"Medium Term" Concerns are Becoming Short Term Realities

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

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

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

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

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

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

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

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

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

Might Good Deflation Counter Excess Monetary Demand?

What makes good deflation so desirable? It all starts when increased output is possible with fewer resources overall. Once price reductions per unit come into play, they in turn lead to real wage gains and higher productivity levels. I believe that good deflation could become a services sector response to counteract high inflation and rising interest rates. Given the many positives of good deflation, what accounts for such resistance to its potential in housing and time based services?

Even though both areas must deal with the natural scarcities of time and place, much of the bias against good deflation potential is inadvertent and political in nature. Not only are such biases protectionist, they discourage adaptive evolution in time and place based product - evolution which could otherwise augment their capacity despite their natural limitations. While time based skill and land as real estate are certainly not exponential in nature, they could still add additional output through flexible coordination of knowledge and land use potential.

Bias characteristics also differ depending on the markets and sectors in question. For instance, progressives and conservatives increasingly prefer a restoration of local manufacturing over global free trade. Fortunately - even though this anti free market bias will increase manufacturing costs to some degree - globalized manufacture should continue benefiting nations in the foreseeable future. At the very least, it's reasonable to expect good deflation to ultimately be restored in global markets. Once tradable sector resource access is more stable and predictable, it should become more cost effective as well.  

Societies are fortunate indeed, that tradable sector activity is often managed for full production efficiencies. Still, during times of high inflation, we're reminded of the dangers of taking good deflation in tradable sectors for granted. Indeed, relying on the serendipity of long term good deflation (along with the more recent low inflation pattern) made it easy to disregard the long term inefficiencies of non tradable sectors. These inefficiencies remain in place due to countless quality requirements, many of which have been exacerbated by government subsidies. 

Recall however, that these requirements end up as ever more inputs in relation to aggregate output. Even when quality gains are worth additional costs for some, other groups suffer efficiency losses which in turn require additional personal labour for non discretionary needs. Consequently when it comes to quality of life, some income groups are actually moving backwards. Again, constant calls for higher wages occur because lower income groups need to work more hours than is sometimes feasible to meet their financial responsibilities.

Fortunately there are already better production methods which could establish disinflation in housing - methods which could eventually lead to good deflation as well. Just the same, a considerable amount of social and political bias has prevented the majority of flexible housing options. In this restrictive environment, progressives tend to focus on time based constraints for meeting financial obligations. Whereas conservatives are more concerned about place based constraints, such as immigrants who are seen as competing for already scarce housing. 

Despite the protectionism that stands in the way of production reform, housing is still a simpler issue to solve than markets based on time and personal skill. Hence countering excess monetary demand could begin with more flexible interpretations of housing for all income levels. Otherwise, many individuals will remain subject to the first mover problem of providing valuable services for others by more accessible means, only to be locked out of the housing necessary for this to happen. For that matter, one of the main reasons wages recently increased for the lowest income levels, is that employers were faced with the fact no housing existed nearby which their employees could afford. 

Societies need to focus on non tradable sector production issues, since they are at the heart of recent inflation which is proving difficult to eradicate. However, there's something else important about productivity expectations which needs to be noted here. When productivity involves final product which is independent of personal labour, these areas do have capacity for exponential output. Since our economic time is not exponential, it often demands a higher price as a fixed quantity. In these instances, people rely on investments in knowledge and skill to increase their time value. Alas, institutions then tend to respond by substituting away from time based input, in order to meet their financial obligations! Despite the obvious drawbacks of this effect, our current understanding of productivity gains makes it a rational approach, especially if institutional budgets are already in jeopardy. 

How, then, could good deflation be achieved in skills use without having to substitute away from time based input? One way is to make mutual time commitments, or time arbitrage, a valid and measurable economic unit. Skill sets would be voluntarily chosen and independent of monetary value. However, group effort would also utilize monetary compensation as a base to keep the process in motion. Time arbitrage might help societies maintain and preserve what they build and create, plus the knowledge and skills involved would be simultaneously measured as cumulative gains. Time as an economic unit of value is also one way to overcome the Baumol effect and ultimately, achieve good deflation in time based services. Again, production gains would transpire on completely different terms in these settings. Once housing production reform begins in earnest, economic validity for mutual time commitments would be the logical next step.

Upstream Nominal Claims Matter for Equilibrium Balance

Will the Fed successfully curtail inflation in the near future? Fortunately there have been encouraging signs of disinflation, even if the causes aren't obvious yet. However, while the Fed uses monetary policy to tame inflation, in certain respects this is a technical result. In other words, "pulling back" won't address supply side shortcomings such as the perennial inflation contributors in our secondary markets. Unfortunately, these local markets are woefully incomplete in basic respects, with housing and skilled services as the most egregious examples. Consequently, were the Fed were to pursue nominal stability and a stable growth level (as a market monetarist "best case" scenario), this would only be a partial answer - albeit the monetary one - for optimal equilibrium balance. 

Indeed, the Fed has often emphasized how its hands are tied in terms of supply side reform possibilities. Despite the recent pullback on traditional housing loan activity, Fed members must be wondering now, who in a decision making capacity is really paying attention and ready to take action? After all, we need incremental ownership options for flexible housing and land use, before many citizens can lead more productive lives. Without such options, millions still function in their own "recessionary" economy, even as others move on. For that matter, tiny homes, manufactured homes, and modular homes are already available, but few communities remain willing to make room for lower income options. Alas, there's a relative few sad exceptions for flood prone areas which are often long distances from employment opportunities. 

While there's a growing understanding of supply side issues, supply side reform means different things to different people. Consequently we aren't ready to address how local secondary market deficiencies contribute to equilibrium imbalance. In all this, upstream nominal claims tend to define production and consumption landscapes, plus such claims are more locally supported than it appears at first glance. Upstream nominal claims come not only from profit and non profit decision makers, for the Nimby impulses of local citizens lead to surging property taxes as well - taxes for rising asset values rather than local service gains! How can the Fed keep a decent reputation indefinitely, if the constraints of artificial housing scarcity remain enforced? Yet since these claims matter for skilled services, communities often refuse newcomers who lack discretionary income for additional service costs.

In a recent post I noted the structural shift of additional nominal claims from originating wealth sources. Fortunately, some of these pressures are starting to let up, which should make the Fed's job a little easier. That said, problems of excessive expectations will remain with us. Only consider how some of those expectations might have come about in the first place. Part of the high inflation of the sixties and seventies was due to the introduction of higher costs for healthcare in general across the board - costs which could have been rationalized by increased fossil fuel wealth in the U.S. during that period. Now, imagine what might happen to those expectations should that fossil fuel wealth shift into reverse! For that matter, once the Fed finally reduced those earlier high inflation levels, recall how our healthcare institutions enforced hard limits on physician supply. Chances are this nominal structural shift was more than a coincidence. 

It's hard to imagine secondary markets giving up much ground to primary markets in terms of monetary representation, or for that matter acknowledging their dependence on originating wealth sources. But that doesn't mean new market institutions aren't possible - markets that are more free yet don't present direct challenges to the old. New sets of expectations would not include the same excessive nominal demands as the old. Instead, new institutions would make room for flexible ownership and time value as wealth. Good deflation and skilled knowledge use in local markets, could be our best chance for greater market freedom and equilibrium balance in the near future.

