Post Highlights From 2016

I've included a bit of summary and additional thoughts, for some of the more popular posts of the year.

Comparative Advantage and the Marketplace for Time Value Tradable sectors have benefited from comparative advantage for so long, that it is not always immediately obvious, whether nations have particular advantages for divisions of labor. That said, comparative advantage has scarcely even been sought, for the non tradable sector activities, products and assets which are closely connected to time and location. Consequently, a lack of comparative advantage in home based markets, means today's non tradable sector product is not representative of a free market. Even though the product of time and location has a considerable degree of built in scarcity, real market conditions have forced these goods to be far more scarce than is actually necessary.

Notes on Solow Model Effects in General Equilibrium Solow model effects can greatly contribute to general equilibrium conditions, so long as markets are dominated by primary market formation. But what happens when non tradable (secondary market) sectors with built in scarcities for time based product and asset location, begin to impact Solow model gains?  A different approach is needed, to allow asset and services formation to organize more effectively for measurable wealth creation at the outset, so as to bring this activity into primary market formation.

Even though the time based product involved would be "static", since time use isn't (gradually) reduced in relation to non tradable sector output, the local time use continuum means product quality gains will be recorded and measured. There are positive total factor productivity considerations as well, because labor force participation would gradually rise. Ultimately, a broader range of economic access would bring better balance to general equilibrium conditions, which are now caught in political struggles due to a lack of aggregate time value among populations as a whole.

Economic Freedom, in Public and Private Context Can a marketplace be considered free, if a lack of government intervention still doesn't improve the output levels of skills and knowledge which are important to society? Or have private interests limited the production and consumption of these options to such an extent, that limits on government participation, would mostly mean further marketplace limits?

When the Political Chickens Come Home to Roost Even though structural adjustments are greatly needed, it is unrealistic to impose them on entire populations as "one size fits all" remedies. But will governments be willing to experiment at the margins, given the strict definitions they seek to impose on the marketplace? When populations lose faith in continued growth and prosperity, they can become caught in the unproductive drama, of exceptionally dominant political personalities.

Once and Far Away, Inflation Was Not Imaginary Too many central bankers have proven willing to impose overly tight monetary conditions on citizens, when investment opportunities appear slim. Of course, they have not always been willing to impose such limits on themselves or the financial institutions they represent, when investment opportunities have instead appeared ripe for the taking.

Notes on Endogenous and Exogenous Growth Factors As nations appear increasingly anxious to "call back" the exogenous wealth generated by their tradable sector activity, governments have yet to look to the vast degree of marketplace potential which is already close to home. Non tradable sector activity is the endogenous wealth which is a substantial portion of GDP, and it could be made dynamic in ways which once again free up growth potential.

Some Thoughts on Sticky Wage Considerations The sticky wages of non tradable sector income in particular, are an interlocking component of general equilibrium conditions. While tradable sector income also affects valuations across the entire spectrum, it is more flexible, because this income is more responsive to changes in tradable sector output. Still, both income sources are affected by the investment costs of education - a factor which contributes to the difficulty of reducing these costs for both business and consumers. Symmetric compensation could relieve sticky wages at the margin (alternative equilibrium) by reducing local educational investment costs, which in turn would reduce the location costs for relevant asset formation.

What is Asymmetric Compensation? Even though it is only partially representative of aggregate time use potential, asymmetric compensation made it possible to extensively invest in human capital in the 20th century. However, it was expected to replace other forms of compensation for resource coordination, when this wasn't really possible. Now, with too few internal dynamics for economic coordination, a degree of social reciprocity has already been lost. At a personal level, this impacts one's ability to form and maintain normal relationships with others. As an exogenous approach to time value, asymmetric compensation is not structured to maximize a full range of personal potential. Symmetric compensation, as an endogenous approach to time value, could establish a broader economic dynamic.

Re Local Corporations: A "Naming" Issue As the year progressed, I finally settled on the name "equilibrium corporation". I believe this name is appropriate, for it neatly captures the framework, by which a new corporate structure would be different from traditional interpretations of corporate activity. A major challenge for this construct is to generate broader definitions of free market product. Without more non tradable sector choice, a growing portion of today's market options may be assumed away as no longer feasible, by many who claim to want free markets, but are reluctant to release their hold on what is distinctly not free.

Notes on Defining Economic Access Problems regarding economic economic access are multidimensional, and largely equilibrium induced. As the primary markets of tradable sector activity have gradually shifted to non tradable sector dominance, this has taken place with corresponding lack of productive agglomeration throughout the system. An alternative equilibrium response to generate new access, would be entrepreneurial in nature. Yet this approach is not immediately obvious, because time value is the resource which has yet to be fully tapped.

Musings on Monetary Flows and Political Circumstance Tradable sector wealth is truly the wealth of nations. In particular, when central bankers focus too much on financial factors, the role that commodities play as a worldwide medium of account and liquidity origination, becomes more vulnerable to supply shocks. Present day attempts to localize tradable sector activity, do not take into account the interdependence of multiple sectors. Further, the importance of non tradable sector activity in the 21st century has scarcely been noticed, as a potential source of dynamism and strength.

Some Benefits of Resource Linked Money Higher minimum wages translate into less employment, yet the fact remains that many individuals need more economic access than is presently possible. Some, however, would ask: what's the point, if a small amount of pay is not sufficient for life's obligations? When money falls short due to the preexisting obligations of general equilibrium, it is possible to build an alternative equilibrium in which the costs of production and consumption more closely correspond to a small amount of monetary compensation. By making it possible to break free from the sticky wages and expectations of non tradable sector activity, alternative equilibrium can eventually bring greater balance to general equilibrium conditions as well.

Productivity Musings, and Wrap Up for December 2016

Often, over the course of 2016, I found myself mulling over declines in productivity. Is is possible to rethink what productivity consists of, given the need to take total factor productivity for time value, into account?

In particular, the internal time use patterns (or time use continuum) that many institutions rely on - especially for product quality - don't always translate into greater output or other obvious aggregate gains. Yet at the same time, we are experiencing other forms of societal gains which don't include economic equivalents for reliable coordination over time, or mutually supportive time use patterns. While our institutions continue to make an appearance in GDP figures, that doesn't hold true for many important aspects of what we provide to the world as individuals - both for ourselves and for others on a daily basis.

And no one can afford to be fooled by suggestions we "shouldn't" need money for what we do with our scarce time, given the reality of living costs. Granted, some lost monetary aspects of technological gain appear as though consumer "freebies". But does that mean tech perks are good deflation in disguise? Not quite. For one, this recent result doesn't contain the requisite components of good deflation, especially as it normally translates into more productive organizational patterns. Too many tech consumers - while they are indeed fortunate in their way - still lack either economic connections or reliable reciprocity with others. Technological gains won't translate into societal gain, until other resources can be brought together, to reinforce what is still a missing level of aggregate monetary support.

Given this circumstance: how could productivity gains be redefined to present reasonable options, especially during periods of economic stagnation?  While innovation still features prominently in many settings, non tradable sector activity can be compromised (whether profit or non profit) should these institions attempt to provide more employment and output, in their present organizational configuration. Why so? Non tradable sector product is largely represented by the product of specific time or place. In other words, it has a strong, built in natural scarcity of production limits, which tradable sector activity often does not face. When time or location linked product is offered for a lower price, the result may be either less available budget revenue or profit.

This helps to explain why non tradable sector institutions have tremendous incentive to capture innovation gains internally. What innovation they are inclined to allow, tends to result in less overhead expense instead of lower product costs. After all, the built in scarcity of non tradable sector product which is attached to time and place, means any price cuts for time/location dependent product can disadvantage these institutions in relation to their for profit and not for profit competitors.

