Say's Law Musings and Equilibrium Effects

The much maligned law of markets may still have useful applications for equilibrium dynamics. Often, discussion revolving around Say's Law has been an attempt either to affirm, or negate, its existence. But what if there are subtleties involved, in which this classical construct functions, at a certain, critical point? Do the supply and demand relationships that exist between tradable and non tradable sectors, hold important clues for output potential?

After mulling this over the past few years, I thought of a way to frame how Say's Law appears to function: via what I'll call "equilibrium stock" and "equilibrium flow". These terms differ from the normal usage of stock and flow, which is also important since in traditional definition, stock lacks a recognizable alignment with flow at a macro level.

In GDP measure, as far as I can tell (please someone correct me if I'm wrong) we don't yet have a way to conceptualize how differences between stock and flow affect output. Why? Because traditional stock accumulation has little definitive active economic context. Plus I'm still crazy enough to imagine that a better macroeconomics can keep our society from falling off the edge of a cliff, given events of late. Here's Wikipedia:

A stock variable is measured at one specific time, and represents a quantity existing at that time (say, December 31, 2004) which may have accumulated in the past. A flow variable is measured over an interval of time. Therefore, a flow would be measured per unit of time (say a year). Flow is roughly analogous to rate or speed in this sense.

For example, U.S. nominal gross domestic product refers to a total number of dollars spent over a time period, such as a year. Therefore it is a flow variable, and has units of dollars/year. In contrast, the U.S. nominal capital stock is the total value, in dollars, of equipment, buildings, inventories, and other real assets in the U.S. economy, and has units of dollars.

Whereas, equilibrium stock would consist of product which is derived via internalized costs, for product which has not been previously sold (the time arbitrage I've suggested would function this way as well). Theses costs can be readily discerned, and while they generally take place within one institution, in some instances they may be coordinated with other institutions, so long as product costs are met as product enters the marketplace.

Product which takes place in these circumstance, establishes the perimeters of a given marketplace equilibrium, whereby additional flows take place. In other words, output gains for this "first marketplace" position, is when increased equilibrium supply can meet (the overgeneralized Say's Law interpretation of) increased equilibrium demand.

Unlike equilibrium stock, equilibrium flow is externalized, so that cost and output patterns cannot be readily discerned at the time of marketplace entry. While I've emphasized the example of government compensation for time based product, even government expense for tradable sector product is subject to this equilibrium constraint, in terms of already existing aggregate spending capacity. Distinctions such as these could apply to endless debates re government restrictions on growth potential, since plenty of private activity is also further riffs on equilibrium flow.

For purposes of GDP, equilibrium stock would categorize what is internally or recognizably purchased at the time of marketplace entry in the previous year, because this holds important clues about existing flows, which are important for monetary representation as the currently existing agreements which economic participants seek to uphold. Why return Say's Law to ongoing dialogue? It's not enough to explain that new income generates new income (arguments which essentially "replaced" Say's Law), without considering whether income derives as a source of equilibrium stock or flow, in the previous year.

One reason why a "natural" interest rate can appear as though negative: far more economic activity may take place in terms of equilibrium flow, instead of as equilibrium stock. Nevertheless, there are important reasons why some prefer less output, if that is necessary to control what derives from a dependent, or secondary, market position. Importantly, supply side factors which control how knowledge is utilized in the marketplace, carry more ongoing responsibility for employment limitations, than the missteps of fiscal and monetary policy.

Consider that the only equilibrium stock component of real estate, is new building construction. So far as real estate is concerned, mortgages, "reused" land, and rent are all components of equilibrium flow, since they function as claims on already existing income and/or resources. Yet even the equilibrium flow element of land costs, simply tells a value story about scarcities in productive agglomeration. Indeed, this is why I have doubted the efficacy of land taxation as a reliable revenue source.

Also note that incentives for the entrepreneurs of non tradable sector activity in a dependent market position, are not the same as incentives for tradable sector entrepreneurs, who gain from output expansion. In part since a dependent market position only encourages non tradable sectors to limit both supply and employment, those earlier supply and demand structures appeared less relevant, as non tradable sector activity began to dominate the marketplace.

Fortunately, a marketplace for time value, or time arbitrage, could restore entrepreneurial incentive for both output and employment. I believe that time arbitrage could give Say's Law greater validity in the future, than what has been possible since the secondary market dominance of the 20th century.

What Happens When All Labour Becomes a "Special Allocation"?

While such a designation may seem impossible (one hears "We'll always have jobs"), enough of this form of hiring could eventually occur that - without an active societal response - many more of us could find ourselves unemployed in the decades to come. And should this unfortunate circumstance occur, one's ability to work in a normal (or formal) context, would increasingly become the exception rather than the rule, as traditionally defined labor is replaced by automation wherever possible.

In other words, the ability to work and provide for oneself and others on personally meaningful terms, would become a special privilege! Only consider how relative formal work circumstance has already become, given the fact many of us have lived in places (yes, in the U.S.) where those who are fortunate enough to gain paid work, are consequently deemed "special" human beings and treated accordingly.

Hence ultimately, we all need to become more cognizant of work which is defined on exceedingly "special" terms. Only remember these often amount to arbitrary limits, in which one's level of skills capacity means efficiency gains strictly for organizations, rather than personal efficiency which occurs through active negotiation, to gain comparative advantage for ourselves and others. It is not beyond our means to create institutions which would honor (on formal economic terms) the comparative advantage we seek among ourselves for time based product.

After all, comparative advantage for personally determined time value, would exist as a broader economic landscape which represents a wide spectrum of time value and skills capacity. Only think how carefully "special" is presently defined. For instance, is what we personally deem "special", even on offer in graduate level university economics courses? I compared dozens of offerings more than a decade earlier, before realizing that economic exploration (beyond the core) was quickly capped, towards the end of one's formal studies.

Should we continue to allow "special" to mostly exist as exclusive and determined outside of our own personal input, then perhaps economics is not even about people at all. Indeed. If so, what point is there in blaming capitalism, if the real culprit is ourselves, for forgetting our basic worth? Whatever one may think of Tim Worstall's approach in the above link, he has a valid point:

The destruction of jobs isn't something which defines capitalism. It's something which defines economics. 

Our basic starting point is that human desires and wants are unlimited. We also note that we have scarce resources with which to sate those desires and wants. Economics is about the allocation of those resources to meet them. 

Sometimes, it makes sense for certain job functions and categorizations to be destroyed when resource capacity outside of ourselves is an integral part of the process. Automated job designations do not destroy the potential of our time value. Rather, they reduce production functions which in some instance are no longer the best means by which to derive product.

What many have forgotten is that time value is both product and production means. Even more important, is the fact our time is the most scarce resource of all. Our focused attention (in the form of personally designated time) is central to specific skills settings and knowledge based services capacity. Yet we still lack the formal economic space to use it as a basic commodity. As such, one's time would gain value in use qualities which make elements of personal choice, a valid component of normal economic exchange.

By making room for the scarce allocation of our time, individuals would once again become integral to economic life, via markets for our own time value in relation to that of others. Time value as a basic commodity or good, would become a valid economic component of the very efficiencies we seek.

When I watched the presidential debate between Trump and Clinton, two words especially came to mind, within a matter of minutes of the discussion: broaden trade. In other words, the definition of what trade actually consists of in the marketplace, so as to move away from today's national "beggar thy neighbor" inclinations. Perhaps Miles Kimball was thinking along similar lines, for he has a quote from Henry George today which serves as a suitable way to end this post:

When we consider that [labor] is the producer of all wealth, is it not evident that the impoverishment and dependence of [labor] are abnormal conditions resulting from restrictions and usurpations, and that instead of accepting protection, what [labor] should demand is freedom? That those who advocate any extension of freedom choose to go no further than suits their own special purpose is no reason why freedom itself should be distrusted. For years it was held that the assertion of our Declaration of Independence that all men are created equal and endowed by their creator with unalienable rights, applied only to white men. But this in nowise vitiated the principle. Nor does it vitiate the principle that is still held to apply only to political rights. And so, that freedom of trade has been advocated by those who have no sympathy with [labor] should not prejudice us against it. Can the road to the industrial emancipation of the masses be any other than that of freedom?