Too Many Market Claims on Nominal Income

I've been anxious to start writing again regularly. However, much has come to pass since posts here were frequent, and not all of it has been good. Unfortunately, our political and social circumstance have continued to deteriorate. How will I proceed? How might others proceed? 

For now I'll need to focus less on how I feel things could be improved, and more on structural explanations why our unfortunate economic reality has come about. At the very least, a better understanding what led to this impasse, might encourage warring factions to lighten up on the destructive cultural wars. Nevertheless I've lost confidence that a cultural/political peace can be achieved during the course of my own lifetime. We simply waited too long to make supply side improvements at local levels, and the consequent fighting over scarce resources - even though many were artificially induced - won't be easily eradicated.

Meanwhile, we are in danger of losing more personal, market, and political freedoms in the years to come. While a relative few still defend free markets, the majority of these seek solutions along the margins. Alas, this approach mostly accrues to those who already benefited from recent sources of prosperity. Yet societies struggle to remain free, when economic progress doesn't occur in ways which lead to gains for all of society - not just those who have already won. 

In particular, the winners have all but cancelled the game for many participants, by making too many claims on nominal income. One reason this matters, is that the Fed learned the hard way decades earlier, what would happen once it allowed too many winners to insist on their excess claims! Yet the Fed monetary policy tool is a blunt tool. Meaning, the Fed can't choose who wins and loses once the monetary limits are drawn. For that matter, governments shouldn't have to choose, either. Instead, economic inclusion and the good deflation which encourages it, should be the responsibility of millions who participate in supply side activities. Yet many supply side decision makers have instead stood by, while societies lay blame - or excess expectations - in places where they really don't belong. 

Both the pandemic and the unexpected circumstance of primary market (originating wealth) turmoil, has meant hard lessons for this writer. Like many, I had taken "efficiency" aspects of primary markets for granted. What I never realized, was the fact such efficiency can take decades to achieve, in times of general equilibrium change. Plus, oil production is so central to how our most recent equilibrium became defined, in the first place. I should have understood well before now, that primary markets would need more nominal income space as absolute necessity, for wealth origin activity to continue as before. This, in contrast to the nominal income which secondary market participants demanded, in some instances for no better reason than knowledge providers were morally worthy of the sacrifice populations "should" make. 

As it turns out, our most direct sources of wealth have little choice but to make additional claims on nominal income, instead. Until now I'd believed secondary markets would try to keep pushing originating wealth sources out of their way, for Fed handouts. Instead, cutbacks in applied knowledge as it is currently utilized, are already underway. What recently happened to some of our most important markets, is also a reminder how peak oil finally arrived, despite recent fracking gains. Yep, we worried about peak oil decades too soon. 

Going forward, I will continue to focus on the lack of overall balance in general equilibrium conditions. For now, the Fed needs to make space for primary market evolution, but that doesn't mean citizens can't find ways to further evolve the human capital of secondary markets. Recall also that housing is a bridge between primary and secondary markets, for its monetary value represents both originating wealth and services generation. The paradox of traditional housing is that too many claims on nominal income now exist, while millions continue to need housing. Yet the Fed had little choice but to pull back early, well before existing need could be met. It's time for housing to further evolve. Due to its very nature as a bridge between primary and secondary markets, housing is paramount in equilibrium balance. Housing and its associated ownership frameworks must change into more realistic forms, or societies will continue to suffer.

Our Meritocratic Knowledge Systems Are Quite Fragile

War can create many problems, and this time it includes difficulties for supply side circumstance, central bankers, and monetary policy. Some are also debating (although they are divided) how Putin's actions will ultimately affect global currency patterns. I'd suggest that while no one knows how long global dollar dominance could last, this is still an opportune moment for special interest groups to dial back on their dependence of global financial flows for monetary compensation. Especially since this decades long global positioning has added to income inequalities, many of which stem from administrative privilege. In particular, inequality in the U.S. is largely due to tax dependent secondary markets (and their associated housing valuations) where knowledge and skill are essential. 

Meritocratic organizational patterns in dependent markets have become like an endangered species, by aligning too closely with other aspects of elite tendencies (both left and right leaning) in advanced economies. Consider how this matters, for political opponents are now so opposed to each another that both sides are losing the ability to effectively function. This really matters for merit based organization, once profit becomes defined as the strongest limits possible to total applied knowledge participation. Even though the patterns we observe are more often knowledge use losses in rural areas, this is nevertheless symptomatic of continued losses for valuable skills in general, in all of society.

For decades we have taken administrative dominance for granted in the compensation of meritocratic time based knowledge. But unfortunately, administrative capture of monetary value for time based skill sets, creates extensive participation limits in terms of both supply and demand. When price making is used in excess of price taking in equilibrium conditions, the result is inevitably reduced societal coordination patterns (hence loss of mutual trust) for knowledge use. Indeed, our housing asset markets closely represent the pinnacle of what people hope to achieve in monetary compensation for knowledge and skill, instead of the compensation many citizens actually receive. 

The supply side conditions which allowed this circumstance have only been exacerbated since the turn of the 21st century. Small wonder that our educational and healthcare institutions now experience problems at systemic levels with few solutions on offer. Yet applied skill losses tend to occur in ways that aren't necessarily evident, such as in U.S. justice scenarios which greatly impact both lower and middle income levels. For that matter, much of the cultural resistance to vaccines took place in "red" states where rural areas have already long since lost their hospitals and other local healthcare settings.

Should we finally reform knowledge centered citizen participation, recall as well, how closely linked these time based services are with housing. States such as Texas (where I live) have been heavily dependent on property taxes to fund the services citizens rely on, for instance. There are other important economic connections between housing and services as well. A prime example is how the Fed frames housing as a transmission mechanism for monetary policy, which in turn affects the money available for services in given time periods. 

Hence when we highlight possibilities for greater housing affordability, it helps to remember that services access and participation would be closely connected to these efforts. Since services values are reflective of housing, only recall that good deflation in housing would require good deflation in time based services costs. This time based adaptation of local property taxes would only work for citizens if they can actually count on lower mutual time costs for group coordination. In many earlier posts I advocated for time as a formal economic unit. Fortunately, we could design means to connect economic time value to originating wealth or monetary value, via local building patterns for participating groups. I continue to hope that production and ownership reform efforts such as these, might be considered in the near future.

Is Social Mobility Not as Beneficial as Equality?

Like many - especially those of us with limited means - I believe social mobility is important for personal aspirations and economic access. Of late, the Olympics has been providing some inspiring examples. However, a recent post from Chris Dillow reminds how some on the left are quick to dismiss social mobility as a real positive. Their dislike of the societal need for social mobility, is something I've never quite understood. 

In his post, Chris Dillow presents a more nuanced perspective. He's also realistic in asserting that class issues will never be completely eradicated. For that matter, despite our occasional frustrations with meritocracy, at least it functions better than earlier aristocratic norms. Dillow sums up:

The point of all this is not to say that young working class people should not be ambitious. Instead, it is to suggest that social mobility is no substitute for genuine equality.

