Wrap Up for June 2018

Neil Irwin (NYT): "...the United States is not as stable and reliable a place to do business as you once thought."

"Labor force growth accounted for 50% of US GDP gains between 1950 and 2015."

Given industrial production levels during this period, why was there no recession call in 2015/16?

Tim Duy: "Beyond September, the game will become more complex."

"Now, executives of big U.S. companies suggest that the days of most people getting a pay raise are over, and that they also plan to reduce their work forces further."

There's some disagreement over the size and potential of the gig economy. Has it become smaller than we think?

High skill time based service dominance - in terms of aggregate revenue demand - likely affects this outcome. In these sectors, it's easier to associate technological gains with specific professional roles, rather than entire worker distributions. "Productivity and Pay: Is the Link Broken?"

Annie Lowrey tells a tale of two economies.

"Income and Wealth Inequality in America" from 1949 to 2016

More flexible ownership options, would mean more personal agency and autonomy in our lives: a thoughtful post from Kevin Erdmann.

It's probably a good thing this referendum didn't pass!

Sometimes the most useful determinant of value, is whether process complexity could instead be kept as simple as humanly possible. And again, less unnecessary complexity, please.

How might a lack of media of exchange, disrupt trade instead of output and employment?

This version of "affordable living" is reminiscent of science fiction.

Will autonomous vehicles become the general equilibrium stimulus that some now foresee?

"...risks that hit quickly are taken more seriously than risks that accrue slowly over time, even if the slow-stewing risks cause more havoc when they burst."

What does "guaranteed" emergency care really mean?

Money is running short for federal prison staffing.

If only other aspects of economic policy were as boring as FOMC communications have recently been.
"...no one is even talking about how to start living within our means."

"From 2007 to 2017 the fraction of Americans employed fell by 2.9 percentage points."

What to make of the growth in corporate bonds?

When it comes to big spending cuts, the blame has to be spread around.

"One-third of the world's 300 largest metropolitan economies are now in China."

Breaking up Google isn't a good idea. I've been worried about these arguments, because Google has become such an important part of knowledge preservation - especially for those whose contributions to societal dialogue might ultimately be lost.

Fortunately, some tech jobs don't require a bachelor's degree. Or a coastal location.

Arnold Kling, from a recent National Affairs Article:

There are many drivers of job satisfaction. Monetary compensation, status and work relationships can all play a role, as can a sense of accomplishment, meaning, structure, and control, among other things. And, as with happiness, occupational satisfaction is comparative. Often we become annoyed at the thought of others attaining higher status or earning more money based on relatively few skills or little effort, but we tend to neglect to consider the hardworking people with advanced skills who have relatively low-status and low-income employment.

How might a recessionary trend actually matter, if losses in monetary representation translate into people doing more things for themselves, instead of achieving those ends through shared formal employment? Nick Rowe also responds to Scott's post.
And, "There is no circular flow of income; there is a circular flow of money."

Reducing the "fear factor" of artificial intelligence.

By no means has the economy returned to "a more normal place".

"Fintech is more limited in scope than monetary tech. Only that portion of the population that uses these innovations is affected - everyone else's financial habits continue on as before. Recent examples include bitcoin, p2p lending, and roboadvisors."

In time arbitrage, with its divisions of labour which would take individual and group routines into account, it also helps to consider that "At any point in life, people spend their time in 25 places."

It turns out this isn't the first time patent litigation has been a problem.

Will deep learning algorithms "hit a wall" before they become useful at a broad societal level?

A good example of the need for knowledge preservation on more sustainable terms: "A Quarter of Private Colleges Ran Deficits in 2017."

Who will be initially affected by the trade war?

National Dominance, or Global Prosperity?

Has nationalistic dominance become seemingly more important, than global prosperity? Despite this tendency, we may be entering a historical phase when national strategies for "getting ahead", aren't quite the viable means of economic dynamism that they may appear.

