Why was European colonialism in Africa held up as a successful example of a "tax-driven currency"?
Jeffrey Hummel provides an interpretation of MMT.
Recent trends in 3D printing.
Arnold Kling reviews The Third Pillar.
Isabel Sawhill: "Forget collusion, the problem is corruption and complacency."
Miles Kimball explains how the Fed has changed its operations since 2008.
Taking on the two party monopoly.
"The first challenge is rising government debt."
Tracking regional variations in economic opportunity.
The good news is that sometimes, sovereign debt can be solved when it appears to have already gotten out of hand.
Could skilled immigrants revive the heartland?
"Beyond 2020, world growth is expected to stabilize at around 3.5%,"
Also, Highlights from a synchronized slowdown.
He won his case, but will he get his Land Rover back?
What role should commodities play in Fed targeting?
"17 percent of young adults ages 18 to 24 are out of work in mid to large cities in the U.S."
The Tories have stopped trying to tell an economic story.
The loss of continuity can compound more quickly than is often realized.
"...non-manufacturing employment in the US appears to have been increased by Chinese trade."
The problem however is that new high skill services generation hasn't been created in areas which lost manufacturing employment, but - instead - areas which were already prosperous.
Econtwitter helped Diane Coyle put together a great list of books in which economics and philosophy intersect.
"...every dollar of government health care spending represents both care for a patient, and income for a provider, and both groups will fight hard against cutbacks."
It turns out the implicit inflation target was approximately 1.5%.
Nolan Gray provides a useful list of books which can help readers gain a better understanding of zoning issues.
"What Happened to U.S. Business Dynamism?"
"There is no straight line from agricultural productivity to high GDP per capita."
Taking value chains into account.
"work in futures is about patterns, not predictions."
It's difficult to get "mini estates" and urbanism at the same time. "Without density, there is no walkability."
The price of dryers went up by approximately the same amount.
The Medicare hospital trust fund will be the first to go.
Might "greater transparency and openness" actually be counterproductive?
"Economic geography bites back."
What are the roles of "public interest" versus "public choice" in occupational licensing?
Applications for disability have dropped dramatically.
Perhaps civic engagement would benefit from new marketing strategies.
How important is speed as a factor in production?
"Does federal debt hurt the economy more than we thought?"
While I've been aware of time as (too often) a luxury amenity, it turns out shade is in short supply as well.
"This is not exactly how a market for lifesaving medical devices is supposed to work."
Tuesday, April 30, 2019
Thursday, April 25, 2019
Centralization, Economic Freedom, and the Skills Divide
To what extent could individuals still govern themselves, in contrast with how nations tend to be envisioned as "governing ourselves"? This question has become increasingly complex and important, as societies rely more than ever on knowledge to get things done.
Self governance was a simpler option for example, when property owners could still eke out a living from a productive plot of land. Whereas much of today's production involves high levels of knowledge and skill, not to mention levels of social coordination which go well beyond familial responsibilities. In a world economy increasingly dominated by knowledge and skill, does that mean it is no longer realistic to conceive of economic freedom as meaningful choice in interaction among individuals?
Too many time based services have been unnecessarily subjected to losses of economic freedom, via forms of external organizational control which reduce the possibility of meaningful interaction. But unlike many forms of final product, time based services tend to be experiential in nature, which often suggests they could be effectively managed and negotiated by the individuals who voluntarily choose to take part. Time based product is different from the specifications of tradable sector product, in that it often assumes snowflake forms. Indeed, this particularly holds true when we are young and still actively engaged in educational processes. Without real possibilities for mutual voluntary services association, people can end up experiencing difficulties establishing healthy boundaries, mutual respect, and trust as they go through their lives.
Over time, divisions of labour for time based services have become restricted in ways which not only inhibit total factor productivity, but also limit the nature of how providers and recipients could otherwise experience the personal exchange. Put simply, externally defined divisions of labour make more sense for the precise qualities needed in tradable product, than for the experiential nature of time based services. What's more, the non tradable sector divide in skills use potential, has been perpetuated by liberals and conservatives alike.
Perhaps these implicit agreements among professionals affect economic conditions in ways not always considered. Pierre Lemieux provides some interesting context in "Lessons and Challenges in The Limits to Liberty" where he takes a closer look at James Buchanan's Limits to Liberty (1975). For instance, Lemieux noted Buchanan's support of individualism in the latter's quote "each man counts for one, and that is that", and then continues:
Not surprisingly, it turns out there are limits to the freedoms which James Buchanan believed to be possible. For one, Lemieux emphasized how Buchanan argued in favour of government provision for public goods as a social or constitutional contract. Yet what's different in this instance, is Buchanan's reasoning for doing so. As it turns out, his beliefs regarding personal aptitude and ability also factor into his proposed economic outcomes.
