggest problems for further expansion of services formation in the near future. How so? The internal inflation of today's non tradable sector activity has already contributed to a gradual deflation in worldwide tradable sector activity. Which - in turn - would limit the time based services formation in today's cities, so long as it exists solely in a secondary market role.

This is just one reason why I have suggested time and knowledge based service formation as a primary market function. Eventually, a first mover construct for knowledge and time based services, would provide stronger structural means which could help overcome today's long term growth problems. Fortunately, it is possible to structure time value so that it represents actual product. And time value as product - instead of expense - could eventually restore tradable sector activity, in a stronger general equilibrium balance. Such balance is greatly needed, to restore the economic growth from which cities of the future would also benefit.

Less Economy? Less Room for Human Nature

It wasn't always this way. However, today's limits to growth are all the more threatening, because much of the game of life is now based on formal economic precepts, right down to whether people gain from personal interaction with others. Resource management - in most respects - has become based on how it fits into the broader economy. Consequently, what people do - and how they go about it - is defined on economic terms to such a degree, that they find themselves at an almost complete loss, otherwise. Which is why it is so important to make certain in the near future, that productive economic complexity is not just an option for higher income levels, but for people of all income levels.

While some still question the validity of connection between economies and human nature, others - such as Adam Smith - stressed the positive social effects, of what was a new economic reality which was just getting started. Indeed, some are still willing to explain how economic life contributes to humanity, in that it makes far more freedom and choice possible. Why then, aren't more people willing to point out, how this process also works in reverse, when societies give up on long term growth potential?

I'm concerned, when conservatives, progressives and libertarians alike, question the importance of valid economic expression for everyone, through the course of their lifetime. Digital screens - in spite of the value they hold - are no substitute for honest to goodness interaction with others on a daily basis. Yet presently, there is a dearth of valid economic templates by which to do so. Which means there are not enough honourable ways for people to live and be, in the real world.

Mostly this post serves to make a simple point. Consider the growing unease and public reaction, against those who have limited means, whoever they may be, across the world. The example I want to provide is admittedly a bit stark, in that it illustrates more polarization than I am normally comfortable writing about, for which I apologize in advance. Indeed, I'd previously talked myself out of this illustration more than once, but it will become clear to the reader shortly, why I decided to use it. Fortunately I've been able to gradually move away from overtly emotional posts, given the fact the world is awash in emotion which is not always helpful.

First, imagine living in close proximity to a valuable mineral mine. This mine is also a somewhat random component, of what are broader economic choices and existing options. Hence some locals directly benefit from the mine (via employment or ownership), with little negative economic impact on those who don't. In other words, the random nature of the mineral (in terms of an ongoing consumption base), does not directly affect the production or consumption options of other local participants. Groups can "capture" and manage the wealth of many forms of tradable sector activity, without undue negative effects on the potential economic value which other participants continue to hold, in relation to equilibrium wealth constructs. Indeed, the random nature and lack of consumer "necessity" for tradable goods, tends to make selective group management a desirable aspect of this form of economic activity.

Now, imagine that the aforementioned mine, is instead one of knowledge use, for what also happens to be a basic component of human need. In non tradable sector activity, wealth capture thus far has worked differently from what occurs in tradable sectors, because non tradable sector representatives have massive incentive to capture wealth via limits to production. Unfortunately - carried too far - this process of knowledge use limits (capture) can eventually undermine broader general equilibrium conditions. How so?

When total aggregate value for a basic knowledge use component - in this case, healthcare - is claimed (hence defined) by a specific group, the basic knowledge use construct will eventually diminish total wealth capacity at general equilibrium level, as secondary market formation (which today's healthcare is part of) overrides the allotted space for primary market formation. Further: since the product in question is something everyone needs at various times in their life, the result is diminished economic capacity in terms of both production and consumption of all resource capacity not directly related to healthcare. Artificial limitations for basic non tradable sector resource sets, result in real limitations across the board. The result is less economic potential. But, again, how would this make anyone "less human"?

The artificial scarcities of non tradable sector activity are more closely associated with zero sum scenarios than people realize. Extreme public opinions are more likely to be voiced, when the demands of non tradable sector activity become too harsh for general equilibrium conditions. For instance: when basic healthcare is subject to artificial scarcity, the problems experienced by lower income levels, spill over into all income levels (plague, etc). Which is why some would prefer that the actual numbers of lower income levels be limited, where and however possible. Yet the fact of artificial scarcity at the outset of general equilibrium conditions, is mostly missed, as people become increasingly threatened by whoever appears to already be "less human" in some capacity.

Even though alt-right is louder in their complaints against those of limited means (in the present), the public position of the left has nonetheless been more counter response, than substance. And by no means are conservatives alone in assuming that anyone of limited means should also have limited responsibility. Some conservatives would rather that poor people not have children, at all, and some would just feel better if these people were in prison so that no one would have to worry about them. Does this mean that progressives think differently?

In recent years I've noticed a social media meme that suggests otherwise. Poor people should not have the responsibility of animals, I've been told, particularly since they cannot afford the vet bills. In other words, connect the dots: Now people expect that some should go through the entirety of their adult lives without real connections to children or animals, in large part because it's difficult to pay the bills that have been imposed by the artificial scarcities of knowledge use. Are we expected to do absolutely nothing of consequence or meaning in our lives, are we expected to have no responsibilities if we are of limited means? Indeed, what if one at least has the possibility of unconditional love from children and animals, when there is little "love" to be had from those with substantial economic connections? How is a person who has too few production rights in the marketplace, expected to live?

