Sunday, December 31, 2017

Wrap Up for December 2017

Which "death blow" is more definitive? An apt description from Scott Sumner, re an important difference between the negative shock and the monetary response.

For time arbitrage, ongoing experimentation with skills capacity and time preferences would be part of the process. Participants would match (their mutually sought) time priorities across a diverse range of skill levels, with as many different individuals as possible. The more options for mutual employment any individual has in the long term, the more security one might maintain for social connections as they age. Equally important, is that diversity in one's offerings to others, is one of the best means by which to preserve personal autonomy. Nevertheless, experimentation does not come naturally to us, for we tend to be set in our ways and habits. An article from the NYT explains why.

"An oligarchic democracy may be worse for the poor than an arbitrary government."

"The money was supposed to go toward buying a legendary music studio..."

Is high productivity associated with low employment?

"Asset prices and macroeconomic outcomes."

Scott Sumner has reservations re a Cowen/Tabarrok video

What was bitcoin supposed to be able to do?

"Endogenous Technological Change" (Paul Romer) and, again, "The Trouble With Macroeconomics"

"The facts are that a widening trade deficit, or more importantly, rising US imports, is associated with greater nominal GDP growth."

"Inadequate Equilibria: Where and How Civilizations Get Stuck"

For now, higher budget deficits.

Perhaps the flaw in modern macro is that "the efficient markets hypothesis is not deeply embedded into all of our models."

A most useful course on "Nobel Prize-Winning Contributions to Economics"

"Is It Better to Learn From People or From Books?"

What explains the decline in labour costs?

The University of Pennsylvania has an online books page for books that are freely available.

A recent study shows the close link between health care spending and lobbying by interest groups.

Hospitals are moving quickly to preserve their revenues.

Since 2014, Yellen has "seen fit to end QE and raise interest rates repeatedly".

"When it comes to urban density, we're not all goldilocks. We don't all want the same porridge."
This would be an important defined equilibrium consideration for any group that seeks to identify - via their own terms and capacity - the extent of local non tradable activity that is (reasonably) possible through mutually held time and resources. Both in the sense of physical environment, and time preferences for given sets of mutual responsibilities and benefits. No debt formation necessary.
"Communal-mode interpersonal skills may become increasingly important to life success - not less, as techies hope."

Baumol's disease, intangibles, path dependence, incentives and anti-intellectual prejudices could all eventually lead to regress.

the cascading effects of poor productivity: "The Network Origins of Aggregate Fluctuations"

"The safe asset shortage, the rise of mark-ups, and the decline in the labour share"

James Pethokoukis interviews Brink Lindsey and Steve Teles re their new book. Also, their interview with Russ Roberts.

When history is abused, it flattens the complexity of human experience.

"It's the first time I have noticed a persistent spread between inflation in one area and the rest of the country..."

Are the young subsidizing the old?

Some simple ways to think about models.

An AEI interview with Hal Varian

Bill Niskanen preferred a target path for total (final) demand.

The U.S. dollar has multiple roles in the global economy.

Scott Sumner has a simple but important message re inflation, for U.S. News.

Nick Rowe explains the natural rate of interest.

Sweden offers an interesting historical example of monetary experimentation in action, which also illustrates the quantity theory of money.

Alex Tabarrok takes a look at the sectoral approach He also highlights this recent paper, "The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten's Theorem" which is part of a notable research list for 2017

The rise of intangibles plays a large role. "Investmentless Growth: An Empirical Investigation"

Saturday, December 30, 2017

Intentional Dynamics: Claims on Wealth Change Its Structure

Does it matter whether intentional claims on wealth are of public or private origin? Sometimes, neither public or private interests are willing to support marketplace access, and both have become engaged in the design of strategies which discourage full economic participation. Equally important, is that today's requirements for economic participation, have become a major contributor to excessive debt formation.

Only consider how these marketplace requirements presently play out, as Washington "helps" citizens (via subsidies) to engage in the production and consumption of a wide range of arbitrarily limited activities. According to the IMF (from a recent WSJ article), while U.S. debt as a portion of GDP was 93rd out of 169 nations in 2001, the U.S. is in fifth place among large countries today, for debt as a portion of GDP. That's a dramatic change in wealth structure, and one that citizens need to actively change, towards wealth creation which can be reciprocated at the outset.

Meanwhile, differences between wealth claims and wealth origination in general equilibrium, aren't well understood. While reading a post from Tim Harford, "Could We Run the Economy With an App?" I noted that no equilibrium algorithm would be able to take crucial supply and demand differences for aggregate wealth, into account. Still: Why should such important matters be left to algorithms in the first place?

Harford explains that when socialist calculations were being debated earlier in the 20th century, policy makers lacked the computer power to assist their data collection. Of course this didn't stop economists and central planners from imagining the economy as a "series of simultaneous equations for supply and demand". Harford writes:
But the power of computers is growing far more quickly than economic output. Could we build an app to run an economy...? The idea has resurfaced in the writings of two Chinese economists, Binbin Wang and Xiaoyan Li. Wang and Li argue that modern computers make it possible to optimise production in real time, personalised to the needs of citizens. In some ways this has already  happened.
He cites some of the more obvious algorithm examples. Clearly, platforms such as this can be problematic, regardless of who controls them:
One enduring obstacle is tacit knowledge. A textbook economy of supply and demand curves is, in principle, the kind of system that can be understood mathematically. But as Friedrich Hayek argued in 1945, there is a great deal going on in any economy that cannot be counted or even described.
Decisions to produce, to consume, and to take a risk trying to create something new, are all taken with the knowledge of "particular circumstance of time and place". Wang and Li believe that big data make this once-tacit knowledge explicit; I am not convinced. 
Nor am I. Harford emphasizes how big data can give the wrong incentives to both public and private interests. To some degree, hierarchical patterns which make claims on our scarce time, will always necessary for the organization of complex forms of tradable sector product. Such patterns never should have been necessary, however, for the ways that people opt to spend their time in experiential circumstance with others. The fact society imposes countless rules on personal discretion, and that too many of us are already judged as incapable of personal responsibility, is beginning to dehumanize us all. These are patterns which - such as Hayek described decades earlier - individuals should have adequate means to discover for themselves.

If today's hierarchical and expensive patterns of social organization weren't enough, many of these service centered activities occur as wealth capture, instead of wealth creation. Fortunately, citizens have an opportunity to think differently about these processes in the near future. Our personal priorities can't safely be left to impersonal supply and demand algorithms which are mostly built to capture wealth. Fortunately, we have the chance to build wealth anew, based on the aspirations and challenges we might experience in the scarce time we actually have. Given the level of debt the U.S. is already experiencing, one can only hope that new means of wealth creation aren't postponed for too long.

Thursday, December 28, 2017

Post Highlights from 2017

Since there was an overall increase in page views starting about midyear, and I wanted a fair representation of the full year, a bit of guesswork is involved as to post favorites.

Market Position Matters, for Output Potential  Why would policy makers subsidize demand, even as they cooperate with private interests to restrict supply for the same product? Often the market position of the specific sector (primary or secondary), provides clues. Whereas advanced economy government subsidies once supported tradable sector activity which benefited from expansion, today's most likely beneficiaries of government subsidies (non tradable sectors) don't necessarily benefit from marketplace expansion.

Notes on Investment vs Consumption Outcomes  How could we do a better job of visualizing human capital in terms of marketplace options? How to reconsider time based product which does not benefit from gains in scale, so that it might become simpler to quantify?

