Friday, November 30, 2018

Wrap Up for November 2018

When the Fed began paying interest on reserves in October 2008, broad money growth declined, and while it was ultimately restored, never got the chance to return to its previous trend level path.

Frances Coppola explains why the basic fundamentals of MMT come up short:
"Monetary sovereignty is perhaps best regarded as a spectrum. No country on earth is completely monetarily sovereign: the closest is the US, because of its "exorbitant privilege", but even the US cannot completely ignore the effect of its government's policies on international demand for its currency and its debt."
Also, a follow up post: "Some Governments Really are Like Households"

Could federal debt rise to 152 percent of GDP by 2048?

"Treat your students the same way you treat anyone else."

States will want to be seen as more in-charge of their economy. But neither the Right nor Left will be quite able to solve their inherent contradictions."

The "universal craving for recognition" has much to do with the forces currently shaping world events.
"The Democrats have become the party of minorities, white professionals and educated white women...while the Republicans are the white people's party. It's a moral disaster for American democracy."

"Monetary disequilibrium is not something we measure directly"
And a response from Nick Rowe: To what extent is an equilibrium defined by who shows up first in the morning?

A collision of three geographies "has no historical parallels".

To what degree is inequality associated with trust?

Ian Hathaway highlights a study on productive startup communities.

This trend would negatively "affect the ability of all cities to honor outstanding debt obligations."

"As bad as a slowdown in exports to China would be for many countries, a significant rise in global interest rates would be much worse."

"To avoid repeating mistakes of the past, policymakers should create rules that neither subsidize nor give carte blanche over government-owned rights-of-way."

Formal education is not especially well suited, for 21st century technical skills.

"The murders most associated with inequality, it seems, are driven by a lack of respect."

Scale effects aren't always as predictable as they may seem.

Healthcare: "Where will AI be useful?"

Can digital technology transform the safety net?

This old post from Tyler Cowen re Jane Jacobs, still poses some interesting issues. For instance, why didn't Jane Jacobs meaningfully address problems of scale or infrastructure?

A new initiative for "transformative placemaking".

"Fans of free markets should never be put in the position of defending regimes that are so distorted by subsidy and other regulations." "Conservatives need to remember that the "liberty" to spend or loan out government subsidized funds is not true liberty."

Will "dark store" tactics put a serious dent in property tax collection?

The "gold rush-like conditions in the Permian" have taken their toll on services and infrastructure.

Economic wealth is what we do, not some imaginary distribution of money.

It's been fifty years since Garrett Hardin published "The Tragedy of the Commons".

Mobility today mostly reinforces existing patterns.

According to this estimate, labour force participation could drop approximately 2.5% in the next decade.

Alas, We took an L-shaped recovery for granted.

When convergence gives way to divergence.

The future may include less commuting time, and more mixed use spaces.

Matthew Kahn summarizes a recent WSJ article from Paul Romer, which offers tips for growth.

"One of the fathers of AI is worried about its future."

Nintil looks at the constancy of the rate of GDP growth.

Most growth initiatives boost the level of GDP without actually increasing the long run growth rate.

"How Loneliness is tearing America apart." How might we "intentionally" invest in places we choose to live?

Britain's growing North-South divide.

Entropy as a measure of disorder, or "nature's tax".

When "potential" has been downgraded, advancement doesn't mean the same thing.

An interesting discussion between Tyler Cowen and Paul Krugman

David Beckworth has a new paper on the Fed's floor system.

Could the Fed become fiscally neutral?

A "top five" list of the year's economics books, from Diane Coyle.

One reason the U.S. is not quite ready for greater adaptation of robot technology, is the fact high school education is not oriented towards this possibility.

"In Chicago, Washington D.C., and Philadelphia, central land is about 30 times more valuable than surrounding land."

Eventually, these little robots will greatly reduce the need for agricultural fertilizers and chemicals.

