Can Economics "Raise Its Game"?

Tim Harford wonders whether economics could become more broadly relevant for populations in general, so poses some questions:

How can economics become a more insightful discipline? Should it aim to be more like physics, with its precision and predictive power? Or should economists emulate anthropologists or historians, immersing themselves in the details of the particular and unquantifiable?

Clearly, while more attention of late has been given to precise measure, both matter. Harford noted that the economist George Akerlof believes too little attention is being given to "soft" questions which aren't easy to answer on mathematical terms. That said, I respect the "hard" approach, and likely would have utilized it, had life circumstance been different. Unfortunately my interest in economic issues didn't gain traction until middle age, which proved too late to learn the (now) necessary math. Not only does math has its own intriguing qualities, it sets up Twitter economist conversational patterns which are generally beyond my comprehension. For one thing (among many), I would like to have understood in concrete terms, how dependent service sector markets (in a dominant revenue position) influence the natural interest rate.

Hence I was surprised that the late Gary Becker, as a college student (according to Harford's post), found sociology "too difficult" and consequently remained with economics studies, where he provided useful mathematical framing for specific sociological issues! Indeed, some perennial economic problems haven't responded well to a hard approach. Some examples from Harford:

What are the obstacles to social mobility? Where does innovation come from? Can we strengthen the institutions that matter for prosperity?

What also prompted today's post, was a recent Politico article which seems to speak to these concerns. Diego Zuluaga emphasized how loans supposedly meant for those with low income levels, have instead been given to higher income customers. In the process, neighborhoods gentrify as older homes in desirable areas are renovated - a process which gradually pushes out lower income levels altogether. Yet some of this isn't the fault of the banks, given their incentives. How has the Community Reinvestment Act fallen short of its intentions?

Banks are supposed to lend in low-income areas without incurring additional risk. Absent this safeguard, public policy would cause banks to make ill-advised loans, leaving taxpayers to pick up the eventual tab. Even with the statutory language, some evidence has accumulated over the years showing that the CRA does sometimes encourage risky lending. But by directing credit to higher-income "gentrifiers" in CRA-eligible areas, banks can meet the letter of the CRA without increasing the amount of likely losses on their balance sheets. 

This practice may, however, unwittingly end up accelerating the displacement of poorer residents. Consider, for example that in five tracts in D.C.'s Park View and Petworth neighborhoods, more than 80 percent of mortgage loan volume in 2017 went to borrowers earning more than the CRA threshold, even though all of these tracts have median incomes well below that threshold.

It's bad enough that so many among the marginalized end up displaced. But even worse is the fact they have so few reasonable options afterward. Where might they go, that is safe and offers reasonable hope for a good life? In particular, how can they contribute to wealth building via institutional tools for incremental ownership, instead of loans? The lack of dynamic options where those with limited resources could successfully engage with their world, is a problem crying out for a productive response. All the more so, since low income levels will be part and parcel of our economic realities for the foreseeable future. As long as improvement is framed in a "living wage" mindset, we're essentially stuck. Real wage gains depend on real economy innovations which take local consumption potential into account for community design.

Even more important: In order for economic dynamism to further evolve, the marginalized will need to work with ownership potential on terms that are well within their reach. By way of example, old housing in need of extensive remodeling is not always optimal for those with limited resource capacity, even though it is less expensive than new traditional housing. The fact gentrification has already continued apace for decades, informs us that conversations re simpler ownership options are long overdue. Further, outside investors aren't necessarily well situated to create environments where the marginalized might gain new purpose. Yet all too often, outside investors have been expected to perform this miraculous feat, even if it supports a status quo not necessarily amenable to social mobility and innovation. When ownership is deemed the social responsibility of high income levels, further economic evolution can become difficult indeed.

So how might economics raise its game? I believe it would greatly benefit from a more practical and applied approach - one that could also redress the sectoral imbalances which now impede long term growth. Both human capital and physical capital need simpler formats for ownership potential, so that wealth creation remains viable at all levels of skill and income.

And despite the relevance of math for economics as a discipline, it is still a conceptual tool which responds to broader conversations of social meaning. Said another way: Math illustrates concepts, it is not the actual concept. If economic thought is guilty of suppressing its own important conversations due to a preference for math, chances are that vital conversations are being suppressed in other areas of life as well. Likewise, some citizens now shun the value of knowledge in a society where "losers" supposedly don't even need to work with knowledge. Economics may in fact need to broaden its purpose, if for no other reason than citizens now question the hard won economic logic that has contributed to centuries of prosperity.

Implicit Land Rent as Potential Real Wage Gain

Why would land rent value be important, in terms of defined equilibrium settings which could contribute to the spending power of real wages? Today, productive agglomeration is in short supply, because much of it is limited to high income locales. What, then, could help implicit rent become a more affordable fixed component of the production function for knowledge based endeavour? Both questions matter for communities which seek to generate productive agglomeration for a wide range of ability and income. How would one define "affordable" specific land value which doesn't run counter to the wealth of local income realities, for instance?

Since the two most important factors for those with small wages are generally housing and services needs, it helps to consider how these two could also be interconnected, via implicit land rents. In a defined equilibrium for example, time based services would provide much of the initial aggregate economic value of a start up community. Nevertheless, in general equilibrium, the services to land rental value link is merely a starting point - given the many aspects of production which also contribute to local aggregate income. The more productive complexity that exists in any given setting, the more it is represented in local income and real estate values. However, not only has this process raised the costs of economic access for local landowners (and renters), by necessity it excludes many more who wish to participate on similar terms. Again, the Baumol effect has its natural equilibrium limits.