However, production losses in terms of output and employment cannot continue indefinitely, without negative economic effects. Organizational capacity needs new patterns which includes both producers and consumers in the loop of gains from innovation and participation. When such gains remain impossible for too long, system wide networks eventually fall out of balance.

Fortunately, there are ways that these structural pressures can be reduced. New institutions could eventually achieve total factor productivity gains for producers and consumers alike. Even though new non tradable sector institutions would need to operate via internal coordination of resource capacity as well, they would do so across a wide range of economic activity. This would allow them to contribute greater total factor productivity at the margins, where normal productivity often becomes constrained by the general equilibrium limits of secondary market formation.

In the meantion, non tradable sector innovation - unlike tradable sector innovation - can't really be designed to increase general equilibrium output. That's why the innovation which has occurred in these areas, tends to accrue in terms of capital gains, instead of the gains of employment, wage increases and total output. These gains are "static" in the sense they don't readily translate into the earlier gains of jobs, output and increased wages.

Tradable sector activity is a more reliable provider of increased wages, than non tradable sector activity, because of the secondary market position of the latter. However, the present lack of market dominance for tradable sector activity (in relation to non tradable sector activity), means relatively less high income potential for tradable sector activity as well.

Dietrich Vollrath takes a closer look at the fact that employment is going south. Literally.

David Beckworth asks, "Can the global economy survive a stronger dollar?"

Many of these youth are witnessing firsthand, a world that has become increasingly difficult for them to take part in, via a standard expectations outcome: https://conversableeconomist.blogspot.com/2016/12/youth-and-future-of-arab-states.html

One of the more notable posts early this month was "Desperately searching for a new strategy". Here's Tim Duy:

Whether or not Trump can or should attempt to reverse the decline in manufacturing jobs is not the big story here. He can't. The real story is that he continues to tap into the anger of his voters about being left behind. That will give him much more power than our criticisms will take away.

Politicians, aided by economists, have long ignored the negative impacts of trade-induced structural change. Indeed, they have even cheered it on. After all the process "releases resources" for use in other, more productive parts of the economy. Those workers are just "low skilled" workers. The US needs more "high skilled" workers anyway.

Fact: Workers hate being referred to as "low skilled". 

How we respond to Trump is important. If we simply fall back on our standard numbers, we lose. If we confidently predict that TPP is a big win because it will add 0.5% to GDP by 2030, we lose. If we just use this as an opportunity to reiterate the importance of a college degree, we lose. We have been doing this for decades, and it helped deliver Trump to office. 

Part of the problem is whether one is actually in a position to even be able to innovate, or otherwise meaningfully reciprocate with others in terms of shared knowledge, when they do not have the requisite degrees. Fortunately, in tradable sector activity, degrees aren't necessarily part of the equation in terms of one's ability to interact with others. These individuals can contribute to what are already internal processes, which benefit from resource use patterns amenable to local adjustments. However, in non tradable sector activity, even those with the requisite degrees find it difficult to innovate. The knowledge based processes involved, mean being too close to the very structures that are threatened by new organizational patterns.

In the knowledge based work that is non tradable sector activity, it's not easy to establish resource pattern changes (innovate) to reduce costs. By way of example, the vertical integration that consolidates resource use for productivity gains in tradable sector activity, can't be replicated in the knowledge use (of general equilibrium) for non tradable sector activity. Yet the fact vertical integration isn't possible in today's non tradable sector knowledge use processes, also means it is becoming difficult for lower to middle income levels to take part in important time based services product. The result of course is lost human capital, and lost economic output.

The supply of medical practitioners in the U.S. has two problems which particularly stand out: heavy distribution of physicians in prosperous regions instead of rural areas. Also, too many healthcare providers aren't currently able to fill in for physicians, in a wide range of areas where the latter choose not to live. (HT Miles Kimball) http://www.nytimes.com/2016/11/08/upshot/a-doctor-shortage-lets-take-a-closer-look.html

Where are rates of unemployment for men, below average? https://www.brookings.edu/research/americas-male-employment-crisis-is-both-urban-and-rural/

A Q&A with Nobel Laureate Oliver Hart

The most common job in each state has changed considerably, in recent decades. Automation in transportation, would reduce the now common truck driver designation, much as the secretary role was reduced decades earlier.

This is actually a general equilibrium approach which has potential. But would the groups slated for such moves, actually tolerate leaving the places which mean so much to them? The government activity being addressed is still centralized activity after all, even if it does not appear so, geographically. http://www.vox.com/new-money/2016/12/9/13881712/move-government-to-midwest

James Pethokoukis makes an excellent point in this post, especially since the statistics back it: the U.S. economy is far more closed to global trade than many realize. https://www.aei.org/publication/just-how-open-is-the-us-economy/

The U.S. has a "disability belt", and Arkansas is at the center. https://www.aei.org/publication/here-is-americas-disability-belt/

Common ownership can cause some unexpected problems when incentives are poorly aligned.

Well said, William Easterly:

One of the greatest insights of economics is that individual incentives work while group rewards and punishment don't. Collective guilt doesn't work to change anyone's behavior. In the end, collective guilt, fashioned from bogus analysis and delight in stereotypes, is mere slander. It's a formula for constant antagonism and it's poisoning American politics.

It's much easier to innovate, when the reference points for ongoing divisions of labor are internally coordinated. http://voxeu.org/article/how-engineers-innovate-automotive-supply-chain

Seattle opens its first convenience store without a cashier.

The importance of place for a college education. Some would question "education deserts" for the same reasons they questioned food deserts a few years earlier, but I remember well how distance played a substantial role in the difficulty of completing a college degree.

From Real Clear Markets: "Don't Expect the Jobs Gains of 2016 to Continue"

Are there NIMBY tendencies hidden beneath Trump's growth stance?

Ashok Rao asks, "What are real assets?"
Also, is it still possible for individuals to make a real difference for those in need, when this responsibility has already been designated to governments?

Education also has productivity issues because much it does not fit well in any time continuum, which could explore a full range of aggregate time use potential https://www.brookings.edu/blog/social-mobility-memos/2016/12/23/the-declining-productivity-of-education/

Basil Halperin on "Monetary misperceptions, food banks and NGDP targeting"

Like so many of my readers, I can't help but hope that 2017 will turn out to be a more pleasant, less stressful year, than 2016 has been. Here's wishing everyone a Happy New Year!

Recapture Knowledge Use

Are people "willingly ignoring" the value and contribution of knowledge in society? Even though I'd prefer to think not, more direct organizational means could greatly assist knowledge dispersal, so that the use of knowledge is not constantly caught up with the redistributive struggles of politics. Can we make the necessary connections between knowledge use and desirable product formation, which have yet to be recognized?

Regular readers know I believe that tradable sector activity does not have to carry the burden of knowledge dispersal and product formation, solely through its own resource capacity. The threat of knowledge use limits in times of economic stagnation, comes through in this post title from Brad Delong, "Regional Policy and Distributional Policy in a World Where People Want to Ignore the Value and Contribution of Knowledge- and Network-Based Increasing Returns". Even though he appears to envision the problem in terms of generating more efficient monetary redistribution, the dispersal of knowledge is far more crucial, in that it directly affects output potential, hence total monetary capacity. Here's Delong:

Perhaps in the end the problem is that people want to pretend that they are filling a valuable role in the societal division of labor, and are receiving no more than they can contribute. 

But that is not the case. The value - the societal dividend - is in the accumulated knowledge of humanity and in the painfully constructed network that makes up our value chains.

