"Cities that suffered manufacturing job losses decades ago are now grappling with the problem of fewer opportunities for white-collar employees such as managers, lawyers, bankers and accountants...roughly a third of major U.S. metro areas have lost a greater percentage of white-collar jobs than blue-collar jobs."
"For the first time in history, America is seeing its budget deficit rise dramatically higher during a period of peace and prosperity." "The current situation is unusual because the deficit has been soaring dramatically higher even as unemployment has fallen to the lowest level since the 1960s (3.7 percent)."
Paul Romer re education: "We always have to be careful not to treat this as a perfect information competitive market."
"Should the Fed purchase Treasuries only?"
What happened to enthusiasm for start-ups?
Who is willing to work longer hours when the return to work declines?
"The key is to avoid favoring one particular transportation choice over others."
are millennials different?
"Empowering people to lay out their own space led to happier, more productive workers." And sometimes, places which appear to "suffer" from age or benign neglect, are the places where the best ideas happen.
How long before the interstate highway system begins to sputter?
A look at the last decade
"With surprising frankness, high officials at the Fed and other central banks have acknowledged that they simply don't know what the link between unemployment and inflation looks like today."
Success turns out to be more likely, when we embrace the state of being stuck.
Paul Romer, Nobel Prize lecture "On the possibility of progress"
Measures of the money stock should be included in future monetary decisions.
Almost half of West Virginia's budget is dedicated to K-12 education.
"Both free markets and property rights are key principles of classical liberalism, and they are in conflict."
The exploratory mode of attention can connect us to a deeper sense of purpose.
Spending on TANF has been falling since its creation in 1996.
Bloomberg's best books of 2018. There's lots of good non fiction this year.
The road to bipolarity is already being traveled.
Arnold Kling: Memoirs of a Would-be Macroeconomist
Vox on China: Was the wrong aggregate production approach being used? Factor costs and mobility vary widely in different industries.
"If we diagnose our anger problem as merely a Trump problem, we'll be sorely disappointed when he eventually departs public life and we remain enraged."
The "five L" headwinds confronting homebuilders: labour, lots, lending, lumber, local regulations.
How does the deceleration of China's growth rate compare to South Korea?
The principle of knowledge relatedness: "Economies are more likely to enter an activity when they are in presence of related activities."
Attempts to overturn globalization, are no solution for existing inequalities.
Spaced repetition can change the forgetting curve.
Fertility losses are a trend which "is shared with many industrialized nations".
Culture as an emergent order.
Monetary policy is not currently in a good place with monetary theory
"If we spend all of our time looking over our shoulders for killer robots, that means we are not looking ahead to discern the outcomes we might actually want."
Forecasting as an antidote to political tribalism.
Musings on a meritocratic endgame.
"We are heading toward the greatest housing problems for low-income people since the Great Depression..."
"It took the United States 193 years to accumulate its first trillion dollars of federal debt. We will add that much in the current fiscal year alone."
Intergenerational wealth transmission.
A short story about the U.S. economy since World War 2.
What makes this slowdown feel so different from other slowdowns?
Africa's supply chain faces many challenges.
Scott Sumner suggests that behavioral economics not be overemphasized in relation to core concepts. John Cochrane agrees and provides some additional examples.
Sunday, December 30, 2018
Friday, December 21, 2018
Post Highlights From 2018
Here are highlights for some of the more popular posts of the year.
The Productivity Challenge of Our Time Occasionally, what may be difficult to decipher, really needs to be understood just the same. This has certainly proven true for the shifting realities of productivity in modern day economies. While there have been tremendous productivity gains in recent centuries, we have nevertheless experienced a major shift (in terms of GDP), towards product which lacks the ability to scale in a normal sense.
How to make certain this shift doesn't ultimately reverse previous gains? We need to organize resource capacity differently, for products and services which have limited ability to scale due to connections with time and place. Fortunately, scale potential can also be envisioned in ways which go beyond monetary and traditional output gain, especially via the compounding interest possibilities of human capital and knowledge dispersal.
Debt as a Factor in Output and Productivity When does new debt function as a source of increased output and growth gains? It's important to know whether new debt can do this, or instead represents yet another nested claim on already existing resource capacity. While such claims are realistic and to be expected up to a certain point, they begin to detract from total factor productivity, if they extensively offset debt formation which generates new wealth on more direct terms. While some debt will continue to function mostly as a way to shift existing resources and revenue, we still need to ensure that - at a macro level - sufficient space remains for debt which serves as a source of direct wealth creation.
Can AI Reduce the Burden of Human Capital Investment? Artificial intelligence has evolved to a point it could now reduce the time which has been necessary for the accumulation of high skill human capital. But is this a result which high skill workers will actually be able to accept, especially given the fact their human capital value is monetarily reflected in their overhead costs of their own working environments? Plus, should artificial intelligence assume some of the duties of applied knowledge, this ultimately affects the valuation structure of formal education. Nevertheless, the more that AI is applied, the less overhead costs will be necessary in the future, in order to get things done. Hopefully, this organizational positive will be put to good use for all income levels.
Are Long Term Budget Issues a "Lost Cause"? Despite my reservations about his approach, Paul Ryan was one of the few in Washington who recognized what was at stake, regarding long term budgetary issues. How long before these issues surface in ways that create real problems for the economy? It's time to unleash the full potential of human capital, and go well beyond the service structures which the "best of the best" currently generate, so that new social safety nets might emerge which contribute to wealth creation, instead of further budgetary burdens.