Total Factor Productivity as a Growth Component

What might be done, when existing patterns of organizational arbitrage don't generate sufficient economic access across the income spectrum? The good news, is not all organized resource capacity has to operate solely from a supply side axis. In other words, institutions could contribute to the growth of aggregate demand on real economy terms, by expanding the definition of aggregate supply. One might say that the guidelines of a single institution could make Say's Law possible, for time value. In order to do so, local resource factors can be reconsidered, which previously haven't been taken into account for institutional definition and organization.

Digital platforms are already making it possible, to coordinate a broader array of resource sets than have sometimes been utilized in the marketplace. Ultimately, these processes could also generate new productivity, through redefining the reach of total factor productivity at local levels. Of course, total factor productivity exists in a relative sense, given the fact it's neither possible or desirable to internally align all resources in any given environment, as an aspect of local resource outcome.

Until recently, corporations have mostly influenced resource outcomes, through resource alignments along a supply side axis. This pattern is only just beginning to change, as digital platforms begin their experimentation with supply and demand sets - some of which also include time based product.

However: thus far, digital platforms of this nature are open ended and mostly dependent (at least from what I've observed) on already existing economic complexity. What is presently needed, are digital platforms which can contribute to new patterns of productive economic complexity, which provide a complete internal decentralized structure. While some existing digital platforms presently contribute to output, the real potential in this regard, is to coordinate for local supply and demand of time based product. By aligning local land use patterns with these efforts, relatively small groups would be able to generate wealth agglomeration benefits which are normally associated with a population of millions.

By considering total factor productivity via local combined supply and demand efforts, non tradable sectors would finally have means to capture good deflation, much as tradable sectors have been able to do by organizing (mostly) on the supply axis. Consider why this matters. Tradable sectors have generated good deflation even as they created more overall output, which also meant higher profits even with lower product costs. Non tradable sectors need to take more demand factors into account along the entire production axis, in order to achieve greater output. Likewise, there is greater potential for good deflation - particularly in terms of a local group perspective.

How so? In part by folding personal time management factors, into better integrated workplace and marketplace settings. One negotiates time preferences according to personal schedule considerations, instead of assigning this negotiation responsibility to others. Also, local government provision as a part of time based coordination, would mean participating communities would no longer need to raise taxes for government services. Total factor productivity considerations are simply an additional step, in what have already been standard organizational processes for centuries.

Yet note that the above description is only a partial definition of productivity coordination, as it describes potential productivity gains. A parallel alignment in terms of local land use, would particularly make high density knowledge use agglomeration possible for lower income levels. This form of agglomeration would greatly benefit from land use which utilizes walkable core settings, for those who are currently engaged in daily routines for time based services.

Why is it important to broaden productivity potential? For one, there is less certainty regarding components of specific factor productivity. For instance, consider some central elements of growth economic theory, which are utilized for theoretical constructs. In a recent post Dietrich Vollrath writes:

Perhaps the main organizing principle in growth economics over the last sixty years has been the "balanced growth path" or BGP. BGP is really just a name for a set of conditions related to several major pieces of economic data:

1) The growth rate of output per worker is constant over time.
2) The rate of return on capital is constant over time.
3) The share of output paid to capital is constant over time. 

If only these precepts could still be taken for granted! Vollrath was also concerned, whether their present day validity might be changing. That's not to say these concepts haven't been quite useful. After all, these conditions were able to maintain reasonable constants to an extent, that production and consumption roles could be safely guided by governments and private interests, without substantial input from citizens for the production processes involved.

Today, however, the tasks of aligning supply and demand are becoming too important, to be left completely in the care of nations, states and established interests, without broad input from citizens as well. With a little luck, local economies will finally get their turn, to contribute to the organizational processes which could reclaim future long term growth.

More Defense of Capitalism and Say's Law Potential

Today's thoughts are, in part, an extension from my previous post. Again from Wikipedia:

Say's Law has been one of the principle doctrines used to support the laissez-faire belief that a capitalist economy will naturally tend toward full employment and prosperity without government intervention. 

Some who question the validity of Say's Law also have their doubts about capitalism in general, so I googled capitalism and found "An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than the state." Which in turn reminded me of a long-lingering question: have capitalism's critics taken into account, that much of what defines present day wealth, actually lies outside of this (basic) definition of capitalism?

Or, put another way: if capitalism "gets the blame", what exactly is "at fault"? Are we to blame capitalism for the shenanigans of finance, which is an entirely different set of problems? Perhaps the most concerning issue for "trade and industry" is that these institutions can't always be relied on, to maintain jobs in specific places for specific populations. But by the same token, neither can populations be counted on to want any given product that these industries may produce, for any length of time!

Carried a bit further: why should any population be expected to consume a particular product they no longer want? Or, how often has local employment and investment flourished for decades, due to a corporation's fortuitous ability to command a global market, even though such gain ultimately proved temporary? For twentieth century corporations, mass production often meant that local consumption was simply not enough to keep going as a business enterprise. The latter thought is also the other side of the coin for protectionism, despite the fact that citizens associate companies as national entities.

Instead of expecting the traditional corporate entity (with its relatively fixed supply structure) to provide lifetime employment, why not build a new corporation for local communities, one for which survival need not be put at risk by shifting consumer preferences? An internalized supply and demand framework could provide local economic stability, and an inclusive knowledge use continuum over time. However, a completely different set of organizational factors - hence expectations in terms of outcome - are at stake. Organizational capacity such as this has yet to be set into motion.

Whereas many resources are capable of mobility, time based product is in many respects location dependent. Products which include time value and knowledge use, have yet to benefit from extensive local support and mutual commitment. Thus far, however, both public and private education have moved society in precisely the opposite direction. Indeed, education is often perceived as means to "escape" underperforming communities and regions, instead of generating positive economic complexity in the midst of our actual habitats. Today's formal education contributes to this escape mentality, by externalizing or isolating skills potential, and further exacerbating what are already existing differences in human capital.

No good purpose is served, to suggest capitalism needs to be replaced because it appears deficient in providing long term employment stability. Especially whenever a definitive aspect of product supply, calls for a relatively mobile set of organizational capacity, in order to take place. For all intents and purposes, the organizational capacity which generates tradable sector flows, functions fairly well at a basic level.

Rather than imposing further restrictions on the resource mobility of tradable sectors, governments need to closely reexamine the nature of their involvement in non tradable sector activity. Non mobile characteristics of non tradable sectors have been hijacked by wealth capture too many times, which explains why income potential has stagnated in recent decades. In many instances, the crony coalitions of government and non tradable sectors have flatlined income, in ways that threaten to undermine centuries of prosperity.

Citizens, not governments, hold the ultimate responsibility for defining demand, even though the monetary systems of their governments are solely responsible for backing already existing aggregate demand. In particular, a higher level of demand based growth than is presently being experienced, is something that individuals will need to rediscover, and recreate, for themselves. This growth potential is not to be confused with arbitrary wage increases or more government involvement in the economy.

It's time for governments to make more economic room for their citizens to use the knowledge that they have invested in so heavily, especially in recent decades. Otherwise, the rationale for higher education will slowly become more dubious over time. There is little point in deriding the concepts of capitalism or Say's Law, especially given the fact considerable room was made for more employment in the twentieth century, via an expanded educational structure. Now, the fruits of all that knowledge investment, deserve their own place in the sun, with a marketplace for time value.