In contrast to other contractarian theorists, Buchanan does not assume equality in terms of resource utilization or personal capabilities. From this it follows that some minimum of welfare state may therefore be necessary. Private and public goods both depend in part on the rules of the economic game, whereby freedom is mostly agreeing to take part in what is already proposed, or refusing to do so. It's easy to imagine that sometimes the state needs to intervene when people refuse. Doing so costs money. Hence this quote from Buchanan:
Again, Buchanan is hardly alone in assuming relatively permanent differences in aptitude and human potential at the outset. After all, many progressive arguments for government job guarantees or some form of "living" wage, contain the same underlying assumptions regarding how workplace conditions and skills requirements "should" consequently be defined. Nevertheless these assumptions blatantly disregard the potential for mutual reciprocity and well being, when societies allow as many as possible to pursue full engagement and meaningful interaction.
A limited welfare state is desirable for societies to protect the old and the weak. That said, there are millions who actively resist remaining weak. Some of the latter I might either respect or fear. But I don't find welfare states acceptable on the rationale of keeping out those who could potentially thrive but presumed too dumb or weak for society to allow to take part. Social and economic exclusion is not going to work in a knowledge based economy, especially when many forms of production and former employment are tended to by technology and automation. Let's don't create permanent skills divides between groups. That's a recipe for disaster. Doing so would not only prevent millions from assisting one another, but also incline some among these groups to rebel in a thousand ways that no government can prevent.
Self governance was a simpler option for example, when property owners could still eke out a living from a productive plot of land. Whereas much of today's production involves high levels of knowledge and skill, not to mention levels of social coordination which go well beyond familial responsibilities. In a world economy increasingly dominated by knowledge and skill, does that mean it is no longer realistic to conceive of economic freedom as meaningful choice in interaction among individuals?
Too many time based services have been unnecessarily subjected to losses of economic freedom, via forms of external organizational control which reduce the possibility of meaningful interaction. But unlike many forms of final product, time based services tend to be experiential in nature, which often suggests they could be effectively managed and negotiated by the individuals who voluntarily choose to take part. Time based product is different from the specifications of tradable sector product, in that it often assumes snowflake forms. Indeed, this particularly holds true when we are young and still actively engaged in educational processes. Without real possibilities for mutual voluntary services association, people can end up experiencing difficulties establishing healthy boundaries, mutual respect, and trust as they go through their lives.
Over time, divisions of labour for time based services have become restricted in ways which not only inhibit total factor productivity, but also limit the nature of how providers and recipients could otherwise experience the personal exchange. Put simply, externally defined divisions of labour make more sense for the precise qualities needed in tradable product, than for the experiential nature of time based services. What's more, the non tradable sector divide in skills use potential, has been perpetuated by liberals and conservatives alike.
Perhaps these implicit agreements among professionals affect economic conditions in ways not always considered. Pierre Lemieux provides some interesting context in "Lessons and Challenges in The Limits to Liberty" where he takes a closer look at James Buchanan's Limits to Liberty (1975). For instance, Lemieux noted Buchanan's support of individualism in the latter's quote "each man counts for one, and that is that", and then continues:
It follows that individual liberty is a value and that the social system should be based on unanimous consent. Any limit to liberty must thus be consented to by each and every individual.Alas, where do we observe this presumed liberty in action, given the lack of freedom so many now experience in the use of their own time, especially in relation to the time of others? If we do not believe that a diverse range of services could be freely chosen and provided, how can we really believe in free markets in the 21st century? How much of the present fiscal budgetary dilemma is due to our governments ensuring services markets remain as unfree as possible, on behalf of the interests they protect?
Not surprisingly, it turns out there are limits to the freedoms which James Buchanan believed to be possible. For one, Lemieux emphasized how Buchanan argued in favour of government provision for public goods as a social or constitutional contract. Yet what's different in this instance, is Buchanan's reasoning for doing so. As it turns out, his beliefs regarding personal aptitude and ability also factor into his proposed economic outcomes.
In contrast to other contractarian theorists, Buchanan does not assume equality in terms of resource utilization or personal capabilities. From this it follows that some minimum of welfare state may therefore be necessary. Private and public goods both depend in part on the rules of the economic game, whereby freedom is mostly agreeing to take part in what is already proposed, or refusing to do so. It's easy to imagine that sometimes the state needs to intervene when people refuse. Doing so costs money. Hence this quote from Buchanan:
The dividing line between private and public goods depends, in part, on how the property rights of persons are defined.The twentieth century gave rise to many domestic forms of applied knowledge protectionism, long before the tradable sector protectionism which arose more recently. Essentially, knowledge and skill has also been made rival in non tradable sector circumstance, in part because protected knowledge has to do the heavy lifting of meeting the organizational costs of quality product and costly real estate. And with the giving to special interests of these exclusive production rights, comes the rationale for a welfare state as well. Hence conservatives and progressive alike, would tend to view welfare as means to reduce public rebellion or even revolution. Indeed, I recall an instance among friends in a local welfare office decades earlier, where local progressives expressed the rationale of public assistance exactly in these terms.