Service Sector Dominance vs. the Solow Residual Why does service sector dominance detract from the long term gains which normally accrue from the Solow Residual, in product which is normally capable of scale? The main problem - especially insofar as it impacts long term budgetary issues, is the social choice between immediate economic reciprocity, and deferred reciprocity for services generation. Too much service sector activity presently takes place as deferred reciprocity - a cycle which not only increases future debt loads, but does so with uncertain near future revenue streams. This impacts total factor productivity, and by extension, reduces standards of living even if in an indirect or relative sense.
Left unchecked, services formation as deferred reciprocity, can negatively impact the prosperity which normally accrues from the Solow Residual. Whereas immediate reciprocity (via time arbitrage) could build new services wealth which would not make demands on existing resource capacity. Over time, immediate reciprocity in services could once again increase the value of the Solow Residual, for the cumulative benefits of product which scale at a macro level.
Resource Flexibility Requires Investment Flexibility Are there circumstances in which yearly property auctions might be beneficial? Perhaps a land auction concept might prove more useful as a means of time centered coordination, where property location is at issue for economic activities which transition during the course of a year. Nevertheless, flexible building components would greatly reduce the risks associated with long term investment strategies in this regard. Not only would flexible building components make it feasible for individuals with limited income to function normally, this economic option would also encourage people at all income levels to build wealth incrementally, via low risk ownership strategies.
The Importance of Personal Autonomy Among the most crucial aspects of economic freedom, is whether we are actually able to influence and produce for our own local environments. This necessity holds not only for services diversity, but also the ways in which we transform local resource capacity to augment living and working arrangements. When we are able to maintain basic production rights in this regard, our consumption is positively augmented, so that no income is too small to tend to our most basic needs in life.
Empathy, AI and the Knowledge Factor One problem with skills arbitrage, is that certain skills are in such high demand in the workplace, these individuals often face severe constraints when they are expected to fulfill other societal responsibilities which involve the use of their time. This has become increasingly true for empathy as a societal expectation, as well. What if robots or artificial intelligence could mimic empathy? While our first inclination may be to think of this possibility as extremely sub optimal, consider what individuals who are starved for attention, might actually prefer: "caring" artificial intelligence, over little or even no empathy from actual people.
The Middle Classes: Is There Cause For Concern? Perhaps insofar as the middle classes seek to shape their environments beyond what can be reasonably paid for. The preferred means by which middle classes have been structured, has in turn created its own limits. If so, how are lower income levels expected to effectively participate? Non tradable sector activity in particular, has been mostly constructed with medium to high levels of income in mind. A dynamic grassroots approach would create new economic opportunities and participation patterns for those with the least amount of income.
Does Price Taking "Deserve" Production Rights? Time arbitrage would function as a form of price taking for services generation at local levels, and artificial intelligence could boost local skill application where necessary. Importantly, price taking isn't a feasible economic option for high skill services generation at national levels. However: Should nations begin to experience problems compensating high level skill, the most dangerous consequence is "brain drain". It's the loss of valuable human capital to nations which are better able to pay, that might be just the incentive nations need, for assigning stronger production rights to citizens who can work with applied knowledge via equal time coordination.
The Productivity Challenge of Our Time Occasionally, what may be difficult to decipher, really needs to be understood just the same. This has certainly proven true for the shifting realities of productivity in modern day economies. While there have been tremendous productivity gains in recent centuries, we have nevertheless experienced a major shift (in terms of GDP), towards product which lacks the ability to scale in a normal sense.
How to make certain this shift doesn't ultimately reverse previous gains? We need to organize resource capacity differently, for products and services which have limited ability to scale due to connections with time and place. Fortunately, scale potential can also be envisioned in ways which go beyond monetary and traditional output gain, especially via the compounding interest possibilities of human capital and knowledge dispersal.
Debt as a Factor in Output and Productivity When does new debt function as a source of increased output and growth gains? It's important to know whether new debt can do this, or instead represents yet another nested claim on already existing resource capacity. While such claims are realistic and to be expected up to a certain point, they begin to detract from total factor productivity, if they extensively offset debt formation which generates new wealth on more direct terms. While some debt will continue to function mostly as a way to shift existing resources and revenue, we still need to ensure that - at a macro level - sufficient space remains for debt which serves as a source of direct wealth creation.
Can AI Reduce the Burden of Human Capital Investment? Artificial intelligence has evolved to a point it could now reduce the time which has been necessary for the accumulation of high skill human capital. But is this a result which high skill workers will actually be able to accept, especially given the fact their human capital value is monetarily reflected in their overhead costs of their own working environments? Plus, should artificial intelligence assume some of the duties of applied knowledge, this ultimately affects the valuation structure of formal education. Nevertheless, the more that AI is applied, the less overhead costs will be necessary in the future, in order to get things done. Hopefully, this organizational positive will be put to good use for all income levels.
Are Long Term Budget Issues a "Lost Cause"? Despite my reservations about his approach, Paul Ryan was one of the few in Washington who recognized what was at stake, regarding long term budgetary issues. How long before these issues surface in ways that create real problems for the economy? It's time to unleash the full potential of human capital, and go well beyond the service structures which the "best of the best" currently generate, so that new social safety nets might emerge which contribute to wealth creation, instead of further budgetary burdens.
Service Sector Dominance vs. the Solow Residual Why does service sector dominance detract from the long term gains which normally accrue from the Solow Residual, in product which is normally capable of scale? The main problem - especially insofar as it impacts long term budgetary issues, is the social choice between immediate economic reciprocity, and deferred reciprocity for services generation. Too much service sector activity presently takes place as deferred reciprocity - a cycle which not only increases future debt loads, but does so with uncertain near future revenue streams. This impacts total factor productivity, and by extension, reduces standards of living even if in an indirect or relative sense.