Defined equilibrium would approach land values in ways that allow applied knowledge to function as an accessible starting point for economic community. To this end, local land value would particularly reflect the maturity, or lack thereof, of local services generation. Management of implicit land rents as a local consumption standard, could provide an institutional response to the present day lack of productive agglomeration. Presently, productive agglomeration mostly exists where both salaries and implicit land rent are already high.

The core of such an equilibrium would consist of flexible infrastructure and building components, and an applied knowledge continuum for a full range of services generation. In order for a defined equilibrium to maintain access to lower income levels, much of what otherwise would be represented by monetary value, becomes correlated with aggregate time value as measured by gains in local skill and and economic diversity in services. Not only would this value in use process help preserve services complexity in the event of severe economic downturn, it makes possible a free market approach for time value in general.

However, in conceptualizing these possibilities, it helps to reflect on what is normally the starting point for monetary economic value in local settings. How does rent factor into the costs of production? What does implicit rent mean for one's opportunity costs as a landlord, especially given what has been necessary for home ownership in a knowledge based economy? How does local aggregate income level correspond with local production (what local property generates), or the real estate which also reflects local aggregate income value? Indeed, which comes first? Paul Samuelson offers ways to think about this in Economics (page 527 and 528):

Since rent is the return to an inelastically supplied factor that would still be supplied to the community even at much lower prices, the direction of causation is as follows: The prices of goods really determine land rent - rather than having land rent determine the prices of goods.

Okay, for us this would mean the aggregate value of services helps to determine land rent, right?

But at this point we must avoid our old enemy "the fallacy of composition". What appears as a cost of production to each and every small firm using a particular kind of land may, as we have seen, be to the whole community merely a derived, price-determined rent expense rather than a price-determining one. More than that, suppose the land is specialized and can be used only for the production of one industry. If a grade of land is inelastically supplied to one industry and has no place else to go, it will always work for whatever it can earn there; then its return will appear to every small firm as a cost like any other.

It turns out that relativity of viewpoint matters as well, because even though land is inelastic, to any one firm or industry the supply is elastic:

To conclude: Whether rent is or is not a price-determining cost depends on the viewpoint: that of a small firm, small industry, large and even exclusive-user industry, or whole economy. What is a price-determined rent return to a factor which is inelastic in supply to the whole community or dominant industry may, to each firm and to any small industry that is only one of many potential users, appear as a price-determining cost.

In normal circumstance land values accrue gradually, especially as communities build up permanent forms of infrastructure. Much of their success depends on the degree to which infrastructure of all kinds can be maintained. The better they become at the process, the more limited their access may in fact become, especially if the land contains special natural attributes.

Cost "containment" or management in defined equilibrium, would depend on many things. Even though land can be kept "affordable" by generating similarly accessible services, each part of the process depends on the other. And while such communities would generate economic activity which goes well beyond time based services, flexible infrastructure makes it reasonable to pursue short term economic strategies which need not require extensive monetary investment.

Since - in a defined equilibrium - much of the local economic value would reside in the time continuum, the best way to reflect this is to ensure that local ownership remains flexible and incremental. This way, local system infrastructure would not bear such high access costs that lower income levels become barred from participating in a knowledge based economy. Recently it has been difficult for those who struggle to invest in human capital or access highly productive regions, to contribute to productive agglomeration. Fortunately, this could be changed with a defined equilibrium which aligns implicit land rents with real wage potential.

Some General Equilibrium Issues for Small Incomes

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

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

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

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

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

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

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

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

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

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

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

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

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

Middle Class is a State of (Organized) Mind

What are the real concerns about a "missing" middle class, given increased levels of income divergence? Once, a middle class designation seemed simple enough. Only recall the fortuitous circumstance of mid 20th century employment in the U.S., when factory workers without college degrees could still raise families and purchase homes. The loss of this temporary "norm", continues to cause more consternation than should have actually been the case. After all, our environments for living and working, could have included options which lend dignity to people of a wide range of income levels!

Instead, middle class roles have morphed into "requirements" for two college degrees, along with two incomes to raise a family. Alas: what has occurred, which makes the present day economy so different from sixty years earlier?

It helps to consider factors not associated with income level; but instead, expectations for "one size fits all" production, consumption and mandatory infrastructure requirements. Whereas primary market institutions deal with these realities via internal organization for costs, secondary markets adjust costs according to revenue availability, in a constantly shifting general equilibrium. Unfortunately: over time, changing conditions also make the latter approach more difficult to coordinate for either time based product or asset formation. How to maintain both personal responsibility and economic viability?

Being middle class is not so much about income, as a state of mind. It's how society organizes for activities deemed important and desirable. The monetary costs of doing so, are reflected in the environments which make it happen. Middle class problems are less about any specific income amounts, and more about the increased difficulty of meeting crucial obligations on society's expected sets of terms.

Part of the problem in this regard, is that far more redistribution now takes place via income which is already a result of previous redistribution in varying amounts. 20th century taxes - many of which resulted from primary market wealth and output - were a simple proposition by comparison, hence tended to have more definable fiscal outcomes. Today, when taxation is added to already existing levels, outcomes for new fiscal obligations are already in doubt.