Say's Law, Time Value and the Secondary Market Problem

The subject of this post deserves a lot more attention than I'll be able to give it today. However, at least these thoughts serve as a renewed starting point, in response to Say's Law "denial" reasoning. While I've not found the typical objections of recessionary "general gluts" or withheld savings particularly compelling, what amounts to a secondary market for time based knowledge product, is compelling, in terms of employment and shifts in output.

When classical economists were still advancing their arguments, many forms of services were scarcely enough of a marketplace component to be taken seriously. And "unproductive" though the knowledge based employment of these earlier economists might have been (according to their own language), their observer role was invaluable. These early understandings of wealth formation, also made it possible to determine what was responsible, for the progression of supply and demand from a given point in time.

Whereas now, the extensive nature of services product in the marketplace, makes this process more difficult to discern. Some problems in this regard are apparent in an Investopedia interpretation, which includes a bit of wishful thinking:

According to Say's Law, when an individual produces a product or service, he or she gets paid for that work, and is then able to use that pay to demand other goods and services.

What's at stake in the above quote? For instance, does this individual's production generate product which represents a new addition to output? Or, is he or she compensated via redistribution, instead of the proceeds from new product? Another consideration: to what degree does one's spending patterns contribute to new product formation, versus other forms of consumption? Asymmetric compensation for time based product on the terms of a secondary marketplace for time value, does not advance the cycle of new supply and demand. Instead, asymmetric compensation provides some means to maintain the marketplace which already exists.

Regular readers may recall my defense of Say's Law from earlier posts, and I apologize for letting too much time get by before making a closer examination of the secondary market problem. Is cynicism or ridicule of Say's Law warranted? I want to say "no", but who really envisions a new unit of tradable goods value as a guarantor of equal value in time based service product - if indeed that is what is sought?

Despite the fact money equally represents goods and services, this does not mean goods and services are automatically interchangeable, in aggregate. As a secondary market, time based service product corresponds to disposable income or redistribution, instead of the broader coordination which takes place via today's tradable sectors. Consequently, it's not possible for asymmetrically compensated time based services, to hold a dominant or wealth originating market position, in the same sense as tradable goods.

Again, as someone who wants Say's law to remain a valid construct, I continue to promote the potential of time based services as a primary market, to address the problem of balance between tradable and non tradable sectors which presently inhibits growth and employment. Also, the Wikipedia quotes below serve as a reminder, just how different the marketplace really was when Say's Law was envisioned:

"A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value...As each of us can only purchase the productions of others with his own productions - as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase." Say further argued that a general glut (the term used in Say's time for a widespread excess of supply over demand) cannot occur. If there is a shortage of one good, there must be unmet demand for another. "If certain goods remain unsold, it is because other goods are not produced. 

I wish I could shout those last two sentences from the rooftops. Despite current services based wealth, there is not enough aggregate participation in the form of production and consumption, for time based services product. As a result, demand for the product of tradable sectors is also lacking.

And the first part of the above quote echoes my description of primary markets, which today happen to be the tradable sectors which serve as a point of wealth origination. In these markets, the value of each product, can readily be met by that of another new product. Time value could accomplish this same function, should symmetric compensation create time based services product in a quantifiable form. However, when time value exists solely as a partial and secondary market, that lack of representation distorts the actual contribution of time based product in the marketplace. This service formation also appears as relative inflation, in contrast with the good deflation of manufacture and tradable sector production.

Fortunately, one process for bringing time value into accordance with Say's Law, is also a process which makes it possible to quantify productivity for time based services product. However, in order to do so, time value needs to be utilized as the standard unit of measure it actually represents, in relation to itself. Once time value is coordinated along a continuum, it becomes possible to match (purchase) new time based product with other (newly emerged) time based product.

Granted, there are plenty of well reasoned arguments against symmetric compensation as an economic option. At this point, however, rationale re underlying differences in ability, could further derail long term growth patterns. Even though aptitude widely varies, it no longer makes sense to purposely exclude individuals from the workplace. Long term growth and gains in output remain possible, through greater economic inclusion.

What is Asymmetric Compensation?

For one, it's a term I have found myself increasingly referring to, in the last year or so. This form of compensation has evolved over long time periods, through the widespread use of money. Increasingly, asymmetric compensation has become associated with skills arbitrage in the marketplace. As money began to substitute for more specific forms of resource exchange, coordination capacity among ever greater numbers of groups became possible. Asymmetric compensation follows already existing wealth capacity, and is representative of wage and income in (recorded) general equilibrium conditions.

Asymmetric compensation is further defined by an emphasis on specific skills capacity, instead of aggregate skills potential. While it has been an incredible tool for spontaneous economic activity and societal progress, limits do exist - in terms of long term growth of organizational capacity (i.e. populations moving to cities). Asymmetric compensation is neither "good" or "bad", but simply incomplete as an employment response, when overall growth potential is in question. Indeed, when economic options start to appear limited during times of economic uncertainty, one unfortunate result can be zero sum thinking among political leaders.

Today, nominal income (and speaking as a market monetarist, the associated sticky wage concept) can be thought of as primarily asymmetric compensation. However asymmetric compensation is not a Wikipedia term, I adopted it as means to explain what could also be possible in terms of economic organization. Also, this post will serve as an eventual source of material, in additional links for a glossary page. The first two posts I wrote for the intended glossary are here and here.

Asymmetric compensation shifts the focus of time coordination outward, towards broader group settings than what were possible before the widespread use of money. Where local individual to group time preferences once prevailed, they have been supplanted with time coordination on the part of institutions which organize resource capacity on specific sets of terms. Economic freedom for time use and personal choice were the fortunate result, in that employment provided options to what had often become cultural restraints born of adversity.

In the simpler structure of tradable sectors, asymmetric compensation is also easier to determine, in that it originates from revenue derived from product which is completed and sold. Whereas, asymmetric compensation in knowledge based non tradable sectors, is not as easy to determine - particularly when revenue is obtained through redistribution and financial product. As a result, skills sets have been defined through the preferences of the groups associated with specialized knowledge use, as opposed to the skills which are readily adaptable for product which exists separately from time value.

Because employment patterns are related to non tradable sector definitions of production and consumption, labor force participation is affected in ways which - to a certain extent - can be slow to respond to monetary policy. As a result, some do not believe in Say's Law (full employment potential) as a viable concept. Regular readers know that I find Say's Law important, but believe that it would benefit from a marketplace for time value as means to generate more effective monetary policy. In particular, symmetric time compensation would also be more effective than fiscal policy.

Since non tradable sectors have been slow to allow production and consumption capacity to evolve, there are times when labor force participation can suffer. Just the same: when global growth is strong, a nation's existing labor force potential often has ready backup, in terms of income and employment possibilities. Reliance on preexisting wealth to generate further employment may not problematic under such circumstance.

However: when global growth slows (as is presently the case), asymmetric compensation as the sole means of employment, can pose problems. Due to the fact it is dependent on preexisting wealth, asymmetric compensation struggles to provide stronger growth or productivity, through fiscally created jobs or compromises in (existing) corporate structure. Hence the dilemma that nations presently face.

Knowledge Use: Supply Creates Its Own Demand

How might one think about knowledge use in terms of supply and Say's Law? Say's Law has been ridiculed at least since the mid 20th century, for understandable if unfortunate reasons. Those of us who believe Say's Law is important, haven't really had adequate means to defend our position, either. For one thing, employment gains which include more substantial knowledge use are possible. The problem? The organizational capacity which would bring these gains within reach, has to occur on more inclusive, decentralized, and yes - equal terms. That's difficult for many to even imagine, particularly in a time when knowledge use has divided and polarized populations.