"Small" Economic Options Continue to Disappear

Why has there not been more attention to the ongoing loss of "small" economic options? After all, many such consumption possibilities are more in line with the income/wage potential that many jobs actually represent. This will doubtless be true as well, for plenty of near future employment prospects. By way of example, Ryan Avent stressed in The Wealth of Humans some years earlier, the political turmoil we can expect to endure until we finally face the fact near term employment won't be as fully compensated, as what transpired in the 20th century.

So why do we continue getting larger product offerings, in light of the relatively smaller incomes many now experience? The "larger is better" rational, also shows up in what U.S. auto manufacturers are currently able to profitably produce. (How much do land prices which reflect limited productive agglomeration, affect this reality?) While President Trump is frustrated with GM for closing more plants, as a Reuter's article noted, "Car market collapse outruns GM moves to keep up." Much concern understandably highlight losses of good jobs with benefits. Nevertheless, consider some not so obvious features of this production reality, since,
This year, sedans will account for less than a third of light vehicle sales.
What does that suggest for the millions who don't prefer heavier vehicles such as trucks or SUVs as transportation? How much of this reality comes down to wide income divergence? Many with high income levels, will of course continue to purchase either high quality import sedans or high quality local versions. What is increasingly missing, however, are the millions of consumers who once bought small sedans because they were economical. How many among this latter group, face the reality of small wages which have become insufficient for the total costs of transportation? And how many rural residents can't realistically be expected to benefit from companies such as Uber?

While it makes little sense to demand that economic (or "affordable") vehicles continue being built, we still need a reasoned and productive response to what is occurring in the marketplace. After all, the "dollar vote" has already spoken, and worse, it represents a form of economic exit. What are the production and consumption options that would make it more realistic, for low wage individuals to reengage in economic life? Factories will sometimes need to close when there's too little profit. But there's still the larger issue: How could society respond to this latest indicator of lost social mobility for those with small wages? As previous "small" economic options continue give way to "large" marketplace options, only recall, how little innovative product actually exists in the pipeline, which could effectively correspond to the market potential of relatively small wages.

We need sustainable production and consumption models which take the reality of widespread small incomes into account. For example: Without such options, we end up with head scratching examples of "improved" services access such as a single Texas Walmart which will offer mental health care for rural residents. This service offering is "only" $140 for an initial session, and $110 for follow up sessions! Seriously? Where are the good friends who might patiently listen to our occasional life struggles, when we really need them?

In all of this, we can't just focus on the power struggles of "good" job preservation, given underlying trends which are changing overall consumption patterns. Yet aggregate output is always going to depend on total participation in our workplaces and marketplaces. And even if we don't respond to why people disengage, ignoring this factor won't take away the ripple effects of limited labour force participation.

Likewise, the loss of small consumption options with few viable replacements, doubtless contributes to lost social mobility. How much of "skills mismatch" in the workplace is really about the lost economic options that were once available to individuals with small budgets? People of a certain age such as myself, remember well when it was possible to move cross country with only $250 in one's pocket. As Timothy Taylor noted regarding lost social mobility, it's a "legitimate public concern". And, as production and consumption possibilities for low incomes continue to be left out of the economic equation, is this not a factor in the lower growth trajectory we've inadvertently followed since the Great Recession?

Of late, the majority of profit and non profit activity tends to be focused on large economic options for production and consumption. Can we create a for profit, capable of embedding an (apparently) "odd" category of "small" economic options? If nothing else, we could envision small scale economic dynamism as not for profit endeavour, even though it would ultimately lead to extensive new wealth creation. We shouldn't have to rely on Dollar General Stores and the developing nations of the world, to supply what have become practically our only "small" economic options. Let's accomplish the same with walkable communities, new productive agglomeration which could ease land costs, new tradable sector building components, and a more dynamic non tradable sector, as well.

Sunday, November 25, 2018

Does Price Making Affect Total Output and Investment?

Could extensive price making affect investment potential, for revenue which otherwise would have generated output gains? In particular, does price making in non tradable sector activity, lead to quicker diminishing returns in aggregate for capital investment, than would otherwise be the case? If so, this could be one of the ways in which some aggregate revenue claims on the part of non tradable sector activity, negatively impact total factor productivity.