Recently I had to say goodbye, to a cat which lived with me for seventeen years. We shared a lot of time together through thick and thin. Chances are, my days of adopting animals are now done, I'm old and at this point I need to be happy with her memory. However, in recent years, social media has provided too many numerous examples of the discomfort some feel, when people of limited means choose to take care of animals. Here, at least, I have to ask: how else do you expect those of us with limited means to remain fully human? What level of responsibility do you feel we might rightfully assume in this world, which supposedly is not "too much"?

If people of limited means could gain a value in use educational framework which includes basic healing, perhaps some of today's social exclusion would be diminished. We would not ask these new production rights on terms that take from the resources which today's healthcare already requires, but in ways which generate new wealth. More than anything, we need an economic reality that allows everyone to be more fully human, if only so that social media will stop this incessant reasoning how such and such group has no business existing in the world. Okay, this post was a bit over the top, and I'm anxious to get back to "regularly scheduled programming". Still, I believe my feline friend would have appreciated these thoughts, and I will miss her greatly. It never mattered to her, if I didn't have a lot of money. I think she would have liked that I argued for poor people to have a chance to love animals too. That's the least I could do for her.

Apologies are also in order for any healthcare workers I may have upset, who have been concerned about present day marketplace limits for knowledge use all along. How many of you have wanted to heal others, took care of the necessary education and commitments of in order to do so, only to discover that you could scarcely - if at all - provide healing where it was most needed. With a little luck, you will finally gain the ability (with government and society's blessing) to teach those of limited means, to generate alternative settings in which a less strictly defined marketplace becomes possible for these groups. Not only would such a reality bring more hope to the lives of those who can't participate in today's healthcare systems, but also help to relieve long term government budget problems, as well.

Update: The love of a soldier and her dog

Good and Bad Deflation: From the Glossary Notes

A glossary will be ready soon, and in the meantime I decided to share some notes on good and bad deflation, which are now close to a reasonable edit. After checking a few online references prior to this post, it quickly became obvious that the relationships between organizational factors versus national monetary policy factors for deflation, aren't always clear.

Organizational factors are microeconomic settings which lead to macroeconomic results, which in turn are considered "bad" inflationary or good deflationary in some instances. Whereas monetary policy is an initial macroeconomic action - one which also does not exist as a construct that is capable of generating good deflation. At best, the deflation that monetary policy might achieve would be neutral, as it relates to aggregate spending capacity. I especially need to be clear about these matters, because of what an equilibrium corporation would seek to accomplish in this regard. An equilibrium corporation construct, would include organizational capacity for non tradable sector good deflation, as a primary objective.

Good deflation can be thought of loosely as more product for relatively less cost. This, in contrast to the same amount of product for less cost (and consequently less product at some point) that would occur with bad deflation. In other words, greater marketplace expansion, due to organizational capacity which purposely seeks to reduce production costs over time for consumers (that is, not just the organization) where possible without sacrificing quality.

Often, good deflation can provide the same benefits as rising wages for bringing about prosperity, since it brings the marketplace closer to the consumer on sustainable terms which don't monetarily distort equilibrium. In particular, tradable sector activity generated tremendous progress in recent centuries through willingness to externalize the gains from greater organizational capacity. Hence more purposeful good deflation could be productive strategy, in a historical juncture when it is proving difficult to maintain rising middle (or other) class wages in spite of today's non tradable sector expectations.

As a supply side phenomenon, good deflation would likely not be difficult to distinguish from monetary policy, in the event central bankers become more willing to honor a nominal target level. While monetary policy has of late led to lower costs (in some respects), these occur because marketplace capacity and supply side potential is in the process of being destroyed, albeit slowly at the moment.

Granted, today's disinflation may only mean a little "what's the harm" destruction, but given the fact non tradable sector activity continues to crowd tradable sector activity, even a little disinflation can be too much, since the latter is composed of primary markets or first mover activity, which (today's) non tradable activity still has little choice but to rely upon. As businesses and consumers alike find themselves in worsening circumstance in a tight money environment, few are still able to gain from the bad deflation of poor monetary policy on real economy terms.

Bad deflation occurs when central bankers neglect to honor the aggregate spending capacity that already exists, in a given set of economic conditions. Why would policy makers refuse to maintain sufficient monetary representation for all concerned? When too many experts and policy makers assume that monetary policy - or the basics of supply and demand for that matter - don't really count, the result is economic participants who gradually lose the ability, to honor their social and monetary commitments to one another.

One reason central bankers increasingly find it tempting to take the unfortunate monetary tightening route, is due to the broader macroeconomic effects of what is essentially, purposeful intent at a microeconomic level. That said, the anti-competitive and exclusive nature of local asset and knowledge based services formation, exists for a reason: to maintain populations capable of maximizing a given area's wealth structure.

In other words, locals gain by maximizing costs for both knowledge/time based services and asset formation. However, everyone can't take this approach in aggregate. When many communities adopt a similar non tradable sector stance, doing so eventually negates the positive effects of good deflation and economic progress. This hurts everyone who can't keep up with the high local expectations for participation, along with the industries which of necessity built competition which extends well beyond local borders. Good deflation still has the potential to bring the progress that so many seek, within reach. Whereas the bad (monetary) deflation which also seeks to check internal inflation, eventually breaks down hard won progress. Yet it has proven difficult to address this problem, on general equilibrium terms.