Higher costs for time value in secondary markets as compared to primary markets, also contribute to greater local asset costs. The Baumol effect is a form of mutual "entrapment", which in turn reduces discretionary income for all concerned. Among the many reasons this situation matters: it could play havoc with basic income experiments in today's complex economies. By comparison, basic income for environments which have fewer production/consumption restraints, may hold more potential for positive outcomes.

Indeed, a recent experiment for basic income in extreme poverty circumstance, appears to be going well. There's good reason why discretionary income improves environments which don't have an exceedingly high bar to participate in the workplace and marketplace. Much of the money these villagers received - once they purchased food - was able to pay for amenities capable of contributing to their long term betterment. Whereas basic living costs in today's developed nations, leave little "small wage" room for long term investments and related discretionary spending. Anyone who relies on limited income in a complex economy - basic income or otherwise - needs environments structured to provide dignity for what these individuals are capable of contributing.

Societies inadvertently jeopardize their own middle classes, by continually raising the bar for participation. Once this process reaches a certain point, basic income may also be out of the question, as a suitable long term response. Economic, social and political freedoms can be lost, if and when economic access is restricted for too long.

Thoughts on The Importance of Income Aggregates

Occasionally I find myself including "thoughts" in post titles. Sometimes the post is a series of notes which don't quite indicate a clear story line. In many instances, my ideas regarding the subject may still be evolving. That's certainly the case for income aggregate roles in the context of a monetary target. When it comes to determining the potential of income formation in relation to resource use, there's still plenty of work to be done.

While I believe income aggregates are central to a nominal target, I don't believe their representation is well suited as a single target. Other resources - in relation to the relatively fixed constants of income and time use - constantly change in value, quantity and production definition. One beneficial aspect of a nominal target, is that it is also capable of keeping income aggregates in a direct relationship with both production and consumption.

Oddly enough, targeting income alone can distort this relationship. Why? Over time, supply shocks - both positive and negative - can still pull income aggregates away from their optimal trajectory. In this respect, targeting income would present problems which are similar in nature to a price level target. Patterns of resource utilization in relation to income capacity are difficult to discern, without the assistance of a nominal target to guide the monetary course between these aggregates.

Inflation targeting has gradually contributed to a relative loss of income and time aggregates, in terms of labor force participation. To a degree this loss is also recognized as "stagnant" income. Unfortunately, IT caps spending capacity without considering income and consumption relationships in general equilibrium. This makes inflation targeting less effective than either income or price level targeting. When income factors for aggregate spending capacity are missed - as has increasingly become the case - disinflation can eventually become real deflation in national settings. Diminished income also contributes to gradual downshifts in production capacity and services formation.

Aggregate spending capacity includes both income and consumption factors, in spite of the consumption context which so often dominates the discussion. However, fulfilling aggregate demand is just as important for the role of income, as for consumption. Both production and consumption need to remain flexible to overcome the problem of sticky wages, in particular. Flexibility in production roles is also key for reversing the recent decline in labor force participation.

Even though supply side representatives need to maintain production flexibility in terms of product definition, monetary authorities also need to provide greater flexibility in response to supply side shocks by refusing to overreact to headline inflation. Doing so would also protect income aggregates which are more closely aligned with core inflation.

When central bankers rely on discretion to second guess supply side movements, they forget that supply side representatives don't always have the capacity to define the marketplace conditions of the commodity in question. As a result - by overreacting to headline inflation - central bankers can make matters worse all around. Sometimes, they inadvertently reduce both aggregate spending capacity and total income potential, whether a supply shock is perceived as positive or negative in the marketplace.

Undue reaction to supply side circumstance is a major contributor to bad deflation. This form of deflation results in decreased spending capacity, rather than gains in income potential. While some economists see little problem with deflation in general, deflation which decreases consumption potential over time remains a primary issue for developed nations. Hence it helps to ask when assessing deflation factors: to what extent are they caused by further erosion in income capacity?

Core and headline inflation are particularly important in relation to income, because changes in headline inflation do not accurately reflect income aggregates. Hence one of the dangers of emphasizing headline inflation as opposed to core inflation, is that one makes the very real danger of moving the goalpost away from the consumption potential of current income aggregates.

It is understandable that central bankers wish to maintain considerable discretion in all that they do. And granted, the possibility of a nominal target rule is still contrast with other rules which would only take the Fed further off course. However, inflation targeting continues to leave the Fed unnecessarily exposed, by making their job far more complex than would otherwise be the case.

Responding to headline inflation during strong shocks with discretionary action, is like standing in the full force of a hurricane instead of seeking cover. Inflation targeting in particular leaves central bankers "outdoors" in the elements: buffeted by the high winds of opinion, second guesses and unnecessary risks. Why not choose the relative safety of a nominal target, or simple core inflation at the very least? Why take unnecessary chances, when the odds are good that by remaining inside the bounds of more reasonable options, everyone could remain safe? Why, indeed.

Why a (Monetarily) Compensated Time Use Base?

While answers lie beyond the scope of a single blog post, both social and monetary aspects hold equal importance. Monetary equivalence needs policies which back the possibility of turning identity into economic reality. A marketplace specifically designated for time use, would also restore balance to the production and consumption asymmetry which exacerbated the problems of the Great Recession. This asymmetry remains in the existing output gap, and a less dynamic growth trajectory which continues to deviate from the earlier level trend.

There are also important social reasons for closing this gap, to include more citizens who continue to experience limited economic access. At a personal level, loneliness has become a paramount concern in the developed world. People need better reasons than they currently have, to meet one another - face to face - for economic purposes. Unfortunately, time use value has been negated to such a degree, that many will need to start over from the very beginning.

