Wrap Up for April 2018

Given recent discussions re price level targeting, how might this approach have fared if it were utilized in 2008?

When scale no longer matters

Work, broadly interpreted

If arguments re rents are correct, there is "nothing intrinsic to capitalism" in today's inequality.

Jordan Greenhall explores some root issues with social media.

From a McKinsey interview with Andrew McAfee:

I think worrying about alleged permanent monopolies in the technology industry is to profoundly ignore the  lessons of history.

Indeed, one of history's lessons in this regard, are the railroad monopolies of an earlier era in America. Even as many became determined to "do something" about such monopolies, the railroad companies which had brought such progress to the nation, were nonetheless eclipsed in mid twentieth century by automobiles, trucks, and airplanes.

"...family-oriented units are in fact overrepresented in the housing stock."

Trying to tax one kind of income is likely to fail.

Recent mergers are particularly affecting primary care.

Hopefully I'll live long enough to see these developments improve building and infrastructure technology.

There's a good reason why today's trend growth rate is slower.

Roads changed life as we knew it in the 20th century.

Recall that if future work only compensates around 25% at core level with full benefits, that more college education than what is already occurring, may not be the answer. The U.S. diverged from other advanced nations in terms of labour force participation, after 2000.

Even though manufacture is no longer the sole way forward for advanced nations, we need a better understanding how services can contribute to wealth creation and long term growth.

"...over the last 40 years, several social, political and economic forces have hit America's heartland especially hard"

Concerns regarding government budgetary debt loads could return within the next five years...

Some states are experiencing more growth in low income occupational licensing, than others.

When comparing states and/or nations, differences in inequality are particularly differences in productivity.  "It's not the result of what share of the pie goes to capital and what size of the pie goes to labor. It is differences in the size of the pie."I would add that in advanced nations, the pie can be compressed in ways difficult to observe because of quality or input demands in relation to output.

Tuition costs rise, as "enrollment levels are flat or declining"

By the 2000s, his causes had already become less relevant to many citizens.

The 2008 financial crisis...made mincemeat of the supply-side optimism that had been Ryan's credo, and which increasingly lost ground to a more zero-sum politics pitting makers against takers...

Sometimes you learn more about economic circumstance in casual conversation, than in conferences designed for that purpose.

The non rival nature of IP could generate economic dynamism, if we would only let it...

A simple chart which shows how productivity has been lost.

"There is a very important and neglected aspect of healthcare, which is to make it practical, understandable, and workable for real people."

"Standing on the Shoulders of Giants"
Diane Coyle's essay in "The Prospect" is particularly good. And Roger Farmer writes:

Homoeconomicus brought understanding that was central to the neoclassical project. But his introduction to economics came at the cost of splitting economics off from sociology which retained the idea that our preferences are formed through social interaction.

The problem for the latter, is that group preferences have been approached in ways that make it difficult for the individual to negotiate for personal preferences with others in our non tradable sector settings. I'm convinced that the designation of time as an economic unit, could help solve this problem.

Colleges are beginning to blend the physical and the digital.

"AI lowers the cost of knowledge by orders of magnitude." Humanity "disrupted", or humanity "enhanced"?

Rising debt levels are beginning to impact long term growth potential.

"Americans will collectively spend more on taxes in 2018 than they will on food, clothing, and housing combined."

"Compared with the previous peak in 2009, the world is now 12 percent of GDP deeper in debt."

How much do noncompete agreements affect declining start up rates?

The globalization trilemma outcome appears quite different today, than what seemed likely at the turn of the century.

Opportunity Zones: What choices have states made so far?

Where does AI currently hold the most potential?

It helps to reinforce what people are already doing right.

The trend lines tell the story...

"Marriage and social connections may prove even more valuable than education."

An exploration of places where American still holds promise.

From Brookings:
"How artificial intelligence is transforming the world"

Even though - as a former bookseller - I wasn't happy about book sales shifting to online settings, there was no denying how the overall marketplace became better represented, once aggregate supply came into sharper focus.

"The rise of the self-employed presents an intellectual challenge as much as a practical one."

From page 6:
"In our model, education policies that focus on test scores tend to increase cognitive human capital, but create dis-incentives against non-cognitive human capital and may decrease its quantity in the aggregate economy." The authors refer to "non-cognitive human capital" essentially as leadership, co-operation, and communication abilities.

"Funding for residency training has been frozen since 1997..."

Americans are hoarding money in their checking accounts - and that could be a problem
"The average consumer checking balance has increased in 23 of the past 30 quarters."

"Liberating a project from budgetary and public debt constraints can work wonders."

Resource Flexibility Requires Investment Flexibility

When does private ownership actually hinder allocative efficiency? Generally, ownership makes it possible for individuals to put resources to good use. Even so, ownership of property in particular, remains legally designated in ways that sometime make it a blunt instrument for personal intentions versus actual outcomes. In other words, present day legal property constructs aren't quite as optimal as one might expect.

For instance: Over the years I've observed too many properties sitting in limbo indefinitely, once ownership is cut short through death or other forms of separation. Even though surviving heirs can sometimes reach agreement re property settlement without discord and hard feelings, often the process is difficult for all concerned - including the communities which contain these properties within their boundaries.

Among the reasons I've sought flexible and incremental ownership means, is the fact legal property disputes can sometimes make the difference between personal success and failure, in the course of one's lifetime. Today's inflexible ownership patterns also encourage people to assume others aren't capable of committing to ownership and responsibility. But often, many individuals could live more meaningful lives, if ownership options were constructed so as to allow people to build wealth gradually - thereby creating stamina for potentially broader personal commitments at the same time.