Instead of worrying about who gets what size of the pie, why can't governments grow the pie, by focusing on the wealth creation potential of their own citizens? Isn't this a better option, than losing sleep over national image as contrast with the wealth or student testing levels of other nations? Miles Kimball recently highlighted an article from Ken Rogoff, which explores some international comparisons. In "Will China Really Supplant US Economic Hegemony?" Rogoff observes:

Everyone in the West is worrying about the future of work, but in many ways it is a bigger problem for the Chinese development model than for the American one. The US needs to struggle with the problem of how to distribute income internally...But for China, there is the additional problem of how to extend its franchise as export superpower into the machine age.

It's reasonable to assume that today's (largely) centralized models should work fairly well in the short term. For China, such strategies could suffice for the medium term as well. In particular, China should still realize tremendous gains from its tradable sector activity, with fewer cost frictions than what many nations experience. Since so much of their infrastructure is essentially new, China should also have plenty of discretionary budget room, before infrastructure maintenance costs begin to affect other budgetary demands. While its services sector activity is developing, with a little luck, it need not contribute to the extensive budgetary burdens which have accrued elsewhere.

Nevertheless, a delicate balance is involved, as any nation begins to move towards service sector dominance. How far will they go? Accumulating Baumol effects tend to exacerbate debt formation, while increasing organizational costs and decreasing velocity at the same time. We need decentralized means of ensuring that non tradable sector activity can create sustainable organizational patterns, so as to contribute to wealth, instead of functioning as a fiscal burden. What's more: Once policy makers become overly focused on redistribution struggles, it's all the more difficult to pursue organizational reforms which make it possible for citizens to assume more meaningful workplace roles.

Consider Rogoff's assertion that better internal income distribution is needed in the U.S. Importantly, it's no easy matter to redistribute revenue proceeds accruing from personal services in which economic value is essentially time based. Instead of attempting to "distribute income internally", why not begin a broader internal distribution of applied knowledge along a full spectrum of skill levels, so that all citizens can create meaningful employment via their own means. Utilizing time value as wealth creation, could eventually go a long way to alleviate budgetary burdens.

For now, China is fortunate, in that it's capable of dynamic status quo wealth creation a bit longer than many of us, especially given the fact they got a late start. In the meantime - as Ricardo Hausmann noted - the West has more immediate structural concerns to face, than does China.

What Economy Should We Be Preparing For?

Adam Ozimek wonders whether we could be worrying about the wrong things, in a recent Forbes article, "There are so many worse things than robots taking our jobs". Why scramble to put together a universal basic income, for instance, should productivity refuse to rise? And what if present day debt levels become a serious constraint to growth? Shouldn't we be addressing this possibility? For that matter, might these two issues be somehow interconnected? Ozimek continues:

It makes as much if not more sense to worry about slow growth and exploding debt than it does to worry about rapid productivity growth and disemployment.

Granted, future unemployment is a very real concern. However, it will ultimately need to be addressed in ways which don't create further demands on what has become a somewhat fragile general equilibrium. Already, extensive price making demands on aggregate revenue in recent decades, have meant both higher debt levels and sectoral imbalance.

These non tradable sector realities also contribute to relatively tight global monetary conditions, even as emerging economies rely on global monetary flows for their own continued growth. Such correlations between debt and productivity trajectories are quite real. Nevertheless, they will need a stronger theoretical economic framing, before increased labour force participation can be realistically created which will not negatively impact productivity levels.

Presently, total factor productivity still relies on labour (or increasingly, high skill time use preferences) as a residual of product formation. Before greater productivity can contribute to higher growth levels, wealth creation may need to take place via symmetric means, so as to sidestep the labour residual problem that now factors into low labour force participation. Plus, when high skill asymmetric compensation is created via traditional means, much of it becomes intangible product. However, this designation hides the degree to which the aggregate input of knowledge production can be much higher (across separate institutions), than the aggregate output of time/knowledge centered product these institutions are now capable of providing to the public.

Symmetric forms of mutual employment - or time arbitrage - would allow individuals to increase labour force participation which doesn't rely on further dilution of total factor productivity or the creation of further government debt. Indeed, this could be where the greatest possibilities for near future employment and wealth creation reside, since both local NIMBYism and nationalist protectionism have created limits to growth, in general equilibrium settings.

