"Medium Term" Concerns are Becoming Short Term Realities

Fitch recently downgraded the United States' long term ratings to AA+, but why? For many economists and policy makers, their recent report is both confusing and seemingly, untimely. Others however, such as John Cochrane and Olivier Blanchard, argued that the downgrade makes sense, and I agree. 

Indeed, there are good reasons for immediate concern. Among those but certainly not limited to, are higher interest rates on government debt, the rising debt stock, and rising healthcare costs. Unfortunately, in the 12+ years I've paid close attention to such matters online, these fiscal issues have often been scarcely noticed, other than occasional warnings to take heed and "do something". 

Consequently, the general lack of seriousness about the matter, made the the medium term seem as though something which would never arrive. In short, there's a broad based unwillingness to face fiscal burdens head on, which has left us with a government no longer fully committed to its debts. Alas, it is futile to insist "This is about Republicans" because - after all - Republican representation is part and parcel of our institutional makeup. Perhaps that explains why Olivier Blanchard declared our budgetary process is no longer reliable. 

There's little denying as well, how the world has changed after recent domestic market inflation which is far trickier to eradicate than tradable sector inflation. In his support of the Fitch decision, Adam Ozimek explains how excessive inflation made the world economy a heavier burden for many consumers. I get that for younger workers with good incomes, non tradable sector inflation is more of an irritation than anything. However, for many who have recently retired, such as myself, there's still a higher price level for housing and vital time based services which may be permanent, even if it no longer increases. This reality has dramatically changed the life expectations and trajectory of retirees who are mostly dependent on Social Security.

Again, much of what transpired relates to the secondary or non tradable sectors I've written about over the years. I still believe a lot of fiscally induced austerity could have been avoided in the near future, had proactive measures been taken for building manufacture and knowledge maintenance in domestic markets. Yet governments now focus instead on industrial policy which largely involves tradable sector activity. While some of this could turn out well, still recall how many of these institutions eventually find their way back to good deflation via internal means. Whereas we could have realized clear benefits from innovation in domestic non tradable sectors. Indeed, careful attention to the creation of good deflation in these markets, might have kept our government from becoming so unstable in the first place. 

In all of this, what if Fitch wasn't an "appropriate" institution to raise a fuss about government fiscal shortcomings? Axios wrote: 

There is no doubt that U.S. policymaking can be a messy affair and that the current deficit trajectory is problematic. But it's not as if credit analysts have special insight into the scale of those challenges or how likely they are to spill over into some kind of default or crisis.

Well, who else should have suggested taking action, in their stead? For that matter, what institutions have we created, that are specifically positioned to address such concerns? Perhaps one reason such warnings went unheeded, is that no such institution exists. What we have isn't designed for these tasks in the first place. It seemed every time institutional "onlookers" referred to the medium term problems of fiscal burdens - even onlookers with extremely important responsibilities - people reasoned how they should not concern themselves with such things. 

The result? We inadvertently destroyed much of the impetus that might have existed, to address "medium term" concerns regarding fiscal burdens. Nevertheless, kudos to those who continued to sound the alarm just the same. That said, talking about it was only a starting point. The real challenge in all this, was to start doing things, and often just simplifying things, so as to actually reduce daily living costs for consumers on a regular basis. Then, and only then, a real chance to reduce government fiscal burdens as well, in a way that likely doesn't necessitate punishing austerity. Is there still a chance of doing so? I have grown tired and weary, and I'm hardly the only one.

An Economic Alternative for the Baumol Effect

There are ways to counter the Baumol effect. But how badly do we want to? Indeed, to what extent are we aware that other options exist, in terms of productivity?  An article from Noah Millman, "How a productivity phenomenon explains the unraveling of America", highlights the seeming inevitability of the present conundrum which inhibits long term growth and prosperity. Perhaps it is not surprising that he frames the Baumol effect as a "chronic illness" which everyone will simply have to live with. Still, I am encouraged that a mainstream publication such as The Week, was willing to explore a concept which till recently was relatively obscure outside academic circles. 

In his article, Noah Millman is understandably concerned about the Baumol constraints of time based activity on education, healthcare and public safety, given the importance of "hands-on person to person interaction". He explains:

We can - and should - look for ways to make all three sectors more efficient. But we should also rationally expect them to get more expensive, and to consume an ever-increasing share of the national income, unless we're willing to let their quality deteriorate or put them out of reach for an increasing share of the population. 

Regular readers know how I feel about time based services consuming more national income than is already the case. We need local patterns of economic time reciprocity, so that broader services access becomes possible without additional budgetary obligations. Nevertheless, Millman continues:

If Baumol's Cost Disease is an important driver of costs in these sectors, then we should expect them to consume an ever-increasing share of the national income - but not only that. If we socialize those functions so as to provide equal services to the citizenry, taxes will have to increase every year just to keep quality steady. And if we don't raise taxes enough, then inequality will increase even as costs rise, leaving more and more of the population poorly provided for. And in either case in a world of tight budgets, these sectors will increasingly be competing with each other for the marginal public dollar, and devaluing competing sectors' contributions to the public good.

Ultimately, individuals who care about inequality, could utilize time arbitrage in participating groups so as to coordinate supply and demand of services, thereby making them more affordable for all concerned. Importantly, this decentralized economic option means a willingness to adjust one's own income expectations accordingly! However, accepting less income also means confronting the present necessity of monetary sacrifice for the human capital expenditure now required, for what is often simple mutual assistance. Even though it is no longer feasible to increase time based services via today's general equilibrium revenue, what impressed me about Millman's article was his recognition how the struggle for time based services affects today's political environment:

It's a recipe for perpetual revolt by both those who pay more into the system, who feel - rightly - like they're paying more and more for less and less, as well as by those who pay less into the system who feel - rightly - like services are getting less and less equitable even as they are getting economically squeezed harder and harder. And if "perpetual revolt" sounds a lot like America today - and it should - then sadly, because of Baumol's Cost Disease, satisfying the demands that fuel that revolt may not be possible.

He sums up: "Sadly, Baumol's Cost Disease is incurable. All we can do is learn to live with it as a chronic condition". If only we could! Alas, this structural issue can't be neglected any longer, for the level of political discord has already ratcheted up to an extreme level. We can no longer assume or hope for a benign outcome, if our political turmoil is not addressed via specific and decentralized economic means. Without a productive response, not only is our nation increasingly likely to deteriorate from within, it might also lose its ability to positively influence other nations. Sadly, many nations are not presently well positioned to address existing inequalities. But individuals still could, so long as they are able to secure and maintain the production rights which make it possible to do so.

Millman thought through his arguments carefully, and for good reason I agree with his summation in certain respects. In a similar vein, already existing debt and budgetary burdens should not be used as excuses for austerity, especially if the relevant supply side chains allow service markets to collapse, or the "wrong" party happens to be in power. However, expectations for the supply and demand of skill and knowledge provision will continue to exacerbate cultural battles, should economic access be sought solely through this form of organizational capacity. Stated another way, my disagreements with Millman are not based on moral grounds, but on what I believe overall monetary revenue to be capable of in the foreseeable future.

We can build supply side alternatives which better align supply and demand for time based services, before modern economies are completely undone by financial repression and/or unwanted austerity. However, we need to get started now, if we are to build a structural response to the Baumol effect. Fortunately, when our economic time commitments are symmetrically aligned, we gain the ability to create services based wealth which is not subject to total factor productivity losses. Even though nations will still need the economic option of paying for applied knowledge on asymmetric terms, symmetric time alignment allows us to productively respond to the Baumol effect.

Knowledge Wealth vs the "Protection" Option

Is the product of knowledge still capable of contributing to long term growth prosperity - given the degree to which it is now "protected"? While some protection of knowledge product is warranted, copyrights and patents can still diminish the dispersal and competitive options of knowledge in the marketplace. Only consider for instance, how knowledge as primarily rival in use, now threatens the demise of extensive undertakings such as Google's database containing 25 million books.

One might describe knowledge product as "coming into its own" in the 20th century, as a primary contributor to wealth creation. Copyrights, patents, and of course public and private high skill employment, meant quantification and clarification for intellect as monetary value. These protections became more important as economies grew more complex, and were perceived as necessary in order to secure institutional advantage.

However, the loss of non rival knowledge for marketplace purposes, has proven a higher cost than once may have been imagined. Today, important non rival marketplace knowledge is mostly limited to "special" zones, where productive agglomeration at least makes some degree of knowledge sharing a reasonable proposition. What's more, the sharing of non rival knowledge for private tradable sector activity, could be more prevalent than the closely held knowledge of non tradable sector activity, as associated with government and non profit funding.

