Everyone Needs Economic Continuity

Social media networks can't provide this, neither can one's friends or neighbors. And despite their vital roles in society; families, religious organizations, governments, voluntary groups, schools and other institutions, are simply not positioned to function as direct economic relationships. Firms and corporations are possibilities, but only up to a point and increasingly, only in certain places. Indeed, the desire of firms and/or employees for "permanence" as highly specific forms of economic engagement, can undermine the potential of sustainability. Paradoxically, society's need for economic continuity, may also undermine other business objectives.

Yet economic continuity is necessary in a modern world, for individuals and communities alike to "stay the course". Continuity is especially important for the long term contractual obligations so often associated with ownership of traditional assets. Businesses may come and go, but financial obligations are here to stay, for practically everyone in advanced economies. And whenever economic dynamism begins to falter at local levels, many who get caught in the crosshairs have few ways to effectively respond.

When local economic conditions go south; both the individuals and communities involved, may have to abandon their hoped for long term commitments - both economic and personal. Some individuals lose the ability to start over yet again, especially if they've already done so half a dozen times. Sadly: If societal expectations weren't so rigid re the "necessary" environments for living and working, the inevitable falls from economic grace might not be so closely associated with loss of pride and self respect. Why make it inevitable that more fail, by setting every conceivable living standard beyond the reach of actual incomes? Why force millions to become dependent on others, when so many would gladly hold tight to personal identity and integrity, if every bar weren't set so damn high? In all of this, advanced nations have struggled to come to grips with the reality of lost dynamism, all too often uncomfortably close to the places where success still beckons.

One reason it is difficult to face the problems of areas becoming left behind, is that some sort of social planning, even if distasteful, almost seems necessary. What is public policy, if not the latest round of social planning? Even organizations which are skeptical of government "solutions", advocate their own solution sets for public policy just the same. Yet who is really positioned or motivated for finding relevant solutions, if not the ones who - due to an actual need to start anew - are extremely motivated to do so? Clearly, private enterprise has also stood in the way of production reform, and its structural contributions to the city country divide, still stand in the way of effective decentralization as well. Perhaps the best that can be said of all this is, at least no one is so blindly foolish as to attempt the horrendous social policy mistakes of the twentieth century.

Even though most individuals know the dangers of excessive central controls, it has been difficult to impart decentralized patterns which could effectively create more economic freedom for lower income levels. It's the lack of recognizable economic options for these groups which is creating new sets of problems. Hopefully, a new institution might be created which holds economic continuity as integral to its primary mission, especially for lower income levels. What might the framework of such an institution, actually consist of?

For one, ownership would be structured so that everything need not fall apart every time circumstance change. Flexible ownership options are all the more important, during times such as now when change appears as though the only reliable constant. Even though simple relationships between revenue flows need to be highlighted for non tradable sector activity, still, the fact remains no one will be able to predict when resource use patterns change. Hence the challenge is to respond via local production shifts, infrastructure and time commitment realignments on the part of relevant groups, instead of additional debts and bankruptcies.

Also: Simplify basic income relationships via defined non tradable sector requirements, wherever possible. Granted, in general equilibrium conditions, it's not feasible to directly observe the intricate and interdependent patterns of tradable sector and non tradable sector activity. New start up communities which begin with a knowledge base prior, would isolate basic non tradable sector requirements so that each start up community can create its own unique income consumption ratio. Importantly, this ratio would serve as a starting point from which more complex relationships of tradable sector activity, could gradually follow.

Normally, a decentralized approach has required tradable sector activity as a starting point or economic base, which makes sense since this created discretionary revenue flows. The resulting income gains have also provided a tax base for communities to work with. Since many aspects of non tradable sector activity are time and placed based, non tradable sector start ups would need to approach discretionary activities more specifically, so that economic time value can substitute for taxation, and citizens won't be burdened with hidden tax burdens that are impossible to decipher. At a later point, once non tradable start ups become better established, communities might reconsider traditional taxation sources, once tradable sector activity contributes to local income and revenue.

It will take time to build new forms of non tradable sector activity with sufficient connections to other economic activities which go beyond non discretionary needs. For this reason, non tradable sector start ups will need extensive innovation in infrastructure, so that those with limited incomes are able to contribute to community ownership. For economic continuity to be truly feasible, society needs more ways to reduce risk for lower income levels, which allow their "failures" to transition into successes wherever possible. Fortunately, 3D manufacture will eventually bring building component manufacture to local communities. Likewise, AI could make it feasible for many with mid range levels of skill to function in high skill capacities - only without the now necessary extensive human capital costs.

Where would AI be most useful? There's a simple way to answer the question. When human capital contributes to product, and that product scales in ways which augment output, high human capital costs are generally reasonable, because increased output can cover those costs without budgetary burdens being passed to future generations. Conversely, when output scales via participation instead of product output, high human capital costs eventually become extensive social costs. Hence AI could become part of the division of labour where specialization doesn't actually pay in terms of increased output. These are just a few considerations, how economic continuity might eventually, hopefully, transpire, on more certain terms.

"Small" Economic Options Continue to Disappear

Why has there not been more attention to the ongoing loss of "small" economic options? After all, many such consumption possibilities are more in line with the income/wage potential that many jobs actually represent. This will doubtless be true as well, for plenty of near future employment prospects. By way of example, Ryan Avent stressed in The Wealth of Humans some years earlier, the political turmoil we can expect to endure until we finally face the fact near term employment won't be as fully compensated, as what transpired in the 20th century.

So why do we continue getting larger product offerings, in light of the relatively smaller incomes many now experience? The "larger is better" rational, also shows up in what U.S. auto manufacturers are currently able to profitably produce. (How much do land prices which reflect limited productive agglomeration, affect this reality?) While President Trump is frustrated with GM for closing more plants, as a Reuter's article noted, "Car market collapse outruns GM moves to keep up." Much concern understandably highlight losses of good jobs with benefits. Nevertheless, consider some not so obvious features of this production reality, since,

This year, sedans will account for less than a third of light vehicle sales.

What does that suggest for the millions who don't prefer heavier vehicles such as trucks or SUVs as transportation? How much of this reality comes down to wide income divergence? Many with high income levels, will of course continue to purchase either high quality import sedans or high quality local versions. What is increasingly missing, however, are the millions of consumers who once bought small sedans because they were economical. How many among this latter group, face the reality of small wages which have become insufficient for the total costs of transportation? And how many rural residents can't realistically be expected to benefit from companies such as Uber?