A "contribution" theory of what a proper distribution of income might be can only be made coherent if there are constant returns to scale in the scarce, priced, owned factors of production. Only then can you divide the pile of resources by giving to each the marginal societal product of their work and the resources that they own.

Delong explains that this isn't the world we live in, and continues:

In a world - like the one we live in - of mammoth increasing returns to unknown knowledge and to networks, no individual and no community is especially valuable. Those who receive good livings and those who are lucky - as Carrier's workers in Indiana have been lucky in living near Carrier's initial location.

First, I want to briefly highlight Delong's use of scale, as both redistribution means and recognizable wealth creation. While scale measure approximation is salient (for monetary redistribution) from tradable sector activity which provides a value (measure) for skills contribution via product output, the scale gains of non tradable sector activity are not as readily distinguished. The value of time for time based services, occurs in more subjective ways.

Hence the knowledge gains of non tradable sector activity are the intangibles, the secondary market movers, the subjective knowledge use scale gains over time which Delong emphasized in his post. They also belong to the fiat monetary formation which populations learned to accept on faith in the 20th century, for both services generation and other vital secondary markets.

While government linked secondary market structure is indeed valuable, time based product is only capable of immediate measurable scale, via patterns which allow for knowledge continuity between groups. And while institutions have learned to provide this vital capacity to a limited degree, not just any community has been given the chance to participate in the institutions which provide a valid knowledge use continuum for all concerned.

Even though today's schools begin a coordinated time use continuum with high levels of public and private commitment: for many of these institutions, the process is broken off abruptly - upon graduation - in irretrievable ways. Even in the best of circumstance, one may find little economic purpose with neighbors in a hometown upon graduation, unless they've managed to snag a scarce local job. Nonetheless, homeowners are often expected to commit their property tax dollars to these schools through the course of a lifetime, with little measurable return in terms of lifelong local services capacity, or tangible knowledge use gains close to home.

Meanwhile, communities are presumed lucky - or not - depending on whether substantial tradable sector activity exists nearby, where at least these institutions are (hopefully) structured to continue the vital processes of knowledge use and skill application for all concerned. Just the same: in terms of wealth creation, broad and complex knowledge use patterns (productive agglomeration) are the ultimate scarcity, especially when productive agglomeration is heavily government dependent. This core scarcity inhibits both the redistribution of money and time based services product, in the present.

Consider Delong's characterization of luck, along with some other implications in this particular context. For one, small communities are designated "lucky", should tradable sector activity exist nearby to provide local employment, above and beyond subsistence levels. Equally important - in terms of wealth creation - is the present dependence on tradable sector wealth, for the follow through knowledge wealth which governments are also "supposed" to somehow fairly apportion to their citizens, in spite of existing harsh institutional limits on actual supply. Just as communities feel lucky with tradable sector activity nearby, so too the knowledge beneficiaries which recognize their own good fortune in this regard, since tradable sector wealth is a more tangible source of redistribution, politically speaking, than mere local holdings of international wealth.

So there's a problem. The extent of aggregate knowledge use potential in this instance - both via available revenue and actual product formation - is limited to the wealth creation which has already been generated via means not directly related to knowledge product. Consequently, any underlying assumption of government dependence on tradable sectors for knowledge based services creation which Delong may hold, is still valid. After all, the follow through and government linked secondary market activity which flows from primary markets, has been more extensive than the initial wealth creation of fortuitous tradable sector activity, for some time. Hence the note of fear - or at least existential uncertainty - in Delong's post title.

Fortunately, it's not necessary to "force" governments to further redistribute more tradable sector wealth than has already been the case, especially given today's lack of prominence of manufacture as a primary market activity, in communities as a whole. Nor is it necessary for governments to force today's non tradable sector beneficiaries of knowledge use to part with their earlier good fortune regarding skills valuation, as it was in fact reinforced by governments in the first place. These providers could gradually phase in greater knowledge use by entire populations, within the same time frame that populations eventually phase in more direct sources of social security and less government redistribution in the near future.

Indeed, we don't have to associate fortuitous resource reciprocity of tradable sector activity, as the only source for first mover wealth creation. After all, the "luck" of fortuitous location can be recreated, any time that a society decides to organize economic time reciprocity, so that it becomes capable of internal wealth generation. By so doing, no one would need to "force" tradable sector activity in certain locations, or the limited wealth it presents, for the activity of knowledge use. Sometimes, institutional organization becomes a matter of recreating our own "luck".

The Non Political Nature of a Growth Level Target

Even among those who agree with market monetarists regarding monetary policy, some prefer growth level targets, while others would be equally comfortable with growth targets. However, a growth target isn't necessarily anchored to economic activity in aggregate, as an unbroken continuum over time. How might one think about the difference between these two options, as a potential monetary rule?

For one, a growth level target would be less subject to either discretion or political favoritism. Even though populists and others might declare a "need" for greater growth, a growth level target rule would nonetheless instruct central bankers to continue following the lead of the marketplace. After all, economic stability is a result of monetary representation which aligns as closely as possible, with existing conditions across the real economy. Despite the supply shocks which may affect GDP and output, a nominal target level can smooth the disruption among sectors which aren't directly connected to the supply shock.

While a growth target could closely approximate changing supply side circumstance, chances are this form of discretion - as a policy rule - would instead be used for the wrong reasons. For instance: today's sluggish market conditions were also a result of a high level of central banker discretion, prior to the Great Recession. Even though monetary policy returned to a familiar growth trajectory, there's no escaping the fact that (overall) trajectory exists at a lower level. Yet in spite of this important fact, too much confusion surrounds the fallout which also occurred, due to excess central banker discretion.

There's no denying the importance, of maintaining via monetary policy, a reasonably constant level of economic activity over time - wherever possible. And prior to the Great Recession, any further discretion on the part of central bankers which could have amended a heavy loss of monetary support, needed to occur quickly. Instead, they only utilized a heavy level of discretion once and in basically one direction: downward. Consequently, even though the Great Recession began as a loss of monetary representation, that loss spread to the real economy as well.

Since the loss of that earlier level of output has not been carefully discussed with the public, it's difficult to know for certain, whether central bankers are willing to adhere to a stable monetary level in the near future. Will they keep the monetary policy focus on the supply side (instead of credit) conditions that are responsible for long term growth?

Indeed: should a growth target be adopted, such a rule could still lead to discretionary problems - especially if growth levels are adjusted for the wrong reasons. Whether implied or explicit, monetary policy decisions may either be subjected to wishful thinking, or possibly negative assumptions which do not accurately designate existing marketplace conditions, among other things. Hence some might be tempted to use the rationale of a growth target, to arbitrarily shift down the money supply, once again.

Granted, a growth target is more logical than today's interest rate targeting. Just the same, such a rule would still face pressure from existing political and/or credit driven circumstance, both of which may interfere with real economy conditions and obligations. Whereas a growth level target would return monetary policy to a more practical position that is less reactive to political disturbances.

Most important, a level nominal target rule would highlight where the real responsibility lies, for a better economic reality: the supply side. Real growth is still possible when special interests do not stand in the way. Yet it's been too easy for many of their representatives to hide behind the discretionary mistakes of central bankers, instead of facing their own shortcomings. With a level target rule, monetary policy would be able to proactively respond to supply side conditions that generate new growth, instead of making constant adjustments on behalf of the special interests which seek to limit growth.