Demand Requires Supply

And the recent presidential election provided a "win" for the supply that seemed rational to many, in terms of "more" tradable sector activity in the U.S. than what currently exists. Or at least, so it seemed. Meanwhile, the desire for less immigration (as well), also translates into a desire for "fewer" people to share either jobs that do exist, or the services those jobs have made possible.

After all, producing more "stuff" locally, would still mean that people could then buy the time based services they deem important or useful, right? Except there's a problem. What happens, when the world has become so efficient at producing "stuff" with a minimum of employment, that the production of stuff not longer leads to the follow through in which everyone is still able to purchase time based services?

This is the aggregate demand dilemma that nations face. Government provision of aggregate demand can hit a brick wall, if it does not match up with supply side realities in terms of value in use production and consumption preferences. In particular, populations struggle to buy many of the time based services they seek, due to the organizational patterns by which many time based services have been designed.

Consequently, something about the growth mechanism which provided the transmission between tradable and non tradable sectors, needs to eventually change. All too often, it is no longer possible to get from point A (desired job) to point B (desired service). And the protectionism which populists (and others) seek, would not change this reality. The provision of time based services would benefit from a different kind of framing: a framing which changes services formation into a direct form of wealth creation. If services were directly coordinated, it would also be easier for people to determine how much "stuff" they actually want, without having to constantly reroute the production of stuff into the black hole which is presently the production of important time and knowledge based services.

Why hasn't it been recognized: the degree to which time based services production has been held back? For one, time based services include the experiential component of our waking existence, which is a far cry from technological existence. There is an intrinsic nature of time value, which goes beyond what robots and automation can provide. Neither can experience the real life that belongs specifically to people, even if they can produce stuff and knowledge application on people's behalf. The task at hand, is to find out the time value which individuals would like to provide, and that which others would like to purchase with the value of their own time.

It's a process which could hopefully reunite city and country. City specialists would finally impart the most important basics of knowledge to rural locations, which would then prepare their local resources for local knowledge use. Without such means in the present, the divide between the city and country could only be greater if they threatened to formally separate from one another. Indeed, that is what this most recent election feels like. Lets change this divide for the better, and connect rural areas to the people and economies which already participate in the 21st century. Ultimately, when it comes to vital forms of time based product, we create our own demand, by generating our own supply.

Still the Main Issue: Employment Uncertainty

If nothing else, I consider it good news that rural America has gotten some notice with the presidential election results, in spite of confusion in this regard. If only our nation's elites had been more cognizant already, of the lack of productive economic complexity and free market activity in so much of our country, and what those "Sounds of Silence" might eventually lead to. Ah well, what's done is done. From Reuters:

Donald Trump's promise to revive small town America faces a tough challenge in an economy that for decades has been wired to direct income and opportunities toward urban hubs and the better educated. 

The manufacturing jobs Trump pledges to bring back have disappeared as much because of automation as the trade deals he promises to rewrite, and that process will only continue. A promised infrastructure revamp would boost middle wage jobs but only as long as the programs last...

Economists say that even if economic growth accelerates under Trump, it may not do much to counter the downward pressure on wages and middle income jobs from automation, technology and longstanding trends.  

Brookings Institution senior fellow Isabel Sawhill said researchers on inequality agree on one point: it is hard to move the needle. "Even when you distribute all of the dividends from growth in a progressive fashion you don't change things very much." Sawhill said. "You shift things at the margin."

Another recent Wall Street Journal article spoke of the vast disconnect between Donald Trump and Silicon Valley, for instance. After all, Silicon Valley relies on both immigration, and the trade with other nations which Trump disavows. Indeed, automation has proceeded to such a point, that some factories no longer need illumination for normal procedures on the factory floor. In other words, no people or lights necessary where things are being built, unless something goes wrong! This is one of today's most tangible forms of progress. Is the wish to turn back the clock on such developments, Luddite in nature?

Inverse weighs in on these concerns as well, with "Runaway factory automation is making human manufacturing obsolete":

Study after study was released in 2016 that offered a cold truth: No amount of legislation can push back automation. The World Economic Forum reported in January that approximately 5 million jobs will be lost to automation the next five years. (A 2013 Oxford University study found that 47 percent of jobs in the United States are at risk of computerization.)

Meanwhile, Trump's campaign focused heavily on a plan to use tariffs and new trade deals as a way to bring jobs back from China and Mexico. The trouble with this strategy is that places like China and Mexico are also losing jobs to automation in large numbers. In fact, a United Nations policy briefing released this week projects that China's automation will outpace the world in jobs by 2018 with North America coming in second.

What's behind the wishful thinking about reclaiming earlier manufacturing as it once existed? For one, this work allowed people to build tangible - and often - useful goods. But something else contributed to the respectability of those jobs as well, which is proving equally difficult to bring back: the access to healthcare which manufacturing work once provided. One reason that today's time based services work doesn't feel as solid or reliable by comparison, is that much of it lacks healthcare access.

Paradoxically: by the same token, dependence on low wage work makes it more difficult to hold on to work as a lifeline, when medical issues intervene. Medical issues can affect one's ability to maintain a job, especially when these struggles negatively affect public perception of one's personal efforts. While policy makers and business interests continue to struggle over a failed healthcare system in the U.S., others increasingly feel the need to step in and help the ones who are still being forgotten.