Jobs Are Also a Cost. How to Respond?  Expanded job opportunities are logical when they follow new wealth creation. Nevertheless: When market observers accuse governments of being illogical in hiring that doesn't generate new wealth, are the same observers also cognizant of missed potential for new wealth which could be reducing employment potential? Fortunately, new platforms for wealth creation are possible, so that individuals do not always have to wait for other institutions to make the first move. Time as an economic unit, can function as a commodity in the form of coordinated mutual employment. Workplace participation could ultimately be restored at community levels by making it possible for everyone to bear mutual responsibility for job costs, via the opportunity costs of their own time use preferences.

What if Governments Owned the Robots?  Much of today's automation is associated with procedures which reduce costs rather than increasing output. Consequently, automation (or robots) doesn't always lead to the increased output which would be necessary for further redistribution. Instead, more of today's automation benefits accrue to the (robot augmented) income of high skill service providers. Indeed, this wealth source is hardly what most people envision, when they discuss robot taxation or consider government supported robot ownership. Alas, productivity is no longer a simple matter of increased output.

Aggregate Time Value: Demand, Supply, or Both?  Granted, we need economic participation to be possible on more productive terms than is presently the case. And there will be times when we need to split the difference on how productivity is conceptualized, depending on the institution. Nevertheless, should our institutions allow us to lose too much aggregate time value in the form of supply, we cannot expect to maintain the economic stability of aggregate demand, indefinitely.

"Equal" Income Presupposes Abundance. Equal Time Value, Scarcity  Income based approaches to inequality, don't get at the underlying problems of our actual time scarcity, in relation to what non tradable sectors and governments expect of us. One approach to inequality, would be for those with limited incomes to contribute to non tradable sector activity outcomes, via the time they actually possess.

Time Value in Relation to Total Factor Productivity  During historical moments of tradable sector expansion, it's often possible for societies to coordinate economic participation, based largely on the new wealth that is being generated. But once the monetary flows of non tradable sector activity begin to dominate, that creates excess demands on existing wealth. Hence societies may need additional means to generate wealth as a point of (reciprocal) origin. Economic time value  - given today's high levels of human capital investment - is an obvious choice.

Why Are Normative Healthcare Arguments So Confusing?  Too much healthcare discussion takes place as though supply side limits were not actually in effect. How does one redistribute from a supply side which is constrained at the outset? Over the years, recurring discussions as to what "should be" (at the microeconomic level), have been squelched via legislation. And many of these earlier efforts are already forgotten, once normative arguments resume in a broader societal context.

Deep Learning in a Time of Increasing Automation  We can't expect to continue deep learning as a "race against the machine". Yet the deep learning we continue to embrace, needs a stronger economic context in terms of personal experiential value.

Only 25% Can Support Non Tradable Sector Requirements  Why isn't this growing discrepancy more obvious? Some of it is hidden by debt and financial structures which smooth non discretionary consumption capacity. Nevertheless: Useful though our financial tools have been, they can't fill the gaps between institutional expectations and actual income capacity for the long term. Before any society can expect to meet its infrastructure maintenance needs, it has to make certain its aggregate income capacity and non tradable sector requirements are reasonably well aligned.

Medicare Cutbacks? No Rationale for Monetary Tightening  Even though healthcare in the U.S. lacks full marketplace capacity, this sector is far from ready to accept limitations in revenue capacity (note recent hospital consolidations). Yet central bankers have been too quick to use Washington gridlock re healthcare policy, as yet another judgement call to reduce overall monetary representation.

Can General Equilibrium Wealth Become "Overfished"?  Up to a point, the secondary market activities of asymmetrically compensated time, government redistribution, credit formation and financial instruments can work alongside tradable sector wealth to define general equilibrium. However, if these forms of wealth capture are excessively preferred over new wealth generation that is free of debt or redistribution, the common pool of circulating revenue may experience greater demand from all participants than central bankers are willing to accommodate.

Tuesday, December 26, 2017

Structural Reform: "Boring" If We Don't Need It!

Granted, this post title doesn't apply in every instance. But why be interested in structural reform for advanced economies, if one wouldn't also expect to benefit in some capacity? After all, the economy is mostly in good shape for the status quo. Given the extended recovery since the Great Recession (in spite of those left behind), most market observers find it difficult to think about potential status quo reforms. And those who remain left behind, still lack a sufficiently broad platform to offer their own suggestions and insights.

Complacency regarding economic outcomes, has once again become commonplace. Alas, structural reforms still seemed reasonable to many, in the early years of the Great Recession. Back then - alongside the professionals - many without economics degrees were also closely monitoring economic developments. Plenty of laypeople once expressed hope, that something constructive might evolve out of all the pain and confusion. But nothing really did. Why should the average person continue to express concern about structural reforms, if economists - whatever their ideological outlook - determined early on that no (real economy) structural changes would be necessary?

During the earlier years of my writing project, I had more opportunities to discuss my work with family members, friends and acquaintances. Today those opportunities don't come around very often. Yet I can understand why many citizens grew weary of an initially hopeful dialogue that finally dissolved in blame and recriminations. Once citizens realized how difficult it would be to take part in a constructive response to the heartache of the Great Recession, many simply returned to the defense of earlier outlooks and societal positions.

Fortunately - for me - the still unresolved economic challenges of our times, never became boring! Why should it matter, that I could also benefit from production reform, given the fact millions of others could benefit as well? If that's "greedy" on our part then so be it. While potential benefits are many, here's the first that invariably comes to mind: If knowledge use systems were already a societal option, precious few individuals would need to go into their later years all alone. People would be able to assist one another in their efforts to remain economically and socially connected, as long as humanly possible.

And those are just benefits that could accrue in the short run. Long term benefits would include a growing ability for populations to fully engage with more knowledge and skill overall, than is now feasible. I like to imagine that in such scenarios, bookstores would once again become popular, in many communities large and small.

Economic matters occupy my mind now, even more than they did when I began sustained work on this project in 2003. That's a real plus, and 2018 should allow me to step up the process on a series of writings that could further assist readers (eventually to be placed in the sidebar) with basic concepts organized so as to be easier to understand. New Years now seem to suggest a "resolution" of honing in more carefully on particular areas. 2016 turned out to be the year to organize the "uncommon" glossary, while 2017 has been a year for sorting material for the initial books of the series.

The most difficult part thus far, has been pulling myself away from online activities for a while, so that more material can be edited and completed. There's so much I want to keep up with online (and the learning process never stops), but there's only so much time in a day. In 2018, I hope to continue posting regularly, but there may be weeks when I can only post once or twice.

With a little luck, the next recession won't set us back unduly, and constructive dialogue might even reemerge. Yet there's much I need to get done before another recession is even a remote possibility. Thanks so much to all my readers - some who have been patient enough to keep up with almost five years of blogging. Here's wishing a Happy New Year to everyone.

Saturday, December 23, 2017

GDP: What Welfare Needs to be Quantified?

As aggregate output has become more difficult to determine, due in large part to the nature of today's services sectors, GDP as a measure has increasingly been questioned as well. Might the changing nature of aggregate output, help to explain recent debates regarding potential human welfare considerations for GDP? If so, how could such an approach assist this vital measure in its core tasks - particularly given its underlying monetary representation?

Diane Coyle noted some of these issues in a recent podcast for the International Monetary Fund. She stressed the sizable gap between what is being measured, versus welfare effects which could be worthy of recognition. In particular, GDP is "less well suited to measure progress in today's digital economy."

Despite the importance of digital product for societal gain, the greatest need of the present, is careful attention to human welfare via levels of aggregate economic participation. In particular: How has the resource capacity of multiple income levels changed over time, in relation to what have become basic institutional requirements? We simply don't have a clear statistical picture, how these institutional expectations correlate with the resource capacity of a full range of citizenry. What's more, a better understanding of our existing non tradable sector requirements, might present a clearer picture of existing societal debt obligations as well.