Once, intellect and personal ability were not so protected as marketplace functions. Until the 20th century, personal ability was associated with individuals who created autonomous and personalized spaces for the work of their choice. Gradually, that autonomy gave way to the asymmetric compensation of paid employment, for the externalized challenges of public and private enterprise. Might intellect have a chance to return to its autonomous roots in the near future? In the meantime, populations grow more compelled to march in the streets, so that the world will not fail to take note of the funding losses which might only be just getting started.

Perhaps "protection" was not such a safe bet, after all. Yet the asymmetric compensation of paid employment for high levels of skill, established a precedent which - until only recently - appeared secure as an organizational economic tool. Nevertheless, institutional skills capture, given its erratic nature, has come to mean increasing risks, for the human capital investment that is required for this organizational approach.

Further: where autonomous knowledge use was often non rival in nature, the knowledge capture of both public and private endeavour, meant little choice but to use knowledge as rival to other existing knowledge. The result? An uncertain supply side mechanism for knowledge use, which can't be relied on to provide a strong framework for knowledge gains as an integrated and ongoing process.

A different form of social cohesion is needed, which would allow the seekers of knowledge related endeavour to pursue their craft alongside more mundane responsibilities of life - with or without the traditional markers of success. The mutual self employment of knowledge use systems, would exist alongside innovative non tradable sector environments. The greatly reduced costs of these environments, would make it possible to pursue intellectual challenges without the exhaustive expenses which are required in the present. Plus, mutual self employment could also provide a safety net for a full range of skill functions, which would allow more individuals to pursue the challenges of knowledge over the course of a lifetime.

Increasingly, it is becoming difficult for governments to fund a wide range of taxpayer supported projects. This would not be such a problem, were there sufficient means to continue these vital challenges on private terms. Knowledge use systems could make it possible to pursue life's higher challenges via more secure footing in the future. What's more, this organizational method could do so, in ways which return non rival knowledge use to its natural wealth creation role.

Economics "Rescue"? More Pragmatism Needed

In a recent post at Bloomberg, Noah Smith expressed hope that academia, i.e. the "ivory tower", would gain a more relevant economic role in the near future. For Noah, the DSGE model is part of the problem. He summarizes the article with these thoughts:

When we understand the pieces of the economy better, we'll have a much better chance of grasping the whole. If this continues, maybe the ivory tower will have more relevance for the Fed, the financial industry and maybe even for our coffee house discussion.

Brad Delong enthusiastically backed Noah on the irrelevance of the DSGE model, while in response to the overall exchange, David Andolfatto explains for his students why he continues to find the model useful. Meanwhile, Narayana Kocherlakota took the discussion a step further:

Academic macroeconomics is specifically designed to be of limited use to policymakers like the FOMC.

Should Kocherlakota's statement be considered accurate: given the importance of the FOMC, since the Fed largely consists of academia, there seems to be quite a communication problem! Regular readers already know how I feel about the matter, which is summed up by this post title. Much of the problem stems from ideas about resource patterns that developed when human capital (in aggregate) seemed less important than other forms of capital. As a result, twentieth century economics was predicated on the assumption that individual economic actors weren't really all that important - either in a monetary or fiscal framework. Likewise, the importance of money's role was also downplayed in the twentieth century economic model.

One could say that the first rule of economic pragmatism should be to faithfully represent the aggregate spending capacity, of a nation's level growth trajectory. Commitment to a level nominal target, can also be thought of as the commitments which economic participants have already assumed for one another in the marketplace. When central bankers refuse to provide this basic level of monetary representation, productive capacity is all too easily lost. The only difference between today's ongoing loss of productive capacity - versus that of the Great Recession - is the fact supply side capacity continues to dwindle at a less obvious pace.

Also, one of the most concerning issues since the Great Recession, is that policy makers have yet to realize the importance of sustained labor force participation, as important for long term economic viability. Even so, the particulars of labor force participation are important for central bankers insofar as the latter provides accurate monetary representation, instead of being distracted by the needs of government and credit driven institutions.

The hard work of production reform, is not the responsibility of central bankers. Unfortunately, too many business interests have refused to acknowledge their role in ensuring broad marketplace participation and economic access for all concerned. When both public and private interests gradually hire fewer workers over time, the lack of economic participation means problems for the shared responsibilities of infrastructure, as well.

No new economic models would provide useful application, if they don't acknowledge the reality of the conditions which have gradually led to economic, hence social and political gridlock. All political parties now have limited options, due to the way that state and national budgets have been affected by countless earlier decisions - particularly those of "kicking the can down the road". Should political factions be unwilling to squarely face what has actually occurred, economic conditions will gradually decline, regardless of who is in power. For a long time, academic discourse happily remained beyond the political fray. Now, in order to remain relevant, academic discourse will need to dig deeper, to provide assistance in what has become a political, social and economic impasse.

Economic potential for the 21st century, resides in human capital. But governments cannot fulfill the roles of human capital which need to take place at local levels in the context of time based product. Meanwhile, governments have little choice but to short the human capital investment which has already occurred, in order to meet their budget requirements. How will policy makers respond to the growing gaps in marketplace representation that are already taking place? For instance: neither the public or private interests which negotiated Obamacare, were willing to acknowledge the need for human capital and time based product in terms of a truly free marketplace.

These knowledge and service based roles are precisely the ones which governments and special interests seek to control. However, it is this lack of willingness to allow true freedom for services provision and time based product, that makes long term austerity such a threat for many nations. The realities of supply side factors are important for any economic model, since growth and continued prosperity is not possible if they are ignored. The coffee house discussion which Noah Smith spoke of, also contributes to public understanding to some degree. But it is the other private and public interests he discussed which need a better understanding among themselves, if future economic models are to really matter.

Conceptualizing a (Shifting) General Equilibrium

There's plenty of uncertainty about general equilibrium conditions. Is the economy stable? Will the marketplace even function recognizably in the decades to come? Ahh, just dish it up straight: are people coming unhinged? If so, it's not so hard to figure out why. A Vox article prints yet another variation, on a loosely thought through argument:

Lessons from the IT Revolution are that firms with relatively low-skilled employees are likely to be affected negatively by the new industrial revolution, and those with highly skilled employees tend to reap benefits.

My concern is the takeaway this reasoning implies. Does that mean everyone still needs to prepare for high skill work, all the while making certain that they don't end up with the unfortunate signal of lower skill work, instead? Good luck with that. Oh, the horror and social stigma, that it's become necessary to distinguish today's work "lottery" as such! Hence Andre Spicer of The Guardian:

The idea of the knowledge economy is appealing. The only problem is it is largely a myth. Developed Western economies such as the UK and the US are not brimming with jobs that require degree level qualification. For every job as a skilled computer programmer, there are three jobs flipping burgers. The fastest growing jobs are in the service sector. One-third of the US labor force market is made up of three types of work: office and administrative support, sales and food preparation.

The majority of jobs being created today do not require degree-level qualifications. In the US in 2010, 20% of jobs required a bachelor's degree, 43% required a high school education, and 26% did not require even that. Meanwhile, 40% of young people today study for degrees. This means over half the people gaining degrees today will find themselves in jobs that don't require one.

Of course this doesn't stop employers from expecting their employees to have college degrees, whether or not they are truly warranted. Perhaps these facts are also on the minds of those who are coming out in support of UBI. Granted, the rational solution of government subsidies for low skill workers is only a partial one as well. Why? Government low wage subsidies would be limited to existing jobs, i.e. those of today's prosperous regions, given today's high bar of economic engagement. However, one person's idea of what a UBI "should" be, is possibly another person's nightmare. From Charles Murray at the WSJ:

...the UBI is an idea whose time has finally come, but it has to be done right...A UBI will do the good things I claim only if it replaces all other transfer payments and the bureaucracies that oversee them.

Murray's vision of a UBI might be thought of as a "gotcha!" moment, for long term budget issues which most people have been sane enough (unlike myself) not to address, directly. Murray's "let's not think too hard about this" approach would also threaten some of the aforementioned administrative service jobs, which often make college degrees so lucrative in the first place. Equally important, is that a no holds barred UBI would be the next logical step from block grants to the states. Just add one part political gridlock to one part economic stagnation, mix well, and watch budget minded policy makers gradually unwind government obligations beyond that of police and the military, it would seem.

So the question remains: Are policy makers and the private sector committed to supporting broad prosperity, should national government gradually reduce itself to a bare minimum? Are there sufficient means to include widespread knowledge use, as part of a vital marketplace? If a radically minimal government seems preposterous, one can't help but notice how the private sector is too quiet about aspects of austerity which aren't being replicated for free markets, even as their subsidies are threatened. Imagine a devolution to "government services: there's an app for that", or people completely opting out of education or healthcare because of marketplace deterioration.