These market design priors on my part, encouraged me to take note of property arguments in a recent publication, "Radical Markets: Uprooting Capitalism and Democracy for a Just Society" by Eric Posner and Glen Weyl. Since I've not yet had the chance to read the first chapter (which is included with the above link), I plan to read some of the book reviews whenever possible. For instance, Diane Coyle wrote:

It's extremely thought provoking and clearly brilliant - yet also barking mad. This is the territory of thought experiment rather than policy proposal.

At the very least, some thought experiments could be tried in local decentralized market settings - they just don't need to overturn general equilibrium scenarios and fully functioning municipal frameworks. Vitalik Buterin's review of the book has some particularly useful perspective about the investment problem of market efficiency and allocation:

As it turns out, it is absolutely possible to have a system that contains markets but not property rights; at the end of the year, collect every piece of property, and at the start of the next year have the government auction every piece out to the highest bidder. This kind of system is intuitively quite unrealistic and impractical, but it has the benefit that it achieves perfect allocative efficiency: every year, every object goes to the person who can derive the most value from it (i.e. the highest bidder). It also gives the government a large amount of revenue that could be used to completely substitute income and sales tax or fund a basic income.

However:

Re-auctioning everything once a year completely solves this problem of allocative efficiency, but at a very high cost to investment efficiency: there's no point in building a house in the first place if six months later it will get taken away from you and re-sold in an auction.

Even though it's not reasonable to subject traditional private property to yearly auctions, some aspects of yearly auctioning could apply, should people use building components to spatially organize for mutual workplace patterns. While spatial organizational patterns for resource flexibility have long been part of business organization, we've yet to apply these organizational options to the broader coordination of time based service activities.

How to envision a starting point? Any planning for walkable densities needs careful consideration for those whose could especially benefit by closer proximity to core economic activity. New communities might structure around a double core - one with more traditional forms of zoning options, alongside a service based core where young and old alike would be able to purchase and manage their own areas for daily interaction with others. Instead of being institutionally segmented off elsewhere, away from the general public, many who are now arbitrarily marginalized, could finally take part in life on more spontaneous terms. In core settings for services generation, perhaps a yearly auction for property arrangements would come in handy, so that participants could use the process to pay for the yearly operational costs for the relevant properties.

Again, what would make the auctioning process possible for yearly operational costs, would be the ownership of flexible building components which could be moved about across the utility grids which these communities already have in place. While the latter would also be a form of incremental shared ownership, as far as I can presently discern, this form of ownership has a continual aspect which would need to be constructed quite differently.

Granted, the forms of investment suggested in this post, may not have the path breaking quality associated with "cutting edge" investment opportunities since they're intended for individuals who are less concerned with monetary reward than gains in lifestyle options. These groups wouldn't be investing for "more of everything", but using resources already at their disposal to create something which might otherwise not have been possible. While it's not feasible to preserve investment flexibility for some resource capacity, fortunately, alternatives are possible. As Ian Hathaway wrote:

So before continuing down The More of Everything path, consider an alternative. Sometimes the answer is more of something. But often, a more relevant question is how well something is being done. Are you getting the most out of what you already have? What can be done to improve community cohesion today? To what extent are the existing pieces integrating in a productive way?

In my experience the answer to these questions comes not from adding, but from activating and transforming...It's not always the big moves that get you where you need to go.

Sustainability Coexists With Wealth and Market Options

Why aren't economic options more widely discussed which could address ecological concerns and generate new wealth at the same time? For instance, dialogue re carbon taxation as a response to climate change, is problematic in that it would be yet another form of internal wealth redistribution. Is this as inventive a market approach as we can get? Still, there's no need to be as pessimistic as Ivan Ascher, who in a recent Project Syndicate article concludes:

Ecological devastation should be expensive, and the world no doubt needs workable strategies to move people away from dirty sources of energy toward greener, more sustainable alternatives. But to defer to markets to overcome the environmental woes of capitalism is a blueprint for disappointment - and a recipe for planetary suicide.

If - as Ascher believes - there's no market solution for climate change, what is realistically better? Why not build broad based market options that don't impose single solution sets on everyone? Indeed: How would we negotiate with one another to organize mutual priorities and obligations, if we didn't have market platforms by which to do so? Why do we act as though earth always has to be compromised by the process? Chances are, it's possible to create wealth which takes climate change into account, and do so without further redistribution of general equilibrium revenue.

Local community infrastructure design could provide market options, especially for those who value environment settings which aren't presently associated with today's ownership structures. One could imagine - for instance - a mutually tended wildflower meadow community which includes an interesting variety of knowledge based challenges as well. For anyone who switched up home ownership patterns over the course of their lives just to see what different arrangements felt like, these market options would make sense.

Just like the challenges of intellectual endeavour, environmental design is a form of experiential product which could integrate time value commitments (arbitrage) as a "cost of local living" component. This approach would provide a wide spectrum of market based options for multiple income levels and lifestyle choices. A few years ago one often heard "there's an app for that". Wouldn't it be nice to hear, "there's a community market setting for that."

Fossil fuel is likely to remain a highly valued transportation option in the near future, especially since it would allow individuals to pursue solitary adventures at long distances which lie well beyond the commuting patterns now envisioned by purveyors of automated transportation. Hence most walkable community options would seek traditional transportation at the periphery, even as they include central core designs that allow groups to coordinate weekday work activity within walkable distances. To imagine how a 21st century society may want to envision transportation priorities (other than electric and/or automated), note four basic sets of transportation preferences:

1) Weekday walking for daily and ongoing activities with others.
2) Weekend (or vacation) walking possibilities for experiential activity.
3) "Traditional" fossil fuel means for daily commuting needs.
4) Fossil fuel means for the transportation of weekends and other exploration.