There's another consideration. Even though Obamacare has not worked out well, by no means would it be easy to replace. In particular, supply is not only limited, but the supply that does exist, would only be put under further pressure, in the closed economy that would result should the U.S. take an isolationist position in the world. In all of this, non tradable sector activity of any stripe isn't built for closed economies, such as protectionist views encourage. Ultimately, an isolationist approach would not only mean further losses in asset value, but also in the tradable sector formation which has provided such extensive support for knowledge use in recent centuries. This is a historical moment, when undue reaction to world circumstance would mean further wealth losses than are necessary - whether or not some might rationalize that these losses don't matter. They matter.

Some Notes on Equilibrium Corporate Structure

Many of my notes on equilibrium corporate structure fall under one of two groups: how economic activities could be generated, or the broader economic circumstance which an equilibrium corporation (also) seeks to address. This post has examples of both approaches.

Use time value to pay for economic access

In the communities which adopt an equilibrium corporation construct,  participants "pay" for non tradable aspects of economic access (time based services exchange with others and asset formation) through the time which is actually at one's disposal. One's time value is frequently used to compete for the services which are on offer for others.

Since individual and group time value are equally coordinated, actual scarcities in this regard - in which an hour of time is expressed as a commodity unit - benefit from the same one price commodity effect. When commodities exist as a one price mechanism, they also make possible the spontaneous coordination of tradable sector structure, in general equilibrium.

However: when time value cannot be expressed as a single monetary unit, this "direct democracy" form of time coordination for time based service product, is not possible. There is so much variance of skill and income for time based product in general equilibrium conditions, that it is difficult for the time value of lower income levels to "count" in the "normal" definitions of non tradable sector production and consumption. Hence an equilibrium corporate construct would provide an alternate equilibrium, in which time value can once again - eventually - be made effective, for one's personal responsibilities and obligations.

Even though tradable sector formation remains roughly accessible to lower income levels (not so much if and when international trade should contract...), non tradable sector formation has become mostly about one's attempt to purchase economic access in the form of homes, education and healthcare. Even though healthcare is not strictly economic access (some can avoid doctor visits for decades); as one ages, more healthcare is often required to remain active in the workforce. Whereas the more direct economic access component of education (as opposed to healthcare), is reflected in the rising costs of textbooks for instance, which now experiences more inflation than healthcare of late in the U.S.

Land as a fixed or flexible value construct in an open economy

When property ownership is strictly associated with a specific unit of land (as opposed to what would be a flexible or floating unit of land in an equilibrium corporate construct), its value depends on a number of things at a macroeconomic level. First, land value (in open free market economies) is also exposed to the general equilibrium conditions which prevail internationally, alongside the degree of knowledge use management that exists (asymmetrically) in prosperous regions. These factors create a relatively fixed value component, in which the fixed specificity of land ownership corresponds with rationing of resource valuation as it applies according to both tradable sector and non tradable sectors of wealth, in relation to international factors. Consequently, attempts to change valuations in this system - for whatever reason - are at variance with these fixed valuation components as aligned with the international wealth of free markets.

One reason this is important, is that these valuations exists alongside Nimby considerations as well. For instance, it's difficult to "insist" on greater population densities, in regions whose value in part exists because of their experiential and desirable characteristics. It's easier to "go with the flow" for monetary valuation, when land value is highly associated with non neutral factors in land desirability, such as access to international ports, climate and positive land characteristics. Whereas the greatest potential for new wealth, exists when land components exist in a more neutral state. While neutral land is amenable to productive agglomeration, its beauty and experiential value would be due more to the efforts that time value can contribute to purposeful design, rather than solely what money can (already) buy.

Let's briefly consider two factors that can negatively affect otherwise fixed land values at a macroeconomic level, since they are particularly important during periods of economic stagnation. One of these of course occurs, should a nation adopt a stance against free markets which may in turn decrease the value of its land which is strongly associated with international free market activity. Equally possible of course, is the loss of land value which occurs when central bankers adopt tight money policies which - while they may not obviously create immediate bad deflation, can contribute to this form of deflation over time in a stagnant economy. This is of course the most present danger.

The equilibrium corporation would allow a less restrictive interpretation of land values, by assigning incremental ownership (via time value) for specific neutral (non differentiated) property. This approach would allow ownership for active land use as a "holding vessel" for wealth in the form of human capital groupings over time. New wealth occurs within in the coordination construct. While this too may sound oddly like its own form of favoritism (i.e. being born into a serendipitous system), consider: One positive aspect of this approach is that it is entirely replicable, unlike the association of fortuitous group activity which is solely associated with specific sets of highly limited and differentiated land.

What protects the wealth affects of agglomeration in this setting, is the fact that land ownership - while strongly aligned with ongoing economic activity in every way - is nonetheless structured so that landowners are not the final wealth recipients, of purposeful economic activity which accrues over time. The reason this matters is that it allows the entire process to multiply and generate new wealth, where otherwise wealth can only accrue so long as fortuitous arrangements can multiple in fixed land components which cannot themselves be duplicated.