Nevertheless, the price taking coordination mechanism that would make time arbitrage a rational and cost effective response, requires innovation in physical infrastructure and building components, so that a price taking services defined equilibrium (bypassing the Baumol effect) doesn't lead to undue losses in living standards. Otherwise, there would be insufficient monetary equivalence - hence a lack of personal and group motivation - to make defined equilibrium settings truly functional. Importantly, better monetary equivalence (via real wage gains) is needed for all income levels that is not only free of further public debt, but private debt as well. The way to a better future for all is still through extensive supply side innovation - albeit this time in non tradable sectors.

For that matter, present day asset costs for non discretionary housing and traditional infrastructure, help to explain why it would be unwise to disturb the fragile equilibrium of asymmetric compensation which continues to support today's supply side structure. After all, the traditional means of knowledge use and preservation which evolved in recent centuries, can be maintained up to a point. We just need to prepare for the fact that price making strategies for knowledge use and preservation in general equilibrium, can no longer provide the long term growth which global populations still need.

Price Taking, Price Making and Economic Inclusion

One aspect of future labour force participation rates - given continued advances in automation and budget cutting realities - is how price taking and price making options affect potential employment levels. For instance, when firms are more willing to coordinate with other suppliers via price taking means, this often results in increased employment potential.

Hence one important consideration for future employment, is whether price taking or price making is more prevalent. Presently, the dominance of non tradable sector activity is also reflected in the fact price making has become the broader choice. All the more so, in non tradable sectors where time based product is a major part of output.

When price making occurs in tradable sector activity, much of it is due to temporary market advantages. The changing nature of these advantages, especially when tradable sector activity is regularly exposed to competition, contributes to organizational flexibility. Such flexibility helps to account for periods of tradable sector dominance that proved less problematic for class divisions and inequality, especially during the twentieth century.

On the other hand, due to price making, the degree to which economic inequality occurs in non tradable sector activity can become "baked into the cake" over time. While non tradable sectors do encourage organizational flexibility up to a point, much of this doesn't actually extend to core staff which works in a professional capacity. Consequently, price making at upper levels means that economic inequality is gradually becoming more entrenched as a societal reality. Of course, this is often an implicit choice which limits full time employment, wherever possible.

Consider also, how technological factors play into this scenario. There's a noticeably polarized discussion developing, with widely divergent viewpoints re whether AI deep learning will eventually displace many well paid professionals. Normally, automation often contributes to greater productivity, especially when it reduces the inputs necessary for aggregate output. However: This time around, deep learning AI creates problems for non tradable sector time based product, since much of it translates into potential skills substitution, instead of increased output. It's not much of a stretch to imagine deep learning AI as an existential threat, because this process actually makes unnecessary, some important elements of the reigning class structure. Ultimately, deep learning AI reduces the absolute need for extensive human capital investment as an input requirement for quality product. Perhaps this issue could be glossed over more readily, were it not for the fact entire societies are expected to carry much of the load for these additional costs.

Might extensive price making continue to appear as though warranted for quality high skill services? We don't yet know the answer. High skill services sector price making became more extensive in the twentieth century, due to human capital investment requirements which today comprise some of the most important wealth structures of our time. What would cause nations to turn around and deem much of this unnecessary? These expectations for quality product, have been carefully tended as long as anyone can remember. And given extensive debates re many supposedly "irrational" human capital investments ("stupid" student choices), some of these employment possibilities are treated as the most "rational" of all! Possibly, the only extent to which deep learning AI could make inroads in this general equilibrium reality in the near future, is at the margins where budgetary matters finally leave no choice.

If price taking services coordination becomes an economic option, the resulting time arbitrage would considerably reduce the pressures of budgetary constraints. Thus, it might be feasible in the near future for high skill knowledge providers to preserve the price making organizational capacity they prefer, in part by giving permission for defined equilibrium settings (alongside deep learning AI) to relieve general equilibrium budgetary pressure via price taking means. There are countless communities where physicians prefer not to practice - for instance - where AI could make it possible for local participants to create valuable services product via mid range skill sets. Such an economic strategy could help to prevent further political breakdown, as different factions struggle over whether to even incorporate deep learning automated intelligence as a part of high skill services generation.

Wealth Creation: Centralization Isn't Enough

Today's centralized approaches for economic activity, are being stymied by the fact an excess amount of attention is given to buttressing secondary market structures that don't necessarily serve as points of primary wealth origination. How might this problem be addressed?