Notes on Time Aggregate Imbalance and the Medium of Account

A recent post ("India's Money Shortage") from Scott Sumner, provides useful framing for circumstance reflecting the monetary roles of medium of exchange and medium of account. India continues to suffer from a negative supply shock, via the medium of exchange role. Theirs is a highly unfortunate reality, in which the poor now pay a (temporary?) heavy price of lost access, since larger bills were removed from the marketplace with little to actually replace them. Yet this occurrence is different from today's ongoing medium of account money "shortages", which disproportionately affect lower income levels in ways that are more hidden. From Econlog:

Both old monetarists and market monetarists like to describe recessions in terms of a "shortage of money", caused by either a drop in the money supply or an increase in money demand. In this view, the focus is on money as a medium of exchange.

I've always been uncomfortable with that framing, as I don't think the term "shortage" accurately describes the problem. Rent controls and price controls on gasoline lead to huge queuing problems. In contrast, there are usually no lines at ATMs, even at the worst points of a recession...In my view, it's more useful to think of the problem as an increase in the value of money. My focus is on money as a medium of account. 

I don't want to overstate these differences as we both believe the problem is caused by either a decrease in money supply or an increase in money demand, and we both believe that the effects are higher unemployment and monopolistically competitive firms having more difficulty finding customers at their current (sticky) prices.

I find these arguments compelling, and would suggest that the role of money as medium of account is not sufficiently acknowledged. In the twentieth century, the monetary flows of general equilibrium were subjected to the increased valuation of highly specific skills sets. The Baumol effect particularly highlights this equilibrium shifting pattern, since it also generates wide variance in otherwise basic sets of service and asset consumption costs. Indeed, tradable sector activity more quickly adjusts to any lack of monetary representation, in part since the skills sets associated with tradable product tend to be more temporary in nature, than skills sets associated with the knowledge endeavour of non tradable activity.

Monetary problems for the U.S. in particular, reflect broadly expected medium of account valuations in non tradable sector formation. Yet despite the reality of sticky wages and prices, central bankers have gradually become less inclined to represent their full array of aggregate claims to marketplace inclusion. Even though these kinds of very real money shortages don't translate into long lines at ATMs in the U.S., there's a hidden "wait" just the same: much of it, in a wide array of ("innovated") services product not intended for all comers, despite what the evening news might suggest. The high skill services "wait" for low or otherwise fixed incomes, simply occurs on different sets of terms. Some of the "return to gold standard" discussion, can be thought of as medium of account related, in terms of more fixed monetary limits, which would prove less inclined to accommodate high skill services participation in the marketplace.

How to think about the medium of account role for money, in relation to other roles? Consider how money as a unit of account, contributes to overall medium of account marketplace representation, in terms of aggregate resource capacity. For instance: in "An Empire of Wealth" on page 43 (I'm less than 100 pages into this interesting book), John Steele Gordon provides some basic explanations of monetary functions:

As a unit of account, the value of all other commodities is expressed in terms of money. And money acts as a store of value, a place to hold wealth temporarily between productive investments.

Money as medium of account, could be thought of as a natural extension in terms of aggregates, for the unit of account function. But what if the restrictions of a given general equilibrium, make it difficult for "single price" extensions to fully represent production and consumption of goods and services?

Time value could also be expressed as a valid medium of account (with other traditional monetary roles), so as to create more economic complexity and a more complete marketplace. However, money would still provide its normal functions alongside time as a medium of account. Only local asset formation and services formation would exist separately from the broader general equilibrium. Even though knowledge use systems would utilize an alternate equilibrium (for time as medium of account) they would still share the broader economic equilibrium with surrounding economies - especially in terms of tradable sector activity. Eventually, time value as a recognized alternative medium of account, could help to address the high skills marketplace expectations which central bankers have become increasingly disinclined, to fully represent.

Can the Product of Time and Place, Benefit From Innovation?

Why do products that include highly specific time or place (time based services and real estate) pose such problems for truly productive innovation? In spite of the fact non tradable sectors tend to hold local customers "hostage", admittedly the product of time and place can be the most difficult scarcities to replicate on reasonable terms, for all involved. This will likely hold true, whenever organizational patterns for non tradable sector production are approached on exogenous terms - particularly where environment use patterns reflect international sets of resource capacity.

Also: given the fact this form of non tradable sector activity relies on preexisting revenue, it can gradually lose the capacity for further expansion, as total aggregate formation begins to displace that of primary markets at international levels. Indefinite expansion of secondary markets can be illusory, if primary markets are not able to maintain their first mover position for marketplace contribution. Is it possible to productively innovate the products of time and place, by means of a first mover position which would diminish the burden of secondary market dominance?

Clearly, not all kinds of innovation make this possible, as has already been shown. Consider a recent post from James Pethokoukis, who highlights Clayton Christensen's description of innovation differences:

There are three types of innovation. The first are "empowering" innovations. These transform complicated, costly products that previously had been available only to a few people, into smaller, cheaper products available to many...Empowering innovations create jobs for people who build, distribute, sell and service these products. The second kind are "sustaining" innovations. These replace old products with new...Sustaining innovations replace yesterday's products with today's products. They keep our economy vibrant - and, in dollars, they account for the most innovation. But they have a zero-sum effect on jobs and capital. The third type are "efficiency" innovations. These reduce the cost of making and distributing existing products and services. Efficiency innovations almost always reduce the net number of jobs in an industry, allow the same amount of work (or more) to get done using fewer people...Efficiency innovations are liberating capital, but that capital is being reinvested into still more efficiency innovations. Our economies are generating many fewer empowering innovations than in the past.

Should anyone attempt to (broadly) replicate the product of time or place on general equilibrium terms, the result would be massive disruption and major wealth loss, both for the owners of real estate and those with high levels of skill. Increasingly, these groups are the same. Since they are among the major anchors of general equilibrium, empowering innovation in this instance needs to be approached, so as not to distort already existing structural patterns.

Equilibrium dependence for secondary markets, especially makes them prone to the use of the third type of innovation described by Christensen: "efficiency" innovations which ultimately reduce jobs. These are consequently the groups most in danger of automation, should an insufficient amount of primary market activity be in place to provide the ongoing revenue needed to compensate time based product. This growing impulse to reduce employment where possible in services product, doubtless plays a role in the reluctance of today's high skill centers to increase population densities.

Automation need not destroy the jobs of the future. However, the best way to ensure this doesn't happen, is to restore a healthy balance between primary and secondary market formation, so that the latter will continue to have the necessary funding to maintain today's existing general equilibrium skills and asset formation. Fortunately, knowledge use systems have the capacity to generate new wealth via a first mover (primary market) position. By organizing as a single unit which coordinates a broad range of asset and services formation, the resources needed to fulfill these functions are recognized and recorded at the outset. Symmetric compensation would allow these groups to slowly - but surely - contribute to a healthier primary market balance, which otherwise has proven difficult to return to, on general equilibrium terms.

Consumer Cities: Are they (Individually) Sustainable?

What is different about cities oriented towards living and working (rather than making stuff), in terms of economic stability? Economists such as Ed Glaeser have described today's services and knowledge oriented cities as consumer" cities. I've borrowed Glaeser's earlier moniker to title this post, since it reflects descriptions on the part of another economist, Richard Florida. In "The Most Disruptive Transformation in History", Florida writes:

I would suggest that this transformation - the clustering of knowledge over physical labor -  is among the most disruptive in recorded history.

But even more so, this age of urbanized knowledge capitalism requires a shift in power from the nation-state to cities. Which are the key economic and social organizing unit of the knowledge economy. That also means that cities must take on the outsized power of the nation-state and the imperial presidency. We must devolve power and resources back to the local level - raking back their tax money from the federal government so they can spend it on themselves. 

Is the decentralization of cities really possible, in the way Richard Florida imagined in the above article? These are prosperous regions with wealth structures that are quite different from earlier manufacturing hubs, in terms of both population densities, and the landscape designs which complement (what have become more important) present city functions.