Left unchecked, services formation as deferred reciprocity, can negatively impact the prosperity which normally accrues from the Solow Residual. Whereas immediate reciprocity (via time arbitrage) could build new services wealth which would not make demands on existing resource capacity. Over time, immediate reciprocity in services could once again increase the value of the Solow Residual, for the cumulative benefits of product which scale at a macro level.
Resource Flexibility Requires Investment Flexibility Are there circumstances in which yearly property auctions might be beneficial? Perhaps a land auction concept might prove more useful as a means of time centered coordination, where property location is at issue for economic activities which transition during the course of a year. Nevertheless, flexible building components would greatly reduce the risks associated with long term investment strategies in this regard. Not only would flexible building components make it feasible for individuals with limited income to function normally, this economic option would also encourage people at all income levels to build wealth incrementally, via low risk ownership strategies.
The Importance of Personal Autonomy Among the most crucial aspects of economic freedom, is whether we are actually able to influence and produce for our own local environments. This necessity holds not only for services diversity, but also the ways in which we transform local resource capacity to augment living and working arrangements. When we are able to maintain basic production rights in this regard, our consumption is positively augmented, so that no income is too small to tend to our most basic needs in life.
Empathy, AI and the Knowledge Factor One problem with skills arbitrage, is that certain skills are in such high demand in the workplace, these individuals often face severe constraints when they are expected to fulfill other societal responsibilities which involve the use of their time. This has become increasingly true for empathy as a societal expectation, as well. What if robots or artificial intelligence could mimic empathy? While our first inclination may be to think of this possibility as extremely sub optimal, consider what individuals who are starved for attention, might actually prefer: "caring" artificial intelligence, over little or even no empathy from actual people.
The Middle Classes: Is There Cause For Concern? Perhaps insofar as the middle classes seek to shape their environments beyond what can be reasonably paid for. The preferred means by which middle classes have been structured, has in turn created its own limits. If so, how are lower income levels expected to effectively participate? Non tradable sector activity in particular, has been mostly constructed with medium to high levels of income in mind. A dynamic grassroots approach would create new economic opportunities and participation patterns for those with the least amount of income.
Does Price Taking "Deserve" Production Rights? Time arbitrage would function as a form of price taking for services generation at local levels, and artificial intelligence could boost local skill application where necessary. Importantly, price taking isn't a feasible economic option for high skill services generation at national levels. However: Should nations begin to experience problems compensating high level skill, the most dangerous consequence is "brain drain". It's the loss of valuable human capital to nations which are better able to pay, that might be just the incentive nations need, for assigning stronger production rights to citizens who can work with applied knowledge via equal time coordination.
Saturday, December 15, 2018
Living Wage, or a Functional (Real) Wage?
Interestingly enough, one can think of mercantilist arguments - while still irrational from the standpoint of international trade - as political efforts to ensure a supply side version of a "living" wage, in the form of manufacturing jobs at home. Yet protectionism such as this misses the mark, since automation is responsible for far more lost manufacturing employment, than globalism. Paradoxically, however, technology and automation contributed to manufacturing output so much that - for a long time - they included higher levels of compensation for low skill workers, than what many service sector jobs can provide. Alas, service sector jobs, and their time based output constraints (which negatively impact nominal wage potential), have partially replaced the low skill manufacturing employment options of our recent past.
Of course, who doesn't want wages which cover basic expenses and costs of living? Once anyone experiences life on these terms; understandably, it can be difficult to imagine, or adjust to, other forms of existence. Even though progressives are more likely to advocate for living wage proposals from a nominal standpoint (which would increase service sector wages as well), there's some unexpected crossover of wishful thinking between these groups, regarding supply side versus nominal wage arguments.
As nations are faced with growing debts and revenue obligations, both protectionism and living wage arguments may appear as though a panacea. How does a government tax low skill income which is scarcely high enough to generate further revenue? Especially if that government already faces restrictions on the taxation of high skill income?
Yet both approaches are at best, little more than shifts in general equilibrium conditions, instead of general equilibrium improvements. In a recent CapX article, Tim Worstall decried the faulty rationale on the part of the Trades' Union Congress to create a million new manufacture jobs. While Worstall's reasoning is sound when he claims "More jobs in manufacturing is a terrible ambition for the British government", he nonetheless falls short with his first assertion:
Present day non tradable sector dominance, is also a factor in the limited effectiveness of a living wage, insofar as its capacity for meeting societal expectation. Plus, higher minimum wage requirements increase workplace expectations and place a higher floor on employment opportunities. Perhaps what is needed, is the concept of a functional wage which serves to augment productivity options on the part of each economic participant. Such options would ultimately increase the value of a wage at a real level, instead of at a nominal level.
Nominal wage constructs tend to function as a passive response to general equilibrium conditions. One could envision a functional wage (compensation for personal time priorities as mass market commodity) as a more active approach. Rather than merely accepting the limits of a given wage, participants could ask: How might I alter, innovate or otherwise shift my local resource capacity so as to improve equilibrium conditions? Is it possible to place my wage capacity into the larger framework of total resource capacity and potential?
Granted, local rules and regulations in normal circumstance, greatly limit the degree to which such an approach is possible. However, in economic settings where the time value of local groups is compensated as a commodity (which allows everyone to take part in time based coordination), compensation for time would be functional in the sense that all would strive for gains in real wage capacity.
Until now, innovation has been possible in fits and starts, and mostly applied - despite loud complaints - wherever it was possible to do so. It is feasible to apply extensive innovation to both our services capacity and our physical environments. Even though individual participants would also be seeking gains for their own ends, they would (once again) often be able to do so in ways which expand general equilibrium potential.