While it makes little sense to demand that economic (or "affordable") vehicles continue being built, we still need a reasoned and productive response to what is occurring in the marketplace. After all, the "dollar vote" has already spoken, and worse, it represents a form of economic exit. What are the production and consumption options that would make it more realistic, for low wage individuals to reengage in economic life? Factories will sometimes need to close when there's too little profit. But there's still the larger issue: How could society respond to this latest indicator of lost social mobility for those with small wages? As previous "small" economic options continue give way to "large" marketplace options, only recall, how little innovative product actually exists in the pipeline, which could effectively correspond to the market potential of relatively small wages.

We need sustainable production and consumption models which take the reality of widespread small incomes into account. For example: Without such options, we end up with head scratching examples of "improved" services access such as a single Texas Walmart which will offer mental health care for rural residents. This service offering is "only" $140 for an initial session, and $110 for follow up sessions! Seriously? Where are the good friends who might patiently listen to our occasional life struggles, when we really need them?

In all of this, we can't just focus on the power struggles of "good" job preservation, given underlying trends which are changing overall consumption patterns. Yet aggregate output is always going to depend on total participation in our workplaces and marketplaces. And even if we don't respond to why people disengage, ignoring this factor won't take away the ripple effects of limited labour force participation.

Likewise, the loss of small consumption options with few viable replacements, doubtless contributes to lost social mobility. How much of "skills mismatch" in the workplace is really about the lost economic options that were once available to individuals with small budgets? People of a certain age such as myself, remember well when it was possible to move cross country with only $250 in one's pocket. As Timothy Taylor noted regarding lost social mobility, it's a "legitimate public concern". And, as production and consumption possibilities for low incomes continue to be left out of the economic equation, is this not a factor in the lower growth trajectory we've inadvertently followed since the Great Recession?

Of late, the majority of profit and non profit activity tends to be focused on large economic options for production and consumption. Can we create a for profit, capable of embedding an (apparently) "odd" category of "small" economic options? If nothing else, we could envision small scale economic dynamism as not for profit endeavour, even though it would ultimately lead to extensive new wealth creation. We shouldn't have to rely on Dollar General Stores and the developing nations of the world, to supply what have become practically our only "small" economic options. Let's accomplish the same with walkable communities, new productive agglomeration which could ease land costs, new tradable sector building components, and a more dynamic non tradable sector, as well.

Notes on Income Consumption Ratios

This is another phrase which deserves a glossary term, and it has close parallels with circles of sustainability. I don't think of an income consumption ratio as strictly singular, because in some respects it would respond to variance in a given alternate equilibrium.

There are similarities to the calculations of a mortgage to income ratio, but my Wikipedia search for mortgage (or rent) to income ratio came up short. Still, many recognize that this cost shouldn't be more than 30 percent of one's income. A mortgage or rent percentage of income would be considered a singular ratio, due to longstanding cultural expectations for housing in general equilibrium. Apparently this ratio is no longer clearly designated, since lenders now combine it with debt factors held simultaneously with housing costs. Just the same, personal resource capacity for housing debt is a crucial consideration.

In general equilibrium conditions, bankers have the responsibility of judging whether people may be capable of acquiring loans - hence in many instances whether they are capable of economic access. In alternate equilibrium, loans would no longer be necessary to generate economic access and economic viability. Rather than loan formation as a point of economic origin, participants would generate new wealth directly, through coordinated time value. Matched time value would gradually accrue towards asset formation for living, working, and (eventually) investment potential. Alternate equilibrium would generate economic access internally, with income consumption ratios that reflect the resource capacity of the group in question.

Income consumption ratios would be built into local corporate structure, as means to combat excessive zoning and regulation which increases costs. Building and infrastructure components would be sought which particularly have cost benefits, from innovation in both materials and methods. Time based product for services would take a similar free market approach, to avoid the regulatory circumstance which derails the income and wage expectations of general equilibrium.

All too often, municipalities and governments alike have sought to do the opposite: i.e. create as much internal cost as possible, as favors for special interests. The result of course is that everyone inadvertently pays more. Adam Smith aptly explains what happens, in the chapter "Inequalities Occasioned by the Policy of Europe" ("The Wealth of Nations"):

The government of towns-corporate was altogether in the hands of traders and artificers, and it was in the manifest interest of every particular class of them, to prevent the market from being overstocked, as they commonly express it, with their own particular species of industry; which is in reality to keep it always understocked. Each class was eager to establish regulations for this purpose, and provided it was allowed to do so, was willing to consent that every other class should do the same. In consequence of such regulations, indeed, each class was obliged to buy the goods they had occasion for from every other within the town, somewhat dearer than they might otherwise have done. But, in recompense, they were enabled to sell their own just as much dearer; so that, so far it was as broad as long, as they say; and in the dealings of the different classes within the town with one another, none of them were losers by these regulations. But in their dealings with the country they were all great gainers; and in these latter dealings consist the whole trade which supports and enriches each town.

While economic circumstance today are much changed since the time in which Smith wrote, the consumption requirements of national governments continue to echo this equilibrium imbalance. For one, the "losers" are still countryside residents, due to the knowledge based services these folk are expected to purchase from more prosperous regions. Not only is it difficult for rural populations to gain the option of living and working in today's low density U.S. cities, it has also been difficult to either access or create knowledge based services where they actually live, with the resources at their disposal.

Even though local corporate structure would only reclaim discretionary production/consumption choice at the margin (through alternate equilibrium), the fact such a structure is in operation would help to gradually restore economic growth. This is all the more important, given the fact central bankers have shifted to inflation targeting as a way of indicating they are no longer willing to provide adequate monetary representation for all concerned. Inflation targeting is an arbitrary cutoff point, which functions for the benefit of credit origination and governments, instead of citizens.

And consider what has not been publicly addressed in this regard. The societal consent which once existed for all producers to continue raising their own sets of production demands, is no longer in effect. Are central bankers no longer willing to respond to the commitments of nominal expenditure, on the part of the public?

Today, the nation state gains from the limitations on free markets that exist for both time based product and housing. Just the same, national definition of consumption expectations only distorts the reality of wage and income potential, on the part of many citizens. By introducing a public awareness of wage potential that is better aligned with resource potential, consumption expectations and consumption realities can finally come back into a better balance for all concerned.

Donald Trump, Protectionism and Income Consumption Ratios

A little advice for Donald Trump, given his protectionist stance: Protectionism won't improve our economy, or the economies of other nations for that matter. There's no sense in politicians chasing after tradable sector wealth and production which exists elsewhere. Even if companies were somehow "forced" to return - an unlikely scenario in any event - tradable sectors would no longer provide employment on the same scale as decades earlier. Greater efficiency for tradable sectors still means more is produced, from fewer time aggregates. There's no getting around that.

