Addressing the Confusing Incentives of Shared Ownership

The tragedy which unfolded recently at Champlain Towers South, has also exposed some basic problems regarding shared ownership for physical properties. When it comes to shared ownership: the larger the relevant structure, and the closer its proximity to other installations, the more difficult it may be for all involved to resolve maintenance issues. 

Many who have paid close attention to these events in Surfside Florida, are at least gaining a better understanding re complexities in shared ownership responsibilities. As it turns out, when maintenance delays accumulate exponentially, the situation will sometimes prove impossible to successfully resolve. For instance, in the case of Champlain South, due in part to "extensive concrete deterioration and corrosion of reinforcement", Morabito Consultants indicated it would not be able to perform some much needed remediation that had been deemed necessary. There were also questions in this October 2020 assessment, whether full repairs might negatively impact nearby structural features. 

Hence Champlain Towers South became "a catastrophe in slow motion". An article from CNN discusses some of the relevant ownership issues:

The disaster appears to have exposed some of the limitations of condo associations, which are made up of condominium owners with a vested interest in the property but that seldom possess much expertise in structural engineering. And it has raised questions about whether other residential structures could be at risk in Miami-Dade County, where sea levels are rising, the salty air is corrosive and nearly two-thirds of all commercial, condo and apartment buildings are as old or older than the 40-year old edifice that went down.

Granted, the collapse doesn't necessarily mean excessive risk elsewhere, since much also depends on the degree of ongoing maintenance. Nevertheless, as Peter Dyga, the president of Associated Builders and Contractors noted,

We're probably going to overreact. But it's understandable--people want a level of assurance that their building is safe.

It's being said this is a "wake up call on many fronts" - one which basically translates into more laws, regulations and building inspections. But might this be our only societal response? How will additional regulations accomplish what is truly needed in this instance? Already, the condo residents were quite aware of ongoing problems due in part to regulations already on the books, not to mention ongoing inspections. Chances are, the main problem was finding a "meeting of the minds" in a timely manner. Of course, what would have been timely, given the extensive concrete issues?

These shared ownership issues are problematic in much of housing in general. Only considered for instance, how shared family ownership in single family housing (which may be further undermined by family law rigidity), often results in extensive housing deterioration. Clearly, the difficulty of achieving "meetings of the minds" can mean maintenance breakdowns for shared ownership in every capacity imaginable. 

For one thing, proactive market frameworks are needed which leave more room for individual decision making as to ongoing maintenance. In other words, more promotion of home ownership specifically for individuals. However, this post is primarily about problems in shared ownership and how they might be addressed. Perhaps the best possibility is a "meeting of the minds" in free market building innovation, to reduce need for intensive long term maintenance, altogether. Only consider that when ongoing maintenance is neglected, that often leads to a costly "starting from scratch" at some point. 

Meanwhile, we've been learning some hard lessons about basic 20th century innovations. Concrete maintenance is beginning to emerging as an important issue. Equally important however, are the long term maintenance problems of today's plumbing and electrical systems. Even though 20th century plumbing brought tremendous gains in health and public sanitation, much of it was constructed in ways which pose additional stressors for buildings of all kinds. Some of what is becoming obsolete, is not easy to remove and replace without compromising structural integrity. Equally important, is how the fact plumbing pipes and electrical wiring were installed behind walls and interiors, makes it difficult for lower income groups or (many) senior citizens to participate in basic maintenance responsibilities. 

Even when monies are available for extensive renovations in older structures, it sometimes proves impossible for people to live normal lives (in place) in these buildings, once extensive maintenance needs arise. For example, consider how even the desire of condo owners in Champlain South to keep their pool in use, is one factor which made complete renovations impossible. It's not difficult to extrapolate this example to deterioration in older homes that are continuously lived in and essentially co-owned by multiple family members, once electrical and plumbing systems near the end of their useful lives. Often when completely new beginnings are required for these systems - especially if they have otherwise damaged the buildings in some capacity - it may prove impractical to live in the affected buildings for at least a full year.

