Wrap Up for August 2017

Now that Hurricane Harvey has finally moved on from the Texas coast, all of us are keeping a close watch on the rising rivers. With a little luck, the small town where I live will be able to manage its own systems, and any further evacuations here can be kept to a minimum. Meanwhile I'll post the monthly wrap up this morning, just in case...

Some skepticism from New Zealand, regarding MMT and guaranteed employment.

A working paper from Jeffrey Hummel
"Central Bank Control Over Interest Rates: The Myth and the Reality"

Like it or not, "The slowdown is happening"

Fredrik Erixon explains to James Pethokoukis, how services are holding back economic dynamism:

Another thing which has happened is the gradual shift in the Western economy with less reliance on traditional industrial sectors and more focus on services sectors. What we know from services sectors is, firstly, that the degree of openness to trade and openness to traditional forms of competition tend to be smaller in the services sectors. We can see that the services sectors that are built on highly specialized human capital lead markets in the direction so that human capital almost becomes an institutional type of form. It's almost impossible to compete with. So that shift in itself has also had the consequence of gradually declining the degree of openness of the market for new players to come in and actually do something very different.

How would a minimum $15 an hour affect today's two-tier labour market?

Marcus Nunes illustrates how in an extended economic recovery, appearances can be deceiving.

Is the economy becoming less legible?

Nick Rowe puts immigration into perspective.

Do 16 percent of the public really believe the Fed is responsible for consumer credit scores?

"The rising return to non-cognitive skill"

Jefffrey Hummel addresses some very important considerations in his review of Kenneth Rogoff's "The Curse of Cash". He provides highlights of the review (and additional links) in a post for Alt-M.

Brookings maps where the robots are.

Larry Summers for the Financial Times:
"...the economy is probably quite brittle within the current inflation targeting framework. This is underappreciated."

Some new evidence, that IOR was a serious contractionary monetary policy error

Exports are on the decline
"Between 2009 and 2014, exports accounted for 25 percent of the growth in U.S. gross domestic product (GDP). But U.S. exports declined in 2015 and again in 2016, hampered by a strong dollar and sagging global demand."

The Hutchins Center takes a look at the Fed's balance sheet

David Beckworth sounded the alarm in October of 2008, that the new tool of IOER was likely to have contractionary effects http://macromarketmusings.blogspot.com/2017/08/the-ioer-debate-redux.html

It's been fifty years since Galbraith's "The New Industrial State" was published. Joshua Gans reconsiders its basic message in a blog post.

Heard at Jackson Hole:
"The inverse relationship between unemployment and inflation is dead"

Two articles from Vox on William Baumol.

Decentralized water collection, as a better long term solution for flood control.

A closer look at job market search effectiveness. (from the San Francisco Fed)

Time Value in Relation to Total Factor Productivity

Why has personal time value recently become so important, for productivity considerations?  Consider a broader historical framing, in this regard. So long as economies continue to expand via tradable sector growth, a majority of economic time value needs little specific designation, since total output gains in this circumstance, also translate into rising wages. In other words: So long as wages are gradually rising, many individuals remain capable of meeting their economic obligations.

Unfortunately, however, when non tradable sector activity begins to dominate economic settings, its asset formation and services capacity might reduce output in ways which also reduce total economic participation. Of late, this scenario has indeed taken place. Not only are there long term problems for individual budgets as a result, there are equally pressing issues, for the resource capacity of government budgets.

As the costs of basic consumption requirements increase, governments and individuals have less recourse to the revenue source of rising wages, even though that source is still needed to maintain societal obligations. Since the reduced output of dominant non tradable sector activity prevents rising wages, its organizational capacity needs to be amended, to make total resource capacity go further. In order to do so, more formal economic definition for our time value is needed, to facilitate basic means for production and consumption.

Others have also suggested a consumption based focus, for the productivity gains that could restore economic dynamism. For example, Miles Kimball highlighted a recent storify which touched on the importance of basic consumption for productivity, where Bonnie Kavoussi tweeted:

Miles Kimball notes it's important to focus on productivity in areas that are the biggest parts of people's budgets.

For decades, our institutions have also relied on the use of credit to bolster the gradual losses of real wage value. Only recently has it become more evident, that credit use isn't necessarily a good substitute for one's time use options, as means to remain responsible for basic consumption requirements. In particular, since lower income levels have recently lost access to credit for housing, it's time to look at new ways to make time count, as a component of total factor productivity.

And the Storm Lingers On

Sometimes, life is good, just because we get an unexpected opportunity to brew a cup of coffee and check in with the news of the day. And news feels more important, when we wake up to strong wind gusts without even knowing where the main part of the storm is. Oh, the contrast of having electricity, versus not having electricity!

When the power went out around three in the morning, I was mostly expecting it, since local officials have been warning of extended power outages. Even though we're up the coast from where Hurricane Harvey made landfall last night, our area has already received some of the higher rainfall totals. Those intense bands of rain began well before the storm finally made landfall. So after nine inches of rain in 24 hours, I'm grateful for a reprieve, though it may prove short lived. Even though the winds have died down, the flooding is just getting started, plus those lingering strong bands of rain carry the additional threat of "mini" tornadoes.

In 1961, Hurricane Carla was also too slow in "moving on". Carla was the last category 4 storm for Texas prior to Harvey; and oddly, made land landfall close to the same area. Prior to Carla, the last category 4 storm took place in 1886. That long ago storm dashed the hopes of Indianola, a once thriving port of which much had been rebuilt after the devastation of a category 3 storm, only 11 years earlier.

Our lights came back on just after noon, which meant returning food from the ice chests back into the refrigerator, for now. It's one of the local rivers that appears to pose the biggest threat, should it crest at a record level and flood the town. There's broken limbs across the backyard and the TV antenna pole broke from its base, but that's minor compared to what many have already been through. I'm just glad to be getting something done with full lighting, instead of fumbling around in candlelight. The next storm band is approaching, there's a chance this pattern may repeat most of the week. The lights just dimmed again, yikes. All a reminder of the political storms of the day, and how they could linger "too long" as well.

Can Defined Equilibrium Potential Reverse Rural Decline?