One often hears arguments, how government spending crowds what private sector activity could otherwise achieve, in terms of economic dynamism. Alas, it's not quite so simple. Much crowding also results from price making in non discretionary private sector activity which is further compounded by the fact supply side potential can be limited at the outset. If there were less price making and more price taking, aggregate investment and output for all sectors could become more pronounced. Meanwhile, once low income discretionary income is shifted towards non discretionary "requirements", less revenue remains for the output enhancing potential of discretionary spending in tradable sectors.

Nevertheless, recent corporate tax cuts were extended to tradable and non tradable sectors alike, in hopes of generating fiscal stimulus. Did this help economic conditions, overall? With total (and business) investment rising at about 8% per year, Scott Sumner opines "The data suggests it has, unless I'm missing something."

Of course, short term boosts aren't comparable to permanent gains. For instance, Sumner recently stressed as well, how most growth initiatives boost the level of GDP without actually increasing the long run growth rate. By way of example, capital investments in general are only useful up to a point, in part due the diminishing returns highlighted by the Solow growth model. Once market saturation is reached, further capital investments no longer provide sufficient dividends. Importantly, this same market saturation (at least within a desired price range) applies for extensive investment in human capital as well, consequently limiting supply side knowledge production regardless of demographic change.

Fortunately, a broader economic context for price taking in time based services, could ultimately delay that market saturation point for all concerned. Plus, the price taking symmetry of time arbitrage could provide additional organizational means for knowledge preservation. With a more dynamic and independent form of services capacity, our knowledge based economy might gain much needed economic stability, well into the future.

However: In fairness to the prevailing system, knowledge providers have created a form of quality product requiring extensive human capital investment, as a defensive means of ensuring services coordination with individuals who are among the most valuable contributors to society. The problem? There are societal expectations of standard methods and relatively standard or "single" time based service prices. This in turn has worsened the Baumol effect, so that societies are no longer able to effectively coordinate wide income variance. Even though it's feasible to organize time based services activity differently to address income divergence, we still need a carefully thought through response - one which doesn't pose a threat to the expected human capital investments in general equilibrium services generation.

It's possible to create symmetric economic options, whereby knowledge can be utilized and dispersed via price taking means. A combined group approach in defined equilibrium conditions would allow new knowledge based services generation. Such an approach could even make it unnecessary to be the recipient of extensive family support, in order to have the freedom to take part in knowledge based activity so long as one desires to do so - instead of waiting till retirement, for instance. Sometimes a mind - or body - can't wait that long!

A price taking services approach could eventually lead to increased societal demand for tradable sector activity, once more. After all, this is the activity which historically provided investing dividends due to high levels of output. It was the simple pleasures of the Main Street material world many of us remember from youth, which created such high hopes for the pursuit of knowledge in the first place. Yet the pursuit of knowledge can be its own reward, and not every intellectual challenge has to take place on extensive monetary compensation terms.

Much of today's investment potential is in a holding pattern. Excessive non tradable sector claims on what should have been discretionary income, have made it difficult to generate a level of output gain which could restore economic vitality to a higher level. And should a higher level of output become possible, diminishing returns would not set in near as fast for personal investment, as has been the case of late. Perhaps a price taking option for non tradable sector activity, could even increase the long term growth rate as well.

Monday, November 19, 2018

Update on a Busy Writing Schedule

Regular readers have probably noticed I've not had much time for blogging recently. However it's mostly due to a good reason: I'm in the process of finalizing material, for the first book of a series which will also eventually become part of the blog sidebar. This past August, I'd begun settling into a schedule of wrapping up chapter material each month, before continuing to the next chapter. Of course as it turned out, the third chapter ran three weeks longer than expected - given my self imposed deadline! Hopefully that won't happen too often, so I'll still have time for blogging, and particularly so the initial part of this extended writing project will be complete (finally!) by summer's end of 2019.