It's time to include the marginalized, in the possibilities of our wealth creation processes. Governments have been historically reluctant to encourage forms of innovation with the potential to improve real wage outcomes for the marginalized. Presently, however, low end wages are insufficient to meet the societal (financial) expectations of physical community infrastructure, local building stock, ongoing maintenance needs, or organizational time based service requirements. Too many people are being arbitrarily sidelined, for outdated supply side reasons! And since non tradable sector product - given its links to time and place - doesn't increase output by the same revenue flow mechanisms as tradable sector product, real wage support via innovation in non tradable sector production emphasis, will only become more important in the years ahead. Many new initiatives will be necessary, if total factor productivity is to be regained.

In all of this, decentralized systems for non tradable sectors - whereby small wholes could become greater than the sums of their parts - could jumpstart wealth creation that goes well beyond short term stimulus. Clearly, it's no longer enough to highlight what works in terms of tradable sectors and global prosperity, since both sides of the political aisle continue to move towards protectionist policies which could ultimately destabilize long term prosperity.

Nevertheless, stronger systems for non tradable sector activity are by no means obvious, which is why productive responses thus far have been few and far in between. In the last decade there was considerable hope for charter cities for example, yet they mostly focused on additional options for those who were already well off, instead of means for the marginalized to improve their own long term economic outlook.

The main problem with centralized economies, is the fact their structure makes it more difficult - over time - for all citizens to actively take part. Too many individuals go through life with limited means by which to interact with others or even maintain a normal existence. Even though nothing about the processes involved will be easy or obvious, let's not give up on the social, intellectual and structural aspects of decentralized options, so that the marginalized might once again be included in the destines of their own nations.

Empathy, AI and the Knowledge Factor

Might artificial intelligence ultimately replace physicians? Bertalan Mesko argues that the medical community shouldn't be too concerned re a spate of recent dire predictions, and adds:

They're just plain wrong. All of them. Although many signs are pointing to the fact that A.I. will completely move the world of medicine, and many other technologies will have a transformative effect on the industry, stating that the majority of medical professionals will disappear, is fearmongering and irresponsible. 

Mesko offers five reasons why artificial intelligence won't replace physicians. However, I'd like to take a closer look at the first one where he asserts:

1) We cannot replace empathy.

Even if the array of technologies will offer brilliant solutions, it would be difficult for them to mimic empathy. Why? Because at the core of empathy, there is the process of building trust: listening to the other person, paying attention to their needs, expressing the feeling of compassion and responding in a manner that the other person knows they were understood.

Having come of age in an era when physicians weren't expected to be so considerate of their patients, I can appreciate the current emphasis on compassion. When it comes to patient/doctor relationships, one might say that expression of empathy has become the "right thing to do".

Hence until recently, I was convinced by arguments such as the above. Surely no robot could take the place of human empathy! But what really takes place? Most successful people face societal demands which greatly reduce how they can be expected to assist (mere) individuals. The higher one's level of compensated skill, the less time one generally has left, for one-on-one economic engagement. Yet empathy includes taking the time to stop and listen to pesky or even "troublesome" complaints, a chore which may occasionally include walking a mile in another's shoes. Otherwise, how to become less disagreeable, as to the "unreasonable" assessments others tend to hold re their circumstance? We may find snap judgments a bit distasteful, but they sure "save" a lot of time and bother, don't they. Yet physicians are hardly alone, in their inability to assume a level of basic observation that can only be likened to beginner's mind.

What's more, the present institutions responsible for our time based services, are separated from one another in ways which break up knowledge continuity and practical application, at the outset. In other words, people lose the ability to preserve the usefulness of hard won understandings concerning patients and clients, once individuals are handed off to the next institutional setting. Knowledge workers are now expected to juggle such an extensive array of information alongside administrative circumstance, that they can only tap a fraction of potential solution sets. Sometimes that's not enough, especially when patients or clients need informational continuity for any reason.

