Could Production Rights Counter the Urge to Destroy?

One of the unsettling features of this recent election cycle, has been the oft stated desire to completely demolish the opposition. There's more at stake than belonging to the "wrong" team, since extremists on both sides tend towards a zero tolerance ideological approach. Even though some relief might be had from these cultural battles in the days ahead, how much "normalcy" is still feasible? Is the tribal urge to destroy only temporarily hidden from sight? 

By way of example,  a police chief in Arkansas resigned from his job, after promoting violence against Democrats on social media. Yet this is only a specific extreme example, in a broader backdrop of growing animosity towards "neoliberalism" in general. Indeed, reactions against various capitalist institutions took place decades earlier among the political left, and have since spread to others on the right. Consequently, the urge to destroy could remain an unsettling reality which continues to disrupt the benefits of globalization and an interconnected world. Even though - here in the U.S. - the presidential outcome provides a chance to catch our collective breath, this reprieve may nonetheless be short lived.

What can be done if populism continues to pose problems for wealth creation and economic stability? I can only hope that better defined production rights would ultimately counter the urge to destroy. After all, most individuals are naturally less inclined to tear down institutions and environments which have also been shaped by their own personal and financial commitments. Yet when we hear calls for greater responsibility on the part of all citizens, it's easy to forget, how domestic protectionist impulses limit the ways in which citizens are able to be personally responsible in any group context.

Hence one major challenge is ensuring that more citizens can fully participate in a modern economy. Too many now lack the economic freedom to fully contribute to their economic circumstance, meaning their personal realities often pay the price. When people have few opportunities to define the nature of their own environments, destruction all too often becomes the preferred response. It's time to build stronger supply side production options - options which can create more equality of opportunity and hope for a more inclusive future.

No one can reasonably expect politicians and policy makers to do the heavy lifting in this regard. Plus: Both Democrats and Republicans - despite their polarized differences - have been vested in forms of domestic protectionism which remain destructive for lower income levels. Is it any wonder this protectionism finally spilled out into the international arena?

Average citizens - especially those without college degrees -  are the ones who hold the greatest stake in the markets for services and physical infrastructure which now need to be encouraged. Fortunately, these new markets could be actively supported by economists and other professionals, who are starting to realize that millions can't support the fiscal and social responsibilities of a complex economy without active roles. Nor is it a simple matter to expect monetary redistribution from professional incomes for lower income levels, as was once the case via (a more dominant) tradable sector based revenue. Fortunately, time and knowledge can provide, what money is less prepared to accomplish in a services dominant economy. Let's extend better defined production rights to average citizens. By doing so, we might begin to bridge the chasms between prosperous and struggling regions which now stand in the way of peaceful democratic processes.

Globalization is Still Vitally Important

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

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

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

Also from the introduction:

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

He adds:

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

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

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

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

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

Global Scale Adds to Local Diversity Potential

Might societies remain able to support local and global trade in a new community framework? Hopefully yes, because future prosperity may well depend on doing so. Globalization arguments on the part of progressives and conservatives alike, often don't take into consideration what is actually at stake. For one thing, too many discussions miss how vital it is for anyone with limited income to access affordable global product, even as free traders also tend to miss the importance of recreating local dynamism.

With a little luck, future communities which create local services diversity via time arbitrage, will also continue to advocate for the preservation of global trade. Otherwise, it could prove difficult to keep consumer options as open and diverse as possible. While time based services could be central to local production, by no means is augmentation of basic time scarcity the sole option. For instance, besides more traditional economic opportunities, citizens may also actively take part in 3D manufacture, even if only for their own flexibly constructed dwellings. With 3D innovations, especially in recyclable plastics, one of the most promising avenues for more affordable ownership in community investment, would be the local manufacture of building components and infrastructure.

Likewise, traditional transportation hubs at the periphery of walkable community core, will hopefully continue to bring mass manufactured product to most local communities in the foreseeable future. Nevertheless, daily economic strategies would focus on creating services diversity which to some degree would reflect what is now found in the most prosperous regions of nations. In all this, one imagines how future populations will be able to recreate new local diversity, while preserving the movable feast of global diversity to the greatest extent possible.

It's unfortunate that forms of capitalism which function reasonably well, are inexplicably catching much of the heat for other aspects of modern day economies which have functioned poorly for some time. Even more discouraging, is that the inability to face economic issues where they are most pressing, is leading to a cultural backlash. Everyone needs to take a deep breath, regain perspective in terms of resource scale possibilities and system potential, and put these disabling cultural wars to rest. Also: If product responds to scale with fully supplied markets, breaking up its representative firms may leave more negative than positive effects. On the other hand, if product is vastly limited because it does not scale to full markets due to monopoly, regulation, or knowledge use limits, try different economic approaches to create full market scale, but again, set the cultural wars aside.

Now it is time to address head on, the mixed economy additions of the twentieth century which never quite functioned properly to begin with. By way of example, many aspects of healthcare have essentially proven impervious to reform in recent decades. If we don't create new avenues for economic diversity in non tradable sectors, too many political constituents might end up even more determined to destroy wealth which holds considerable value. Why? Often for no better reason than when everyone gets mad, surely some relief can be had by breaking something!

If we can disregard the impulse to destroy wealth due to anger, it would also help to conceptualize two separate spheres in our minds at the same time - the local and the global. By tackling the present problems of insufficient scale in time based services and flexible housing ownership options, there's a good chance we could move beyond the growing political divisions of the present.

When Governments Enforce Limits to Growth

Why is it so difficult to understand, how protectionism and favoritism can negatively impact economic outcomes? Nevertheless, the latest example is obvious to observers far and wide, at least beyond the confines of the White House. Which makes it all the more frustrating, that 10 percent tariffs on imported aluminum and 25 percent on imported steel, will actually be implemented. As Gregory Mankiw noted, Trump even managed to unite a polarized country: "How often do Jeffrey Sachs and the Wall Street Journal agree?" And Mickey Levy of E21 wrote:

The economic effects of these tariffs on the macroeconomic environment will depend critically on whether they damage business and household confidence...the danger is if these tariffs adversely jar confidence - perhaps fueled by foreign retaliation - heightened uncertainties would lead businesses to tone back their expansion plans and the trajectory of consumer spending would be softer.

Supposedly the tariffs would be "helpful" for reasons of national security. But where do the majority of these imports come from? James Pethokoukis explains:

That reasoning is pretty much ridiculous, unless the Pentagon has given Trump reason to think it's possible that the 1st Armored Division might one day be racing toward Toronto, or Army Rangers parachuting into Rio de Janeiro. The top two suppliers of steel imports to the U.S. are Canada and Brazil.

He adds, in spite of a report from the Commerce Department that metals imports eroded weapon making ability, the Defense Department only needs 3 percent of total U.S. steel, or 70% of the U.S. market. And the economic argument is at least as bad, since Trump is possibly hurting the many, just to help the few, by increasing the price of "commodities used to make a vast array of products for businesses and consumers."

According to Politico, Trump's tariff decision spurred retaliatory threats from close allies as well. Both Australia and China expressed concerns that other countries would follow the U.S. lead, and retaliate. Indeed, the EU could target $3.5 billion of U.S. imports at the outset.

It's astonishing no one could convince Donald Trump that tariffs are generally a bad deal for everyone concerned, instead of making a stronger economy more likely. Of course, other limits to growth due to political favoritism have been in place for well over a century - even if these limits don't have obvious implications re employment outcomes. Presently, the degree to which knowledge use limits affect employment potential, no one really knows.

Washington's focus on supposedly retrievable twentieth century jobs is off the mark. Especially since technology and automation impel us to reconsider, what work and wealth creation in the 21st century is all about. However, it's difficult to start a dialogue about this reality, when existing wealth is being jeopardized by an insistent focus on the past. Hopefully in the years to come, this unfortunate circumstance can be changed.

Why Do Nations (Still) Prefer Export Led Growth?

Indeed, after all these years, and particularly during periods of economic stagnation. Is there a basic psychological element to "Make (fill in the blank) great again", which is somehow being missed? While arguments against mercantilism are just as valid as they've ever been, there's a problem: we've scarcely advanced the goalposts for public understanding which matter most in these arguments, since Adam Smith discussed this issue at length, centuries earlier.