Too often, a lack of economic access means loneliness. George Monbiot of the Guardian writes about loneliness and notes:

Social isolation is as potent a cause of early death as smoking 15 cigarettes a day.

Life as nasty, brutish...short or long, which is worse? Labor force participation rates began to decline, once the feelgood social replacement of consumption for agricultural production began to run out of steam. Consumerism used to be a lot more fun than it is now. What's more, it was a perfectly understandable coping strategy for people to come together, in lieu of both individual and group production which once served that purpose. Retail provided the common environment through which individuals could still relate to one another.

So it was difficult for baby boomers such as myself to watch that era pass. As Frances Woolley recently wrote, getting more stuff isn't what it used to be. While one might think it shouldn't be so difficult to make the necessary adjustments, this reality constitutes a labor shock nonetheless. Dietz Vollrath notes that some think it's impossible to revive work, in a response to Nouriel Roubini:

For that supply shock to generate no other employment you have to assume that the $15 trillion dollar a year U.S. economy is so rigidly inflexible that it has a definitely fixed set of jobs that can be filled. That's ridiculous.

Ridiculous, yes. But enough rigidity obviously does exist (in services formation particularly) that someone such as Roubini can write a post like that and get away with it! Vollrath also writes:

There is no greater dignity to manufacturing than to providing a service. Cops produce no goods. Nurses produce no goods. Teachers produce no goods.

True, services transactions are not traditional goods and these functions have remained in a secondary role for many reasons. Also, services often involve knowledge use, which can be particularly difficult to quantify as a good. Consequently the marketplace for time aggregates became externally defined, once time use became a smaller factor in production. Now, the marketplace for time use needs to be redefined on its own merits. Doing so - in some instances - could provide a much need assist for services transformation.

Doing so also means rediscovering economic freedom. When individuals have an understandable marketplace for time use to help others, that also means others have viable means to help them. Of course, reversing the earlier process will doubtless involve some stumbles along the way, in part because labor divisions in services are the greatest inflexibility of all.

Some theoretical oddities are also involved. Monetary compensation for time use involves rationale which otherwise wouldn't make sense. Some readers likely want to know: Why would I refuse to back a minimum wage in primary equilibrium, yet advocate a "one price for time" monetary base - of all things?

As Nick Rowe has explained, money is the only asset in every market. Still, money is quite capable of generating a freestanding market in which time is the only asset being utilized. In this instance, money would serve as backing for the existing time of both individual and community, instead of a means to indicate price for skill variance. This allows complete skills interchangeability. The only price for time in this environment is an averaged proportion of current value, for time aggregates in relation to local investment and production structure.

In alternative equilibrium, equal time use means individuals can arbitrage changing priorities in time value, as an option to arbitrage of skills capacity under normal circumstance. Time is the missing element in a marketplace which is able to find prices for most everything else. Only consider how people tend to feel they don't have enough time at their disposal, or else they can't find a way to create value with their time.

There is no mechanism in primary equilibrium, which make it possible to arbitrage time value the same way. What's more, under normal circumstance, economic access is increased when a minimum wage does not exist. That's why I advocate for no minimum wage. But in an alternative equilibrium, an equally compensated time base is what preserves economic access, because all participants can optimize the time at their disposal. In turn this is augmented with local investment as means to build needed wealth.

It helps to remember that the monetary backing which generates a marketplace for time use, is only the first backing. It has the secondary backing of local investment which allows a full expression of choice. Why is this so important? Consider that if compensation for time use were the only backing available, that individuals would still end up with a similar dilemma such as exists in primary equilibrium.

That is, one normally pursues personal growth not so much based on personal preference, but based on what others seek from us. That is what time matching would still compensate: what everyone seeks from one another on time based terms. And what everyone seeks is not necessarily the highest or most valued skills which someone holds, in many circumstance. Equal time value means not needing to worry about that. However, a problem still remains.

What about the times when we need to continue our growth in a form that cannot be presently matched? Under normal economic conditions, those options may be dropped. Local investment pools would provide a form of secondary backing, so that the pursuit of individual challenges (at any age) does not have to rely on other forms of support.

Time use in alternative equilibrium can simplify the "unknowns" in knowledge value. Think of arbitraged time use as individual containers in which knowledge can take different shapes and forms. This is a helpful format, because no knowable timetable exists for the transformation of knowledge value. Innovations may take place based on one's energies, but often they never get the chance. This is why the self - and group - support framework can provide such value.

A time based marketplace does not have to shoulder the burden of unknowable knowledge value. It need not judge given skills as more valuable than others. However, the rationale for this is not so much based on egalitarian reasoning, but simply the ability to remain both flexible and responsive to changing circumstance. In the long run, being able to thrive greatly depends on both.

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.

Taxation Can Fail in a Merit Based Equilibrium

Why might this be the case? Merit in the economic sense of knowledge based work, is not widely distributed enough for taxation to smooth (almost) empty valuation points. What's more, holders of knowledge use also do not have the ability to provide market density to the degree their salaries imply, unless they do so through association with product separate from time. However, overall equilibrium adjusts in valuation, as if those with exclusive knowledge use rights are able to provide full market density just the same.

This has bearing as to why redistribution ends up benefiting special interests, and further exacerbating inequalities. Too little balance exists, in terms of what vital forms of time use are now able to accomplish at aggregate levels. As a result, recent knowledge use investments remain caught in uncertain holding patterns. Unfortunately, the marketplace for knowledge use which should have evolved, is simply not there.