Granted, equilibrium corporate structure would at times be associated with fixed land components which are of themselves non neutral in nature. In other words, they would exist alongside natural beauty, ports, rivers or other components which make them desirable for specific and sometimes fixed purpose. This fixed association is always appropriate for ownership in the open economic structure of general equilibrium, which goes well beyond the incremental ownership that would occur in equilibrium corporation settings (alternative equilibrium. When this is in fact the case, geographically differentiated land is not the land parcels which would be designed for participatory or incremental ownership, but rather, associated with specific owners (as normal) which can continue the usage processes which populations as a whole deem desirable.

Fixed components for skill sets and and land designations, can stand in the way of complete economic access. Yet it is possible to overcome these deficiencies, by locating the ways in which relatively neutral aspects of land and knowledge use are in fact possible, for lower income levels. The fact that wealth can also be non specific in geographic location, provides a broader transmission mechanism for asset formation in relation to services formation than is otherwise possible in general equilibrium conditions.

If it sounds as though an "unfair" advantage to be born into a fortuitous knowledge use circumstance even here (the equilibrium corporation), remember, it is precisely the non-specific land valuations (for neutral geographic property characteristics) and knowledge use (symmetric compensation), that allow knowledge use to further disperse through populations as an active component of long term growth, instead of being limited by government budgets and/or the regional characteristics of private enterprise.

Indeed, it seemed that the digital realm would - in and of itself - be capable of greater knowledge dispersal for economic gain. But the fact that much wealth (and its associated knowledge use) is ultimately stored in fixed forms of land ownership, has also limited both the extent of knowledge use and knowledge dispersal. Fortunately, this fixed land component bottleneck can be overcome, for both the process of wealth building, and extending the potential of knowledge use.

P.S. Possibly the only useful thing I can presently add about the U.S. presidential election results, is the fact that too many in power have ignored the growing economic chasm between city and country for too long - economists included. Hopefully in the near future, this chasm will be addressed. Not only is it a problem in terms of structural efficacy for knowledge based endeavour, but also for employment availability in any area not part of today's prosperous regions.

Like the flapping wings of the butterfly in one nation affecting another, this economic divide will now affect worldwide political alignments. It's difficult for nations to find suitable presidential candidates, when policy makers either exacerbate existing general equilibrium conditions or otherwise attempt to force existing conditions to somehow meet their will. For now, those conditions are what they are. Still, let's hope for the best, especially in terms of making certain worldwide economic circumstances continue to provide the tradable sector benefits of open economies, which have so greatly improved the lives of people such as myself, who have long learned to live with small wages and income.

Why A Marketplace for Time Value?

There have been times when I've struggled to answer this most basic question about my work, in a satisfactory manner at an emotional level. Hence my pleasure at discovering a collaborative NYT article from the Dalai Lama and Arthur Brooks, which - in its own way - does so, beautifully (HT Farnam St). Put simply, everyone needs to be needed.

Granted, human "need" isn't exactly a strong concept in the current economics lexicon, as I wrote in a post not long ago. Which helps to explain why I often forget to emphasize this perspective. Even though creating a marketplace for time value, is really about setting up a template which facilitates our all too human desire, to be of use to others. In "Behind Our Anxiety, the Fear of Being Unneeded", the authors begin, "In many ways, there has never been a better time to be alive", while also noting the violence around the world which is perpetuated in the name of religion and tyrannical regimes. They continue:

And yet, fewer among us are poor, fewer are hungry, fewer children are dying, and more men and women can read than ever before...There is still much work to do, of course, but there is hope and there is progress.

How strange, then, to see such anger and great discontent in some of the world's richest nations. In the United States, Britain, and across the European continent, people are convulsed with political frustration and anxiety about the future. Refugees and migrants clamor for the chance to live in these safe, prosperous countries, but those who already live in those promised lands report great uneasiness about their own futures that seems to border on helplessness. Why?

A small hint comes from interesting research about how people thrive. In one shocking experiment, researchers found that senior citizens who didn't feel useful to others were nearly three times as likely to die prematurely as those who did feel useful. This speaks to a broader human truth. We all need to be needed.  

This helps explain why pain and indignation are sweeping through prosperous countries. The problem is not a lack of material riches. It is the growing number of people who feel they are not longer useful. In America today, compared with 50 years ago, three times as many working-age men are completely outside the workforce. This pattern is occurring throughout the developed world - and the consequences are not merely economic. Feeling superfluous is a blow to the human spirit. It leads to social isolation and emotional pain, and creates the conditions for negative emotions to take root. 

What can we do to help? The first answer is not systematic. It is personal. Everyone has something valuable to share. We should start each day by consciously asking ourselves, "What can I do today to appreciate the gifts that others offer me?" 

Leaders need to recognize that a compassionate society must create a wealth of opportunities for meaningful work, so that everyone who is capable of contributing can do so...A compassionate society must protect the vulnerable while ensuring that these policies do not trap people in misery and dependence. 

Building such a society is no easy task. No ideology or political party holds all the answers. Misguided thinking from all sides contributes to social exclusion, so overcoming it will take innovate solutions from all sides. Indeed, what unites the two of us in friendship and collaboration is not shared politics or the same religion. It is something simpler: a shared belief in compassion, in human dignity, in the intrinsic usefulness of every person to contribute positively for a better and more meaningful world. The problems we face cut across conventional categories; so must our dialogue, and our friendships. 

Many are confused and frightened to see anger and frustration sweeping like wildfire across societies that enjoy historic safety and prosperity. But their refusal to be content with physical and material security actually reveals something beautiful: a universal human hunger to be needed. Let us work together to build a society that feeds this hunger.  