Digital gains, on the other hand, largely accrue in a discretionary consumer context. Regular readers likely aren't surprised, that I find the non discretionary requirements of non tradable sector activity, to be one of the greatest obstacles standing in the way of human welfare. Nevertheless: Even though non tradable sectors have been less than forthcoming re quantifiable output, we could eventually develop new means of services generation which are more transparent at the outset. And doing so, could vastly improve the measure of GDP in the 21st century.

The present lack of services quantification, has made it difficult to understand the dilemma that lower income levels actually face. Even as citizens have experienced tradable sector abundance for decades, their ability to do so has gradually diminished, as vital elements of non tradable sector assets and participation have been made artificially scarce. Should additional measure of human welfare be taken into account for the purposes of GDP measure, one can only hope our actual participation in economic life, becomes easier to determine than is presently the case.

Thursday, December 21, 2017

Lifetime Learning in Total Factor Productivity Context

There's a sort of "good news, bad news" aspect to a recent Barry Eichengreen article, "Two Myths About Automation". Here's the problem I found with (what appears to be) his conclusion: Are we reasonable in our confidence that automation won't necessary take our jobs, in part because total factor productivity remains lackluster?

After all, the bottom line regarding questionable productivity is some degree of relatively reduced output in aggregate. These difficult to identify output losses can continue, but aggregate output is still closely tied to further employment options. From the Project Syndicate article:
While many people believe that technological progress and job destruction are accelerating dramatically, there is no evidence of either trend. In reality, total factor productivity, the best summary measure of the pace of technological change, has been stagnating since 2005 in the US and across the advanced-country world.
He suggests there are two myths: that jobs are actually threatened, and that higher skill jobs in particular are at risk. After all, the reasoning goes, if productivity isn't all that great, how exactly are jobs supposed to be threatened? Nevertheless, he stresses the important of continued learning, so as to keep up with changes that automation will bring to the workplace.

Again, it helps to envision future employment potential based on potential output gains. Without measurable growth in actual output, one cannot expect additional employment capacity. Since a certain percentage of non tradable sector output is intentionally limited, existing employment presently depends on what the status quo is willing to allow. Most important for both healthcare and housing, however, are the quality requirements which most contribute to existing imbalances between aggregate input and output. The quality requirements of these sectors likely bears the most responsibility, for the conundrum that is today's productivity stagnation. Nevertheless, these sectors package their experiential product so as to make it difficult to determine - let alone measure - the aggregate output gains that would otherwise be possible.

Notice in particular, how Eichengreen's proposed response of lifetime learning to maintain employment options, ties into the productivity conundrum of non tradable sector quality product requirements. Alas, lifetime learning in a status quo context, is still part of a knowledge and skill acquisition process which continues to increase aggregate input (skill requirements) in relation to the aggregate output of total factor productivity. One might reasonably ask, given this circumstance: Might lifetime learning as a sort of human capital coping mechanism, actually reduce total factor productivity?

Presently, it depends on whether one assumes education over a lifetime as love of learning - that is, education as purely experiential product. On the other hand, might this be a strictly pragmatic purchase? Is the educational product a human capital investment, which needs a specific economic result in the form of reliable employment? If so, the pragmatic option also translates into employment as a component of knowledge and skill production, which in turn contributes to measured output in a sort of knowledge "factory" process. Basically, the pragmatic option is not "supposed" to become final product in the knowledge production cycle, hence would become an investment loss should this in fact occur.

On the other hand, treating formal education as experiential product (as I've typically done) may allow us to be satisfied with education as final product. In this instance we can be satisfied (hopefully!) with educational product as the ultimate completion of an aggregate input to output cycle. If education is sought out of love of learning, and doesn't offer economic reward, measurable output, or meaningful dialogue with others for that matter, one might assume the total factor productivity loss is relatively minimal. Yet making that assumption includes the reasoning that one's personal investments need not count, in the lives of others.

What of aggregate productivity if education is purchased not as a consumption function, but specifically for human capital investment? Potential employment risks in this instance are more obvious, both at a personal and societal level. The problem for lifetime learning at present, is the lack of economic connection between today's formal education as reliable input for knowledge based product.

Even though formal education as experiential product is important, one's personal efforts still need to be part of the larger dispersion of knowledge use in society. Fortunately, the same blockchain technology that presently contributes to digital monetary processes, has an important parallel in learning processes, in that peer to peer learning could serve as cumulative wealth connections. The cumulative factor for peer to peer learning, would allow each input of knowledge and skill to serve as a point of simultaneous output. Time arbitrage would eventually allow for substantial productivity gains, by making the measure of time based services a transparent process.

Should time based services become organized as cumulative wealth generation, lifetime learning would readily contribute to total factor productivity. Personal learning efforts would no longer pose extensive risks of one's money and time, because individual learning would translate into mutual employment potential. In all of this, the ratio of inputs to outputs is important, for how society could ultimately expect the use of knowledge to contribute to progress and long term growth.

Sunday, December 17, 2017

Wealth Creation and Capture Have Macro Effects

Why don't our current economic models take the general equilibrium effects of wealth creation, versus wealth claims, into account? Especially since factors such as consumer debt, government subsidies and other forms of redistribution all diminish the natural Wicksellian interest rate? While some advanced economy debt still contributes to wealth origination, our prevalent consumer debt patterns (for instance) are mostly claims on what today's existing wealth and income can provide in the future. Even though aggregate spending capacity greatly depends on what is monetarily allowed in the immediate present.

Had I not allowed myself to be sidelined from math in high school (and then waited too many years to try again), I would have sought to build a model which could highlight the general equilibrium effects of wealth origination alongside claims on future wealth. Such claims could be discerned, through the identification of primary wealth origination and today's revenue dependent secondary markets, such as today's healthcare.

The macroeconomic effects of wealth creation and capture are important for many reasons, not the least of which public and private designations are not the identifiers of wealth origination. Even though governments routinely engage in wealth capture instead of wealth creation, private industry does the same, particularly during periods of non tradable sector dominance. Only consider how today's government associated multipliers work poorly, since a large percentage of fiscal activity is ultimately earmarked for wealth capture. Yet it's easy to forget that government multipliers hold some positive relevance during periods of tradable sector dominance, when governments are more likely to contribute to new tradable sector formation. On the other hand, government subsidies for existing tradable sector activity, are more often another example of cronyism in the form of shared wealth capture.

Fortunately, not all wealth capture is negative in nature. When non tradable sectors aren't subjected to extensive artificial constraints, secondary market activity can often contribute to economic dynamism and monetary velocity. In emerging economies, secondary market financial activity and redistribution for high skill knowledge use, can sometimes lend stability and dynamism for new points of wealth origin. What's important, however, is recognizing when the tipping point of secondary market dominance over primary market formation, begins to affect macroeconomic outcomes. By no means is this danger limited to economies that successfully mature. By paying closer attention to the aggregates of tradable sector and non tradable sector activity, societies would also find it easier to understand when a nation's debt accumulation, begins to present problems for economic stability and dynamism.

Sometimes a critical perspective from others, makes it easier to reconsider the fundamentals. That was certainly the case for me after reading a post (HT Miles Kimball) that not only questioned DSGE models, but today's limited options to DSGE thought as well. Of course it's all too easy to be critical of DSGE models, but what's interesting is that so many are skeptical for entirely different reasons! There's a wide range of viewpoints involved, by no means limited to economists, as to why DSGE models aren't effective in the real world.

Today's general equilibrium perspectives - especially when simplified - don't square well with structural real economy factors. The authors of the above linked post, note that for Freshwater people, "government has no effect". And "Saltwater variants add in the Calvo fairy to make up for the fact not all prices respond to shifts in equilibrium."

It's interesting, that only a few basic concepts of equilibrium are up for broad discussion. Yet consider how a Calvo fairy could matter. Secondary markets, as they they moved towards equilibrium dominance, were also more likely to establish inflexible prices (price making). Walrasian equilibrium at least held more validity, during the earlier dominance of tradable sector activity which relied more on price taking - hence simpler forms of equilibrium coordination.