That said, I understand why too many are turning to protectionism as a form of political and social retaliation, now. More public dialogue should have already taken place in the last decade or so about future work potential, and this didn't happen. In particular, non tradable sectors have yet to come to terms with their own internal inconsistencies. For non tradable sectors, greater efficiency and productive capacity, means more is ultimately produced (from equal time coordination) from more time aggregates, than is presently the case.

Instead, non tradable sectors have solely relied on the same asymmetric compensation as tradable sectors, which has meant less work and less potential social support, for all concerned. When all knowledge/time based product is compensated on asymmetric terms (i.e. from preexisting wealth), various factions can only struggle over the services pie they believe to be possible. Problems of immigration, race and class are among the unfortunate results of the struggle. And yet, they can be thought of as intentionally defined consumption problems, due to arbitrary limits in supply side services structure.

Early in my studies for this project, I remember arguments that there was little need to be concerned about our economic future, given the fact that everything was still okay in the present. That's precisely the problem. Once problems do appear - especially in the form of serious political backlash - people become overly focused on the resulting chaos, instead of "backing up" mentally to (calmly) consider what might have been accomplished to begin with.

James Pethoukis expresses the problem well, in this recent AEI post titled "Politicians should address the challenges of automation, not try to reverse globalization." He acknowledges that the transition to a digital economy is going to be a bumpy ride. Regular readers are familiar with my suggestions in this regard. New forms of employment and wealth creation in non tradable sectors, would be able to address growing budget deficits on monetary terms. Instead of more deficit creation and wishful fiscal thinking, real progress would be possible.

It's taken me a long time to return to the subject of income consumption ratios, which I touched on in some early posts. How exactly might this term be used? The answer depends on whether one is describing the existing conditions of general equilibrium, or what one would seek to achieve in terms of a small and specific alternate equilibrium. Non tradable sectors do not always consider broad variations in equilibrium conditions. As a result, government attempts to impose production/consumption terms across an entire spectrum can backfire.

In general equilibrium, income consumption ratios apply to given sets of non tradable sector conditions. These conditions in turn affect the bottom line, for costs of living in specific areas. Local areas have specific imprints for non tradable sector costs, due to local monetary flows as captured by income and productive activity in the region. The most prosperous regions benefit from both international and national flows. What might be referred to as second tier areas in this regard, receive some benefit from national monetary flows. Whereas regions with limited economic complexity, tend to be dependent on local production and government redistribution - mostly in terms of fixed income.

The problem in general equilibrium, is that government defined services formation is structurally generated to represent the wealth of the first two regions described above - in spite of many existing claims on the part of fixed income in rural regions. In the U.S., many areas with strong reliance on fixed income, lack economic complexity. This has bearing on the growing struggles for populations to "keep out" anyone perceived to be yet another draw on limited services pools.

Okay I need to back up, briefly. In general equilibrium, an income consumption ratio can be thought of as already existing non tradable structure, due to locally available monetary flows. In alternate equilibrium, local participants would determine local asset values, based on the internally generated monies of time based services formation, over time. One way to think about this, is that neighborhood gentrification also would not occur, because local asset structure values would not be exposed to the monies of international or national redistribution. This lack of exposure to broader non tradable sector flows would preserve a local delicate balance of knowledge based services structure, created over time.

Knowledge use systems would eventually allow local groups to generate valuable services, which need not draw from already existing services capacity elsewhere. In the process, local time value would become anchored to local resource capacity, so that different groups would not end up opposing one another for mutually desired outcomes. This is the income consumption ratio potential which is possible, in small and locally contained group settings. Normal economic porosity still exists for all tradable sector activity.

In a symmetric system, time value purchases time value, while monetary compensation for that time value purchases local asset formation. Most important, the newly generated money from services formation would not be intended for the purchase of asymmetric time based services product of general equilibrium. After all, dependence on today's asymmetrically generated services can put just about anyone in an outsider position. Protectionism - economically devastating though it is - is a rational response, in part because too little has been done to generate a broad services marketplace which needs no government subsidies or protection. Citizens "need" protection now, because of the protection which special interests received at the outset.

Equilibrium Access? Decentralization is Needed

After all, decentralization would allow possibilities for alternative equilibrium that would make like easier for some, without being problematic for others. Problems ensue when too many aspects of production and consumption become defined on government based terms. The result is a primary equilibrium which struggles to generate broad access - from a centralized vantage point - for wildly variant incomes and budgets. How do producers and consumers manage to access infrastructure settings which have far too much in common?

Often, they don't. Yet many failed attempts in this regard, appear as though "arbitrary" (i.e. discriminatory) exclusions. Another way this process plays out is through blanket forms of monetary compensation, which - by raising the (single) equilibrium level - continue to undermine the original goal of economic access.

Richard Cornuelle - who I highlighted in yesterday's post - built an organization which proved "tempting" for government - hence ultimately led to an example of the latter process. His efforts to generate a functional independent sector for student loans, were gradually replaced by the entry of government into the same setting. The problem? What once served as a way to target low income students who had the drive and initiative to succeed, was replaced with student loans for everyone. As Cornuelle noted,

The effect of the federal program has been to undermine the confidence of commercial institutions in the credit-worthiness of college students, and they are destroying the very thing they set out to promote.

Considerable incentive exists on government's part, to scale up social program business models to the greatest degree possible. In this instance, educational costs have also increased more, than otherwise would have been the case. Any "blanket approach" of compensation for economic access - as opposed to closely targeted needs - eventually spreads out across the equilibrium as a whole, raising the bar of entry for everyone.

Many circumstance that involve limited access in primary equilibrium, have been viewed as various forms of discrimination - a process which of course includes gender. As universities continue to favor out of state and international students because of higher tuition charges, discrimination could appear as though applicable to most any group imaginable.

How could decentralization help? The biggest concern is a lack of space for economic participation at the level which so many are expected to prepare for. Democracies can become stunted, when people are forced to adhere to the same limited choice sets in one equilibrium. Even if every student were fortunate enough to access the "right" university and make the grade, little else would be different, afterward. Of the universities most likely to survive a higher education shakeout in coming decades, the "survivors" will more closely reflect the actual high income options available after graduation.

Given this unfortunate situation, it would be beneficial to generate new forms of infrastructure patterns that are capable of allowing smaller incomes to accomplish far more than is now the case. Fortunately, the lower costs of digital education will provide a good starting point.

The need for alternative equilibrium solutions is actually a recent development. In mid twentieth century, income levels were more closely aligned, and Washington was able to contribute to infrastructure in ways that provided real gains for all concerned.  However, it has become difficult for most centralized governments to provide large scale infrastructure projects. It is all that many municipalities can do just to maintain the existing infrastructure which exists now, and future communities will need to seek out forms of infrastructure which take a different approach for all concerned.