Even though consumer cities are thriving, their present incarnation is closely connected to the resource capacity being tapped by nations and international networks - both of which face a growing degree of political and economic uncertainty. Just one example of connectivity issues (in the the U.S.) are healthcare networks which would be completely torn asunder with decentralization, such as Medicare provisions for the elderly. Many individuals don't have time based service production options at the ready, in their own neighborhoods. Plus, Washington remains largely responsible for much of the city based care people do receive, for important applications of knowledge and skill. It is the ways in which much of today's non tradable sector activity is organized, which provides little means of knowledge preservation for long term stability, or decentralization options at the ready.

Consequently, some of the autonomy of today's cities is illusory, given the delicate balance between primary and secondary economic activity as origins of wealth formation. More specifically: to what degree is today's knowledge based (secondary market) economy "disruptive" in the way Richard Florida suggests? Granted: knowledge use extends to more of the populace in this historical juncture than before - given the vitality of secondary market activity which took place in the last century. Nevertheless: is this particular "disruption", one that exists in a truly productive capacity? After all, the positive disruptions which broadly contribute to marketplace definition, also increase marketplace output. Yet it is not obvious this has occurred, given the dependence of rural regions on cities, and cities in their turn on nation states. Instead, secondary market city activity has supplanted broader sources of primary market economic activity, which were once far more widely dispersed.

In other words, many of these cities remain general equilibrium dependent. While today's knowledge use appears to advance wealth formation, too much of it is structured in ways which displace other forms of wealth - at least to some extent - because it does not completely internalize resource capacity through recognizable means. Whereas if these organizational patterns were not so dependent on the very (primary market) factors they are disrupting, the process would be more dynamic and capable of enhancing total marketplace output. Perhaps most important about this development, is that what appears secure in a mature economy - such as today's knowledge based activity - becomes most vulnerable when it affects the output potential of primary market formation, instead of contributing to that formation.

Today's consumer city activity takes place across countless budget ledgers, rather than internal organizational means. Yet internal organizational patterns could make it easier to confront what are very real supply side limits, for knowledge use. Indeed, the use of fiat money - helpful though it has been - also expresses general equilibrium dependence. Fiat money makes it simpler to achieve spontaneous coordination of time based product for higher income levels. But the fact this process doesn't function adequately for lower income levels, decreases total global output potential in at least two ways.

First: due to non tradable sector consumption definition, a growing lack of (low income) ability to consume housing and services, means less output potential for these forms of secondary market activity. Second, the consumption of non tradable goods still necessary for lower income levels, also crowds out the discretionary income that would otherwise contribute to tradable sector activity. This effect also shows up via institutions which manage default (crisis response) positions for low income groups.

The crowding out of primary market activity matters all the more, since tradable sector goods contribute more to quality of life for low income levels, than for high income levels. One might say that low income levels are major contributors to what is also the primary market first mover position for equilibrium growth. These two factors prevent the "disruption" of today's consumer cities, from being a disruption component which contributes to positive economic vitality and long term growth.

Knowledge - in all its infinite variety, usefulness and challenge - can be preserved for the generations of the future. However, it is difficult to achieve such preservation, strictly on today's general equilibrium terms. At a practical level, it would also be difficult for large states to effectively scale down in terms of resource use patterns (while retaining economic complexity), until knowledge use participation is more broadly shared.

Commodification of Time: the Imaginary Enemy

Why is the commodification of our economic time value, so often perceived as a negative? Possibly, because of the fact a substantial amount of personal time became externally defined in the 20th century, by the institutions in our midst. Nevertheless: in the 21st century, as these same institutions gradually need less employment to generate more output, societies will need to reconsider the wealth potential (commodification) of time value, in a much more positive light.

Otherwise, many groups would have difficulty initiating mutual forms of self employment, for time based product. Yet doing so is likely the most advantageous process, to effectively counter the effects of automation in the near future. Negative perceptions regarding time value need to be confronted, because otherwise they could ultimately lead to great losses in productive economic complexity, which would unfortunately be reinforced by progressives and conservatives alike. In many respects, what was an earlier internalization of time value in relation to institutions and/or resource capacity, would shift towards economic time value in relation to individuals. It's also a process which could help to restore a great deal of personal autonomy (economic freedom), which was temporarily apportioned to external organizational processes.

The inherent usefulness of our time for others, is a natural resource in the same sense as any other form of commodity or product wealth, despite the fact time value has yet to be directly tapped (on symmetric terms) for economic purpose. Meanwhile, the incentives to initiate such a process are only growing. Indeed, the more useful our time value is perceived by others, the more options in life we would have - once again. Even though the services economic option is sometimes openly disdained (which is "better", building or maintaining/assisting?) in part due to perceptions of gender limits, skills use options are far more open ended, than the class/gender separations suggested by general equilibrium terminology.

Granted, through much of the twentieth century, few individuals needed to provide mutual, time based assistance via internal (direct) means, since widely dispersed tradable wealth made a full range of time based coordination possible for multiple income levels. Whatever complaints one had about externally driven time commodification in the 20th century, the benefits of this (more temporary than realized) compromise were still undeniable. It was also a time of abundant "stuff" in our environments. While this form of material abundance is not as important as it once was, many income levels during this period were able to experience life, in ways which extended well beyond the places and circumstance of one's birth.

Greater mobility and personal autonomy are still possible. In this post I'd like to suggest that we have scarcely even begun to pull back the layers of commodification potential, to discover what lies underneath. What might that potential consist of, in terms of regaining a societal level of personal autonomy which has been all but forgotten, in recent years? Mike Konczal is one of many, for whom time commodification appears as though the "enemy". While musing about the reality of a Trump presidency, he included some negative associations with time commodification. In response to a working class which feels as though constantly ordered around by professionals, he writes:

Meanwhile, we should feel out our own case against professionals. Tying professionals to commodification, the people who get in the way of needed goods (especially with whatever TrumpCare ends up looking like), might be a way to get there.

One problem with commodification labels such as this: they neglect today's limited production processes, which in turn greatly diminish aggregate supply potential. Here, Konczal further clarifies the commodification identity:

...the divide among economists on trade is driven by the fact that labor economists study the real effects of unemployment on real people, where trade and macroeconomists treat people as just another commodity.

Were macroeconomists the first to do this? I would suggest they took their cue from a broad array of institutions which had already done so first, through the process of offering lucrative - but double edged - asymmetric compensation, to individuals in the form of well paying work, throughout the years they were able to do so. Small wonder, then, that human capital as a productive resource, became narrowly defined.

Negative reactions to time as commodity, can also be attributed to the fact that people chose to heavily invest in education as a long term career gamble, during the 20th century. By so doing, many individuals collectively handed over the keys to their broader time options and destinies, in hopes of gaining a lifetime of security. Yet gambling for fortuitous gains in human capital, has become more elusive over time. Should one ultimately land on the "right space", it often feels imperative to remain there.

Circumstance such as these likely contribute to skepticism, regarding time as commodity. Another way to frame the problem: narrowly defined human capital imposes substantial limits on aggregate economic time value, which in turn disrupts once productive economic landscapes. Given today's minimum of managed time continuum environments for group work, only a mere fraction of what we learn through the course of our lives, translates into economic or even social gain. Even though some of our economic contributions are highly valued, this process has occurred in ways which lay waste to the larger potential of human capital.