Meanwhile, as policy makers and special interests continue to place more barriers in the way of economic participation, the wealth capture of our non tradable sectors has become so complex that it boggles the mind. How is it possible for anyone to realistically reverse the damage? Sure, while exports-as-growth sounds "crazy" to economists and others who pay close attention, not everyone has time to pay close attention. For those who don't, policy makers recognize that export led growth as "solution", probably sounds reasonable to many who lack an instinctive feel for the stakes involved. And since it's only becoming more difficult to publicly discuss what's at stake, populists of the left and right find it easier to engage citizens in wishful thinking.

Even though I remain convinced that globalization and free trade are key to future prosperity, unfortunately I can understand why many have doubts. Especially since too many sectors have reduced long term growth prospects, by making excess demands on wealth generation for too long. The wishful thinking that populists tend to encourage, often serves as excuses with moral overtones, so as to not think too long and hard about the matter.

Certainly I'm as guilty as anyone when it comes to wishful thinking, for I'm old enough to remember a time not so long ago, when small salaries could still (mostly) take care of basic wants and needs. Many of us harbor some path in our minds by which "getting there from here" could be possible, once again. However, there's one way in which I part company with many populists, for it's neither possible or desirable, to return to a simpler past through some imagined reversal of events. Too much wealth would be destroyed in the process.

That past is gone. We need instead to envision the possibility of new places and means for wealth generation, rather than pining for "glory" days past. If we can rebuild prosperity on new terms, economists will no longer need to spend their days - for instance - trying so hard to "prove" in the public's mind that export led growth is an irrational concept. If we are willing to take part in the building of a more dynamic economy (instead of waiting for someone else to do it), export led growth could simply be shown as unnecessary. Ultimately, many citizens may be reluctant to let go of the idea of export led growth, no matter how much economists try to make it so, until they can have greater confidence in their ability to navigate the course of their own working lives.

Some General Equilibrium Issues for Small Incomes

A couple of recent posts, papers and articles remind me of the general equilibrium problem which lower income levels face. Housing as a "set aside" store of wealth which inhibits liquidity and velocity, is of course one of the more obvious issues. Further, general equilibrium distribution or redistribution no longer responds well (efficiently) to resource dictates - no matter the source or purpose. Let's briefly consider both.

For instance, there's Scott Sumner's suggestion to make peace with "unaffordable housing". While this approach is far from perfect, it remains the logical way to increase output via general equilibrium means. Recall that general equilibrium can only coordinate aggregate wealth in a complete context of full resource capacity, yet aggregate time value does not yet contribute to general equilibrium capacity in a wealth origination context. Meanwhile, new traditional construction is a leading edge of wealth generation, insofar as it serves as a repository for the higher income levels of skills compensation.

Nevertheless, the output which could bring more of the marketplace within reach of lower income levels, has proven difficult to imagine in ways that are agreeable to all concerned. Possibly the best way to supplement this unfortunate general equilibrium result, is to create new forms of productive agglomeration which would thrive in scattered and decentralized settings. Such an approach would reduce the global extremes of skill and income coordination, which now inhibit the framing of services generation for low income groups. A defined equilibrium for services and broad ownership of building components, would make it possible for lower income levels to expand the marketplace definition (hence output) of non tradable sector activity.

Otherwise: Without options such as these, many citizens with small incomes, will struggle to maintain sufficient levels of personal responsibility and social engagement in today's society. This reality holds not only locally, but across international contexts and cultures as well. After all, much of today's recognized economic time value aligns with global wealth capacity, hence no longer exists in relation to other time value in aggregate.

And so long as societies rely on the prosperity of human capital which lacks any internal coordination point for time aggregates, human capital can't be allocated as efficiently as other forms of capital. One could even think of a marketplace for time value, as a framework in which human capital experiences efficiency gains that place time use capital on a par with financial capital. So long as aggregate time value only exists in relation to total or global resource capacity, traditional housing and service generation will continue to present problems for lower income levels.

Land contributes the largest general equilibrium coordination of value, in terms of productive agglomeration for knowledge use, as today's most important wealth source. Wherever productive agglomeration is clearly evident, housing valuations begin to align with the same land valuations which are correlated with the aggregate values of global resources. In "Land is Underrated as a Source of Wealth", Noah Smith cites a recent Vox study and emphasizes at the outset:

In the long run, housing does about as well as stocks. It's also a major driver of inequality.

Alas, his reasoning is another way of describing how extensive land value is closely associated with certain forms of human capital valuation, even as other vital aspects of human capital have little formal economic definition in general equilibrium dynamics.

Also note that land isn't easy to tax so as to make a tangible difference for redistribution, in terms of inequality. How do we know? There's a recent, even somewhat odd example which just occurred. Rather than completely remove the mortgage interest deduction, policy makers opted to cap mortgage deductions instead. The result is that higher income levels will consequently still be taxed for - yes - land which holds the highest values in terms of economic access and value. Given renewed arguments for land taxation as redistribution to address inequality, there's too many complex general equilibrium dynamics at play, for policy makers to claim taxation sources for the "right" reasons - however those reasons are perceived.

General equilibrium settings have proven notoriously difficult, for any redistribution which purportedly addresses inequality. I believe it would be helpful to distinguish housing, land and time based service generation as defined equilibrium components, so as to reduce exposure to global extremes in skill and compensation which are not readily amenable to redistribution. It's worth a try this time to allow people to help themselves, since policy makers and other elite have bungled the process of doing so in their stead.

How so? When societies attempt to "help" lower income levels from what they often perceive as a never ending supply of wealth, they become tempted to serve up portions out of that general equilibrium pot with major helpings for themselves. Timothy Taylor provides some beautiful examples how this unfortunate reality plays out, in "When Invoking Poverty and Necessity is a Ruse". His post is absolutely spot on and deserves to be read in its entirety.

Ultimately, no one can "force" affordability in the wealth dynamics of general equilibrium. And today's major issue in terms of general equilibrium values, are the constraints of productive agglomeration. This is where the vast majority of today's wealth is contained, yet the primary sources of knowledge use are still limited at the core. That - in turn - impacts the housing output and land values which are perceived as "well suited" for economic access.

Fortunately, it's possible to greatly expand the output of productive agglomeration, via defined equilibrium settings. After all, arbitrary limits for productive agglomeration bear the greatest responsibility, for today's extremes in terms of land use valuations and housing options. And just as Scott Sumner emphasized, increased output is the best way to make a marketplace more accessible to all.

Are Economists to Blame for Economic Stagnation?

A definite "yes" or "no", is not so simple. And any answer, depends on where one's point of reference actually lies. Economists can hardly bear the entire burden of responsibility, given the societal shifts which now affect economic access. One problem in this regard, however, is little societal agreement as to the "legitimacy" of average (non credentialed) individuals who attempt to solve problems in their stead. Meanwhile, regarding the travails of the working class, Dr. David Ruccio recently wrote, in "Why Mainstream Economists are Responsible for Electing Donald Trump":

...mainstream economists, in their zeal to push globalization forward, ignored those problems and concerns. They thus paved the way and deserve a large share of the blame for Trump.

Granted, I've expressed concerns about mainstream economic thought and how it could contribute to populism, in previous posts. Nonetheless, there are dangers in carrying this rationale too far, since it encourages voters all along the political spectrum, to reject more mainstream agendas than actually warrant abandonment. Only stop to consider where broad attacks on neoliberalism can gradually lead, for instance. Hence it's discouraging to find more rational, balanced arguments about globalization such as Dani Rodrik has presented, used as attacks against capitalism and the like. No one gains if useful economic concepts are destroyed, just because it becomes politically possible to do so. Why not look closer instead, to discover where common ground exists between the old and the new.

It may be that little structural progress was made during the Great Recession, because the economist role in developed nations is mostly that of a passive observer. Thankfully, economists are not free to impose top down blanket "solutions" on populations. But that doesn't mean they couldn't begin the process of lending support to populations at a grassroots level. After all, there's a world of difference between decentralized and exploratory local economies, and the kinds of economic planning which caused such widespread harm in the twentieth century.