Possibly the main problem for primary equilibrium, has been the pressure to leave most housing costs at a price point which makes it difficult for lower income level households to purchase food without government assistance. This is inexcusable, given the fact that food costs in the U.S. overall are more reasonable than anything else one needs to purchase on a regular basis. Lower income levels should not have housing expenses that are 47% of their income.

However, new communities will need organizational patterns which allow local citizens to invest in both land and building components, so that no one need commit more than a third of their income to housing investment unless they actually want to. Not only would these investment structures provide means for incremental growth, but also a shared community base which makes an alternate equilibrium possible.

The Way Forward is Nothing to Be Ashamed Of

Something about today's limited economic circumstance, almost appears as though a matter of national pride. How so? Consider the way David Beckworth sums up a recent post about market clearing interest rates:

So be careful when thinking about interest rates. They may be negative for good reason.

Indeed they likely are - at least as far as this blogger is concerned. Negative interest rates particularly reflect the specialty marketplace for investment and consumption which Washington, elite associations/unions and crony capitalists have carved up for themselves. As a result, far more investment gets parked in exclusive settings than the actual inhabitants who "live" there. What about investment potential for everyone else? Although - in all fairness - the U.S. is hardly the only nation which painted itself into an economic corner with this strategy. In the meantime, entire marketplaces are missing for those with limited economic means - even as the middle class worries about signaling and positioning in a marketplace it takes for granted.

Of late, elite cronies are blocking the way forward, through their intransigence regarding how society is "supposed" to appear and function. They have also done harm to the public psyche in a larger sense, by generating needless divisions between friends and family members who regularly get caught on either side of the divide. Elite cronies have created default positions for economic survival, and many who do not measure up to these standards get chalked up as losers - sometimes permanently.

How much consumption represents real lifestyle gains, versus unnecessary nonsense that consumers often don't even want? How many individuals with "everyday" intellect could thrive - given the chance - in environments which actually embrace everyday smarts and everyday resources? Instead, the rich and the poor - the smart and the "not" smart - are being pushed further apart by for profit and non profit alike. Business interests ultimately "give in" yet again to wage increases, when they want nothing to do with addressing the structural issues that matter most for income potential.

Discussions regarding income inequality are dangerously misleading, in part because today's governments are entrenched in today's existing wealth formations - particularly land and real estate. All incomes are already used to enhance governments - indeed by the same mechanisms which hard consumption definitions also provide. Today, already existing government wealth would only make land taxation even more problematic for monetary flows in the U.S.*

However, economic stagnation could be reversed through production reform, and the way forward need not be something anyone would be ashamed of. What innovation might actually be possible for building components, infrastructure, knowledge use and services formation? There is tremendous potential to enhance already existing income, in multiple aspects of life.

Hence the ever present arguments as to inequalities are misguided, for the main problems revolve around hard limits as to what citizens can produce and consume. Why would governments be hesitant about production reform? For one, it might not generate "enough" revenue for government. But...but...wouldn't governments also stand to gain from empowering their citizens? In a post which questions "bizarre" income calculations, Scott Sumner recently wrote:

...our bigger mistake is that we are using income as a measure of economic well being, whereas all our economic models tell us that consumption is the appropriate variable.

Under normal circumstance, consumption defines a process which engages time and personal interaction with numerous resource sets. Time use relies on numerous physical elements even now, but interaction with others has become a more important part of the process. Human capital coordination needs to become a part of every economic environment (once again), before individuals can regain the meaning that consumption held in the 20th century. Until this occurs, more individuals than necessary will continue to be locked in prison, eyed suspiciously in the streets, and get caught engaging in illicit activity - in many instances because they have too few options for economic access which reflects their better nature.

Lest anyone think it is impossible to provide service options on more affordable terms, only remember the kinds of ailments which now send individuals to emergency rooms, because there are too few doctors available for anything other than appointments scheduled weeks in advance. Even though options exist in more prosperous regions, by and large they are still not available in rural or otherwise marginal areas - especially during inopportune hours when many now fend for themselves in healthcare emergencies. To be sure, the "best minds" will always be needed for some surgeries and procedures. Just the same, individuals with everyday intellects need to become - once again - a valid part of everyday services needs.

Another aspect of moving forward, involves the hard definitions for today's living and working quarters. Only think of the hours comfortably spent in today's transportation options. These offer multiple ideas for life and work which wouldn't require massive building requirements. Recent crony influenced setbacks for lighting in the U.S. (who can even find reasonable light bulbs now??) could be partially overcome by strong, yet lightweight building components which let in natural light.

Most important, new developments in service and asset formation would bring many back into the economy in more meaningful ways - ways which would also include new investment options that can be generated and managed locally. For local investors who directly benefit from product and service definition, much more than costs are at stake. Sure, these are investment options which would be radically different from what presently exists. But "more of the same" isn't working very well right now.

What's more, even the big investment picture is finally starting to go negative. Washington and others among the elite have known what is at stake for some time, as indicated by the latest round of FOMC transcripts. Talk of "liftoff" is little more than an unfortunate joke. And yet, no one has been willing to admit the real factors which caused this unnecessary economic slowdown, to the public. It is time to move beyond arbitrary dividing lines, which now spell success or failure on stark terms. Indeed, the process to do so should have begun, long before the Great Recession was ever allowed to occur.

*Granted, land taxation has worked reasonably well for regions which adapted it in earlier time frames, where it was utilized to complement other tax strategies. Today - however - business formation is too limited for additions of land taxation on already existing tax burdens.

Primary Equilibrium and its Many Alternatives

Recently I read an article which suggested that America could be more like Disneyland. I was a bit curious before getting to the central argument, in that some praise for Disneyland cites it as an example of charter city potential. However, this praise came from a left leaning source, because of well maintained infrastructure! Who doesn't admire any nation or city which is able to keep its infrastructure top notch? Then why can't the U.S. do a better job of maintenance? Oh, to count the possible reasons...

Among the laundry list: confusion over priorities, in spite of vast resource potential which remains at Washington's behest. Just pay for X now! Yes, but this is hardly the only letter of the alphabet demanding attention, in a diverse economy with aging infrastructure and growing entitlement to add to the different directions everyone prefers. Where does X even stand, as compared to other concerns?

All of this needs to be considered, before anyone can begin work on new infrastructure design which includes not just physical elements, but important social components as well. Big reform bites are not the way to go, because they would subject some populations to change that is not necessarily needed for them. Little bites are better because they are the best way to test production reform in populations which wish to do so.