How is it, so many of our institutions have given us the impression we are not needed? After all, the fact this has occurred, helps to explain why people often "shut down" to some degree in their response to the world. When people don't feel needed, they try to protect themselves by rationalizing that they don't need anyone else, either. Presently, society is attempting to grapple with this understandable reaction.

Only recall how many times individuals will continue to reach out to others, before they finally give up in doing so. Or - if this all too personal struggle is not so easy to recall - it's a process which begins in childhood - a time when children are supposedly not "needed" for important economic/societal functions until they are adults. Children begin to suspect they might not have a vital role to play in community, long before the time comes when they are expected to.

This is the most significant problem, when society mostly selects for the "best" skills. After the cream of the crop has been claimed, there's a wealth of remaining skills that aren't "good enough", that hardly anyone really wants from anyone else. Consequently, when we neglect to appreciate the gifts (including skills) that others would offer, we are in effect taking our cue from a specific organizational pattern which only needs so many individuals, in order to fulfill its stated functions.

In one important respect, the present day process of skills "mining" (arbitrage) is not intentionally exclusionary. Rather, this now traditional pattern was the logical formation for tradable sector formation in terms of economic progress. Certain individuals could be rationally excluded from one modern workplace, even as the marketplace continued to expand and provide further opportunities for employment elsewhere. It was only when non tradable sector time based product (which didn't benefit from exclusionary selection) began to take precedence over tradable sector goods production, that the skills mining process began to take its toll.

Hence it is odd to think how much we've absorbed a certain mentality about inclusion and exclusion which - in many ways - came about largely because of a technological element which we mostly took for granted in recent centuries: the need to define progress, by the ability of public and private enterprise alike, to reduce the time based components of internal organizational capacity. The good news is that a substantial amount of exclusion was actually technically driven in nature, rather than based on purposeful malice. And fortunately, it is possible to organize productive activity, so that people need not be excluded.

A simple technical change for non tradable sector formation, could realign economic activity, so that it is more closely attuned to the matters of the heart. When time value is coordinated in relation to internal factors, individuals and groups alike can build a whole, which is stronger than the sum of its parts. More than anything, I think we've just forgotten that it is possible to align technical and organizational factors with the most basic human components of life. Do a better job of alignment, and it might not be so difficult to find what is written in our hearts.

Don't Abandon GDP: Make it Better

Economist Edoardo Campanella is one of many, who challenges the (currently existing) structure of GDP. In a Project Syndicate article, he notes:

Among ordinary people and specialists alike, there seems to be a powerful sense of dissatisfaction not only with the pace of economic growth, but with how that growth is defined and measured...There are two reasons for this. First, aggregate growth in the developed world has brought little, if any, benefit to the vast majority of citizens in recent decades.

But second and arguably more important, defining welfare solely in terms of what can be measured by markets misses much of what contributes to - or detracts from - human wellbeing. In 1968, Robert Kennedy, campaigning for the presidency of the United States, lamented that this approach "measures everything except that which makes life worthwhile." It says nothing, for example, about environmental quality, the cohesion of communities, or the stability of individual and group identities - all of which clearly influence wellbeing.

I was glad to find that towards the end of the article, Campanella stressed how he - along with others at Project Syndicate - weren't intent on the abandonment of GDP, but simply of making it a better measure than it is in the present. Of course, there are plenty of different versions floating around, how one might do so. And those who have kept up with this blog, know that I have made the case to maintain GDP as a central measure more than once.

It's surprising that in so many discussions regarding GDP, there's little consideration as to what this important measure best serves: a reasonably accurate portrayal of society's ongoing and mutual monetary obligations. In other words, neither economists or policy makers always take into account, the important role which GDP plays for the monetary representation of populations as a whole. Taken too far, a reconfiguration of GDP could make it even less evident, why these monetary connections matter more than anything else for all concerned. Even though some policy makers might prefer a (further) loss of transparency, clearly, greater "societal wellbeing" would not be the result.

Wellbeing in particular, is best addressed by a more productive approach in terms of supply side factors, which the measure of GDP would consequently take into account. Fortunately, a marketplace for time value, would allow individuals and groups to directly contribute to greater wellbeing, via their own resourcefulness and abilities. A more productive economic approach to the time scarcity of individuals and groups, would provide a core means to address quality of life issues which go well beyond government measures or statistics.

Time scarcity issues are also at the heart of the choices people make, in apportioning work and responsibility between family and community. One reason it helps to maintain family time as non economic - for instance - is that doing so preserves the freedom of choice which is so important, for how families prefer to spend oft scarce time with one another. Sometimes, home is the only environment where spontaneous choices in production and consumption can be made, which in turn allow individuals to "recharge" for their ongoing community and workplace obligations.

That said, there are nowhere near sufficient spontaneous choices for economic time use, in today's community settings. Consequently, neighbors may have little existing rationale, to meet neighbors who may in fact harbor common interests and aspirations. And even though family is often central to one's life, when individuals lack connections in local economies, their connections to family tend to suffer as well.

What of the environmental concerns, so often expressed in terms of GDP? This is another case in point: environmental adaptation for GDP measure would be an awkward tool, even in the best of circumstance. Environmental issues ultimately need to be addressed at a grassroots level. Presently, it is much too difficult for many populations to adopt simpler lifestyle options at the level of community infrastructure design. For instance, governments inadvertently set themselves up for high fossil fuel use in aggregate, by insisting on automobile centered zoning and regulation, everywhere. Then the same governments (and their media), pressure citizens and other governments alike to cut back on their pollution! Indeed, many citizens could already have vastly reduced their carbon footprint, were walkable communities a truly viable option.