Much of today's dialogue remains centered around the third transportation option. A recent post from Scott Sumner is a good example, especially since he stresses the importance of expanding equilibrium potential wherever possible.

Since the first two categories are only partially addressed in the present, the equilibrium corporation would give them priority in potential infrastructure design. While the first set of activities is designed at the core (with special emphasis to include children, elderly and disabled), the second and fourth considerations would be placed in a broader set of networked design perspectives. One example could be networks of natural corridors that could extend between community locations at long distances. Corridors such as these would make it possible to walk (or bicycle, for instance) from one community to the next, either on weekend trips or possibly longer stretches of time.

One way to think about these possibilities is the fact that setting aside land for private aspects of shared preservation, recreates travel and local communities as desirable forms of experiential product. While "solid" buildings have been at the center of infrastructure focus for as long as anyone can remember, a 21st century network would highlight flexible building components as supportive of individual and group activity. Already we have begun this virtual process with digital means. By creating ways that people can pay for experiential product with time commitments, it becomes possible to bring variations on public good ideas into a private marketplace - one which makes it feasible to sustain miniature versions of enjoyable and desirable environments, through shared and incremental ownership.

The Ownership of Production That Matters Most

When we imagine the influence of artificial intelligence on future economic activity, does mass unemployment spring to mind? If so, what about calls to redistribute the revenue proceeds of AI? Alas, that approach would not work as imagined, in part because far more than output and additional revenue are involved, in what we as a society now associate with wealth and prosperity. If deep learning AI can't expand production and output via the traditional, easy to measure methods of yesterday's tradable sector dominance, what might this suggest, re ownership of production means?

As AI becomes more closely associated with non tradable sector activity, the experiential nature of our economic connections comes to the fore. Even though economic value is invariably subject to cultural interpretation, there's been a dramatic shift from our wealth associations as they relate to physical goods, to how we experience the use of our time with others. This helps to explain why students remain willing to assume high human capital investment risks, since work involving the mind is the most sought after product of our lifetimes. Nevertheless, the fact we value these forms of interaction so highly, could explain a growing reluctance to share deep learning with AI. But what might happen, should we elect not to do so?

Since AI could greatly reduce the costs of human capital investment, that changes the essential nature of our "necessary" human capital cost equations. Hence it's time for a broader exploration, of the economic priorities which citizens actually hold. Ultimately, the ability of artificial intelligence to absorb deep learning without extensive costs, could still work in everyone's favor. And even though it would no longer be rational to argue for the labour theory of value as associated with time based product, only recall how the dismissal of the labour theory of value for tradable sector production, brought countless goods within the reach of consumers, and led to the prosperity of our time.

Citizens will ultimately need to distinguish between taking part in the experiential wealth of knowledge, versus the monetary reward of doing so on 20th century terms. Even though deep learning AI might (instead) be used to augment individual professional income in the short run, this approach wouldn't broaden service sector activity or the use of knowledge in society. Instead, opting for shared prosperity is a matter of broader knowledge participation for populations as a whole. Indeed, the differences between earlier technology and the deep learning AI of the present, will have to be acknowledged in terms of the implications they hold for total factor productivity.

Additional output is in fact possible with the deep learning of AI, but it would occur via individual additive processes instead of the multiplication of earlier broadcast means. One sided broadcast communication has its place, but by itself is not capable of preserving a complex and dynamic economy. Fortunately, the "lit torch" of knowledge could extend productive economic complexity to the average citizen, with AI as local repositories for coordination and active application. If we are to assume the peer to peer relationship with AI that makes economic inclusion possible, what matters is ownership of local processes for the production of knowledge. Presently, however, citizens don't yet realize how much their input matters, to make this possibility a reality. Without the input of the average person, 21st century wealth creation processes might not go well. Everyone needs to realize what's at stake.

Should knowledge use providers and governments opt to dismiss the possibilities of AI deep learning, there's a gamble involved. As governments gradually confront rising national debt levels, how will they respond in terms of time based service cutbacks? Whether or not governments default on national debts, or whether they manage to reduce budgets before this happens, the outcome would be essentially the same, re today's extensive costs and subsidies for human capital which can't go on indefinitely. Ultimately, it would be advantageous for all of us to pair with AI, to give knowledge provision and application greater economic sustainability for the long run.

Skills Arbitrage Exacerbates the Knowledge Use Dilemma

Skills arbitrage as the prime means of monetary compensation, is creating problems for the marketplace structure of both healthcare and educational institutions. Increasingly, as governments grapple with national debt burdens, the consequent revenue limits have encouraged an excess focus on core elements, as if "one size fits all" patterns were appropriate for the use of knowledge and skill.

Unfortunately, a "one size fits all" response doesn't align well, with the realities of students, customers, patients, or providers - especially given the experiential nature of time based product. One result of the present dilemma, is undue focus on metrics for the measurement of system outcomes. However, this approach encourages not only those who game the system, it sometimes leads to losses in what might have been productive approaches for knowledge and skill.

Consider how secondary market organizational patterns have impacted supply side sources for services generation at a general equilibrium level. For instance, it's unrealistic to expect public education to leave no child "behind", given the problems that creates for individual learning and the fact many workplaces now mostly seek the "best" human capital available. There's far too many potential workers who are currently being left behind, yet formal education mostly part of the problem insofar as it's been kept separate from workplace and marketplace realities for too long. No amount of formal educational access is going to create an inclusive society, if workplaces are solely organized as exclusive realms of knowledge application and endeavour.