Too much price and wage stickiness exist now, for a real semblance of the early equilibrium to be reclaimed. After all, the first perceptions of equilibrium evolved in times of tradable sector dominance. By no means does that suggest the DSGE model is more useful. Remember that DSGE evolved as governments were consolidating their share of the wealth gains, from still expanding tradable sector dominance. That economic circumstance is part of our economic past and has been for decades, even though there has been little response to this reality, thus far.

In other words, changing sectoral conditions, and their long term effects on general equilibrium growth potential, have yet to be accounted for. Unfortunately, earlier sectoral patterns which suggested equilibrium structure during their turn, have shifted beyond recognition. Meanwhile, the wealth capture effects of secondary market activity are being hardened with regulations and rules from special interests that remain determined to secure reliable monetary flows. Needless to say, these flows will remain "reliable", until - finally - they no longer are.

What, then, does the increasingly fragile nature of secondary market domination, suggest for future wealth potential? Regular readers know that I am no liquidationist, for I believe extensive use of knowledge can be recreated, on primary market terms in which no debt or redistribution is needed. My main concern is that if present systems break down from secondary market dominance, so too will an extensive portion of today's knowledge use and economic participation. So far as that goes, any economist who suggests that today's political polarization is not linked to macroeconomic outcomes (and some have of late), might want to reconsider. If we don't craft a better understanding of macroeconomics before too much political fallout occurs, there's no guarantee we'll get the chance to preserve prosperity, should we wait too long.

Many continue to believe that the spending of nations can somehow derive from future debt obligations. Still, every nation reaches a point when nominal spending capacity must be maintained from the wealth that is currently being generated, rather than the wealth that is being claimed. True, it's difficult to give up the idea that wealth can somehow derive from what is already claimed, in part because this allows special interests to control the ways in which economic activity takes place. Societies find it desirable to control how wealth generation and capture occur, and so they can - again, up to a point. Once the process goes on too long, and too much wealth creation is stalled, equilibrium expansion through wealth capture is no longer possible. Do we have the collective courage to allow new points of wealth origination and general equilibrium growth, on the part of individuals outside the purview of special interests? Only time will tell.

Thursday, December 14, 2017

Technology Will Affect Skills Compensation

In a recent McKinsey Institute report, "What the future of work will mean for jobs, skills, and wages", the authors write:
Our key finding is that while there may be enough work to maintain full employment to 2030 under most scenarios, the transitions will be very challenging - matching or even exceeding the scale of shifts out of agriculture and manufacturing we have seen in the past.
They highlight in particular that "Automation will have a far reaching impact on the global workforce." It also helps to consider what is being defined as "full employment" in this context, which is recent statistics and employment gains. Nevertheless, current employment levels don't account for what have been gradual losses in labour force participation, which were exacerbated by the downward monetary adjustments of the Great Recession. In other words, the oft stated challenge is mostly to maintain, what are already less than ideal levels of labour force participation.

Until recently, technology - more often than not - gradually led to increased output which meant further employment opportunities. But non tradable sectors tend to apply technology somewhat differently. Over time, intangible forms of input and product measure have become sheltered from general public view - perhaps for political and other reasons. As a result, it's difficult to ascertain how a wide range of resources are being measured and utilized, or how compensation is actually taking place. And when the relationship between aggregate input and output for services production becomes murky, human capital investment for specific skills use is less certain as well.

Fortunately, even though the extent of future skills compensation is in doubt, we can respond by assigning greater economic value to the use of our mutually held time priorities. Despite the uncertainties of technological change, our personal time preferences for getting things done, are important to us and for others as well. While it would be slow going at first - learning to measure and ascertain mutual time preferences - the eventual result would be organizational work patterns that are more spontaneous and transparent, than the institutional skills use patterns of the twentieth century.

Indeed, the subjective values of our work challenges and other personal commitments, would play out quite differently from the time commitments of institutional skill requirements. When we focus on time value and priorities, time management includes not just the higher skill levels our institutions seek, but also the full range of skill levels which we seek to coordinate with others in multiple aspects of our lives. And unlike the skills that our institutions sought - yet technology is now able to replace - we can still prioritize our time preferences, even as the skills we utilize, are more likely to be those ones we deem most important.

A marketplace for time value, would give voice to our time priorities. Another benefit of time arbitrage: By utilizing the time that individuals and groups actually have at their disposal, the price taking mechanisms which prevailed during times of tradable sector dominance (when resource use was more transparent), once again become possible. When individuals coordinate the time they actually have for daily activities, each hour in aggregate functions as a pricing mechanism for local group settings. Even though our time is rival (one cannot be in two places at once), the rival time/place limits of various skills functions would gradually become evident, allowing individuals to plan for what is already being provided, versus what might still be added to the overall mix of service generation.

Even though technology will continue changing the structure of present day workplaces, we all have more options for the work that matters most to us, than is currently recognized. Some of this work is complex, and some of it is simple. What's most important, is that all the work we find worthwhile, has value. A marketplace for time value, could also restore the value of our own personal priorities, in relation to others. Even though technology will affect skills compensation, it need not get in the way of the patterns we ultimately choose for out time commitments, in terms of mutual responsibilities and aspirations. Technology may pose a threat to today's skills arbitrage status quo, but it need not pose a threat to the potential of time arbitrage.

Tuesday, December 12, 2017

Broad Tightening Ahead, and The Phillips Curve Problem

Is it a lack of faith in high labour force participation levels for the near future, which encourages central bankers to continue tightening monetary policy? Or - instead - are central bankers inclined to believe that employment for all who seek it, is strong and will remain so? Something about actual employment and cumulative output gains, isn't quite adding up. According to Bloomberg:
Wall Street economists are telling investors to brace for the biggest tightening of monetary policy in more than a decade.
And it isn't just Wall Street, because other central bankers will be following the lead of the U.S. in this regard. Much of the rationale for doing so, has been based on the Phillips curve as an indicator of an "overheating" economy. But what, exactly, is overheating? Plus: Given an undue emphasis on the Phillips curve - even though its reliability is dubious for mature economies with services dominance - central bankers are likely to continue tightening monetary conditions in the near future. They appear determined to do so, even though dependence on the Phillips curve relationship between employment and inflation, has become problematic.

What makes the Phillips curve an ill suited economic indicator? Among the possible reasons, is a strong institutional trend away from price taking toward price making, in recent decades. Price making occurs at so many levels of product formation, that it negatively impacts overall productivity and investment. In particular, the employment losses which accrue from price making, aren't just a problem for societal coordination. They also make it difficult, to correlate today's supposed "full" employment levels with inflation expectations.

When tradable sector activity was still dominant, so too was price taking, as a coordination factor among many firms. The once natural tendencies of price taking, also meant firms had more options for hiring, based on the optimal resource capacity at their disposal. But as non tradable sector activity came to the fore, its organizational capacity contained numerous incentives for price making, which meant a certain degree of employment potential would be left on the sidelines.

This lost employment potential is doubtless a factor, in the gradual (long term) decline of labour force participation. Unfortunately, the Fed is paying closer attention to recent employment statistics for decision making, instead of what has occurred to aggregate employment levels over time. Indeed, gradual employment losses are reminiscent of the nominal level target losses which were incurred in the onset of the Great Recession, even though those losses took place within a single time frame.

Some are well aware of what the Fed has not considered, regarding aggregate employment circumstance and the nominal income losses of the Great Recession which were never fully regained. Even though market growth presently appears strong, investors are not quite as bullish as economists, this time around. And perhaps for good reason.

Sunday, December 10, 2017

Can General Equilibrium Wealth Become "Overfished"?