Again, Buchanan is hardly alone in assuming relatively permanent differences in aptitude and human potential at the outset. After all, many progressive arguments for government job guarantees or some form of "living" wage, contain the same underlying assumptions regarding how workplace conditions and skills requirements "should" consequently be defined. Nevertheless these assumptions blatantly disregard the potential for mutual reciprocity and well being, when societies allow as many as possible to pursue full engagement and meaningful interaction.
A limited welfare state is desirable for societies to protect the old and the weak. That said, there are millions who actively resist remaining weak. Some of the latter I might either respect or fear. But I don't find welfare states acceptable on the rationale of keeping out those who could potentially thrive but presumed too dumb or weak for society to allow to take part. Social and economic exclusion is not going to work in a knowledge based economy, especially when many forms of production and former employment are tended to by technology and automation. Let's don't create permanent skills divides between groups. That's a recipe for disaster. Doing so would not only prevent millions from assisting one another, but also incline some among these groups to rebel in a thousand ways that no government can prevent.
Wednesday, April 17, 2019
"Keeping the Faith" in Services Generation
Much of today's high skill services generation and knowledge preservation are closely linked to government budgets, even though financial obligations toward this end are being rolled over and delayed as long as possible. One is compelled to wonder: How much GDP is even made possible through current resource capacity and reciprocity, instead of expectations for future claims on wealth? The fact so many rely on presently provided services which won't be repaid anytime soon, is creating problems for long term growth and output. This is already being reflected in the negative political scenarios many nations now face.
As Timothy Taylor noted in a recent post, there was a certain predictability about long run U.S. budget deficits that would eventually come to pass. According to Taylor:
Alas, the need is quite obvious yet nothing on the horizon suggests this hopeful scenario will occur, after all. Consequently, much of the decades long optimism re budgetary sustainability, is giving way to dismay, blame games, and wishful thinking such as MMT. It feels odd after having read I.O.U.S.A., to realize that expending energy on solutions for government debt is now basically a fool's game for anyone in a position of power. Yet nothing has changed. Once long term debt loads reach a certain point (and no one knows when that is or what it consists of), the genie cannot be put back into the bottle. We would be facing a very different national economic reality.
With such a dramatic shift, the marketplace for high skill time based services as they are currently constructed, would greatly suffer. What has finally become obvious - and none too soon - is that reform from within is proving impossible. No one will tolerate spending cutbacks until governments are no longer able to borrow on the terms they have come to expect. Timothy Taylor highlights the inertia we face in the meantime, for healthcare:
Even though interest payment levels are just one facet of long term debt issues, it's an important one. Timothy Taylor also stressed that interest payment obligations for past borrowing stood at 7.9% in 2018. While that doesn't sound like a big deal, if nothing fundamental changes (which is of course the main concern of this post), interest payment obligations could balloon to 22% of all federal spending by 2048. That's one heck of a difference and a total game changer as well.
How to "keep the faith" that nothing will go wrong? Can we embrace production reform which buttresses the wealth creation of our existing systems, instead of posing threats to them? Can we ask our healthcare providers to join the effort in stepping away from a debt centered existence, to wealth creation which utilizes time based services as sustainable knowledge preservation?
If we can create forms of services generation which build new wealth at the outset, perhaps our governments won't ultimately end up with higher interest rates which force their hand in unwanted austerity, not to mention the havoc that would cause for what has become our services oriented economic existence. In the long run, wealth creation utterly relies on circles of sustainability, which means more use of resources that can be reciprocated in the present. Fortunately, it is feasible to build a new social contract for a wide range of services generation. Let's give it a try, while there's still time. Because time is running short.
As Timothy Taylor noted in a recent post, there was a certain predictability about long run U.S. budget deficits that would eventually come to pass. According to Taylor:
Because two major federal spending programs are focused on older Americans--Social Security and Medicare--it has been utterly predictable for several decades that the long-run budget situation would come under strain at about this time.When it comes to high skill services generation, healthcare is one of the more pressing concerns. He continues:
But the projected rise in government health care spending of 3.2% of GDP is a challenge that no one seems to know how to fix. It's a combination of the rising share of older people, and in particular the rising share of the very-old who are more likely to face needs for nursing home and Alzheimer's care.Let's briefly consider some recent historical context. I just finished reading the book I.O.U.S.A. by Addison Wiggin and Kate Incontrera (sorry I couldn't provide an online link), which was published in 2008. Even though this book is all over the map in certain respects, it's an apt reminder that long term debt obligations were still being taken seriously by practically everyone, prior to the Great Recession and shortly thereafter. Perhaps that explains why some who contributed to I.O.U.S.A. expressed optimism: Once the need became obvious, people would step up to the plate and government debt would be addressed before it could spiral out of control.