Given this scenario, further taxation cannot accomplish what is needed to repair economic inequalities and generate new growth. Calls for further taxation would mostly burden the existing consumer based scaffolding, which supports today's limited wealth formations. What's more, the scaffolding which supports a delicate merit equilibrium, represents consumer limits in several contexts. Indeed, housing faces lower valuations than rent, in part because it already carries an extra burden as a primary wealth designation (or supporting wall). While I have written about problems associated with merit, a recent post by Nick Rowe gives me a chance to put these thoughts into a more focused perspective.

Even prior to Nick's post, I had already planned a related response this morning, as to Piketty's assertion (page 244 of "Capital") that capital is always more unequally distributed than labor. In monetary terms, capital and related assets are nevertheless random supply side elements, in spite of the wealth they represent. To be sure, resources of all kinds contribute to sustainability. However, the capacity in which we are able to use our time effectively, is the finite and central component.

What matters is not where certain resources happen to exist or even what we may do with them in consumption terms, but the degree to which we can utilize our time to make resources matter in an overall capacity. However, when our time gets "cancelled out" by merit compensation which is far greater than our own, no amount of random resource compensation - or government redistribution - can make the difference at lower to middle income levels. Indeed, the attempt to do so within the confines of sticky markets, is like trying to fill a leaky bucket.

Merit "failures" (in compensation terms) mean losing more of our already finite time quantity. One could compare this to starting out with forty acres to farm (average workweek), only to end up utilizing one or two acres of land with something left for the marketplace. That leaves anyone with less "merit" or supposed intelligence, unable to contribute to the infrastructures and environments everyone relies upon. When everyone waits in line for the person or institution which dispenses the "appropriate" knowledge, too much of vital importance cannot happen at all. This is why high valuations inadvertently become time theft, especially given the fact monetary systems depend on aggregate time use to maintain equilibrium settings.

However, if our income is insufficient for expected consumption patterns, one way to compensate is by working and living in an arbitraged time use equilibrium. Coordination of resources with time use can not only smooth time value variations, but consumption preferences as well. Of course this is a long term solution, which requires focused learning and coordination patterns. However, comprehensive remedies are needed, because merit compensation distorts aggregate economic equilibrium so thoroughly, that taxation to remedy the differences in time use valuation, doesn't get at the underlying problems of aggregate time use.

These distortions would not pose such problems for societies if more participants were actually compensated for merit and knowledge use in relative terms. Instead, knowledge which applies for given situations, is too frequently applied for circumstance which deserve more thought and time than is generally provided. Even so, some income smoothing in aggregate remains possible for those who have relatively high valuations in merit based terms. Therefore, these groups might still gain compensation from the redistribution which is a result of taxation systems.

But as it presently stands, the higher valuations of the few, continues to subtract time use value for many into negative territory. Even the lower valuations of the many would be far more manageable in redistribution terms, if the sticky market equilibrium of upper incomes had not being imposed on all populations, regardless of merit valuations or compensation. As it is, sticky markets accurately reflect the consumption capacity of the upper levels, and expect the lower levels to adjust.

Increasingly, the missing component of the marketplace has been parked (by the Fed) in the interest on reserves. This policy decision was enacted, in lieu of maintaining the former growth trajectory which had been in place for well over a century. These reserves have their purpose in maintaining the delicate valuations which high merit created: I get that. What I don't get is that anyone imagines this to be a long term solution. The fact these severe structural problems have yet to be addressed, is why I have such problems with rationale for further taxation. It is also why I try to do an end run around present day taxation for lower income levels, in that redistribution for this group is massively inefficient for all concerned.

Fortunately, merit based time use problems can be approached head on, through time coordination and arbitrage for services of all kinds - including those of the highest nature. After all, many an individual needs to seek lifesaving measures in the course of a lifetime, even though few are presently authorized to provide them. What's more, local education for full services provisioning, would prevent intelligence from becoming even further fragmented among populations than it already is.

Part of why production has been so successful in recent centuries, is the fact that resources have been utilized as interchangeable components as needed. This allowed populations to adapt whenever some resources became limited, and it allowed society to accomplish more with less - time and again. If we gain the capacity to arbitrage our time use as an interchangeable component within social systems, the progress which seems to have fallen away, would have a chance to continue. It is primarily because of the limitations of merit, that no one imagined skills sets as a master key which could unlock the door of a brighter destiny.

How We Coordinate Depends on What We Want To Accomplish

This post covers some "nuts and bolts" of potential social coordination, for service activities at basic levels of community. In normal circumstances of everyday life, the further up the income ladder an individual goes, the more coordinated services one tends to either buy or expect - whether in one's own environment or in other forms of high density group focused activities. Lower income individuals tends to compensate with educational materials for consumption, by utilizing broadcast (one to the many) knowledge sets to use on DIY terms. How could more coordination happen for lower income and those presently unemployed?

Here, the primary problem for lower income is that credentialing prevents further economic activity (services production) of such gained knowledge in many cases for anyone but oneself. Presently, not only does that slow both knowledge use and aggregate wealth potential, but it calls into question the value of further capacity for educational media outside the bounds of formal education. Allowing coordination of knowledge with informal methods would make the spread of  knowledge product (separate from time use) a more valuable option for both providers and consumers.