One public conversation which has yet to even occur at a political level, is of a high tech future which leaves too little room for people to participate. The fact that everyone needs to have a valid role in this economic vision of the future, has been difficult for economists and policy makers alike. No one is prepared, for the fact it's past time to address the reality of our own destinies. When will populations finally get a go ahead from their governments, to begin the discussion? According to Stephen Hawking:

If communities and economies cannot cope with current levels of migration, we must do more to encourage global development, as that is the only way that the migratory millions will be persuaded to seek their future at home.

While some think of migration problems as other's problems, local migration is now increasingly limited in developed nations, due to structural problems with similar causes. The same evolution in economic development, deserves a chance to proceed at home in our own developed nations as well. Interestingly enough, prior to the Great Recession, private industry was already trying to get the message out, that "business as usual" would no longer be able to fulfill the employment roles which many would be workers still hoped for. If it seemed difficult back then to make such an important message heard, even those who speak of structural unemployment today, note how few are willing to approach the subject on these terms.

Economists aren't to blame for the massive structural shifts of our times. And fortunately, they still have a chance to regain their respect in the eyes of the public. After all, there should still be time for everyone to take part in a grassroots effort, to rebuild a better economic future. What sort of work do people wish to participate in? How do those of limited means, wish to build better, more respectful lives among one another? These questions might not be as difficult to answer, as many presently imagine.

Neoliberalism is a Codependent Relationship

In spite of possible appearances to the contrary, neoliberalism has done much to provide means by which today's wealth becomes potential revenue, for redistribution through government in the form of infrastructure, knowledge use and services. How to account, then, for growing frustration re how wealth creation takes place thus far?

Besides...what are the alternatives being proposed to neoliberalism, from its naysayers? Neither neoliberalism or codependency are intended as derogatory terms in this post. Should "codependency" seem offputting, I would simply suggest that much has been taken for granted, in this mutual economic relationship, by all parties concerned. Interestingly enough, codependency as concept has its detractors and supporters, much as does neoliberalism. If need be, think of codependency as "interdependence".

Just the same, there is insufficient consideration how economic processes play out, in the realities of the present. Not everyone is on board with the conditions that are required for general equilibrium, and economic access remains a problem. Scott Sumner recently voiced his own frustration that neoliberalism receives the blame for problems it does not really deserve, and added:

Not all the problems in the world are caused by neoliberal economic theories for the simple reason that not all economic policies reflect neoliberal economic theories. Even if everything people say about income inequality is true, there's nothing wrong with the neoliberal model, which allows for the EITC, progressive consumption taxes, and sensitive reforms of intellectual property rights, occupational licensing, and zoning laws.

Note the utilitarian specificity in Scott's argument, as contrast with a lack of specificity in the majority of neoliberalism complaints. Indeed, this reaction from the left to policy makers and business interests alike, is akin to far right political reactions to government, as the supposed bogeyman for every problem imaginable. What is worrisome about this growing reaction from the left? Like so many on the far right, the intent appears more an urge to destroy what is "unloved", rather than promote means to improve economic realities for all concerned.

If destruction appears irrational - and of course it does - people have nonetheless been losing patience. In particular, there are two basic problems elites have refused to address in recent decades, which contribute to this quandary. Indeed, Washington and others waited so long, that many would still remain skeptical, should policy makers and business interests have a "change of heart", and begin to consider productive reforms.

What has been ignored? First, no one has been willing to grant the kinds of production options that would broaden consumption choices for all income levels. The result? Plenty of unnecessary confusion, as to the resultant inequality and how to go about addressing it. Second, the fact too much innovation has been disallowed, only makes new business formation and employment potential even more difficult. Today's income and asset levels particularly exemplify the benefits for today's non tradable sectors, in a codependent relationship of public and private interests alike.

Even though free trade and globalization has received much of the blame for society's ills, the reality of what is holding back progress, is decidedly unfree. Without a marketplace for time value, people remain held hostage to the dictates of knowledge use as decided by public and private interests alike. Without broader definitions and marketplace conditions for housing, millions of individuals are compromised in the lives they would like to create for themselves and for others.

Don't make free trade and globalization pay the price, for what populations have yet to accomplish for progress closer to home. It is far better to allow today's incomplete marketplace to further evolve, than to destroy multiple aspects of the global marketplace in the mistaken belief that globalization causes more harm than good.

Energy Technology as "No Need to Work" Rationale

This post mostly serves to make a simple point - albeit one which has slowly evolved (at least) since the Great Depression without being directly addressed. Growing use of technology contributed to greater government involvement, in the twentieth century economy. However, technological dispersion now encourages a rationale on the part of both public and private interests, that not everyone needs steady work as a lifetime option. I disagree...people not only need work, but work is necessary in terms which matter at a personal level, to have a meaningful life.

In spite of what is said publicly, too many on the political left and right have reached a tacit agreement that not only is the economy incapable of generating full employment, supposedly it doesn't even matter. As someone who became long term unemployed too early (i.e. prior to what one normally associates with retirement), I heartily disagree with that perspective.

So long as traditional manufacture was capable of generating international expansion, these wealth proceeds greatly contributed to time based services growth (hence employment), as well. Only think what energy related production contributed to broad based knowledge use till recently, for a growing services economy. Mark Perry posts a reminder, regarding the life choices this created for populations: "Each American has the energy-equivalent of nearly 600 full-time "human energy servants". Perry's reference is Brian Wang at the Next Big Future blog, where Wang titles his post:

Average american has energy equivalent of 450 human slaves working 8 hour shifts every day

By no means is the concept of energy slave, a new one. Wikipedia notes:

The term was first used by R. Buckminster Fuller in the caption of an illustration for the cover of the February 1940 issue of Fortune magazine, entitled "World Energy".

The Encyclopedia of Human Thermodynamics states that Buckminster Fuller introduced the term circa 1944, (a bit of confusion here!) and defines it:

In terminology, energy slave is an abstract conception referring to the technologic-mechanical energy equivalent that a healthy human youth could do.

Consider for a moment, one perspective which earlier forms of slavery were said to impart to culture. To what degree did ownership of slaves, encourage people to question the necessity of work? Many who owned this form of - yes, human capital, often did not need to do hard work, and intellectual pursuits were taken on for enjoyment. Indeed, many who were too poor to own slaves before the Civil War, must have realized what a luxury those intellectual pursuits actually represented.

As today's economy begins to encounter limits to knowledge use formation as supplied by other wealth, will technology - as a latter day "forced" labor substitute of sorts - become an excuse for rich and poor alike to no longer work, while a few are fortunate enough to keep well compensated intellectual pursuits? Or will human capital - hence knowledge use in aggregate - have a chance to become better distributed wealth in its own right?

Granted, the "no need to work" perspective isn't openly acknowledged, for obvious reasons. The U.S. in particular insists on a harsh work ethic, in spite of an economy which is no longer doing a good job of providing work where it is most needed. Meanwhile, as technology continues in its latest version of work shifting organizational capacity, the left is starting to emphasize the importance of capital ownership, even as they negate the importance of human capital in the process. And others on the right - even while emphasizing the importance of work - are doing little to encourage economic growth, to maintain stable labor force participation.

Energy slaves in the form of energy technology have provided a most fortunate human capital multiplier in recent centuries. However, asymmetric compensation has begun to claim the wealth aggregates, that are possible for knowledge use as funded by traditional forms of wealth. Fortunately, symmetric compensation (or time arbitrage) could retrieve the thread of meaningful work potential, before other threads become unraveled - on the part of monetary policy, government and the supply side as well. Hopefully, knowledge use systems will have a chance to address full employment and continued growth, in the years ahead.

Notes on Organizational Capacity and Density Patterns

Organizational capacity - in terms of corporate structure - is woefully incomplete. How so? Even though present day capacity has greatly benefited nations through international trade, the potential for organizational structure has scarcely been tapped, in places where it is needed most. As a result, local non tradable sectors have become burdened with excessive infrastructure costs and obligations, even as the benefits of tradable sectors continue to improve the global economy.

Today, a majority of time based coordination is informally generated, as a side benefit of other (economic) capacity which relies on the geographic spacing of modern transportation systems. However, this reliance also means that family and friends have been separated across the globe from one another. Not only can this be problematic in one's later years, it can be problematic for families and friends which seek economic means to remain closer to one another. Could societies provide the option of closely spaced skills diversity, for time based coordination patterns?

