Wrap Up for May 2021

Noah Smith examines connections between labour and the value it actually creates. Plus, knowledge is power, even when it makes us uncomfortable.

Some (inside) historical perspective for the University of Chicago.

A look at the light side of modal papers.

An overview of the Texas power failure.

Emily Hamilton on housing affordability.

The feedback loop in traditional education is too slow. 

On the relevance of human networks.

Finally, a bipartisan agreement for updating water systems.

A new normal for wind and solar.

Innovations in technology can take decades to appear in productivity statistics.

A defense of inflation.

"Everything that determines the success or failure of a country has turned upside down."

An in depth YouTube discussion re right to repair.

States have been rejecting right to repair legislation.

A look at the bright side: restored forests.

When material interests turn the right away from free markets.

Buchanan believed that individuals should be trusted to help formulate market solutions.

There's still plenty of confusion re savings and investment in near zero bound conditions.

And, "Might savers prefer digital cash to zero interest bank accounts?"

The lack of good statistical infrastructure created problems for pandemic efforts.

On the link between QE and risk taking.

For hospitals, the insurance company is the real customer.

"Transit thrives on density, which parking undermines, and parking and walking don't mix."

The strong association between population and regulations.

Why are recent debt burdens perceived as necessary?

"It is perplexing that we humans have felt so safe from fungi when we have known for centuries that our crops can be devastated from their attacks."

An apt example, how important flexibility is for surviving long term.

The politics of housing reform is no simple matter.

Anton Howes reflects on the long road to (gradually) increased state capacity.

JW Mason distinguishes aggregate demand from aggregate supply in hysteresis

The worst chip shortage is actually in chips which are not cutting edge.

What makes inflation such a touchy subject? 

Democrats have a "messaging problem".

A more inclusive approach to real estate ownership.

Diane Coyle reviews Ages of American Capitalism. Also, Bettering Humanomics.

A "new model of the macroeconomy". Or is it?

"The inflation expectations of U.S. firms"

Mark Carney discusses his new book with David Beckworth.

Don't Blame the Fed for Supply Side Recalcitrance

While there's a common refrain re "easy money" in a recent AEI article, this one comes with a twist. According to Tobias Peter and Edward Pinto, the Fed is also at fault for a growing divide in terms of inequality:  

The Fed's easy credit policies are widening wealth inequality as they fuel persistent home price inflation.

That's a serious charge. But how true is it? And does Chairman Powell - or the Fed for that matter - really not understand "how price inflation differs from inflation for commodities and services"? Granted, the authors have a point about current home price instability. But I believe these particular assertions against the Fed to be unsubstantiated and a convenient diversion from what's at stake. There's been plenty of times when it was appropriate to accuse the Fed of wrongheaded moves, but this isn't one of them. Rather, I'm encouraged by the Fed's recent maintenance of monetary velocity, especially given the difficult transitions of a post pandemic recovery. 

And insofar as the supply side is concerned re housing, technological innovation need not be as insurmountable as the authors imply. Of course builders struggle to meet demand due to high prices for labour and materials - not to mention NIMBY considerations! But when has this not been the case? Fortunately for all of us, a great deal of private sector activity has adapted and evolved, when faced with resource constraints. It's time for building sectors to do likewise, in shifting to manufacturing strategies which include more flexible means of ownership and land utilization. So we are within reason by asking at this historical juncture: if not now, when?

Also, consider the awkward policy expectations which Tobias Peter and Edward Pinto contribute to (re Fed obligations), by asserting:

The Fed's easy credit continues to drive housing demand higher, but has done little to boost supply.

Does this mean the Fed should somehow become more responsible for supply side circumstance? If so, in what capacity? The last time I checked, the Fed's primary responsibility was nominal in nature. Indeed, should they assume market activities currently neglected by other private interests, who is going to be comfortable with such an outcome? Hence even though this is an illogical assertion, it must seem occasionally "useful" anyway, since it implies private interests need not lose sleep over damaged markets. 

Another sad aspect regarding inappropriate blame, is that many in the Fed do take such criticisms quite seriously. Indeed, how often does Fed "meddling" actually mean members of the Fed are losing sleep on behalf of others less concerned? This is no minor matter, given the nature of present day structural shifts in the economy.

Just the same, one must be careful in assigning blame to today's non tradable sectors, despite their exacerbation of social inequality via quality requirements and lack of innovation. All the more so, since structural fault lines and their resulting disequilibrium, aren't easy to understood. What's at stake however, is that we start making up for lost time. Ultimately, it's real economy conditions instead of the nominal realm, which cause such social and political unrest. 

What about high house prices, then? Don't get me wrong, I dislike today's high house prices as much as the next person. But I'm not fool enough to imagine that tight money - let alone the possibility of bad deflation - would somehow make me more "equal" to anyone else. I don't want everyone to lose in this scenario, via the money illusion that would make it appear I was somehow getting ahead. Consequently, I'd rather not sacrifice the nominal stability that does more than anything else right now, to prevent an unraveling of mutual financial obligations and societal trust.

Sure, it would be great if I could find retirement housing that was more in line with my actual Social Security. But I'd still rather not witness millions of citizens facing a world of financial hurt, in the event of bad deflation and seriously falling house prices. Deflation simply isn't a good thing, unless it positively impacts output so as to make life better for all concerned. So, let's get serious about building homes and workplaces which take advantage of centuries of innovation. We've absolutely run out of excuses, and only further the damage all around by pretending it's not feasible to do so.