Implicit in this post example is the option of eventual monetary compensation, for focused and directed economic activities that are "unseen" in present market based terms.  Local coordination for services product could provide a more beneficial  alternative to guaranteed income plans, which would simply reimburse long term unemployed for survival needs with nothing expected from them. Another similar option in guaranteed income terms is the creation of auction settings for lower end economic activities i.e. on present day "odd job work for others" terms. That is, the primary coordination involved in the latter setting, would be the normal circumstance of boss and employee.

Whereas the system suggested here involves multiple coordination and time arbitration sets in groups of entrepreneurs (free markets in skills use), and it also utilizes a base monetary income. Another important difference is that base income would be targeted to localized services to production choices on the part of the population, reflected in regulatory options. Those choice sets would depend in large part on the degree to which communities opt for innovative habitat technology. By bringing down the costs and burdens of housing, a base income for services coordination would go much further than if housing was defined in high maintenance and heavy resource use terms. By bringing services time use into accordance with (global) tradable production norms, it would be possible to measure individual income to consumption standards that local economies would elect to use - standards that would also define base income.

Why would "outsiders" elect to be a part of skills based communities such as this? Pre existing sets of credentials would not be necessary. However, those who desire to participate would need to take the time to understand of how the local economic system actually works, in order to take part in its benefits and expectations. The primary element for local participants is that of being entrepreneur of one's skills sets. As an adult, committing to some combination of the more basic skills sets (a certain weekly amount dependent on ability and community need) would qualify individuals for local property permits (holdings).  From there, one could also participate in the local 3D technology in some capacity. One element here might be recyclable "jigsaw puzzle" building components with plastics, for instance. While recyclables could provide a local option for direct skills match potential (less money needed), other building material components (local resources or otherwise) could also come into play for business ventures in tradable product beyond one's actual community.

What are we coordinating for? Real growth in services product...yes - but in social terms which relate to more than just pragmatic aspirations. It helps to stress this because as people continue to plan for the  privatization of services, the same restraints remain which have been an issue in public formations. Presently, people would not be able to pay for more services in the aggregate than they have been able to provide from a tax base. What's more, service product in many instances is so unlike the product which is separate from our time, that it is hard to compare the two in traditional economic terms. However, our time limitations are not unlike a strict gold standard in terms of availability. What provides true choice is our ability to overcome those limits, by making time the constant across the entire services spectrum.

Otherwise there would be no way to optimize knowledge use as applied to populations in any aggregate sense. For instance, when health services participation is allowed to overcome other service needs in terms of valuation, the effect is the same as a diminished quantity of "time gold" at a society's disposal. One reason this perspective is important: as Ezra Klein points out, 5 percent of people presently account for about 50 percent of the health system's spending. And healthcare spending is presently about 1/5 of actual GDP in the U.S.

When we consider possibilities for community coordination, what is the product we wish to arrive at? Social product exists in many forms, and it helps to consider the kinds of resource based dimensions which services actually exist within. That makes it far easier to coordinate what actually needs to be accomplished, and also to recognize that such product - while existing within measured time, is nonetheless capable of being layered into a number of capacities at once. In the past, groups engaged in multiple responsibilities carried out as simultaneous activities. Before most of those activities were labeled as economic, they became separated from one another. What was separated and why? Which separations are actually beneficial and completely necessary?

Some of the activities we elect to take on affects the degree to which corresponding sets of activities even take place. For instance, if most of society was economically engaged, how much of a system would we actually need to address criminal activity? Right now there's simply no way to know. Plus, some of the most basic coordination challenges include supplementing and replacing those which public funding no longer covers. How do we accomplish this in terms that are non-hierarchical, decentralized and open? Multiple use environments with movable infrastructure allow us to move around the mental and physical components to see what actually works. How much of a flexible legal system would actually be needed in such circumstance?

Each community would create different settings for knowledge use that come to resemble snowflake patterns, all of which start from a common base of recognized need. First, decisions regarding infrastructure have to be made, and from here, outlines for educational possibilities and beginnings for healthcare options. Other coordination sets would involve combinations of travel settings for both locals to other places, and visiting knowledge use providers from other areas. Markets in services would become the domain not just of a handful of universities and high profile businesses, but every community which aspires to distinguish itself in some capacity.

Keep Time Use Commensurate With Money

What is it that makes our time use important, in monetary terms? The actual limitations and capacities of time use seem so basic, that one would think such a logical consideration would be part of any monetary policy in the present. After all, many individuals in society are now expected to carry their own weight in economic terms, as they go through the course of their lives. In recent decades we've increasingly accepted and even welcomed that role. What's more, in terms of societal expectations of the developed world, the reality of total economic participation is practically a cultural "given" which - with a little luck - will eventually play a greater role in legal definitions as well.

However, the reality of (expected) total economic participation in monetary terms still "feels" new, which could explain the reluctance of policymakers and central bankers to come to terms with its true significance. Certainly it explains the knee jerk response in the U.S. of throwing entirely too many people into prison, instead of seeking out more rational economic environments for them to survive in. That very "newness" of expected economic participation may lie behind some of the confusions surrounding representative anchors for money in the present. It is particularly unsettling to see how nominal targeting could assist economic stability, and yet know that policymakers at the highest levels remain adamantly opposed to the value of our own time use as an anchor for monetary policy.

Prior to the 20th century, only a small portion of individuals in society were expected to be responsible for both oneself and family, in what we would consider today's economic terms. Certainly, the limitations of gold standards made sense, when it was primarily governments and wealthy citizens doing the majority of the buying and recorded economic activity. Even the reality of income tax is but 100 years old in the U.S., and our government did not really discourage citizens from utilizing barter or other non monetary forms of sustenance until after the system was put into place.