Perhaps more discussions along these lines would be worthwhile, especially if it could reduce our constant culture wars. It would be great if class perspectives and framing, could help reduce the excessive focus on identity politics. Nevertheless, people have different images in mind, when they conceptualize "genuine equality". For one thing, I believe that income redistribution should not be a primary focus in these matters. Even if societies could somehow wave a magic wand to reduce existing inequalities via monetary means, what would we get? Especially since our most pressing inequalities tend to involve resources which are aligned with time and space. Chances are, these are the areas we need to focus on the most.

When money is envisioned as sole solution for existing inequalities, too many intangibles and unknowns are left in the picture. How much income would ever be "enough" to pay ones basic bills, for instance? For one thing, societies are often inclined to raise prices for our most basic needs whenever local income levels rise. In other words everyone gets higher prices chasing higher incomes and we're essentially in the same position as before. 

Chances are, market solutions which lead to good deflation in non tradable sectors, might prove a more tangible and practical approach. In particular, good deflation in time based services would allow a wide range of other market prices to benefit from lower operational costs as well. Like the circumstantial nature of social mobility, market solutions could create tangible rewards that give small income levels more discretionary freedom. Supply side production reforms, much as social mobility benefits, would focus on what can be accomplished in the here and now, instead of getting lost in wishful thinking.

Production reform would be incremental and specific in nature, yet it holds considerable potential to create more positive outcomes. The long struggle to make various groups responsible for the welfare of other groups, is no longer working as well as it once did. We might accomplish much more, by creating better market opportunities for aspects of life which simply haven't responded well to income redistribution. In all of this, an important path to greater equality, is the creation of viable market options for everything we connect to specific time and place.

Let's make peace with the fact that money simply can't accomplish everyone that societies might hope for. Indeed, the sooner we make that peace, the sooner we could build markets in time value which surpass the monetary limitations of present knowledge providers. Plus, the sooner we make room for housing which is not imagined as "permanence", the less expensive it will be to maintain and reconfigure these structures once the need arises to do so. Why not build a better, more agile economy where everyone benefits from good deflation in non tradable sectors? Chances are, existing inequalities would also be eased. It's time to get started. 

Don't Blame the Fed for Supply Side Recalcitrance

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

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

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

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

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

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

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

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

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

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

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

The Natural Equity of Tradable Sector Dominance

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

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

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

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

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

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

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

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

Extensive Price Making is an Equilibrium Outlier

Even though many of us take extensive price making for granted in time based services, this set of circumstance is actually an equilibrium outlier among many nations. For instance, history provides ample evidence that systems of knowledge centered agglomeration which depend on other sources of wealth, can be quite fragile in the long run. All too often, when citizens can't utilize knowledge via non hierarchical means, they end up missing basic or critical steps which could help them achieve daily goals. Worse, they lack any viable patterns of participation in the institutions which bear responsibility for continued knowledge preservation. 

Since direct reciprocity has only become more difficult for services generation - especially during the 20th century - societies increasingly rely on asymmetric participation, production and consumption for a wide array of knowledge based activity. Alas, this approach has led to sectoral imbalances and accumulating debt loads. Much in the way of applied knowledge is publicly supported. However, this means that much of today's day high skill activities are financial obligations for future citizens, rather than market based production and consumption options for people who need them now. Despite the fact this set of affairs can't continue indefinitely, we still lack any Plan B which could stabilize and lessen budgetary burdens many nations face for knowledge based needs. Perhaps it's the fact no Plan B is being actively discussed, which encourages major political parties to completely ignore the possibility of imposed austerity and hardship in the near future.

A major challenge in all this, is to once again relearn how to use knowledge and skill through more directly reciprocated patterns. Not only would symmetric time use mean greater market participation for all citizens, reciprocal time matching can create more immediate wealth, thereby lessening the perceived need for governmental redistribution of all kinds. Time arbitrage is a viable Plan B which would build a more complete framework for time use potential in local community groupings. The local adaptation of production and consumption settings for knowledge, could ultimately transform communities which otherwise find themselves left out of knowledge production and consumption in urban markets.

The group time of local mutual assistance would function as a form of internalized market pricing. Since the majority of time use potential becomes accounted for in a market context, time begins to function as a valid price taking mechanism for participating groups. Likewise, being able to price take makes good deflation possible for services generation, such as extensive price taking in tradable sector activity has led to good deflation in countless forms of resource capacity.  

Consider how defined equilibrium settings can gradually restore sectoral balance by allowing participants to coordinate time more fully. Importantly, this market option makes time based services more sustainable over the long run. Meanwhile, however, the U.S. may be experiencing even more political polarization than other nations, since healthcare price making is more extensive than what generally occurs in most nations. Indeed, our healthcare organizational capacity actually makes U.S. healthcare more of an outlier, in relation to other mature economies. This extreme dependence on national support also helps to explain why it is often so difficult for both the production and consumption of healthcare in the U.S. to remain in a sustainable position, possibly even for the medium term. While price making is always an understandable urge, fortunately we can recreate market options which make room for the more sustainable practice of price taking, in the use of highly valued skill and knowledge.

When We Can't Always Get What We Want...

Somehow I find it fitting that Mick Jagger of Rolling Stones fame, studied economics before joining the group. Indeed, the song "You Can't Always Get What You Want", is an apt reminder how we seemingly forget to build vital need based markets. Yet if our domestic non tradable sector providers paid more attention to these areas, perhaps people would be less inclined to question the integrity of today's economic and political systems.

Granted, many producers face the temptation of raising the bar on product definitions where possible, so that product and services reflect consumer wants more closely than actual need. After all it can be quite profitable to do so. Unfortunately however, if too many non tradable sector producers choose this route, markets gradually become destabilized. What might be done? Again, cue what Mick Jagger and Keith Richards wrote:

But if you try sometimes you just might find

you get what you need

It's time to get serious about creating more accessible free markets in our non tradable sectors. We are confusing too many experiential wants with what is essentially necessary in order for citizens to thrive. For one thing, taxpayers face additional burdens, due to negative externalities caused by low income workers who lack sufficient income for even limited sets of non tradable sector costs. One indicator we have procrastinated too long in this regard, is that middle class citizens are beginning to seek "living" wages for non discretionary needs as well. Domestic protectionism might be out of control for instance, when a general lack of basic markets encourages politicians to mandate wage floors. And higher mandated wages only make it more difficult for employers to realize profits. We need to focus on production reform in markets where it matters most, to stop this destructive cycle.

Alas, even with fewer profits and businesses in operation, we can't always get what we want when it comes to "livable" wages for all employees. Yet today's workplace offerings are thought of as "meaningful" mostly when when abundant wages are part of the package. Perhaps it's not surprising that the most negative responses to my work thus far, have been due to my advocacy for good deflation in time based services income.

However, good deflation in time based services might be the only way to increase the use of workplace knowledge in more meaningful and accessible ways. Let's just admit it: Great wages are one of those societal wants which is impossible to fulfill for all citizens, via either fiscal means or private sector mandates. The sooner we face this reality, the sooner we can move towards a future of restored hope, as millions gain the right to inclusion in more productive organizational settings. For one thing, good deflation in time based services would do much more than simply address consumer "affordability". Good deflation in income and building requirements, would give us the legal and social grounds to share the work which people find most meaningful in life. 