There'll be eight chapters in the first book and they should be ready for their last edit (prior to this initial publication) by late spring. Once Time as Wealth is complete, I'll be able to set my sights on some pressing macroeconomic concerns which are the main focus for the second book. Afterward, the third book will describe a potential institution which - alongside for profit endeavour (physical building and infrastructure components) - would support a time/generational continuum for mutual employment and knowledge preservation. In particular, an institutional structure is needed which can address the widespread structural dilemma which is also a result of the Baumol effect. Meanwhile, here's a few highlights from Time as Wealth.

1) The Untapped Potential of Time Value
Many discussions re time as wealth, understandably focus on the reality of personal time scarcities in relation to institutions which already exist. But what if it were possible to position our economic time value within a context of institutional adaptation? Importantly, a marketplace for time value, would mean greater monetary equivalence for all time use potential. This approach would help compensate for the fact nominal wages may be slow to adjust upward, during historical periods of service sector dominance. Indeed: The tradable sector dominance of our recent past, was likely a greater contributor to relative income equality than is generally recognized. That relative loss in tradable sector output - hence relative wage loss - is a recipe for political fragility. Gains in aggregate time value could  help restore a rising standard of living, and bring a new dimension to productivity as well.

2) Imagine and Create the Markets We Want
How might a well defined marketplace for time value, actually benefit society? For one, there is a growing zero sum mentality in the political arena, which has been exacerbated by the exclusivity and polarization of today's non tradable sectors. By taking all time use potential into account, more inclusive and less polarized workplaces would eventually take shape. What makes greater inclusion feasible, is that mutual reciprocity creates wealth at the outset, instead of having to demand resource capacity from elsewhere. Reciprocal wealth building, means new economic options that go well beyond the skills exclusivity of many present day workplaces.

3) From Skills Arbitrage to Time Arbitrage
Is it possible to differentiate how we value the overall use of our time, from how we came to define the value of skills investments in 20th century workplaces? All too often, the commitments of our skills priorities have meant giving short shrift to other time priorities and responsibilities. In some respects, time arbitrage could prove a more flexible means of services coordination, than skills arbitrage. Time arbitrage could tap the use of knowledge in non rival ways which help to preserve the spread of knowledge throughout society. Not only could time arbitrage restore our capacity to manage the time necessary for personal commitments, it could allow local groups to coordinate a broader range of skill sets than is presently possible.

4) Autonomy, Personal Agency and Economic Freedom
Governments and private industry alike, have long been complicit in mutual agreements which reduce our economic freedoms. How can a society expect to preserve political freedom, without economic freedom? Nevertheless, the freedom to produce is not as prominent among supporters of free markets as one might expect. Much of the usurpation of knowledge production rights in particular, took place well before wealth came to be strongly associated with knowledge. Indeed, the dialogue of victimization likely emerged in part due to a lack of understanding, how production rights have slowly but surely been lost. Production rights are an important part of our potential happiness and satisfaction in life, in that they make autonomy and personal agency a viable option for society as a whole.

5) From Divisions of Labour to Mutual Time Priorities
Not only do we need to closely examine future possibilities for time management, we also need to take a broader perspective regarding the rationality of mutually held time commitments. While tradable sector activity continued to dominate, time management was often a secondary concern, given the obvious demands of these kinds of organizational activity. However, non tradable sector organization has not been near as efficient, or as complete in terms of production potential. Possibly the best way to think about regaining efficiency for time based services product, is to envision the process as one of mutual employment for mutually held time priorities.

6) A Place in the Sun for Students of Life
How did our personal enjoyment of experiential and practical knowledge, become so lost in the demands of formal education? If that weren't enough: Formalized education has made it exceedingly difficult for average citizens without college degrees, to participate in some of the most important issues of our times. It is said we need to vote if we want a good societal outcome. Nevertheless, there's little in the political area which actually addresses the most pressing issues of the day. And many vital issues - instead of being worked out at a societal level - are inexplicably "roped off" for educational papers and high level discussions. Let's create more meaningful roles which include economic context, for students of life with an avid interest in lifelong learning, yet little means by which to share that passion in productive ways with others.