Alas, the need is quite obvious yet nothing on the horizon suggests this hopeful scenario will occur, after all. Consequently, much of the decades long optimism re budgetary sustainability, is giving way to dismay, blame games, and wishful thinking such as MMT. It feels odd after having read I.O.U.S.A., to realize that expending energy on solutions for government debt is now basically a fool's game for anyone in a position of power. Yet nothing has changed. Once long term debt loads reach a certain point (and no one knows when that is or what it consists of), the genie cannot be put back into the bottle. We would be facing a very different national economic reality.
With such a dramatic shift, the marketplace for high skill time based services as they are currently constructed, would greatly suffer. What has finally become obvious - and none too soon - is that reform from within is proving impossible. No one will tolerate spending cutbacks until governments are no longer able to borrow on the terms they have come to expect. Timothy Taylor highlights the inertia we face in the meantime, for healthcare:
...every dollar of government health care spending represents both care for a patient and income for a provider, and both groups will fight hard against cutbacks.In a sense, there is an awareness what could happen, just under the surface of today's dialogue. Since nothing has been taken care of in positive terms, however, that subtle awareness is expressing itself in negative ways. Hence demand for healthcare and other vital time based services is cloaked in insistence that existing supply side limits be reserved for natives - in other words leading to "this nation/system is full" talk. Likewise, another sidelong approach to the problem, has been the demand from conservatives and progressives alike for job creation which includes income levels or benefits capable of meeting healthcare expenses as they are now - despite the fact such talk runs counter to economic realities.
Even though interest payment levels are just one facet of long term debt issues, it's an important one. Timothy Taylor also stressed that interest payment obligations for past borrowing stood at 7.9% in 2018. While that doesn't sound like a big deal, if nothing fundamental changes (which is of course the main concern of this post), interest payment obligations could balloon to 22% of all federal spending by 2048. That's one heck of a difference and a total game changer as well.
How to "keep the faith" that nothing will go wrong? Can we embrace production reform which buttresses the wealth creation of our existing systems, instead of posing threats to them? Can we ask our healthcare providers to join the effort in stepping away from a debt centered existence, to wealth creation which utilizes time based services as sustainable knowledge preservation?
If we can create forms of services generation which build new wealth at the outset, perhaps our governments won't ultimately end up with higher interest rates which force their hand in unwanted austerity, not to mention the havoc that would cause for what has become our services oriented economic existence. In the long run, wealth creation utterly relies on circles of sustainability, which means more use of resources that can be reciprocated in the present. Fortunately, it is feasible to build a new social contract for a wide range of services generation. Let's give it a try, while there's still time. Because time is running short.
Thursday, April 11, 2019
Does Real Estate Contribute to Baumol's Disease?
Is real estate a source of Baumol's disease? Like the chicken and the egg, it's difficult to tease out which comes first - local income averages or local real estate cost averages. And regardless of productivity (or lack thereof) in relation to income, people from all walks of life often need to come together to get things done. Hence income smoothing for social and economic coordination - all the more so at local levels. Still, there are additional burdens from the Baumol effect which dramatically affect overhead costs for a wide range of activity. This in turn can ultimately impact the dynamism of both tradable and non tradable sectors.
Tradable sectors have long employed whatever means they could dream up, to escape the burdensome nature of real estate overhead. Non tradable sectors don't often take this route, and since their product tends to be linked to time and place, they also lack incentive to do so. But why? For one, they tend to conceptualize real estate "exclusivity" as a signal of quality product. Of course this form of quality product carries additional costs for everyone, since much of it is non discretionary. The more impressive and "solid" each building where time based services are provided, the greater the problem for total factor productivity in general.
Real estate expectations such as these can lead to disequilibrium, once non tradable sectors dominate tradable sectors. In this historical instance, non tradable sector dominance is placing too much money in a passive position with limited potential for investment. Plus: Currently, all economic activity is designated solely as money. One issue is that when money represents all formal activity, aggregate revenue ultimately flows to real estate. Alas, non tradable sector dominance can hasten the process. For instance, we currently see it playing out as landlords "capturing the wealth" of prosperous regions. Once a certain amount of real estate becomes associated with services consumption instead of tradable sector production, substantial monetary flows get "parked" on the sidelines.
Nevertheless: The main problem for Baumol's disease in relation to real estate, is that governments won't be able to maintain adequate taxpayer revenue much longer, since the cost signal for quality product is repeated over and over throughout the entire applied knowledge (supply side) chain. Unfortunately, quality signal costs are borne by all individuals and institutions. More than anything, this is precisely what stands in the way of sustainability for applied knowledge in the 21st century.