Among the hopes I've held for organizational patterns of shared intellectual challenges and normal daily routines, are the fact these systems might reverse rural decline. Japan in particular, provides a "window" to the future, for nations which are insufficiently proactive to equilibrium level problems. In a recent Atlantic article, Alana Semuels described how young people have been fleeing rural villages for decades:

In 1950, 53 percent of Japan's population lived in urban regions; by 2014, 93 percent did. (In the U.S., by contrast, 81 percent of the population lives in urban regions.) It is mostly young people who move to the cities, and that means that as Japan's population ages, the cities and towns outside the city-state are left to fade away. Japan's Ministry of Internal Affairs says that now, around 15,000 of Japan's 65,000 or so communities have more than half of their population over the age of 65.

One can't help but notice how Japan's internal migration has played out, given its low immigration levels in relation to other countries. Even though I don't care for the protectionist takeaway which some applaud, the lack of immigrants to Japan has apparently meant somewhat lower housing costs in its dynamic regions.

Still, the fact at least 15,000 communities in Japan are questioning their ability to survive, is not to be glossed over lightly. Instead of adding further protectionism to an already out of balance general equilibrium, many nations will do better to continue embracing open economies. I believe that by reducing services dependence on prosperous regions and existing revenue sources, defined equilibrium options could reverse the decline of rural regions and other areas.

City residents in nations such as the U.S. are reluctant to make additional room for more residents - given limited services and infrastructure - for either internal (domestic) or external migration. Are there ways to make today's less dynamic communities, more desirable to new residents? This is not just an important issue for long term economic growth, but also in the more immediate sense of social isolation. Alana Semuels continues:

The problem is not necessarily that Japan will run out of money to care for its growing elderly population. In 2000, the country implemented a mandatory long term care insurance program that is paid into by everyone over 40. Elderly people, even in rural areas, can receive services like home help and adult day care for moderate fees. But someone needs to be around to provide these services.

Some community loss is likely inevitable for Japan, and elsewhere. Already, older citizens in Japan are planning to destroy homes which they believe their children will never return to live in. Likewise, in the U.S., more homes are likely to be demolished in coming decades. Many older homes - in order to remain livable - require refurbishment beyond the income capacity of potential residents who might otherwise find such residences to their liking.

Nevertheless, the ongoing loss of towns outside of more productive regions, hardly means that new forms of productive agglomeration aren't possible. As populations continue to sort out what has become a rapidly evolving economic destiny, flexible building components and infrastructure could contribute to this process, to make possible a fuller range of lifestyle options, during the demographic shifts when they are most needed.

Communities in the near future, will increasingly need to focus on ways to combine intellectual challenges with what are considered more mundane, yet necessary activities. Understandably, many are beginning to rebel at the skills (hence class) divisions now expected by today's service sectors, which tend to be more arbitrary than the constantly changing divisions of labour in tradable sectors. In order for defined equilibrium settings to prosper, they will need to generate lifestyle amenities (particularly experiential product) which is normally more closely associated with the intellectual challenges of fully compensated work. Via the sharing of personal aspirations in the workplace, individuals who often find themselves limited to low skill options, would finally get the chance to pursue more challenging forms of work.

The present impulse to shut down countless areas and move everyone into thriving regions, also misses some important aspects of what is involved in productive agglomeration. Economic dynamism has been held back, because knowledge as currently utilized, faces organizational limits. Instead of attempting to force access to already limited infrastructure and services, more infrastructure and services needs to be generated on terms which can adapt to multiple income levels.

Economic opportunity need not be zero sum. One reason our political realities contain such an unfortunate mindset, is that too many limits were placed on economic participation, without sufficient consideration of the individuals who are being consigned to the sidelines.

In all likelihood, there are knowledge providers in prosperous regions who - given the chance to consider what's at at stake - would want to help ensure that forgotten areas aren't left needlessly left behind. Even though many of today's knowledge providers are largely equilibrium dependent, they could help initiate a new reality in which it is no longer necessary for intellectual challenges to remain general equilibrium dependent. Many of our forgotten areas could benefit from the seeds of a new harvest, for a more broadly shared future of economic participation.

Security and Knowledge are Competing Challenges

Why are the competing challenges of personal security, vs. knowledge acquisition, important from an equilibrium design perspective? For the most part, societies take for granted that successful individuals expect to strive for both. In particular, it's important to commit to knowledge acquisition in the form of human capital investment, to also make financial security a more likely economic outcome.

However, the extent to which security and knowledge are both actively pursued, depends in part on the opportunities that are already available to us when we're young. Consequently, hard choices sometimes have to be made, between the pursuit of intellectual challenges and sources of security. Further, the monetary compensation of knowledge work has increasingly taken divergent paths, which means not all knowledge endeavour compensation is well aligned with the expectations of today's real estate formation and related financial structure. A well designed equilibrium structure, would need to encourage ongoing knowledge challenges, without completely compromising security needs.

Even though a defined equilibrium wouldn't assign full monetary compensation for the pursuit of knowledge challenges, an equilibrium corporate structure would build a greater degree of asset security into the system at the outset, by aligning infrastructure and local asset generation with time value. Small groups in particular, would not only benefit from flexible infrastructure and building components which can be changed as needed, but which simplify the process of combining security and intellectual challenges as mutually held goals.

Closely related to these mutually held life challenges, is the desire to explore the world which lies beyond our own immediate environments. Many individuals often wait to explore such realms until the challenges of human capital investment which lead to financial security, have already been secured. However, in part because this approach to life challenges has become less certain, some now choose the third option of exploration while they are still quite young. Indeed: Doing so can be a rational choice, since exploration may hold the greatest personal meaning while we still have sufficient physical stamina to enjoy such adventures.

Equilibrium design would take these important elements of life, into account. Since each group would be relatively small, these individuals would seek to provide additional meaning for single elements of these life challenges. As a result, knowledge centered communities would take on unique qualities which make equilibrium design more important as components of different life cycles, rather than a single "concrete" destination in which to to experience life's changes.

One problem with either/or decision making processes for knowledge versus security, in the present: When we "abandon" the pursuit of knowledge for reasons of personal security, the impulse to return to intellectual challenges may resurface, at various life junctures. However, as we age, it can become increasingly difficult to pursue intellectual challenges as a human capital investment strategy, since many forms of experiential knowledge don't readily contribute to personal security. Some of the most important aspects of intellectual challenge, only become obvious after we gain sufficient life experience beyond the "sheltered" or otherwise limited circumstance of our early years.