Oddly enough, yes. Over time, non tradable sectors which are secondary markets (because of their wealth or revenue dependence), can pose problems at a macroeconomic level in a mature equilibrium. Even though equilibrium imbalance is exacerbated by government subsidies, secondary market dominance can also affect the structural patterns of tradable sector activity, in ways which extend well beyond government debt obligations.

Nevertheless, secondary market dependencies on general equilibrium wealth, are presently believed to be benign, in terms of equilibrium growth capacity. Meanwhile some continue to debate whether a certain amount of government debt is reasonable, but secondary market dominance makes debt stability a moving target. When secondary markets are dominant, they continue to crowd the sectors which generate wealth as points of origination (and function like natural fish stock regeneration in the oceans). This process - in turn - further lowers the amount of government debt which could be sustainable over the long run.

Even though sectoral interdependence contributes to economic strength and complexity during periods of tradable sector dominance, this dynamic can go into reverse, once tradable sectors no longer dominate. So long as general equilibrium continues to recognizably expand output, the "common resource" of its wealth is generally available to those who participate. In these circumstance, more "fish" (points of completed wealth origination or reciprocity) are being born, than are being pulled from the oceans. But once secondary market wealth claims reach a certain point, the common resource of general equilibrium revenue becomes "overfished", and aggregate coordination begins to falter.

High skill providers of (non tradable) time based product in particular, are like "fishermen" who compete to draw from the same "ocean" of general equilibrium, or point of origin wealth. While it's problematic enough when governments become compelled to reduce their "catch", it's even more problematic when central bankers try to do so by arbitrarily reducing the size of the ocean's monetary representation. I found the image of an overfished commons helpful, for it provides clues how sectoral imbalances can affect macroeconomic outcomes. In " Natural Fisheries Overtaken by Aquaculture", Timothy Taylor writes:
Fisheries are a standard example for economists of the "tragedy of the commons". For any individual fisherman, it makes sense to catch as many fish as possible. However, if all fishermen act in this way and if the number of fisherman grows steadily over time, the underlying common resource can become depleted and unable to renew itself. In fact, this scenario has actually taken place with the world's natural fisheries, where production peaked a couple of decades ago and has been stagnant or declining since then...
There are two ways out of this box. One way is to figure out a method of limiting what fishermen catch, which would over time allow natural fishing stocks to rebuild so that the total catch could be greater in the medium- and long-run...The obvious difficulty is while it would be in the broad interest of a fishing industry to have limits on what can be caught, the practical issues of determining who should be allowed to catch how much and enforcing such decisions can be difficult.
The other approach is to have the fish-production migrate away from wild catch, and move toward "aquaculture", in which a certain body of water is no longer a common resource, but instead is owned by a fish producer. Aquaculture appears to be on its way to surpassing natural catch.
When services are generated via redistribution from other sources, for any product that is still directly connected to time value, its providers must still "fish" from the common "ocean". Hence recent healthcare mergers, while they may be able to contain costs to a certain extent, would not be able to expand the marketplace, except for where they do so without labour as a part of final product.

We could also have knowledge use production which preserves labour, yet does so by migrating away from the spontaneous "wild catch" that is increasingly limited to higher income levels and causing many groups to doubt the efficacy of formal education. Time arbitrage, since it would generate new resource capacity from within, could be likened to aquaculture in the above example. Where one's time can purchase the time of others, the process is equivalent to setting up new "pools" from which the use of knowledge and valuable skill can emerge.

Indeed, such a system would be similar to the conceptual gains of aquaculture settings, for knowledge, research and mutually valued employment. With time value as a reciprocal measure, knowledge use could be organized on wealth creating terms. And like the aquaculture example, which (hopefully) replenishes ocean capacity over time, so too, the defined equilibrium which could work to stabilize the greater capacity of general equilibrium.

Friday, December 8, 2017

Baumol Effects are Different From Productivity Gains

Why so? Baumol effects act as another form of wealth capture (or at the very least, redistribution), for the wealth of existing local equilibrium patterns. Whereas, productivity gains translate into overall additional output, for existing equilibrium in aggregate. One way to think about this: Productivity is more about gains in output, than gains in wages - particularly when and where service markets have come to dominate mature economies.

Baumol effects in prosperous communities and regions can lead to higher wages for workers in general. However: since many of these workers aren't (yet) positioned to directly contribute to local wealth origination, their local access - regardless of skill level - could be priced out of reach. Especially so, if their input potential isn't connected to a primary market or wealth origination position.

These thoughts are my response to the local wage differentials which Arnold Kling addressed in a recent post, "Are locational wage differentials also productivity differentials?" One of the issues that was debated in comments, was whether specific wages were valued more highly, because of the level of wealth they were associated with.

However, mobility factors are also important, because when local employment at any skill level ends up defined as wealth capture or redistribution functions (for existing local equilibrium), local housing markets automatically act to reduce additional access. Otherwise, local coordination could take place at a reduced aggregate time price point, along a full range of skill levels (only remember for instance that supply side limits for physicians are based on urban - rather than rural - demand and associated constraint). Again, the Baumol effect expresses the time based coordination that appears locally "reasonable" among different skills groups, once the equilibrium dimensions of primary market formation are established.

Importantly, many forms of high skill employment also act as a form of wealth capture in local equilibrium, whereby local providers gain additional monetary advantages beyond what were already established via state and national levels. In other words, it's not just low skill workers who benefit from Baumol effects, but also high skill workers, whose "complete" monetary compensation takes place in a socially or politically sanctioned secondary market capacity.

Time arbitrage could reduce the necessity of today's excessive reliance on Baumol effects, as a form of economic access. One of the potential benefits of time arbitrage, is that by acting in a primary marketplace capacity, it wouldn't detract from the primary marketplace wealth distribution of local equilibrium which is already in effect.

New options for primary wealth formation are vitally important. Otherwise, it is becoming more difficult for citizens to access - particularly via social mobility - the already existing wealth of primary market points of origination. All the more so, when much of this general equilibrium capacity is already claimed via services dominant organizational  patterns. If time could purchase time, with skill and knowledge use as part of the package, knowledge use and service generation could begin to organize as new primary market capacity. Eventually entire attitudes toward skills potential on the part of all citizens, could change for the better.

Processes such as these could occur alongside existing prosperity, and in places where relatively little prosperity exists. Granted, few have taken seriously thus far, the concept of improving economic conditions where people already live. But when so many regions and mature economies are intent on closing their doors to those who still seek access, social mobility faces multiple constraints. A newly created economy at the margin, could be the best response.

Wednesday, December 6, 2017

Notes on Productivity, Mark-Ups, and a Bold Response

This post will hopefully illuminate some common threads in my recent reading and writing. In "Productivity Growth and Real Interest Rates in the Long Run", Kurt Lunsford of the Cleveland Fed, considers negative interest rates in a context of long term productivity growth. He writes:
The results of this Commentary suggest that low productivity growth is not driving persistently negative real interest rates. The results also indicate that an upward shift in productivity growth will not necessarily lead to higher real interest rates. Finally, the results suggest that low productivity growth does not condemn the economy to low or negative real interest rates.
Even though low productivity growth doesn't necessarily condemn the economy to lower interest rates, the Fed's best approach to productivity issues, is to make certain its commitments for monetary representation are fully honoured, for all participants. Otherwise, central bankers can inadvertently contribute to needless destruction in wealth generating potential. In particular, today's (unfortunate) interest rate targeting shouldn't include Fed second guessing, as to whether existing marketplace circumstance could diminish aggregate capacity. (Especially if private sector participants become anxious to take action, which I'll explain towards the end of this post.)

Indeed, a level nominal target would not only prevent such second guessing, it would lessen the Fed's arbitrary impact on economic forecasts, and make it more likely that the natural interest rate finally turns positive. Interest rate targeting of late, includes too many judgement calls, as to whether real economy factors will worsen productivity by generating less aggregate output, in relation to aggregate input.