One reason citizens expect so much from fiscal policy, is that governments are expected to be responsible for meeting many societal needs. The problem in this regard, is how governments and private interests raised regulatory and price bars on basic needs too many times. Each time these bars were raised, governments incrementally gave up their ability to influence or fiscally support citizens and economies, one unfortunate rule and regulation at a time. Now, many basic needs go unmet, as regulatory rules mostly accrue to the societal benefits (wants) of higher income levels. Among the sacrifices in this regard are the one time effectiveness of fiscal policy. Where once it held a valid role in addressing societal needs, now it is closely bound with specific political aims. 

Consider why this matters for inequality and applied knowledge preservation, as well. Fiscal policy now only holds a minor role in smoothing income differences. But more importantly, it is losing its ability to fulfill the role of spreading and supporting knowledge for the use of all citizens. To a large extent, these roles are diminished by the fact redistribution mostly augments the wants of specific high income groups. 

Which is also why I find it difficult to understand, the high hopes attached to fiscal policy "remedies" such as MMT. Even if political support for Modern Monetary Theory should turn into a policy option constant, what might its adherents hope to accomplish in any concrete sense? And that's not even considering the disparaging attacks MMT advocates tend to make on monetarist views. To me at least, Modern Monetary Theory advocates appear mostly concerned with middle class wants, rather than any need based structural issues faced by lower income levels. Granted, there is some good which can still be achieved via fiscal policy. However, we should let go of believing fiscal policy can actually address existing inequalities, let alone the productive use and preservation of knowledge in society. 

 

Hopefully, my readers won't get the impression I view wants as a societal negative. I absolutely believe that wants can be positive as well. However, let's be careful to ensure basic needs are actually met, first. What's more, do so without changing the goalposts so as to obscure basic needs once again. For instance, don't insist that smartphones or credit use are absolute necessities. I don't need either in order to thrive, plus opting for these things would reduce my spending capacity in other crucial respects. Indeed, once basic needs are met, and one finally gets to breathe easier, the occasional wants of a tradable sector (retail) splurge need not break the bank at all.

When societies forget what it actually takes for lower income levels to survive, they also lose track of the extent to which progress actually takes place for societies as a whole. At the very least, tradable sectors have given us excellent examples for full needs based markets, especially when luxury adaptations come from basic commodification structures. Whereas non tradable sector activity, due to the existing scarcities of time and space, tends to leapfrog need based offerings for what may appear as societal progress, but in certain respects is instead luxury mandates for low income levels which can ill afford such requirements. 

Profit is integral to businesses and sustainable economies in general, but profits should not be sought by needlessly obscuring the differences between want and need. Too much of society is presently paying the price for this approach. For one thing, it is a simpler matter to determine basic survival needs than some imagine. Once we become willing to highlight the real differences, innovations for our physical environments in particular, could proceed from this understanding.

Until we realize good deflation in time based services and building requirements, these areas of our lives will remain structurally fragile. As things currently stand, the domestic markets of our non tradable sectors demand too much in terms of debt levels and redistribution, for governments and citizens to successfully shoulder these burdens in the near future. Let's commit to innovation in need based markets. Even though societies can't fulfill every thing their hearts desire, we could still do a much better job of market creation which addresses actual needs.

Are There Really Too Many PhD's?

Some have come to believe the talent pool for PhDs is diluted in ways that result in diminishing returns to the marketplace. Might this actually be true? Even though the argument carries a certain logic, it hardly means that societies should shift toward workplaces where knowledge is deemed less important! In particular, a majority of citizens now rely extensively on knowledge and skill, to lead meaningful and successful lives. How might society respond to a perception of "too many" advanced college graduates, given this reality? 

Alas, the "too many PhDs" argument also presents thorny issues for many who seek well compensated workplace opportunities. Recall that much of the rationale for seeking advanced degrees, is due to non tradable sector expectations of degree enhanced incomes. Even though high income levels should not be a prerequisite for basic non discretionary spending, this structural circumstance has yet to be addressed. Consequently, it's not a good idea to argue that millions shouldn't even pursue advanced degrees, so long as there are inadequate supply side mechanisms in place making it feasible to maintain financial responsibilities with anything less than advanced degrees. 

Nevertheless, I have to admit that present day general equilibrium revenue is woefully insufficient, for millions who still seek to enter well compensated workplaces. So much of this revenue is already claimed by price making in secondary markets, that the wealth creation of primary markets has also been compromised to some extent. However, what frustrated me to the point of writing this post, are group identity arguments which question intellectual aptitude and even the supposed cultural limitations of various groups. How exactly are millions of citizens expected to bear financial responsibility, if they are deemed incapable of full participation at the outset? What this essentially boils down to, is the suppression of human capital (with general equilibrium limits as excuse), in a historical moment when human capital is vital for getting things done. And too much valuable human capital output is essentially time based in nature, for anyone to logically deny entry which boosts aggregate time based output.

If there is any supposed "excessive dilution" in the provision of ideas or intellectual strategies, it is only due to the inefficiencies of a general equilibrium structure - one which never accounted for the possibility of full citizen participation in the first place. For this and of course other reasons, I continue to promote time value as a more inclusive source of wealth building, so that all citizens gain a chance to contribute to positive economic outcomes. Time arbitrage could create a durable free market context, so that personal ability and aspiration can be more fully represented. 

Again, the 21st century - in order to have real meaning - is about raising the value of all human capital - not just the opportunities of the best and the brightest. If we neglect to create time based wealth options for left behind communities, these recent rounds of anti-intellectualism and political division are likely to worsen. And anti-intellectualism is a poor substitute, for the kinds of useful and experiential knowledge which may not continue to flourish, should it remain mostly the province of experts and prosperous regions. We can make knowledge valuable in the eyes of all citizens once again, if we allow it to become part of the economic potential of all communities.

Until now, part of what has made it difficult to take definitive action, is the understandable frustration surrounding near future income limitations. While the fact we cannot raise all incomes is of course bad news, the good news is we can innovate our way to good deflation in non tradable sector activity, so that high income levels aren't necessary to live a good life. Fortunately it is within our ability as a society, to create the non tradable sector innovation which brings new spending power to small incomes. In the future, whenever money falls short of hopes and expectations, time value could be tapped as well, for the creation of durable economic outcomes. And best, we can ultimately change our perceptions, as to who is eligible for full participation in a knowledge based society. 

Design Markets That Let Basic Incomes Meet Basic Needs

Might formal versions of basic income become part of our future? While I believe an open ended or non reciprocal approach would be counterproductive, I do advocate for "basic" income levels which can support new forms of mutual employment - especially those which take place via non hierarchical means. Indeed, we are entering a historical moment when many individuals could benefit from new paths of economic experimentation such as this. All the more so, since many citizens and communities now lack many production options which prevailed when more labour was still necessary in our tradable sectors. Non hierarchical services formation would mean good deflation in income expectations as well, for the low income groups which need services access the most.