Even though it's obvious that skills arbitrage isn't representative of aggregate human capital potential, until now we've lacked means to address this problem directly. Alas, when healthcare and education are dependent on external revenue sources, they can become caught in a secondary market status which makes it difficult to expand from core sets of knowledge use and skill, when general equilibrium capacity becomes weighted towards non tradable sector dominance. Once non tradable sectors establish these patterns in complex economic settings, societies need the additional option of organizing for knowledge use as a wealth generating primary market.

Unlike skills arbitrage, time arbitrage - as a primary market for time value - would seek to improve the human capital prospects and wealth generating potential of all individuals. However, economic time value is internally organized in local group settings, so that time and skill preferences can be personally managed in relation to group preferences. By utilizing economic time as a commodity or natural resource, it becomes possible to generate time based services as a defined equilibrium - one which aligns available resource capacity into a negotiable group context.

No one would need to be limited to core knowledge or skills choices with others in these settings, as is now frequently necessary in formal education at multiple levels. Another considerable benefit, is that more individuals would gradually be able to offer "peripheral" or experiential learning/application options, as they assume more personal responsibility for core learning via the digital realm.

The purchase of time with time, creates wealth at the outset - indeed, in a similar manner to the resource reciprocity of tradable sector activity. Ownership of our own time in relation to others is a powerful economic option. After all, once this form of activity is established and understood, participants need not wait indefinitely for the stars to align, or for outside political groups or corporations to provide money for challenges and endeavour which people are anxious to put into motion now. Importantly, the most important metrics for time based product in these settings, are the ones that mutually benefit the individuals involved. In other words, it's not about how many patients receive treatment, or how many students receive the best grades, but about how many individuals in any given group, are able to create and access the kinds of service product which are meaningful to them.

Time arbitrage makes it possible to utilize valuable knowledge and skill, without constantly having to rely on human capital investment cost as the most important reference point for all concerned. This particularly matters, since AI is already well on the way to achieving deep learning outcomes. Many aspects of AI deep learning could eventually make extensive costs for human capital investment, unnecessary. With time arbitrage as a focal point in our economic relationships, not only could we productively respond to structural unemployment and knowledge use supply side limits, we gain the ability to work with AI in a peer to peer relationship - one with a real chance to reduce unnecessary knowledge use hierarchies and their extensive human capital risks.

Intellectual Property Hoarding and the Income Tax Factor

Credentialing processes are not only associated with IP supply side limits, they make it easier for governments to claim their share of income streams which accrue to "special" groups. Indeed, governments would be hard pressed to give up revenue from income taxation, in part because it's so easy to hide how income derived revenue streams take place.

Of course, while governments benefit from hidden complications in income taxation, this also holds for the special interests who gain "exceptions to the rule". All of which helps to explain, why taxation is quite problematic and convoluted. How to simplify taxes by making them more transparent, given these circumstance? For the U.S. in particular, it's a general equilibrium problem, in which groups of wildly different levels of resource capacity, are trying to make do with the same arena of redistribution strategies. In general equilibrium, each exception to the rule becomes another tax annoyance, or worse, burden.

Many governments aren't inclined to give up income taxation any time soon. But how much economic dynamism has consequently been lost to redistribution instead of economic progress, via knowledge use protectionism and related means? In an era of knowledge defined wealth, have we also given up on the conceptualization of intellectual property as non rival in nature? As John Cochrane recently noted:

Intellectual property is different from real property, in that is is nonrival. If you live in my house, I can't live in it. But if you use my equation, my blueprints, my recipe for nanoscale lubricants, or my designs for specialty oilfield equipment, that does not hamper my use of the same ideas.

Because of this feature, intellectual property is quite different in law, and in economics, than other kinds of property. Ideally, once an idea is produced, it should be distributed to everybody. The marginal cost is zero, it is nonrival, so society is best off if everyone gets to use new ideas immediately. Economic growth is the spread of better ideas, and the faster the better. Period.

Nevertheless, while IP differs from other kinds of property, the fact it costs money to produce new ideas creates a conundrum, hence Cochrane reminds his readers how "Our patent, copyright and intellectual property system" grants innovators a monopoly.

As more employment and wage structure gradually became associated with the gains of innovation in recent centuries, it became more difficult for populations to avoid what - in retrospect - must have appreared inevitable. Musing on the fact that Britain repealed its income tax in 1816, Timothy Taylor writes:

But the income tax returned to Britain in 1842, "to make up the revenue lost from tariffs as Britain shifted towards a free trade policy".

One could easily imagine that we're returning full fiscal circle for revenue opportunities, as governments take advantage of increased tariffs alongside income taxation and financial strategies in particular. Yet in spite of such revenue efforts, there's simply too many demands on government revenue, to continue fiscal policy as it now occurs, indefinitely. Before the whole system implodes, why not take a closer look at the whole array of public goods and government subsidized services, to see where and how these activities can eventually be generated via more direct means. Since today's private institutions lack the organizational ability to do so, a new institution will need to take on the challenge.

At the same time, we need to address the very real scarcity of our potential time commitments. For those whose economic time capacity is too short for societal expectations, localized versions of defined equilibrium would completely remove taxation from the realm of time scarcity. However, these non tradable sector settings would be defined so that anyone with small wages can still maintain valid roles in economic participation, group responsibilities, services generation, and local infrastructure maintenance.

The equilibrium corporation - by ensuring that time value is utilized as a commodity on symmetric terms - would not subject compensated economic time value to taxation. Further: Since time is both scarce and rival, it has often proven too tempting for individuals and groups, to limit knowledge use to those same rival terms. Nevertheless, too many institutions have resorted to this strategy in recent decades and consequently, long term growth and prosperity are at stake. Even though we can't just walk back tax complexity and knowledge use limits at a national level, fortunately it is possible to begin the process of restoring prosperity, on more localized terms.