Nick Rowe explores some aspects of employment potential (after productivity improvements) in a recent post. Something that's often missed in these discussions: many representative groups would lose their own competitive supply side "edge", should full employment be sought in general equilibrium. As a result - instead of imagining full meaningful employment - some would rather reimburse people either for not working at all, or through a marginal position which "threatens" no one. After all, what happens if everyone gets to use knowledge? While automation continues to "eat away" at traditional production, the resulting leisure time appears as though a nebulous given - even though "leisure" for some is akin to torture, for others.

Perhaps this is why some with strong knowledge use affiliation, argue against Say's Law. Why would they want to consider how full employment might actually be possible? And yet, participants of knowledge based endeavor may not always be fully cognizant that they are also part of the supply side - particularly in terms of what is sometimes referred to as effective demand. Might awareness of said effective demand (due to restricted supply) lead to a desire for hard caps on monetary activity? If so, there may be little difference between some progressives and internet Austrians, in the monetary terms of the present. Examples in this regard include conservative physicians who might vote Republican, as well as progressive educators who tend to vote Democrat.

Regarding Nick's (above linked) post: if output gains from production lead to less employment...what then? Until recently, if less employment was needed in order to make things, populations could compensate by expanding employment in knowledge based areas which would augment and assist traditional production - even if only obliquely. Now, this strategy need to be rethought. What happens to knowledge use, if it cannot actively assist traditional production? Does it decline? After all, if employment declines, so too does knowledge use. How does one know a decline would not lead to a precipitous spiral?

One of the main problems in this regard is with time use value. Services decentralization is needed, in order to internalize and capture personal time value which otherwise gets lost in the shuffle. While exclusive knowledge holdings work for both pragmatic and signaling purposes, they force knowledge to adhere to highly specific functions which may not extend to interdisciplinary interpretation. Worse, the subjective value of knowledge which applies to special time and circumstance, is either minimized or discarded. Also lost in all this - a considerable amount of intellectual and personal capacity. Ultimately - without a full marketplace for knowledge use, traditional production gains eventually mean less employment as a whole. As Nick Rowe noted:

The debate has moved on. But we sometimes need to remind ourselves that money is at the root of questions like these. It is a fallacy to assume that a doubling of productivity will automatically cause a 50% decline in unemployment. It depends. It is a fallacy to assume that a doubling of productivity will automatically cause a doubling of the demand for goods. It depends. It depends on preferences, and it depends on money.

I would add that much also depends on a broader societal understanding, as to what is at stake. In other words: knowledge use strategies of the 20th century are in serious need of reconstruction, if the present day economy is to be maintained. Even though monetary policy cannot provide solutions for full employment, it still holds a vital connection with the supply side solutions which populations need to generate on their own.

Artificial knowledge use scarcity is problematic on multiple levels. Special status for knowledge use not only represents wealth capture - it does so in ways which could possibly reverse centuries of progress. This is why it is so important to make knowledge use more egalitarian, before too much present day wealth is undermined. While some knowledge access will always remain exclusive, the survival of universities is already being threatened. This is an important clue which no one can safely ignore: the sooner that knowledge use is approached differently - the better.

Much of traditional production has gradually been moving towards less hierarchical structures, and knowledge use needs to take a similar approach. Today, services are secondary production structures with limited employment capacity. They are also hierarchical in nature, and mostly reimburse centralized knowledge use at administrative levels.

Those who want full employment which includes knowledge use at all levels, need organization which can bring the process to fruition. Closely held knowledge is a revealed preference, in the same manner as any other form of protected employment status. Now, this protected status leaves society hanging in the balance, in terms of economic participation. Demand need not remain limited. But before demand can be freed, supply has to be freed, as well.

Political Bottlenecks = Exclusionary Outcomes

Often, there are individuals who - because of their aversion to either business or labor interests in general - don't find it useful to seek solutions which consider greater economic integration or inclusion. However, both business and labor formations are in a state of absolute transformation. The very idea of labor could be changed, as well as business formation, before all is settled. Nothing about our economic present exists in the absolute forms of labor and capital, which opponents on the left and right still imagine.

Political bottlenecks present more problems for growth and continued progress, than it may seem. Tactics born of obstinacy mostly lead to the same exclusionary outcomes, regardless of political bent. As a result, sound monetary policy may appear to both groups as accruing to those who don't "deserve" it, rather than as a natural representation of aggregate spending capacity. Wherever dialogue is simplified to the point that imagined differences are highlighted, the greater good gets diminished in the process.

Some commenters on the left - for instance - repeatedly refer to Say's Law as vulgar. Someone please tell me - how is it even possible for balance in supply and demand, to be considered vulgar? Granted, my view of Say's Law may be more simplistic than that of either economists or everyday individuals. Just the same: the wish to give Say's Law a chance, is generally based on a desire for inclusive and positive outcomes.

To be sure, Say's Law has been abandoned in the present. Economies of scale have had some bearing on this, in that they are still expected to work for services formations and centralized settings. What gets missed in all the political posturing, is that some economies of scale as they are now recognized, are long overdue for change and adaptation. Some are more effective than others: a fact which neither business or government interests has yet faced. For instance, economies of scale don't apply for (time use) services as they do for separate product formation. Say's Law particularly needs to be utilized for service formations, in order for redistribution of any kind to remain possible.

Thankfully, there are voices of reason in spite of today's political bottlenecks. After watching this video at Digitopoly, I thought about what Joshua Gans was trying to accomplish. People like him do not want exclusionary outcomes; they want to rebuild and redefine a future which includes as many individuals on the economic stage as humanly possible. Before any leap of faith is possible however, the moralizing and distracting noise of Marxists and internet Austrians both need to take a break. Change is already here, and denying that can hardly lead to good outcomes.

By the same token: when anyone stops to think about why one percenters have so much wealth in the present, most of the answers have little to do with moral reasoning. Many imbalances are about a world which attempted to utilize centralization and large economies of scale, well beyond their natural capacities.

Thus the challenge is not to figure out how to "siphon" from the one percenters (which is impossible anyway) but to look more closely to find the economies of scale which actually fulfill productive roles. For instance, where economies of scale still work well for physical transport of goods, they no longer perform as well for the work of the mind - particularly in cities - as they once did. Digital roles now need to partially supplant cities in terms of economic scale, if knowledge use dispersion is to continue and grow.

Just as important: some economies of scale for physical product could change as well, if local economies are to take charge of their own destinies. In particular, local 3D printing capacity could turn building components and recycling options into high value local economies. People on the political left and right need to get past old ideas of capital and labor, which have little relevance for the present. Labor markets are now murky to a degree that in many instances, this concept does not even have substantial bearing on local economic outcomes. Both labor and capital formations need to move beyond centralized settings, before economic engagement and resource use can find more inclusive outcomes.

Balance, Time Use and Say's Law Musings

How to ensure that time use and resource use remain in balance with one another? For decades, some have been concerned about resource use imbalance in sustainability terms. Say's Law also grapples with this issue of resource balance, although it does so in terminology which takes economic time use into account. What is sometimes missed in these debates: many resources can only be utilized in sustainable ways, when economic time use also benefits from a similar approach. Limits to growth dialogue is the wrong approach, in that it is a mirror reflection of austerity measures in general - albeit in different ideological terms. Growth more naturally follows when the time use of all participants is considered.

Otherwise, resources can be lost or squandered, in the effort to compensate for what has become an incomplete and inefficient services marketplace. This issue becomes all the more important, considering the centrality of economic time representation in nominal targeting. The fact that time use and resource use have gradually taken different trajectories in recent decades, accounts for a considerable degree of economic instability in the present. Interest rate targeting by central banks only serves to make the divide grow further, as collateral formation takes precedence over innate ability.

While the context is different, these thoughts also follow my previous post. Plus I'll try to further address a dialogue with Tom Brown, which took place here and at a recent post from David Glasner as well. Tom was instrumental, in making Say's Law one of the highlighted online topics this week! For one thing I should clarify my thoughts regarding time use as a microeconomic component, as opposed to macroeconomic. For someone who believes in time use as a central component of a nominal target, how can that be? I will try to explain as best as possible, here.