Contrary to what it may seem, this is possible, through the density coordinates which time arbitrage would make possible. Today's dispersed means of organizational capacity are not always easy to replicate, in the places where they are needed most. A better corporate response for living and working, would be to build tighter density patterns within a single local corporate framework: one capable of providing a full range of production and services interaction, under a single umbrella.

One of the most important questions to ask about organizational capacity is what income and other resource flows do groups seek to rely on, over long periods of time. Even though resource flows cannot always remain stable, organizational capacity needs to move in tandem with changes in resource use patterns, instead of reacting against them. This is particularly important in terms of infrastructure, local asset patterns and services formation.

Whereas an international corporation seeks to maximize potential in the global marketplace, the internally driven - or local corporation - would seek to maximize the marketplace potential of its inhabitants in terms of both production and consumption. In these settings, the tradable goods of the international marketplace would represent further options for time use freedom, rather than competition to local production. Plus, local citizens would not only take part in locally generated production and consumption patterns, but also in the basic definitions of local consumption models. By matching time value with investment and production capacity, no one need rely on time based compensation as the primary source of income.

Time value - rather than skills value - is the first point of economic entry, which takes place as services arbitrage. From this starting point, one gains access to the investment options for local building components. As the participant becomes comfortable with this level of investment, they gain both time based investment options and financial investment options, for local environment definition and infrastructure maintenance.

As one further progresses, financial investment options in services capital can augment personal skills sets. From this point, production capacity for some knowledge use systems would extend to markets beyond those that are local. Some of this focus could be for the support of other knowledge use systems, such as the travel environments that would be possible in "sister" communities. While there are many advantages and possibilities for internal corporate structure, possibly the best is simply that of a "permanent" timeline for ongoing economic activity and knowledge use.

Globalization and the Non Tradable Sector Dilemma

Will globalization survive a worldwide economic slowdown? Only a decade earlier, it would have been difficult to imagine the degree to which international trade benefits would become broadly questioned. Of course, answers depend on who one asks. On the "good news" front, Timothy Taylor notes in a recent post that Americans have become more comfortable with free trade. But how does that square with negativity on the part of economists? For instance, globalization as "bad news" is represented by posts such as this one from the Economic Policy Institute, which argues that the Trans-Pacific Partnership will hurt the middle class.

Part of the problem is due to a lack of understanding, regarding important correlations between time use wealth aggregates, versus the wealth of product which exists separate from time. Instead of organizing so as to capture international productivity gains, local economies have often viewed the good deflation of innovation and productivity as a threat. Knowledge use is needed for both traditional production and services formation. Even so, knowledge use is often approached on terms which mean unnecessary inflation, less labor force participation, or both. Traditional production and knowledge use need to exist in balance with one another, and that balance is slowly being lost.

Thus a growing asymmetry between knowledge use and other forms of resource use, contribute to constant budget constraints. Consequently, governments find themselves forced to cut back on their support of human capital. The somewhat unexpected lack of ability to support knowledge use, also means a gradually declining labor force participation rate. As a result, governments have come to rely on relatively passive wealth formations to generate redistribution, instead of the active wealth component of human capital.

Worse, this development was already ongoing, as developed nations gradually become more dependent on the non tradable sector. Because knowledge based product is often time and (local) context dependent, human capital tends to be non tradable. However, instead of tackling a growing workforce participation problem head on, the U.S. opted for increased homeownership as a last ditch means to "park" wealth. Sadly, this strategy could have actually proven somewhat reasonable for the American public, had innovation and easing of regulatory burdens been allowed into the mix. Instead, gains in the non tradable sector mostly accrued to special interests and governments in general.

Also, consider the timing, for a further shift from tradable to non tradable formation in the U.S. In particular, effects of important policy changes run counter, to arguments about monetary policy being "too loose" in 2003. In a post from 2011, Marcus Nunes explains:

Whilst in Asia and emerging markets resources were being diverted from the non tradable to the tradable sector, in the U.S. the opposite movement had to occur. In 1997, in addition to all the "incentives to homeownership" the U.S. government abolished capital gains taxes on homes sold after two years. Given the need to transfer resources to the non tradable sector, this opportunity was too good to be ignored so not surprisingly a "housing boom" ensued. 

The timing of this dynamic is also important, in terms of its contribution to housing considerations on the part of those who lost investments in the dot com bust. Some individuals took advantage of housing gains, but much of this occurred well before 2003. Even market monetarists are somewhat divided as to whether monetary policy should have tightened in 2003. Even though I can't technically "defend" loose monetary policy in this time frame, personal circumstance suggested that people in these years needed all the monetary assistance they could get.

Why so? The early 2000s were a continuing series of quickly changing events in the lives of many baby boomers. This group had basically been faced with changing employment strategies since the technology gains of the 1990s. And in the early 2000s, many baby boomers such as myself, made what turned out to be last attempts at small businesses and other self employment. This was frightening beyond belief, given the fact that many of us had more or less been steadily employed at least since the mid seventies.

Some individuals also borrowed against the equity in their homes, as means to prop up personal business efforts. Part of what bothered me about this (frequently) losing strategy, was the degree to which home equity loans contributed to new bank growth, at the precise moment other forms of small business were actually in decline. Anyone who remembers how many small businesses had to close their doors in these years, also remembers the odd circumstance of new banks - some of them quite luxurious - opening in these locations while many small businesses were saying goodbye to Main Streets for the last time. Many baby boomers went through a flurry of efforts in subsequent years to remain employed. After countless unanswered resumes were sent out, some finally made the decision to apply for disability...

Regarding human capital: some months ago, Dean Baker argued that wage stickiness at the higher end, was not exposed to the same globalizing income levelers which lower wages tend to experience. Initially, it almost seemed as though he was making an argument for greater wage flexibility among higher wage levels. Alas, this is not actually possible in primary equilibrium, for a number of reasons. To some degree, protectionism is reasoning from wage level changes. Now, economists who had been supportive of free trade, appear to be having second thoughts.

Perhaps wage rigidity at upper income levels, contributes to rigidity at lower income levels as well. Both sides of the political aisle are coming forward to reinforce or raise the wages of low income levels. But this is a losing strategy, compared to what would be possible through production reform. If broad scale innovation were given a chance, countless products and services would move closer in affordability, to the actual capacity of lower income levels.

Today's non tradable sectors pose a substantial challenge, to the ability of nations to sustain the economic gains of recent decades. The marketplace has become so rigid, that many policy makers refuse to consider either logic or reason. Artificial limitations and restrictions in the housing sector, continue to closely reflect the artificial limitations which still exist for knowledge use. As a result, many onlookers assume that there is little capacity to support further aggregate demand potential for the U.S., even as further recessions occur in the near term.

However, aggregate demand is only repressed, to the degree that knowledge use is repressed on the part of whole populations. People everywhere still need to be helped, and people everywhere still need to be compensated for helping them. What's more, processes of helping and being helped are vital components of both aggregate supply and aggregate demand. There is no "great" stagnation. There is only a refusal to make the most, of incredible quantities of both human capital and resource capacity.

Update: Greg Mankiw has a recent article in favor of free trade, much of which I agree with. I would add - as I had originally intended to do in this post - that tradable goods imports which are most amenable to good deflation, are also capable of increasing the value of time aggregates. The lower costs and economic functions of imports give individuals greater choices as to what they prefer to do with their time. However, the reason those gains for time value are not yet obvious to all, are due to the fact there is no marketplace for time value, yet.

I do have one problem with his article. Mankiw says, "People tend to underestimate the benefit from conserving on labor, and thus worry that imports will destroy jobs in import-competing industries." No, we have a torn society because institutions have been conserving on labor for a sufficient period of time that the labor force participation rate continues to drop. Services need to be directly created, so as not to generate either budget uncertainties or public responsibility beyond the reach of said services. Every society needs services for all their citizens. With a better understanding regarding time use aggregates in relation to resource aggregates, nations would not have to worry about other nations "stealing" their traditional manufacture jobs, which are limited in the first place.

That earlier fetishism about gold? It is also replaced with a "services for me but not for thee" mentality. Knowledge use systems are needed to take care of this problem.