Equilibrium design could also prove important for those who would like to migrate, but are increasingly limited in their options. All the more so, as nations limit immigrants during the present struggle with compensatory limits for today's knowledge use patterns. One only need consider, who has the greatest incentive to migrate: Those in search of greater opportunity. Perhaps one reason charter cities didn't gain traction in the past decade, is that they were frequently suggested as migration options for individuals who already held secure economic positions in society. By far one of the most important elements of equilibrium design, is that it provide real challenges and opportunities for those who continue to seek them.

Too much focus on "alternative" as extreme political reaction, encouraged me to shift my explanation of equilibrium possibility. It's also important to note the difference between design and planning. One can say that any corporate structure has design elements which diverge from planning. How so? Corporate structure creates internal patterns for individuals and specific resource capacity. This is quite different from "planning", in which policy too often takes place which expects a full range of external or divergent resource capacity, to somehow realign in response. Often, amidst the rational explanations that planning does not work, it's easy to miss the extent to which internal resource design capacity, could improve economic outcomes. Design makes it possible to envision new economic paths for participation and inclusion, which do not yet exist.

Could New Time Value Counter Negative Wage Growth?

If the zero sum political mindset coming out of Washington weren't enough, the Fed's reliance on an outdated Phillips Curve framework, is another reminder of inept policy. In spite of Tim Duy's hopes that wage growth will soon improve, as Marcus Nunes aptly illustrates, "Faster wage growth is not in the cards."

Earlier this month, Eric Basmajian of Seeking Alpha, was also focused on the bigger negative wage growth picture. in "The Slowdown is Happening", he wrote:

The impact of negative wage growth is beginning to rip through the economy as the economic data shows serious warning signs...The biggest market theme that is ultimately causing the slowdown in the economy, and the stock market, is the inability of wage growth to outpace shelter inflation...Growth in employment has been slowing for over two years. As employment growth slows, the growth in total wages earned slows as well. Wages are the driving factor behind all consumption.

Even as the cost of new homes has fallen slightly, the rising cost of existing homes, more than makes up the difference. Basmajian continues:

...rent inflation is severely negative which is signaling immediate distress to the consumer. In fact, the only time this metric was negative during the past 30 years was in recessions so its current standing at -1.1% is very alarming. This negative growth in wages cannot be shrugged off anymore because the adverse effects are bleeding into headlines left and right.

Part of the decline in wage growth, is directly attributable to the organizational patterns of the present. Too many aspects of time value in the marketplace have become difficult to quantify, which in turn means difficulty in determining the necessary resource utilization for aggregate output.

Further, the fact so many time based services rely on limited revenue streams at the outset, means the wage compensation of non tradable sector time based product, is diverging. Less of this time based product, will continue to receive "full" compensation and benefits in the near future. And the services product of non tradable sector activity, is a larger category than the wages of tradable sectors which remain more broadly represented by aggregate output gains.

While today's non tradable sectors likely have few options for reversing wage divergence, better internal alignment of services capacity, could assist the real wage capacity of workers with lower income levels. Fortunately, time value could become a more important component of quantifiable output and wealth creation. Matched time (time arbitrage), as a unit of economic measure, would make it possible to generate a defined form of local equilibrium for non tradable sector activity.

Perhaps "defined equilibrium" would be a more benign description of economic possibility. In part since the word "alternative" is becoming associated with extreme viewpoints, I may be using it less. Defined equilibrium seems to provide better clarity, since it suggests unique "takes" and qualities for group preferences in local settings.

Defined equilibrium settings are all about the generation of new wealth. A marketplace for time value, could mean productive agglomeration with more flexible strategies for risk taking and investment, in terms of both human capital and asset creation. With a little luck, new approaches to wealth building could ease the pressure on more highly sought after regions of economic activity. That pressure is evident - for instance - in the higher costs of existing housing, in relation to new housing.

When units of time are purchased via other units of time, individuals can directly contribute to time based commodity formation, on mutually agreeable terms. Hence time arbitrage would expand equilibrium capacity, whereas labour (time value) in traditional non tradable sector activity is additional velocity in an already existing equilibrium. Time arbitrage could eventually contribute to real wage growth, since it takes place in a framework which reduces two basic areas of consumption costs. More than anything else, the costs of housing and time based services have made consistently rising nominal wages appear as though a necessity.

Hopefully, others who are moderate in outlook, will come forward with more ideas that can counter negative wage growth, as well. Too many moderates have not been taken seriously by the public in recent years, because they have not been proactive on economic reforms to an extent society can continue moving forward. Unfortunately, it's no longer enough to defend capitalism in hopes that all will be well, at this critical juncture. It's time to allow economic experimentation for small groups - experimentation which doesn't require making harsh demands on those who don't wish to participate. Fortunately, economic inclusion and integration, need not mean that everyone has to walk the same economic path.

Moderates and Other Impartial Spectators

Is it possible to remain impartial as the statues of an earlier era come down? As it turns out, Adam Smith, in "The Theory of Moral Sentiments", has plenty to say which highlights the polarization and political struggles of our time. Here, I'll include most of a quote which was also noted by Timothy Taylor:

In a nation distracted by faction, there are, no doubt, always a few, thought commonly but a very few, who preserve their judgement untainted by the general contagion. They seldom amount to more than, here or there, a solitary individual, without any influence, excluded, by his own candour, from the confidence of either party, and who, though he may be one of the wisest, is necessarily, upon that very account, one of the most insignificant men in the society. All such people are held in contempt and derision, frequently in detestation, by the furious zealots of both parties. A true party-man hates and despises candour; and, in reality, there is no vice which could so effectively disqualify him for the trade of a party-man as that single virtue. The real, revered, and impartial spectator, therefore, is, upon no occasion, at a greater distance than amidst the violence and rage of contending parties. To them, it may be said that such a spectator scarce exists any where in the universe. Even to the great Judge of the universe, they impute their own prejudices, and often view that Divine Being as animated by all their own vindictive and implacable passions. Of all the corrupters of moral sentiments, therefore faction and fanaticism have always been by far the greatest.