One way to address the problem is a new approach to ownership - one which not only promotes greater flexibility and incremental options for citizens, but places less emphasis on real estate as a quality signal for time based product. Plus, by making time value a viable economic unit in its own right, less economic value would flow to real estate as a final resting place. Alongside the flows which money creates in real estate, would be a time flow continuum which culminates in greater use of applied knowledge and skill, and greater economic participation by all concerned.
To sum up: Once service sectors begin to dominate, they generate a different macroeconomic reality than what exists during tradable sector dominance. Still, should systems be negatively impacted (making them appear as though "full"), time value could prove a vital economic unit for additional wealth creation, alongside money. Otherwise, too much human potential can end up parked on the sidelines or on the other side of borders. Economic time value could capture knowledge and skills in ways which make them a constant component of economic dynamism. It could help reduce the Baumol effect, and the problem of landlords passively capturing the sum total of wealth value. Indeed: Perhaps Baumol's disease really is linked with what have become unnecessary real estate costs.
Tradable sectors have long employed whatever means they could dream up, to escape the burdensome nature of real estate overhead. Non tradable sectors don't often take this route, and since their product tends to be linked to time and place, they also lack incentive to do so. But why? For one, they tend to conceptualize real estate "exclusivity" as a signal of quality product. Of course this form of quality product carries additional costs for everyone, since much of it is non discretionary. The more impressive and "solid" each building where time based services are provided, the greater the problem for total factor productivity in general.
Real estate expectations such as these can lead to disequilibrium, once non tradable sectors dominate tradable sectors. In this historical instance, non tradable sector dominance is placing too much money in a passive position with limited potential for investment. Plus: Currently, all economic activity is designated solely as money. One issue is that when money represents all formal activity, aggregate revenue ultimately flows to real estate. Alas, non tradable sector dominance can hasten the process. For instance, we currently see it playing out as landlords "capturing the wealth" of prosperous regions. Once a certain amount of real estate becomes associated with services consumption instead of tradable sector production, substantial monetary flows get "parked" on the sidelines.
Nevertheless: The main problem for Baumol's disease in relation to real estate, is that governments won't be able to maintain adequate taxpayer revenue much longer, since the cost signal for quality product is repeated over and over throughout the entire applied knowledge (supply side) chain. Unfortunately, quality signal costs are borne by all individuals and institutions. More than anything, this is precisely what stands in the way of sustainability for applied knowledge in the 21st century.
One way to address the problem is a new approach to ownership - one which not only promotes greater flexibility and incremental options for citizens, but places less emphasis on real estate as a quality signal for time based product. Plus, by making time value a viable economic unit in its own right, less economic value would flow to real estate as a final resting place. Alongside the flows which money creates in real estate, would be a time flow continuum which culminates in greater use of applied knowledge and skill, and greater economic participation by all concerned.
To sum up: Once service sectors begin to dominate, they generate a different macroeconomic reality than what exists during tradable sector dominance. Still, should systems be negatively impacted (making them appear as though "full"), time value could prove a vital economic unit for additional wealth creation, alongside money. Otherwise, too much human potential can end up parked on the sidelines or on the other side of borders. Economic time value could capture knowledge and skills in ways which make them a constant component of economic dynamism. It could help reduce the Baumol effect, and the problem of landlords passively capturing the sum total of wealth value. Indeed: Perhaps Baumol's disease really is linked with what have become unnecessary real estate costs.
Friday, April 5, 2019
Some Broader Considerations re MMT Logic
As the MMT debates continue, James Galbraith recently weighed in as well with a less technical perspective. Even though I cringed a little while reading the article, his "nothing to hide" approach makes it easier for laypeople such as myself, to reflect on what's at stake. From the Boston Globe:
Government redistribution in the U.S. for instance is quite recent. It's easy to forget that national income taxes were only established a century ago. Before this level of taxation became reasonable for most citizens, they needed sufficient exposure to income which could benefit from gains in scale. What guarantee does anyone have that most individuals will have jobs in the near future, which can tap those gains in scale to a degree that governments have sufficient revenue to redistribute at their desired levels? Only consider for instance that services are approximately 80 percent of the economy, and a substantial amount of service activity does not benefit from traditional scale.
Even though governments were once directly engaged in tradable sector activities which generate output on traditional terms, advanced economies have become closely aligned with time and place based activities that scale in terms of individual participation. Yet citizen participation in these areas has been minimized, so that governments and private interests alike could capture additional gains. Since much of government redistribution has been rerouted to the support of high skill endeavour, nations are becoming ever more dependent on debt to fund applied knowledge, and much of this accumulated debt will be rolled over for future generations. What comprises today's safety nets is structured in ways which create long term problems beyond what already exists. If it had already seemed that no one wanted to address the structural realities which contributed to the Great Recession, MMT is a further extension of the wishful thinking that all is well and nothing needs to be done.