Some Thoughts on Globalization, Going Forward

How does globalization still matter? Is it possible to return to the positive global outlook which was still widely shared, a decade earlier? Even though financial overreach played a considerable role in the global slowdown, it helps to remember that this was hardly the first time. Societies need to take it to heart, to refuse to allow finance to ruin perfectly good economies which simply need a chance to evolve. Credit tends to develop an oversized role in multiple dimensions, whenever other supply side factors are neglected for too long.

This time, even though many banks received the assistance they needed, other aspects of the economy lost ground in the fallout of the Great Recession. Nominal spending in particular took a dive, while the dysfunctional supply side factors which led to a growing finance sector in the first place, were never addressed.

Among those supply side issues: building components in many circumstance and locales, have yet to receive the benefits of innovation or technological gains. Plus: not only is there a need to rethink labor force participation in services, but knowledge based growth needs to happen on measurable and understandable terms. As Jason Furman recently noted, neither Larry Summers or Ben Bernanke addressed productivity growth in their stagnation debate. And Furman believes that productivity growth is the most important economic question facing the nation.

For one thing, production reform is not a top down responsibility to be dictated from either national or state levels. Instead, new forms of local organization would integrate services and asset formation for coordinated results through the same monetary means. By way of example, these groups would not be dependent on pension or retirement funds which attempt to "predict" a future based on investment strategies which work in the present. Instead, risk sharing through the coordination of local time based aggregates, could bring a greater measure of predictability to the later years of one's life. The safety nets generated by monetary means, would also be augmented by time investment.

Developed and developing nations alike need new strategies for knowledge based services, which recognize a common set of rights for the use of human capital. Given the fact that developed and developing nations might build knowledge based communities at the same time, they could seek mutual benefit from the sharing of infrastructure options for similar income levels.

One can only hope that nations do not give in to a globalization backlash in the near future. Nations need to remain open to the positive benefits of tradable goods from everyone concerned, and doing so would make it much easier to implement new strategies for non tradable goods in local communities. However, the financial activity which had previously been globalized, is not as beneficial. Many aspects of non tradable investment activity would need to be internally driven. By so doing, knowledge use communities would be able to use investment planning to generate ongoing projects for the long run.

A recent E21 article suggested that the states should take a larger role in the economy. While this (somewhat political) strategy sounds good on paper, it helps to remember that state governments are in circumstance similar to that of Washington, regarding their commitments to special interests. As a result, most states aren't yet in a position to determine means for increased labor force participation, for instance. From the E21 article:

The solution is to move the provision of welfare benefits back to the states, who can better evaluate which residents need help.

Right now this would not work, because states remain quite dependent on Washington for the limited services marketplace of the present. Instead of rushing to shift responsibility, a better strategy would be to seek states approval to implement knowledge based communities projects. Decentralization needs to take place through incremental means. Success stories in this regard could help states to make room, for both citizens and municipalities which suffer from limited economic access.

Nations are more likely to remain open to one another for trade possibilities, if they are able to generate new growth at home through production reform. Productivity needs to be better understood, at the level of non tradable goods and service sectors which became so important in the 20th century. Done right, non tradable goods sectors could provide a strong backbone for economic structure, instead of contributing to the downfall of tradable good sectors as has been so often the case. This is no time to give up on globalization and continued growth. Both just need a second chance.

Free Trade: Still "Civil" After All These Years?

In a recent Upshot article, Tyler Cowen notes recent world violence, and considers whether economic freedom is still capable of sustaining social tolerance. That provided impetus for me to return to some thoughts which ended up getting edited out of yesterday's post. While civility and tolerance aren't quite the same thing, they're certainly close enough to suffice, here. Cowen also mentioned the fact that education didn't correlate with tolerance to the degree one might expect. Alas, all those classroom suggestions to be civil "just because"...aren't quite enough!

Does a benevolent attitude towards others depend on one's neighborhood, or perhaps one's income? To some extent, these factors color perceptions of trustworthiness and willingness to engage with others. Supposedly all is well and civility is real, after all these years of prosperity. Adam Smith was among the earlier economists to note the propensity of "truck and barter" to encourage civil behavior. But do individuals still engage in commerce in the ways that provided these early social benefits?

It depends. So long as one's work involves negotiation on personal terms with others, the same drivers of civility and positive relations are likely there. However - in too many instances - entire groups of individuals are expected to abide by the decisions which experts and others make on their "behalf". Problems can arise for both social and personal development, if the ways one interacts with others all day are determined by someone else.

With little ability to negotiate in one's work or home life, individuals become unable to discern what is actually reasonable, in relationship terms. It's often difficult to reciprocate well with others, if personal circumstance does not include reciprocity for one's own needs. By no means is this just a problem at the level of family, if there is little ability to negotiate effectively in one's working environment.

Autonomous forms of work such as the "butcher, baker, candlestick maker" of yore, were the epitome of those early arguments for increased civility. Even so, hard factory work was still means by which one could build a life. Most of the mind numbing aspects of factory work are now a part of the past. And yet, the new freedom to pursue a better future is dogged by continuing uncertainty. For anyone who spends decades following orders, the new autonomy - desirable though it may be - doesn't have understandable context. How does one work with others according to individually determined needs, if there is no existing marketplace to make this happen? No one really understands what to negotiate for, until work on individual terms is better understood.

Much about civility depends on what people are actually doing, rather than simply thinking. Some mistakenly think that people are civil to one another in society just because they are "expected" to, and forget the degree to which civility is a learned reflex. Cultural norms have also become confusing, in that a tremendous amount of economic activity now exists well beyond local circumstance.

Individuals have the chance to negotiate, when they take direct part in the trade that is actually occurring. But how to accomplish that? For one thing, work is no longer so much about what needs to be done, but what people want to be done. That is a crucial difference which takes some getting used to. When globalization does so much of the work for everyone, it's time to think about more desirable work and life settings which once seemed impossible to create. Tradable goods now need relatively little human effort, and the challenge is to pursue what individuals collectively imagine.

New services roles would be a logical part of this reality. However, some of the most important elements of knowledge based services formations, were created outside of normal free market processes. As a result, their secondary role left services definitions susceptible to excess authoritarianism, at the very moment when production processes for tradable goods were becoming more horizontally structured.

When knowledge based services structures are indirectly funded, hierarchical organization makes sense. However, direct compensation for knowledge use systems would allow horizontal organization to also evolve within local settings. One of the more important aspects of such a development, is that it would allow civility to return to places where scant little has been possible. Such formations would also bring new vitality, to sparse settings which have suffered for decades.

Part of one's ability to be spontaneously civil to others, simply stems from confidence in the future. Who can't help but notice that parts of the world prone to violence, are also places where hope has been lost. Until now, developed nations offered the example of free trade as a way forward and a beacon of hope. However, as traditional production no longer provides the level of employment that was once possible, nations now need to generate full employment by bringing services formation into a free market capacity. In order to do so, services formation has to be accessible not just in consumption terms, but also in production terms. Nations need to be a beacon for their own citizens first. Then - and only then - can they really remain a beacon, for others.

How Could New Communities Overcome Institutional Limitations?

...an issue which has been on my mind for quite a while, and there are any number of ways to address it. While wrapping up a recent post, the last paragraph seemed to open up more questions than it answered. What stands in the way of a positive response from the U.S., to vast resource potential at international levels? Many diverse growth opportunities still linger, seemingly just over the horizon. However, state and national institutions are no longer able to coordinate patterns of resource use effectively. What new paths could local economies take, which would give broader applicability to services and resource use?

Before anyone takes further action, it helps to remember: the early reaction on the part of developed nations to globalization was unproductive. In particular, financial limitations and interventions on the part of real estate interests, need to be rethought. Both now serve primarily to inhibit ownership potential and economic vitality. However, problematic legalities in this regard also exist at a more personal level, which have scarcely even been noticed because of where their legal designation lies.

Too much of the initial response to globalization, was on the "backs of citizens" in government defined terms, in order to maintain state control over the proceeds. Perhaps this has bearing as to why aggregate spending capacity was dropped like a stone, when policymakers lost faith in growth capacity. But thus far, no central banker or policymaker has openly considered that citizens could redefine prosperity on new terms. To be sure, governments everywhere were capable of generating growth from the previous model...up to a point.