While it's becoming more difficult to keep the open mind of an impartial spectator, in some respects the South has struggled with impartiality for a long time. Adam Smith's above quote serves as a reminder of the isolation I've often felt. There's a "price to pay" when we keep our distance from the fray, especially if we're white, and have never left the the South for a long period. Even though I've been fortunate over the years to encounter inspiring individuals with a moderate outlook, much of my inspiration has come from books whose authors lived well beyond my own environment and culture.

Now, tribalism even continues to grow in importance, as economic stagnation gives moderates less of a chance to build a more broadly shared economic consensus. Similarly, there's little room for middle ground, regarding the statues from the days of the Confederacy, which are now being removed. Yet as a Southerner with family roots going back generations, I unexpectedly find myself with mixed feelings.

Will history be "lost"? There's a mostly forgotten part of our economic history, which for me holds more meaning than those statues. For some observers, the harsh circumstance of our recent past - and what so greatly contributed to those circumstance - was never seriously considered. There's no denying that whites have remained guilty of excluding others who are perceived to be "too" different. Yet this exclusion was also a reflection, of a broader context in which everyone in the South remained essentially excluded from the dynamism and vitality of our own nation, for generations. Is it not evident for example, that military bases which bear the "wrong" names, serve as a sort of national apology, to encourage the Southern youth still willing to sacrifice their lives for a now united nation.

Oddly, I can't help but believe that things would have turned out differently - much more positively - had Abraham Lincoln not been assassinated. Since he died when he did, many in the South suffered harsher conditions and loss in the aftermath of the Civil War, than would otherwise have been the case. In some instances, the victors destroyed or took many of the worldly possessions of poor folk who had never owned a slave in their lives. Lincoln received a lot of blame from the South which he did not deserve, because he didn't want the devastation to go beyond what he perceived as necessary to win the war. He'd hoped for a level of understanding, which simply never had a chance to evolve.

Consequently, it wasn't just that the South lost the war, it was the ways in which everyone was forced to experience defeat, which left much of the country in what was essentially a third world status for rural areas, well into mid twentieth century.

What's mind boggling for Southerners such as myself is that tribalism suggests we're either "supposed" to harbor perpetual anger about what happened, or else completely deny the connections between long standing economic hardships and morally imposed punishment. Why should I have to take such an extreme position, regarding the devastation that happened to all the people involved, regardless of race? Was I supposed to either deny or be totally angry about that hardscrabble world, one still evident in the photo albums and memories of my family's past?

Perhaps the healing has been more difficult than it should have been, because the South continued to suffer for generations as the rest of the nation prospered. I wish for everyone concerned, that real healing was not so far out of reach. The worst aspect of it all, is that Lincoln didn't live long enough, to prevent the excessively harsh treatment of the people whose culture I've experienced and made my own peace with, over the course of a lifetime.

A Level Target is Representative, Not Interventionist

John Tamny of Forbes, insists that the intentions of market monetarists are interventionist. He writes:

While they surely mean well, "Market Monetarists" like David Beckworth and Ramesh Ponnuru ascribe to the Federal Reserve an ability to centrally plan money supply which is no different from the Soviet era conceit that governments could plan production. And that's exactly what the economist and pundit are calling for, a planning of production. Their commentary is very explicit that specific rates of money growth from the Fed will lead to specific GDP outcomes.

He continues:

Where there's production, there's always money to facilitate the exchange of what's produced.  

If only the latter assertion were actually true. Just one of the unfortunate results of a slow but steady monetary tightening, is the decline in brick and mortar retail. Despite the recent prevalence of online shopping, this retail "substitute" only represents a portion of brick and mortar losses.

And so far as "planning" goes, no market monetarist predicts - nor would they want to - that a level target would lead to "specific" GDP outcomes. A level target rule would be put into place, to encourage free markets to the greatest extent possible. If anything, a level target could be thought of as the most obvious means by which to protect production which already exists.

Tamny's interventionist argument, while leveled at market monetarists, is also reflective of further interventionist arguments against the Fed itself. Nevertheless, the role of the Fed is complex, in that the use of fiat monetary representation is essentially quite new. Presently, a level target could help to smooth the process by which which the dynamics of tradable and non tradable sector activity interact with each another. Services generation has meant substantial changes to the real economy, as both fiscal and credit based relationships have become more complex.

Nevertheless, those who attack the Fed more directly, also have issues with the fact that both governmental and financial intentions for Fed policy are by no means benign. Money is vital as an institutional path, and its marketplace role needs to be more broadly understood, so as not to be continually hijacked by competing interests.

To the degree a central bank may be thought of as interventionist, also depends on how policy makers approach monetary representation. Why, for instance, do some policy makers downplay the role of money, in an institution purportedly created to provide monetary representation for a nation's citizens?

There are three competing factions within the same institution that are attributed to interventionist intentions: monetary representation, government (fiscal) activity, and financial activity. Yet the market monetarist goal, which is a further adaptation of earlier monetarist roles, is to promote economic stability. This monetary "well being" for the greatest number possible, by forming an accurate representation of all economic components, is different from the fiscal and financial activities which are always partial income claims on a given set of equilibrium conditions. Interest rates in particular, tell stories about those claims. The Fed may be complicit in such claims to the degree that it chooses to give priority to governments and/'or financial interests, for whatever reason. Of course when central bankers do so, the result can be lost monetary equivalence for society as a whole.

Fortunately, many have moved past the simplistic rhetoric of individuals such as John Tamny, but the arguments he employs can still be misleading. In short, it helps to consider context. Some groups may consider a level nominal target to be "interventionist", should it appear to prevent further spending for the preferred programs of one's constituency. Likewise, a level target might frustrate the preferences of financial interests in terms of central bank actions. When it comes to charges of interventionism, context matters.

Economics as Means to Confront Isolation

One of the main reasons I continue to promote a marketplace for time value, is to confront the social isolation which results from the restricted marketplace patterns of today's developed nations. And "solutions" such as basic income, would only add to the isolation that already exists, essentially, by paying people to give up on real societal participation - in some instances for the full duration of their lives. It's difficult for me to see how families or individuals with no economic connections, could even appreciate a guaranteed income "consolation prize". "Give it up" money mostly serves as a reminder that what one seeks to contribute to the world, is supposedly not necessary, now or ever.