Ultimately, greater flexibility is needed. It's time to design external home components for plumbing and electrical which can be changed out as needed, so we won't routinely have to take jackhammers or axes to "permanent" building fixtures. Doing so is almost always a major inconvenience! As it turns out, much of our so called building permanence since the 20th century has been largely an illusion, especially in a time of climate change. The need for greater building component flexibility should be obvious to everyone by now, since the short life cycles of plumbing and electrical systems in interior walls are becoming more evident by the day -  let alone what occurs when concrete and steel are exposed to the elements! Let's build in the future, so that both interior and exterior mini-demolitions will become less necessary - likewise the major demolitions that can be such a relief, once failed notions of permanence get out of hand.

Housing is in Need of New Profit Models

Were it not for the structural inefficiencies of our non tradable sectors, the pandemic would not have proven so difficult, and Washington might have been less compelled to add more long term budgetary burdens. Alas, these fiscal "rescues" intensified in part due to the housing costs of lower income groups. Lower income levels also suffered more employment losses than other groups. If all this weren't enough, as the pandemic eases, employers are finding it difficult to hire new employees, since there are too few low to medium priced housing options in places with good employment potential.

These are just a few reasons why housing needs new models for ownership and profitability. Not only could new housing models benefit from further manufacturing innovation, but also organizational capacity which includes lower income levels in land based ownership. Even though lower income levels presently have access to manufactured housing, for instance, they still suffer from a severe lack of land use options for these homes. 

In recent years there's been plenty of dialogue about the problems of housing supply limitations. Yet the main response (thus far) has been encouragement for more of the same, in terms of traditional building methods. Where are market innovators for housing when we need them most? According to Axios:

America has a record-low number of homes available for sale - just 1.03 million, according to the latest NAR data. 

Only consider how this compares to the recent housing supply peak of more than four million in July of 2007. However, what many believed to be a bubble in the last price run up, was occasionally linked to excessive building in places with limited zoning. As it turned out, many places where people wanted to live, weren't where home building was still actively encouraged. These were also years when communities disallowed flexible ownership arrangements, such as settings where manufactured homes could be brought in. 

What kinds of short term responses might help these circumstance? Bill McBride of Calculated Risk recently offered some suggestions and additional thoughts about near future housing supply. Even though many market observers are pessimistic re housing in general for 2021, McBride expects sellers to resume putting their homes on the market, once pandemic circumstance subside and sellers regain the confidence to interact with buyers. For that matter, rising interest rates might decrease demand. As to policy, McBride notes that if higher income owners were offered a one time waiver on capital gains, more higher priced properties would be placed on the market. As to lower income levels, recall how many single family homes and condos had been previously converted to rental units:

Another policy that would help would be to offer a tax break to landlords of single family homes and condos, if they sell a rental property this year. 

I for one would be especially pleased if there were more condo offerings on the market, since condos are one of the best ways for aging homeowners to downsize and lessen their maintenance responsibilities. That said, insofar as new housing prospects, traditional builders mostly find profits in the sometimes excessive square footage of higher income level housing. Increasingly, builders face their own pressures in hiring construction workers, not to mention the rising costs associated with their own supply networks. These factors make it difficult for traditional builders to even realize a profit from lower income housing. 

It would seem these realities are something many municipalities have been reluctant to come to terms with. Not only has NIMBYism gone too far, it has led to effects which negatively impact the economy along with many areas of our personal lives. Which is why I'm convinced that serious innovation in housing and land use might do more good for all concerned, than NIMBY proponents realize.

Flexible Ownership Frees Us. But Have Markets Responded?

To a certain extent, markets have responded - at least when it comes to building construction options. But apparently, at least for the duration of this pandemic era, there will be few zoned land patterns to provide the vital support so necessary for incremental ownership to flower. Without such patterns, a dearth of community options means additional burdens for lower income levels - especially given the uncertainties these workers often face. If more accessible forms of ownership were available, the clamor for a $15 dollar minimum wage would likely be muted. What can be done, to create more flexible ownership options in the years to come? 

New land use options would also be helpful for recent retirees such as myself. Once senior citizens try to downsize from traditional single family housing, they quickly discover other single family homes to be the main consumer choice available in the U.S. For example: Thus far I've only located three areas in the country where communities create ample space for flexible housing in a full income range for people over 55. Since many seniors are solely dependent on Social Security income, that leaves a tremendous amount of untapped market opportunity!