Despite a seeming difference in charter cities (as compared to what already exists), they remain part of what is primary, mature and - in a sense - international equilibrium. Think recent subdivision formation around the world which looks the same, for instance. In other words, similar economic and financial formulas are followed, and citizens come along afterward without real input into the process. So long as infrastructure design doesn't adapt to differences in income and lifestyle patterns, the result is almost a carbon copy of what already exists. Even the alternative of charter city formation, suffers from the stigma of not enough citizen participation, and a mostly external vision of what the city can become.

How could citizens become a more active part of local investment processes? Direct involvement in this regard, can also positively affect the local tax structures which became so problematic in the twentieth century. New forms of equilibrium would particularly be conscious of local income and consumption ratios, which would be reflected in both asset and services formation. Entry into knowledge systems communities would also involve educational preparation, beforehand. Anyone attending domestic summits, would not only need to approach time use differently, but also plan to take part in ongoing local investment projects.

Each knowledge systems community would become a new business model, and each would create a unique equilibrium, none of which is the same as others or primary equilibrium. Even though clear patterns would be defined, they are not the same patterns which others would utilize in quite the same ways. The purpose of new patterns is to make certain individuals have productive options for both survival and the ability to thrive.

Where primary equilibrium often appears uncertain in the present, the main difficulty lies in anchoring income potential to certain givens in consumption and production. All too often at national levels, that has not been happening. Governments and central bankers - among other things - have become sidetracked with their direct involvement in asset formations. In turn, asset formations tie into global resources which do not always provide a clear picture as to domestic realities. The self contained nature of investment and services formation in new communities, would provide means for governments to once again look inward, to determine what domestic capacity is still possible.

The Income Consumption Ratio, Reconsidered

What, exactly, is an income consumption ratio? It refers to the consumption capacity of various income levels, given the regulatory definitions for economic access. How much elasticity (for production and consumption) exists for income streams, and how are some markets compromised or even lost in an aggregate sense? How do different local or regional settings compare, and how much flexibility do participants actually have? All of these ultimately add up to actual, or aggregate spending capacity. This matters, for an income capacity approach is far more amenable to monetary and supply side adjustments than income changes. When national dictates do not adequately take these factors into account, monetary policy failures and distortions in redistribution, tend to result.

Even though I've written from this perspective since the first post, perhaps I've been remiss in not providing a better explanation, as to what the ratio represents (at least in my mind). After all the recent discussion regarding Piketty's capital income ratio, I suspect some clarification is in order. My approach is the opposite of what Piketty takes, regarding economic inequality. Indeed, the first 100 or so pages of "Capital" induced some wincing, along with a inexplicable desire to delete my own income consumption ratio (and income consumption standard) post tags. Instead, I decided to think about them more carefully.

While Piketty sees some income levels as held hostage to what the world "dishes out", I see income as only one resource among many, which could assist participants in contributing to stable economic equilibrium. Think of income as a given crop in a season, which in turn allows other possibilities for one's property. What's presently missing is the idea of our time with the coordinated time of others, as contextual property for income transformation. While the twentieth century encouraged resource options and innovation in a financial sense, the actual physical resources in our environments remain amenable to innovation - at all levels of income. The same holds true, for the social resources of our knowledge use and services capacity.

Consumers need to be able to maintain control of production means, so that no one need be hampered by a "small" income. That is, in a 21st century society, designations need to exist for both knowledge use rights and production creation rights. These property rights (in time use terms) would allow individuals to make the most of educational investment, along with locally and globally available resources - digital and otherwise. Otherwise, income levels can become problematic, if the consumer continues to have little say in the ways his world is designed. An overly regulated world is like a garden in which we are told we can only grow only certain kinds of food, which are not enough to sustain us.

When excessive economic restrictions occur, governments competely lose the capacity to assist low income levels. When local environments are flexible in terms of product definition, small income streams can go a long way towards meeting one's needs. While this was still true in terms of land ownership even 50 years earlier (memories of a resourceful great uncle contributed to this post), it is true now in terms of knowledge use potential, the digital realm and new means of decentralized production. Our economic spaces could once again respond, to the recognition of a year's seasons.

Our most important resource is time, not just on the part of the individual but in group coordination for economic activity. Otherwise everyone's time can easily become wrecked by everyone else's priorities, as has happened in the present. All too often, unnecessary living requirements on the part of business and government, prevent a more level playing field in production and consumption possibilities.

The inevitable rise of the minimum wage in such scenarios is a poorly thought out response, somewhat like a bandaid on a gaping wound. Even those opposed to raising income levels tend to grudgingly give in, in part because of their refusals of more substantial means of economic access. Why take a chance on one's survival by allowing more competition? But these half baked adjustments along the margin for internal imbalances, mean everyone runs harder just to remain in place.

Why do income consumption ratios matter in inflationary terms? It helps to know the extent of a marketplace which is being denied at aggregate levels, because inflation defined product tends to flood the open spaces where true participation and access have been disallowed. By capping at the aggregate spending level which has already occurred, the recent preexisting growth trajectory in per capita terms has been negatively altered. The problem? Aggregate demand still has not been met on the part of lower to middle incomes, but this great potential remains hidden by a marketplace full of signals. In other words, the most productive component of the marketplace has been obscured, by the positions which special interests have carved for themselves in the middle to upper income domains.

What's more, those signalling terms are also tied to societal expectations in housing, which makes this asset group especially brittle in recessionary periods. Without a marketplace which accurately reflects income potential for lower to middle income levels, inflation targeting has been used as a way to obfuscate the spending capacity which has been disallowed. Incremental ownership options in building components would provide a means for new marketplace generation. Just as importantly, they would provide new evidence that it is a mistake to tie monetary conditions to finance driven outcomes.

To be sure, I don't particularly like Piketty's forecast or prescription. Nonetheless, I accepted parts of his forecast as given possibilities, much as I (grudgingly) accepted those of Tyler Cowen's in his recent book, "Average is Over". Neither forecast is a desirable set of circumstances, of course. In that spirit, both books should be indicators as to what we could all agree, are not the outcomes we would want. It should not have to be so complicated, just to be able to put food on the table and keep a roof over one's head. How can economic inequalities be addressed without resorting to the "usual suspects"? That perhaps, is the question.

Wealth Creation Through a Knowledge Centered Economy

What is actually missing from knowledge wealth in the present? How does one envision true growth in knowledge use in and across disciplines, when no one can be certain what areas would especially be affected by knowledge use rights? It would also take time to include such progress in today's definitions of wealth, without unduly antagonizing those who utilize knowledge primarily for upper income levels. The problem with present day knowledge use formations, is that they were not really designed to create the knowledge centered economy which people now need. This in turn prevents adequate representation of knowledge in the economy in a monetary sense.

Earlier methods of knowledge wealth capture have lost their regenerative capacity in recent decades, what with patent thickets and governments finding themselves needing to trim budgets for the services they were previously able to offer, especially in the 20th century. The larger problem - as services continue to be scaled back - is a loss of specific avenues of knowledge use planning and organization between public and private institutions, which consequently need to be envisioned in new ways.