While there were certainly no 100 year celebrations in 2013, the income tax was nonetheless an acknowledgement of the growing importance of every citizen in economic life. It would seem we all "got the memo" in the 20th century, and agreed with government that our time and skills were really starting to matter, in monetary terms. And every time central bankers considered our time use and its incremental value in nominal targeting, it appeared as though governments might actually keep what appeared as though a reciprocal monetary promise with their citizens. After all, the economic use of our time was the most reliable indicator for economic stability, of all the resource options available. More people than ever were starting to agree: time is money.

Even so, not everyone has been sold on the idea of our ability to participate in the economy as the "new" gold standard. How does anyone know if jobs remain available? What's more - so the reasoning goes - there's more money and gain to be had "at the top", for the not so incremental requirements of both higher education and "bigger is better" definitions for environment use. For one thing, the incremental nature of what our time can actually accomplish is too transparent, too indicative of where rational thought and action might lead, for some who gain from hijacking the value of our future time for their own ends.

People in power have multiple reasons for their desire to keep credit appropriations and balance sheets as primary - even going so far as to insist they belong in definitions of macroeconomics - which is certainly not the case. Alongside the bastions of credit and finance, go the unnecessary coercions of living and knowledge use standards, for those who can ill afford or scarcely need today's superflous signals of "wealth" with their actual incomes.

Because governments refuse almost all innovation and efficiencies in building and construction requirements, a hidden feudal system exists for lower to middle classes such as what once existed in the Old World, and is slowly destroying the middle classes as it continues. For the lower classes it is apparently not enough to work all day, as they also have to take on additional jobs just to be able to live in housing as it has been mandated as necessary for all, by government. One's time is increasingly given over to the mortgages and rents which are a prime means of governments everywhere for their own wealth appropriations. Landlords - for all the blame they get - are but a foil for the real "action".

As long as monetary policy is thought of primarily in credit based terms, and wealth in terms of inefficient housing, the time to money link which is so vital for economic prosperity, will struggle to materialize in a rules based sense. Even though nominal targeting corresponded with other policy instruments in the years of the Great Moderation, in retrospect it may not have even happened for the right reasons in terms of monetary stability. We are in danger of governments continuing to turn their backs on the time to money perspective they once encouraged in the 20th century, as knowledge and skills use continue to be pared back for budgetary balance.

Why so? Because in the last 100 years of income taxes, the things people used to do that provided value outside of monetary terms no longer exist as true possibilities. Even though some may think of farmland as a "hedge" for the future, the idea is silly in any aggregate sense. The family farm, for the bulk of populations, is no longer a true option short of complete breakdown of monetary systems - which a Market Monetarist such as myself seeks to avoid in any circumstance. We cannot afford for governments to give up on the skills of their populations at the very historical moment when populations have never been so dependent on said skills for their very survival.

By the same token, women cannot just automatically resume the homemaker role as in past days, in that many of the jobs of the 21st century demand two incomes for housing, especially as it is presently defined by governments. Or, if someone needs to stay home because there's not enough jobs, then allow innovative thus affordable housing, for Pete's sake. More realistically - and more ominously - the continued call of the left for "living" wages is a pipe dream in terms of real government objectives, which in the present are all about capping off inflation so that it doesn't "froth" or "bubble" too much!

The real issues for our economic futures go well beyond the realm of politics, which is now mostly about fighting over the pie of static wealth that governments and their financial advisors have already envisioned. We know why monetary ideas evolved away from the use of the gold standard in the 20th century, for as populations became more involved in the economic life of nations, fiat money became ever more important for their actual representation. What perhaps was not so obvious? The degree to which finance and credit use, with tight definitions of wealth all around, could completely hijack the entire process.

Governments in particular need to let up with the silly staged hissy fits every time finance "gets out of control". Just allow affordable living and working conditions so that people don't invariably have to rely on credit use in the first place. What's more, if governments would get real about their special relationship with finance instead of pretending it's some kind of monster when the *** hits the fan... people might actually start to believe - once again - that it pays to be responsible in life...that it pays to be accountable and trustworthy.

If we can only convince our governments to keep time use commensurate with the true capacity of money, the mysteries of the "disappearing" middle class will finally be a thing of the past. And - by so doing - a thousand other confusions can also be laid to rest.

NGDP, Economic Actors and the Transmission Mechanism

From my earliest days of reading The Money Illusion, I identified with Scott Sumner's excitement about nominal targeting and the ways it could potentially affect the entire economic spectrum. Of course when a seemingly simple idea meets a complex world, confusion ensues. Plus, while the implications of nominal targeting go well beyond macroeconomic concerns, NGDP level targeting is not yet a reality and so the primary discussion remains in macroeconomic terms. The fact that psychological and social factors also underlie monetary policy concerns is not always easy to acknowledge. Perhaps for that reason, comment threads on monetary and macroeconomics blogs occasionally seem to run in circles.

While all market monetarists agree on the core concepts of measurement (whether by central banks or free banking), interpretations vary for any potential growth trajectory. Economists in particular may be quite specific as to their preferred target, depending on whether they believe an economy can continue to grow. More importantly, one's belief system regarding the role of human skill in wealth creation could make a tremendous difference. That last point is especially important, given that the proposed anchor basically revolves around existing income and consumption patterns.