Centralization or Decentralization? Scale is Important

When long term growth potential is discussed, differences in scale also matter. Is the economic activity in question, primarily centralized, or decentralized? For today's advanced economies, the reality of too much centralization, now means too many limits to growth as well.

It wasn't always this way. Tradable sector growth, due largely to its internal wealth generation, meant it included economic characteristics which were simultaneously exogenous (related to global commodity and product value) and decentralized, in relation to the nominal value and nature of a nation's general equilibrium. Still, the growth of tradable sector activity (in recent centuries) allowed advanced nations to substantially centralize economic frameworks, often in the form of secondary or general equilibrium dependent markets.

Once tradable sector activity finally experienced crowding (1981 was a tipping point) by the present organizational capacity of non tradable sector activity, it became more difficult to transmit gains from tradable sector wealth into more inclusive markets for the knowledge use of non tradable sectors. Part of the problem is that much of the latter can't presently scale, and asymmetric compensation for specific skill sets (skills arbitrage), only functions efficiently up to a point. This reality has not only posed issues for today's (knowledge product dependent) entitlement systems, but also democratic governance as a long term political framework.

Only consider how recent non tradable sector dominance also affects the density potential for productive agglomeration in desirable urban regions. When factories were a major component of urban activity in advanced nations, they contributed to endogenous output gains which translated into demand for more local employees. Urban employment demand on the part of private industry, further translated in local greater worker density, which was consequently reflected in real estate patterns that were formerly less inclined to place NIMBY limits on social mobility. Retail settings (and their associated employment levels) have provided an indirect, less reliable revenue source for maintenance of density patterns, by comparison.

Today, supply side scale limitation in non tradable sector activity, is reflected by limits in urban densities as a component of experiential product. Even though physical aspects of housing could readily scale if exposed to marketplace innovation, such potential still requires a geographic land use equivalent - such as decentralized non tradable sector productive agglomeration for instance - in order to gather economic momentum. One way to achieve decentralized productive agglomeration, would be walkable communities which internally design for shared non tradable sector coordination. This organizational capacity would tap into wealth creation via locally defined equilibrium, instead of the secondary market revenue dependence of general equilibrium.

Meanwhile, the revenue dependent status of today's non tradable sectors, has limited knowledge participation so as to boost income - a strategy reflected in the higher income limitations of building requirements in our most sought after urban regions. What's more, when central bankers get anxious to "reduce" high housing prices in closed access areas, they neglect the direct correlation of these housing prices with the high incomes that approximate the closed access of knowledge production participation, in general equilibrium conditions.

When knowledge and skill are mostly utilized as secondary markets in general equilibrium, time based production tends to take on rival characteristics, hence losing the ability to benefit from gains in scale. This, even as technology gains and tax structure continue to augment the professional income of time based product. Understandably, there's little incentive to increase the supply of secondary market non tradable sector knowledge production, given today's general equilibrium restraints. Given this circumstance, where do scale gains for the application of vital knowledge, actually exist?

Non rival knowledge use would require a decentralized form of organization, capable of building revenue in defined equilibrium settings instead of requiring the taxation or subsidies of general equilibrium. In other words, decentralization for high skill knowledge would not function as markets that are dependent on general equilibrium revenue.

Via a local equilibrium "blank slate" for time based product, there's two means of replication for scale gains: First, when time purchases symmetric time, the compensation process sets up a sustainable pattern, whereby non rival knowledge would disperse as one "lit torch" (individual) to the next. Second, there's the greater utilization of time aggregates as a whole, via recorded knowledge use memory structure. Time arbitrage, unlike skills arbitrage, need not depend on non rival status for economic sustainability.

A new institution for this process, the equilibrium corporation, would no longer remain compelled to "harvest" the best skills of today's formal education while abandoning the rest. Instead, a new corporate structure could (finally) generate an internal, informal education structure, which utilizes the multi skill capacity of all who take part. Only recall that the expectations and requirements of asymmetric compensation, all but force the signalling process which many now find so dispiriting.

Among the first rules of specialization in equilibrium corporate activity, would be to "spread around" not just the challenging skills utilization which so many seek, but also a wide array of "leftover" tasks and divisions of labour. Indeed, people too often face a lifetime of "leftover" economic activities, once the "good" (well compensated) activities are taken, should they somehow "fail" the requirements of today's formal educational settings. For instance, one may know how to cook a great meal, but get little appreciation for doing so unless they happen to operate a profitable restaurant! Just by integrating multiple skill levels for all participants, many of life's most basic tasks and duties, could finally regain some much deserved respect.

One reason economic dynamism is no longer a simple matter in advanced nations, is the fact that differences in scale are not well understood, either in terms of how they have affected workplace density or national budgets. Just the same, understanding how differences in scale affect long term growth is important. Doing so would make it simpler for nations to determine, when it is helpful to let go of micromanagement of economic activity, versus the economic activity that could still be profitably encouraged at national levels.

Again, it helps to remember that national government works best when it utilizes its resources to encourage what is capable of scaling up. Representative democracy functions well when citizens vote to influence broad and national infrastructure decisions. On the other hand, direct democracy works best when time "votes" (use) are utilized on symmetric terms. When time purchases time, it becomes possible to regain forms of scale which are intricately tied to human potential and aspiration. When time purchases time, technology is better able to align with what people want to do, instead of the other way around.

Presently, some national governments are still capable of tapping into revenue for strong infrastructure commitments which dwarf what advanced nations can now provide, given their already existing commitments to secondary markets. With a little luck, national governments of the future, will be better able to build their economies in ways which require less non tradable sector general equilibrium dependence at the outset.