Imagine how much better it would be, to monetarily compensate individuals for helping one another, and do so with our full societal blessing. What if the youth who live in areas with limited economic opportunity, could generate new wealth via the time they exchange for assisting peers and neighbors with life's daily challenges? Is this not better than standing on a street corner, selling drugs? Would it not be better than an economically imposed isolation which breeds hate, fear, violence, and resignation?

Somehow, if people were raised in a mutual assistance culture, the ever present drive by shootings that I hear about on the daily news, would surely diminish. Last night, an older gentleman only a few years younger than myself, lost his life to crossfire in the street, when all he was doing was sitting in his garage, talking with a friend. It's difficult to imagine that with a culture which considers mutual assistance as genuine wealth, how anyone would instead find need to turn to divisive identity groups, gangs and identity politics.

For centuries, people didn't need the formal economic interaction of compensated time based services. After all, there were numerous means by which to coordinate resource use patterns, which ensured that people would come together to get things done. Only as earlier coordination patterns give way to automation and technology, are we faced with the reality of a society which is quickly forgetting how to work, negotiate and reciprocate for mutual wants and desires. No dialogue regarding the future is complete, if it doesn't include a profound determination to reduce the growing isolation of our era.

Even though some still dismiss isolation as a first world problem, it's well past time to quit doing so. No one can afford to ignore that the domestic integrity of developed nations is slowly unraveling. We can overcome isolation by recognizing why free markets were such a civilizing factor in the first place. Free markets allowed people to discover commonly held interests, mutual trust, and lifelong opportunities. The non tradable sectors which have intentionally denied people similar free market options such as these, are proving to be a slow motion train wreck.

Let's don't allow the centuries long free market gains of our tradable sectors, to slip away. Let's not retreat into anti-growth dogma and the exclusionary visions of tribal identity politics. We can overcome all this craziness. Together, we can rebuild a stronger economy, one fully capable of overcoming hate and isolation.

From the America I still remember:
This is For All The Lonely People

Some Notes on Equilibrium Corporation Rationale

Might the gig economy include a positive "endgame" for many of us in the years to come? There's at least one problem, for anyone who gains employment on these terms. Today's gig economies don't provide the forms of economic continuity, that are capable of assisting individuals with their personal responsibilities and aspirations over time.

Yet government dialogue to date regarding gig economy "shortfalls", doesn't quite capture this thorny issue. Tim Harford was supportive of a government approach in a recent post, but the "essential" government benefits he highlighted, aren't the same as the economic connections which matter for citizens in a knowledge centered economy. Plus, should governments take a benefits oriented approach (to address what employers can't provide), more imbalance would result, in terms of what I recently described as equilibrium flows. We need a new institutional approach which contributes to the total stock of equilibrium, instead of making ever more demands on the circulating revenue we still have.

Equilibrium stock growth is particularly needed, to address the looming problem of government debt. Without a proactive response in the near future, as Timothy Taylor stressed, "Pretty much everyone agrees that the US fiscal outlook for the long run--a few decades into the future--looks grim unless changes are made."

Fortunately, a better utilization of human capital, would address the ongoing budget dilemmas of the present. No one can expect taxation to redistribute wealth to everyone, when only the skill sets of a relative few are even being tapped on economic terms. Even now, the wealth of human capital potential, is still being subtracted from the total equation. A better approach is needed, which can ultimately return human capital to the total wealth equation.

Today's non tradable sectors have limited both production and consumption, through a process that can be described of as making the "perfect" the "enemy of the good". One needs highly regulated "perfect" homes and skill sets, increasingly, just to live a normal life. Alas, this "perfect as the enemy of the good" scenario, is the very definition of economic stagnation.

Budgetary entitlement costs, for instance, are being squandered on time centered services markets which were never designed for full inclusion to begin with. Yet by the time many individuals realize the underlying problems for these markets, they are already well past the age when one might normally choose a career path, to focus on structural solutions for these areas.

Hence there is a complete lack of market design that would allow older individuals to negotiate for simpler time based market options, instead of the high cost default positions of the present (such as ambulances, life flights, hospitals, and nursing homes). These default scenarios can hardly be considered markets in the true sense of the word. And since there's little formal economic definition for simple assistance, people often "go without" until their situations become dire. I found myself wishing that Noah Smith could be put into a time machine, when he recently argued that we didn't need more markets, How would he feel if he grew old, with no family or friends nearby, and had insufficient formal economic means by which to feel comfortable in negotiating with neighbors for assistance?

This is what happens in too many local communities, in which citizens are inexplicably expected to run to the nearest city (or further), every time a problem arises. We would all benefit from simpler market patterns close to home: casual, but still formal economic arrangements, by which we could negotiate for the simple desires and needs that make a life. We live in a world where our family and friends either live elsewhere, or have the kinds of obligations that make it difficult to provide such measures. Yet without a marketplace for mutual assistance, people needlessly go without, so as not to unduly "impose" on others.

The lack of a local marketplace for services diversity, means problems which go well beyond what people such as myself experience as we age. These are the local economic options that could benefit young people, in the years when they are preparing resource capacity for adulthood responsibilities. Yet these are also the local economic options people need, when they wish to spend their prime working years in the communities where they can maintain close ties with family and friends.

Not everyone can chase after the desired jobs of the cities, as centralized productive agglomeration drives up the costs of economic access. When societies don't remain proactive to economic circumstance as they (inevitably) change, informal economies spring up in their place, such as has unfortunately occurred in Mexico. And not every informal economic activity is conducive to civility and progress. Lest anyone think informal economic devolution couldn't occur here, it's still an eventual likelihood for economies that are too taken for granted, as if the golden goose will never cease to lay its golden eggs. It may be that the process of devolution begins with illegibility.

Adaptation in the present, would include a thorough reexamination, as to how a safety net might strengthen and maintain our stamina to remain economically and socially engaged. Among the most important qualifications of any safety net, is that it gives individuals a reasonable chance to maintain constancy in their routines and organizational patterns. Any time in life we end up with little choice but to set aside the economic patterns we rely upon, often the skills sets we are working on in these time periods may be temporarily set aside, if not completely abandoned. One of the most important functions an equilibrium corporation could provide, would be communities which serve as platforms for economic constancy, through the mutual employment of broad services diversity.

