Wrap Up for June 2020

Adam Tooze and David Beckworth discuss the broader implications of global dollar dominance.

Bonnie Kristian suggests we live more of life outdoors. "The comparison to consider is not outside vs. inside but outside with approximate normalcy vs. inside with endless contortions in pursuit of safety."

The magnitude of sponsorship bias is statistically significant.

Dierdre McClosky: The intoxication of power, and the other f-word. Who still values "human liberty and human flourishing"? Or are we instead forever doomed to fight it out in the streets, over competing visions what humanity "should" be?

How might the additions of pandemic debt affect healthcare provision in the near future?

"The Budget and Economic Outlook: 2020 to 2030"

A time of cognitive dissonance.

Perhaps this isn't a good time for economic predictions.

Will Big Tech decentralize across the continent?

One reason long term debt can eventually become unsustainable, is due to how it reduces a nation's fiscal options.

Hierarchical rank as a strong determinant of income.

Musings on permanent assumptions in a quickly changing world.

"Throughout history, humanity's energy use has moved towards more concentrated, convenient, and flexible forms of energy."

What might it mean to "abolish" the police?

The Royal Society of Arts viewed its role as one of "filling in the gaps", for the dispersal of applied knowledge. They wanted to supplement what already existed, rather than attempt to supplant it.

"...the current design of the US treasury market is not adequate for handling surges in trade demands on stress periods like this."

Can longer-run economic growth continue to match the pre-COVID pace? "...in the past three months, the expansion of the Fed's balance sheet matches the entire increase from 2008 to 2013."

In January, it was expected that "projected federal debt would exceed 100 percent of GDP in 2031...In a preliminary revision of its budget projections, released in April, CBO estimated federal debt would reach 100 percent of GDP this year and 108 percent in 2021."

More resources for transportation infrastructure?

When taxpayers are essentially asked to bail out businesses in a time of pandemic, should they be allotted a portion of the wealth afterward?

Unfortunately, in many smaller communities, prisons have become a public jobs program.

"Sins of Omission and the Practice of Economics"

What made the second long expansion different from the first?

David Andolfatto explains why a standing repo facility could be beneficial for the Fed.

Why have banks been so slow to raise interest rates on savings accounts?

How long can Medicare stay solvent? Due to COVID the fund could face serious difficulties by 2023. Thus far, reductions in Medicare spending have been more politically palatable, than raising the Medicare payroll tax rate.

Monetary policy is not one dimensional.

Are Americans still future oriented?

Human capital is one aspect of GDP in need of greater clarification.

Greg Mankiw notes how the Council of Economic Advisors role has changed.

The results of MMT policies can linger for a long time.

Physician Vivian Lee discusses her book, The Long Fix with Russ Roberts.

"...central bank seigniorage in both the U.S. and other developed countries is a very small part of overall government revenues."

How might COVID-19 affect economic behavior long term?

Transitioning in  healthcare is only getting started.

Without a level NGDP target, negative supply side fears could easily become a self fulfilling prophecy.

Urbanism could look quite different after the pandemic.

Will the Fed repeat the errors of 2008?

For Libertarians, Sustainability Matters for Economic Freedom

Is it possible for libertarians to find political support which isn't diluted by excessive identification with conservatives or progressives? While alignments such as these are understandable, they still tend to result in lost freedoms. And all too often, if economic freedoms are lost, it's only a short step further to lost political and social freedoms as well.

Too many ideological arguments turn around personal preferences for either government or business dominance. As it turns out, this reasoning is too simplistic for the economic complexities of our time, especially since many aspects of private and public enterprise are quite integrated. While this integration has often created positive outcomes, in other instances it results in negative complexities which make life more difficult for everyone.

The main issue at hand, however, is how both public and private endeavour are losing their ability to maintain real economy activity at consistent growth levels. What can we do, to ensure the extensive progress of recent centuries is not put at risk? I continue to hope that libertarians will assume new roles in promoting more sustainable forms of wealth creation. In many instances, doing so would include taking part in local economic experiments which promote both the well being of lower income groups and small communities.