Could AI contribute to the knowledge preservation and continuity, that today's professionals are hard pressed to provide? Or, what if AI could even take into consideration, more of those pesky patient/client complaints and observations, should such information become part of the computer's knowledge landscape? In other words, might AI have the "time" to (respectfully?) "listen", if patients could actually report to them directly, particularly if they get little respect from professionals or workers entrusted with their care? What if AI could even be programmed so that it wouldn't react with human anger, when patients lash out in desperation or frustration at a society that has seemingly become too burdened to help them anymore? Yes, I hope that time arbitrage can eventually make a difference in terms of personal civility and mutual assistance, but we aren't there yet...

Granted: The examples in my barely controlled rant aren't normally how most people envision what supposedly constitutes empathy. Nevertheless, the impartial observation of beginner's mind, and continuity of knowledge application, are both important. Let's don't assume too quickly, that deep learning AI couldn't be programmed to "remember" things that might otherwise be disregarded or even discarded. Or, for that matter, that AI can't be expected to exhibit "empathy" towards patients - especially since it's often beyond the scarce time given means of professional providers, to be able to do so.

Needed: "Come as You Are" Economic Options

How does one explain workplace skills shortages, when there are low levels of labour force participation at the same time? For that matter, labour force participation in the U.S. now lags behind other developed nations. It's a circumstance which highlights how employer/employee relationship expectations have diverged in ways which - thus far - are only becoming more difficult to reconcile.

To put this structural reality into a broader perspective: Diverging workplace expectations could lead to further economic and social instability, since both groups are gradually becoming less willing to accept what the other has to offer, over time. Left unaddressed, that's a recipe for slow but sure institutional breakdown. Already, there's more jobs available than individuals who are actually seeking work. Might a different institutional approach prove more amenable, to broader labour force participation in the future? What if there were economic options that could make it more tempting - not to mention more feasible - to maintain lifetime economic commitments?

While some may view gig work as a "come as you are" option, these digital platform opportunities are somewhat limited to the coordination patterns of today's already prosperous regions. Informal commitments such as these are certainly helpful, but they need more viability in broader formal patterns which can align temporary commitments with lifetime production and consumption opportunities. Otherwise, it could prove difficult to regain the productive agglomeration that so many regions now lack.

Alas, there's good reason why one seemingly needs "near perfection" to land jobs which include ample compensation and benefits. In recent centuries, tradable sectors have increased productivity by decreasing the amount of labour required in relation to total output. As some of our institutions continued down paths toward ever greater productivity, the employment they still required, meant higher levels of skill would be necessary in more instances.

Nevertheless, other institutions took a high skills approach for entirely different sets of reasons. The result? Today's requirements for non tradable sector human capital investment, have partially offset total factor productivity gains. Were it not for the strong emphasis on quality product, and the extensive human capital that seemed necessary, the societal burden of excess input in relation to output, might have been more obvious. For that matter, as things currently stand, the concept of "come as you are" time based service options, runs completely counter to a wide range of societal expectations. Even so, national budget obligations for quality product costs are continuing to expand, and governments have yet to discover long term solutions. Worse, labour force participation is likely to decline further in the years ahead, if knowledge production is not approached differently.

Fortunately, total factor productivity could be regained, by reducing the amount of skill arbitrage which takes place as production residuals or debt dependent secondary markets. Should time based services become organized as internally derived markets, time units would in turn become wealth, via product which simultaneously carries elements of knowledge and skill. Once labour is reconfigured as mutually held time priorities, we can create "come as you are" workplaces which treat learning as part of wealth creation process. As a point of marketplace origin, time based services would help to maintain tradable sector productivity levels in general equilibirum, since they don't need to siphon away tradable sector revenue.

An apt way to think about the possibilities of time value, is to imagine a single time unit as a single apple. Then, envision any possible health concerns as a "blemished" apple, but one which still holds plenty of economic value. Indeed, individuals could potentially match time and skill priorities, based on forms of personal "imperfections" which hold particular meaning for them. The matched priorities are still time unit wealth in every instance, meaning there's no loss of institutional productivity on sick days, such as occurs when one's skill is arbitraged as workplace production residuals!