7) Building a Continuum for Knowledge Preservation
Even though generational wisdom may appear irrelevant or outdated, there is hidden fragility in the systems of our times. Knowledge tends to utilized in ways which don't necessarily carry a reliable continuum or momentum. Important information may actually be lost at times, in part due to how its use is organizationally structured. How might societies reduce this risk? An important aspect of this conundrum, is a wall of separation between schools and workplaces which prevent students from taking active roles in the economic and civic lives of their communities. Even though social and economic mobility will always be important, more communities need the economic option of being able to play direct roles in the knowledge preservation and utilization processes they have supported for so long, via formal education.

8) An Overview for a New Institutional Role
A new institution is needed, which can productively respond to the fact that time value scales differently from other forms of value. Time based product is vitally important in multiple aspects of our lives, especially since it contains an experiential nature which cannot be replicated in any other way. Nevertheless, the only way to make time based product truly efficient, is to provide an economic dimension in which time can directly function in relation to itself. Knowledge and human value would be able to scale up in this arrangement, so as to compensate for the fact this system wouldn't directly capture full monetary representation. Participants would generate the monetary equivalence of real wage value, through their creation of service options which otherwise would not be possible.

There's another important aspect of monetary equivalence in this arrangement. Each participant would build lifetime ownership in both local building components and physical infrastructure, and have ownership options as well in the manufacture of these components which are sold globally. This active citizen shareholding position, would make it possible for central banks to indirectly represent the labour of these groups (which otherwise couldn't function as a liquid asset), via their share of ownership in the for profit role of the equilibrium corporation.

Saturday, November 17, 2018

The Untapped Potential of Plastics

Ever since plastics came into widespread use, people have harbored mixed feelings about them. And there's also a paradox: Even though they degrade quite slowly (what should be a beneficial characteristic), their potential for durability and flexibility in our physical environments, has long been overlooked. Meanwhile, the proliferation of disposable product has certainly not helped their reputation. Indeed: Given how long plastics have already been with us, I'm surprised that the term "single use" has only now become a "word of the year". Alas, plastics play an outsized role in products which are only intended for a brief use. Where, exactly, do we still have ample space to throw things away?

Nevertheless, despite the recent rush to create biodegradable products, it helps to remember the kinds of products we don't necessarily want to dispose of - at least in the short or medium term. Even though biodegradable material makes sense for disposable plates and the like, it's not necessarily a good idea for products that need to last for a longer duration such as housing and automobiles. Anyone who lives in areas prone to flooding or insect infestations, knows the drawbacks of wood and wood based products as "permanent" parts of a home's structure, for example. Equally problematic are the biodegradable products being utilized for automotive parts, since rodents find these products suitable for consumption! And granted, even though squirrels have already been known to destroy (expensive) parts under the hood, some are convinced that biodegradable materials for this purpose, simply makes things worse.

More companies than ever are responding to the fact that plastic has been ending up in too many of the wrong places, such as our oceans. Is it possible, given this scenario, to reclaim the value of plastics which could be put to more durable and long lasting use? Plastic building components could especially help those who lack the ability to rebuild on traditional terms after natural disasters. Components which are both strong and lightweight, would also be a tremendous plus for those who need to renovate deteriorating structures but presently lack the physical capacity (or other resources) to undertake extensive renovation.

Plastics still have considerably more potential for widespread use than is recognized, especially for anyone seeking viable alternatives to the high costs of traditional building methods. Chances are, durable forms of plastic could play a role in more flexible forms of infrastructure. One apt example is the need to create environmental options for what are now growing shortages of sand that binds well for concrete. Might it be possible to combine methods of 3D manufacture and landfill alternatives to create building components and flexible forms of infrastructure? Perhaps the plastics which can't readily be used for recycle could be compressed inside of 3D print frames which in turn could serve either as walls for housing, or even walking paths. For that matter, there may be entrepreneurs and STEM graduates working on such challenges, even as this post was being written. I certainly hope so. After all, living in uncertain times makes some of us wish we were decades younger, so that we too could also be actively pursuing such possibilities.