For one thing, some economic time use is clearly augmented by resources separate from time. But for many participants, resource augmentation for income is not a realistic option, at least in the present. Increasingly time use in a macro sense has become defined by resource augmented terms. Even so, it helps to remember: that definition only represents the capacity of a partial equilibrium - important though it may be in both local and global structures. The fact that assets and pricing structures increasingly reflect resourced augmented income, further distorts pricing mechanisms in the marketplace. Over time, pricing structures have become "hidden" in that they react to income capacity or government support, rather than open market conditions. And in turn, a lack of marketplace efficiency impacts unemployment in ways that are only partially amenable to the efforts of central banks.

Even though our economic time use is local in nature, it remains central to the degree that resource use plays out both locally and globally. The problem comes in when we envision time use in strictly macro terms. Why so? That assumption in turn implies that time use is infinitely elastic, in regard to resources that are highly random in both availability and utility. For understandable reasons, it seemed that incredible resource availability could make up for time deficiencies, but this is only true up to a limited point. In other words, it is not possible to wish this so for entire populations, try as anyone might.

This is more important now, in that the spread between resource augmented income and time use income has grown. For some among the self employed, one's time use may not even be as significant monetarily, as paid wages. Yet this spread is not the same thing as inequality rationale, which may not account for differences in fixed time use and random resource wealth gains.

All of this is exacerbated by the ongoing problem of interest rate targeting. For obvious reasons, interest rate targeting seeks to primarily represent the consumption potential of resource augmented income. Whenever that particular capacity appears to be missing, the possibility of austerity exists - even though entire markets have yet to be tapped. If that were not enough, the medium of account attempts to represent the entire equilibrium as a single entity, even though the marketplace needs to be expressed in terms which recognize the difference in income potential. That in turn leaves the medium of exchange caught in discrepancies between time use limitations, and the the open nature of random resource use.

Think about the seeming elasticity of time potential, when it is further augmented by resource use. First, a qualifier. Technology in a strict (non-monetary) sense, does provide considerable time elasticity, in that we need to spend less time on vital activities than in the past. That is the true economic gain of productivity. Importantly though, that particular aspect of progress does not yet apply for monetary representation to income potential in the aggregate. How so? Only so many participants can be a step "ahead" of the marketplace so as to utilize money to save further time. Those with resource augmented income gain further time elasticity, by hiring services from others.

However, even though many service needs are quite basic, their pricing structure has mostly aligned with the category of resource augmented income. In part that is a natural result of location costs for access. In turn, that leaves income (which relies primarily on one's actual time use) deficient in purchasing power for needed services. This sets up the scenario of a deficient marketplace, for both supply and demand in services. The same deficient marketplace is reflected in assets which consequently do not have the necessity of innovation, in order to reach a larger market. .

A simple way to think about this process is that of a starting line. Everyone is "off to the races" in economic terms. Indeed the 20th century was quite a run. Only, some of the runners not only fall further behind, but  eventually fall out, prematurely. What's more, they exit the race in terms of which unemployment is only a small representative measure. Perhaps this would not be such a problem, if not for the fact that sometimes it becomes necessary for them to rejoin the race when they least expect it. That's one of the trickier elements of the income with resource augmentation equilibrium. From the vantage point of plentitude, it becomes too easy to reason that work is not even necessary in today's world.

And yet, some form of economic engagement is needed at all points in life, for both identity and survival reasons. Group sorting for intellectual capacity, unfortunately increases the income equilibrium divide even further, so that natural differences in intellectual capacity are increasingly magnified over time. As this happens, not only does money representation become a smaller component for aggregate time use, it can lose representation for knowledge use as well. Without adequate representation for time use as needed by all participants, supply and demand are negatively affected across the spectrum, as primary equilibrium shifts further to income augmented by elements other than time.

When I think of Say's Law, I also think of these divisions in nominal income which can complicate the picture. For many, economic time use is microeconomic in that it primarily gains compensation locally. Whereas resource augmented income has an additional macro (or monetary) component which represents global wealth. Perhaps macroeconomic dialogue - as it shifted towards non monetary terminology in the 20th century - was one way to sideline this discrepancy. Meanwhile, production and consumption at all levels follow paths which remain a bit muddled - especially in terms of true capacity in services production potential.

If economic time use is not strictly macroeconomic in nature, how can it be rationalized as having a primary role in a nominal target? In spite of present time use uncertainties, no resource or asset remains stable, unless time use has overarching purpose for both resources and assets. Time use can be returned to its central role, by allowing centralized and decentralized systems to work more closely together.

Hence time use can remain compensated in ways that actively contribute to wealth creation. That is certainly preferable, to the alternative of being left behind in an uninspiring role of passive demand. What's more, such compensation can make a nominal target far more effective, as a contributor to economic stability. It is always better to leave room for compensated voluntary participation, than trying to determine need on one size fits all terms. As indicated in my last post, not every house is in need of "heat" (paying work) for reasons that tend to be macroeconomic and related to other realities.

Clearly, I've got a lot more to learn about Say's Law, and wherever possible I intend to seek out source material. David Glasner posted "Who's Afraid of Say's Law" while I was working on this post, and now I need to return to his for a reread. When I read Krugman's response to David Glasner, Krugman seemed to be taking a zero sum approach to the Say's Law concept. And while I believe in the capacity of Say's Law for fixed time use (through compensation for skills arbitrage), perhaps the zero sum aspect is what concerns others. Yet it seems the zero sum aspect could be overcome. How so? Governments could encourage missing supply and demand components with micro level economic coordination. As best as possible, I will continue to think through these issues in further posts.

Life Without Work is Like a House Without Heat

In other words, how to determine if what appears as the "cold weather" of no job, is unfortunate? It depends on one's environment! One may live somewhere "tropical", where no "heat" is even needed for the house. Of course for purposes of this post, think of a paying job as "heat", which one may or may not need in normal daily circumstance. If heat isn't generally needed, a warm house is taken for granted and one's equilibrium - so to speak - is fine. But if the temperature unexpectedly dips for any length of time (or life circumstances and weather system northers "go south"), the lack of heat becomes quite an issue.

Hence, need for heat is unpredictable and relative in numerous instances. When such a need arises yet goes unfilled in a critical juncture (i.e.quickly), personal and/or local equilibrium can fall to a different trajectory afterward. Homes in the southern U.S. can feel quite cold, when they only have space heaters for mild winters yet the Arctic vortex decides to repeatedly knock at the door. Perception and equilibrium from winter effects can change pretty fast. If a person stays cold all day for several months, it matters not if they are 500 hundred miles south of what a cold winter is normally expected to deliver. After all, the house 500 miles to the north is more likely to have the necessary heat provision in place. Thus, what one experiences as chilly, is relative to the degree it can actually be controlled locally.

A similar principle applies for the person who does not have a "paying" job. That is, they have adequate "heat" if they rely on someone who either has work or is otherwise financially stable. Of course, all bets are off in a warm "house" that becomes unexpectedly cold. Thus the best means of survival is to have access to a personal "thermostat" of one's own, even if it is not needed in every instance. While the analogy of work and heat probably seem like common sense, that reality can nonetheless thwart the significance of unemployment statistics. Much depends on circumstances and factors that are not necessarily in one's control. Therefore, local and non local circumstances define a person's true degree of economic separation, at any given moment.

So one may not have a job, and yet it remains possible to live life on middle class terms, for example. This could also be the individual who provides "early retirement" as explanation, when asked. While there may not be a strong correlation in reality, it is still one of the easiest ways to express such a decision in societal terms in the U.S. Also, a substantial degree of economic interaction with others is becoming more lucrative in terms of challenge and incentive, on terms which are not well compensated in the present. Oddly enough, prior to the Great Recession, one could say they retired early, and many would consider them fortunate. Only after the (relatively) forced early retirements of the Great Recession, did such individuals more often receive initial responses of sympathy from others - even if such a response wasn't actually warranted.

