Wrap Up for September 2018

Blockchain has been around longer than many of us realized.

Gauti Eggertsson weighs in on the disagreement between Joseph Stiglitz and Larry Summers re secular stagnation.

"The use of healthcare varies widely across the United States."

Meritocracy need not be a "one size fits all" economic choice. "The Limits of Meritocracy"

How might AI affect growth?

It seems that identities have only grown, since Paul Graham wrote "Keep your identity small."

"About 50% of major roads don't pay for themselves."

"...goods producing industries have been surging while service industries have seen their seasonally adjusted employment growth slow since 2016."

There's a stability problem for "stable coins".

"Our analysis of state-level data suggests that about half or more of the decline in prime-age participation since the year 2000 is attributable to the disappearance of manual labor positions in manufacturing and other industries - a key feature of labor market polarization."

The Fed could keep things a lot more simple.

"The return to great-power rivalry was inevitable"

Does present day capitalism somehow reduce our freedom?
One commenter responds, "Don't make it about capitalism - support free markets, in everything, including ideas."

The Phillips Curve relationship is still a problem for the Fed.

St. Louis Fed: "The white working class has declined both in size and relative well-being."

Even with codetermination, Germany's record for wage growth has been similar to that of the U.S.

What happens when ideas become more difficult to find?

People are being "remarkably patient and polite", considering how quickly the safety nets are disappearing.

Will nurse practitioners be able to help fill the void left by lack of primary care physicians? However, patients in rural areas are often in need of nearby specialists, not to mention the option of dealing with more aspects of serious illness closer to home.

Perhaps given the fact that most cities continue to rely on auto transportation for logistical planning, the recent drop in auto ownership could suggest a drop in the population levels which find this form of transportation to be a reasonable financial option. Trump's recent trade moves in this regard won't help either.

Given how many rules and laws affect the structure of our non tradable sector design, perhaps "innovation zones" would be an appropriate name for the places in which such laws can be temporarily suspended for experimentation in these areas. Indeed, a right to innovate can be a complex thing.

Was factory work a commitment device to get everyone to work hard?

The first installment of a five part series on healthcare, plus a divisions of labour approach for surgery which I had no idea was taking place. Adam Smith would have been proud.

Both Democrats and Republicans are on board with ever growing levels of deficit spending.

"Because the people who choose to live here all all self selecting members of the same community with common sensibilities the tent city is remarkably safe, clean, and well maintained. People come to Ocean Grove intentionally to be together. That's the whole point of the town."

India is preparing to launch Modicare.

Zombie companies: "..14 % of the companies in the S & P 1500 don't have enough earnings before interest and taxes to cover interest expenses. That's above the world average of 10%."

Why is there suddenly less cash in circulation in the UK?

Ray Dalio's "A Template for Understanding Big Debt Crisis"

"As sensible as the measurement hypothesis might sound on its face, when you add up everything, it just doesn't pass the stricter test you would want it to survive."

Bernanke continues to emphasize the "credit" view.

"a new study reveals that higher stem wages do not depend on what you know, but rather on when you know it." "Stem Careers and Technological Change"

"There is an especially large risk of recession when an excessively expansionary monetary policy coincides with a peak in the real side of the economy."

Alberto Mingardi reviews "The Virtue of Nationalism" by Yoram Hazony, for the Cato Journal.

"...we've been on an unsustainable fiscal path for a long time."

Firms already have the considerable responsibility of satisfying customers, and paying workers and suppliers. Plus, each aspect of corporate responsibility is unique in its particular focus.

"Democracy Does Cause Growth"

Notes on Initial Wealth as Aligned Reciprocity

Do governments still share important roles with private enterprise for wealth creation? Much depends on how any government chooses to engage at an economic level, and also the realities of its already existing budgetary obligations. Governments in general are too often confused with "being in charge" of wealth creation, in part because of fortuitous circumstance in the past when they were able to provide useful framing and support for infrastructure and capital investment. Otherwise, governments tend to become more prone to detracting from initial wealth generation, once their economies become more complex and services oriented.