Fortunately, human capital need not exist solely as a time based component of externally defined wealth. Let's return to the consideration of commodity definition in a positive light. Upon doing so, something immediately becomes evident: time's perishable nature. Just as many time options need to play out in an organized continuum (if they are to fully manifest), food is also a perishable commodity, which needs to be consumed within a fairly short time frame. And yet something very positive for progress took place for foodstuffs in the 20th century, which has yet to take place for human capital: greater food preservation.

Instead, the institutions of the 20th century, made time use potential more perishable, along with the knowledge use potential associated with time value. Let's reverse this process. I suggest that an equilibrium corporate construct, be given the chance to do so. The progress of the 20th century, can hopefully be continued in the present. Time value is by far, the most important commodity we all have.

Notes on a Changing General Equilibrium "Middle"

Did increasingly polarized income structures, in the guise of a "squeezed" middle class, strongly affect the election outcome? It's difficult to know for certain, and plenty of individuals with high incomes also supported Trump. Prior to these latest discussions concerning regional unemployment, the broad discussions regarding inequality mostly took place before Trump's internet dominance shifted the focus elsewhere.

However, a changing "middle" likely contributes to areas now lacking in economic complexity, which extend well beyond the rural areas now in the spotlight. Despite these structural shifts, Democrats apparently aren't inclined to change direction. But is the lackluster response really all that different, for Republicans? Even though Trump's personality means uncertainty, he'll still be staffing Washington with plenty of folk who have little reason to change their stripes, regardless of structural economic shifts.

Some of these shifts have actually been apparent for decades. As Tyler Cowen noted in "The Great Stagnation", wages for the American family have been stagnant since the seventies. Recently, I complained that Tyler had chosen a cultural/political response to a clearly economic problem involving rural economies. But while reviewing some of the material from a few years earlier, I remembered how discussions re a "declining middle class" had also taking place on similar terms. No wonder it was difficult then - and of course still is - to envision an organizational equilibrium response, to the reality of wages which have been stagnant for more than four decades! People have forgotten how to free a marketplace so as to move closer to wages, when it becomes difficult to move wages toward societal expectations.

Nevertheless, it is difficult for policy makers of any ideological persuasion to respond to this reality, in part due to the fact their representatives belong to the population segment whose income levels have gradually shifted upward. Hence it's easy for conversations which one hopes to find economically helpful, to devolve into discussions of identity and culture.

Meanwhile, the macroeconomic effects of an increasingly secondary market dominated economy, are continuing apace. In all of this, the non tradable sector organizational capacity which consists of knowledge properties and real estate holdings, is vastly different from the broader societal wealth which naturally accrues from tradable sector activity. The problem goes beyond the fact this form of non tradable wealth is proving difficult to disperse and/or replicate. Rather, the bigger problem is this present structure now limits the output capacity of general equilibrium, for all concerned.

The social effect of this phenomenon is a vast amount of people who can't expect to take part in or contribute to the present economy, on similar terms as before. Already, the agglomeration effects of a mature general equilibrium, result in time based services which are increasingly limited to prosperous areas. And life expectancies in the U.S. are beginning to falter, accordingly. As Aaron Carroll (The Upshot) noted:

What no one seems to be debating is that we have a shortage of services.

I've been shouting that very fact from the rooftops, for more than three years. Argh, has anyone noticed?

As someone with healthcare providers in their extended family, I can only surmise it must be threatening to openly discuss a (mostly hidden) lack of services capacity, given today's hierarchical forms of time based services. Six or seven years earlier, I attended a voluntary healthcare event which provided free dental care. It was astonishing to see the thousands of hopefuls in attendance, waiting for their chance to relieve conditions which in many instances were already impacting their daily lives. The fact that so many people would wait in long lines for dental care they could not otherwise receive, was unsettling enough. Further, many of these individuals were likely U.S. citizens. How much longer would they need to wait...might they still even receive voluntary care at all, should that already limited care need to be apportioned to "outsiders", first?

I'm not saying I'm anti-immigrant, for I don't have strong feelings in that regard. However, the last time I made a concerted effort to return to the workplace, I finally realized the extent to which my chances of employment were also diminished, because of a large pool of immigrants who lived close to that same area. One could say they were also "competing" for a number of service jobs I would gladly have taken, if offered. Finally, when I was not able to procure work, I ended up returning to my rural hometown (after a near 40 year hiatus), something previously difficult to imagine. Did immigrants limit my chances for economic access? I'd prefer to think not, but then we still approach the workplace as though it has to be a zero sum world.

Why not generate new economic environments for living and working, that are more conducive for all comers. Why not treat time and knowledge based services as free markets, just as we treat tradable sectors as free markets. Right now, it's not easy for people to discuss matters on these terms, but it's important to do so while there's still time. I hope that soon, it becomes easier for economists to discuss economic matters again, instead of retreating into political divisions on the "worthiness" or "non worthiness" of group or identity based culture.

Govern by Reason, Compensate Through Reason

In other words, make the world of reason and knowledge use, a valid part of economic life for all concerned. Without this knowledge use option, the local education of areas which lack economic complexity, is beginning to lose its meaning in a larger sense. As things stand, such education can devolve into a sad enticement for aspiring individuals to emigrate to local prosperous regions (or distant nations) just to gain economic validity.

Worse: when rural residents find it difficult to move to (or remain in) prosperous areas, policy makers can make some unfortunate assumptions: 1) the ones left behind aren't motivated enough to matter in the scheme of things. 2) the places that lack economic complexity, aren't worthy of serious consideration. How do we know those assumptions are true? No one can afford to randomly assume that citizens don't desire to take part in knowledge based challenges, just because of the ways these challenges are currently expected to occur in workplaces and marketplaces.

No society can expect to maintain knowledge based wealth, when large numbers are expected to live their lives without the economic compensation that would reward their own reasoning abilities. Yet today's knowledge use rights are mostly sealed within the confines of general equilibrium expectations. And political constituencies which normally highlight the importance of free markets and property rights, remain largely silent, regarding the support of knowledge production rights. This silence becomes all the more deafening, as knowledge takes center stage in a 21st century economy.

Regarding the rural areas which contributed to Trump's win, I was a bit disappointed with a recent post from Tyler Cowen, who responded to Tim Duy. First, from Duy's thoughtful post, which deserves to be read in its entirety:

We don't have answers for these communities. Rural and semi-rural economic development is hard. Those regions have received only negative shocks for decades; the positive shocks have accrued to the urban regions. But he at least pretends to care.

What I could not understand is why Tyler Cowen, who is an economist, provided what he believed to be a useful political and cultural response (instead of an economic response) to this plight. Even though an earlier election of Mitt Romney might have meant more "common sense" than can be expected from a Trump presidency, what, specifically did that have to do with the economic situation of rural residents?

And why did Cowen think that less cultural emphasis on alcohol and drugs, could lead to crucial differences in the lives of the disenfranchised? Even though this may well be true, it does not detract from the fact both alcohol and drugs are also used as escape, from a society which has too few means for individuals to participate on economic terms. No economic terms? Few social terms, either. In such circumstance, if drugs and alcohol aren't used as escape, something else is likely to take their place.

Put simply, I had hoped for some economic reasoning from Tyler Cowen in his response to Duy, given the fact at root this situation is distinctly an economic problem. Granted, not everyone is capable of solid reasoning faculties to a degree their efforts can be compensated on a regular, ongoing basis. But most people are capable of reasoning to an extent, that many of their efforts on behalf of others, could count as an economic plus. This, instead of allowing people to languish in categories where they are "written off" as a constant negative on society. After all, the loss isn't actually "written off". Society invariably has to pay, somehow.