Of course, one can still point to skills use capacity which still gets funded in some form or fashion, let alone the degree of knowledge actually required in any number of careers in both the public and private sectors. However, the fact remains that much knowledge today tends to be utilized in extractive and exclusive formations.  Knowledge presently serves the greater purpose of the organization, which may or may not produce an actual consumptive good for the public. Or - in the case of medicine and healthcare, the extractive burden is also imposed on the broader society, due to licensing requirements of extended education and limitations into the educational process itself.

Much of the actual economic interaction which once happened individual to individual needs to be restored, along with flexible and evolving concepts of services considered negotiable for actual needs. Plus, services need to be distinguished from the often impersonal product of the corporation - also delivered in impersonal environments which have had considerable psychological ramifications. Already, generations have grown up with numerous product which are not really "supposed" to be associated with personal or individual effort. Without the economic points of references which earlier generations had, youth in any number of nations struggle with social relationships to a greater degree than the generations before them. This is one vital area that a new knowledge centered economy especially needs to address.

As a result, it has become more difficult over time to utilized knowledge in the ways we actually need it to work, for us. It is commonplace to think that property rights need to be enforced, in order for such rights to even be relevant. How did we understand this with physical or real properties, and yet completely miss it with knowledge? Perhaps it is the fact that real property was there all along, but knowledge in the ways we think of it now, was not.  A big part of we think of as knowledge use "grew up" in institutions. That's why many find it difficult to imagine bringing knowledge out into the open now, to assist one another or to assist our governments as they struggle with today's limitations in societal coordination.

Before real value can be assigned to knowledge in an aggregate sense, we have to be able to understand how to tap into it directly, so as to activate services when institutions cannot, and activate negotiations and plans for resource use when our governments cannot. We also need to be able to utilize knowledge to begin anew in legal areas which are no longer truly addressable by the legal system as it now stands. But before we can do any of this, we have to assign property rights to knowledge use, as well as record and measure its use in time increments validated by the participants themselves. Presently, the most important work of our society is being left undone because it has become difficult for our institutions to hire individuals in the ways they are actually needed, either to help one another or to reach across the gridlock that has spread between institutions in many forms.

What are the monetary ramifications of such a restructuring over time? Even though it is difficult to imagine such knowledge use dispersal and rights in the beginning, ultimately to do so allows a far greater degree of wealth than which is actually possible in the present. What's more - where knowledge and skills sets and valuations are spread across populations to a far great degree, it also becomes easier to represent hard assets with such income (soft assets) in ways that are not forced to overstretch, in that all are actually engaged in wealth creation processes.

This simple fact of inclusion makes much of the governmental debt load for those left out of the process, largely unnecessary. When technology is allowed to innovate environments, not only does credit become a smaller factor in the economy overall, but the income to consumption ration becomes diminished in such a way that the illusion of poverty in the developed world would largely disappear. By making services skills immediate, many of the demographic issues of today would become less cumbersome as well. By shifting knowledge use in services to equal hour access, much of the economy would shift back to an active state, and flexible building components could readily reflect the flexible time arrangements which communities are able to arrange amongst themselves.

Ultimately, wealth is a combination of what we want it to be, what we need it to be, and what we imagine it could be. It becomes most active when we are inspired and break down the barriers to our own inspiration. In the long run, wealth can only rise to the degree that we are willing to take a chance on aggregate knowledge use. All of the assets that remain in our environment over time - all of the maintenance and care we are able to provide for them, depend on the degree to which we are willing to believe in our own self worth, our own participation and the creation of our own value in ways not just recognizable, but legitimately framed as well.

Nominal Targeting Measuring Potentials, and the Local Factor

In a Measure of America Report, it was determined that well being rose in every state (of the U.S.) except Michigan between 2000 to 2010, based on life expectancy, education and earnings. However, would such measures have held true for the states from 2010 to the present? To be sure, this is the right kind of report to bring out when people want assurances that the economy is returning to normal, especially when it "appears" recovery is just around the corner. Just the same, this is no time to say, job done! Just look at this great report! As James Pethokoukis of AEI titled a recent post, the Fed has essentially washed its hands of the new normal U.S. economy. Ryan Avent at The Economist is not any happier, in that it has become clear that the Fed is reluctant to engineer the escape velocity which would allow the economy to escape the zero bound: a circumstance which now also leaves the U.S. closer to a "Japanese equilibrium."

While the states report wanted to look at factors besides GDP to gauge economic well being, the three it used were misleading in a number of respects. To date, educational gain has continued apace whether or not compensation (let alone integration) for said education happens. Plus, both life expectancies and earnings in this time frame are a carryover from decades that were part of a positive equilibrium overall. To get a true feel for recent changes in the economy in an immediate sense, it helps to look at the patterns between our nominal income and aggregate consumption. NGDP measures are also the closest proximate we have to daily and ongoing realities: here, graphs especially tell the visual stories.  Even though NGDP may not (presently, at least, for it could) register well being in a collective gain sense, it does tell us now whether we are actually doing our best to maintain it.

While GDP may not seem especially important in certain respects (not all money making is of a positive nature, duh), it really depends on what we are trying to determine through the use of the indicators themselves. There's a tremendous difference between, say, here's the money a nation (or city as it could well be) registers, and the way the money components actually interact with one another. In GDP, a nominal focus also allows us to zoom in on some of the important particulars. Nominal targeting readily shows changes re inclusion and exclusion of economic actors involved, and also shows how people go about meeting their present and ongoing obligations to one another: which after all is what printing money is really about. Much about our economic lives can come into sharper focus through the level targeting of NGDP. What's more, consideration of local conditions through the process can bring the economic picture into an even clearer view.

Why do local concerns even matter for NGDP? After all, nominal level targeting is supposed to be about aggregates and national levels. Part of the beauty of nominal targeting is that it is capable of scaling up or down - in other words - local to national in terms of income to consumption obligations and expectations. That's just a simple model aspect of the measurement itself. Just as important are the patterns that local economies tend to generate - and repeat - in an aggregate sense. What happens in local economies doesn't just stay in local economies. They imprint further examples in other regions which utilize resources in similar ways and tend to create similar employment patterns as well. Effects depend in part on whether the resources reflect long term economic flows (educational investment) or are more contractual and fixed in nature (housing ownership).