Sunday, November 4, 2018

Time Product vs the Marginal Product of Labour

Is the marginal product of labour still a useful concept? It depends, especially since some labour translates into final product for individual consumers primarily due to individual providers. For all practical purposes, some forms of time based activity which translate into final product, have little to do with the marginal product of labour, even though such labour may benefit from augmentation in the form of supporting personnel and/or automation.

Marginal product of labour as concept, could certainly benefit from further discussion. All the more so, since attacks on this concept aren't necessarily grounded in a complete understanding of when the concept fully applies. Hence Scott Sumner provides a useful post for Econlog where he asks "Are workers paid their marginal product? Should they be?" He explains:
There is no obvious straightforward way to think about the marginal product of labor; it depends on many institutional factors.
Clearly, when it comes to different perceptions of fairness re wage distribution, this is an important point on Sumner's part. Yet he highlights the fact average wages have risen faster than median wages, which makes inequality more problematic than would be the case otherwise. Further, credentialing is another aspect of income polarization which obscures marginal product of labour as a valid concept. When wages, income and compensation are closely linked to IP rights, one's time value potential becomes even more complex.

Home ownership is another factor in these considerations, because housing asset valuations can be misconstrued as "excess" capital in relation to labour. Even though housing is representative of income, these aggregates are still a partial representation of wages and income which derive from the marginal product of labour. Hence part of what makes this capital appear excessive, is due to the growing factor of time based product compensation which does not derive from the marginal product of labour.

The marginal product of labour does exist in a relatively pure form, but in many respects it inhabits multiple points along a spectrum for derived economic value. While one end of the spectrum represents the marginal product of labour (traditional tradable sector activity and manufacture), the other end of the spectrum gives way to present day societal expectations for human capital investment. In a pure form, this is time value that is derived solely from product quality, rather than quantity.

Merit affects these distributions in different ways. Merit based skill can lead to both increased quality and output in tradable sector activity, which in turn creates additional revenue for employee distribution. However, merit based skill in non tradable time based product, tends to lack additional revenue based on quantity of output. Consequently, it relies on quality product definition to do the heavy lifting of covering expenses and creating compensation for human capital investment. Last but certainly not least, the middle of the spectrum contains high skill time value which is more likely to contribute to intangible forms of institutional product (both tradable and non tradable sectors), rather than the compensation of individual professionals.

How might someone with a utilitarian perspective respond to these realities? It's complicated. Nevertheless, when it comes to time based product (as one of the most sought after forms of employment of our time!), monetary aggregates can only go so far. Once price making reaches a certain point in the societal coordination of time based services, money loses its ability to fully represent the time value of all would be participants who struggle to gain access on these terms. In other words, money alone can't be expected do the entire job, of providing maximum utility for the benefit of all concerned. Is time based product a detractor, then, to total factor productivity, as contrast with the marginal product of labour? Again, Scott Sumner:
Furthermore, the marginal product of a worker who cooperates with many other workers and many other machines, doesn't necessarily match our intuition as to what the term "productivity" means. There's nothing in marginal product theory to prevent a scenario where one man owns all the capital and earns 99% of national income, and the other 1% is divided between 150 million workers on the basis of the MP of each worker. That's obviously not likely to occur, but it's not ruled out by the theory. 
When tradable sector activity was still dominant in advanced economies, the marginal product of labour was much more relevant for employment compensation. In contrast, a recent jobs report shows the prevalence of sectors with high representations of time based product (education, healthcare, professional and business services) as compared with lower employment figures for manufacture, construction and mining. Yet it's the latter, where the marginal product of labour is fairly simple to discern. If a decreasing percentage of employment is fully understandable in terms of output and revenue potential, how to remain certain of economic stability in the foreseeable future, given the power struggles taking place in today's non tradable sectors?

Alas, the intangibles of non tradable sector activity are contributing to the economic uncertainties which in turn exacerbate populism and nationalism. Let's focus on creating more tangible forms of services generation, so that aggregate time value can ultimately be recreated, for those who are afraid (or angry) they will only be left on the sidelines.