Of course, life in a cold house which is in ongoing need of heat, changes the entire equilibrium which one might normally rely upon. What seems as though common sense strategies, often refuse to work "as advertised", such as they would in a house that stays warm on a regular basis.

Some readers may have noticed the macroeconomics label at the bottom, and are wondering what this post has to do with macro. A colder winter than usual left me thinking about contrasting perceptions as to ongoing circumstance. However, it was a recent post from David Glasner which struck a chord, and made me want to organize these thoughts further. From David's post:

...Say's Law is a description of what happens in an economy when trading takes place at disequilibrium prices. At disequilibrium prices, potential gains from trade are left on the table. Not only are they left on the table, but the effects can be cumulative, because the failure to supply implies a further failure to demand...even infinite wage and price flexibility may not help an economy in which a lot of trade is occurring at disequilibrium prices...microeconomics rests on a macroeconomic foundation, and that is why it is illusory to imagine that macroeconomics can be logically derived from microfoundations. Microfoundations...are themselves founded on the existence of a macroeconomic equilibrium.

If I follow his logic correctly: whether or not "heat" is needed in a local environment also depends on macroeconomic factors. Is the locale already "warm" (adequate societal coordination for economic access) or is it "cold", i.e. deficient of economic access and coordination at local levels.

Also consider the job seeker (in aggregate) whose less than ideal options made him or her decide to opt out of employment. Even though the decision is "voluntary", something substantial still remains left on the table by that opt out, in terms of production, consumption, and nominal balance (By balance, I mean relative costs of consumption relative to nominal income). Let alone the things that one would purchase through compensated time use, that have ceased to be defined in marketplace terms. What's more, something is definitely left on the table in the cold house, which just makes its occupant want to stay under the covers too long.

Hopefully this local versus not local interaction of circumstance, provides a small illustration of the ways micro and macro factors change the outcome of the other. As Bill Woolsey said recently, the numeraire is arbitrary. Both local and not local affect the daily existence of what one ultimately decides to do. Neither micro or macro can be insisted upon as a primary starting point, for they both have bearing on the world around them. Hence, daily existence reflects what one does, and what the rest of the world does as well.

Say's Law "Fail" in a Random Scarcity World

First, when did Say's Law ever function as a workable model? When people produced much of what they needed locally, the fixed scarcity of time use was still largely tied to local resources and commodities. However this had already changed before the 20th century. Even so, we all have the same amount of time at our disposal for production and consumption, and Say's Law was once a natural outcome of that fact. Only with the onset of technology and specific skill set designations, did that dynamic begin to shift. Whatever anyone felt about the transition, random resource scarcities which were unrelated to time, were expected to somehow make up for those who inexplicably had "no job to do". Only one problem, there remained no easily understood monetary link between those who still had economic access, and those who did not.

A simple microeconomic interpretation applies, in that most individuals held definable (producer) responsibilities in their environments except the very young and old. Some individuals were less free than others re choice of responsibility, but survival itself must have been a bit less confusing, just the same. Today, confusion as to survival for the marginalized, continues to confound everyone. That's why the Say's Law concept - failed or no - remains vitally important. After all, initial distortions in production and consumption at local levels only spread further with the passage of time, hence the issue is also important at a macroeconomic level.

In macroeconomic terms, the use of money keeps Say's Law from being possible in a strict sense. Plus, there is good reason for this. By necessity, money represents both the fixed scarcity of time use, as well as the random scarcity realm which may or may not be accurately considered, in accordance with time use (nominal targeting). What's more, fixed and random resource scarcities can have different growth trajectories, depending on the ways in which they intersect.

As a blogger, I believe it is necessary for Say's Law to apply for product flows in general, which I'll also try to explain in this post . Not only is nominal targeting capable of creating better equilibrium between different scarcity formations, but services between individuals can also be recreated at a microeconomic level with monetary representation. I did not appreciate Paul Krugman speaking of Say's Law as primitive, in a post earlier this year. This only shows a lack of consideration on Krugman's part, that random scarcities cannot be all things to all people, at all points in time.

One example of the present lack of balance in equilibrium flows, are increasing calls on the part of developed nations to create greater export capacity and step up manufacturing at home. Germany in particular is held up as a "good" example. So what's that all about? For decades, developed nations, in particular the U.S., were perfectly happy exporting skills sets, knowledge and technology to the rest of the world. What's more, doing so led to tremendous increases in global wealth.

Even if it were possible to bring back former manufacturing with vast economies of scale glory, that's not really the world anyone wants to return to. Who would fill their homes with manufactured goods now? What people miss is the capacity that former manufacturing once held for services generation. When manufacture left our shores, consumer as "economic savior" took its place. Both upper and lower incomes were expected to buy into the building construction wealth to services model, which demands a higher portion of disposable income than thirty years earlier. By no means did this process happen overnight - indeed it was like a pot coming to a slow boil - present day "bubbles" and all. What's more, managing the bubbles is a fools errand: services and employment are pounded every time "dangerous growth" is forced back.

While some high ranking citizens have questioned this outdated strategy for wealth creation in recent years, both government and private industry have been quite reluctant to let it go, because of the wealth and power it has extended to the entire group. With the relative decrease in manufacture, personal consumption took its place as the driver of services. One could say the consumption "product" was funding the services "product", a sort of Say's Law norm writ large - at least until the Great Recession.

For many, it's still too easy to think that money negates the need for any production flow balance. Certainly at a micro level there's truth to that for random scarcities. But the problem comes in monetary flows around the world, as the random scarcities of resources and commodities work at cross purposes with the fixed scarcities of human time. Even though people no longer needed physical product in a Say's Law sense, the need for their fixed scarcity time in equal measure, never stopped.

Why was it hard to see that the fixed scarcity of individual time for survival had become threatened? There remains a belief that random scarcities can somehow tend to all the necessities of life for everyone, even in recessionary times. Indeed, central banks remain inclined to look first to government budgets and finance considerations, before they consider actual spending capacity which is inextricably linked to the fixed scarcity of time use. This rationale of random scarcity wealth lies behind the confusion as to why we can't somehow feed a starving world with "excess" agriculture, for instance. Just as important, a lack of understanding re fixed scarcities means that nominal targets do not receive adequate attention in recessionary times.

It was the apparent wealth and plentitude of so many random scarcities, which encouraged local economies to build lifestyle expectations beyond the actual capacities of their residents. All too often it appeared that more would be able to benefit from the abundance than was actually possible. The same misguided directive applied to real estate valuations, pension expectations, and the local retailer who would get swamped with requests for community donations in the space of any given month. Small wonder that many resorted to hoarding money, so as to meet the unknowable service load one would inevitably face in old age, due to the healthcare structure which was the primary imbalance in the equilibrium itself.

How does one approach the broken link between fixed and random scarcities which underlies this problem?  Two conditions need to be met to create a more sustainable balance: Greater economic access in terms of physical product production, and in services production as well. Nominal targeting can especially assist the first condition, alongside innovation and regulatory reform. As for the second condition (services production), skills arbitrage can be utilized for a reformulation of Say's Laws in services at local levels.

The object for any society is not equalization of income, but to simply make certain that the monetary link between all citizens is not broken, so that the basics of life are always within reach. Monetary compensation for time arbitrage could provide the nominal connection between fixed and random scarcities. Allowing people to find and create their own supply and demand for services is neither irresponsible, nor an impossible luxury. Given the chance to choose between the vast proposals of the individual versus limited offerings as reduced by power struggles, most would take diversity of choice - if indeed they had the chance.