While MMT is currently promoted by Democrats in the United States, by no means is this a single party reference point. Alas, both parties stand to gain in the short run from an MMT approach as it makes their policy preferences appear more reasonable. Much of the earlier concern regarding government budgetary burdens has receded into the background, since the Great Recession. There could be a stronger alignment between conservatives and progressives for an MMT framed fiscal policy than is generally recognized, since both groups maintain strong vested interests in how governmental redistribution takes place.
One difference for conservatives, however, is the fact they have more incentive to preserve non tradable sector strongholds at local and state levels, in contrast with a more national framing favoured by progressives. Perhaps this helps to explain why some conservatives are having a negative reaction to "The Third Pillar" by Raghuram Rajan. After all, Rajan's advocacy of greater local community control for economic outcomes, runs counter to the local control which conservatives have exercised with plenty of reinforcement from Washington. Indeed, my own advocacy for new wealth creation in local communities, would exist as an economic alternative which individual states could either allow or disallow.
MMT is another means to claim control over a pie which - even if not shrinking - is no longer growing as in the recent past. For instance, David Wessel in a recent Brookings email, cited a paper from Robert Gorden and Hassan Sayed, and noted that
Possibly my biggest concern about MMT, is what appears as an implicit assumption that it's okay to create and maintain permanent divisions of skill levels in populations. Chances are the "guaranteed jobs" of MMT advocates would be little more than workplace leftovers which no one with meaningful work would even accept. If that weren't enough, arbitrary skills divisions would be funded by long term debt which becomes rolled over so extensively, future generations inexplicably bear responsible for the lucky ones and "good life" of the present. This is no way to create a sustainable and hopeful future. Do we really want to close the door on full economic participation, especially for the intellectual challenges of our time? We can do better.
MMT is built on the work of John Maynard Keynes and Hyman Minsky. A core insight is that money in "modern states" - meaning, as Keynes wrote, for the past four thousand years at least" - is defined by government. Money is created (mostly) by public spending and bank loans. Money is not something "out there" that the government must borrow from the public in order to function. It is created as government functions; only afterward, those who take payment may then trade the cash for a bond.
MMT is about the way the world actually works. It explains why big deficits do not drive up interest rates or "crowd out" private investment, and why big governments in big countries don't go bankrupt. Such countries can support big public debts if they have to. Contrary to mainstream wisdom, there is no "threshold" beyond which public debts produce financial disaster.Like many who have been influenced by market monetarism, I believe MMT logic puts the cart before the horse, so to speak. It takes for granted what have at times been fortunate sequences of events from market outcomes, but does so without a closer consideration of real economy sources for productive economic complexity. Despite the impressive spectrum of achievements which governments have been able to achieve via fiscal policy; by no means is the present scenario, one that today's successful governments should expect to be able to maintain over the long term. There are simply too many demands on fiscal policy today, for even a portion of those demands to be successfully juggled in the decades to come.
Government redistribution in the U.S. for instance is quite recent. It's easy to forget that national income taxes were only established a century ago. Before this level of taxation became reasonable for most citizens, they needed sufficient exposure to income which could benefit from gains in scale. What guarantee does anyone have that most individuals will have jobs in the near future, which can tap those gains in scale to a degree that governments have sufficient revenue to redistribute at their desired levels? Only consider for instance that services are approximately 80 percent of the economy, and a substantial amount of service activity does not benefit from traditional scale.
Even though governments were once directly engaged in tradable sector activities which generate output on traditional terms, advanced economies have become closely aligned with time and place based activities that scale in terms of individual participation. Yet citizen participation in these areas has been minimized, so that governments and private interests alike could capture additional gains. Since much of government redistribution has been rerouted to the support of high skill endeavour, nations are becoming ever more dependent on debt to fund applied knowledge, and much of this accumulated debt will be rolled over for future generations. What comprises today's safety nets is structured in ways which create long term problems beyond what already exists. If it had already seemed that no one wanted to address the structural realities which contributed to the Great Recession, MMT is a further extension of the wishful thinking that all is well and nothing needs to be done.
While MMT is currently promoted by Democrats in the United States, by no means is this a single party reference point. Alas, both parties stand to gain in the short run from an MMT approach as it makes their policy preferences appear more reasonable. Much of the earlier concern regarding government budgetary burdens has receded into the background, since the Great Recession. There could be a stronger alignment between conservatives and progressives for an MMT framed fiscal policy than is generally recognized, since both groups maintain strong vested interests in how governmental redistribution takes place.