In summary, there's no reason to expect the GDP measure to address issues which are in reality quite different, from the monetary purpose which only GDP can fully serve. Let's keep it simple: GDP measures the economic activity which people provide for one another. Wellbeing and environmental concerns can be improved by active citizen inclusion in daily economic life, should the relevant public and private interests make it possible for this to occur. Perhaps the best way to make GDP a "worthy" measure, is to simply create a marketplace for the time value of every citizen, not just those who presently hold the most sought after skills. Otherwise, if few markets remain for the value of the time we have to offer, our welfare will ultimately be forgotten - in spite of those who profess to hold our welfare uppermost in their minds.

The Importance of Economic Inclusion

Hernando de Soto's work is particularly valuable, given the fact he focuses not only on the vital role of free markets, but also of economic inclusion. In a recent Project Syndicate article, "Columbia Between the FARC and the People", he explains how Columbia still struggles with its own internal divisions, in terms of economic inclusion.

Indeed, the explanations de Soto offers, might not have been immediately obvious after their recent election, given the fact that Columbia's president, Juan Manuel Santos, won the 2016 Nobel Peace prize for his efforts in what has has already been a 52 year civil war in his country. To the casual observer, this award likely made sense. But why did the voters reject the deal? Hernando de Soto takes a closer look:

Compare Columbia's experience with that of Peru, which defeated its own guerrilla movement, The Shining Path, in less than a dozen years, from 1980 to 1992, with more than 85% popular support. Peru was able to achieve a lasting peace for two reasons.

First, the Peruvian government focused on creating rights for the poor people whom the guerrillas controlled, and it codified those rights in its 1991 agreements with the United States and the United Nations. By contrast, Santos, despite his good intentions, negotiated a peace plan that creates rights for the FARC. 

Second, The Peruvian government won strong support from its citizens, because it never ceded its sovereign right as the country's sole negotiator...Santos, on the other hand, surrendered a degree of Columbian sovereignty by allowing negotiations with the FARC to be brokered by the unelected government of a foreign country with its own agenda: Cuba. Then he treated the guerrillas as equals by negotiating substantive matters with them.  

Peru's government finally defeated the Shining Path, when it became clear how the guerrillas had negotiated a series of rights with local citizens, in areas which lacked both legal protections and economic complexity. Once the government discovered the ledgers of these locally determined rights, they took it upon themselves to protect poor citizens by legalizing standardizing, and harmonizing the means by which these citizens were able to gain access to the marketplace. Hernando de Soto adds:

When the guerrillas no longer controlled the ledgers, they could no longer claim to be defenders of the community rights.   

Even though these issues appear more pertinent today for nations lacking in economic complexity, there are important lessons nonetheless, for any nation which pays little attention to the lack of economic freedom among its poorer citizens. How much sovereignty - albeit that of a symbolic nature - has already been ceded to special interests? No amount of government redistribution, can substitute for the fact that all citizens need sufficient monetary representation, and the ability to work productively with existing resource capacity.

Granted, smaller nations are better positioned to note the ongoing concerns of their citizens who are economically, socially and geographically isolated. Whereas larger nations such as the U.S. are somewhat disadvantaged in this regard. All the more so, as many rural citizens struggle to maintain the long auto commutes that are necessary for both work and vital time based services.

Given today's economic uncertainties, governments may need to consider the kinds of production rights which would give isolated citizens more local control over their own destinies. Only consider how many rights to knowledge use and services production are presently off the table, for lower income citizens with insufficient income to access the time and knowledge based services of higher income levels. This is just one reason why some voters aren't positive about the electoral process. Even though both Democrats and Republicans may attempt to "reach out" to rural voters at election time, few have become fully aware, how important it is for rural citizens and others with low income levels, to maintain strong means of economic inclusion.

Here's Hoping "Cooler Heads" Will Prevail

That is, whoever wins this presidential election. Even so, admittedly it's a lot to wish for, given the tight strictures of today's general equilibrium circumstance, not just in the U.S. by any means but also, elsewhere. Consider what has occurred in this regard. Today, in order to function well in society, one needs some form of access to the economies of scale which have contributed to high expectations across the world. These expectations include an entry point which is primarily accessed by debt formation. And even as the debate continues to rage about low income access to credit, what is really needed is something that existed for centuries: access to wealth creation in incremental steps - steps which also made one's time value, an important component of wealth creation.

Economic time value in aggregate is all but forgotten as a primary component of wealth creation, not just in terms of the incremental asset formation one's efforts once made possible, but also our purposeful efforts to coordinate resource capacity with others. By far the most fragile aspect of an expert driven economy, is the forgetting, just how much these incremental forms of wealth creation have been responsible for worldwide prosperity.

How were these incremental efforts lost? Tradable sectors advanced economic progress, by taking advantage of the economies of scale that contribute to the production of product which exists separately from time and specific location. Whereas the non tradable sectors which depend on specific time and location, organized with an entirely different purpose in mind: supply side limits for wealth capture. Non tradable sectors defined economic access (production and consumption definition) according to whether one "merited" a connection to the benefits provided by economies of scale. Whereas tradable sectors generated more wealth by the creation of more product - thereby ultimately creating an inclusive capitalism, while non tradable sector activity gradually resulted in an exclusive form of capitalism.