While digital platforms have the capacity to transform economic outcomes, personal time and consideration must remain integral to the process, for those platforms to matter. However, knowledge use as a central component of the economy, is in no position to be taken for granted right now. Indeed, limits on knowledge use continue to raise the bar for economic entry. A consequent reasoning of college degrees as poor investments, is unfortunately not too far off the mark.

Even though I identify as a libertarian, I'm not averse to all aspects of centralized government. Just the same, nation states don't realize the extreme harm they continue to cause their own citizens, who resort to taking out their frustrations on one another. The concept of freedom should mean being able to freely choose one's activities with others in the marketplace, on economic terms. Governments and private interests took a hierarchical approach to services in the twentieth century. Not only is this approach outdated, neither governments or special interests can expect the time/knowledge based marketplace of the future to be supported through fiscal means.

Hence governments don't have the capacity to build upon and protect knowledge use for the long run. This prerogative belongs to the private sector, for better or for worse. Which is why it is so unnerving, that the fact knowledge use potential actually belongs to the private sector, has been completely missed in the dialogue about automation and the workplace of the future. Will the private sector accept the challenge? One can only hope.

Access Restructuring, Not Debt Restructuring

Debt isn't quite the point, when it comes to arguments about economic stagnation. Furthermore, this is true for both publicly and privately held debt. Instead of struggling to get debt levels and structures "right", why not go to the heart of the problem, for which debt is mostly a symptom: basic forms of economic access now claim a disproportionate degree, of what was once discretionary income for many income groups. Sometimes, what appears as though excessive debt is excessive barriers to living a good life, in disguise. And no government can expect to gain sufficient revenue from expanding basic consumption requirements, indefinitely.

In part this post is a response for Scott Sumner, who recently asked, "Does debt slow growth?" Even though debt loads sometimes appear to slow growth, they are hardly the root cause of economic stagnation. Just the same, debt is often approached as though it were the main problem. In a recent Project Syndicate post, Carmen Reinhart notes:

...nearly eight years after the global financial crisis, burdened by high and rising levels of public and private debt, it is baffling that comprehensive restructuring does not figure prominently among the menu of policy options. Indeed, for the global economy, debt restructuring is the proverbial elephant in the room.

While I share Carmen Reinhardt's concern about debt levels, my response takes a different turn, regarding the possible effects of debt on long term growth. It is doubtful that economic access would significantly improve, were debt restructuring to take place. Also, government debt is more burdensome than private debt, in part due to time based services that governments still hope to fund indefinitely from existing revenue. Just the same, government revenue access will likely face more restraints in the near future, than what existed prior to the Great Recession.

Too many knowledge based services - important as they are - don't readily translate into primary (initial) growth capacity because they still rely on preexisting wealth. Hence the private sector needs to openly acknowledge that some government commitments cannot continue, i.e. some private sector "protection" will decline. Asymmetric compensation alone, on the part of those with enough disposable income to pay for knowledge based services such as healthcare, would ultimately mean a radically diminished marketplace for services formation. The knowledge based marketplace which governments have valiantly sought to represent, now needs stronger commitments and greater societal inclusion, from the private sector. Until this occurs, some aspects of ongoing government budget losses would be suffered greatly.

Meanwhile, private debt concerns are overstated - especially given the fact no one should have to rely on loans for living and working needs as the primary economic option. What purpose would be served, to "wait" for already existing debt obligations to "wind down", only for consumers to be faced with the same debt necessities in the future just to gain economic access? These private debt "overloads" need structural remedies, for the lower income levels which could contribute to potential growth and output levels, if given the chance to do so. Government budgets, however, reflect a complicated dynamic in terms of both marketplace fragility and opportunity. Long term, much more is at stake for public debt, than the need to generate broader housing access which could ease private debt.

National governments began to stray from basic responsibilities and functions, as fiat monetary formation became associated with the worldwide wealth of tradable sectors in the twentieth century. More recently, as they assumed greater roles in domestic economic activity, both citizens and the private sector began to rebel at the revenue now associated with daily government operations.

Thus far however, the main political responses are either threats to cut off existing revenue options (the "good riddance" strategy), or to pretend the problem doesn't even exist. Both responses are non starters. This is why it is so important to distinguish between the kinds of knowledge use which are especially needed at local levels, versus the knowledge use and dialogue most helpful for coordination between nations. Public budgets will still need to account for national and international coordination, while private budgets need to assume greater roles in local coordination.

Even though consumers have been called irresponsible, the ultimate responsibility for debt formation is with the governments which agreed (with private interests) to make consumption requirements intractable in the first place. Some would like to see government budgets whittled away by cutting the economic activity that is associated with them. But cutting out the good with the bad, is only an approach that would lead to tremendous economic losses. Through access restructuring, it may become possible to regain much of the lost ground, that has occurred since the Great Recession.

Thankfully, Trade Doesn't Have To Be A Zero Sum Game

That said, societies could be making efforts to make certain trade remains open to all, so that economies don't become a zero sum game. Too much rigidity in non tradable sector formation, now contributes to a general impression that it's all zero sum! It certainly doesn't help, that central bankers have been reluctant to provide accurate monetary representation, for those who hold economic commitments to one another. Hence it's not difficult to understand why some are becoming convinced trade is a zero sum game, in spite of arguments to the contrary - such as my own.

Perhaps the fact I recently wrote a post defending neoliberalism, accounts for a scolding I received from a commenter in that post - one seldom knows for certain. When I looked up John L. Davidson, I found a Miles Kimball post from 2013 which highlighted an article from this attorney. Never mind any discrepancies he may hold in terms of economic viewpoints, as contrast with market monetarists such as myself. That's not what's important in this context. What I am concerned with, is clearing up some misconceptions he apparently held of me - indeed one could say misconceptions as to my entire purpose for blogging. From Davidson's comment:

You seem to think deflation has a place in economics. Not when 85% of your economy are services for which deflation is not a choice or option. Medicine, law, and haircuts have too large a labor component to get cheaper w/o reducing the incomes of those providing the services.

First, if I have come across in my blogging as a deflationist, then I have done a poor job of communicating to my readers. So first, for the record, I am most certainly not in favor of deflation, especially given today's structural circumstance and the need to further include many who still lack economic access. All the more true, when the good deflationary potential of tradable sectors remains swamped by the bad deflationary potential of non tradable sectors (and tradable sectors by extension). Even bloggers such as George Selgin who have highlighted good deflation over the years, would acknowledge this unfortunate fact. Regardless, central bankers need to maintain present day income levels in aggregate - both to make it possible for individuals to maintain their financial obligations to one another, and to protect central components of asset value in general equilibrium conditions.

Also, it may have my neoliberal arguments in the above linked post, which led Davidson to assume I don't believe in progressive taxation. In terms of the fiat monetary structure of governments and nations, taxation has been and will always will be important, for the kinds of activity which are difficult to carry out otherwise. That said, taxation needs to be implemented far more effectively than is now the case. Taxation has been abused in entirely too many instances, to support forms of activity which otherwise could be more directly and broadly generated. However, devolving economic activity to state or local control with no intent to build a broader marketplace for time value, would be an unmitigated disaster. Still, much of today's taxation is not effective for its intended purpose. Among other problems in this regard, much of the economy is structured on terms which don't allow growth to overcome debt based fiscal requirements, at aggregate levels of output.

How to think about this problem? Anything that is fiscally backed, has to be paid for again, with already existing revenue. Further, fiscal multipliers often don't apply, for what is little more than ongoing fiscal obligations. Once developed economies evolved towards fiscally supported services as relatively more important than monetarily driven tradable sectors, governments initially had means to make up revenue shortfalls. In particular, government held direct involvement in the wealth creation of asset formation, through the international monetary flows of fiat monetary formation. So long as worldwide economic growth remained strong, this connection served as a substantial government multiplier, which tended to "cancel" the debt issues of ongoing economic obligation such as subsidies and (certain aspects of) entitlements.

Indeed, worldwide growth made government asset management a fallback position, for more than half a century. However, with the recent pause in worldwide tradable sector activity, more than asset management is needed for long term budget considerations. A broader marketplace is now necessary, for continued worldwide growth. Plus, the adoption of more direct forms of wealth creation would offset growing burdens in fiscal obligations and requirements.

One approach to this long term growth dilemma is a marketplace for time value. A marketplace for time value would provide means to stabilize general equilibrium, by restoring internal trade at local levels. By opening trade options to the potential of time value, nations would not need to worry, what their unique mix of tradable and non tradable sector activity actually consists of.