Without economic consistency in our lifetime efforts, many of us experience episodes when it proves difficult to maintain logic and consistency - either for ourselves or for others. In spite of what each of us endures, what others remember most, is how we react to unfortunate circumstance. In other words, it doesn't matter what life throws our way, others will remember how our response impacts them. Indeed, I've been trying to move my blog towards a more positive stance, in part to compensate for the negative impressions I inadvertently left on others over the years. Without a strong economic foundation, it only becomes more difficult for people to keep the promises which are so important for personal integrity. Perhaps we can build a new institutional economic foundation, which could make the preservation of a logical and rational society, a more realistic possibility.

Say's Law Musings and Equilibrium Effects

The much maligned law of markets may still have useful applications for equilibrium dynamics. Often, discussion revolving around Say's Law has been an attempt either to affirm, or negate, its existence. But what if there are subtleties involved, in which this classical construct functions, at a certain, critical point? Do the supply and demand relationships that exist between tradable and non tradable sectors, hold important clues for output potential?

After mulling this over the past few years, I thought of a way to frame how Say's Law appears to function: via what I'll call "equilibrium stock" and "equilibrium flow". These terms differ from the normal usage of stock and flow, which is also important since in traditional definition, stock lacks a recognizable alignment with flow at a macro level.

In GDP measure, as far as I can tell (please someone correct me if I'm wrong) we don't yet have a way to conceptualize how differences between stock and flow affect output. Why? Because traditional stock accumulation has little definitive active economic context. Plus I'm still crazy enough to imagine that a better macroeconomics can keep our society from falling off the edge of a cliff, given events of late. Here's Wikipedia:

A stock variable is measured at one specific time, and represents a quantity existing at that time (say, December 31, 2004) which may have accumulated in the past. A flow variable is measured over an interval of time. Therefore, a flow would be measured per unit of time (say a year). Flow is roughly analogous to rate or speed in this sense.

For example, U.S. nominal gross domestic product refers to a total number of dollars spent over a time period, such as a year. Therefore it is a flow variable, and has units of dollars/year. In contrast, the U.S. nominal capital stock is the total value, in dollars, of equipment, buildings, inventories, and other real assets in the U.S. economy, and has units of dollars.

Whereas, equilibrium stock would consist of product which is derived via internalized costs, for product which has not been previously sold (the time arbitrage I've suggested would function this way as well). Theses costs can be readily discerned, and while they generally take place within one institution, in some instances they may be coordinated with other institutions, so long as product costs are met as product enters the marketplace.

Product which takes place in these circumstance, establishes the perimeters of a given marketplace equilibrium, whereby additional flows take place. In other words, output gains for this "first marketplace" position, is when increased equilibrium supply can meet (the overgeneralized Say's Law interpretation of) increased equilibrium demand.

Unlike equilibrium stock, equilibrium flow is externalized, so that cost and output patterns cannot be readily discerned at the time of marketplace entry. While I've emphasized the example of government compensation for time based product, even government expense for tradable sector product is subject to this equilibrium constraint, in terms of already existing aggregate spending capacity. Distinctions such as these could apply to endless debates re government restrictions on growth potential, since plenty of private activity is also further riffs on equilibrium flow.

For purposes of GDP, equilibrium stock would categorize what is internally or recognizably purchased at the time of marketplace entry in the previous year, because this holds important clues about existing flows, which are important for monetary representation as the currently existing agreements which economic participants seek to uphold. Why return Say's Law to ongoing dialogue? It's not enough to explain that new income generates new income (arguments which essentially "replaced" Say's Law), without considering whether income derives as a source of equilibrium stock or flow, in the previous year.

One reason why a "natural" interest rate can appear as though negative: far more economic activity may take place in terms of equilibrium flow, instead of as equilibrium stock. Nevertheless, there are important reasons why some prefer less output, if that is necessary to control what derives from a dependent, or secondary, market position. Importantly, supply side factors which control how knowledge is utilized in the marketplace, carry more ongoing responsibility for employment limitations, than the missteps of fiscal and monetary policy.

Consider that the only equilibrium stock component of real estate, is new building construction. So far as real estate is concerned, mortgages, "reused" land, and rent are all components of equilibrium flow, since they function as claims on already existing income and/or resources. Yet even the equilibrium flow element of land costs, simply tells a value story about scarcities in productive agglomeration. Indeed, this is why I have doubted the efficacy of land taxation as a reliable revenue source.

Also note that incentives for the entrepreneurs of non tradable sector activity in a dependent market position, are not the same as incentives for tradable sector entrepreneurs, who gain from output expansion. In part since a dependent market position only encourages non tradable sectors to limit both supply and employment, those earlier supply and demand structures appeared less relevant, as non tradable sector activity began to dominate the marketplace.

Fortunately, a marketplace for time value, or time arbitrage, could restore entrepreneurial incentive for both output and employment. I believe that time arbitrage could give Say's Law greater validity in the future, than what has been possible since the secondary market dominance of the 20th century.

Thoughts on Wage Stagnation and Resistance to Inflation

Just as many pundits and policy makers became intolerant of any inflation, so too, have plenty of citizens. Even though the Fed acknowledges these concerns (via gradual monetary tightening as far as the eye can see), far too many observers still describe monetary policy as inflationary. What some individuals recognize as necessary monetary accommodation for mutual obligations in the marketplace, others conflate with Fed recklessness and asset bubbles.

Why have populations become so intolerant of even small amounts of inflation? One reason is the lack of wage growth in recent decades, which in turn makes the prices for some of life's most basic necessities, more difficult for lower income levels. Unfortunately, much of this lack of wage growth, results from lower aggregate output levels, due to the required inputs for the non tradable sector activity which is responsible for much of today's marketplace bottlenecks.

It is not emphasized enough, how the rising output of tradable sector activity in particular, contributed to rising wages for centuries. The fact we cannot rely on this dynamic in the present, means that many related relationships for monetary flows have also changed. Even though non tradable sector activity cannot be expected to achieve output on the exponential terms of tradable sectors, substantial output gains are still possible for non tradable sector activity, which could bring these sectors back into a better balance for output and long term growth.

Much of today's non tradable sector activity could be organized so that it does not generate a constant level of internal inflation. If populations were actually able to benefit from good deflation in housing, healthcare and education, no one would even have cause to worry about inflation. In the meantime, non tradable sector prices are exacerbated by Fed tightening, since today's organizational structure only leads to further scarcities in basic consumption necessities such as housing and time centered services.