Are Long Term Budget Issues a "Lost Cause"?

One can't help but wonder, whether we might as well call it a day re the national budget outlook, given the news of Paul Ryan's upcoming early retirement. The WSJ notes that once he leaves, the Republican party will lose its "most influential advocate for changes to Social Security, Medicare and Medicaid":

Mr. Ryan will leave Congress with no substantial progress on any of them, few lawmakers interested in picking up the torch, and a clear signal that prospects are dim for any big overhaul in the foreseeable future.

Indeed, Donald Trump also made it clear early on, that he did not want substantial reductions in either retirement or health benefits. He's certainly not alone.

I have mixed feelings about Ryan's wished for legacy, since - given the chance - he might have slashed budgets in ways that generated austerity with no proactive response from healthcare suppliers in the private sector. Just the same, he was one of the few in Washington who recognized what was at stake, for long term budgetary issues. Meanwhile the basic problem remains: Everything about Medicare and Medicaid in particular, was a band-aid attempt to make amends for private sector shortcomings - many of which surfaced well over a century earlier. Thus far, no constructive dialogue has taken place in Washington, re healthcare's contribution to budgetary woes. No one is on the same page, in spite of similar policy recommendations which seem to resurface time and again.

Also, according to the WSJ,

The trust fund for Medicare that supports hospital spending for older Americans is currently projected to be depleted in 2029. 

It's easy to forget that the problems rural areas have experienced re healthcare access in recent decades, might surface in city healthcare systems as well - possibly even within the course of my lifetime. Even though baby boomers such as myself attempt to avoid doctors and hospitals wherever possible, many people simply don't have the option of doing so. What's more, the fact some of us often manage to avoid doctor's offices for the better part of a decade, isn't enough to help the budgetary problems that healthcare has created for our government.

Let's give citizens permission, to find better means by which they can take care of themselves. People deserve the right to practice healing as a part of this process, and everyone deserves permission to tap into the vast amount of practical and experiential assistance made possible by the digital era. Production reform is sorely needed, not just for those who lack access to formal healthcare, but also so that governments won't implode from too many self imposed responsibilities. John C. Williams of the San Francisco Fed recently voiced his concerns re Washington's budgetary dilemma, as well:

The federal government, by anybody's measure, is on an unsustainable path in terms of deficits and debt accumulation over the next 30-40 years. This is not a secret...It's gotten a little bit worse as fiscal stimulus comes in and makes the deficit go somewhat bigger in the next 5 to 10 years. But the underlying problem was there already. And so the concerns that I have are not so much some kind of crisis...I'm not that worried about markets reacting to this. It's more about how do we make sure that we have solutions for Medicare, Social Security, and other government programs, and get us somehow back on a more sustainable path.

Service Sector Dominance vs. the Solow Residual

Does advanced economy service sector dominance tend to negate the benefits of the Solow Residual? Regular readers are familiar with my arguments that many productivity losses might ultimately be reversed, via new organizational patterns for non tradable sector activity. Presently, total factor productivity and long term growth are still negatively impacted, as tradable sector activity faces at least some degree of marginalization from non tradable sector activity. And, from Wikipedia:

The Solow residual is a number describing empirical productivity growth in an economy from year to year and decade to decade. Robert Solow...defined rising productivity as rising output with constant capital and labor input. It is a "residual" because it is the part of growth that is not accounted for by measures of capital accumulation or increased labor input. Increased physical throughput - i.e. environmental resources - is specifically excluded from the calculation; thus some portion of the residual can be ascribed to increased physical throughput...The Solow Residual is procyclical and measures of it are now called the rate of growth of multifactor productivity or total factor productivity, though Solow (1957) did not use these terms.

The Balassa-Samuelsen effect also "assumes that mass-produced traded goods have a higher residual than does the services sector". One problem thus far, is that too many incentives for service sector innovation are misaligned. Part of this is due to the fact that the real time scarcity of populations at an aggregate level - especially in terms of what is possible for mutual obligations - has no public accounting at present. Meanwhile: Instead of contributing to output and aggregate wage capacity, some service sector technology gains are mostly utilized to maintain relative output levels, even as these gains accrue to professional income. Indeed, recent tax changes from the Trump administration, exacerbate this income effect.

A more recent contrast with Solow's earlier contributions, highlights the importance of endogenous factors. According to Wikipedia:

...endogenous growth theory holds that economic growth is primarily the result of endogenous and not external forces, Endogenous growth theory holds that investment in human capital, innovation, and knowledge are significant contributors to economic growth.

Nevertheless, the endogenous factor of (formal) human capital investment and its associated risk, includes an asymmetric relationship to overall growth potential, depending on sector. In particular, positive spillover effects have proven more likely in tradable sectors, where innovation often contributes to extensive revenue potential via additional output. In other words, when goods are involved, there's more revenue gain from human capital investment to spread around.

On the other hand, innovations in knowledge application which accrue to the time use scarcities of professional income, are more closely held. After all, time product scarcity means less aggregate revenue, in relation to the human capital investment presently required. This has proven especially problematic, since areas involving high skill knowledge product, tend to be the most prominent areas where taxpayers have contributed to the costs which directly involve human capital.

We can see the effects of these realities, by the fact that overall output gains are held back to a greater extent, than was the case when tradable sectors still commanded a larger presence in advanced economies. Again, consider an earlier defining aspect of the Solow residual which was quite obvious in the fifties: "...rising productivity as rising output with constant capital and labor input." Given non tradable sector dominance - particularly that which is time product related - aggregate output is being held as a relative constant, while more of today's capital is labeled as "intangible", even as labour input is slowly being withdrawn in relation to technology.