Why not compensate reason wherever it is possible to do so, instead of constantly denying citizens the opportunity to participate in the use of knowledge. Whenever the use of reason becomes a central part of economic frameworks, it provides means to move society forward. Meanwhile, as more people are being denied the use of their reasoning faculties, the less reasoning that societies are able to apply to the good of all, regardless of who happens to hold political offices in Washington.

Some Benefits of Resource Linked Money

One responsibility for the equilibrium corporation as an institution, would be accounting for the new wealth which a marketplace for time value could generate. In this scenario, time value enters the marketplace as a basic commodity, and it brings new money into the economy which is also resource linked. Resource linked money would specifically focus on resource sets which are important for all individuals, in order to as closely approximate monetary compensation as possible, for one's workplace efforts. By utilizing internal organizational capacity for these resource sets, good deflation would finally become possible for non tradable sector activity. This particularly matters in a macroeconomic context, since it provides a way for time based services generation to sidestep the problems of Baumol's cost disease.

Baumol's cost disease is a general equilibrium problem, in that the income levels of (relatively) less productive time based services, nonetheless need to rise to meet equivalent work offerings in local primary market employment. This organizational capacity for time based services (as secondary market  formation) is externally based, due to its dependence on the valuations of primary market positions. Consequently, the amount of time based services possible (on these terms) is determined by the amount of primary market resource capacity (and valuation) which is available.

This secondary market resource structure, which reflects local aggregate income and real estate value, may also include state and national revenue. While these additional income flows are positives, the valuations they create are nonetheless a double edged sword, for economic access. Further: the most prosperous regions include international resource connections which contribute to local equilibrium values as well. Steve Randy Waldman recently noted Baumol's cost disease as a factor for population density limits, and in a post last month I also wrote about some of the challenges for generating more density in cities which are particularly composed of secondary markets.

Far more is at stake in general equilibrium conditions, than simple building costs or personal time use considerations. Multiple markets tend to overlay the ones which are obvious, and these additional markets operate according to their own sets of supply and demand constraints. The availability of resource capacity which flows from other nations and regions, translates into higher local costs than would otherwise result for working and interacting in the most prosperous regions. Yet these aren't the only additional cost factors, since traditional construction in many locales, has seen little innovation for materials, design or even mass production.

The sticky markets (and wages) of general equilibrium, make it difficult for non tradable sector factors to be organized as a clean slate that could extend across multiple categories. However, it is possible to achieve good deflation for non tradable sector activity, when the process is channeled through an alternative equilibrium, which would create a clean slate for both services generation and local asset formation.

Doing so would allow building construction to more closely approximate actual costs. Meanwhile, these costs can be further trimmed through innovation in materials and design, along with mass production of the more basic building components. This physical environment makes it possible to approach knowledge use as an internal coordination mechanism. Due to the lower local costs of living, the level of income one normally associates with knowledge based endeavour is no longer necessary.

Consider how resource linked money can contribute to this scenario. In alternative equilibrium, time based services - regardless of the level of skill involved - would no longer have to directly compete with the productivity requirements of prosperous regions, because these services would operate in a time based continuum which exists solely in relation to overall group time value. The resource link is made explicit, in that it is institutionally connected with the time continuum social benefits, alongside lower costs for the physical components of local environment. Even though this time value is monetarily compensated at less than minimum wage, it does not face the housing or time based services costs which are expected in general equilibrium conditions - particularly in prosperous regions.

Another important consideration: the compensation of resource linked money, creates a coordination space for individuals, which accrues from the first workplace efforts of one's youth. After all: how much of what is sought in today's prosperous regions, really consists of more than one's personal space for coordination with others? This lifetime position is flexible to an extent that portions of it can be rented to others, when not currently in use. Should any group begin anew elsewhere, each individual's coordination space remains intact, within the overall structure.

Resource linked money would make it possible for more individuals to enter knowledge based work and services in regions that now lack economic complexity, yet without having to sacrifice basic life amenities just to do so. Resource linked money could provide means to grow knowledge and time based services directly, without having to transfer wealth from other sources in order to do so. Indeed, should knowledge become more closely associated with wealth creation, much of the political confusion of the present, might very well subside.

If the Fed Doesn't Like Inflation...

Why not give them (and everyone) a viable non tradable sector option, to otherwise naturally occurring internal inflation? By making room for greater productivity in non tradable sector activity, the productive potential of tradable sectors could remain strong as well - wherever tradable sector activity happens to take place. Plus, the Fed's "let's just cut off everyone" response to today's non tradable sector inflation, helps no one, regardless of whether non tradable sector activity "eats" everything in its path. How might production reform be considered, given the problems of a mature general equilibrium?

First, any time governments and central bankers attempt to reduce price inflation arbitrarily, they end up reducing marketplace capacity and the ability to participate in the economy, at the same time. This has already occurred to some degree, in both healthcare and housing. The main difference between governments and central bankers - given policy makers' propensity for price ceilings, price floors and monetary tightening - is that monetary authorities in this instance are creating losses in marketplace capacity too slowly for everyone to notice (thus far). That said, people are beginning to notice the lack of economic participation, because of the decline of so many places that were once full of economic vitality.

The best response to present day sectoral imbalance is a free market response. And - as many readers know - I believe a marketplace for time value to be a useful long term approach. A new group centered time continuum for time based product, could occur in settings where first mover (innovative) activity need not threaten already existing patterns. When potential innovations are suggested that are useful, but no alternative equilibrium exists to accommodate them, perhaps one can be created. Eventually, this approach could translate into greater domestic vitality. Flexible forms of property ownership, would further augment the process.

Otherwise, today's relatively fixed positions of real estate and time use (in general equilibrium), will only continue to limit growth capacity for nations as a whole. It's a problem which is further exacerbated, when nations respond by trying to regain the very tradable sector activity which is nonetheless being crowded out at an international level, by today's non tradable sector patterns. Meanwhile, central bankers have responded by reducing everyone's marketplace capacity and participation.

Just the same, economic balance between tradable and non tradable activity can be difficult, when much of the latter takes place through imposed - rather than free market - conditions. There's also a natural resource aggregating component to this problem. The same competitive cost strategies which contribute to tradable sector competition at an international level (competing with everyone), often present problems for non tradable sector activity (competing locally), in local forms of general equilibrium.

Higher (relative) pricing strategies not only make it easier for non tradable sectors to establish dominance, they result in greater monetary resources for local organizational capacity. However, many of the non tradable sector pricing mechanisms which contribute to regional vitality through internal inflation, manifest elsewhere in the form of problems for economic access, along with higher levels of both public and private debt than would otherwise be necessary, for nations, businesses and citizens alike. The lack of (customer driven) non tradable sector innovation, has resulted in healthcare, education and housing inflation which has finally reached a point capable of threatening international economic stability.

Whereas an alternative equilibrium that generates internal good deflation for local production and consumption, is capable of creating positive externalities which multiply over time. Further, those who would reduce both producer and consumer costs through innovation, would not create the first mover issues which otherwise disrupt local organizational patterns in general equilibrium. When small alternative equilibrium settings mature quickly, as of course they sometimes will (with their own unique marketplace rigidities), create new small alternative equilibrium settings. The object is to reach for more productive economic complexity, wherever it is possible to do so, instead of forcing people, arbitrary pricing and the most important forms of knowledge use into already productive spaces.

If the Fed doesn't like inflation, and of course it doesn't, an alternative equilibrium option is one way to ultimately restore growth for economic activity in all sectors. Even though alternative equilibrium would generate a closely coordinated - hence internal - marketplace for time value, this is aggregate growth which can be replicated by further decentralization, for vital knowledge use and time based services creation. Nevertheless, these are organizational patterns which hold potential to create good deflation for non tradable sector activity. Good deflation in non tradable sector activity, could finally convince today's central bankers to let go of their losing game of gradual monetary tightening, in the hopes no one is really paying close attention.