For those willing to take part, ongoing innovation in a time/space continuum, could transform real wage capacity beyond present day horizons. The compounding interest of knowledge and skill in this continuum, could ultimately defuse the time constraint of services based output in many ways. While nominal wages of time arbitrage would appear quite minimal in contrast with present day minimum wage requirements, real wage gains could still outpace what a living wage could provide in many traditional economic settings. Despite the fact we have limited options for improving nominal wages, the potential for improving real wages via production reform is so vast, it boggles the imagination.
Of course, who doesn't want wages which cover basic expenses and costs of living? Once anyone experiences life on these terms; understandably, it can be difficult to imagine, or adjust to, other forms of existence. Even though progressives are more likely to advocate for living wage proposals from a nominal standpoint (which would increase service sector wages as well), there's some unexpected crossover of wishful thinking between these groups, regarding supply side versus nominal wage arguments.
As nations are faced with growing debts and revenue obligations, both protectionism and living wage arguments may appear as though a panacea. How does a government tax low skill income which is scarcely high enough to generate further revenue? Especially if that government already faces restrictions on the taxation of high skill income?
Yet both approaches are at best, little more than shifts in general equilibrium conditions, instead of general equilibrium improvements. In a recent CapX article, Tim Worstall decried the faulty rationale on the part of the Trades' Union Congress to create a million new manufacture jobs. While Worstall's reasoning is sound when he claims "More jobs in manufacturing is a terrible ambition for the British government", he nonetheless falls short with his first assertion:
The ultimate economic goal is not to create new jobs, but to destroy them.How so? It's not the first time Worstall has made this claim. A brief digression might help. His argument has relevance for total factor productivity gains during periods of tradable sector dominance. Additional output gains in these conditions, can translate into more enterprise generating additional employment in new capacities. At the same time, these production gains benefit from decreasing internal labour hour requirements in the relevant "old" firms. The problem? Once non tradable sector dominance sets in, the earlier advantageous framework of tradable sector output gains becomes less certain, since more revenue in aggregate is being slated for non discretionary costs and non tradable sector requirements. Sectoral revenue imbalance means that employment opportunities become more responsive to political and financial realities, rather than fortuitous changes in general equilibrium output.
Present day non tradable sector dominance, is also a factor in the limited effectiveness of a living wage, insofar as its capacity for meeting societal expectation. Plus, higher minimum wage requirements increase workplace expectations and place a higher floor on employment opportunities. Perhaps what is needed, is the concept of a functional wage which serves to augment productivity options on the part of each economic participant. Such options would ultimately increase the value of a wage at a real level, instead of at a nominal level.
Nominal wage constructs tend to function as a passive response to general equilibrium conditions. One could envision a functional wage (compensation for personal time priorities as mass market commodity) as a more active approach. Rather than merely accepting the limits of a given wage, participants could ask: How might I alter, innovate or otherwise shift my local resource capacity so as to improve equilibrium conditions? Is it possible to place my wage capacity into the larger framework of total resource capacity and potential?
Granted, local rules and regulations in normal circumstance, greatly limit the degree to which such an approach is possible. However, in economic settings where the time value of local groups is compensated as a commodity (which allows everyone to take part in time based coordination), compensation for time would be functional in the sense that all would strive for gains in real wage capacity.
Until now, innovation has been possible in fits and starts, and mostly applied - despite loud complaints - wherever it was possible to do so. It is feasible to apply extensive innovation to both our services capacity and our physical environments. Even though individual participants would also be seeking gains for their own ends, they would (once again) often be able to do so in ways which expand general equilibrium potential.
For those willing to take part, ongoing innovation in a time/space continuum, could transform real wage capacity beyond present day horizons. The compounding interest of knowledge and skill in this continuum, could ultimately defuse the time constraint of services based output in many ways. While nominal wages of time arbitrage would appear quite minimal in contrast with present day minimum wage requirements, real wage gains could still outpace what a living wage could provide in many traditional economic settings. Despite the fact we have limited options for improving nominal wages, the potential for improving real wages via production reform is so vast, it boggles the imagination.
Monday, December 10, 2018
Might the Fed Be "Purposely" Holding Back Growth?
In a recent post, Scott Sumner reasons that the actual scenario is just the opposite. While he adds that "the Fed may start holding down growth in the future", recent gains in NGDP growth are not to be denied:
Even as Scott stressed recent strength in the data, he noted the the possibility of recession in the near future. However, he also echoed an all too common emphasis on short term data. Some of us feel this short term emphasis can be unfortunate, since it's already too easy to neglect how a permanently lowered growth trajectory affects many statistical indicators. Many have rightfully noted how the present "expansion" lasted a long time, because it was a weak expansion to begin with.
I've another qualm, regarding some of the discussions which followed his post. Scott adheres to a model which doesn't take into account the fact that market and employment conditions might actually worsen, over time. My main concern in this regard, is that excessive price making is becoming a threat to markets in general, for it can directly impact both output and employment. It's not feasible for every economic actor to price make in general equilibrium. Are too many economic actors attempting to do so? If so, how could we make sense of what is taking place? Yes, there's a model hidden somewhere in this possible scenario.
Since many central bankers closely adhere to inflation targets, price making has been restricted to internal inflation which is not always as simple as it may appear. However, inflation targeting only makes it easier for price making to partially crowd out revenue which would otherwise accrue to more efficient and dynamic markets. In all honesty, I don't know how much this growth reducing effect could be reversed via NGDPLT, should it be the main targeted response. After all the imbalance between sector dynamics is a structural problem, and a production norm could pose similar restrictions for asymmetric non tradable sector dominance.