When we "come in closer" to look at the particulars, we also get a feel as to some of the larger concerns people have, why NGDPLT - for all the promise it holds as a central bank rule, nonetheless has some remaining obstacles in its path. For one thing, there are structural concerns that get far more wordplay in excuses instead of solutions: which is why Paul Krugman had this retort: "I get annoyed at the phrase structural reform, especially in Europe by very serious people".  Structural issues aren't the only ones that seem to mean a million and one different things to different individuals. So, too, does the unfortunate designation: inflation. However the news isn't all bad, and I want to argue in this post that local economies have the capacity to tease out some of the pertinent issues in both structural and "inflation" designations, through specially targeted measurements that indicate how overall flows might be effected.

Inflation - by any other name please - especially lurks in the places that we have every capacity to observe more closely. Countless costs get attached at every step of economic processes, without anyone really stopping to calculate the effects (While such a process would be daunting at national levels, local measures could provide examples for larger patterns). These completely counterproductive processes occur because various elements react to one another instead of coordinating with one another in the same economic environment that they share. Indeed, some of these hidden costs (rent for someone),  still exist outside any actual measurement of income to consumption capacity, which is what makes it difficult to determine whether any inflation at all can actually be attributed to central bank activity in recent decades.

Where tax monies or subsidies are a significant factor, the idea of maker versus taker in any redistributive sense becomes even more skewed. These are the sorts of black holes where good deflation born of productivity gains are swallowed, by taking of said gains through every means imaginable, before they are realized by the consumer at any level. But unlike some, I have a fascination as to how one figures out what lies in those black holes! (Aahh, now you know why this blogger wishes she had kept up with math when she was young) I remain convinced that local economies are the primary source of a significant amount of their own unemployment. Anyone want to convince me otherwise? Go ahead, make my day!

It is - in part - these aspects of complexity that also make some wonder whether the gains of nominal targeting might not get buried in the details, but a closer look at the nominal workings of local economies could give us a chance to break through a considerable amount of that complexity. There are so many ways to determine what actually affects prices that have nothing to do with inflation as we once knew it. There are also many different kinds of structural roadmaps that could be contrast with each another. Both of these processes need to happen in specific ways, so that people know what is actually at stake.  This is no time to simply stop the process of economic rediscovery, just because some of the national numbers look "prettier on paper". Out here in the real world - for instance - the hard reality remains that the better unemployment number for the Fed is mostly more people dropping out of the workplace. In fact that is likely what the Fed is counting on, by tapering QE before it gets too close to the unemployment deadline.

Admittedly my perspective of the measurement capacity of nominal targeting is somewhat different, for I really came to the idea itself with a Main Street viewpoint of the potential it held. While this makes my perspective somewhat unlike the language of those who approach nominal targeting with a financial or macroeconomic background, it was that implied potential for the transformation of local economies that made me so excited about NGDPLT in the first place. Ultimately, internal resets and coordination could take the place of a long series of reactions that only hurt everyone in the long run. Better knowledge use coordination and dispersal could also make many communities more competitive with one another than they are now. Nominal targeting could keep local economies better grounded in their expectations overall, as they gradually gain a better feel of the perimeters they actually have to work within: a perspective that also makes the "pie" larger over time. While some of this might appear as structural reform, what it is really about is simply people learning how to live with one another again, and each successful example is potential for others in a nation, as well.

One Is The Loneliest Number - Why a Single Rule Matters

First, this is not a normal "rule" in the usual sense of the word! Here's one way to think about a nominal targeting rule for central banks, as opposed to the kinds of inflation or interest rate targeting rules that simply try to put a cap on activities which may be running amok until that point. The nominal targeting rule says that you don't have to do X and Y or perhaps F and G for optimal monetary policy. It says instead that we have an anchor in which any activity between A and Z might readily happen, and then it simply shows how those things can happen in relation to one another that clarifies the equilibrium they use - or that they may elect not to use. Wait, what? Isn't a rule that lets anything happen between A and Z the same thing as running amok? Not quite. It depends on how much the mirror effect of consumption equilibriums gets utilized, to actually show the relationships between the various economic activities.

What, then, about the fact that a cap on output still exists? Isn't that "central bank control"? Not unless one thinks measuring our actual capacity to produce and consume is control, as some Austrians might suggest. This is why it is important to specify what anchor gets utilized, as the most stable economic element a nation has. If we designate a specific natural resource or balance sheet set as good anchors to follow, then the activities people take on may arbitrarily be restricted to whatever trajectories are suggested by them. Sometimes people may not have a lot of choice in that regard, especially if a nation's economic activity is not diverse to a point where it can readily move away from commodity or finance definitions (which is also when fiscal policies may have more "oomph" so to speak) and towards the path of diversified human capacity. Along the same lines, when a nation is not fully mature in a diversified sense, fiscal activity can be thought of as a way to bring a nation to economic maturity, until nominal monetary policy gains the opportunity to fully function for a nation's economic outlook.

Why, then, has it been so difficult to integrate this "human capacity as anchor" idea into the thought processes of others besides Market Monetarists? Cardiff Garcia has a good take on the dialogue between those economic factions which see aggregate demand as vital for moving ahead, in which he suggests, why can't these groups simply combine their ideas to better effect, instead of insisting on one or the other? Scott Sumner, in responding to Garcia's post, simply reiterated the position that it matters in terms of framing, for how people actually come to think of the economy in the years ahead. With such a basic understanding of economic capacity, people would know when central banks stray off course or become less than transparent. One is The Loneliest Number, because it provides the most suitable framework for how central banks respond to the potential of economic activity at the most basic level.

One reason such framing matters now is the fact that - by the improving overall numbers - it's becoming easier once again to be lulled into complacency, and arguments can readily be made on semantics. For instance, Paul Ormerod recently explained to students in a Tutor2U video that Paul Krugman is a "recovery denier" - an assertion that would likely make sense to some, but would only cause confusion for others. The problem for Krugman in this regard is that he is relying on how the lack of recovery "feels", when a rule of nominal targeting would actually give him a way to express what he feels to be true. What's more, the signals of interest rate targeting already imply a return to normalcy, especially as the housing market improves. As Marcus Nunes notes, regarding Ormerod's assertion: "Just because output is above the previous peak 'does not a recovery make'. You're still far below where you should be!"

In an immediate or statistical sense, perhaps the differences between nominal targeting and interest rate targeting aren't so obvious, especially in that they mostly diverge when too much future potential income has been diverted to present day contractual realities. However, the long run is also about the reclamation of our ability to stop excessive diversion from happening in the first place, either from the supply side or the demand side. It's easy to get distracted by what has happened to consumption potential, through the definitions of both business cycle and balance sheet theorists. However, both the business cycle and the balance sheet - in the effort to maintain control of supply and demand definitions, will still run with our consumption potential when they get the chance. The single rule of nominal targeting gives individuals the chance to reassert their own primary role in the process itself. That really matters for economic stability in the long run.