Fiscal policy, like monetary policy, is not "out of ammo". However, fiscal obligations have not been closely considered, as to where they could provide the most support to populations as a whole. As a result, present day fiscal restraints represent problems for aggregate growth potential. And without full employment, adherence to an inflation target (instead of NGDPLT) could lead to gradual deflationary effects. Fiscal policy cannot provide an indefinite stand in for aggregate time value. Today's time value in aggregate has to "wait in line", for time which is deemed to have value. The effect is low economic velocity, both in terms of time coordination and monetary flows. This pattern impedes both monetary and fiscal efforts for stimulation.

Plus, today's high fiscal levels of economic activity are largely responsible for the "full" equilibrium conditions which now limit economic access to a minimum. The structural change that is particularly needed for lower income levels, is economic activity which need not be backed by debt - either at the level of individuals or nations. Why? Today's debt requirements are immediate barriers to both economic access and growth, at microeconomic and macroeconomic levels. By integrating time value into the fabric of non tradable sector activity, alternative equilibrium conditions can be built which don't rely on government or private sector debt, to take place.

Doing so, would also make it obvious that trade need not be a zero sum game. Indeed, the fact that service sectors are a major economic component, makes it mind boggling to expect so much non tradable sector activity to occur on fiscal terms. Likewise, for tradable sector wealth to be supposedly somehow responsible for backing the vast majority of knowledge and time based product! And yet this is the reasoning that policy makers have inexplicably made, instead of looking closer to home to reformulate 21st century time and services based product.

Granted, the asymmetric compensation that progressive taxation and government redistribution provides, is still vital for the forms of knowledge use that have important applications beyond local spheres of economic activity. Eventually, with closer attention given to non tradable and tradable sector flows, one can hope that government budgets ultimately do a better job of moving budgetary obligations towards the forms of knowledge use that matter most in this capacity.

Sometimes I am called to task for what I appear to say, instead of what I've tried to express. Those are the times when I wish my early education included a better grasp of mathematical concepts. If only my mind worked so that I knew how to provide visual representation of the economic concerns which worry me most! Suffice to say that much of what appears as austerity, really is not. Instead, it is indiscriminate political handouts with little rationale for the economic ends they serve. If budgets are not carefully addressed in the years ahead, much of the very good could be lost with the needlessly included. Governments have maintained such a large stake in economic outcomes, that fiscal policy as handouts for all comers is finally getting in the way of growth.

In order for future governments to thrive, they need to discover what government budgets best serve, and then leave ample room to respond in changing economic times. Government provided asymmetric compensation should tend to knowledge based functions which are truly state and nation centered by nature. Instead, governments have compensated local knowledge sets in ways that resulted in the extreme loss of aggregate time value. As a result, too many individuals found their level of skill capacity deemed insufficient, to contribute to the greater whole.

Economic activity that is backed by mutual time value, would give fiscal policy a chance to stabilize general equilibrium conditions and the role of fiat monetary formation. General equilibrium conditions cannot always provide full integration, during periods of low worldwide growth. This is the time when knowledge use systems are most needed, to make certain that entire generations are not lost, and valuable knowledge preserved, as well. Trade does not have to be a zero sum game. Don't let that happen.

Sustainability - Different Definitions for Different Groups

Sustainability...is it about budgetary responsibility, responsibility for the Earth's fragile ecosystems, or something else altogether? Sustainability concepts can be difficult to discuss without moral overtones, because people feel strongly about them - albeit in different ways. For this blogger, sustainability matters most in terms of the economic systems that populations rely on. How can individuals be expected to care for their environments, if sustainability does not take humanity into consideration?

Some on the right mostly think of sustainability as a balanced budget. In the present - unfortunately - both Democrats and Republicans associate sustainability with limits to growth, which in turn affects monetary policy. The Republican stance for limited government can come across as hard limits on services formation, whereas some on the left think in terms of limits to "crass" materialism. Both perspectives can be harmful, for more recent arrivals to the marketplace who could use a bit more of both. The "limits to growth" mindset is also a burden for all who seek economic access, because choices are now too limited, in what has become a "full equilibrium".

While some progressives view sustainability in terms of local economic potential, the "we'll grow or make our own" mindset tends to be a reaction against the benefits of international trade - even though tradable goods are not the problem. Tradable goods have provided immense benefit for the poor, even as the non tradable sectors have become problematic for all concerned. Granted, more production needs to take place in the U.S. But organizational capacity needs to be strengthened in the non tradable sectors of knowledge use and building options, where people of multiple income levels still have insufficient economic footing.

Both sides of the debate have missed the fallout from reduced labor force participation. This plays havoc with markets to a greater degree than is presently acknowledged. Only consider the effect of lower labor force participation on fossil fuels use in the U.S., which means further layoffs in states which only recently had been leading the way for economic growth. If the right can be faulted for ignoring the vital role of services in the economy, the left can be faulted for paying little attention to the fact fossil fuels use is already in decline, in spite of the fact that no infrastructure adaptation has taken place.

Another example of confusion regarding monetary sustainability is Steve Keen, an economist at Kingston University in London. For understandable reasons, his "quantitative easing for the people" has gained a wide audience. However, there are central flaws in the debt jubilee and basic income concepts, and their presumed capacity for solving the problems of economic access. A basic income would seriously distort the maintenance of any economic equilibrium, because it leaves no room for economic mobility or one's capacity to contribute to economic outcomes. Even if it were possible to create a basic income, this structure would not hold up well over time, because of the generational problems associated with those who lack economic access for the full duration of their lives.

One of the most important aspects of sustainability, involves the further proactive evolution of services structures which originated in the 20th century. Whereas the political left expects governments to continue funding services as they presently exist, others on the right remain unconvinced that services are an important part of the marketplace. This lack of foresight regarding services, helps to explain why both governments and economies falter when austerity appears as though necessary, and no one has a plan in place to ensure that services are not lost.

The fact that so many citizens in the U.S. still yearn for the broad manufacturing base which once existed, is a good indicator that much work needs to be done, regarding economic sustainability. However, the primary efforts need to take place at local levels, in the non tradable sectors of the economy. There are ways to rethink organizational capacity, so that the advantages of corporate structure need not be limited to prosperous regions, and I will touch on this in the next post.

The Things That Are Economic

When national governments utilize fiat monetary systems as means to increase power - instead of maintaining the integrity of economic connections - populations suffer.  Many who think carefully about such matters, are beginning to doubt a long standing trust, as governments share power with special interests. Some are even willing to consider calls for secession on the part of states (in the U.S.), despite the fact such calls are no panacea for anything, right now. What sort of economic context do those calls suggest? How would some states better represent their populations, and through what means which Washington does not already provide?

Traditional Republicans view calls for secession as ludicrous and quite unimaginable - as do Democrats - and understandably so. But both parties need to be paying closer attention, to a segment of the population which is now being swayed by secession and anti-fiat monetary system talk. Gridlock in Washington is beginning to breed a "do something" mentality, but this reaction would hardly be a proactive step. Presently, states are equally inclined to follow the nature of special interest requests, which would only further limit both service formation and knowledge use. What states legislatures might not realize, is that doing so would only limit other means of production output as well.

Not so long ago, few in power questioned the benefits of the fiat monetary system which developed in the twentieth century. In a sense, fiat monetary formation contributed to new forms of knowledge based services during those decades. However, the resources which Washington once had to do so, are mostly earmarked for other purposes. Even though knowledge use needs to be locally reconfigured by the private sector, no one has begun to initiate the process. In all of this, states still rely on Washington for their own participation in services systems. As Scott Sumner recently noted, states have little choice but to be conservative at local levels, by the nature of their (much smaller) budgets:

2) The hard constraint imposed by a single currency makes European countries behave more like (American) states than countries. Think about it. State debts tend to be much smaller than the Federal debt. States are desperately struggling to bring pension costs under control, while 70 Congressional Democrats call for "expanding" Social Security benefits. 

Unfortunately, expanding Social Security is likely not an option, particularly for lower income levels which will need to create local investment in the future. Even the wealth still available to Washington (such as recent profits on student loans), is earmarked for already existing obligations. Washington's role in the housing market has likely peaked, as well. It's time for citizens to become a real part of all that is economic, once again. Otherwise, the fiat monetary systems which brought so many new options in the twentieth century, could end up in jeopardy. Human capital needs to become a direct component of wealth creation, in order for this all too recent monetary standard to flourish.