Since the Republican party presently bears so much responsibility for defining the reach of wealth, the growing divisions between tradable and non tradable sector response to long term growth potential, have all but ripped this party apart. Whereas the first continues to seek prosperity, the second seeks prosperity to a point where it can be locally generated, then often proceeds to close the gates. Even though the latter has built much of its wealth via dependence on the global prosperity of the former! Meanwhile, in recent decades, Democrats also try to function in a dependent position to Republican dictates, even as Republicans are increasingly divided among themselves.

In the future, I cannot help but hope these arbitrary roles of wealth creation and dependence, will no longer be "assigned" to any political party. Nevertheless, that's the reality now, and it could take decades to overcome. Wealth creation needs to occur on broader terms, and in terms which do not divide family member from family member, neighbor from neighbor.

And even though meritocracy has its place in any economy, it is better suited for the short bursts of activity which lead to new and better tradable product formation, than for permanent assignments of time based product in non tradable sector activity. In the latter, meritocracy mostly leads to a world which becomes increasingly divided against itself. Much of the work that remains, is of a meritocratic nature which has become increasingly stressful. From a recent Atlantic article, "Living in an Extreme Meritocracy is Exhausting":

Indeed, the desire for an efficiency achieved through a never-ending gauntlet of approvals is unhealthy. It exhausts workers with the need to perform well at all times. It pushes them into a constant competition with each other, vying for the highest rankings that, by definition, only a few can get.

Inclusive capitalism is not about welfare states or access to credit. Inclusive capitalism is about the right to produce and to work with resource capacity what ever one's level of ability may be. So that as many individuals as possible, are able to remain responsible for themselves, and for others as well. It's easy to react to what is wrong in the world, especially when it appears that more is "wrong" than ever. Just the same, let's hope that cooler heads will prevail.

Is Global Trade Beginning to Reverse?

In "A Little Noticed Fact About Trade. It's No Longer Rising", Binyamin Appelbaum provided several good reasons to be concerned about the global economy. He argues that the Walmart "revolution" is over, and notes that premature industrialization means (for instance) India is not following in China's footsteps, and of course there's the global political backlash to economic stagnation. The image of a single "lonely" Hanjin shipping container at California's Port of Long Beach in the NYT article, was enough to lower my spirits for a bit.

Hold that thought! While reading Appelbaum's post, an old song "Love Lies Bleeding" kept running through my mind, and I was fortunate enough to find it on YouTube. The last seconds of the song are missing but the live performance is impeccable:

Funeral For a Friend (Love Lies Bleeding)

However, is a "funeral" for global trade, really on the horizon? Dean Baker reminds his audience that the trade story line is not quite so simple.

There are a couple of points that complicate this issue. The first is that the drop in the dollar value of trade is the result of lower prices, not a smaller volume of goods and services being imported and exported...the actual amount of goods and services crossing U.S. borders was in fact higher in 2015 than in 2014, we were just paying less for what we imported and foreigners were paying less for what we exported to them.

Doubtless, some of these lower prices are a result of good deflation. Good deflation results from trade that "escapes" the less competitive pricing structures which non tradable sectors tend to impose on local citizens. Global trade - for instance - is largely unencumbered by the supply side restrictions which put pricing pressures on housing and time based services. One is reminded how George Selgin's production norm could apply for global trade, since it escapes the hostage taking of non tradable sector mark ups.

However, the ultimate paradox is that non tradable sectors deflect attention from their own (all too often arbitrarily) increased costs, by attacking inflation as a monetary policy construct which occurs far from their own influence in the marketplace. Inflation becomes a bogey to be "put down", as local interests encourage central bankers to reduce the necessary monies that should normally apply for all non tradable sector costs in aggregate. It's the monetary policy response to these tight money advocates, which contributes to a form of deflation which is anything but good.

Put another way, there's also a global bad deflation component, in what could otherwise appear as good global deflation - one which can be partially attributed to local producers imploring their central bankers to print less money. It's a shame that what happens locally, now transpires globally as well. In all of this, good deflation is a result of fortuitous supply side factors which contribute to long term growth. Whereas bad deflation is often due to the negative influence of supply side representatives on monetary policy makers. Bad deflation threatens long term growth potential, among plenty of other things. Dean Baker continues:

The big factors here were the sharp drop in oil prices and comparable drops in the price of many agricultural commodities that we export. It is not clear that this is bad for economic growth, but in any case the issue is not a drop in the quantity of goods and services crossing national boundaries.

Let's put Baker's assertion into perspective. Not so long ago, central bankers overreacted to what they perceived as negative supply side conditions, and turned what otherwise would likely have been a garden variety recession, into the Great Recession. Will central bankers negatively affect global trade to the same degree? Dean Baker seemed to question Appelbaum's negative reaction, but who has ascertained whether the drop in global trade is due to good versus bad deflationary factors.

If world trade is indeed at a turning point because of bad deflation in commodity prices, central bankers are likely playing a greater role in this occurrence than it may first appear. Dean Baker wanted to assure everyone that the trade of international goods and services remains intact. Policy makers need to make certain that bad deflation does not remain a contributor to the valuation of international trade, because if it does so, the real value of exports would eventually decline, much as the nominal value is already beginning to fall.