One difference for conservatives, however, is the fact they have more incentive to preserve non tradable sector strongholds at local and state levels, in contrast with a more national framing favoured by progressives. Perhaps this helps to explain why some conservatives are having a negative reaction to "The Third Pillar" by Raghuram Rajan. After all, Rajan's advocacy of greater local community control for economic outcomes, runs counter to the local control which conservatives have exercised with plenty of reinforcement from Washington. Indeed, my own advocacy for new wealth creation in local communities, would exist as an economic alternative which individual states could either allow or disallow.
MMT is another means to claim control over a pie which - even if not shrinking - is no longer growing as in the recent past. For instance, David Wessel in a recent Brookings email, cited a paper from Robert Gorden and Hassan Sayed, and noted that
long term declines in productivity growth in Europe and United States look very similar in terms of size, industries affected, and source of the decline. The common cause, they say, is a decline in the pace of innovation. The authors show that industry composition and drivers of the productivity slowdown have shifted in the last decade in both places. While the slowdown was concentrated in goods rather than service industries until 2005, since that time it has been observed across both sets of industries. And where lack of innovation used to be the dominant driver of low productivity growth in the U.S. and Europe, they show that since 2005 low investment has played an equally important role. This indicates that common factors across industries and countries are now reducing global productivity gains.Note particularly that despite the growing prominence of services formation (especially in the last half century), its expansion in relation to tradable sector activity is now essentially at a standstill. For that matter, central bankers are still scrambling to manage the fallout. This, even though millions of citizens do not participate fully in these aspects of the economy at local levels, whether via supply side production or consumer demand. How can anyone reflect on this circumstance and assume there's nothing wrong?
Possibly my biggest concern about MMT, is what appears as an implicit assumption that it's okay to create and maintain permanent divisions of skill levels in populations. Chances are the "guaranteed jobs" of MMT advocates would be little more than workplace leftovers which no one with meaningful work would even accept. If that weren't enough, arbitrary skills divisions would be funded by long term debt which becomes rolled over so extensively, future generations inexplicably bear responsible for the lucky ones and "good life" of the present. This is no way to create a sustainable and hopeful future. Do we really want to close the door on full economic participation, especially for the intellectual challenges of our time? We can do better.
Wednesday, April 3, 2019
When is Technology Relevant in GDP Data?
Even though technology can appear mysterious in terms of GDP measure, there's actually a simple way to consider how tech gains particularly matter for aggregate output and productivity - especially if the product in question has become "free" for consumers. Technology holds an accountable position for productivity gains in GDP data, when tech contributes to reductions in non discretionary costs for both individuals and organizations. When this in fact occurs, individuals and organizations alike experience more economic options and opportunities for commitments than were previously possible.
While prices represent what people are willing to pay for tangible market product, prices can be misleading when they involve the intangible costs of getting things done, particularly when non tradable sector activity is responsible for those costs. In many respects, non discretionary costs lack the voluntary nature of other market decisions, and assuming those costs may lead to other transactions and commitments being (involuntarily) set aside. For any measured time frame in aggregate, many consumers, firms and organizations simultaneously make discretionary or non discretionary decisions which ripple out like waves across a pond. These ripples become cumulative institutional effects which - in the circumstance of excessive non discretionary obligations - can also reduce the clarity of aggregate output as data for GDP.
The most important technological potential of our time, could ultimately reduce the cumulative damage of non discretionary burdens which have settled like layers of sediment across many institutions. Just the same this possibility is not yet on the horizon, despite the fact some optimists believe the problem could actually be with GDP calculations. Hence I respectfully disagree with Tim Worstall's reasoning in "From Facebook to Skype, GDP is not keeping up with technology":
By way of example for the latter instance, technology created productivity gains in the early nineties which could be readily observed. I was just one of many office workers during this time who reluctantly let go of governmental employment, due to the new software programs which made it feasible for attorneys in my workplace to assume activities which previously had been carried out by office assistants. While productivity gains such as these were associated with private enterprise, the fact local and state governments were also able to reduce overhead costs (even if only temporarily), doubtless contributed to Washington's balanced budget during the Clinton administration. Truly, this was a time when digital technology became quite relevant to GDP data.
Why has it proven so difficult to realize similar productivity gains today? One reason is that recent technological innovations actually threaten the organizational structure of today's non tradable sectors. It's one thing to apply automation which increases output in traditional production or services which readily scale, but altogether another to contemplate deep learning which in crucial respects can undermine the logic of extensive human capital investment. Especially when that investment augments the fixed scarcity of professional time value, for time based product.
Not only does AI seem to suggest that some professional human capital costs aren't "necessary", but 3D manufacture could eventually upend the rationale for much of traditional manufacture as well. However, traditional building methods are the bread and butter of countless local developers, in what is still one of the main wealth building activities for any community which continues to have an economic pulse. Yet as long as traditional development holds sway in most quarters, it will determine the nature of local economic activity which is even still feasible, despite what citizens would like to create if they had the chance to do so.