Just the same, basic levels of income have been with us all along - even though low income groups are all but ignored in the costly market requirements of our non tradable sectors. Why haven't these groups received more respect or acknowledgment from the providers of (largely) non discretionary markets? Chances are, one of the best ways to preserve economic stability and long term growth, is by making market design more receptive to what many businesses enterprises and individuals have been able to pay their workers and employees, all along.

By no means is the issue of small income representation, one of just younger workers or else older employees who lose stable employment with benefits. Future contributors to market design also need to take retirees into account, especially those in the U.S. which rely mostly on Social Security. Not only do many present and future retirees lack private pensions, their savings also don't go far enough in a low interest rate environment. If this weren't enough, new retirees (such as myself) need to take into account the expected losses in revenue for Social Security in the next 15 years. How will we adjust our lifestyles in the meantime? What should many individuals expect to forego in the years ahead? Will we as a country be prepared for future Social Security losses? It's time for our supply side to step up to these challenges.

I continue to hope for a concerted market response for the millions who live much of their lives with limited income realities. Even though governments are not well positioned to tend to these issues, fortunately there are many others who could craft productive responses. Often, the best way to do so is simply start from a clean slate via new and flexible communities. When it comes to housing and other building needs in particular, start with interchangeable building materials which are not only water resistant and easy to put together, but also relatively impervious to insect infestations. Such options are especially important for people as they age, since traditional housing materials become less reliable in the very years when aging homeowners already dedicate more time, energy and money to the care of their own bodies.

At first glance, tiny homes or RV living appear to provide affordability options. However, both are - even when only indirectly - too dependent on the same traditional infrastructure settings which pose problems for community maintenance in general. Consequently, many existing communities are not comfortable in making room for either option, especially since low income groups can't sufficiently contribute to existing tax bases. Only consider this added wrinkle for retiree budgets, especially given what they can now expect in terms of average healthcare costs. Not only do we need extensive production reform in services generation, we also need substantial innovation in physical infrastructure, so that new communities need not depend on high income level groups to create and maintain local physical infrastructure.

As an aside in all this: When it comes to building more flexible forms of new community, shared goals, aspirations and intellectual challenges are also basic needs for individuals and families alike. What we have yet to explore in current versions of property ownership, are platforms which make it possible to better align common interests and aspirations among neighbors. All too often, when neighbors lack any commonality other than physical proximity to one another, they aren't necessarily happy in having to live so closely together, possibly for a majority of their lives! Indeed, what does this example of limited commonality suggest for the larger picture of segregationist impulses if - unfortunately - a substantial fraction of white neighbors scarcely get along with or trust one another?  Granted, this personal observation on my part (as a white person) is no excuse for any extreme expression of racism. Still, we might get better societal results, by making the future ownership of group association less about monetary income or privilege, and more about where common aspirations and goals find economic platforms in which to flourish. I believe time arbitrage and flexible ownership are ways we could make this happen.

For Progress, Basic Innovation Remains Necessary

When it comes to societal progress, inventions that improve basic aspects of living are as crucial as they ever were. In considering why this is so, one also hopes future progress studies will encourage participants to envision basic innovation as much more, than past historical records. Innovation is not solely about creating new economic options, to further tempt those who already have plenty to spare! Indeed, with concerted efforts to innovate local environments, productive transformation could come to non tradable sector activity where it is most needed: time based services, building components, and physical infrastructure.

Oftentimes, achieving more supply side output means getting more people involved in the entire process. Alas, societies tend to lose this perspective, and they end up traveling paths in which ever fewer citizens are able to go. And while a more inclusive economy is often discussed in terms of greater monetary redistribution, basic forms of real economy activity are actually more important, so that all citizens can remain fully engaged. Much about societal progress relies not only on our active participation, but our personal ability to contribute to system maintenance as well. However, without ongoing production reform which lowers basic systems costs, they eventually become unsustainable, as growing majorities of citizens find themselves unable to contribute to systems upkeep.

Another way to think about supply side possibilities: How can we create more good deflation in these basic areas of our lives? What the supply side makes possible in terms of production and consumption, often matters much more than our actual income differences. Only recall, how the benefits of good deflation in tradable sectors have led to greater economic access and centuries of progress. Production reform in non tradable sectors would ultimately translate into additional economic activity, allowing millions more to build meaningful lives.

In certain respects, good deflation functions as other forms of productivity gains, in that it achieves more output via the resource capacity already at our disposal. This is why we also tend to observe lower costs in areas where good deflation does occur. That said, quality product gains also affect this relationship. In particular, preserving good deflation potential in non tradable sectors, means being careful not to allow perceptions of quality product to determine the extent of our personal economic time commitments. Especially given required costs for personal environments which are already non negotiable! Many businesses already have ample incentive to increase productivity, so why hasn't a similar approach been applied to the resource potential which communities actively share? After all, there are plenty of means for doing so, which can preserve the freedom and autonomy of all involved.

Without the possibilities of good deflation, too much non tradable sector activity would remain a financial burden for limited income communities. It's time for real change in these basic systems. Even though existing inequalities will always be with us to some extent, we could still bring vast progress to non discretionary goods, services and environment structure which involves asset ownership. Whether or not societies prosper in the future, may well depend on how our non tradable supply side capacity is organized and conceptualized. There's plenty of work to be done, to improve these vital areas of our lives.

Monetary Stabilization Needs Real Economy Stabilizers

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

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

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

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

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

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

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

Musings on Retirement and Defined Equilibrium

Many who have recently turned 65 probably have retirement budgeting on their minds, even though full Social Security in the U.S. for this group is now age 66. Yes I decided to wait. While I've found it helpful to review retirement advice online, lots of suggestions are geared towards people who are retiring on more than Social Security alone.

What about the rest of us? If Social Security income is going to be the only buffer, hard choices come into play - especially if it's just one income for life's exigencies. Chief among these is when we are tending to an aging body and an aging home at the same time. Often, expenses for one are going to edge the other out!

So I've gained new appreciation, for moments when financial care of body and home don't appear as though simultaneously necessary. One consideration re the body option: Medicare costs might initially outweigh benefits, for those in reasonably good health who have managed (thus far) to avoid regular doctor's visits. In particular, basic Medicare doesn't cover as much as one might assume. Perhaps that escalating 10 percent penalty per year on monthly payments, might not be so bad after all if I could tend to some housing needs first. Nevertheless, should a major heath issue arise, I may need to rethink that strategy.

Should our initial major choices run along these lines, recall how - fortunately - improvements in physical environment can also improve health. Two for one budgeting, so to speak. How often does a doctor's prescription actually stem from a house which was "ill" in some respect, making more health problems for its inhabitants as well? This possibility occurred to me when I was reviewing a migraine log with its list of potential migraine triggers, only to realize those triggers can be magnified by a house in need of repairs.

Of course, the above decision making process on my part is a short run approach, or a response to relevant circumstance in the here and now. Wherever we are, however we live, we work with resources we already have in any given moment. But how might our resource options appear, if we could conceptualize new possibilities for long term gain? In other words, what could expand our choice sets for a fixed retirement income in defined equilibrium settings?

Presently, zoning and regulations both get in the way of what most low income retirees can accomplish. Living simply and frugally is no easy matter, when building requirements are excessively rigid and complex.