Could time arbitrage recapture some of the earlier benefits of the Solow Residual? I believe time arbitrage would be more effective for the preservation and use of knowledge, than taxpayer support for the time based product of today's non tradable service sector activity. Time arbitrage would make it possible to share important facets of knowledge more widely, in a simultaneous framework of symmetric coordination and wealth creation. Equally important, a formal adoption of time arbitrage could reduce the present intangible capital which essentially translates into more services input for knowledge production, than is actually necessary for aggregate output in many instances.

Consider why it is important to get past the confusion of intangible capital. Since human capital investment contributed to output gains for centuries, particularly via tradable sector output, it's easy to assume that formal education as an investment process, "should" lead to similar productivity gains for time based product as well. But time based product is scarce, so when formal education accrues to time based product, one quickly runs into the reality of greater inputs and overall resource capacity, in relation to the outputs that can be derived. This detraction from aggregate productivity, frequently described as intangible capital, is precisely where high skill time based product presents the most problems, for the efficacy of the Solow Residual at the level of aggregate resource capacity.

Apprenticeship provided important ways to address educational aspects of input in relation to output, for time coordination in the past. However, many aspects of the digital era have changed the nature of "learning by doing" - especially since scaling up has ceased to be the desired outcome in many instances. Hence time arbitrage would approach learning by doing as a continuous chain of knowledge application, and adaptation to what have become quickly evolving circumstance.

Perhaps this post wouldn't be complete, without noting the ongoing significance of the Solow Residual in both microeconomic and macroeconomic contexts. For instance, formal educational considerations for worker productivity are often discussed in microeconomic terms, such as in a recent post from Bryan Caplan. Nevertheless, it's the macroeconomic effects of the Solow Residual which hold the most importance, given educational considerations and their potential to either contribute to - or detract from - the nature of economic prosperity.

Healthcare Isn't Free Market. But What Does That Mean?

Oddly, the fact that today's healthcare isn't part of the free market, is still intellectual fodder in opposing ideological camps. Indeed, some of these arguments quickly jump from correlation to causation judgments. One apt example: Healthcare practitioners and policy makers who argue against government interference in healthcare as a "slippery slope" to socialism. Hence one might reasonably ask after a long slide (decades) of government meddling, "Are we there yet?" Meanwhile, others continue belittling free trade as a general concept, since healthcare costs continue to increase relative to other sectors. Hmm, great, let's just destroy free markets since healthcare doesn't work...

Reasoning such as this is unhelpful, for it only adds to confusion and divisiveness. Likewise, Scott Sumner recently pointed out a similar process of faulty logic re healthcare at Econlog. Despite the hope Republicans might remove regulations standing in the way of economic dynamism, removing cost controls on Medicare is just a deregulatory pretense for crony capitalism.

Also part of the problem: When well meaning would-be reformers address healthcare, they sometimes miss that similar policy attempts were already tried decades earlier, only to end up unsuccessful and - worse - years of concerted effort mostly forgotten. In a post last year I highlighted some of these efforts with historical examples from "The Social Transformation of American Medicine". Paradoxically, while many healthcare practitioners tend to publicly "favor" free markets, that doesn't mean that as a group they necessarily agree with free market efficiencies such as Adam Smith advocated, centuries earlier. How to respond to such a reality? The fact this circumstance has long been the case, is just one reason why I advocate the use of knowledge for long term prosperity, by completely different sets of means.

A major part of the confusion re knowledge use for time based product, is that when aggregate time value isn't possible as a formal economic consideration (alongside skill), no one can coordinate the use of time based skill or knowledge on truly competitive terms. Today's public and private designations for healthcare don't get to this problem, since they both compensate skills arbitrage in ways which of necessity rely on the revenue of wealth that already exists. We see this reality for private healthcare supply, as increasing supply for the traditional supply structure would unfortunately mean reducing individual income. The asymmetric compensation of today's institutions can redistribute wealth, but this form of monetary compensation can't build wealth for time product via direct means. When valuable time based product is sought on indirect terms, there will always be ideological struggle as to the outcome.

By treating time value as wealth potential, time based activities including healthcare, could function as free markets. Nevertheless, I don't advocate for a complete replacement of traditional healthcare with such activities, because there are good reasons for governments and special interests to compensate the skills arbitrage of extensive human capital investment, wherever it is possible to do so. I'm simply suggesting that skills compensation associated with costly human capital investment and its associated redistribution of wealth, are no longer enough, for long term knowledge use and economic prosperity.

We need a better understanding about all of these dynamics. For that matter, we could already be paying the price for too much knowledge use protectionism, given recent growing protectionism by nations against global markets which have operated freely. After all, it's easy to dismiss a post title such as "The American Healthcare System Shows Why We Can't Trust Free Market Ideologues", until we stop to consider the fact that Trump and friends have their own questionable allegiances in this regard.

Localism Needs a Strong Economic Base

Is it possible to localize cultural preferences? While I've hoped for similar outcomes from knowledge use systems, there are important economic considerations as well. For instance, groups of individuals in new communities would have difficulty organizing purely on shared values, without an economic framework that could make functional decentralization a real possibility.

Just the same, it's time to explore new means for moving forward, as Washington's gridlock is unlikely to be resolved any time soon. In a recent Brookings article, "Is constitutional localism the answer to what ails American democracy?", the authors write:

Our urgent call for a new civic ethos reflects our belief that the old New Deal structure that relies on centralized standardized solutions does not align with the variety of life in America today.