Two aspects of a potential services wealth process, are particularly important. First, individuals need to be able to help one another through both formal and informal means. In other words, one needs to be able to arbitrage time value which works best for entrepreneurial providers and recipients, instead of relying on outdated and externally defined services roles. Even though such limitations tend to be attributed to government, often they are first imposed by private special interests, with government's approval.

Second: investment for lower income levels is generally more centered around economic activity which holds personal meaning. Hence it often involves considerable sacrifice and commitment, and needs structures which can provide a gradual and incremental process. This form of investment needs a completely different design, from the large scale investments which are intended for large groups seeking monetary gain instead of personal involvement.

Another aspect of large investment holdings (as opposed to what is needed), is the fact they realize gains from the use of time and other resources in a rival context. Rival context by necessity of design, leaves someone or something out. This is why - for instance - it is not logical for governments to invest on behalf of everyone, when they utilize (what has to be) a broad exclusionary framework in order to generate profit.

Local investment pools for knowledge use systems wouldn't need to exclude (local) time aggregates in order to generate profit, because they would optimize a wide range of related factors close at hand, in mutual support settings. Time would be rival only in the sense of spatial match possibilities. This process would also align with specific individual and group preferences. In those inevitable moments when individual risks prove too great, the group would still benefit from other shared investment sets.

Governments are able to maintain stability by making certain the things that are economic, also remain a vital part of the life of their own citizens. Any region in the U.S. which experiences problems with unemployment and services limitations, deserves a chance to start anew. Even though decentralized settings are not a direct part of government wealth, they are still able to contribute to a nation's wealth in many ways. Secession possibilities should not even be on the table - particularly for states in the U.S. Instead, a greater understanding is needed, how to remain independent, and yet together, at the same time.

More Thoughts on Austerity

Austerity is not the straightforward subject which it sometimes seems. Increasingly, the austerity which matters - and nations need to avoid - isn't necessarily what policy makers are well positioned to address. Unfortunately, Paul Krugman contributes to the general confusion by insisting austerity is inevitable in the UK, due to the fact Cameron won the election. Austerity in terms of what...or whom?

One reason austerity appears "inevitable" during budget cutbacks, is that few policy makers get the chance to prioritize the knowledge based services which populations find most important. In these circumstance, no amount of money seems to ever be enough. Plus: do individuals and private enterprise have adequate means to provide the time based endeavor which no longer has government backing? In particular, the lack of a marketplace for time, makes it difficult to discern services priorities and vital knowledge capacity.

Given this reality, how much of a problem might austerity eventually represent for developed nations, which now experience low economic growth? While monetary policy is capable of overcoming many limitations of fiscal policy, it can't directly address a missing services marketplace. And governments can only partially compensate today's high skill major players, compared to the support they provided prior to the 21st century. Much of the slow pullback on growth that is now occurring, has to do with the changing nature of this earlier commitment.

Some developed nations are already suffering from problems which austerity has created, in the more immediate sense of governmental mismanagement and financial chaos. Just the same, no national government can afford to consider itself immune to eventual budget dangers, so long as the productivity imbalances between tradable and non tradable sectors are not addressed.

Governments and special interests alike continue to undermine the productive capacity of both fiscal and monetary processes. So many long term monetary commitments now exist between governments and special interests, that money is scarcely able to fulfill the needs of populations as a whole. Economists are mistaken in assuming that money need not return to the normal and routine functions it still held, prior to the Great Recession. Once, one associated the disinclination to consider long term economic circumstance ("in the long run we are all dead") with Keynesian thought. To what degree has this mindset also become the attitude of business interests and policy makers?

Instead of defeatism, new economic strategies are needed for long term growth. How can knowledge use and service formation be generated through broader, more direct and monetary means? To be sure, fiscal policy still matters. However, with so many government commitments already at stake, fiscal policy no longer has the flexibility it once did, to address the most important issues of the present.

It will take decades, to gradually step back from contractual commitments which evolved through impersonal and top down means. Meanwhile, populations can build reliable economies on more personal and decentralized terms. Austerity remains a threat for any nations which are compelled to rely on pensions and related entitlements, to address the services needs of advancing age. When time value is tapped alongside monetary value, there is extra support for every safety net. Fortunately, safety nets of the future can go well beyond what populations are able to gain through financial assistance - particularly when demographics don't line up well monetarily, with the needs of aging populations.

A "Forbidden" Economy?

One of the noteworthy aspects of the 20th century, was the degree to which governments took responsibility for knowledge based services. Now, centralized forms of services organization have come under considerable strain. Should governments prove unable to maintain their commitments in this regard, who can...or will? The answers are hardly as obvious as one might expect. What's more, as Richard Cornuelle wrote in the late 20th century, "It is becoming clear that we have confused the state's blustering eagerness to take responsibility with an innate ability to exercise it."

Too many vital services were introduced into the marketplace, without providing room for real participation on the part of either producers or consumers, for time based product. As a result, knowledge based services don't always provide the kinds of experiences that individuals want or expect - particularly given how time value is expected to be arbitraged for hard to quantify "results".

If this were not enough, producers of services are scarcely in a position to negotiate for the skills sets most important to them. One could be forgiven for perceiving knowledge based services as a "forbidden economy" - one that everyone needs, yet finds little room for reciprocation. Services as government responsibility has become more difficult at both national and state levels, even though most policy makers would be reluctant to relinquish the role. However, most struggles over services take place within a budgetary context that makes it difficult to contemplate redefinition or reform.

Richard Cornuelle, on the other hand, sought to define a stronger services marketplace that went beyond the terms imposed by government. This week I had the good fortune to stumble on Cornuelle's efforts to transform the services marketplace, during the course of his lifetime. I'm still digging through some online remembrances, and one (April 2011)  was provided by Peter Boettke. I also have David Boaz (Cato) to thank for including Cornuelle's essay, "The Power and Poverty of Libertarian Thought" in "The Libertarian Reader". This book is what brought Cornuelle to my attention. From the essay:

...if it is true that the state is bound by its nature to bungle the business of making steel or shoes, what makes us think it is any better at the vastly more complex responsibilities of the modern full-service state: educating the children, providing pensions and healthcare, eliminating unemployment, protecting depositors from the imprudence of their bankers, and providing hundreds of other services, presumably necessary but beyond the reach of the market, not just for the few who have been left behind, but for practically everyone...The American polity has reached a kind of dead end, and libertarian thought, in its present state of development, doesn't help.

How can communities do a better job of providing necessary services, so that populations need not be endangered when governments prove insufficient at the task? Cornuelle grappled with this question, yet it remains to be answered. When budget struggles give way to hard budget realities, important services are often abandoned, because cohesive voluntary arrangements are not already in place. Populations end up accepting a diminished services marketplace with resignation, not realizing that local communities could plan to fill the void before economic circumstance are allowed to deteriorate. Cornuelle wanted to know - why can't libertarians embrace community as a valid concept?

Without an adequate services marketplace to contribute to economic growth, "buy America" is not only back in vogue but backed by both political parties. This is but one of the reasons services need to be organized so that they can directly contribute to growth, instead of depending on other forms of growth in order to remain possible. Otherwise, nations could mistakenly "turn inward", reasoning that they must return to mercantilism and nationalism, in order to maintain economic stability.

Some aspects of the services economy could be endangered, so long as widespread knowledge use remains forbidden. The main problem for these circumstance - at least in monetary and economic terms - is the effect low expectations might have on the long term growth trajectory. Neither governments or special interests help anyone, should they decide to reason, "If we can't have knowledge use the way we want it, no one gets it." And yet more national production (of product separate from time) may be required to satisfy those demands for limited engagement, than populations are able to support when labor force participation remains too low. As Richard Cornuelle said,

We need now to understand voluntary social processes as completely as we understand market processes, and libertarians could again show the way.

How Much Austerity is Illusory?

Before any nation succumbs to "future necessary" austerity, fiscal restraint gloom and economic slowdowns in general, it helps to remember that meaningful action now could still change everything. But first, consider where change might begin. Where money is spent by governments, how helpful is that spending in general? How much does political compromise or hidden tax strategies blunt the effect? How much is simply lost in translation to entities which already had the power and ability to take care of themselves? Inevitably, these groups stand between governments and those who could have put redistribution to reasonably good use. The process isn't just inefficient, it is often counterproductive. So why bother at all?

In a perfect world - should fiscal spending still be deemed necessary after the hard questions are confronted - what can these forms of management and organization contribute, which may be difficult or "impossible" to procure from other vantage points? If said activity is difficult to imagine elsewhere...why, exactly? Granted, if justice is at stake, public management may be better able to represent the whole. But are other determining factors of wealth provision - such as healthcare or building codes - culturally "written in stone"?