Hence first, some groups would need to set aside places where the physical infrastructure of defined equilibrium can be legally set into motion. Then, once ground infrastructure is manufactured and locally assembled as a community grid, flexible building components attach to this semi permanent network. These components would in turn attach to electrical wiring, plumbing pipes and fixtures in self contained units. Once old connections need to be replaced, these disposable units would readily detach from others. Old electrical wiring and plumbing would no longer contribute to so many life hassles. What a relief for millions of future retirees, when they no longer have to tear into their homes just to access electrical lines and water pipes throughout the building!

Separate units for plumbing and electrical alone, could immensely contribute to the well being of aging retirees. Yet the benefits don't stop here, since such building options could help people of all ages and abilities. Not only would self contained plumbing units mean less termite damage; self contained electrical units could ultimately mean fewer house fires as well. The added flexibility of these self contained units could make it easier for communities to bounce back after natural disasters. Plus, ground level electrical work between these communities might make it less necessary for power companies to turn off community power during periods of extreme drought.

Alas, potential innovations such as this are not yet on the immediate horizon. But I can dream. After all, the real wage value of Social Security income will only become thinner in the years to come, if we don't get extensive innovation in our non tradable sectors. That said, should these possibilities come to fruition, even low income retirees would be better able to manage body, mind, and house. Again, at least one can hope!

Many Services Need Better Market Coordination

In spite of regular reminders to improve our skill sets as we go through life; the fact remains, as Karen Weese notes in "America's Fastest Growing Jobs Don't Pay a Living Wage", that some jobs don't translate into fully compensated human capital. How to think about this paradox?

For example, a community worker discovered in one locale that women were mostly working full time with wages at approximately $24,000 a year. Alas, even though this sounds like reasonable wages to old folk like me, it's not sufficient to cover much more than basic bills in many instances. How on earth do these individuals successfully coordinate their services with those of others? And since many of these women worked as home health aides and personal care aides, they were actually seeking assistance in the form of uniforms or scrubs. Ouch, these don't cost much. I priced them at $10 at the local Dollar General after reading the above linked article, and that's when they're not on sale. Weese continues:

Over the next 10 years the occupations with the most job growth in America will not be the techy jobs that most of us think of as the jobs of the future, like, say, solar-panel technicians or software engineers. Instead, they'll be the jobs held by the women in Hyde-Miller's community center neighborhood: home health aide and personal care aide. More than one million new aides will be needed over the next decade, in addition to the 3.2 millions already in the field, the Bureau of Labor Statistics reported Wednesday. What's more, six of the 10 occupations providing the most new jobs over the next decade will pay less than $27,000 a year. That's more than 15 million people, working hard at jobs that simply don't pay the bills.

There's another problem regarding this reality which is not always taken into account. She asks: What about those who do gain the needed education to exit this kind of work, for better wages? More to the point: what if everybody did so? Who would be left to tend to those who are in need of additional assistance from others?

Like many, Karen Weese argues for higher wages for low skill work, which is understandable. Nevertheless, even when workers benefit from nominal gains, those gains are temporary. Only the real economy can create the supply side conditions which make multiple wage levels relevant. As a quick aside: Without production reforms, UBI could become a particularly thorny taxpayer burden, as its recipients find themselves in similar circumstance to today's low skill wage levels. All the more so, if UBI or perhaps government guaranteed work is implemented as means for policy makers to relieve themselves of time based service responsibilities. One can only hope, they might see to it that new service market options are in place first.

More progress can be made, by creating better services coordination and innovating our way out of the present hurdles of today's building and infrastructure requirements. A more pragmatic approach is needed - one capable of creating good deflation for a wide array of non tradable sector product and services. Only after new equilibrium is explored, would societies find it realistic to build knowledge use systems which don't fully compensate at the expected monetary levels of the present.

Fortunately, there are ways that basic skills sets can be shared with more challenging skills sets, for all concerned. Besides the normal voluntary matching of time arbitrage, time based service product could also be coordinated via local community "service taxes". Another useful approach would be time value insurance, which creates market space for individuals to "pay it forward" for those who can't reciprocate. For instance, should someone stop and do yard work for an elderly person on a hot summer day (does he really need to be out there pushing that mower?), their activity would also become part of a local public record, ensuring someone remembers to do the same for them, later on.

When we purchase insurance essentially of a social nature via money, the results are not always efficient, particularly when what we really seek is the time and attention of others. By way of example, in the U.S. we are encouraged to wait as long as possible, to tap into the insurance of Social Security. And while Social Security is primarily a matter of monetary security, the Medicare aspect of this form of social insurance, is mostly about access to the time of others when we need it most.

Here's the problem. Even though Social Security can no longer be taken at 65 without penalties, we still need to start monthly payments for Medicare at age 65, regardless. And if we don't, there's a ten percent penalty for monthly Medicare payments which grows an additional ten percent each year. How is one supposed to come out ahead by delaying their Social Security as long as possible (when they don't have other sources of income), if the previously required Medicare time frame still applies? The head scratching discrepancy between Social Security and Medicare requirements, makes all too evident the fact that money does not represent our aggregate time value as well as one might imagine.

Time arbitrage could help create markets for time value, which are more direct, representative and efficient, than what money is currently able to provide. There are ways to create better coordination, for vital and useful services of all kinds. We just need to begin the process of exploration, to discover what is possible.

Is Growth Necessary For a Successful Economy?

Is growth actually the best way to measure economic success? Dietrich Vollrath says it doesn't have to be so, and explains why in Fully Grown: Why a Stagnant Economy is a Sign of Success, which is due out in January. From the University of Chicago Press review:

Our powerful economy has already supplied so much of the necessary stuff of modern life, brought us so much comfort, security, and luxury that we have turned to new forms of production and consumption that increase our well being but do not contribute to growth in GDP. 

Tyler Cowen also highlights a text excerpt which gets into some of the specifics of Vollrath's argument:

Although there were plenty of changes in the individual markups firms charge, many of them actually fell over the last twenty years. What explained the overall rise in markups from 1.18 to 1.67 was that spending shifted away from firms with low markups and toward firms with high markups. Which high markup firms did we shift our spending to? Well, a lot of service firms, including those involved in communications, technology, health care, and education. In short, the rise in economic profits and markups we see at the aggregate level is part of the overall shift toward services we discussed a few chapters ago.

Here is where things get a little weirder. Baqaee and Farhi show that the shift toward high-markup firms was good for productivity growth. Whatever the source of a high markup, it indicates a product that is very valuable relative to its marginal cost. If we take the inputs required to produce a low-markup product and use them to instead produce a high-markup product, then we have raised the value of what we produce. As this increase in value came from reallocating our existing inputs toward a different use, rather than from accumulating new physical or human capital, the shift in spending toward high-markup firms shows up as an increase in productivity growth.

Nevertheless, we still need to consider the fact additional growth remains desirable at a global level. For that matter, nations with advanced economies continue to seek local growth, particularly since many citizens and communities lack full participation in a 21st century knowledge based economy. Only consider these realities in utilitarian terms. Have we already created the greatest good for the greatest number, before making luxury the default option for economic goal setting?