Due to the structural nature of the present day economy - in which non tradable sector activity remains dependent on tradable sector activity - there are real problems, when overall growth stalls and inflation is discouraged at the same time. In particular, government debt - which has become responsible for much of today's high skill knowledge use - remains dependent on a level of growth which is no longer occurring, and citizens are understandably resistant to any further taxation, since their wages remain stagnant.

Fortunately, there are proactive ways to respond to today's economic impasse. However, doing so, means addressing wage stagnation in ways that increase the consumption potential of real wages, instead of succumbing to money illusion. If non tradable sector activity can be generated which borrows from the long term good deflation patterns of tradable sector activity, much of the social and political pressure of the present, would be alleviated. Since wage stagnation is not going away any time soon, the best anti-inflation approach we have, is one that is capable of producing real gains in wages, through the innovation of our non tradable sectors.

Is a Natural Rate of Interest No Longer Relevant?

Perhaps the concept of a natural interest rate, is a less important consideration than it once was. After all, much has changed since Wicksell made this contribution to monetary theory. For instance: In a recent interview with David Beckworth, Scott Sumner mused whether the new economy - services dominated as it is - might also affect variations in what appeared as though a natural rate. At Econlog, he writes:

Economists define the natural rate of interest as the interest rate that is expected to deliver a level of aggregate demand which is conducive to macroeconomic stability. Wicksell thought of macro stability in terms of price stability. So he defined the natural rate as the interest rate likely to lead to price stability. But there are as many natural rates as there are theories of macroeconomic stability.

Of Wicksell's interest theory, Henry William Spiegel ("The Growth of Economic Thought") explains:

In his explanation of changes in the price level Wicksell fell back on the rate of interest, in itself not a startling idea since there was a tradition of long standing, extending from Ricardo to Marshall, which recognized, besides the direct influence of the quantity of money on prices, an indirect one which operated via the rate of interest. If the quantity of money increased, so this argument ran, low interest rates would be accompanied by an expansion of credit, and borrowers would bid up prices when putting their new financial resources to use. High and low rates are relative terms, however, and the argument did not provide a standard that could serve as a criterion whether the interest rate was high or low. Such a criterion Wicksell made available by distinguishing between the "natural" rate of interest and the loan rate. The natural rate was the expected rate of return from newly constructed capital, whereas the loan rate was that which borrowers were charged by the banks. As the two rates diverged, for example, if the natural rate exceeded the loan rate, a "cumulative" process ensued in which prospective investors, eager to maximize profit, bid up the prices of productive resources, causing in turn money incomes and the prices of consumer goods to rise. In the case of an excess of the loan rate over the natural rate, the cumulative process would move in the opposite direction.

Note especially the "expected rate of return from newly constructed capital" in the above quote. This approximation of economic activity held important clues for optimal business investment, hence served as a precursor to today's marketplace expectations.

Nevertheless, much of the earlier contribution of bank loans to aggregate output gains, has diminished. Today's banking plays a smaller role in wealth creation (via traditional manufacture in particular) than before. Consumer based loans - much like the present organizational capacity of time based services - have instead become part of the institutional apparatus which makes further demands on already existing income. While banking activity remains an important part of monetary flows, loan formation is less likely to contribute to the most dynamic sectors of the economy. Consequently, the financial role of banks in investment decisions, aggregate output potential, and long term growth, tends to be overemphasized.

How might the relative dominance of service sectors (since the twentieth century), also affect this scenario? While some non tradable sectors use automation to reduce the costs of - hence "need" for - time based product, this approach doesn't necessarily increase total output. In other words, despite what can appear as though productivity gains because of firm profits, automation for time based services will in some instances play a role in diminished aggregate output levels. Again, like consumer loans, time based services as a secondary market, is institutionalized demand for already existing income - rather than additional output - in a general equilibrium construct.

Another way to reflect on the importance of these structural shifts: remember the importance which Keynes attributed to the role of investment in connection with interest rates, in his arguments for "The General Theory". Today's investment is less driven by a commonly understood interest rate environment for capitalists, than was previously the case. In any instance, lending interest rates have always been the cost of credit, not of money. Why else would individual rates vary so widely, according to perceived consumer risk?

There are other problems with the rationale of Keyne's time, as well. It has gradually become more difficult - especially due to the crowding effects of non tradable sector requirements on demand - for fiscal policy to contribute to economic dynamism. Further, these consumption demands have created a greater "propensity to spend" across most levels of income. While these circumstance hold multiple implications, they also suggest why a level nominal target is more likely to contribute to economic stability, than the interest and inflation based indicators of the present past.

More Rationale for Formalized Time Value

Could some of today's lost labour value - which manifests in low workplace participation - become more closely associated with economic time value? Since the turn of the century, evidence is growing, which suggests a change in perspective might be helpful, regarding our economic interactions with others. For instance, a working paper from the IMF, offers further quantification of a declining U.S. labour share. From the summary:

The U.S. labor share of income has been on a secular downward trajectory since the beginning of the new millennium...We show the decline in the labor share is broad-based but the extent of the fall varies greatly...We find that in addition to labor institutions, technological change and different forms of trade integration lowered the labor share. In particular, the fall was largest, on average, in industries that saw a high initial intensity of "routinizable" occupations: steep declines in unionization; a high level of competition from imports; and a high intensity of foreign import usage. Quantitatively, we find that the bulk of the effect comes from changes in technology, that are linked to the automation of routine tasks, followed by trade globalization.

Due to their internalized revenue structure, tradable sector institutions are the first to respond to the pressures of employment costs, in order to remain competitive at a global level. Nevertheless, even local forms of non tradable sector activity, face external revenue pressures in the form of political wrangling over budgets. Often, instead of moving towards the automation which tradable sectors employ, non tradable institutions will sort (the publicly sought after) personal time based product into peripheral employment categories. In other words, administration is more likely to remain the fully compensated non tradable sector core, in response to budget pressure.

Clearly: In all of this, some aspects of the old formula for land, labour and capital are beginning to shift. Even though human capital is vitally important in the 21st century, both the specific skill emphasis and the dependent status of today's non tradable time based product, make it increasingly difficult to fully optimize human capital in a general equilibrium setting.