When discussions about the transmission mechanism do arise, one hears the technicalities of course, but below the surface lie individual conceptions as to what roles governments and citizens should play. Most importantly, the core concept of NGDP is "radical" in a way that hasn't quite been explored, and Scott Sumner has only alluded to from time to time. How so? The fact that people are even talking about moving the prime notion of wealth away from precious metals and other important resources to actual economic actors is a BIG DEAL. What's more, some are not so convinced about human potential right now, especially given that skills investments have suffered such blows in recent years.

Gold and other metallic standards of our monetary past were not quite so simple as they may seem. By putting the locus of wealth outside an actual population, notions of wealth could be more easily controlled by prevailing outside interests of the moment, which often represented the current "supreme" commodity. Today, interest rate targeting fulfills a similar function by focusing on the ability of banks to lend as the primary source of wealth. So thoughts of wealth as residing in consumer potential (all talk of consumer economies aside) can be a bit unsettling, especially when monetary equivalence is not viewed in terms of human skill. To be sure, money is connected with skill potential, but the correlation is not strong enough to convince many that this is in fact a suitable anchor.

While some individuals in developed economies have a sizable degree of monetary equivalence, that nonetheless does not seem relevant enough to apply to entire populations.  One senses this uncertainty not only in discussions about zero marginal productivity and sticky wages, but in what people interpret as appropriate growth targets. Those who place more emphasis on aggregate skills wealth tend towards higher targets, while others who question the ability of skills to translate into actual wealth may prefer lower growth targets or even no expansion at all.

In all fairness I admit there are reasonable grounds for such uncertainty. Were we to remain in the status quo of the present with no structural change, real long term growth would be hard to come by. With little consensus as to a way forward, the transmission mechanism of the Federal Reserve starts to seem like a stripped gear, by which Keynesians galore pray the car can get down the mountain and keep coasting until the long term when everyone is already dead...I have as little use for long term dead logic as for Armageddon dialogue, and would rather see the vehicle get a new transmission so as to continue right up to the next mountain and beyond.

But what exactly does fixing a broken transmission entail? To be sure, it depends on the model of the car (or nation and central bank) but it also depends on whether people are willing to determine how skills in general can become a valid component of monetary equivalence. The first step is to acknowledge that people need the service economies that are threatened, and debate how they can be transformed into more sustainable forms. None of this is to suggest that NGDP could not be realistically targeted in the here and now; only that it needs to be accompanied by real growth, for people to see nominal targeting as the solution it actually represents.  As Ben Bernanke has stressed, monetary policy cannot do the job all alone. Citizens also need to believe in growth and their own potential, so that they can create a better future with the help of their own printing press.

What's Gold Got To Do With It

For whatever reason I've been fidgety about pushing the publish button for the first time, so I went to Tina Turner for a little inspiration before writing this post. Hmmm...love, gold, what is the difference really?

In both cases, sometimes we think the "affirmation" we need lies outside of ourselves! Yet one of life's primary challenges is finding ways to rely on ourselves as an ultimate anchor. Perhaps some might call it a stretch to think of monetary policy in the same way, but if one really thinks about it, the idea makes perfect sense. Why not think of money printing as the aggregate measure of our total economic activity? Otherwise we can end up with too much or too little money, and too little puts the kibosh on someone's ability to participate. Sure, we're talking about a statistical aggregate in a complex economic environment but still, if money gets shorted someone loses out. Whereas if too much gets printed compared to our actual total activity, inflation results. Just the same, should the measure remain close to our actual income and consumption, what inflation may arise is not substantial. Plus when we're aware what's going on (transparency), we can react when it becomes clear whether someone changes what gets printed, to suit their own ends.

What I'm describing in simple language is also referred to as nominal targeting, or NGDP level targeting. The economists who brought this neglected idea back into public dialogue are known as market monetarists, and while I am but an enthusiastic scholar of the discipline, count myself among the growing numbers of this group just the same. Among my sidebar links, the reader will also find blogs by those who explain and discuss the concept with more specific terminology. I especially liked the title of a post by David Glasner at Uneasy Money this week, "The Golden Constant My Eye".

But back in the world of the present, we are still trying to rely on the mechanism of interest rate targeting which no longer works as well as it once did. Nonetheless this monetary policy tool is not easy to let go of, in part because it allows central bankers to maintain the illusion that economic power resides not in our own abilities, but in the institutions around us. Consequently, our lives have become more and more dependent upon loans for our most important activities. While people can be forgiven for thinking it's the banks that really count in economic terms, that still makes it mighty difficult to rely on oneself as an anchor of anything.

In other words, whatever "real" wealth is, supposedly it remains separate from our own abilities and aspirations. Are we expected to believe our economic value isn't "activated" without the blessing of a gold standard, or something approximate? To be sure, there are plenty of unanswered questions about the economic value of our time in the present, which need to be specifically addressed and dealt with at length. Even so, the aggregate measure of our economic time hours will always be the most reliable indicator we have, in that no other form of wealth is utilized with the same consistency.

Update: Right out the gate I've already committed the "random act of naming" offense. For anyone who loves naming things it's a hard habit to break, and as a result I might have to refer to some labels as "pardon my jargon"! Consequently, some post labels may eventually have a page tab of descriptions. However, "income/consumption" standard was the first thing which came to mind as opposed to the gold standard tag I didn't want to use. Perhaps it is appropriate to keep those words together for any number or reasons. For instance, we want to measure economic value in terms of hours, but now some college programs are decoupling degree programs from the credit hour. At the very least, that indicates how investment time tends to be "all over the map" compared to actual knowledge and skills use time, with others.