It's no longer a simple matter to determine whether governments have the ability to support initial wealth which actually contributes to general equilibrium gains. Plus, the zero sum framing of today's political circumstance in the U.S., is a clue just how many policy makers have given up on growing the pie, and are now determined to stabilize it instead through excessive fiscal support. Is it still possible to grow the economy in areas important to all citizens, without resorting to fiscal policy and higher taxes? It may be that doing so, would include recognizing how services wealth could be generated at the outset, via aligned reciprocity.

Better means of resource alignment for time based services, is equally important in terms of aggregate productivity. We have all but forgotten how to make meaningful use of resource capacity which doesn't require subsidies or new debt loads. Since debt is no longer a reasonable proposition for lower income levels, why not allow these groups to lead the way, in the creation of time based services via aligned reciprocity. Imagine new services from the now marginalized as new wealth, instead of societal burdens. If we allowed this possibility, perhaps, just perhaps, we would no longer have to be bombarded in every election cycle with TV commercial rhetoric that someone doesn't deserve our vote because they believe in "big government". Seriously? Is that the best commercial anyone could come up with this time? Given the recent fiscal excess in Washington, who exactly doesn't believe in big government?

Ultimately, governments are not going to be able to give us something they don't have, and no amount of taxes will give them what they end up needing most, once too much economic skills value in aggregate has been demolished. When governments place hard limits on who gets to exercise useful skills, no one can expect more of those skills to miraculously appear in the marketplace as Baby Boomers retire, regardless of whether someone gets the okay to print money like there's no tomorrow. There's too much wishful thinking all around that no one ever has to directly reciprocate for anything, that somehow, some way, everyone's services demands will magically be met.

I'm sorry but that's just not going to happen. It's time to build new organizational forms of services capacity which provide useful and practical platforms for people as they actually are, instead of the level of perfection too many institutions currently demand. Let's create platforms which reflect the ways people are realistically able to relate to others so as to assist them, whatever the circumstance. Let's do so in ways which generate new wealth, instead of simply snatching away more wealth from too many hapless individuals and institutions which never experience reciprocation.

P.S. I ended up cutting this post a bit short when it started to turn into a rant. Perhaps two recent links will help to explain my moodiness, apologies to all.

Non Linear Constraints in Supply Side Potential

Miles Kimball recently linked to a City Observatory article "If you want less displacement, build more housing". One quote stands out in its simplicity:

If you don't build new housing, you intensify the shortage, raise the rents, and amplify the displacement.

Despite what stands in the way of new housing supply; at the very least, "just build more" logic is easier to discern than the convoluted circumstance of knowledge production. Fortunately, supply side arguments for housing aren't too difficult to decipher. Additional housing is supply side augmentation which contributes to increased output in a linear framework of wealth creation.

New housing not only translates into additional ownership possibilities and marketplace capacity, but also sustains income potential when increasing numbers choose to participate in production. By way of example, a similar linear wealth creation perspective exists for tradable sector gains, in that increased output need not dilute supply side income potential. In these forms of endeavour, wealth creation takes place as a "first mover" framework and accounts for resource reciprocity at the outset.

However, non linear constraints affect supply side augmentation for time based product in non tradable sectors. Since much of this activity remains dependent on other existing monetary flows (instead of initial resource reciprocity), it could prove difficult for knowledge providers to maintain their desired income levels, should the service supply side be significantly augmented. One prime example is physician supply, which might partly explain why physicians can be reluctant to add to their numbers or - in some states - address rural supply side shortages via nurse practitioners.

Fortunately, supply side limits don't lead to negative outcomes in all circumstance - indeed, supply side limits are sometimes invoked to protect natural resources. Still, supply side limits in healthcare have become increasingly problematic, in part because of how its formal capacity has affected societal expectations re knowledge production and application. Despite what professional healthcare has proven capable of, many individuals - and not necessarily low income - try to "get by" with as little professional healthcare as possible over the course of their lifetimes. But other real options for emergency care scarcely exist, and individuals with limited income capacity often require extensive professional assistance at least once, should their lives be in danger. If survival ultimately results in personal bankruptcy, such individuals may feel it to be a personal moral failure, should they end up having to use professional care in emergency situations again.

Plus there's healthcare considerations which affect government spending. Nations which are experiencing aging demographics would like more physician supply side capacity, in spite of the wage levels which general equilibrium revenue can realistically maintain without further deficits. Likewise, while some individuals aren't put off by healthcare costs, they may rely on retirement incomes such as pension funds which are increasingly endangered as a source for out of pocket healthcare expenses. As people age, they often grow resistant to acquiring debt beyond reasonable reach of personal income, some to the point of refusing healthcare assistance in emergency circumstance.