Lateral Time Use and the Knowledge Prior

How do we think about the differences between what we call work, what we actually consider work, and the work which many often go out of their way to avoid? To a degree that may seem apparent, but average retirement age structures from the last century make true differentials far less obvious, for instance. It matters not whether our jobs are really tedious, difficult or a fortunate blessing in disguise, for the retirement age speaks of a sameness in health approximations over time which nonetheless varies wildly, according to the work we actually do.

In other words, the work we actually want, we don't really consider work at all. Not only does it tend to keep us healthy much longer, the pay is mostly a bonus. What's more, the work people most enjoy is sometimes reminiscent of the play which inadvertently disappears from the schedules of too many children of the present. Increasingly, even the knowledge environments of adults don't always allow the spontaneity that was once possible. What if the process were inverted and work could recapture knowledge as prior instead of subordinate - to monetary rules which sometimes circumvent freer aspects of knowledge?

This post is not exactly linear thinking in term of work or pay structure approximations, so I'll try my best to explain. What's more this is not "change the world" stuff - it's just a mind stretch to see how people might actually include in their lives, the knowledge which became so important in the 20th century - knowledge which our institutions increasingly don't have room to use on an ongoing basis. While this line of thought underlies many of my suggestions, the idea of communities making knowledge wealth a first priority can feel a bit counterintuitive at first.

There are ways to recognize the knowledge prior in action when one sees it. In most any time frame, this is the work which people (with some mechanism of support) take on, even though it doesn't "pay" to do so. Much innovation and research stemmed from the knowledge prior before institutions took a goodly portion of this work behind their walls in the 20th century. For the sake of contrast, there are some simple ways to think about the knowledge prior.

Earlier societies utilized the knowledge prior mostly as an unpaid element alongside other activities, (especially whenever fortuitous circumstance freed up time) and it slowly contributed to the kinds of advances which made the Industrial Revolution possible. More recent adaptations of the knowledge prior were made possible, when wealth holdings once again made it possible to free up time for the greater challenges of the mind. In any circumstance, particularly valuable knowledge spreads because of its lateral use - i.e. when it is not strictly contained within institutional settings but works alongside them.

It often becomes difficult for knowledge to continue its spread in lateral terms, at historical junctures when people are paid for what they know instead of other vital components of economic activity. Sometimes education backfires for instance, because it may not view knowledge as usable or relevant outside of institutional walls. In such settings, the free use of knowledge may become questioned in other capacities. What's more, it becomes difficult for communities to harness skills wealth in terms that benefit entire groups. How then might communities make each member a miniature wealth holder to a degree that all might support one another in the free use of knowledge, so that production is not forced to create limited settings for its continued use? Part of the process depends on how supply side factors are considered as a whole.

So when I speak of lateral time use, this applies to the time we set aside in our lives for knowledge based work and decisions which are most important to us. Granted, how each individual views such time valuations is different for many reasons. What's more, the fact that we have the chance to tend to internal valuations ourselves, means we are less likely to burn out on knowledge challenges in the sense that monetary priors say it is "necessary" to do so.

Lateral time is equal time in the sense that it is our participation point of economic entry and access. Rather than an arbitrary designation of "low income" individual match with, say, low skill healthcare provider, a community has a chance to see how many want to participate over a lifetime in the actual experience of healthcare matching provisions. That's a better option than having such an important facet of life left up to chance in artificial designations of choice, through both limited provisions and societally "justified" coverage. Where a range of choice exists, most individuals would not see their options through the same lens as income level potentialities for services offerings.

People can have the option to use knowledge priors to create a greater degree of knowledge wealth, based simply on the agreement to support one another in the endeavor to make it possible. By continuing to associate resource use and (separate) product with the random scarcities they represent, skills use in time sequence can be seen as a constant in relation to other more random resource factors. Lateral time participation becomes an anchor both in a monetary and an internal time based sense as well. Even as the agreement (to use time as an equal point of entry) allows a form of internal Say's Law at local levels, the social arrangement continues to have a direct link to the external (non Say's Law) and random arrangement of scarce resources which work in normal monetary terms.

There is an instinctive aspect to matched knowledge use, in terms of what people might elect to use and benefit from. Because time is such a scarce commodity, people often choose time with others which has focused activity. Even children's play of the fifties and sixties (above link) had focus - albeit a more random sort. As a child of the fifties, the times I remember most about those years (when one could just knock on doors to ask neighbors to "come out and play") were the adult versions of life that we reenacted as children. Any present day skills sets calendars (education and work) would allow communities to put together such forms of focused "play", whether in the form of important research or community games.

One of the challenges of spontaneous work/education/play is knowing the difference between what people consider challenges or simply life responsibilities, onerous though some aspects of the work may feel at times. In terms of healthcare in particular, these elements frequently overlap, and any community would have to tease out the differences to understand the work challenges they desire and the work that is simply ongoing and necessary. The reason this is important is the fact that many low skill aspects of healthcare do not belong in a lateral time use setting, but absolutely require normal monetary reimbursement (non lateral terms) in order to take place through normal incentives.

Or, at the very least, some ongoing responsibilities could become part of a local "taxation" system - i.e. skills taxes which would also ensure a much needed skills base for participating citizens to rely upon. Also, and this is important: work which we enjoy for a period of time can quickly become onerous when we have to push beyond a set threshold for that work - a threshold that only our own physical and mental capacity can truly address. Everything about personal choice changes after certain thresholds are repeatedly crossed.

Local economies have incentive to create a supportive base for encouraging challenging work, for only a fraction of this work is actually generated today in any broad sense - whilst maintenance and tedious work is supported by absolute necessity. Fortunately, work which so often engages the knowledge prior runs the gamut to all aspects of life, and often there are opportunities to match such interests with the time of others. For local economies this can also translate into spontaneous forms of work and educational opportunity.

How do we know this is needed in the present? Many institutions - especially at local levels, are only able to offer increasingly truncated versions of the knowledge that was once available in actual product form to the public. While the internet has certainly made a difference in this regard, one problem now lies in the fact that society has yet to utilize this tool for full local knowledge integration. What that means is that local knowledge tends to be like a tree with too few branches and leaves, in that its energy is caught up in its primary trunks. By encouraging and fully developing lateral time use for knowledge, numerous local economies have the capacity to develop knowledge use in much the same manner as any desirable city location.

One important aspect of this potential is that the use of the knowledge prior allows a merge of what has been perceived as separate economies. Consider some recent arguments (per link) that broad innovation carries "too much risk" now for private industry! My readers know that I believe this to be a task for domestic summits, not for the scattered energies of government...no mercantilism necessary. Going forward, it may be the case that developed and developing nations adopt an approach which combines innovative and maintenance elements (earlier aspects of innovation that still apply) to greater effect, and lateral time use with the knowledge prior makes that possible.

Knowledge is like a wildflower. When anyone "pulls it up out of the ground" just to transplant it elsewhere, a couple of things can happen. Some knowledge flowers will do just fine - in hothouses, greenhouses (static or permanent team settings), special landscaped settings (institutions). In fact, some of those flowers will happily bloom and rapidly spread. But other flowers don't do so well. In fact, they may even die out if they are expected to live on a property where they are just not compatible with the soil or perhaps the lay of the land, and so need to be able to grow where seeds would carry them on the wind.  When we honor the place that is the time of the individual as true private property, the knowledge wildflowers of the world can once again bloom.

Sometimes, Simple is Better Than Perfect

This blog post doesn't really have a clear purpose: it's just one of those times when I wish that navigating the maze of life didn't have to be so complicated! For the most part over the years, I've sought to learn something new every day. But there are some things in life I will never be able to figure out, and lately Arnold Kling has taken to bashing aggregate supply and demand as a valid concept...why?