Of course, fiscal policy will remain a major component of economic activity - in spite of protestations to the contrary or the limited marketplace results of the present. However, the fact that fiscal spending has entered a period of relative retrenchment - partly the result of a supply side which is damaged from too many government favors - cannot be ignored. And without production reform, privatization of services in their present incarnation, would prove a huge mistake. In all of this, governments are losing their ability to provide the kinds of safety nets that populations need most - particularly in the U.S. It's not so much about where or how the money gets spent, but what is ultimately accomplished.

Austerity would not have to be an inevitable reality for any government, if debts and obligations were better understood by everyone, and provided for at the outset. Today's future austerity threats are a result of accounting obfuscations and the default gridlock which Washington now experiences. Even though monetary policy has proven capable of offsetting fiscal losses, the limited nature of both services and housing provisions continue to distort growth potential. Services growth in particular remains stymied by political opposition, where determination on each side effectively means that no one "gets their way".

It would be better to begin anew, with services that are capable of sidestepping both governmental redistribution patterns and the hard consumption definitions dictated by special interests in these circumstance - particularly for lower income levels.  As noted by Korpi and Palme in "The Paradox of Redistribution", "The greater the degree of low income targeting, the smaller the redistribution budget." Eduardo Porter, in "Patching up the Social Safety Net", says:

Unsurprisingly, the United States government provides one of the most threadbare social insurance nets among advanced nations The question is, as we age and put more demands on Social Security and Medicare, will our dependence on narrowly focused, narrowly financed programs unravel what social insurance we have left?

Only consider the efforts of Republicans to repeal Obamacare when they have scarcely concentrated on the supply side reforms which could greatly improve the marketplace. Many calls for a smaller government are simply the desire to move services towards personal preferences in programs and services, instead of actual improvements for Main Street. For the U.S., austerity would likely be the eventual result of gridlock when no one gets their way.

By now, it should be clear that large scale government is too inclined to favor special interests to be effective at managing programs for services. Likewise, state level governments are no panacea for today's services and effective asset formation. Not only have they extended many of the same privileges to special interests, but they are in tenuous positions regarding safety nets as well.

Long term economic growth needs to be explored one privately structured community at a time, so that small successes can be shared, and small failures can become the learning experiences that governments now need. Austerity need not be an inevitable future. Just the same, marketplaces need to make room for greater participation, so that politically defined austerity can give way to a better growth trajectory.

Time Value is a Gift

Were it not for the personal interaction of time with production and environment, little else about capital would matter - at least as far as humans are concerned. Yet somehow, this fact gets missed. How can anyone argue that time use - in human capital terms - is mostly an ill begotten burden involving labor?  The paradox of such reasoning is that automation continues to free time use from difficult and repetitious labor - even as populations fear the implications of that freedom. Technology gives us the same time "upgrade" options that it has provided all along. Why is it so difficult to envision time use as wealth capacity in a direct sense?

Time is the experiential component - the vital spark that gives life to economic reality. Mind and resource capacity have become so embedded in technology and capital formation, that some would just as soon not consider time use as valid. However this rationale is a mistake - particularly as governments struggle with unnecessary austerity and monetary cutbacks. A marketplace specifically for time use, would alleviate many problems for both services and knowledge use.

When time value does not have its own internal markers; healthcare, education, and other vital services struggle to provide time value through inadequate means which detract from other wealth formation. Even though resource abundance still makes it possible to coordinate services at broad levels, some populations would benefit from time value through more conscious and decentralized means. Otherwise, a lack of time use markers as contrast with other resources, will reduce economic growth further than has already been the case.

Presently, governments remain dependent on taxation of income, property and capital, for the services and knowledge use they provide. However, it has become more and more difficult for governments to preserve vital knowledge use formation, as multiple aspects of life are now caught in ongoing redistribution patterns.

Further, it is impossible to ascertain not only how incomes impact resource use, but also how much production is even needed to generate services without undue burden. Why not compensate time use, as a central point from which to begin anew? Even  though it would not be desirable to do this in large scale settings, numerous small scale decentralization experiments would provide pointers, as to long range plans for services needs.

Those who are gainfully employed, do not realize the degree to which the unemployed see themselves as a burden on society, yet this need not be the case. Knowledge use systems would not only provide greater economic access, but the means of doing so would also mean new wealth creation at the outset. Carefully considered time use would finally become obvious as the gift it actually represents. After all, time use capacity - in the right organizational circumstance - can also exist as a final, i.e. not just intermediate, good. Time aggregates could not only provide local support systems, but also a diverse range of experiential product. Each community has the chance to build from a blank slate, to create a unique growth trajectory.

As time use becomes central for economic activity, other resource potential takes on greater clarity. People start to ask, how do I want to relate to others? How do they want to relate to me? How best to use local resources so they are not problematic for the ways I want to spend my time? How can automation and technology in this regard also free time, and what might that mean for new production options where I live?

Granted, some are concerned what answers to these questions might consist of, and understandably so. But the answers are important, because too much of present day environments are not adequately structured for the resources actually at hand. The human mind has every ability to move beyond the limitations that populations are coming up against. Some individuals simply need a marketplace for time, the rights to their skills capacity, and a bit of understanding that life need not be the constant struggle it seems.

The Austerity That (Ultimately) Threatens the U.S.

I cannot speak to the austerity conditions which continue to thwart Greece, for I simply don't know the nature of their services organization in relation to other parts of the economy. However, the long run austerity threat for the U.S. is easier to ascertain, in part due to the unique patterns of a services structure developed after WWII. As a result, long term budgetary concerns could possibly be more pronounced, than some countries which developed nationalized healthcare systems.

How so? Private industries which have evolved around healthcare, are heavily subsidized in ways that are mostly hidden to the public. Not only have healthcare costs become difficult to discern in real time, artificial limitations also involve the most basic surgical procedures and the right to prescribe medication. Around these limitations, immense and costly complexities have arisen - each layer of which was "supposed" to provide solutions to the core issue of artificial scarcity.

Among these layers of complexity, arguments are growing as to who even "deserves" healthcare. Even though some discussions about the "undeserving obese" have occurred in the UK, one can easily imagine a similar rationale here. It is quite a shame that some skills sets were made so sacrosanct, that they now contribute to unnecessary problems in multiple settings. Most people are far more rational than I, because they dare not point the finger at the real source of the problem, for fear of upsetting healthcare professionals among their own peers and kin. I only do so now, because it's almost as if every person alive has become "undeserving" of valuable services!

At the very least, it took a long time for the artificial scarcity of skills restrictions to affect the overall growth trajectories of nations. But that's small comfort now. And yet even though it should be obvious what happened, people still reason that these problems can be overcome without more contribution to supply. Possibly because so many forms of product exist in abundance, the same is assumed of time based services. But what if supply isn't really widespread, meaning a primary product shortage contributes to a low growth equilibrium? Nick Rowe rightly calls supply capacity into question, in a recent post where he writes:

If the apple producer wants to buy ten bananas, but the banana producer only wants to sell six bananas, then only six bananas get sold.

Why would a banana producer only want to sell 6 bananas, if they could easily produce more? Imagine a banana producer in a two product primary equilibrium, who reasons: if I can make my product important enough that it commands ten apples for 6 bananas, then why shouldn't I price, based on those terms?

For a long time the services supply asymmetry wasn't so obvious. Indeed, insurance and government requirements made the problem manageable for decades. What's more, production allocation asymmetries aren't ordinarily problematic in the marketplace if they don't represent core consumption. Just because everyone seemingly has a smart phone - for instance - does not mean the person without one is likely to be at any real disadvantage.

Artificial services scarcity might not be so obvious now, were it not for the fact a larger portion of the population anticipates health costs in the near future. Many of us who mostly avoided the doctor's office for decades, are not sure whether our good fortune will last (and for too many my age...it hasn't). This and a confluence of other factors means primary equilibrium growth is finally threatened by a six (services) banana sales total to a 10 apples (manufacture product) sales total. While some don't find this a threat in moral terms, it is nonetheless a threat in terms of growth potential.

One wonders: is this as far as the supply side argument for healthcare will ever go? If knowledge use for medication and surgery needs cannot be accessed by lower income levels, present day growth cannot be revived to its earlier trajectory. Indeed, the stubborn insistence of central bankers to remain below 2 percent inflation, makes it questionable whether the present growth trajectory can remain on an even keel. Because of the still present danger of the zero bound, future recessions could mean further production setbacks for both services and manufacture.

