Saturday, June 23, 2018

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.

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