Especially paramount is our need for sustainable local economies. Since much of our healthcare is stymied by centralized organizational patterns, the U.S. particularly struggles with today's pandemic circumstance. Part of our inability to productively respond, is due to the built in structural limitations of today's high skill service generation. Locally provided skilled services - where they are in fact possible - are caught in the political struggles of centralized revenue flows and their macroeconomic patterns. Indeed, these service patterns became more prominent with the added wealth of globalization. Hence it's not helpful, that losses in globalization could also lead to a partial demise of these centralized form of skills arbitrage.

We need a new approach to high skill applied knowledge, and libertarians have the opportunity to take part at a time in history when it especially matters. Even though it is difficult to establish additional high skill services through fiat monetary systems, time arbitrage could provide much needed new sources of wealth and economic stabilization. All who believe in the continued viability of free markets, could benefit by making time based services more amenable to free market approaches such as this.

By allowing time value to function as a valid economic unit, we could encourage stronger coordination patterns between individuals - patterns which ultimately lead to more sustainable outcomes. Only recall as well, how immediate reciprocity in services could help alleviate long term budgetary problems. When it comes to non tradable sector production reform, goals such as these are worth pursuing. Let's build more reliable social patterns for economic sustainability, while there is still ample time to do so.

Globalization is Still Vitally Important

There are often unexpected similarities between conservatives and progressives. One in particular, are the growing numbers who no longer believe in globalization. Might they get their wish for considerable losses in this regard? If so, what might such a reality consist of?

For one, deglobalization would bring about sudden losses in overall wealth - losses that would doubtless prove devastating in unexpected ways. For instance, few would be prepared for the financial fallout that would occur. In the meantime, the COVID-19 pandemic continues to disrupt global networks which were already impacted by the trade wars. Recently, Kenneth Rogoff expressed his concerns about this circumstance, and I've highlighted a good portion of the relevant Project Syndicate article in this post:

Even if the United States turns a blind eye to deglobalization's effects on the rest of the world, it should remember that the current abundant demand for dollar assets depends heavily on the vast trade and financial system that some American politicians aim to shrink. If deglobalization goes too far, no country will be spared. 

Also from the introduction:

The post-pandemic world economy seems likely to be a far less globalized economy, with political leaders and publics rejecting openness in a matter unlike anything seen since the tariff wars and competitive devaluations of the 1930s. And the byproduct will be not just slower growth, but a significant fall in national incomes for all but perhaps the largest and most diversified economies.

He adds:

The US has more to lose from deglobalization than some of its politicians, on both the right and the left seem to realize...In particular, many of the benign factors that today allow the US government and American corporations to borrow vastly more than any other country are likely tied to the dollar's role at the center of the system. And a wide array of economic models show that as tariffs and trade frictions increase, financial globalization decreases at least proportionately. This not only implies a sharp fall in both multinationals' profits and stock-market wealth (which is probably fine with some), but could also mean a significant drop in foreign demand for US debt.

That would hardly be ideal at a time when the US needs to borrow massively in order to preserve social, economic, and political stability. Just as globalization has been a major driver of today's low inflation and interest rates, shifting the process into reverse could eventually push prices and rates in the other direction, especially given what appears to be a lasting adverse supply shock from COVID-19.

As Rogoff noted, globalization has especially been important for dollar assets. This globalization benefit helped build our strong services economy, and greatly increased income potential in the U.S. as well. Yet some among the wealthy may already realize, the extent to which their basic and augmented income sources could soon change. By way of example: Even as lower income levels restore earlier spending levels, the rich have not really begun to do so. Should they suspect long term income changes in the foreseeable future, there may be good reason. Even though the basic wealth of today's rich is largely correlated with human capital and national redistribution, globalized wealth contributed an additional layer to their income (via personal investments) which to some extent may be lost.

Nevertheless: Among the reasons globalization is now threatened, is that too many investment opportunities don't accrue to individuals who lack the base "requirement" of educationally enhanced human capital. And there are other important reasons why many citizens aren't impressed with the wealth of globalization. Chief among these, are the high costs of today's non tradable sectors - costs which particularly impact lower income levels. In all of this, many local economies still lack constructive ways to reach out to local citizens, after a decades long process of lost local manufacturing employment. Before many citizens become willing to embrace globalization, they would need new opportunities in economic participation - opportunities which are also linked with the resources of time, place, and community.