When a substantial portion of product manufacture moved to the shores of less developed nations, developed nations compensated by generating comprehensive requirements (hence overhead) for asset structures, in order to "properly" fund services. Among other concerns, this often stretched the capacity of lower income citizens to participate, either in terms of production or consumption. In order for citizens to once again be able to take advantage of the gains of globalization, their governments need to step back from tight definitions as to wealth structures, so that the real fruits of a globalized world are not lost.

Present day property structures in particular - once so beneficial to progress - are proving increasingly inflexible in a world where land use struggles to keep up with transitional realities. However, part of the problem is not just government intervention, but a lack of clarity regarding land ownership involving more than one individual. Neither government (at any level) or its legal system (at least in the U.S.) has adequate incentive to improve legal clarifications for property use and responsibility. After all, both governments and legal representatives directly benefit from the complexities which the system has imposed.

As a result, recent reversals to economic mobility and growth exist across a broad spectrum. The same rights to title and property which once meant greater ease of buying, selling and flexibility, have often become bogged down in legal battles which have few good means for resolution. Incentives to maintain and utilize land (and buildings) productively are too often lost. Indeed, unsolvable property issues are behind too many serious crimes involving family members. These issues increase community tensions and create unnecessary losses for wealth and economic vitality in general. One is reminded what happened to Russia, regarding empty storefronts in the early nineties. As Michael Heller indicated in "The Gridlock Economy",

In an ordinary market economy, the usual way to privatize is to transfer coherent bundles of property rights in ordinary spaces.  For example, you would sell the state owned bakery to new owner Alexa, the collective bookstore to new owner Catarina, and so on.

At a moment when Russia was poised to move closer to the adoption of free markets, Soviet reformers were in a rush. Rights to sell, lease and manage were broken up among various interests, which blocked the ability of all concerned to act in a coherent manner with the property in question.

Think land laws in the U.S. are a lot "smarter" than that? Perhaps not. One day (some years ago) I went to the courthouse to pay property taxes, only to discover a "family" member (by previous marriage to my husband) had already paid them. When the employee at the courthouse said nothing could be done, she probably did not appreciate the Russian reference on my part. This was the rural southern U.S. after all! Does any reader still wonder why I support extensive land use reform, which would allow land, property and building construction to keep pace with the resource use possibilities of the present?

In all fairness, land and property use rules regarding familial ownership, are still in an early stage of evolution. Their present day form was sufficient to generate greater mobility and prosperity for decades. It's difficult for anyone to closely scrutinize these factors and relate them to the bigger picture because - after all - they are stuck in the messy domestic details of family law.

Hence, letters to state offices detailing negative economic and social effects of said regressive laws, may simply end up in the first trash can within reach (That's where my letter to the governor ended up). In some regions of the U.S. however, communities, their inhabitants and structures have begun to suffer noticeably, from the fallout of legal neglect. Particularly given the fact, that housing wealth (unfortunately) remains the primary wealth which many individuals presently have.

Sometimes, governments gain more ongoing benefit from those structures in taxes, than individuals are able to eke out in actual living needs and circumstance. Who can move and start over economically if a judge refuses because of shared ownership...even though another owner has long since left the premises? Why should anyone have to remain imprisoned in what was once a shared space? Everyone needs ownership options for wealth holdings that are a vital part of ongoing economic flow - not yesterday's realities - so as to have real security and viability for the course of a lifetime.

One of the few actual benefits about properties under mortgage, is that they make the process of property negotiations less problematic, when it becomes necessary to realign property ownership. In these circumstance, all parties remain responsible for payments on said property - hence more willing to negotiate with one another. Real difficulties can ensue when properties are owned free and clear. Then, it often becomes the interest of mutual owners not to negotiate with one another, especially if one or more owners are economically underrepresented in any respect.

Unfortunately, communication breakdown and family "dysfunction junctions" remain a  prime means for governments to reclaim property. It would be in everyone's interests to have understandable property contracts between individuals and governments throughout the entire ownership process - let alone the fact such contracts could lead to more beneficial management of the proceeds all around. Much social discord and fallout could be avoided, by land holdings and leasing on the part of entire communities, particularly for lower income levels which can ill afford legal fees which are not capable of doing the job that needs to be done.

Rural areas especially need major roles in new land and property use options, so that their citizens are not forced to rely on distant cities for necessary services. Prior to widespread use of the automobile, many rural neighbors lived and worked in close proximity to one another. Rural residents on limited incomes would especially benefit from new formations for service economies, which could recreate some of those earlier patterns.

Before wrapping up this post: None of this is to suggest that family ties are not important, for that is certainly not my intention. However, by supporting individual ownership rights on social, legal and economic terms, family formation remains possible to a much greater extent, than it otherwise would. No conservative program to ensure the protection of families would be complete without consideration of the legal thickets which make family formation so difficult to maintain, particularly at lower income levels.

What's more, lower income levels are far from the only ones affected by legal thickets. Small business formation also suffers from murky ownership capacity as well. Not everyone is strong enough to endure the legal backlogs and waiting time which go on endlessly, while individuals, families and societies languish. Often, too much is lost as people and economies alike are forced to put life on indefinite pause until the eventual decrees are handed down. Sometimes, everything dies on the vine as it waits for the legal results.

This post was written in large part, for the memory of what my husband had to endure.

Democracy: What Representation is Actually Possible?

Sometimes, political representation becomes so open ended and confusing, that the process gradually starts to break down. In terms of resource potential, too few individuals know what is actually possible or achievable in their own environments. What's more, those who do know what is at stake, tend to dominate the conversation - or at least the results. How can economic progress be expected to continue, when so many among the electorate remain in the position of passive consumers?

It's important for the public to gain a better understanding, regarding numerous resource options which are available, versus some very real unrecognized limitations. While representative democracy and centralization still work reasonably well for traditional supply side factors (commodities, manufacture), decentralization and direct democracy are desperately needed, for services of all kinds.

Otherwise, it will be difficult for knowledge use to remain a substantial part of the marketplace in the future. Much human potential remains untapped, because of the inadequate methods by which value continues to be derived. In a recent article for Project Syndicate, Dani Rodrik looks at the fact that even though "the world has never been more democratic", today's democratic governments do not perform well. He says,

In the advanced countries, dissatisfaction with government stems from its inability to deliver effective economic policies for growth and inclusion. 

One problem is a growing divergence in lifestyle options, and the fact they can't be easily reconciled by representation which was designed for simpler realities. Not only is this true of needed variance in environment, but in service pattern design which needs to take multiple income levels into consideration.

Small wonder that a libertarian - for instance - who might normally support open borders, would hesitate, given the attempts of current welfare states to bridge income gaps. When only a fraction of time use is utilized with real valuation in aggregate, extreme competition between all concerned, becomes the norm. Dani Rodrik continues:

The attack on the nation-state comes from above and below. Economic globalization has blunted the instruments of national economic policy and weakened the traditional mechanisms of transfers and redistribution that strengthened social inclusion.

But why has this been the case? Globalization provided the means for society to reach for desirable choices in time utilization. And yet, many of those options were not widely recognized. As a result, people relied on the fruits of production to build service sectors, which became unwieldy in their dependence on indirect formation and skewed incentives. Had service formations not proceeded in this manner, there's a good chance that globalization would not be seen today, as a deterrent to economic stability.

Direct democracy is still possible in terms of service formation, if governments are willing to take a chance on the skills sets and natural abilities of their own citizens. Of course, that would mean "just say no" to a lot of special interests. Just the same, the demands of too many services agendas have already led to inefficient operations and rising budgets. They have also caused governments and central bankers to take austerity measures, which now blunt the growth potential of entire natons.

To be sure, globalization and democracy are not necessarily in danger of becoming "extinct", if knowledge use systems and widespread economic access isn't possible. But chances are - without more direct knowledge use formations - growth could remain subdued, and the value of education would also remain in question. Education is not just about being an informed citizen: education needs to be about being able to contribute and reciprocate in kind. It's time to shake things up, so that renewed growth and economic progress still have a chance.

Update: speaking of present day inadequate services representation - consider a correlation of zero, between ongoing research and actual health related conditions

Do Local Economies Negate Comparative Advantage Over Time?