I've written frequently regarding services as a drag on productivity, but in some respects, services are nonetheless associated with productivity gains. For instance, Stephen Broadberry has documented services productivity in terms of organizational capacity changes:
The key to achieving high productivity was the "industrialisation" of market services, which involved the adoption of high-volume, low-margin methods to produce industrialised or mass market services.  The uneven spread of industrialised services across sectors and across countries explains the shifting comparative productivity performance of Britain, the United States and Germany.
"The Social Transformation of American Medicine" was - in many respects - a documentation of the numerous occasions when physicians resisted services industrialisation. Did the physicians' preferences for autonomy, stand in the way of productivity gains?

Our desire for personal autonomy is not the real problem for productivity, because this preference is intricately connected to how we perceive our relationships with others in all aspects of our lives. Time based product is experiential, in ways which go beyond the practical necessities of knowledge based product. However, personal autonomy can unfortunately encourage widespread price making, as opposed to the price taking that is (informally and spontaneously) suggested by the marketplace for group coordination. Only recall that price making, from a production standpoint, increases the amount of input that is necessary, before output is possible. Which means it's lousy both in terms of economic progress, and the ways in which societies coordinate mutually desired activities over the long run.

Mark-ups are just one example of the problems which arise re price making. George Lundberg, M.D. (and editor of JAMA) in "Severed Trust: Why American Medicine Hasn't Been Fixed" (2000), noted the problem of mark-ups when he wrote:
I had to do one test at a time, and the cost was passed on at a fairly high rate for those days. The hospital charged five dollars for one blood sugar analysis. Then automation entered the laboratories in the late 1950s and early 1960s. The first major instrument was the Autoanalyzer...This instrument revolutionized the chemical lab business by making it possible to load multiple serum samples from patients into the machine and to run through one after another without any handling by humans. So what happened to the price? It stayed the same. The hospital continued to charge five dollars per test even though one person, running the machine, could do fifty in the time it used to take to do one. Why did the hospital continue to charge five dollars? Because it could get it.
Standard practice now may require blood sample analysis every hour, and sometimes instantaneously. I knew many pathologists who received a percentage of all the income coming into hospital labs...Many other medical procedures have a similar pricing history. Changes are initially high because of the labor-intensive nature of developing new procedures. The coronary artery bypass operation provides a perfect example. The surgeons who pioneered the procedure spent a lot of time and money on research and development. They spent many hours in laboratories, working with animal models, to perfect the technique. The time they spent with their first patients also was intensive. Everything was new, and it all required close monitoring and attention. The total cost for the new procedure exceeded $60,000 - a reasonable price considering the investment that had gone into it.
But then more and more surgeons learned the procedure, often in the course of their regular residency training. They had no research and development costs, and their patients did not need to be so intensively monitored. In fact, the bypass operation now is the most common in hospitals, but the charges haven't moderated in many places...Over and over again in the medical marketplace, a new commodity is introduced, high prices are charged because the commodity is rare, but the prices are maintained even when the commodity is commonplace. Why does this happen? Because the patients do not know any better, the insurance companies let it happen, and the purchasers do not care or are hoodwinked. This is how the costs of care in this country have gotten out of control.
Consider these markups in a context of aggregate productivity, where input demands in excess of output potential, have macroeconomic effects. In "Aggregate productivity and the rise of mark-ups", the authors note that average mark-ups in the U.S. have been increasing over the last 20 years, which in turn has coincided with slowing productivity. They add:
Mark-ups increase firm's prices and reduces their production. A high average mark-up reduces output and depresses the demand for labour and capital, generating low aggregate employment and low aggregate investment. It reduces the aggregate labour and capital shares, and increases the aggregate profit share. In fact, increasing average mark-ups has been proposed as an important cause for the declining participation rate, the slow recovery, the weakness of investment, the decline in interest rates, and the declining labour share in the US economy.
However, the level of average mark-up does not, by itself, affect aggregate productivity. Instead, aggregate productivity depends on the heterogeneity of mark-ups across firms. From a social perspective, low-mark-up firms are too large and high mark-up firms are too small. This inefficiency in the allocation of resources across firms, reduces aggregate productivity.
Baqaee and Farhi expressed that "low-mark-up firms are too large". Might this mean that recent healthcare mergers will choose the option of lower mark-ups, as political intransigence is unexpectedly being parlayed into private action? This is what healthcare providers have actively fought off for as long as many can remember. Perhaps autonomy would not have been lost to hierarchy, had individuals and institutions not turned the gains of high-volume low-margin methods among providers, into high-margin final product for healthcare consumers.

Mark-ups. Who could resist them, while they were there for the taking, and so many individuals and organizations had the autonomy to do so. Of course the cumulative effects of countless "lucky" price makers, has doubtless contributed to recent government cutbacks in healthcare. Yet it remains to be seen how these mergers on the part of healthcare providers, will affect actual marketplace dimensions. Will we get more output, with less input - meaning, more productivity? Only time will tell.

Sunday, December 3, 2017

Medicare Cutbacks? No Rationale for Monetary Tightening

Clearly, there's problems with organizational patterns for healthcare, when losses in government support lead policy makers to assume the marketplace as a whole will be somewhat diminished as a result. Especially given basic structural reasoning, that private industry remains responsible for the dimensions of the real economy.

How many elites are giving up on economic dynamism, hence urging the Fed to adjust monetary representation downward, accordingly? In "What's Down With Inflation?", Tim Mahedy and Adam Shapiro argue that (expected) slow growth in healthcare prices is likely to remain a drag on inflation, and write:
We show that the key driver holding down acyclical inflation, and hence core PCE inflation over the past few years has been persistent changes to the health-care sector that began after the end of the recession. Specifically cuts to Medicare payment growth rates - which can affect prices throughout the health-care sector - have restrained health-care services inflation...Because health-care makes up a large share of PCE, price changes within this sector can have sizable effects on overall PCE inflation. We estimate that low inflation from this sector is currently subtracting about 0.3 percentage point from core PCE inflation, that is the measure that excludes food and energy prices. While health-care services inflation is expected to pick up in the coming years, it appears unlikely to return to its pre-recession level, which could restrain core PCE inflation for the foreseeable future.
Note first that "slow growth in healthcare prices" refers to expectations for aggregate or overall levels. However, my primary concern for this post, is with how the Fed is responding to cutbacks in fiscal support for healthcare. Given this rationale, the Fed is effectively allowing political curtailments for specific aspects of knowledge use, to be a drag for the monetary support of all economic activity. Why should political considerations for healthcare provision, be treated by the Fed as a negative supply side shock - particularly a fiscal adjustment that could prove relatively permanent? Where is the standard monetary offset to such a circumstance?

As Jeffrey Rogers Hummel indicated in a recent interview with Dave Beckworth (episode #83), "Inflation targeting doesn't do well with supply side shocks." Consider why this matters. If a nominal level target were in place, the loss in government spending for healthcare would be offset by monetary spending in other parts of the economy. As things stand, reactions to political healthcare constraints as negative supply side shocks, could make monetary policy directly responsible for the arbitrary reduction of long term growth potential.

Alas, this policy response, which does not take aggregate spending capacity into account, is an unwarranted judgement call about "necessarily" reduced output in general equilibrium. Nevertheless: When central bankers react by reducing monetary representation due to specific sectors, other areas of aggregate spending are affected.

Indeed, this central banker response could be likened to a form of unnecessary or artificial austerity, via the assumption that private interests can't maintain economic dynamism, when Washington is reluctant to maintain fiscal spending in any capacity. Are our private sectors prepared for the political fallout, should taxpayers become convinced this is the case? Already, the problems of healthcare organizational capacity, have contributed to further attacks on capitalism, in general.