In aggregate, of course, price making is not an option for everyone. But how does any society know, when the process becomes insidious to the point of no return? And what does this have to do with the possible intentions of the Fed, regarding growth? It's the imbalance between tradable sector and non tradable sector activity, and the prevalence of price making in portions of the latter, which makes it so difficult to determine whether the Fed is maintaining an optimal position in terms of monetary representation.
Again, all of the above has bearing on why I promote the economic option of price taking in non tradable sectors - particularly for time based services. We presently lack context for doing so, because services are normally structured in ways that don't allow for immediate reciprocity of time and resources. Resource reciprocity is what makes it a simple matter, for tradable sectors to utilize the spontaneous and wonderful coordination of price taking options. Even though many economic actors would prefer to work with more equal templates, markets can get stuck in positions where price making appears as though the only reasonable choice.
Chances are, the Fed is not purposely holding back growth. Nevertheless, its hands are tied by our present lack of ability to coordinate time based services in a more productive and dynamic context. In all of this, the Fed is only adhering to sub optimal general equilibrium realities which have yet to be addressed.
If asymmetric compensation could ultimately be reduced to levels where price making doesn't undercut general equilibrium gains, symmetric compensation could help restore output and employment certainty. We need coordinated price taking markets which account for the actual scarcities of our time, as a valid part of economic dynamism. At the very least, one can hope.
One can't just argue that the Fed is holding down growth, without providing any evidence. All the evidence points in the other direction, that the Fed has been juicing the economy.Juicing? He adds:
Some will inevitably argue that there has been a supply side "miracle" that's hard to see because the Fed refuses to "let the economy rip". Supply-side miracles leave very specific tracks in the data, such as a slowdown in inflation. But inflation has been rising. And of course that doesn't explain the strong NGDP data.There's certainly no supply side miracle yet. It's always good to remember that actual supply side contributions which increase output, aren't the same as those juicing "contributors" which tend to create additional inflation and output uncertainty.
Even as Scott stressed recent strength in the data, he noted the the possibility of recession in the near future. However, he also echoed an all too common emphasis on short term data. Some of us feel this short term emphasis can be unfortunate, since it's already too easy to neglect how a permanently lowered growth trajectory affects many statistical indicators. Many have rightfully noted how the present "expansion" lasted a long time, because it was a weak expansion to begin with.
I've another qualm, regarding some of the discussions which followed his post. Scott adheres to a model which doesn't take into account the fact that market and employment conditions might actually worsen, over time. My main concern in this regard, is that excessive price making is becoming a threat to markets in general, for it can directly impact both output and employment. It's not feasible for every economic actor to price make in general equilibrium. Are too many economic actors attempting to do so? If so, how could we make sense of what is taking place? Yes, there's a model hidden somewhere in this possible scenario.
Since many central bankers closely adhere to inflation targets, price making has been restricted to internal inflation which is not always as simple as it may appear. However, inflation targeting only makes it easier for price making to partially crowd out revenue which would otherwise accrue to more efficient and dynamic markets. In all honesty, I don't know how much this growth reducing effect could be reversed via NGDPLT, should it be the main targeted response. After all the imbalance between sector dynamics is a structural problem, and a production norm could pose similar restrictions for asymmetric non tradable sector dominance.
In aggregate, of course, price making is not an option for everyone. But how does any society know, when the process becomes insidious to the point of no return? And what does this have to do with the possible intentions of the Fed, regarding growth? It's the imbalance between tradable sector and non tradable sector activity, and the prevalence of price making in portions of the latter, which makes it so difficult to determine whether the Fed is maintaining an optimal position in terms of monetary representation.
Again, all of the above has bearing on why I promote the economic option of price taking in non tradable sectors - particularly for time based services. We presently lack context for doing so, because services are normally structured in ways that don't allow for immediate reciprocity of time and resources. Resource reciprocity is what makes it a simple matter, for tradable sectors to utilize the spontaneous and wonderful coordination of price taking options. Even though many economic actors would prefer to work with more equal templates, markets can get stuck in positions where price making appears as though the only reasonable choice.
Chances are, the Fed is not purposely holding back growth. Nevertheless, its hands are tied by our present lack of ability to coordinate time based services in a more productive and dynamic context. In all of this, the Fed is only adhering to sub optimal general equilibrium realities which have yet to be addressed.
If asymmetric compensation could ultimately be reduced to levels where price making doesn't undercut general equilibrium gains, symmetric compensation could help restore output and employment certainty. We need coordinated price taking markets which account for the actual scarcities of our time, as a valid part of economic dynamism. At the very least, one can hope.
Saturday, December 8, 2018
Occupational Licensing Has a First Mover Problem
What can be done about the awkward fact that occupational licensing reduces labour supply? Alex Tabarrok cited an NBER paper which suggests employment losses due to occupational licensing could be as much as 17% to 27%. And the recent report from the Institute for Justice that he linked, provides additional detail re state licensing requirements. The report also notes how occupational licenses are basically
Nevertheless, rules and work patterns for time centric product have had plenty of time to evolve. Indeed, the rationale of limited supply side access, exists in part due to the limited output potential of individual providers, as contrast with tradable sector output. These individuals uphold quality product values which are expected to reinburse traditional forms of expensive building maintenance and infrastructure, not to mention prime locations. They have understandably resorted to extensive knowledge protection since they lack the deep pools of output which provide revenue for tradable sector activity to function in areas of prime real estate. Yet this approach has now created real limits for knowledge use and dispersal, as a result.
Before much of today's high skill services framework became standardized, professions which weren't necessarily perceived as contributing to new wealth, felt the need to go to great lengths to prove their worth. Insofar as potentially reversing what has become a well rationalized status quo, the initial groups which gained both respect and protected status, are positioned for a good defense. Even a rollback of licensing requirements in low to medium skill ranges would mostly be nibbling around the edges of the problem. Where to begin?