If citizen and community majorities were already engaging with sustainable infrastructure; assets and services in the form of luxury product would be aggregate gains. But there's a problem. We still have insufficient market capacity for simpler and more basic forms of non discretionary options. Meanwhile, citizens and communities continue to add on debt to sustain luxury versions of infrastructure and services which are actually out of their reach. In other words, the market has yet to create the greatest good for the greatest number at basic levels of need, as opposed to the wants of discretionary choice. Yet no institutions - at least to my knowledge - are yet addressing this supply side reality directly. Which could help explain why some policy makers are likely to continue seeking higher growth levels in aggregate, whether or not economists believe it necessary to do so.

As to Vollrath's arguments, if sufficient basic non discretionary options were in fact available for low income levels, his conclusion might be essentially correct. Today's low growth economy would be reasonable, if citizens and communities were already proceeding from a financially sustainable base - one that doesn't need a growing revenue stream so as to pay down debt. However, there are problems with luxury consumption when it cancels out basic infrastructure, asset and service formation for low income levels, especially during times of great income variance such as the present. And today's non tradable sector institutions lack the incentives to ensure that lower income levels gain basic economic options by which they could live relatively normal lives.

Again, luxury consumption as a broader component of GDP is likely positive, so long as more basic forms of consumption are not suppressed. When they are, as is currently the case, societies take on additional budgetary burdens which are not easy to resolve, long term. Even though lower income levels have benefited from the real wage gains of additional output in recent centuries, much of their real wage gains are a direct result of the good deflation of countless forms of tradable sector product. Let's not forget the benefits of good deflation, and its role in economic stability over time. We still need good deflation as a contributor to many local settings and communities, so these citizens can hope to lead productive lives well into the future. More output with less cost is central to economic prosperity. Good deflation is the best way to address the extreme income variance in society which will doubtless continue.

New creation of non tradable sector good deflation is imperative, given our historical moment of relative wage stagnation which leaves supply side means as the main recourse to improve the real wage capacity of lower income levels. Only recall as well that a predominance of luxury options in product which does not scale, reduces market capacity in areas which do scale. The resulting imbalance bears considerable responsibility for wage flattening, since service sector activity generates less output in relation to tradable sector output.

In short, more good deflation is needed in areas which remain exclusively devoted to luxury. Let's create valid supply side options to ensure that those with small wages can live normal and productive lives. Should we elect to do so, policy makers might not view higher monetary GDP levels or excessive fiscal policies as the sole options for economic gains in the near future.

Inclusive Economies Can't Be Built on Exclusive Pricing

What goes into the creation of a more inclusive economy? For one, there's plenty of additional participation whenever economies are in processes of expansion. While employment tends to be the main focus, expanding economies also correlate with provision of goods in an affordability range for most consumers. Given its association with oft affordable product, tradable sector activity is more beneficial of late (thus far) for greater inclusiveness, than non tradable sector activity. Yet it's probably the growth factor which helps to explain why - upon looking up inclusive economies - I was redirected to a brief explanation for inclusive growth from Wikipedia:

Inclusive growth is a concept that advances equitable opportunities for economic participants during economic growth with benefits incurred by every section of society. This concept expands upon traditional growth models to include focus on the equity of health, human capital, environmental quality, social protection and food security.

Sustainable economic growth requires inclusive growth...an emphasis on inclusiveness - especially equality of opportunity in terms of access to markets, resources, and an unbiased regulatory environment - is an essential part of successful growth. The inclusive growth approach takes a longer-term perspective, as the focus is on productive employment as a means of increasing the incomes of poor and excluded groups and raising their standards of living. 

Much of this is relevant. Where the problem lies, however, is that we are frequently encouraged to conceptualize economic access as mostly feasible through higher wages. Alas, the conditions of general equilibrium tell the story: Say everyone wants and gets a higher wage than they had before. What has really changed? Or, should the cycle of higher wages stop before each group gets on board, how do we frame the moral story of deserving groups which didn't make the cut?

For instance, the local news has been carrying a story of a fire department which demanded wages equal to those of the police department, but the city mayor (a Democrat) resisted. The measure was finally voted through just the same. Now, there's an uproar, as some of the fire department employees will have to give up their jobs to smooth out the consequent revenue problem. In all this, the push for higher wages didn't cause the city's budget to miraculously expand. Likewise, when higher wages are demanded in private sector firms, sometimes the money is there, and sometimes it is not.

Even if we could wave a magic wand so every deserving person, association, or group gets a better wage, it is doubtful this approach can make it simpler for everyone to more effectively coordinate their time based mutual obligations. As it turns out, this is a relatively new economic problem. The uncertainty these circumstance have caused is already making our political environments more fragile, in part because we lack the ability to use our time priorities as a fulcrum at a formal economic level.

Think about it. What we are actually trying to accomplish via time coordination with money as the only applicable fulcrum, is actually quite new, historically. For centuries money has functioned reasonably well in this role. After all, most time based services occurred on the sidelines in ways almost incidental to the revenue flows of general equilibrium, even though some acknowledged a "circular flow" between industrial production and services. For the most part, tradable sectors not only determined divisions of labour, but also the output which defined a mostly commodity based general equilibrium. However, once service sectors began to dominate economic activity and more citizens were brought into the formal economy; despite the recent introduction of fiat money, the Baumol effect is slowly making money less effective as the sole fulcrum between tradable and non tradable sector activity.

When I suggest symmetric time as a way to coordinate time based services, it's not because everyone's time value becomes "equal". In time arbitrage, since everyone would be free to choose who they wish to work with, the challenge is to make one's own time value (and skill sets) desirable to others, so as to make up for one's own time scarcity as much as possible. Doing so, makes it much more likely that - for those willing to put in the effort - it's feasible to maintain sufficient access to a wide array of time arbitrage options.

In other words, instead of functioning as an "equal" wage, symmetric time arbitrage makes it possible for most participants in a continuum group setting, to set up and clear mutual obligations in real time. Eventually, we will need to let go of the seemingly never ending struggle over nominal wages, so as to improve the effectiveness of real wages via production reform in non tradable sector activity. Perhaps we'll know we've arrived, should economic expansions become directly correlated with more inclusive pricing in non tradable sector activity, such as completely new options in home ownership.

A recent Brookings post also brought a new institute to my attention this morning. The "Opportunity and Inclusive Growth Institute" is associated with the Minneapolis Fed. I was encouraged to note they already have scholars working on employment possibilities for the formerly incarcerated - one of the few areas where there is still political agreement for greater inclusion, on the part of both Democrats and Republicans.

While putting this post together I also came across a recent book from Michael Tanner, The Inclusive Economy: How to Bring Wealth to America's Poor. From the Cato review:

Rather than engaging in yet another debate over which government programs should be increased or decreased by billions of dollars, Tanner calls for an end to policies that have continued to push people into poverty. Combining social justice with limited government, his plan includes reforming the criminal justice system and curtailing the War on Drugs, bringing down the cost of housing, reforming education to give more controls and choice to parents, and making it easier to bank, save, borrow and invest.