P.S. Again: It's important to emphasize overall market reductions as responsible for "lower" (?) inflation in this instance. Consider the illusion of "lost" inflation in an insured family context. From JAMA, "Challenges in Measuring the Affordability of US Health Care":
The average employer plan had a premium equal to 9.2% of the median income in 1999 and increased to 18.4% in 2014.
Lane Kenworthy also recently noted marketplace limits in healthcare, when he stressed that "The share of wages going to benefits has been flat since the seventies (even though healthcare costs more), since - in aggregate - fewer employees receive healthcare benefits."

Friday, December 1, 2017

Does Education "Get in the Way" of Productivity?

Once, such a question wouldn't have even been necessary, since education has consistently added to tradable sector output gains in the past. Now however, the answer isn't as simple. One could say "it depends", since education often contributes to input requirements for final forms of time based product which are limited by their very nature. In these instances, education can contribute to excessive input, in relation to output.

How important are time based products to us as citizens, and what makes them important? Today's quality time based product, often comes with societal taxpayer obligations - many of which materialized when a larger percentage of the population held full time work with benefits. Decades earlier, extra taxpayer obligations didn't seem as burdensome as they do now. But since less work today is remunerative on those earlier terms, we'll need to reconsider in the near future, how we create the experiences and applications we desire from time based product.

After all, it's not possible to duplicate the nature of our time, and today's demands for time based product include excessively exacting terms. Still, the cumulative gains of education and productivity, play into knowledge based activities in numerous ways. Consider why a better understanding of the trade offs in education and productivity options is so important, given what these choices imply, for potentially more equitable divisions of knowledge based labour.

Recall that aggregate output of high skill time based product, depends in part on what consumers and service producers want. However, some high skill providers are better positioned than others, to protect (politically speaking) their particular divisions of labour from institutional adjustments to the status quo. Consequently, high skill knowledge providers who are well compensated, may elect not to implement technology (such as "digital cloud" spread of knowledge from one machine to another), in part because of how it would affect the nature of their human capital investments and educational institutions.

Hence education can "get in the way" of productivity, but there is also a dedicated consumer base for the practice of high skill knowledge, on these quality signalling terms. For instance: We recognize that the services of physicians are greatly valued by many individuals, in spite of any perceived shortcomings on their part. Consequently, finding more productive organizational patterns for human capital, will also involve shifts in perspective, regarding the nature of product quality and definition. When time based product is at stake, by no means is educational need a matter of simple linear extrapolation, in terms of productivity trade offs. Yet it's not so much that one's scarce time obligations are "required", or not. Ultimately, what's at stake is how we could potentially make room for both technology and human preferences, to better represent the experiences and applications we seek through direct involvement with others.

That said, what about time based product which could already be replaced by robots? In other words: To what degree would otherwise existing personal interaction, actually be missed by producers and consumers? This question isn't just a part of abstract discourse, for the elites of our institutions. It's a vitally important concern for all of us, as we need to make room in our economic circumstance for our most basic preferences and aspirations. Nevertheless: Where time based product doesn't provide useful experiential content, here's where automated replication can especially contribute to productivity and greater output, on the familiar terms of the status quo.

However, we are also concerned with achieving productivity gains via the non traditional lens of personal production and consumption preferences. Even though we can't duplicate the scarce time we already have, we can make better economic use of all our time in defined equilibrium context. In order to generate new wealth based on human capital, it's necessary to organize mutual time priorities internally, as basic economic units. Otherwise, it would be difficult for a wider range of workers to gain options for sharing the technological gains that have become integral to to time based product. Presently, those gains mostly accrue to knowledge providers with extensive human capital investment via traditional educational routes.

Education also gets in the way of productivity, due to the fact that we can't measure the input of human capital investment, in relation to the output of time based product. Taxpayer support and fiscal tools have been able to cover these gaps up to a point, but no one should not expect this coordination process to work efficiently for a full range of income levels. Even though no one can reasonably expect to measure the actual skill involved in each time product interaction, we would still be able to accurately measure the time by which lower income groups could coordinate for knowledge use settings.

At an aggregate level, the greatest productivity gains would gradually accrue, as time value and preferences "purchase" the time value and preferences of others. Since this new wealth is compensated through human capital investment cycles (economically linked educational connections), no debt or fiscal formation is necessary for what was previously part of public goods. Education in these instances would not need revenue from other existing productivity, because "learning while doing" can create its own wealth - much as what occurred on non economic terms in the past.

Today, distinctions between desired final product in which time scarcities can be safely removed, and final product where personal time is important, are being missed. Consequently, discussions regarding income inequality and lost productivity are more difficult to follow as well. This post actually began as a response to a Brookings op-ed from Jay Shambaugh and Ryan Nunn, "Why Wages Aren't Growing in America", where they write:
For wages to grow on a sustained basis, workers productivity must rise, meaning they must steadily produce more per hour, often with the help of new technology or capital. Further, workers must receive a consistent share of those productivity gains, rather than seeing their share decline. Finally, for the typical worker to see a raise, it is important that workers' gains are spread across the income distribution. If wages are rising but the increases are all going to the best paid workers, the typical worker doesn't see a gain. Two of these conditions have not been met, which explains the fact that productivity has risen while the median wage has barely changed.
Already I have written, how we will not always have the option in the future of ("suitably") rising aggregate wages via increased output, because of the ways in which a services dominant marketplace in turn limits output - especially in relation to output potential during tradable sector dominance. This is why I also suggest that instead of worrying about stagnant wages, we can do a better job of structuring non tradable sector activity in ways that more closely match the monetary potential - and the time potential - that we actually have in the present.

Thursday, November 30, 2017

Wrap Up for November 2017

"Almost two-thirds of Americans, or 63 percent, report being stressed out about the future of the nation..."

Tyler Cowen interviews Steven Teles and Brink Lindsey for their book, "The Captured Economy".

The revenue for state pension funds is continuing to dwindle. And people want to work longer to make up differences such as these, but health issues can get in the way.

A series of slides from Jason Furman, "Can Tax Reform Get Us to 3 Percent Growth?", includes many of the more commonly voiced arguments.

"...beyond sports, entertainment, and finance, growth in product market size probably can't account for much of the rise in top-end income inequality." (Lane Kenworthy, "America's Great Decoupling")
From page 25: The share of wages going to benefits has been flat since the seventies (even though healthcare costs more), since - in aggregate - fewer employees receive healthcare benefits.

Discussions re real interest rates, generally lack a long term context.

Timothy Taylor responds to some recent trade papers.

Brink Lindsey and Steven Teles on medical access:
"From 1980 till around 2005, the number of medical school slots was frozen at around 16,000 first year students, but since then expansion has brought the number above 20,000...Meanwhile, by historical accident the vast bulk of residency slots is provided by Medicare, and for cost-saving reasons the number of slots has been frozen since 1997."

Many homes that were built after 1985 remained dry.

"Machines are unexpectedly disrupting upper-echelon workers."

Perhaps specific infrastructure for autonomous vehicles isn't a good idea...

There's a problem, when retirement supposedly means we're can't produce anything, anymore. And he writes:
The majority of the American population currently lives in some version of the suburbs. This will remain true for the foreseeable future. The real question is how ever more people with increasingly limited resources under considerably more stress will occupy them - particularly as failing institutions squeeze them for revenue. This is an extraordinarily fragile and vulnerable set of living arrangements and it isn't going to end well.
Income inequality is consistent with high skill, not high scale.

What could happen when cities end up serving the interests of a privileged few?

Timothy Taylor on regional price parities.

Health issues in rural areas contribute to lower labor force participation.

Noah Smith responds to Dani Rodrik's essay regarding neoliberalism.

"The U.S. economy is digitalizing at an extremely rapid pace."