Quality product models are becoming problematic in part, because many near future employment opportunities can't compensate at a level that generates access to present day housing or high skill services. Our quality product conundrum can be attributed to the Baumol effect as well - particularly in prosperous regions which limit access not only to preserve existing housing wealth, but also the time value of local service providers who are already established.
One reason it is increasingly difficult to add to the wealth aggregates of present day service sectors, is that today's time based service product (with its general equilibrium dependent position) has mostly offset the equilibrium potential of a tradable sector derived wealth base. Even though service sector activity accounts for approximately 80% of GDP in the U.S., production norm limits will likely come to define both monetary policy and general equilibrium structure in the near future. If present day knowledge provision seems demand driven, much of it was crafted for what was perceived as potential demand scenarios which could readily meet costs, rather than optimal supply for entire populations.
Even as some attempt to reduce costs of economic access for lower skill workers, we see that economic access costs associated with today's higher skill levels are deeply embedded, particularly in the knowledge production requirements associated with formal education and real estate overhead. Much of today's wealth creation framework, includes high skill endeavour which could be imagined as the support walls of a building, while lower skill positions contribute additional scaffolding. All of which makes it difficult to rationally establish a first mover position, for supply side economic access within prevailing general equilibrium conditions. For that matter: Should the process begin, where would it stop?
Occupational licensing issues are yet another reason I've suggested alternative or defined equilibrium settings, for greater economic access in terms of both supply and demand. Time based services and flexible housing/infrastructure in particular, need a viable context in which they contribute to - rather than threaten - the established framework of asymmetric high skill services generation, and its supporting physical infrastructure.
Plus it's possible to pinpoint at least two factors which make it difficult to dislodge the Baumol effect that contributes to the present rationale of quality service product. For one: As tradable sector wealth grew, non tradable sector activity and quality expectations followed in its footsteps. All wages (with some breaks of course) have risen for centuries due to tradable sector dominance and its associated output gains. It's not easy to accept the fact wage increases aren't as reliable during periods of non tradable sector dominance.
The other factor? Attempts to reduce the Baumol effect via lower economic access requirements, may come across as increased personal risk - whether on the part of consumer or worker - via lower product standards. Hence arguments for less regulation so as to promote well being and economic access in some settings, may backfire in others. What's more, in some circumstance, lower product standards do become a problem. But there's a difference between low quality standards which might result in a cheap, essentially worthless coffee pot for instance, versus the product or service "lower standards" which clearly contribute to irreversible problems, which of course include death. It's those irreversible problems that make it all too easy to defend higher product standards across the board, whether or not they're needed.
Hence the need to move the focus away from what appears as a lowering of quality standards, to a different approach where quality standards are part of an internal approach. Not only could such an approach be capable of providing greater transparency, it would internally coordinate what otherwise consists of multiple services platforms which tend to be at odds with one another. Again, organizational capacity could ultimately create good deflation in non tradable sector activity. But instead of saying "less educational requirement is necessary in order to achieve X", go about the process differently, so as to better align the relevant resource capacity at the outset. Internalizing knowledge production as an "in house" process, means achieving output gains that are also quality gains. And it could be accomplished without "less education is necessary" arguments, which in some minds suggests a willingness to settle for inferior services.
Perhaps the best first mover position in this instance, is to establish exploratory settings for new forms of services generation. After all, no one should have to argue against "unnecessary" quality, in a world where quality is increasingly appreciated! It's misleading to assume that "lower" quality standards are the way to good deflation and additional economic access in non tradable sector activity. That said, more effective human capital alignment can create more precise applications for knowledge use and experiential gain. Fortunately, tradable sector innovation has already paved a prosperous path of reciprocal resource utilization, in recent centuries. With a little luck, our non tradable sectors might eventually be able to accomplish the same.
government permission to work for pay in a particular occupation. Securing a license may require education, experience, exams, fees, and more, which means licensing can pose a major barrier to entry for aspiring workers.Some of the commenters at Marginal Revolution highlighted the fact it is easier to emphasize licensing issues for low or medium skill workers, than for high skill workers. While not all occupational licensing includes the logic of quality product, it's difficult to escape such an argument in many circumstance. Perhaps one could even imagine licensing of lower skill levels as a "logical" form of follow through for quality product requirements which occurred in terms of high skill work, especially requirements which transpired early in the 20th century.
Nevertheless, rules and work patterns for time centric product have had plenty of time to evolve. Indeed, the rationale of limited supply side access, exists in part due to the limited output potential of individual providers, as contrast with tradable sector output. These individuals uphold quality product values which are expected to reinburse traditional forms of expensive building maintenance and infrastructure, not to mention prime locations. They have understandably resorted to extensive knowledge protection since they lack the deep pools of output which provide revenue for tradable sector activity to function in areas of prime real estate. Yet this approach has now created real limits for knowledge use and dispersal, as a result.
Before much of today's high skill services framework became standardized, professions which weren't necessarily perceived as contributing to new wealth, felt the need to go to great lengths to prove their worth. Insofar as potentially reversing what has become a well rationalized status quo, the initial groups which gained both respect and protected status, are positioned for a good defense. Even a rollback of licensing requirements in low to medium skill ranges would mostly be nibbling around the edges of the problem. Where to begin?
Quality product models are becoming problematic in part, because many near future employment opportunities can't compensate at a level that generates access to present day housing or high skill services. Our quality product conundrum can be attributed to the Baumol effect as well - particularly in prosperous regions which limit access not only to preserve existing housing wealth, but also the time value of local service providers who are already established.