In alternative equilibrium settings, a marketplace for time value, would also coordinate for mutually desired time priorities. The need for such options only became evident recently, due to earlier widespread assumptions that institutional employment mostly "replaced" personally managed time priorities for many employees. For instance, personally defined labour utility was previously explored by W.S. Jevons, and Henry William Spiegel also explains in this passage (re real time costs), why personal time preferences were not given careful consideration:

He visualized work as initially irksome but becoming pleasurable over a certain range of hours of moderate length. After this range was passed, labor would again become irksome and increasingly so with a longer number of house. Work would come to a stop when the falling marginal utility of the worker's product or of his wages was exactly offset by the increasing marginal disutility of effort. If work ceased later, the marginal utility of the product would fall short of the marginal disutility of labor, and total utility could be increased by a reduction of working hours. Jevon's analysis, ingenious as it is, has exerted little influence on modern economic thought because it is grounded in the unrealistic assumption that hours of work are under the control of the individual worker.

Even though our ability to personally manage time is important for total factor productivity, today's institutions are not designed to capture many of the time preferences which could be aligned between individuals and groups. Also closely related to choice factors such as these, are the wide income disparities which affect personal time choices for the production and consumption of practical and experiential product. Whether or not one chooses life enhancing active experiential roles, largely depends on the already existing economic claims on one's personal time. Society is already beginning to question more costly forms of experiential product which are presently framed as economic access.

While a total factor productivity framing for time management didn't appear necessary in the economic settings of Jevon's lifetime, much has changed since then. Only consider that given the fact people now invest in human capital for future work as a desirable product, one's ability to coordinate time effectively, can greatly contribute to a productive outcome. Indeed, some have forgotten how business leaders such as Charles Handy were already stressing before the turn of the century, how we would all need to become more responsible for the personal management of our time and economic contributions to society.

Human capital has the ability to become a more substantial component of wealth, than is presently the case. How to think about human capital as a central production feature? While many have described production processes as the utilization of land, labour and capital, time centered services production can be thought of place, time and applied human capital - all of which function as a vessel for knowledge dispersal.

Building mutually desirable sets of time value, involves a process of discovery which would initially appear as though inefficient. Nevertheless, this is the way that any new organizational process begins, and what's important in this regard, is that the kinds of productivity gains that are possible, can be thought of somewhat differently from those which are externally defined. Gains in economic time value, also have considerable bearing on one's personal requirement for a reservation wage. As Tim Harford notes in a recent post: the work we do in the future, needs to be sufficiently lucrative to compete with today's gaming realities.

There's another benefit for a time centered marketplace which goes beyond the gains of personal well being: The ability of matched time value to relieve the often unnecessary pressure of knowledge valuation, thereby bringing knowledge dispersal out of a (too) dependent non tradable sector position. Since matched time value is a self contained input and output mechanism, it allows the varied dynamics of both experiential and pragmatic value, to be captured and recorded in a single unit of measure.

Fortunately, it's not necessary in every instance to conceive of the full value of what is contributed and received in each instance of knowledge or skill use, especially insofar as recipients only need increments of skill and knowledge in any given moment. Too much coordination potential has been lost to extensive human capital preparation, with no personal ability to economically reciprocate during the entire process. By making use of time as prioritized measure and personal management, real gains in services generation and personal time preferences, are possible.

The Democracy That is (Still) Possible

Might democracy as a concept, ultimately fail us? Only remember how the more recent historical version of democracy began, when citizens largely held the means of personal production potential. Scarce attention has been paid to the slow but steady loss of this capacity. Nevertheless, it's a loss which could still be reversed, so that democracy might once again be associated with means, instead of outcomes. After all: As outcomes are increasingly called into question, so too, the fiercely contested revenue of identity politics.

Readers are familiar with my arguments that where real democracy is possible, it includes our direct participation, alongside new wealth creation via time as measure. Hence I was dismayed with "The Sovereign Myth", where Jacob Levy argues that we never had democratic control of our lives, to begin with. He concludes:

Those of us, hoping to see decent liberal democratic constitutionalism in the future have to proceed differently. Yes, there has to be hope for a better future, but hope is not the same as autartik, nationalist or democratic sovereign control. There are hard questions about how we psychologically coexist with large-scale, impersonal social, cultural, and economic forces that are genuinely outside of anyone's ability to just decide. Indeed, I've recently argued elsewhere that we need to think of politics itself as a result of human action but not human design and decision, which even those who understand spontaneous and emergent orders in economics and society have been reluctant to do. It's difficult to come to terms with. But however we are to manage the difficult psychological task of navigating currents that we didn't decide into being, the first step will be understanding and admitting we didn't decide them.

What concerns me most about his assessment, is it seems to suggest all would be well, without a proactive response from the public, regarding economic circumstance. This is particularly misguided, in a time when people need to be part of the decision making processes that arise as automation becomes a more substantial part of the workplace. While he is right (if inelegantly stated) about the impersonal effects of tradable sector activity on economic outcomes, this does not change the fact that non tradable sector activity - if it is ever to gain the fortuitous status of a free marketplace - needs the direct democracy of our own participation and decision making processes.

The ultimate mistake is an assumption that all individuals need not carry through meaningful economic roles at the daily level of their lives, because this is the core of civility and a strong civilization. Even though tradable sector roles lie beyond the control of individuals and governments alike, it is our non tradable sectors that could provide the real hope for the future, especially as decades of wage stagnation point to the need to design an equilibrium template which can lead to substantial gains in real wage potential. This is a level of planning and design that lies within the grasp of the individual, where decision making processes for asset formation and time based knowledge use, need closer alignment with the self interest of each individual involved.

Without meaningful means of mutual cooperation in the functions that correspond to time and place, citizens will only become more disinclined to support the institutional roles of the present which are necessarily impersonal. The freedom of our tradable sectors, and the dynamism they have made possible, have yet to be reflected in non tradable sectors which have not only turned the citizens of nations into hostages, but have left them with too few means to tend to their own ability to thrive.

Democracy is still possible, but its possibility is nothing less than the potential for free markets in the use and aspirations of our own time. These are the platforms for freedom which have yet to be designed, and the spontaneity which has yet to be discovered. Each of us has the ability to become an entrepreneur of our own human capital and time management potential, if our governments can only trust us to successfully make the transition.