Flexibility is key for working as we get older.

A closer look at declining labour force participation for prime age men.

Were it not for domestic service industries (finance, healthcare, legal), the U.S. would be similar to Canada or Germany in terms of top income shares. Is the government putting a "fat thumb" on the scale?

Again, the top one percent are turning out to be different from the capitalists of Piketty's imagination.

We're about to enter a new chapter of the digital era. Cloud robotics is one example, where one machine can simply send knowledge, ideas and skills to other machines, via the cloud. Nevertheless, I have to square this particular advance with the fact that physicians still use fax machines to get information to other offices.

"After rising for more than three decades, the overall labor force participation rate peaked in early 2000 and subsequently trended down." Also, from Brookings on the declining labour force participation rate.

Who are the largest employers of the U.S.? (a visual)

"More than half of people caring for the elderly are foreign medical graduates." Foreign medical students are now shying away from (those Medicare "frozen") U.S. hospital residencies. One wonders, will the residencies be filled by (the recent student expansion of) U.S. born physicians who have little interest in practicing in rural areas, or for the elderly? And to what extent do our healthcare providers actively seek immigration restrictions?

Tim Harford
"Companies still invest heavily in innovation, but the focus is on practical applications rather than basic science, and research is often outsourced to smaller outfits whose intellectual property can easily be bought and sold."

AT&T had to earn the right to be a monopolist.

The average American lives 18 miles from Mom. U.S. Migration remains low, but millennial migration is finally reviving.

Too many obligations elsewhere, for government revenue to maintain the Sixth Amendment.

On central bank anonymity, JP Koning writes:
"Not only have they blundered into their role of monopoly provider of anonymity and uncensored payments, they are trying their best to pretend the role isn't theirs."

Midwives were mostly eliminated in the U.S. However, there's a problem: Less than half of U.S. counties have OB-GYNs.

Miles Kimball perceives neoliberalism as sets of specifics. He particularly highlights the Washington Consensus.

Liberty Street: What makes an asset safe?

Mass transit is looking less sustainable as time goes on.

When you've got hypothermia, so the doctor turns up the air conditioner...

Thankfully, she didn't equivocate re interest on reserves this time.

Tuesday, November 28, 2017

We Have Met the Enemy...

...but why is it us?

Regular readers won't be surprised that I define the "enemy" in this post, as non tradable or localized sectors of the economy. These sectors often have incentives to obfuscate additional growth, since current organizational patterns mean additional growth tends to dilute their own power base. What's more, the line between public and private can be thin in these sectors, since they are closely intertwined with governmental and financial activity.

Indeed, lack of transparency in terms of product output, appears as though a feature - not a bug - when it comes to time based knowledge product. The lack of services output quantification in particular, restricts the capacity of monetary and fiscal policy to meet their desired objectives. The consequent income gains, limits, and divisions for applied knowledge use, are closely reflected in the conditions of our housing markets.

Lack of transparency in turn negatively affects productivity, and worries about productivity wear on the patience of those whose endeavour doesn't personally depend on productivity gains. One consequently hears arguments from progressives and conservatives alike that "No matter, growth in output isn't all that important anymore". I disagree. Closely related to this reasoning, is the notion that transparency isn't a necessary goal. Meanwhile, some on the right seek to reduce transparency by whatever means, if only for budgetary reasons.

Our localized non tradable sectors are setting up long term problems for today's macroeconomic theories, for the revenue requirements of governments and special interests are increasingly out of balance, with the ways in which society organizes for equilibrium defining or originating wealth. Equally problematic: The knowledge based component of our non tradable sector activities is too closely connected to government marketplace activity (via private enterprise connections), to fully understand how this imbalance ultimately affects macroeconomic outcomes. Only consider how Treasury secretary Steve Mnuchin recently told CBS News "Face the Nation" that reducing government spending is "not an issue we're focused on right now." If not now, when - especially since reductions of government spending were deemed important for decades??

If anyone needs further indications that structural concerns re monetary and macroeconomic policy are being relegated to the back burner, Tyler Cowen writes about job market papers in a recent post:
The number of money and macro papers is way down. Development economics is still flourishing and expanding, even relative to a few years ago, though I worry I am not seeing many generalizable results...I'm seeing Turkish, Korean and Chinese graduate students working on the big picture institutional and political economy questions.
Small wonder that both Wall Street and enterprising graduate students reach for the economic dynamism of developing nations, as the local spending of developed nations becomes mired in the limits to growth (via production definition) agendas of today's non tradable sectors. At the very least, other countries are still fortunate enough to be able to focus on the big picture. But where might this lead, for developed nations where internal resistance to progress is quickly translating into populist confusion?

In all of this, we face increasing political uncertainty, by refusing to back away from the processes which continue to raise the bar on the local requirements of human necessity. Our politicians on either side of the aisle are increasingly unable to find any path back to common sense in this regard. If this weren't enough, the current political "solution" is reduced to finding ways for the poor to foot the bill. If the poor aren't citizens, the authorities rush to deport them. If the poor are native born but cause any sort of problem (for themselves or others), people find ways to put them in prison where their taxpayer related costs are presumably easier to contain. The War on Drugs, irrational though it has been, has become means to isolate or else deport the poor, so as to reduce budget burdens. Alas, we have met the enemy, yet we are no closer to a productive or rational response.

Sunday, November 26, 2017

Time Value as a Core Economic Principle

When asked to define basic economic principles, one of the first things that might come to mind for an economist, is efficiency in resource use. According to Investopedia:
Economic efficiency implies an economic state in which every resource is optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency. When an economy is economically efficient, any changes made to assist one entity would harm another. In terms of production, goods are produced at their lowest possible cost, as are the variable inputs of production.
Given this rationale, why has the resource of our time been exempted, in so many instances? In contrast with other resource capacity, the time of many citizens is poorly utilized - given what is manifestly possible. Perhaps the fact economics is still such a young science, accounts for the fact that our time management efforts in the workplace have yet to fully adapt to the time use preferences of others. After all, the time at our disposal for interaction with the world, is the most important resource we hold in common.

Presently, we are not even close to full coordination and effective time management for all concerned. Even though some of us are able to successfully manage our own time, we need opportunities to do so which take the optimal time management of others into account as well. The struggles that many face in coordinating mutual efforts for mutual obligations, has generated substantial political burdens. Even so, too many policy discussions take place as if the marketplace were operating efficiently for time based services provision.

Consider the Investopedia argument re efficiency, for instance. Some physicians will reason that "changes made to assist one entity would harm another", specifically referring to how changes to help patients would burden a doctor's time priorities and create additional monetary burdens for taxpayers. While this argument is superficially correct, there's more involved, since the time value of physicians and citizens was not generated via a common time resource equilibrium. Granted: It's not logical for anyone to insist that government "force" others to provide special skills on their behalf. We simply can't insist on "rights" to the time or skills capacity that others possess. But likewise, no knowledge provider should insist of government that certain skills be exempted from the possibilities that individuals might pursue via their own time and resource capacity. 

Governmental impartiality for personal freedom and skills production needs to extend to all citizens, if valuable knowledge and skills are to be sustained and preserved for the future. When production and consumption provision are confused in any supply and demand model, the result is lost efficiency, for governments and citizens alike.

Nevertheless, the efficiency that individuals seek via time based product, is essentially different from the divisions of labour in which efficiencies are management driven. When final product includes personal interaction, time compensation need not be solely an institutional cost. When time purchases time, the nature of its use becomes more effective as a cost that individuals elect to personally manage, through mutually agreed upon divisions of labour. For the time based product of time arbitrage, time efficiency would derive internally and organically, from shifting preferences on the part of all involved. Time based product is multifaceted, and its efficiency is not so much a specific product outcome, as an experiential voluntary exchange between individuals.