P.S. After putting this post together, I realized that I still didn't address the monetary and fiscal issues in the sense that Cardiff Garcia posed them, and I need some more time to mull that over! In a sense that aspect is more complicated, because fiscal and monetary activities just are not as separate from one another as they may seem.

"Makers" Versus "Takers" Debunked? Tradable and Non Tradable Mysteries

Perhaps it's not really all about services - that is, those "odious" drains on budgets and redistributed wealth which make some on the right "see red". Thoughts of austerity and privatization of everything in sight - after all - are often intended to dampen the flow of monies which go towards services in general, especially since so many of them are provided by government. For a while I, too, was convinced that some services (as presently configured in institutions) were somehow responsible for negative correlations with aggregate productivity and wage levels, even though I was certainly not inclined to play the blame game in this regard. But now I have a sneaking suspicion something else is equally responsible for what "appears" to be lower wages: - local definitions of wealth capture which prefer to ignore the leveling effects (including wages) of affordability for so many global goods of the present. In such a context, raising minimum wages could actually be analogous to reducing lower income populations by simply allowing them time to leave town when they don't snag a job. And local isn't "crazy" about global these days, either. But global goods as moneymakers are especially beneficial for lower income citizens, just as they have always been. Local economies in the developed world, however, have inadvertently visualized wealth creation in terms of servicing primarily higher income and marginalizing lower income citizens, even when it was not their conscious intent to do so.

Nevertheless I spend considerable time concentrating on services provision in a more equitable and productive fashion, because those good are so vital and valuable, as pointed out in my last post. Getting services right - and readily available for the long run, is a tremendous part of the picture. Still, the closer one looks, services appear as simply a convenient target for singling out, so that no one will (quite) notice the other, quite significant targets of the blamers. When does "Made in the U.S.A." become mostly an excuse to lock out parts of the global economy just to have a big sulk? Just because a business  provides goods to the public in the most efficient manner possible does not necessarily mean it is favored by the powers that be, especially if it has gone overseas. And yet, such businesses that survived by lowering costs were supposed to be the true drivers of progress! What really lies behind lowered costs? Hence, I am a bit dubious about maker versus taker arguments and will further attempt to explain why.

There are a couple of issues in this regard which seem problematic to me. Significant drivers of local wealth today often don't actually utilize recent production gains, in order to create product which is actually affordable to a general population. That's a big reason why government has so often been compelled to step in and "help". Yep, we know how that works out...then the locals will turn on government and blame government for helping them in the financial circumstances everyone agreed to in the first place! All those barriers to entry plus outdated 20th century low skill construction weren't particularly conducive for multinationals either, all talk of unions aside. We hear, "The multinationals left, so who needs them?" and so local businesses took over where manufacturing left off. But how many local economies were in part responsible for their compromised circumstance, by seeking ever higher rents and valuations to reflect the remaining citizens they preferred? When the multinationals left for greener pastures, the consumer often proved to be the last player standing for wealth as it became defined in the late 20th century, and the ever patient consumer tried as long as she could to maintain that illusion.

Some manufacturing is returning now, albeit in altered forms which are better adapted for the more exclusive and elaborate settings required in the U.S. compared to some countries (It seems some beneficial P.R. may be involved in the process). However, does economic space really exist for them at the moment? We are used to thinking of the most efficient companies as being the primary sources of wealth creation, and thus the ones we would most expect to find in the marketplace...but the process of inflation targeting may in fact be preventing manufacturing from optimizing some of its opportunities in the developed world. Too many entrenched special interests capture not only market share, but also a share of overall output which central banks remain careful not to overstep. Such special interests might not necessarily be keen on proposals of NGDP targeting, which would lift the veil on their portion of the take. I simply present this scenario as a possibility, because of the mystery of empty shelves in some big box stores, and one's inability to find any number of everyday products in smaller towns.

By creating environments that cater to upper classes and reducing environments that provide access to the lower classes (easy to do when productivity is never utilized in building components), local economies over time inadvertently create a different dynamic for income to consumption which is higher than actual income aggregates in more productive forms of economic activity. Thus, the creation of these not so productive local realms - yes I'm looking at construction interests of every stripe - end up with something that could be equally significant to the recognized Baumol's disease in services, in that it depresses what wages can buy through the widening of income to consumption ratios as surely as any taxation redistribution might "lessen" production aggregates overall. Small wonder incomes appear so depressed, when - had building technology followed the lead of innovation that occurred in other areas of life - our apparent income would be much higher now, even with the "drag" of services as they remain inefficiently allocated. In other words, lack of innovative and high technology construction made the overall problem worse than it had to be.

Income to consumption ratios are truly a mystery, because such measurements accrue to aggregates which don't really look at the differences in the ways wealth capture is set up across various production settings. As a result, we get not only charts showing reductions in productivity, but "mystery" charts which show reversals to income gains in all but the cities especially well positioned to capture knowledge based wealth (Ryan Avent had an illuminating chart recently which I'm still hunting for, so as to link). Certainly when Baumol looked at the effect  of services on  production, it may not have seemed necessary to account for the degree of less productive wealth capture through construction definitions, which nonetheless provided taxation for many services allotments in the first place: allotments quite asymmetric to the leveling gains of more efficient technologies and disciplines.

As a result, entrenched interests are crowding out not just needed services, they are also likely crowding out more productive businesses which - if they could - would serve as many customer as possible. This is also why interest rate targeting, which "holds the line" in regards to credit and contractual obligations for the less efficient and preferred wealth, makes life harder not just on lower income citizens, but the companies who would be more than willing to serve them. Unfortunately in the recent recession, some potential areas of blame have yet to be truly noticed, for they tend to be the ones yelling the loudest as to who is at fault. What's more, counterattacks by the liberal left tend to miss the underlying asymmetries. All of which comes down to this: support of interest rate targeting by both the left and the right mostly ensures that the entrenched interests still win the day, if indeed that can be called a "win". No small amount of inflation that local economies accuse central banks of, is in fact the inflationary measures imposed on local citizens by inefficient construction, and then the central banks dutifully follow with money printing to fulfill those locally defined obligations as best as possible.

How willing are our entrenched interests to hold both services and the affordable goods of a globalized economy hostage to the unrealistic expectations of what local wealth is supposed to "look" like, or "perform"? In this sense, local can also be extrapolated to state and national levels, for added effects which tend to play out as the better understood mechanism of protectionism. The sad thing about this state of affairs is that so many of these interests themselves profited handsomely from the affordable and truly productive parts of the economy which they now sideline in favor for exclusive terms of survival. We can do better than this, because local ramifications do eventually become global, when the patterns are not recognized and acted upon. Such separations only needlessly divide local and global economies even further, in the long run.