Presently, I'm just considering some of the correlations, because this is an area I'd like to return to and explore at some point. While it's hard to tell whether any of these musings might involve any "dreaded" causations, the effects over time of locked in market product definition are striking. Every day people are convinced they can't find a way to survive, when in fact the means of survival are everywhere around them - if not really arranged in very usable ways. Just the same, I have a little "stumbling in the dark" confusion about the apparently Keynesian notion of cost-push inflation. After looking at Wikipedia's definition, I groaned when I realized that monetarists don't believe in cost-push inflation and so add this to studies... Argh, some days I really wish I could actually think like a normal economist but there's no "hope" in that regard. As it is, all I can see is local economies unnecessarily adding to their costs and so I have to move forward with that for now.

However, the reason it feels necessary to explore this seemingly frightful area, is the fact that a growing consensus is essentially building on the left and the right, around the idea that imports hurt the U.S. Certainly the evening news has sounded rather protectionist for a long time. As a person who needs to be able to make a dollar stretch, and really appreciates the fact that low income countries often provide goods I can afford - "cheap" goods that local economies sometimes like to "hold their noses" over, all I can say is uh-oh. But let's look at some of the "evidence", as this latest article from Nancy Folbre at the NYT (could be gated) in "The Free Trade Blues" points out:

A growing body of research points to the adverse trade effects of lowered trade barriers on manufacturing workers and their communities. Whether or not the losses are beginning to outnumber the winners, free trade is increasing the economic distance between the two. Many economists continue to believe that increased foreign trade is a rising tide that will eventually lift all boats... 

Folbre adds that interpretations of trade theory now challenge the rising tide view, and cites a recent study (lots of options - YouTube link here). However, if this is true, here's my first thought: if indeed comparative advantage does not work as stated, what on earth does? For a dunce like myself, comparative advantage is about as basic as it gets. In a recent post I discussed the breakdown of the old consensus and why it is so hard for some on the left to be on the "losing" end - understandably so. But wishing the previous (political/social) consensus wouldn't go away - and then trying to block economic access to newer formations of production only makes things worse. Yes, there are lots of "holes" in the ocean bed that keep a rising tide from happening, but it's not the imports that are the problem.

For me, the "holes" exist in large part because of time utilization differences we create between ourselves at the most basic levels - which can never be correspondingly filled by one another's time as a result. Because we scramble to give our time to others and yet still come up with negative effects, we remain on a negative infinity path. We keep trying to rearrange wealth to fill the holes but because of the negative infinity, the tide never gets a chance to rise.

Also - in spite of myself - I have to follow the "get rid of international competition" to its logical conclusion: where, exactly, do we "draw the line" and happily revert back to "earlier" forms and times of production? Does that actually leave time for the pursuits of the mind, i.e. the most valuable aspect of all the creation of tangible wealth? Do we all discuss the mysteries of life while we sit on the porch stoop and shell the peas? While I enjoy "slow" production as much as anyone, and so leave time for it whenever possible, I have little doubt I would "chafe at the bit" if that became the primary life option left to me. Hint - whenever we want to go "back in time", something to consider first: aggregate realities of inclusivity.

Let's consider that aggravating hole filling problem. As long as older, more labor intensive definitions of manufacturing remained local, it was possible to fill many holes with this additional wealth. But as it slowly disappeared, local economies were faced with the need to maintain definitions of wealth as they had previously emerged, in order to continue funding services. The only way to do this - seemingly - was to take much of the negotiable or choice factor out of environment options to maintain an appropriate tax base. In the process, "productive" investment came to be identified more with passive forms of investment (the local mandates of Neanderthal low tech environment) and less with speculative investment, as before.

Just the same, those speculative investments (that often "heart" global cheap goods) tended more towards what was not government backed. Which also meant they didn't have the government inflated price tag: hence proved more dynamic than such "spurious" and "cavalier" spending might have seemed. This last thought is also a quick take on Jonathan Finegold's post on productive versus speculative investment, and my readers know that I often look at these in terms of passive (non tradable) goods or the active tradable goods of globalization. I also consider equal time service arbitrage as a potential active tradable good, instead of acting as a drag in its present passive role. Today, services are the mirror image of the much maligned, interest on reserve backed rendition of Neanderthal living and working environments.

Something important needs to be stressed about the broken consensus between the so called "makers and takers", icky though that phrase may be. They certainly are not happy with one another, these denizens of left and right, but they are still very much married to one another and do not really know how to break the chain. In their effort to maintain wealth as much of its dynamic aspects left for more affordable shores, they propped up even further the very environment that economic dynamism was forced to abandon. Through the valuations of the most engaged participants, the stage was set for the services that could flow from the agreed upon definition of wealth. IOR is in a sense the agreement, the "chain" between left and right, who forgot that dynamism was born of the efficiency that included the most economic actors possible.

Before wrapping up this post, I should add that I (somewhat) reluctantly supported interest on reserves initially as a stopgap solution. However, I believe that it needs to be phased out over time as local economies find ways to return to more sustainable and inclusive means of economic activity. That includes acknowledging the gains of  globalization (granted, not all financial was beneficial here...) where they actually exist - the creation of product which makes greater economic inclusion possible. To be able to phase IOR out over time would also make clear what the benefits of nominal targeting actually are. Without the overhang of IOR, one has a real chance to ascertain what different consumption paths between upper and lower income might actually consist of. Local economies would not only be able to follow through on new paths, they could once again embrace comparative advantage in the process of doing so.

In Defense of Capitalism

This post is exactly what the title suggests, along with my own personal take which - after reading some wildly varying yet opposing viewpoints  - I feel it would be helpful to point out to my readers. It seems that my view of capitalism is significantly more benign and optimistic than some I've recently come across: especially compared to some who see capitalism as a battlefield for ultimate control. One singularity site sounded as though its primary goal was to crush anarchic capitalists - ouch! I came across that in search of a publication (article?) I was unable to find, on Google. If anyone has a link to the ghastly titled "Capitalism Creates Scarcity", I'd greatly appreciate it. Unfortunately a lot of economic theory has focused too much on scarcity (both real and imagined), instead of focusing on coordination to encourage abundance, and now that "dog" is definitely coming back to bite.

Just the same there are plenty of defenses for capitalism available, even if I never read the above mentioned cite for the specific arguments I might want to counter.  Plus, I had already begun this post before stumbling onto that Twitter mention on a blog sidebar (If I start using Twitter I'll never get anything done). Thus the scarcity reference simply provided extra incentive, as my original focus was on a more limited aspect of the subject: "Whatever Happened to Starting Over?" was to be the original blog post title. Only after starting this post did I realize it would be the 100th - and so I am quite glad to have a perfect subject for this little "landmark".

Indeed, one of the greater aspects of capitalism in my lifetime has been the fact that - in spite of one's circumstance or situation, and however hard it might be to escape personal limitations, the ability to gain work and economic access was always the saving grace. From my earliest college days in the seventies, right through the nineties, people would say in regards to difficulty, "You can always start over and create your life anew." And most everyone around me, young and old, really believed that. That's what capitalism meant for me and even others I knew who may not have considered themselves "defenders" in any direct sense. For most of my lifetime, until the recent change of century, many people I knew were basically positive in outlook, and believed in second chances. To me, that really was the embodiment of capitalism: dynamic potential and possibility, even after setbacks and personal defeats.

More needs to be said about the (seemingly dormant) regenerative capacity of capitalism - however, the above scarcity reference is important. Capitalism is not what is responsible for creating needless scarcities through wealth formation structures: people willingly choose to exacerbate such situations,  as well as governments.  It's up to the public to catch them in the act and call them on it, rather than trying to get our governments to make up for the fact afterwards with impossible forms of redistribution. The same would be true regardless of any other economic system that might exist, even if we could imagine one that worked better.

Compared to the ways people have apportioned power and wealth for hundreds of years, the last century held economic options beyond belief, for those of us not born to wealth, even though much of the primary access is out of our reach now. Governments have inadvertently backed themselves into a corner, in that they have preferred the (supposed) simplicity of wealth creation strategies at larger levels. Those definitions of wealth capture have, over time, made economic inclusion ever more difficult to achieve: a problem that today's redistribution patterns now contribute to rather than diminishing.