One of the main reasons for economic uncertainty, is that we still have no idea how our existing non tradable sectors will respond to the recent array of cutting edge technological possibilities. Even though the potential for productivity gains is extensive, it nonetheless comes with mind boggling cultural ramifications. Sometimes civilizations are able to coexist with new innovations alongside traditional systems, and sometimes they are not. In the meantime, no one can really pretend the crucial elements have come together for the best optimal economic outcomes, because technology. Again: In order for technology to make substantial contributions to productivity gains, its impact would contribute to overall cost reductions which improve the systems capacity of entire supply chains which coexist with applied knowledge production. Alas, free apps such as Skype and Facebook weren't made for this challenge.
While prices represent what people are willing to pay for tangible market product, prices can be misleading when they involve the intangible costs of getting things done, particularly when non tradable sector activity is responsible for those costs. In many respects, non discretionary costs lack the voluntary nature of other market decisions, and assuming those costs may lead to other transactions and commitments being (involuntarily) set aside. For any measured time frame in aggregate, many consumers, firms and organizations simultaneously make discretionary or non discretionary decisions which ripple out like waves across a pond. These ripples become cumulative institutional effects which - in the circumstance of excessive non discretionary obligations - can also reduce the clarity of aggregate output as data for GDP.
The most important technological potential of our time, could ultimately reduce the cumulative damage of non discretionary burdens which have settled like layers of sediment across many institutions. Just the same this possibility is not yet on the horizon, despite the fact some optimists believe the problem could actually be with GDP calculations. Hence I respectfully disagree with Tim Worstall's reasoning in "From Facebook to Skype, GDP is not keeping up with technology":
The most obvious answer is that the data has been counted wrong - that has long been my contention.Worstall believes we need to make amends in the measure of GDP, to address "low GDP growth in the middle of a technological revolution." But unfortunately, some of the apps he references could actually be making more demands on economic time priorities and overhead costs, than functioning as labour or time savers. Arnold Kling recently noted the problem of overhead costs that apply for labour not associated with traditional production:
Production labor can be incrementally increased or decreased as needed. But overhead labor is not adjusted strictly according to sales volume.Labour and related personal time priorities function so differently in non tradable sector activity, that these intangible organizational processes have skewed our understanding of productivity. Yet how does any society continue to meaningfully coordinate divisions of labour, or clarify ongoing productivity gains, if aggregate output can no longer be accounted for in relation to overall costs? Due in part to how many professionals derive profit, our non tradable sectors lack the incentive to utilize technology for productivity gains, with the general exception of reducing or occasionally eliminating lower levels of the hierarchy in time based services.
By way of example for the latter instance, technology created productivity gains in the early nineties which could be readily observed. I was just one of many office workers during this time who reluctantly let go of governmental employment, due to the new software programs which made it feasible for attorneys in my workplace to assume activities which previously had been carried out by office assistants. While productivity gains such as these were associated with private enterprise, the fact local and state governments were also able to reduce overhead costs (even if only temporarily), doubtless contributed to Washington's balanced budget during the Clinton administration. Truly, this was a time when digital technology became quite relevant to GDP data.
Why has it proven so difficult to realize similar productivity gains today? One reason is that recent technological innovations actually threaten the organizational structure of today's non tradable sectors. It's one thing to apply automation which increases output in traditional production or services which readily scale, but altogether another to contemplate deep learning which in crucial respects can undermine the logic of extensive human capital investment. Especially when that investment augments the fixed scarcity of professional time value, for time based product.
Not only does AI seem to suggest that some professional human capital costs aren't "necessary", but 3D manufacture could eventually upend the rationale for much of traditional manufacture as well. However, traditional building methods are the bread and butter of countless local developers, in what is still one of the main wealth building activities for any community which continues to have an economic pulse. Yet as long as traditional development holds sway in most quarters, it will determine the nature of local economic activity which is even still feasible, despite what citizens would like to create if they had the chance to do so.
One of the main reasons for economic uncertainty, is that we still have no idea how our existing non tradable sectors will respond to the recent array of cutting edge technological possibilities. Even though the potential for productivity gains is extensive, it nonetheless comes with mind boggling cultural ramifications. Sometimes civilizations are able to coexist with new innovations alongside traditional systems, and sometimes they are not. In the meantime, no one can really pretend the crucial elements have come together for the best optimal economic outcomes, because technology. Again: In order for technology to make substantial contributions to productivity gains, its impact would contribute to overall cost reductions which improve the systems capacity of entire supply chains which coexist with applied knowledge production. Alas, free apps such as Skype and Facebook weren't made for this challenge.
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