Granted, many baby boomers such as myself never thought to seek out manufactured housing when we were young. Doing so wasn't generally perceived as a necessity, for even blue collar incomes could still purchase traditional housing well into the nineties. Likewise: even though Buckminster Fuller advocated for (and designed) flexible housing, he continued to live in a traditional home during the course of his lifetime. Plus, many people never considered non traditional housing until they were of an age they no longer required extra square footage. Part of what's important in this regard, is that homes inevitably age alongside their occupants. Consequently, at the same time in life one anticipates rising healthcare costs, the costs of older home maintenance also rise dramatically. In fact, home renovations can turn out to be more expensive than the cost of new manufactured units.

Nevertheless, if only downsizing were as simple as a non traditional housing purchase! If more land were available for flexible ownership options, lifestyle simplification wouldn't be such a daunting challenge. After all, markets for RVs, manufactured homes and tiny homes have proliferated in recent years. Just the same, older citizens quickly discover that many communities - if and when they'll accept any form of non traditional housing - mostly zone for expensive versions of modular homes on permanent foundations. In other words, these costs can be comparable to what one expects for new traditional housing. 

Since many communities could remain reluctant to add a complete range of income levels to their tax base, the best way forward may be a creation of special zones which encourage flexible ownership for all income levels. Fortunately, there are also ways such communities could help establish trust among the groups which take part. Chief among such methods is making certain local citizens can readily create and maintain economic/social ties with one another. Ultimately, simpler ownership options make it easier for individuals to adapt to evolving economic realities. Plus, once communities become zoned for income diversity, more manufacturers would gain incentive to innovate, thereby further reducing costs for flexible building components on offer. 

One advantage to incremental forms of ownership, are the possibilities of extensive reduction in privately held debt. Less debt - especially for anyone who is burdened by debt - means greater community stability in the event of economic downturn. Once owners can buy, sell, and reconfigure building components as needed, they can better rely on their own resourcefulness, hence become less dependent on others. Reduced dependence in turn, encourages more societal interdependence. Consider how interdependence is valued in the mutual coordination achieved by higher income levels. Why - as a society - shouldn't we be able to extend new potential for interdependence to lower income groups as well? Clearly, in the foreseeable future, market options for flexible land and property ownership will only become more important, not less.

Intentional Market Design and Economic Freedom

Of late, many libertarians have been understandably concerned about temporary losses of freedom to congregate with others, due to the pandemic. However, this is no time to neglect the additional burdens we face due to excess regulatory environments, for over regulation could also affect society's ability to fully recover in the long term.

Only recall, how limits to personal freedom extend well beyond the social and the political. When essential product is defined so as to incur unnecessary costs, many of us lose the chance to make the best use of our time priorities. In other words, some aspects of market design include hidden intentions which in turn reduce our level of economic freedom. Indeed, some of today's regulatory burdens could limit our ability to live meaningful lives, if they are not addressed soon enough to help us meet our financial obligations to others in the near term.

As jobs continue to be lost and societies struggle to maintain their financial obligations, we need a response which takes both short and long term structural issues into account. Ultimately, the best way to reduce near future financial obligations, is to set about reducing the costs of the structural burdens they were based upon. Production reform would make doing so a distinct possibility. As things currently stand, structural burdens now create excessive financial obligations for public and private interests alike, and pandemic circumstance exacerbates this reality.

We know that many problems which seemingly emerged overnight, nevertheless aren't going away any time soon. Importantly, a longer term approach is needed - one which also expands ownership potential and economic participation by simplifying a wide range of supply side structural issues. That said, how to determine what kinds of regulations stand in the way? Clearly, some forms of regulations are benign and often beneficial, especially when standardization procedures also encourage exponential growth in supply side output. Commodification which results in broad economic access and reasonably well met demand, is an example of positive procedural standardization.

However, many procedural regulations aren't intended to bolster supply side capacity, especially when exponential growth in output is not an option due to natural scarcities of time and place. Too many non tradable sector regulations impose limits on (already scarce) time and space linked product, instead. Some public and private institutions intentionally hide what supply side limits are actually intended to accomplish on their behalf. These forms of intentional market design often disallow basic product such as housing or time based service options. Hence producers and consumers alike end up with excessive time commitments when no other choices are available - scarce time which otherwise might have been put to more productive ends.