How to think about these useful suggestions? Perhaps the bad news, at least from a libertarian standpoint, is that no one can realistically expect limited government, anytime soon. For that matter, both political parties are seemingly consumed with taking control over governmental budgets and maximizing political spending to the fullest extent possible. At the very least, from the standpoint of bridge building between parties, positive reforms of the criminal justice system could be on the horizon, and the War on Drugs might finally be over soon. As for parents having more control over educational decisions, what really matters is that students are given more chances to take better control over their destinies from a young age. Perhaps this could also be approached in ways which reduce the fight over public versus private schooling.

The main problem we now face, is that what's rational for non tradable sector bottom lines in terms of exclusive product definitions, has been slowly - but surely - increasing the carrying costs of our markets, workplaces and personal lives across the entire economic spectrum. The best way to bring back a full level of economic participation and marketplace access, is to create more flexible settings for our mutual time priorities and physical infrastructure.

Doing so, would allow both for profit and not for profit endeavour to contemplate their own possibilities for sustainability - because of lower operational costs. What is sustainability, if not our own logical wish to survive in the world, however we happen to define ourselves? When it costs less to tend to the fabric of our lives, we all get the chance to breathe easier, and find renewed energy to meet our responsibilities and obligations. Again, when it comes to nominal approximations, what if we've been going about this "inclusive economy" process the wrong way?

What Really Preserves the Labour Theory of Value?

Who still believes in the labour theory of value, rather than the more recent subjective version? Or, perhaps there's actually a more relevant consideration: How much personal belief in a labour theory of value manifests unconsciously, instead of at an ideological level? Chances are, unconscious attributions for labour value are a stronger contributor to economic outcomes than what is often debated. One might envision the general equilibrium result as power relationships in skills arbitrage, for that matter.

Indeed, underlying assumptions regarding labour value, greatly affect how high skill human capital has been conceptualized, especially since the workplace transitions of the twentieth century. Professional groups often rely on a non tradable sector structural framework which allows human capital inputs to take precedence over the aggregate outputs of time based product.

In this instance, it turns out that subjectivity cuts both ways. Consider how a subjective theory of value in terms of product, previously benefited from direct correlation with good deflation and recognizable gains in standards of living. It made sense to emphasize the subjective reality of product value regardless of labour contribution, when progress could be largely attributed to tradable sector productivity gains. But more recently, subjectivity has become associated with societal expectations as to what quality product represents. The consequent emphasis away from baseline utility, has muddied the waters for product subjectivity, especially for potential labour value contributions. Alas, quality time based product often includes excessive inputs at multiple institutional stages, before the product output intended for consumers actually takes place.

While my impressions re subjectivity dovetail somewhat with those of the Austrian school, many such discussions feel more relevant for historical periods of tradable sector dominace. Madson Pirie reflects on Carl Menger's many contributions to subjective value, and notes:

He founded what is now called the Austrian school. His crucial insight was to recognize that price is not based on what it costs to produce goods, as traditional economists had supposed, giving rise to the labour theory of value on which the edifice of Marxism is built, but on what the demand is for them.

He adds:

...value does not reside in the object, deriving from its input, but resides instead in the mind of the observer, representing his or her estimation of its worth. 

Even if arbitrary definitions for quality standards reduced the impact of good deflation for tradable product, at the very least many forms of tradable sector product provide standard utility which can be readily discerned. Alas this hasn't proven the case in non tradable sectors, where a reasonable baseline for product utility has long been abandoned in favor of requirements which - among other things - have muddied the waters of true productivity gains.

Given the subjectivity of economic outcomes, a better utility baseline is needed for non tradable sector product in general. A better definition of basic non tradable sector utility - especially for housing and time based product options - could clear some of the present fog as to how aggregate productivity, hence potential economic gains, might once again be measured with confidence.

Good Deflation and the Monetary Human Capital Role

Why does the form of deflation we call "good" (since it translates into more affordable product and more output), not function as the same clear positive, for the economic value of human capital as time based product? After all, if the cost of high skill services could be gradually reduced and made more widely available, much as tradable goods have become, "small" wages would hold more real economic value. Likewise, smaller aggregate wage levels would gradually allow the productive agglomeration costs of real estate to be modified in many areas as well.

There's a problem however, for good deflation in terms of time based service product. Alas: What tends towards cumulative inflation rather than good deflation, is how many individuals meet their ongoing expenses and asset costs as those costs currently exist. Unlike forms of product separate from time (which of course aren't human), time based product costs are attached to our human responsibilities to pay bills on an ongoing basis. While we are appreciative if we can access someone else's time, good deflation for time product may nonetheless feel like the bad deflation which impacts labour value during depressions, if that time value happens to be our own.

Our time is also scarce in relation to most goods. Consequently, in order to meet the human capital costs others posses, many seek to raise their own time value. This sets up a chain reaction, whereby others still need to increase the value of their time, so as to access important forms of time based product. This extensive internal inflation process runs exactly counter, to the good deflation which tradable sector activity has contributed to prosperity in recent centuries.

All this holds, regardless of one's monetary compensation for their time units in the form of labour or skills arbitrage. It certainly matters for the time arbitrage I've suggested as an alternative, which would need to be crafted so as to directly address the internal inflation problem. That's why it would be necessary to define new organizational settings for services, learning patterns, infrastructure, housing and other building components so as to make good deflation for time value a reasonable possibility.

Consider how infrastructure and real estate costs have proven relatively amenable to good deflation in tradable sectors. While limited aspects of tradable sector activity needs locations in areas with high real estate costs, much tradable sector production has far more flexibility and mobility. However, in order to accomplish this, many aspects of organizational capacity are integrated into single sustainable settings which have at least a relative degree of independence from place and geography.

Conversely, too many aspects of high skill services have been excessively place dependent for productive agglomeration, which only contributes to the difficulty of achieving good deflation in non tradable sectors. This coordination problem helps to explain why the high skill work of our most prosperous areas is no longer a simple matching process in terms of employment, given the relative few who now manage wealth in lieu of others. Since non tradable sector high skill knowledge does not scale as does tradable sector activity, it needs a horizontal organizational approach which encourages greater marketplace capacity and productive agglomeration which goes well beyond our most prosperous areas.

A new institution is needed which could place productive agglomeration for non tradable sector knowledge use into a combined organizational framework. In these defined equilibrium settings, individuals would not suffer the extreme losses in purchasing power, that would otherwise accompany good deflation in time based services in a completely open equilibrium. Of course, open equilibrium would still apply for tradable sector activitiy, since most individuals can still access and contribute to the good deflation of tradable sectors. However, the closed non tradable sector equilibrium would make it realistic to pursue good deflation as an important time based services goal.

Valuable though good deflation would be for time based product, there are other reasons to utilize symmetrical time value as a mass produced services commodity. Time arbitrage would allow time based product to function as a basic human capital building block, instead of simply another societal cost which places uncertain demands on the earth's resource capacity. One of the main problems of inflationary time value, is the fact there is no time based services steady state to rely upon, when time value exists solely in a dependent relationship with earth's other resource capacity. By bringing good deflation to time value, we could create a steady state for applied knowledge which allows us to more precisely determine the productivity of our own efforts, in relation to the productivity relationships of our other institutions.