Are Economists to Blame for Economic Stagnation?

A definite "yes" or "no", is not so simple. And any answer, depends on where one's point of reference actually lies. Economists can hardly bear the entire burden of responsibility, given the societal shifts which now affect economic access. One problem in this regard, however, is little societal agreement as to the "legitimacy" of average (non credentialed) individuals who attempt to solve problems in their stead. Meanwhile, regarding the travails of the working class, Dr. David Ruccio recently wrote, in "Why Mainstream Economists are Responsible for Electing Donald Trump":

...mainstream economists, in their zeal to push globalization forward, ignored those problems and concerns. They thus paved the way and deserve a large share of the blame for Trump.

Granted, I've expressed concerns about mainstream economic thought and how it could contribute to populism, in previous posts. Nonetheless, there are dangers in carrying this rationale too far, since it encourages voters all along the political spectrum, to reject more mainstream agendas than actually warrant abandonment. Only stop to consider where broad attacks on neoliberalism can gradually lead, for instance. Hence it's discouraging to find more rational, balanced arguments about globalization such as Dani Rodrik has presented, used as attacks against capitalism and the like. No one gains if useful economic concepts are destroyed, just because it becomes politically possible to do so. Why not look closer instead, to discover where common ground exists between the old and the new.

It may be that little structural progress was made during the Great Recession, because the economist role in developed nations is mostly that of a passive observer. Thankfully, economists are not free to impose top down blanket "solutions" on populations. But that doesn't mean they couldn't begin the process of lending support to populations at a grassroots level. After all, there's a world of difference between decentralized and exploratory local economies, and the kinds of economic planning which caused such widespread harm in the twentieth century.

One public conversation which has yet to even occur at a political level, is of a high tech future which leaves too little room for people to participate. The fact that everyone needs to have a valid role in this economic vision of the future, has been difficult for economists and policy makers alike. No one is prepared, for the fact it's past time to address the reality of our own destinies. When will populations finally get a go ahead from their governments, to begin the discussion? According to Stephen Hawking:

If communities and economies cannot cope with current levels of migration, we must do more to encourage global development, as that is the only way that the migratory millions will be persuaded to seek their future at home.

While some think of migration problems as other's problems, local migration is now increasingly limited in developed nations, due to structural problems with similar causes. The same evolution in economic development, deserves a chance to proceed at home in our own developed nations as well. Interestingly enough, prior to the Great Recession, private industry was already trying to get the message out, that "business as usual" would no longer be able to fulfill the employment roles which many would be workers still hoped for. If it seemed difficult back then to make such an important message heard, even those who speak of structural unemployment today, note how few are willing to approach the subject on these terms.

Economists aren't to blame for the massive structural shifts of our times. And fortunately, they still have a chance to regain their respect in the eyes of the public. After all, there should still be time for everyone to take part in a grassroots effort, to rebuild a better economic future. What sort of work do people wish to participate in? How do those of limited means, wish to build better, more respectful lives among one another? These questions might not be as difficult to answer, as many presently imagine.

Getting Beyond General Equilibrium Restraints

Grassroots reform, such as I have touched on in numerous posts, could allow those who often appear to need help, a chance to eventually learn how to help themselves in meaningful ways. Such an approach would also make it possible to recreate economic complexity, in many forgotten regions of the country.

Most important, grassroots reform would create much needed growth and output for the economy. How might one think about greater economic vitality at a grassroots level, versus the "preservation" of existing jobs? According to Justin Wolfers in a recent NYT article ("Trump and Carrier: How a Modern Economy is Like a Parking Garage"):

A parking garage stays full, and an economy stays healthy only if it is constantly refreshed.

Part of the problem for mature general equilibrium conditions, is the fact too many special interests are now at work, to prevent the "refreshing" that normally takes place for further economic inclusion. For instance, our most prosperous regions now have a "closed" sign, in the form of high real estate costs. When economies become dominated by secondary market formation, it becomes increasingly difficult for individuals with middle range skills to work among others with high skill levels.

Hence further growth and output now depends on extending the range of economic complexity, instead of "forcing" more economic inclusion into places where productive complexity already exists, as Adam Ozimek (HT Steve Randy Waldman) noted in recent posts. Again, Justin Wolfers, utilizing the parking garage example in which Trump sought to make certain parked cars "stay longer":

Rather the long-term strategy of such business is to try to attract a larger clintele by offering a more convenient experience. They understand that there are many more potential customers outside than inside the garage. In this analogy, the government's best hope for creating jobs is to create a positive business climate.

However, something needs to be considered about his otherwise apt explanation. He's right that when tradable sector formation exists in a competitive state, it benefits from the fact there are "many more potential customers outside than inside the garage". The problem in this regard is non tradable sector activity. Today's prosperous regions - because of their dependence on existing revenue via secondary market formation - serve as a prime example of not wanting additional producers and consumers from elsewhere, due to how their resource utilization is already structured.

This results in a form of non tradable sector wealth capture which crowds the very primary marketplace it relies on, instead of contributing to (further) growth and output. Since tradable sector activity obviously contributes to growth and output, not to mention the revenue that sustains today's secondary market formation, it appears more and more as though the goose which lays the golden egg.

Here's the problem. Many assume that presently existing tradable sector activity can produce both greater employment and output as desired, wherever such activity may happen to be. However, the internal organizational capacity of tradable sectors now requires fewer employees, relative to output in general. This results in a lower labor force participation level, which in turn limits the amount of tradable sector output that is needed, due to the smaller customer base which results from low labor force participation. Since today's non tradable sector activity remains in a dependent secondary market formation, it too is forced to limit labor force participation. This further limits the potential customer base which is able to engage in primary market activity.

Yet it is completely possible for non tradable sector activity to organize in a non dependent primary market formation, by recognizing time value as a product in its own right. This form of institutional structure would eventually restore labor force participation and consumer base levels, which in turn would allow tradable sector activity to increase output levels along with the relative level of employment capacity they remain able to offer, given present day automation. In the meantime however, the dependence of non tradable sector activity on tradable sector wealth, means less ability to contribute to the employment that nations increasingly seek for their citizens.

In other words: one could say that today's extensive (secondary market) non tradable sector organizational capacity, is not yet positioned to "attract a larger clientele by offering a more convenient experience", either in terms of time based services product or building component asset formation. Yet these are precisely the areas which could generate new economic vitality, beyond the present day "parking garage" of general equilibrium.

Best, the alternative equilibrium of local services production, could function as a primary marketplace which - because it is not dependent on the revenue or employment of tradable sector activity, can actually contribute to both, by generating new growth and marketplace output. Even though deregulation always disrupts the sticky markets of a mature general equilibrium, there can be new zones for minimal sets of regulation which not only make sense for all involved, but are less of a threat to established interests. This would be a critical step, for the inclusion of population that is now needed to contribute to a broader level of employment, than what is now capable of supporting the economic activity of the present.

Before wrapping up this post, there's something else that deserves to be said about Trump's efforts, whatever one may think of either the individual, or what he now seeks to make happen. It's too easy to point out the fact anything he attempts, likely won't work. Oddly, that is the same response most everyone else has received as well in recent decades, regardless of their level of skill, intelligence or job description. The blogosphere could have been a place - after the Great Recession - where productive structural adaptations had a recognizable beginning point, especially in those initial years of online engagement. Unfortunately, little changed, and the political retreat back into tribal positions is most unhelpful. We still have a long way to go, before we gain secure means to hope for a better economic future.