"Come as you are" economic options, would mean a chance to seek out the valued time of others, one negotiated share at a time. With a little luck, regular exposure to what others expect, would in turn help to temper and fine tune what we expect. And - of course - likewise for everyone else as well. Here, I'll dream a little and say perhaps we wouldn't be so impelled to run away when it all goes awry, because we would finally start to believe it is possible to negotiate with others through the course of our lives, for our wants and needs. I can't help but believe that if we had the ability to directly negotiate with others in our workplaces and learning spaces, our home lives would benefit as well. With a little luck, economic platforms for processes such as this, might even encourage us to become a civil, considerate society, once more.

Aggregate Output and Expectations of Reciprocity

Why did tax reform prove so difficult recently, in instances where existing subsidies for high income levels weren't necessary? Much of this comes down to who in society is able to fully reciprocate with government. Present day taxable income, largely accrues from individuals who use high levels of skill in a professional capacity. Given the degree of economic prosperity these groups make possible for today's governments, many policy makers are understandably compelled to respond in kind.

As non tradable sector activity burgeoned in the 20th century, high levels of mutual reciprocity developed between governments and high skill knowledge workers. However, this process has partially displaced the extensive output of tradable sector activity, along with its positive redistributive effects. Aggregate output gains slowed, as price taking coordination in tradable sector activity gave way to the price making structural shifts of skills arbitrage. What has become a growing reciprocity between governments and professionals (particularly via income taxes), leaves less redistribution for lower income levels - especially during historical periods of non tradable sector dominance.

This process is concerning for many reasons, and reciprocity imbalances affect long term budgetary obligations as well. For instance, even though U.S. taxpayers can presently claim mortgage interest tax deductions on homes up to $750,000 in value, lower income levels are now less able to even access traditional home loans, than they were prior to the Great Recession. Another example is government subsidies for graduate student loans, even as fewer subsidies remain for students from lower income level backgrounds.

Decades earlier, even though high income citizens were more likely to benefit from government largesse, fiscal policy could still respond to the shifting economic realities of lower income levels. Some argue that plenty of government revenue remains to assist lower income levels (if necessary), who don't realize how much general equilibrium resource capacity has already been claimed. It's one thing to imagine "living wage" revenue from automation that increases tradable sector output, and altogether another to envision "extra" revenue potential, where automation mostly augments professional income instead of output.

These problems have yet to be meaningfully addressed, and they are further exacerbated by the fact government provisions for Social Security and Medicare in the U.S. are being depleted. Growing divisions between societal expectations and arbitrary limits on resource reciprocity, are important reasons why I've advocated time arbitrage as a platform to create new social contracts for economic reciprocity. Many people are in need of such a platform, as it becomes more difficult for governments to include a full range of income levels in the social contracts they currently honour. It's important to begin reducing future budgetary obligations before they get out of control, and new forms of economic reciprocity would provide a suitable starting point.

Decentralization as Price Taking for Time Value

More than anything else, price taking in general equilibrium has made possible the broad coordination of a wide range of work opportunities and resource use in society. Much of this activity continues to occur in ways that appear spontaneous - hence the oft heard reference to Adam Smith's "invisible hand". So long as resources aren't directly linked to time and place, societies have successfully coordinated resource capacity in a global context, and even occasionally via centralized means.

However, resource coordination can break down, when societies attempt to centrally manage product in which time and place hold central roles. In too many instances, price taking has been supplemented or even abandoned, for the more immediate gains of price making activity. Worse, since price making is dominant in non discretionary spending associated with non tradable sectors, it could eventually curtail economic growth and prosperity.

Once extensive price making occurs over lengthy periods, future claims on general equilibrium monetary flows may be exhausted, before many aspiring individuals and groups have a chance to participate. For now, price making in non tradable sectors will continue as the norm for general equilibrium activity. How to address this issue, given the problems it creates in terms of long term growth and economic stability?

While decentralization is being explored in some capacities, few have yet to consider its possibilities for applied knowledge and productive agglomeration at local levels. Defined local equilibrium settings would provide means to create a price taking process which amplifies the human capital investments of the individuals and groups involved.

These decentralized communities would arbitrage mutually held time priorities for local services generation. Instead of envisioning meritocracy as means to divide people into classes, meritocracy would be tapped so as to get things done in the here and now, via "just in time" knowledge application and deep learning AI assistance. Price taking in this context, with group aggregate time value as the time price structure, would allow both individuals and groups to maximize the degree of services generation and market opportunity that is feasible.