Due to the non linear constraints of supply side augmentation, a new organizational approach is needed which wouldn't dilute the income capacity of today's existing physicians, given their extensive human capital investments and commitments. In a global economy which prides itself on a knowledge based economy, it makes little sense for millions to stand on the sidelines indefinitely, all the while attempting to not even take part in something as basic as healthcare. Physicians could help these millions learn how to heal themselves and one another, as part of a framework which would generously reward mutual exchange in non monetary ways. These efforts would become a direct component of wealth creation, for they make it feasible for the marginalized to create resource reciprocity at the point of mutual assistance.

Knowledge use systems which include healthcare would not only create new supply side capacity, such systems could give participants the courage to undertake projects and intellectual challenges which sometimes aren't possible if health considerations stand in the way of long term workplace goals. Given the strains on today's entitlement systems and the aging populations which rely on them, it's time to build more effective approaches for the production and application of knowledge. Should physicians become willing to help individuals become better skilled in assisting one another, the effects on society as a whole, could be profound.

Can Our Non Tradable Sectors Embrace Free Markets?

Why do governments and citizens alike, increasingly act as though we live in a zero sum world? After reading Alberto Mingardi's post "A political realignment in Europe?", I wondered whether I'd spent enough time emphasizing the connections between high levels of protectionism in non tradable sectors, and the shift towards identity based political alignments.

We are beginning to witness the results of what has been excess protectionism at home in recent decades, at a global level. Is it still possible to reverse these non tradable sector inclinations? The supply side limits of these market constructs have created intense identity struggles across an entire spectrum of marginalization. More direct forms of wealth creation in our non tradable sectors, could make it possible to preserve the economic dynamism which brought so many quality of life gains for populations across the globe. In all of this, my concerns are similar to those of Mingardi who writes:

I find the scenario of a realignment around cultural issues potentially terrifying. It seems that the advocates of a closed society have an advantage in forging an alliance with advocates of a closed economy: they tend to be highly ideological and, thus, committed. On the other hand with the exception of libertarians, the preference for a free economy is rather "weak"...with the exception of libertarians, how easy is it for people that care about civil rights to forge an alliance with those who want a freer economy? 

Indeed, some of the focus on redistribution is also about the desire for retribution. He concludes:

The old political allegiances were confused and incoherent for a reason: it is very difficult to develop coherent ones.

Is it possible to become more free in the use of knowledge and property ownership options which could accrue to the benefit of all? Should non tradable sectors become more willing to embrace free markets, they could play a considerable role in reducing the political struggle over redistribution which now threatens to unravel economic stability. Let's hope today's levels of wealth creation don't come unraveled by the excess inclinations of wealth capture and redistribution. Even though they are in need of a more inclusive and dynamic organizational approach, non tradable sectors have the capacity to contribute to future prosperity, much as tradable sectors have already made possible.

Centralization and the Production Rights Factor

In "Democracy in America" (George Lawrence translation, 1969, 1988 edition) Alexis Tocqueville carefully considered both advantages and disadvantages of centralization and decentralization, and how these organizational patterns play out differently, depending on the citizenry involved. How to account for the fact Americans were able to utilize decentralization more effectively, than was often the case for Europeans?

...in America, the people are enlightened, awake to their own interests, and accustomed to take thought for them.

One likely reason, is that Americans at the outset were used to taking a full array of production rights for granted - rights which brought the costs and definitions of their local environments within reach of their abilities and resource capacity. Small wonder these citizens were so engaged! Again, Tocqueville (page 91):

I also think that when the central administration claims completely to replace the free concurrence of those primarily concerned, it is deceiving itself or trying to deceive you.

A central power, however enlightened and wise one imagines it to be, can never alone see to all the details of the life of a great nation. It cannot do so because such a task exceeds human strength. When it attempts unaided to create and operate so much complicated machinery, it must be satisfied with very imperfect results or exhaust itself in futile efforts. 