If the torch for economic responsibility has been passed from the supply side to the political left, the latter needs to recognize the built in growth limitations which services now hold - particularly in healthcare. In the meantime, few mention the American Medical Association as the originator of this quandary, even as virtually everyone else gets blamed for services shortfalls. Among that list but not limited to: illegal immigrants who "steal" needed services from others...poor unwed mothers...the one percenters...and baby boomers who are "stealing" the future of younger generations! As to debts which aren't going anywhere, anytime soon, consider Brad Delong's response to Diane Lim among a recent round of austerity posts. In a six point rebuttal, fortunately he thought to list healthcare first:

1) We believe that medical care is a special commodity - one that should be delivered to those who need it, not just those who can afford to pay for it out of their private means - and thus as health spending becomes a larger part of the economy the proportion of GDP spent by the government on its healthcare programs will grow.

Where to even begin, in response? Of course I agree with Brad Delong that healthcare is among the most basic of commodities. But in the U.S. it has been defined as a special product, and there is no changing that definition in the short term. Special equals exclusive, not inclusive. As a result, any access beyond what is already available will not only remain limited, future access will gradually become more constrained, if no services production reform is allowed to take place.

Fortunately, many individuals have become aware of the long term issue of healthcare as it impacts the deficit. However the reason no progress has been made, is the fact few sane individuals dare to speak to the obvious supply side restraint. This is why I suggest that physicians be allowed to train low income individuals how to heal, for knowledge use systems which will not directly compete with the existing healthcare system. Should this occur, real economic growth will once again become viable, and individuals will gain hope that they won't be completely undone by medical expenses at some point in their lifetimes.

How Does Inequality Matter?

In response to an advertised debate entitled "Income Inequality Impairs the American Dream of Upward Mobility", David Henderson responds:

The only way you can have upward mobility is if there's somewhere to be upwardly mobile to. 

While this is a reasonable response on Henderson's part, thinking about inequality in terms of income can get confusing. Instead, consider: Is "somewhere" predefined, so that no further entry is possible? Do existing definitions as to how people arrive at "somewhere" reflect realities that are scarce by their actual nature...or not? The biggest problem for framing inequality through income, is that it tells us little about one's actual attempts to interact with the marketplace over time. Dogmatic resource use definitions and preset time use expectations (on consumption terms) are what really stand in the way of upward mobility. Inequality is indeed a serious issue which needs to be addressed, but not for the reasons that are often provided.

Income as presently structured (i.e. freestanding single institutional models for each economic "purpose"), is a residual of multiple coordination strategies which take place among existing patterns of economic flows. Profits are utilized by both public and private interests in order to make income flows occur. However, what matters for choice sets beyond a basic level, is whether resulting (individual) incomes are capable of interacting with resources profitably. In a national or international setting - because of economies of scale - lower income levels don't always get the chance to interact profitably with resources.

What kinds of inequalities impact basic life needs? The first question one could ask when something is highly valued is, how central is this product to one's consumption needs? Diamonds provide a good example, in that their monetary valuation certainly exceeds production costs. Fortunately, diamonds are not a central concern for anyone's budget. In spite of high valuation ("overpriced" for a "perpetual" market?), they don't pose a hardship for the buyer - unless of course it's hardship (!) of a voluntary nature.

Hence while diamonds make some individuals quite rich, this does not happen through aggregate time "theft", so to speak. Whereas, skills sets that are arbitrarily limited for basic consumption needs, impose inequalities at basic levels, in aggregate time use. This is particularly true in the case of healthcare. To be fair, healthcare is not alone in time theft practice, as arbitrary restrictions on housing definition impose time "theft" in consumption terms, for example. While no one is a "slave" to a mortgage, there is still a certain all or nothing aspect to today's housing which limits one' mobility and choice sets. I'm not using time theft as example in order to anger anyone, only to illustrate how it relates to recent discussions re property theft and taxation theft.

Several times I have argued against further redistribution efforts in the current national model, because of the degree to which the model further exacerbates the problem. For one thing, time "theft" patterns among some higher income groups are not well understood, so redistribution tends to exacerbate them.

Indeed some of those patterns are set up so that some high income recipients are actually "victimized" by the pattern of high education costs and then afterward, overhead costs of doing business. This is why not many people want to become physicians today - and then their income is taxed again even though government has already profited from (their) entire process of gaining economic access. Does anyone imagine that further taxation on high income would actually make its way to the poor? Hardly, because the first stop is Washington, and whatever is left is apportioned to the elites who fashion the patterns and details along the way. At some point, redistribution loses its effectiveness, particularly when government is too involved with the services marketplace. So the redistribution "solution" among the political left, comes up short.

So far - however - the political right is also too caught in the same patterns that thwart a free marketplace in services. Even though concerns are being voiced regarding the inaction of the supply side to generate new growth, who is there to respond to them? How does someone in power give voice to the missing marketplace that they don't even want?

The only voices that can be raised in this regard are the individuals who - given the chance - would take the multitude of resource and knowledge options that exist and fashion them in new ways But this simply cannot happen across the entire economic landscape, because it threatens too many entrenched interests. Hence framing matters. Those who seek to innovate new ways to survive, need exploratory environments which do not threaten entrenched interests.

Even though it is not in the short term interests of the present supply side for this to happen, it is in their long term interests. Why so? If they allow today's sluggish growth to remain unchanged, ultimately more power is given to the government in their stead. Free markets remain viable by maintaining the capacity for inclusive growth. That is, if the supply side does not allow production reform (which means challenging government in a productive way), the left wins the battle for more redistribution even though it is shown not to work.

Unfortunately, it is not as simple for the government to generate a fuller labor market equilibrium, as it would be for the private marketplace, and eventual breakdown in government would also lead to eventual breakdown in supply side status quo. An alternative marketplace could therefore reinforce the existing marketplace in the medium run, in ways that government cannot. Key to this process is envisioning services formation through inclusive monetary terms, instead of limited fiscal terms.

Maintaining strong service formations indefinitely by fiscal means is not feasible, in large part because fiscal operations need the green light of private interests - which have already pulled back on growth. People end up paying twice for services that they could more efficiently generate themselves - what's more - only have to pay for, once.

And inequality really comes down to access to existing assets to services equilibrium. (i.e. if it doesn't exist it needs to be imagined...) Of course the primary problem here, is that the missing component of the marketplace exists in areas that are heavily influenced by government - hence a general reluctance to production reform which could further stimulate the economy. It is this coalition of government with healthcare and education, along with the assets structure which reinforces this equilibrium, which accounts for a considerable amount of inequality in the present.

Given the nature of "normal" income as described above: how, then, would it possible to compensate time use income equally in resource arbitrage? Equally compensated income is internally driven for diverse local goals, and can be thought of as a starting gate. One might think of (agreed upon compensated) time use sets as the money provided by the bank in a "Monopoly" game. Like the game, a local business "umbrella" would comprise  a freestanding local institution for multiple purposes. Remember the game? Everyone is distributed the same (initially equal) bank money.

While that is quite simplistic, it gives an idea re the process. The concept of course is to spread more of the liquid investment components among all participants, so that negative monetary externalization (prisons, etc.) can be diminished. Even as some individuals would mostly maintain asset formations reflecting "starting" income (say, a 40 hour "work week" of matched services time use), a portion of local asset equilibrium would (respectfully) reflect this basic time use choice, without appearing as though a neglected "loser" landscape. Key in all this is recognizing preferred time use choices, and adapting production potential so as to match them more closely.

In other words, the limited nature of time becomes a central or focal point, by which to make decisions regarding both production and services which locally support one another. This is the coordination advantage that economies do not have in the present, which results in constant fiscal and monetary battles. Hence in a direct time arbitrage scenario, compensated time use provides a central and direct starting point for further production and services flows.

GDP is Still A Good Measure For Economic Dynamism

While I certainly advocate for NGDPLT in a specific sense, it is still helpful to clarify the benefit of Gross Domestic Product as the "right idea" in a broader sense. Plus, any defense on my part feels appropriate now, what with monetary confusion all around and even suggestions as to new, supposedly more "evolved"  measures.  Of course, the GDP as measure which some complain about (even Bernanke has slipped into musings as to a "happiness" measure) can do a much better when it is in fact given more reasonable aspects of economic activity, to measure (or, it is what it is). Certainly, everything that registers monetarily is not a sign of progress - "broken windows", sticky markets, back door deals and all. But that doesn't mean the tool which sometimes seems to account for a carnival of absurdities is the absurdity!