One reason it is increasingly difficult to add to the wealth aggregates of present day service sectors, is that today's time based service product (with its general equilibrium dependent position) has mostly offset the equilibrium potential of a tradable sector derived wealth base. Even though service sector activity accounts for approximately 80% of GDP in the U.S., production norm limits will likely come to define both monetary policy and general equilibrium structure in the near future. If present day knowledge provision seems demand driven, much of it was crafted for what was perceived as potential demand scenarios which could readily meet costs, rather than optimal supply for entire populations.
Even as some attempt to reduce costs of economic access for lower skill workers, we see that economic access costs associated with today's higher skill levels are deeply embedded, particularly in the knowledge production requirements associated with formal education and real estate overhead. Much of today's wealth creation framework, includes high skill endeavour which could be imagined as the support walls of a building, while lower skill positions contribute additional scaffolding. All of which makes it difficult to rationally establish a first mover position, for supply side economic access within prevailing general equilibrium conditions. For that matter: Should the process begin, where would it stop?
Occupational licensing issues are yet another reason I've suggested alternative or defined equilibrium settings, for greater economic access in terms of both supply and demand. Time based services and flexible housing/infrastructure in particular, need a viable context in which they contribute to - rather than threaten - the established framework of asymmetric high skill services generation, and its supporting physical infrastructure.
Plus it's possible to pinpoint at least two factors which make it difficult to dislodge the Baumol effect that contributes to the present rationale of quality service product. For one: As tradable sector wealth grew, non tradable sector activity and quality expectations followed in its footsteps. All wages (with some breaks of course) have risen for centuries due to tradable sector dominance and its associated output gains. It's not easy to accept the fact wage increases aren't as reliable during periods of non tradable sector dominance.
The other factor? Attempts to reduce the Baumol effect via lower economic access requirements, may come across as increased personal risk - whether on the part of consumer or worker - via lower product standards. Hence arguments for less regulation so as to promote well being and economic access in some settings, may backfire in others. What's more, in some circumstance, lower product standards do become a problem. But there's a difference between low quality standards which might result in a cheap, essentially worthless coffee pot for instance, versus the product or service "lower standards" which clearly contribute to irreversible problems, which of course include death. It's those irreversible problems that make it all too easy to defend higher product standards across the board, whether or not they're needed.
Hence the need to move the focus away from what appears as a lowering of quality standards, to a different approach where quality standards are part of an internal approach. Not only could such an approach be capable of providing greater transparency, it would internally coordinate what otherwise consists of multiple services platforms which tend to be at odds with one another. Again, organizational capacity could ultimately create good deflation in non tradable sector activity. But instead of saying "less educational requirement is necessary in order to achieve X", go about the process differently, so as to better align the relevant resource capacity at the outset. Internalizing knowledge production as an "in house" process, means achieving output gains that are also quality gains. And it could be accomplished without "less education is necessary" arguments, which in some minds suggests a willingness to settle for inferior services.
Perhaps the best first mover position in this instance, is to establish exploratory settings for new forms of services generation. After all, no one should have to argue against "unnecessary" quality, in a world where quality is increasingly appreciated! It's misleading to assume that "lower" quality standards are the way to good deflation and additional economic access in non tradable sector activity. That said, more effective human capital alignment can create more precise applications for knowledge use and experiential gain. Fortunately, tradable sector innovation has already paved a prosperous path of reciprocal resource utilization, in recent centuries. With a little luck, our non tradable sectors might eventually be able to accomplish the same.
Wednesday, December 5, 2018
Productivity Gain as Conceptual Organization
Imagine for a moment, that all firms and organizations might somehow realize gains in productivity, by reducing labour in relation to capital (in aggregate) while increasing output. For that matter, most productivity potential, with its associated expectations for gains in standards of living, continues to be thought of on these terms.
Clearly, the marketplace doesn't necessarily follow the above described pattern, especially where quality product is concerned. In particular: Until recently, non tradable sectors have been relatively free to up the ante on quality product requirements, due to the centuries long growing revenue of tradable sector output gains. However, once non tradable activity began to dominate tradable sector activity, its relative lack of ability to scale meant less growth in aggregate output, which ultimately contributed to substantial adjustments in monetary policy as well. The growth of non tradable sector activity as a component of GDP, especially in time based product, was also due to broad government support and extensive financial networks. One could say that private industry's desire for quality product requirements, mostly received the blessing of public institutions, in spite of the burdens that created for the latter.
Of course it wasn't always this way. Centuries earlier, tradable sector dynamism and global output grew, as artisan quality product was transformed into mass production. Oddly, we've yet to come to terms with the reality of artisanal non tradable sector product requirements as an actual regression in standards of living. Small wonder, because it can be easy to confuse the financial obligations of quality living environments with gains in standards of living. What, exactly, does ownership of a nice home require in terms of personal commitment for the full extent of one's working years, for example? Yet relative time commitment requirements are one of the best means we have, to decipher true gains in standards of living and total factor productivity. Today's non tradable sector requirements also explain why Keynes never realized his vision of a world in which future generations would no longer need to work full time.
Much societal progress is a result of those earlier tradable sector output gains. Today's total factor productivity will remain compromised, until innovation is finally allowed to do its magic on the ways in which our non tradable sectors are constructed. For one, service sector activity isn't so much about reducing labour in relation to physical capital and aggregate output, as output gains which include a greater measure of total human capital potential. Many non tradable sector production processes need further clarifying, especially insofar as how quality expectations affect supply side realities.