It is true that centralization can easily succeed in imposing an external uniformity on men's behavior and that that uniformity comes to be loved for itself without reference to its objectives...Centralization easily imposes an aspect of regularity on day-to-day business; it can regulate the details of social control skillfully; check slight disorders and petty offenses; maintain the status quo of society, which cannot be properly be called either decadence or progress...In a word, it excels at preventing, not at doing. When it is a question of deeply stirring society or of setting it a rapid pace, its strength deserts it. Once its measures require any aid from individuals, this vast machine turns out to be astonishingly feeble; suddenly it is reduced to impotence. 

Notice from Tocqueville's argument, how centralization "excels at preventing, not at doing", which can impact both long term growth and economic dynamism. For our purposes here: What do citizens or special interests find especially worthy to "prevent" in the first place, and to what extent do they use government for such purposes? Only consider how this process has played out for healthcare in general. How much of government "assisted" quality healthcare has actually been an unconscious exercise in preventing ("excess" supply side), in lieu of doing (responsive markets)? Sadly, "excess" supply side prevention has placed additional burdens on most personal, corporate and governmental budgets in recent decades.

Perhaps governments will proceed with more caution in the future, when deciding whether to limit production rights to "special" citizens and special interests. Once extensive educational standards were imposed on healthcare, many had little choice but to abandon healthcare practice to those better prepared - financially and otherwise - to guarantee quality product for consumers.

If freedoms are restricted for lower income levels, how can freedoms be realistically maintained for upper income levels? After all, once governments elect to impose supply side limits in knowledge and skill, many policy makers feel they have little choice but to somehow follow through for citizens, by extending additional welfare benefits to ameliorate those losses. Once losses in production rights fade from collective memory, citizens come to expect governments to "protect" them in ways which often simply aren't possible.

Twentieth century healthcare is just one arena which holds ample historical examples, how not to build dynamic marketplaces for services capacity. What governments gain in financial support from special interest groups which seek to limit the use of knowledge on their behalf, governments nonetheless lose in terms of the wealth potential of citizens in aggregate, who presently lack means to fully contribute to what has become a major component of national GDP.  Might citizens regain the capacity to become "awake to their own interests, and accustomed to take thought for them"? Let's hope so.

Good Urban Rural Connections are Vital to Freedom

One could be forgiven, for wondering why populism seems to bring out the worst in today's rural urban divide. While progressives too long ignored the importance of these connections (here in the U.S.), conservative populists are opting to make them even more fragile, via polarized cultural battles. Yet how do opposing sides expect to fit square pegs into round holes? Can't we just "live and yet live"?

Nevertheless, the struggles to impose a single set of political preferences on millions of citizens, appear as though just getting started. Yoram Hazony, for instance, is among those who reason that a "one size fits all" framework is suitable for nationalist governance. Even though I'm dismayed at nationalist arguments on the rise, history has plenty of clues why the most recent manifestation of this tendency, isn't particularly well timed. Extensive control over the lives of citizens is no simple matter, once non tradable and service sectors come to the fore in extended cycles.

Centralized control depends on the promises a government can make and keep, at least for its most highly valued citizens. Yet today's budgetary realities have become too precarious, to maintain the welfare state that has emerged since the 20th century. Given the natural scarcities of non tradable sector product which is connected to time and place, this major component of advanced economies is not as amenable to governmental redistribution, as the tradable sector activity which nations were able to take for granted in recent centuries. Put simply, there's lots of wishful thinking all around, re what fiscal policy is still expected to accomplish in the near future.

While this is a somewhat depressing moment for libertarians and classical liberals, perhaps all isn't lost. We still have the option of transforming non tradable sector patterns, so that the natural scarcities of non tradable sector product, need not remain such a economic restraint for populations and governments alike. It's still possible to pursue new frontiers for economic freedom in a knowledge based economy, for a full range of income levels. New platforms for economic engagement could help to bridge the urban rural divide in positive ways. We have the ability to use abundance to augment scarcity, instead of allowing scarcity to slowly drain away the natural abundance of nations.

Economic freedom requires well functioning platforms which make it possible to support a broad array of production possibilities. Only recall how the conceptual freedom of the United States in its early years, was in large part due to strong local community production. No nation can expect to maintain economic dynamism indefinitely, if many of its towns, cities and communities suffer too long from lack of production potential. Ultimately, our economic freedom would fade away, if too many decide that large segments of society need not take part in our economic destinies.