What makes the GDP measure all the more appropriate is its intent to capture and reflect economic momentum. By doing so it suggests that the use and management of capital is only part of the story for economic activity and dynamism, in spite of what the financial realm and excessive focus on credit would suggest. Just the same, we are getting some strange arguments now that not only are services supposedly insignificant in wealth based terms (in spite of their representation in the economy) but that even consumption is somehow not a valid part of wealth creation. Ever notice how the hard right conservative suddenly becomes quiet as to continued progress and growth (even though normally such discussion would be ongoing), whenever "stick in the mud" austerity rears its ugly head? Austerity is nothing, if not a static idea as to what represents wealth in the first place.

Even though GDP measures are utilized especially for demand side rationale, they have significant implications and potential for coordinated supply side strategies, which have yet to be explored. For all the things that need to happen in structural terms to make our economy more meaningful, most of these can find adequate expression in the measurement of economic momentum, and even more so through nominal targeting. Particularly the fact that services can be thought of as pure velocity, gives additional meaning to the GDP measure for the potential it continues to hold.

Often, people hold different ideas as to what economic dynamism actually entails. Dynamism is what is actively occurring throughout the components of a system: or whether the interlocking parts are still creating motion in the entire structure along a reasonable constant (velocity). Differences in income might create problems insofar as they significantly block flows along major arteries of the system, and nominal targeting is also capable of considering this possibility. Perhaps we give the leaders of nations more credit than they deserve, for following the kinds of visions we thought they had. What once worked so well together in fiscal and monetary terms presently appears inadvertent, even arbitrary at times. Amazingly, fiscal policy supposedly entails a sense of economic direction, but most fiscal efforts today in the U.S. are about maintaining what has been, rather than envisioning a shared future.

For the U.S., present day requirements of the military and the entitlements of a retiring generation have become the main fiscal "meal", which leaves both political and business constituents fighting like dogs over any scraps that fall from the table. That leaves little real room for governmental negotiation in terms of economic direction, especially given the enormous amount of time lost to discussion about the "leftovers" in fiscal terms. Discussion about government debt loads and fiscal capacity are now are beside the point. It has become more dangerous by the day to wait for government to fulfill promises it can't uphold. This is a historical moment when the public needs to step forward to redefine and reclaim economic dynamism on its own terms. The considerable work which has gone into GDP measurement, alongside nominal targeting, can be most helpful for such efforts.

Few individuals in our political system are prepared to take part in such a dialogue for they are still hopelessly divided, as to maintaining what is left of the older reality. Implicit in any argument that GDP does not matter, lies a very real confusion what wealth creation actually is in the present. That makes it all the more important for the public to understand the continued usefulness of GDP measures, before moving forward. It is in large part the divisions of our political system that have led to a real loss of dynamism. Even as Market Monetarists ask for central banks to provide forward guidance, citizens also need to find their own commitments to focused action and shared economic visions, so that belief and trust in forward guidance is truly possible.

We are really fortunate that the public is able to take part in these concerns to a degree previously impossible, for it is the citizens of the U.S. who have the capacity to step forward and plan for a better future, when their government falters. We need our government, our monetary system in some capacity with plenty of resources for adequate measures, and the tool of GDP which can be made more meaningful through a basic rule of nominal targeting. But none of those can any longer be expected to get the job done on their own. Shared visions can create new economic dynamism, and also allow us to make better use of the important tools we already have in place.

Internal Coordination Creates Good Deflation (But That's Not All...)

...Aaahhh, such an assertion matters in any number of ways. Even so, it is somewhat of a "surface" assertion, i.e. one of those measurement reflections that doesn't quite tell the tale of what lies underneath. For instance, might internal coordination on the same timeline also represent a kind of "liquidation" in some instances? That's a perfectly reasonable question, which needs plenty of consideration. For the purposes of this post, I want to highlight examples of long term growth (wealth) management potentialities in an overall sense. However, before I reference some of the more recent debates regarding coordination of greater economic access, a general extrapolation is in order as to what immediately comes to mind by the use of this title, a subject which I also plan to return to in eventual posts.

Much of the so called "inflation" which has already occurred in a gradual long term trajectory (of ever decreasing access), is a result of frictions between both opposing interests, and special interests which seek to limit access into their own territory and institutions. I occasionally get "bent out of shape" (i.e. angry) when all of the above conveniently use the Fed as an excuse, to take attention off what they do to one another in this regard. However one reason such imaginary (in money printing terms) inflation exists is the fact that people have taken external forms of coordination for granted, as the only means by which it is supposedly possible to get anything done.

Clearly, the rationale of these ever rising external costs of coordination, is that some people aren't smart enough to tend responsibly to their own affairs, so we either have to pay or be taxed whatever is necessary to keep them in line, even if that stifles real growth. Consequently, since people can see that the costs of said "necessary" and "for your own good" external coordination have in fact become outrageous, central banks around the world want to turn the spigot off to stop the rising trajectory for the growing category of "whatever" (love that double meaning). Unfortunately though, when we take such austerity "stop our own insanity" arguments to their logical conclusions, even something as basic as the idea of education for all, starts to break down (public education for a McJob, as example).

To a degree, arguments over innate intelligence and common sense hold water: some individuals clearly have societal adaptation and negotiation skills superior to others. But let's not go over the falls of that "logical" conclusion, for those falls are a very long drop to the bottom. The problem for us now is twofold: the frictional costs of external coordination have disrupted middle class formation NOT just for developing countries but also younger generations of the developed world. And, societal stratification is hardening in ways that are really lousy for both economic and personal life in general. For example, even as the Fed sought to recover economic growth, the seeming "permanent" loss of faith in important aspects of previous wealth formation is indicated, in the lack of desire to offset the monetary drop of the 2008-2009 losses.

Implied in those offsets were fire sales of various kinds - be it "superfluous" capital, labor, or whatever else could no longer pay the bills this month. Even beyond the rapid NGDP loss that was the onset of the Great Recession, how to think about the wealth that didn't "catch up"? Does that not imply greater liquidation of existing resources which has yet to be resolved? On the one hand, it is possible to look at the coordinated pools suggested here as liquidation. That's true in the sense that monetary systems cannot readily provide everyone a job "sticky wage" style, i.e. enough to buy present day inefficient goods offerings of all non tradable kinds.

In that sense of monetary compensation, internal coordination still can't rise above the offerings of guaranteed income with continued external coordination, in nominal targeting terms. However, it is in the far more flexible definition of product (internal coordination could allow), that such income deficiencies and appearances of "liquidation" can be readily overcome. What's more, internal coordination allows over time a return of both velocity and growth potential that would otherwise not be possible through the limits of guaranteed income or wage. In other words, even though the nominal target (also based on time considerations) is a Market Monetarist position, the actual agreed upon growth trajectory is very much a societal function: one based on continued belief in prosperity,

With this in mind, how to think about recent discussion as to economic inclusion? The forms of economic coordination that society utilizes for wealth, could also affect the long term growth trajectory. Just one of the problems for the MMT idea (or related) of a basic wage is the fact that any set amount still gets demolished in the ongoing external coordination frictions at local levels, constant austerity efforts notwithstanding. If there is a humane aspect to a guaranteed wage, it lies in the belief that people deserve a chance at survival, job or no. However any variant on guaranteed wages would still harden stratification for the long run. That is no small factor, in that the success of recent historical economic circumstance was largely based on the potential of mobility and individual aspiration.

Clearly, stratification will always be a given, to some degree (Let's face it, I went far too long not being able to use my own mind in many areas of work and it doubtless shows). The societal question for the 21st century in terms of stratification of course is...by how much? When I speak of starting from the same coordinated time base of hour valuations, I intend that as a point where people in whatever strata they reside can nonetheless find others within their relative strata to match economic potential - not the one size fits all that people of all walks of life still struggle to somehow "fit" into before it breaks down. In other words, I suggest internal coordination points (which also don't impose false inflation) that allow all strata to find their own unique, across the board economic ways to help one another, and yet still allow relative mobility potential within the strata for all areas of economic activity. When people are free to do this, suddenly, all the education one takes on fulfills its purpose: both for value in use and value in exchange, whatever "strata" one resides in.

Allowing coordination such as this within strata allows space for individual initiative: something generally impossible through any guaranteed income effort, which has to impose some general limit or ceiling. In other words, the main limits imposed on coordinating strata are those that happen when an individual does not take up the service offer of another individual. By deciding those economic "limits" individually and with voting "suggestive" allocations, we allow each of us greater potential to succeed. Plus, we would no longer have to struggle under the weight of being born into a world which supposedly "does not have room" for us. Believing the world still has a place for us if we try hard enough, makes all the difference. That's what capitalism used to be able to provide, and it still can. Capitalism only fails us if we set hard limits, and consequently, guaranteed incomes reside among some of the more difficult limitations of the present.