Again, once service sectors started to dominate economic activity in developed nations, markets emerged as a considerable portion of GDP, which were not readily amenable to gains in scale. Since the Great Recession, the Fed never completely recovered the previous growth trajectory level which had essentially been maintained for well over a century in the U.S. If total factor productivity is to be restored to a more dynamic level, the general revenue demands of present day non tradable sector activity will need to become better managed. Not only do more direct forms of growth need to emerge in non tradable sector activity, this growth needs to be permitted to an extent that tradable sector activity can once again contribute to higher growth levels as well.
Periods of service sector dominance call for more direct means of conceptual organizational capacity, than what are presently being observed. The economic option of labour symmetry - or time arbitrage - could provide a path toward greater productivity which no longer detracts from existing general equilibrium revenue. Presently, some aspects of total factor productivity are being compromised by limited sets of human capital demands on total revenue. These existing demands have only become more evident, as service sectors comprise as much as 80% of GDP in developed nations.
Perhaps a reasonable limit for asymmetric services sector patterns would be in the range of 50% of GDP, so that general revenue balance could be restored between all sectors. By no means would such an adjustment suggest that service sector growth be diminished - only that more service sector activity would occur on symmetric or immediate wealth creation terms. By allowing more supply side in services product, more discretionary income would once again be able to flow towards the dynamism of tradable sector activity.
One advantage of such an approach, is that a growing percentage of non tradable sector activity could function with a similar production norm of good deflation, such as what naturally occurs in tradable sector activity. Greater balance between tradable and non tradable sector activity, might also allow monetary policy to return to normalcy. After all, central bankers would no longer be as compelled to keep extensive amounts of human capital sourced income, out of the active circulation of general revenue.
A significant amount of today's income representation is also parked in assets which can't fully contribute to economic dynamism. Yet GDP is representative of our economic journey, not a supposed destination. Let's ensure that more individuals take active part in our economic journeys, instead of having to watch from the sidelines. It's possible to tap human capital in ways which could capture its full potential. We can make excellent use of far more, than what only the best and the brightest have to contribute.
Clearly, the marketplace doesn't necessarily follow the above described pattern, especially where quality product is concerned. In particular: Until recently, non tradable sectors have been relatively free to up the ante on quality product requirements, due to the centuries long growing revenue of tradable sector output gains. However, once non tradable activity began to dominate tradable sector activity, its relative lack of ability to scale meant less growth in aggregate output, which ultimately contributed to substantial adjustments in monetary policy as well. The growth of non tradable sector activity as a component of GDP, especially in time based product, was also due to broad government support and extensive financial networks. One could say that private industry's desire for quality product requirements, mostly received the blessing of public institutions, in spite of the burdens that created for the latter.
Of course it wasn't always this way. Centuries earlier, tradable sector dynamism and global output grew, as artisan quality product was transformed into mass production. Oddly, we've yet to come to terms with the reality of artisanal non tradable sector product requirements as an actual regression in standards of living. Small wonder, because it can be easy to confuse the financial obligations of quality living environments with gains in standards of living. What, exactly, does ownership of a nice home require in terms of personal commitment for the full extent of one's working years, for example? Yet relative time commitment requirements are one of the best means we have, to decipher true gains in standards of living and total factor productivity. Today's non tradable sector requirements also explain why Keynes never realized his vision of a world in which future generations would no longer need to work full time.
Much societal progress is a result of those earlier tradable sector output gains. Today's total factor productivity will remain compromised, until innovation is finally allowed to do its magic on the ways in which our non tradable sectors are constructed. For one, service sector activity isn't so much about reducing labour in relation to physical capital and aggregate output, as output gains which include a greater measure of total human capital potential. Many non tradable sector production processes need further clarifying, especially insofar as how quality expectations affect supply side realities.
Again, once service sectors started to dominate economic activity in developed nations, markets emerged as a considerable portion of GDP, which were not readily amenable to gains in scale. Since the Great Recession, the Fed never completely recovered the previous growth trajectory level which had essentially been maintained for well over a century in the U.S. If total factor productivity is to be restored to a more dynamic level, the general revenue demands of present day non tradable sector activity will need to become better managed. Not only do more direct forms of growth need to emerge in non tradable sector activity, this growth needs to be permitted to an extent that tradable sector activity can once again contribute to higher growth levels as well.
Periods of service sector dominance call for more direct means of conceptual organizational capacity, than what are presently being observed. The economic option of labour symmetry - or time arbitrage - could provide a path toward greater productivity which no longer detracts from existing general equilibrium revenue. Presently, some aspects of total factor productivity are being compromised by limited sets of human capital demands on total revenue. These existing demands have only become more evident, as service sectors comprise as much as 80% of GDP in developed nations.
Perhaps a reasonable limit for asymmetric services sector patterns would be in the range of 50% of GDP, so that general revenue balance could be restored between all sectors. By no means would such an adjustment suggest that service sector growth be diminished - only that more service sector activity would occur on symmetric or immediate wealth creation terms. By allowing more supply side in services product, more discretionary income would once again be able to flow towards the dynamism of tradable sector activity.
One advantage of such an approach, is that a growing percentage of non tradable sector activity could function with a similar production norm of good deflation, such as what naturally occurs in tradable sector activity. Greater balance between tradable and non tradable sector activity, might also allow monetary policy to return to normalcy. After all, central bankers would no longer be as compelled to keep extensive amounts of human capital sourced income, out of the active circulation of general revenue.
A significant amount of today's income representation is also parked in assets which can't fully contribute to economic dynamism. Yet GDP is representative of our economic journey, not a supposed destination. Let's ensure that more individuals take active part in our economic journeys, instead of having to watch from the sidelines. It's possible to tap human capital in ways which could capture its full potential. We can make excellent use of far more, than what only the best and the brightest have to contribute.
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