Maybe I've just been too close to Main Street over the years instead of academia. But to me, concepts of supply and demand are about as basic as it gets. Many who are steeped in "inflation certainty" (or, if it happens somewhere in the world it's happening here) have a similar problem when it comes to thinking of nominal targeting. Supposedly, such reasoning goes, nominal targeting is just another "measurement gauge" no more significant than any other, thus doesn't relate to other variables any differently. No, nominal targeting isn't perfect either. But if we wait around for perfect, we might be waiting for a long time. Consequently, perfect is something I consider a luxury good: nice on occasion, but not suitable for a daily meal. Sometimes it seems like the world would rather starve, than make do with some basic meals of knowledge workability.

Another one of those discussions that I can't for the life of me figure out: the idea that money isn't necessary in macroeconomic terms. Economic life does tend to get usurped by government self importance from time to time. But that doesn't mean government can throw something as basic as money right out the window and expect to get away with it.Yes, Simon-Wren Lewis, money is about as special as it gets for a medium of exchange and it seems that The Beatles definitely agreed. And of course Nick Rowe never tires of trying to figure out why money is weird, even if Simon-Wren Lewis isn't quite sure. While one's government may be fooled into believing money isn't a real concept, some of us don't fool so easily. My wallet doesn't have magic qualities which allow me to play make believe, although I sure wish it did.

And how did Say's Law ever fall into such such ill repute? In a pinch, when contracts get too stretched out of shape along with everyone's high expectations, and some service definitions become overvalued, one would think people could find a way to use services so that supply could in fact create its own demand. The best way to engage with those who tell us we can't make it happen? Just go ahead and make it happen anyway. That's another problem with perfect, it just doesn't walk the talk, even if it's great at talking.

Another problem with perfect. It always seems like one person's perfect is the next person's dystopia. I liken simple to the bird that will eat just about anything that moves...or perhaps isn't moving at all. They're good at utilizing what is. They may not be everyone's idea of bird watching, but they are doing a real good job at surviving. Social skills don't hurt, either. I don't know if eagles (which aren't picky eaters) have good social skills, but crows do. At one time, living on the edge of the woods, I felt really sorry for the crow who found  a possum on the nearby rocks, and so went to tell his friends about it. They came back with him, but in the meantime some other creature dragged the possum away. Perhaps his buddies gave him the benefit of the doubt in all the confusion (they hunted for the lost meal), for he certainly was trying! Long story short: simple isn't always pretty, but oftentimes (in spite of the hapless crow), it gets the job done.

If we had started working on the problems of the world a bit sooner (such as the need to redefine middle class) maybe those now front burner issues wouldn't have become quite so pressing. But the argument has always been "Everything is fine. We don't need to work on the problems unless they arrive." Mmmm, yep, the problems have arrived. And so far, the "perfect" models and solutions are on the usual display but they're not exactly making a difference in the places that need them. And time is short. At least I can feel better in that regard, since my own time is a bit shorter than it used to be! That means any sense of urgency on my part isn't exactly misplaced. Arnold Kling, I wish I could figure out the rationale in your head as to macroeconomic thought. But even if I'm lucky enough to live to 100 that's not likely to happen. Just the same, some of your observations are astute as ever, and your "signature" signoff feels especially appropriate here: Have a nice day. 

Robots Need Not Apply: Say's Law and the Work We Really Want

Recently there have been quite a number of discussions about the growing effect of robots on the workforce, and Robin Hanson (of Overcoming Bias) listed a short summary at a recent post for all who are interested. Hanson - along with the other discussants referenced here -  holds views on the future which are quite different from my own, but what was interesting for me is that he doesn't believe we are near as close to any potential singularity, or "rise of the robots", as some might believe. Certainly, technology has been well positioned to take on more and more repetitive tasks and even some non repetitive, but robots are not quite ready to take on the more important tasks of our lives. And even if they were... then what? The choice really is ours, and the way to reclaim the work we want comes from the most unexpected of places: a reclamation of Say's Law, which in simple form could be stated as supply creates its own demand. Say's Law could apply to services just as well as manufactured products, with more thoughtful use of our own aggregate time commitments, and the use of nominal targeting.,

Where to begin? First, it helps to put aside all unnecessary complexities and look at this with a "beginner's mind". For instance: Keynesians are right to say that Say's Law has been put through the shredder, but I guarantee you that is nothing to be proud of. Nothing makes sense if people have to give up on finding demand for the supply of their own skill and effort. Instead of people gaining value from their own merits, artificial limitations to knowledge use now have us viewing one another primarily as competitors for both scarce resources and jobs.Yes, certain resources will always be scarce. But those generally are not the ones we need every day. Many important services that are even more important than actual product, were also set up to appear as though scarce. Because we didn't realize we could become our own suppliers/providers of knowledge and skills services, the demand for them now has people backed up in "waiting rooms" of all kinds...the modern day equivalent of standing in lines for manufactured goods, in the twentieth century.

To be sure, there is plenty of work to share with the robots which readily take repetitive tasks of all kinds, including highly technical and demanding ones. Eventually, there could be robots for much repetitive work, but  some of those tasks will always remain worth keeping for ourselves. The main problem for us is that we have not quite thought through - monetarily speaking - how best to apportion a growing amount of the work we want and need most for a productive society.  Part of the present problems with central bank transmission mechanisms reflect earlier default settings for services provisions which are no longer adequate. Before we look at more effective ways to utilize our time, there are four categories that we will eventually want to either integrate into our routines or assign to robots: high skill non repetitive, low skill non repetitive, high skill repetitive and low skill repetitive. This is a dialogue that all need to take part in, and it should not be rushed.

The problem we face now is that we are trying to take on increasing amounts of life's challenges with neither money or economic measure. Some efforts happen in volunteer settings where only a fraction of potential clientele are served. Some is work that doesn't get counted as economic activity because it takes place within our families, friends or extended networks. What's important here is that there are times when we need to be able to accomplish such tasks beyond our own circles of activity, especially when our existing institutions continue to "outsource" portions of their activities to us on a regular basis, in spite of our full schedules. Whatever coordinated systems we eventually create, need to address that growing reality. Institutions can't remain strong by robbing individuals of their limited time, robots or not.

Some of the more challenging aspects of work might also exist as informal coordinated scaffolding of sorts, for the growing challenges our institutions cannot handle. This is why rights to knowledge use is so important. Otherwise, we will not be able to fill in for our institutions when they do fall short, and we certainly would not be able to reimburse ourselves monetarily. Institutions presently capture knowledge use within their bounds in ways that make it difficult for people to work together to find solutions, or even to perform the simplest volunteer functions inside of institutional settings. No amount of robots and outsourcing is really going to substitute for the mental challenges between institutions which we will always need to take part in. Likewise, there will always be important research projects that present day limitations on investments and tax collection cannot address.

Rights to knowledge use also allow us to reflect the best of civilization wherever we are, even to the point that a small town setting is fully capable of becoming a mirror of the world around it. Without rights to knowledge use, the individual is not capable of actualizing the wealth potential that took such time and resource use. With clear and designated rights, an entrepreneurial understanding as to arbitrage would also gain social settings where preferences and wants can often be dealt with on a one to one basis. Like the free markets and bureaucratic orders of the present, such preferences could be expressed both in timed and ongoing, spontaneous settings. Knowledge can only become an abundant good when we actually give ourselves the right to use it, otherwise austerity remains a constant threat in the background, even when it is constrained.

Applying Say's Law to arbitrage of our most basic obligations and skills sets is also a good stabilization strategy overall. No  nation can readily control the vagaries of commodity changes and circumstances, but the social aspects of our lives do not change so quickly, which is why they need special consideration now. Even though what we are able to do also depends on the resources at our disposal, the aggregate value of our time is the best anchor, even if a lack of complexity in one's economy makes it difficult for income and consumption to be the prime monetary representation. Plus, whenever populations feel positive about coordination in economic relations, efforts to maintain such coordination in resource use are also more likely to come to fruition. The better we are able to measure all economic activity, the better off we are.