Should nations find the courage to recreate non tradable sector participation, the losses of globalization would not have to be so extensive. Production reforms could also provide means for nations to better manage their debt burdens. By not relying so heavily on debt for services generation, nations could lessen their chances of defaulting on earlier debt accumulation. Perhaps there is still time to restore confidence in globalization, by giving citizens the chance to recreate more abundant non tradable sector wealth, close to home.

Monetary Stabilization Needs Real Economy Stabilizers

When recessions call for extensive monetary stabilization and fiscal stimulus, also consider how real economy factors tend to either support or undermine the process. Or, more specifically: Given the importance of reliable long term financial flows, a flexible real economy approach could help to ensure they are maintained.

The current recession is somewhat different from many earlier recessions, since extensive supply side disruptions have also come into play. If this weren't problematic enough, without NGDPLT as a guide, the Fed lacks sufficient rationale for the temporary inflation levels that could smooth and maintain the current monetary trajectory.

Despite the initial stimulus, additional fiscal and monetary assistance are being called into question. Some are now asking, who is really going to benefit? Likewise as Scott Sumner recently noted, the Fed is beginning to falter in what recently appeared a strong commitment to a level trajectory. And unfortunately, increased public skepticism could derail what is still needed for sufficient monetary stabilization. It doesn't help that losses in the current trajectory could mean more extensive business losses than otherwise would have been the case.

Even though monetary policy can't do the entire job of economic stabilization, it is still the primary consideration for what is needed in macroeconomic terms. A level nominal trajectory ensures that real economy efforts have the greatest chance of overall success. What contributions from the real economy, then, might contribute most to continued stability?

The real economy particularly suffers from a lack of structural flexibility. It lacks the ability to respond to what are also rapidly changing events. Consequently, too much economic participation ends up undermined by excessively rigid rules of engagement. Since these rules also result in limited economic options, recessions invariably leave millions of participants on the sidelines, afterward. All too often, many individuals never fully gain the economic and social connections they once enjoyed.

Structural change - in order to be truly effective - would make room for more flexible forms of ownership and financial obligation. One way to think about such processes, is that each example of non tradable sector good deflation, would also function as a real economy stabilizer in times of recession. In other words, good deflation would mean greater stability for business formation and employment in general. Production reform could make it easier not only for businesses to stay afloat, but also for employees to remain gainfully employed.

Recessions are difficult enough, without the structural rigidities that make it difficult for societies to carry a full load of financial obligations. Fortunately, there are ample opportunities for making real economy circumstance more resistant to recession. Greater structural flexibility, especially for building and time based services options, could give investors and average citizens alike more confidence in continued economic dynamism. Let's not forget, how basic aspects of supply side potential could be configured in ways that restore hope for a better future. Such options are especially needed now, to help recover confidence not only in monetary policy, but in real economy potential as well.

Economic Flourishing: Make it Personal

Struggles of identify have once again come to the fore, particularly those of race and gender. One consequence of course, is that sometimes it's difficult to turn on the news without getting depressed. Yet I'd be lying if I suggested that class or gender based discrimination have never been problems for me. All the more so, whenever difficulties in maintaining steady work meant corresponding limits in personal freedom and autonomy.

Just the same: Despite how issues of inequality and social justice are often framed by politicians, activists, and others, I believe in practical solutions for complex social problems. Specifically, a strong supply side approach for production reform, could change lives for the better in ways people get to experience, rather than having to be convinced of. Let's strive for economic flourishing on real economy terms that go well beyond what money alone can accomplish. Why not create new free markets, to supplement countless local markets which have long been restrained and will continue to be so. Fortunately, it is within our ability to make economics personal in ways which matter for all citizens, not just the elite or perhaps well to do.

Don't get me wrong! Arguments for social justice are important, and perhaps some positive change may finally come from recent struggles. Nevertheless, these discussions and activities are somewhat different, from what is needed to generate positive change at a real economy level.