The good news is that it's still possible to align human capital potential with the resource capacity of time and place, with the help of today's technology. Present day institutions evolved when the use of knowledge in society was quite limited, yet the capacity of knowledge use to contribute to societal outcomes has risen to an exponential level. Alas, not only does this create uncertainty for the elite, it also plays havoc with countless millions who remain convinced the elite won't concede to broader utilization of knowledge in society. The fact that neither the elite or many among the masses are comfortable about technologically driven hard choices, could lead to massive loss of wealth and stability, if we aren't careful in the years ahead. Hopefully, decentralized communities for 21st century services generation, could provide constructive means to respond to this dilemma.

Notes on Tangible Product as General Equilibrium Anchor

One way to think about changing governmental resource capacity over time, is to consider how sectoral output - or the lack thereof - influences aggregate output and redistribution. By way of example, today's non tradable sector dominance - given its effects on limited output capacity at a general equilibrium level, contributes to the lack of broad based wage hikes for the average worker in the near future.

Historically, the tradable sector wealth of recent centuries made it possible for governments to centralize economies to a significant degree. However, as more tangible forms of goods production have been partially displaced by non tradable sectors, less wealth creation is now possible through centralized means. Only consider how political uncertainty re economic stability has led to problems for democratic institutions in general. In order to maintain prosperity, today's governments need to come to terms with the striking differences in how tradable and non tradable sector output, affects revenue flows and economic outcomes.

In particular, governments won't be able to rely solely on tradable sector wealth, to back the budgetary responsibilities of future non tradable sector activity. It's the non tradable sector activity which is connected to time and place, that needs internal resource reciprocity so as to generate wealth directly. If these vital activities are to function as a general equilibrium anchor capable of generating growth, their resource reciprocity will have to more closely resemble the tangible output of tradable sectors. Otherwise, populations may become increasingly reluctant to believe in the use and preservation of knowledge, as sources of prosperity and employment.

Tradable sector activity thrives best when it is encouraged at global levels. Nevertheless, this global activity is being threatened, as governments miss important signals re the need for local economic participation in non tradable sectors. Too many national leaders are also questioning the wisdom of continued technological innovations, as they mistakenly attempt to return to a recent past which simply can't be regained.

Non tradable sector activity will need decentralized coordination at local levels, in order to provide broader marketplace potential and opportunity. Even so, growth in non tradable sector activity could be difficult, if global tradable sector activity is not maintained by national governments as a reliable general equilibrium anchor for stable economies.

What about the tradable sector activity which takes place in decentralized settings? Even though this activity would also contribute to local wealth, it needs to remain as open to global settings as possible. Local to global connections are important for tangible goods and services, and it is especially ill advised to bind tradable sector wealth creation to specific time or place.

Tangible goods are not only capable of exponential output in the right conditions, their taxation - unlike income taxation which creates equilibrium imbalance - is simple and direct. Taxation that takes into consideration the natural scarcities of time and place, suggests what is realistically possible to achieve in terms of revenue flow. What this means for decentralized communities, is that locally generated tradable sectors would remain open to state and national taxation. Even though these settings would be self contained for services and (local) asset generation, they would ensure that tradable sector activities and their tax potential remain porous to the activity of surrounding states and nations.

Even though tradable sector wealth can - via governments - still be diverted to fund knowledge use and preservation up to a point, we are beginning to run into the limits that the price making of time based product can impose on general equilibrium capacity. Much of this professional activity takes place in the guise of "intangible" services. Nevertheless, the lack of ability to measure such activity, not only presents problems for monetary representation, but likely contributes to societal reaction in the form of separate monetary arrangements as well.

Fortunately, it's not necessary for the most important knowledge of our time, to remain solely in the intangible use categories which increasingly encourage citizens to question the validity of GDP. By allowing time arbitrage to function as an economic unit for the use and preservation of knowledge, vital service activities could be quantified in ways which improve the value of GDP as a measure. Knowledge use as a part of tangible product, could ultimately make it easier for populations to embrace knowledge as wealth.