Even though a rethinking of non tradable sector activity would be key for such efforts, today's non tradable sector activity is caught in a tangled web of interdependence at local, state and national levels. True decentralization would require reassessing these complicated connections, so as to move past the problems they still pose for independent action.

What's more: As "Johnny" of Granola Shotgun recently noted, retail designations are no longer the panacea for many communities they once were, in terms of providing local taxation revenue. How might new communities meet mutual obligations on different sets of terms?

Plenty of discussion needs to take place, before groups can envision settings that are conducive for working with others on mutually agreeable terms. There's three central economic aspects to this process, in particular: Local infrastructure commitments, incremental ownership options (for all residents), and circumstance in which taxation will still apply. Time arbitrage as a component of wealth creation, also creates internal revenue and time coordination flows - flows which otherwise would have been dependent on other sources for ongoing maintenance and upkeep of shared spaces.

Individuals would naturally gravitate towards groups which share similar resource capacity for infrastructure commitments and ownership responsibilities, hence infrastructure outcomes would reflect this reality. The good news for groups with limited resource capacity? As a society, we're getting close to the technological momentum that makes possible a much wider range of affordable infrastructure - some of which would require far less maintenance, than infrastructure requirements which evolved in the 20th century.

When would taxation still be necessary within the equilibrium corporate structure that provides an economic base for new communities? One example occurs when local citizens take part in ownership options which provide dividends within the equilibrium corporation's tradable sector role, for production of building and infrastructure components. What makes this particular income taxable at county, state and national levels, is that it represents product separate from time capacity. Most important for the equilibrium corporate structure, however, is to ensure that compensation for time based product is not subject to any taxation, since time is scarce and not capable of output multiplication.

The digital era makes it possible to form new communities in which participants have shared interests and values. Just the same, similar identities are but a starting point, as these new groups would also need to agree on similar means of resource accommodation and commitment levels. Everyone would need to be in agreement re the purpose of basic infrastructure settings, and how those settings could assist them in their own personal goals and aspirations.

Is "Total" Specialization Subject to Decreasing Returns?

When does specialization provide the most benefit to society? Are there times when highly specified divisions of labour aren't as useful, as they seemingly should be? Specialization as total output expectation, isn't always as simple or functional as one might expect. Hence a recent post from Tejvan Pettinger, reminds me how specialization in general could benefit from a closer examination. In response to a reader who wants to know why specialization is efficient, he provides what can only be considered a traditional response:

Specialisation in the labour market means workers concentrate on specific jobs. Rather than learn every trade - electrician, plumber, doctor, teacher - it is more efficient and practical if we specialise in one particular job.

Of course, regular readers won't be surprised that I find complete specialization in the above areas to be problematic for total factor productivity, in low income settings which lack productive economic complexity. What if we are holding back simple economic outputs that could help to restore human capital - capital which is presently not perceived as fully functional? Only recall as well, that tradable sector activity generally adapts divisions of labour according to how product evolves, as opposed to the "permanent" divisions of labour which are frequently associated with non tradable sector activity.

Pettinger continues:

However, if we were just a barter economy - without money. This specialization would be a lot more difficult. If I grew potatoes - we could swap potatoes for eggs and vice versa. This is a very primitive form of specialisation - and it does work - even without money. However, this is very limited if we want to develop the complexity of the economy.

When you go to the dentist, he doesn't want paying in potatoes...If there is a form of money which is widely accepted, then you can pay the dentist with these coins and then he can decide if and when he wants to buy potatoes. 

Consider this natural progression of monetary representation, from simple commodities to more specific forms of product and skill arbitrage. One can readily imagine skills arbitrage claims as revenue ownership claims in a "territory" made up of potential time value supply and demand. However, specific skills arbitrage claims lack a true representative relationship, with the full range of potential time value claims in a given territory of time coordination - especially given the reality of time and place scarcities for economic engagement. Put simply: What if more dentists prefer money to potatoes, than there are potatoes to serve as an initial wealth source of monetary representation?

In other words, time claims without the participation of all time aggregates, can ultimately distort productivity and output in both tradable and non tradable sector activity. When time can't function as a unit of account alongside money, we lack any steady state relationship between time based product (such as the dentist time value claim) and total wealth capacity (goods and services) in a fiat represented services dominant economy.

On the other hand, it likely wouldn't present a problem in a tradable sector dominant economy, should dentist associations make specific skills/time value claims on aggregate wealth. The problem of sectoral imbalance occurs once similar skills/time valuation claims begin to dominate the economic landscape. Doctors prefer money to apples, etc. Once this pattern emerges, the convenience of monetary exchange for time based service providers, begins to create inconvenience for other economic actors who lack similar options for making explicit demands on existing wealth and monetary representation.

Unlike tradable sector divisions of labour - where compensation and activity continually adapt to changing circumstance - too much non tradable sector knowledge production has assumed that economic conditions would always be able to "obey" their terms of engagement. There's an interesting way to think about this disconnect from reality: Whereas goods manufacture has also adapted to structural change via "just in time" physical warehousing, knowledge based production has yet to even begin the process of doing so, even though the same digital transformational means are already in place. Meanwhile, the educational investment requirements for knowledge providers and participants - instead of utilizing adaptive "just in time" knowledge applications - still rely on "just in case" educational requirements.

These "just in case" requirements for human capital investment - in spite of extensive online knowledge content - assume it is still reasonable for people to memorize the equivalent of entire warehouses of knowledge, just to get at the knowledge particulars that even apply in one's daily interactions with others. It's no longer financially reasonable, for knowledge providers to insist on extensive "just in case" educational investment as the sole means of economic participation. Let's begin to think differently, about knowledge application and specialization in the 21st century.