The Natural Equity of Tradable Sector Dominance

Was the post war period a golden age? In an article for CapX, Tim Worstall argues that it was not: 

It's terribly fashionable to want to return to that post-war consensus but as with all too many intellectualisms there's remarkably little evidence that it's actually a good idea. 

While I'm not quite on board with some of Worstall's conclusions, I agree that neoliberalism certainly hasn't been a "failure" in all this. Plus, despite what was so beneficial about those post war years, there's no turning back the clock, to regain the previous structural alignments which made life easier for lower income levels than is the case today. Despite the current hardships of those with limited incomes, nations would be ill advised to reengage in industrial management as a policy strategy. 

Why so? Granted, we could benefit from greater monetary and GDP representation for tradable sector share, but it needs to be achieved through a return to basic market options in non tradable sectors. Good deflation in these areas would - in turn - mean additional discretionary income for tradable sector activity, hence more positive outcomes for lower income groups. New organizational alignments in non tradable sectors has become the logical response. All the more so, since tradable sector activity is now so technologically evolved, it can no longer provide the extensive employment options which were feasible for so long. 

Nevertheless, both sides of the political aisle remain tempted to interfere with tradable sector markets. In part this is due to growing concerns regarding shifting demographics. Unfortunately, aging populations only exacerbate the already excessive non tradable sector dominance and its fiscal burdens. In particular, price making in healthcare worsens cultural divides in large nations (such as the U.S.) where applied knowledge redistribution is no simple matter, since millions of citizens are involved.

Alas, there is also good reason for the growing frustration with widespread inequality, since no simple solutions present themselves. As it turns out, nations were able to rely for long periods of time, on the relatively natural equity of tradable sector abundance. Indeed, a quick perusal of Adam Smith's Wealth of Nations highlights the extent to which that abundance was already being taken for granted, centuries earlier. What's more, the residual effects of exponential output could be readily shared with most citizens in these fortunate nations. 

More recently however, since non tradable sector activity lacks this exponential quality, there are fewer opportunities to share national resources on the same equitable terms as before. Since much of non tradable sector activity derives from the time based scarcity of human capital, it is presently organized on hierarchical terms so as to fully function alongside the originating wealth patterns of tradable sector participants. In other words, due to its time and place based scarcities, non tradable sector dominance has resulted in a less equitable society. Whereas the earlier revenue enhancing tradable sector model, often meant "living" wages for workers and healthcare access as well.

How might we change this unfortunate circumstance for the better? For one, time value can be aligned so the time scarcity of human capital isn't continuously lost to input, relative to services output. What's more, local groups could symmetrically align mutual services activities, so more wealth gets created in the here and now. Even though non tradable sector dominance makes it difficult to redistribute money equitably in society, we can still find more fruitful ways to utilize the time we actually have at our disposal. Let's get started now, to create a new version of that lost "golden age" - a new version which holds incredible hope for the future, not unlike the twentieth century version some of us still fondly recall.

Supply and Demand is Vital for Economic Time Use

Despite the fact we often try to disassociate our private lives from economic activity in general, much of our identity - not to mention self respect - results from how effectively we manage our time with others. And let's face it: much of this time management tends to occur on market based terms. Equally important, is that we live in an era when economic time factors into countless personal interactions in the circumstance in our lives. 

How might one think about this? Since people routinely seek to take part in supply and demand for mutual time priorities, life becomes difficult for those who essentially find themselves excluded from the process. Nevertheless, many institutions have reduced the degree to which most individuals are able to effectively manage competing time demands. Even though higher income levels can still hire others for time based services, most income groups lack this luxury. What's needed now is innovation which leads to freer markets, for the supply and demand of mutual time based services preferences. 

Markets for time value would benefit from a focus on local time/space coordination, in the provision of services both basic and experiential in nature. For instance, how might greater autonomy be preserved for all participants? Only consider the preferences often expressed by senior citizens who occasionally need personalized attention, but otherwise would benefit from simpler physical environments so as to remain responsible for other aspects of their lives. Indeed, elder citizens sometimes opt to choose assistance from strangers (or even robots) over family, if they are concerned about loss of autonomy and consequently, self respect.

During the twentieth century, many institutions "professionalized" to such a extent that societies could scarcely tap into the potential which all citizens hold for mutual assistance. Alas, formal schooling became the main setting where students deemed to be "responsible" enough for future meaningful employment, were separated from everyone else. How can societies maintain viability for the long term, if a core of 25 percent (core employment with benefits) is expected to somehow "take care" of the near 75 percent who end up on the short end of the social equation? Small wonder that many citizens have taken to daydreaming about somehow returning to a previous "golden age" of manufacturing work with ample pay and benefits.

In all of this, we've also lost perspective as to the kinds of mutual time preferences individuals would prefer, if given the chance. Indeed, the present dearth of settings where personal priorities are expressed and taken into account, has impacted our personal relationships as well. Clearly, people are happiest when they have real choices in the the nature and frequency of their personal interactions. This is true not only for people of normal working age, but also for young and old. Without those choices, many of us gradually forget how to even interact "normally" with others. Perhaps in the near future, we can better adapt market freedoms toward the supply and demand of personal preferences and priorities in our lives. It's certainly not too late to get started.