In particular, economists might come to recognize supply side approaches which directly benefit all citizens. While economists have studied the economy in great detail, they mostly utilize impersonal means which are consequently lacking in real economy results. Worse, the inclination of academics and pundits to emphasize what doesn't work - such as one's ideological opponent - means too few economists who are fully vested in contributing to real economy outcomes. Sadly in all this, economics is now mostly "personal" only insofar as people are angry at economic outcomes.

Make it personal by creating more positives, instead of focusing on existing negatives. This is all the more important, since social justice hardly comes down to moving existing revenues around, or some other temporary form of "inclusion". Real economic justice means ongoing economic inclusion, in terms of what human capital potential might still accomplish. We have already seen many times over, for instance, how making more revenues available for governments, is scarcely the same thing as creating real economic access for citizens from all walks of life.

We could make economics personal in ways which help to defuse identity struggles. This is particularly possible, when we refuse to constantly demean what has come before in terms of supply side structure. The real issue isn't about dismantling special interest advantages, but of creating and cultivating new markets where special interests lack incentive to tread. It's not necessary to put non tradable sector special interests on the defensive. And if we don't, we gain more chances to create new wealth and prosperity on more personal and meaningful terms.

Only recall, how much identity struggle exists because our present equilibrium needs new and stronger definitions of wealth. We can make economics personal again, by inviting all citizens to take part in wealth creation. How might individuals share their personal definitions with others? How might others respond? Each offering can better align the ones that follow. Let's get started. Why not focus on the commonalities of what we all want and hope for? We could still break free of the chains that emphasize our differences, with the unity of a productive economic response.

Fiat Money as a Framework for Human Capital

Why hasn't fiat money turned out to be a better suited tool for complete levels of economic coordination?

Much of the problem in this regard, is that skills arbitrage emerged in the 20th century as a partial equilibrium component of human capital potential. As circular economic activity became more closely aligned with time based services generation, intangible forms of wealth created additional demands on money, which had previously had been associated with originating sources of wealth. Once fiat money expanded the range of monetary representation possibilities, sectoral imbalances became more prominent. A wide range of knowledge providers used skills arbitrage for extensive price making in markets, which gradually reduced general equilibrium revenues for additional coordination in these vital areas. Alas, this process has finally reduced the aspirations of millions who once hoped to participate in the economy on similar terms. For reasons such as this, I continue to advocate for time arbitrage as means to further promote a fuller use of knowledge and skill, for all citizens.

Nevertheless, there are fairly obvious and pragmatic reasons, why social coordination patterns for the use of knowledge emerged through such limited terms of engagement. How else might societies have readily brought together widely divergent market participants, so as to live among one another and combine revenues for common public goods? By way of example, commonalities in local real estate value made it simpler for high skill service providers to maintain integrated economic relationships, with those who were directly involved in wealth generation.

Only now is it apparent these earlier processes are not enough, to fully sustain a modern day knowledge based economy. How might we address the fact that fiat monetary systems - in and of themselves - aren't sufficient to maintain widespread integration of skills and services for all concerned? Even though skills arbitrage never was a long term solution for complete economic integration, it could still function far more effectively if time arbitrage could function alongside it, without unduly expanding what general equilibrium revenue is capable of. Time arbitrage could create a new measure of economic value which in turn would lead to more horizontally aligned workplaces. New patterns such as these could effectively disperse applied knowledge beyond what price making and skills arbitrage has achieved in a system where money is the sole determinant of economic value.

Also, time arbitrage as a horizontally aligned system, would not demand so much monetarily as to further compromise what central bankers can reasonably accomplish. Time as a valid unit of measure, could compel us to more closely examine how intangible wealth sometimes distorts monetary roles, particularly when money is expected to function as the sole source of economic value.

Time value as directly generated wealth, could allow a majority of human capital to eventually flourish. Economic time options are all the more important, now that fiat monetary systems face too many competing demands for citizens to fully take part in the economy. By allowing time to function as a more precise form of economic value, fiat systems might eventually benefit from greater economic stability, as well. Ultimately, we can have higher hopes for a brighter future, by defining wealth creation in economic terms which go beyond what money can buy.