While some resources will always be relatively scarce; for much of the middle class in developed countries, that has long since been the actual problem, except for those scarce resources currently over allocated into housing and construction. As for other product or commodity production, much of it can now be accessed through technology in what has become a fairly efficient global commons. What's missing, however, is the local commons we need to create through the use of our own skill potential, and then reposition into greater wealth creation from that vantage point.

The fact that we have not yet addressed the missing link of our own direct participation, means we are mistakenly trying to pull back from the global commons of finite resources, in the belief that something "outside of ourselves" is somehow the real problem. That is a big part of why capitalism is so very fragile in the present, in spite of what some of it's most ardent supporters and enemies might think. People have mistaken extremely costly inefficiencies still happening at local levels for the progress of technology. However, that very real progress actually occurred much earlier in time.

Even though our time is quite limited in an individual sense, it tends toward infinite in a collective sense (for actual needed services), and this is the capacity that capitalism especially needs in the present. To say that we have knowledge in abundance, is not adequate for instance, to tap into such abundance, at all. As long as no property rights exist for knowledge use, we are serfs in our own institutions. However, this very real problem was not created by capitalism, for in the past, capitalism grew by treating knowledge as an open commons by and for all individuals to utilize. Again, the artificial scarcity constraints were ultimately created by private institutions with help from governments. Over time the impulse towards  knowledge enclosure became too tempting; because people saw how easy it was to do so, in that governments already jealously guarded knowledge definitions in those institutions not remedied by the free market.

Sometimes I'm still shocked at the degree to which the more benign characteristics of capitalism continue to be threatened. These three responses: taking for granted, taking advantage of, reacting against, all of these work against capitalism's vitality - which can readily be seen by ever declining monetary velocity over time. Capitalism was originally about escaping the economic limitations of place and creating greater access for all, beyond the earlier limitations. In other words, people who continue to believe in it sometimes see it as a means to keep others down, and those who don't believe in it either want to overthrow it, or otherwise hope that it will go away. Anyone who simply takes capitalism for granted (as governments tend to do) also endangers capitalism by similar means in their neglect of the economic freedoms it once made possible.

Capitalism still has far more potential flexibility and dynamism than anyone in power is willing to give it credit for. We have been stymied by our own propensity to bankrupt or blame one another, each time we expect one another to take on far more risk than is really necessary to live a respectable and decent life. We need to begin the process of spreading risk in more sustainable ways. There is tremendous capacity that could be utilized in terms of knowledge use and skills, but it really depends on whether people choose to hold and define wealth beyond the limitations of the present. There is nothing wrong with the basic structures that capitalism has already been able to harness - they simply need to be envisioned in more fluid and widely held terms, so that economic stability does not mean forcing definitions of product that have outlived their usefulness and purpose. Before anyone looks to revolution as a "way out", what they really need to ask is, how can we revitalize capitalism and make it the vehicle for economic access, that it once was.

Cities, and other Nominal Targeting Possibilities

To a degree this post follows from my previous post: however this one will hopefully make sense on its own, if readers don't have time for the above link. In the midst of a summer lull, some Market Monetarists such as myself feel a bit wistful for "what could be" (i.e. how different Fed activity would be right now if only NGDPLT were the rule) and of course I'm stubborn enough to keep thinking about it, even in the middle of some folk's vacations. As to the recent actions of the Fed and subsequent reactions to now inevitable tapering: it's not hard to tell that markets want more growth than Main Street is prepared to "serve up", so another goofy analogy is that I'm not afraid to remain in a hot kitchen in spite of it all, with more thoughts of future growth...

This morning's links provided some fun in the form of good news and bad news stories. First the "bad" news (hehe), HT to The Browser and a recent quote for the day:

Only someone miraculously innocent of history could believe that competition among ideas could result in the triumph of truth - John Gray

Tell me when it's over! Seriously, perhaps it's a good thing I've not had time to read enough history, because I'm just enough of a dolt at age fifty eight to have a bit more optimism that that. Now I'm not completely sure which John Gray was despondent enough to give up on humanity, but looking through various John Gray quotes online, this was far from the only one that sounded fatalistic. To put it simply, I believe that with a bit of organization, cities still have the capacity to utilize and capitalize on good ideas, even if their institutions are not in a position to be able to do so.

Now, for the (actual) good news, and this time the HT goes to Ryan Avent for the link. In "Trans-Atlantic Trade and Its Discontents", the authors indicate that in spite of the problems which finance, housing and mortgages created, "...the euro crisis never became a trade crisis, in stark contrast to the 1930s trade wars (italics mine). In fact, one of the key conclusions to be drawn from the balkanization of the European finances and divergent euro growth over the last three years is that the European Union's single market needs to be deeper." Now there's a perspective one doesn't hear a lot of, lately.

Of course, the authors of this article also point out that political factions make the possibility of further trade improvements less realistic, than they should be. But what remains encouraging - even now - is that setbacks for trade in both the developing and the developed world are not so great, where production efficiencies do in fact continue to exist. What's more, we can hope that people are careful not to lose too many of the gains from trade this time, so that no one has to repeat the losses of multiple markets at the same time: just one of the unfortunate results of the Great Depression. Not to say that some trade won't fall prey to protectionism - but with a little luck, globalization won't break down the way it did in the thirties. Because of the vast differences in how tradable and non tradable goods production are conducted in the present, local economies in any number of nations definitely have a role, in how this situation ultimately plays out. Often it will mean starting over with a fresh template that challenges plenty of old assumptions all around.

In developed nations; even though the main problems still appear as primarily finance related, they nonetheless stemmed from a similar series of events at local levels, where real estate as wealth became a prime impetus for additional services provisions in many locations: a process which finally became like a dog chasing its own tail. In order for any city to move away from this self-defeating cycle, there are two primary structural components to be considered.

First, local economies need to envision greater mobility and flexibility in both living and working circumstances. In part, that means establishing new varieties of zoning options, where individuals also have the ability to manufacture lightweight building components and supporting infrastructures. Another important aspect of such zoning is the inclusion of those who wish to live and work in closer proximity to one another, than automobile use allows. How might citizens envision such environments with flexible building components, which can be pulled apart and reconfigured for different economic settings as the need arises?

Cities also need to create more inclusive social structures for knowledge based skills and services, which are slowly being scaled back over time in traditional terms. One way to think about the process itself: allowing skills sets which are often non tradable between institutions, to become tradable goods through diverse arbitrage settings . How so? This goes back to the above refutation of the John Gray quote: by coordinating knowledge use across multiple disciplines and forms of economic activity, cities and indeed towns as well, can create greater competition amongst ideas, by allowing their imprints in multiple places, whatever the "truth" is. The more we are able to bring knowledge use processes into our economic lives, the less we have to fight over what the truth is, in the first place.

One reason nominal targeting is questioned as optimal in the present is the fact that some assets and resources presently appear to be of relatively greater important than the actual use of our time. By learning how to match time to economic life in more optimal ways, it also becomes easier to convince others that time measurement of nominal targeting is in fact the best anchor for monetary stability. While there is a learning curve involved in making knowledge use a more central aspect of wealth creation, once it is coordinated into recognizable and practical forms, many aspects of services will become far simpler in organization as a result. Such simplification would also go a long way to reduce the need for taxation - except for the taxation of tradable goods which, as the above article indicates, still do not suffer from the problems of finance in general, and services in particular in parts of the Eurozone.

Part of this process also involves citizens refusing "business as usual" to the financial entities which often "dictate" austerity now. It is simply wrong that any nation's citizens' receive all the blame for profligacy - that of which was the very terms the bankers and construction interests brought to citizens, to begin with. People can create their own incremental approaches to ownership and business formation, if and when their financial institutions refuse to help them. There are only so many people who can go back to the earlier sets of expectations, and local economies need to be creative in finding new ways for their citizens to thrive, instead of hoping they will locate elsewhere. For that is indeed the problem: no other "elsewhere" presently exists, as too many cities and towns have became bogged down with the old formulations of wealth creation and services provisions which no longer work as before. Greater inclusivity is not just a "feel good" measure for cities in the present, it is really the main option cities now have, to regain economic stability.