Even though hidden intentions in market design aren't the most obvious feature of existing inequalities, they tend to result in more debilitating circumstance for lower income levels than other forms of inequality. Consider for example, how neither basic income (as generally promoted) or Social Security income is truly capable of addressing today's non tradable sector requirements for basic needs. Yet if basic income were eventually enacted alongside Social Security, millions more individuals would have little else in the way of resources to meet their obligations. It's time to bring more of the hidden intentions for market design out into the open, so that markets can become simpler and more accessible for producers and consumers alike.

Fortunately, it is quite feasible to create more flexible patterns for personal ownership and economic participation. It is also possible to reclaim the value of our time, so we can pursue more of what makes life meaningful and productive. Only yesterday, some were arguing how society had become too complacent for productive change to materialize. Yet we no longer have the luxury of remaining complacent. Perhaps we can respond to crisis by turning it to a better future for all concerned. Why not reorient intentional market design toward more benign forms, so that all can benefit from greater economic freedom.

Flexible Building Components Could Save Lives

Once extensive manufacturing innovation finally kicks in, flexible components might even make home ownership feasible with only an income of $12,000 per year. At least one can hope! Importantly, many different groups are closer to this level of income than it may seem, not to mention the fixed incomes of Social Security checks. Clearly, calls for "living wages" will continue, if our non tradable sectors are not able to build real wage potential via production reform.

Recall also, that $1,000 a month is a frequently cited basic income possibility, in the event of technological employment disruption. But what would basic income accomplish, if non discretionary needs are mostly out of reach? Alas, this level of income, significant though it may be for the provider, still leaves recipients too dependent on the assistance of others. Without a concerted non tradable sector response, millions could remain unable to create useful and productive lives for themselves. Indeed, deaths of despair often stem from such realities.

However, the pandemic provides a more straightforward example, how independent living made possible by flexible components, could save lives. As it turns out, the most dangerous transmission of the virus occurs via households where people regularly congregate under the same roof. According to medrxiv:

All identified outbreaks of three or more cases occurred in an indoor environment, which confirms that sharing indoor space is a major SARS-CoV-2 infection risk.

Even though transmission takes many different forms, repeated social interactions at close range is particularly dangerous due to increased viral loads. Consequently, healthcare practitioners often attempt to isolate themselves from family members, when risk of infection is exceptionally high. Yet being able to do so is not always easy. Indeed, some physicians make temporary living quarters in backyard tents, to mitigate the risks to their own families. At the very least, individuals sometimes loan recreational vehicles and travel trailers to healthcare workers, where zoning permits them to do so. Other communities are stepping in and providing hotel rooms for much needed isolation, as well.

Besides addressing these short term realities, flexible building components could also prove well suited for a longer term context. A recent Brookings article notes how the crisis only exacerbates the problems low income groups already faced, in their efforts to secure reliable employment and housing. All too often, when extensive virus transmission occurs under one roof, it is partly the result of individuals having doubled up with other family members, after they experienced difficulties tending to obligations on their own.

Not every community is willing to make room for mobility options in living and working needs, and NIMBY impulses will doubtless remain one of life's constants. Still, some communities may decide to take a new and constructive approach. Clearly, the same market potential which opens ownership capacity for a wider range of income levels, makes room for new definitions of dynamic community in the process. Should flexible building components be adopted in the near future, these ownership options could help create paths which lead away from the uncertainties of the pandemic. With a little luck, flexible housing manufacture might become one of the initial ways that societies overcome the economic uncertainties of pandemic times.

Three Basic Ingredients for Economic Stability

While there are many ways to envision what contributes to economic stability, the current pandemic suggests a closer look at basic ingredients. Should it prove difficult to maintain current wealth levels, a focus on the essentials could also lead to sturdier safety net options. I find it useful to think about three elements in particular: First, the importance of stabilizing what is nominal. Then, building a simpler framing for physical and non physical aspects of the real economy which the nominal represents.

As a market monetarist, I also believe it is vital to maintain a level nominal target, so that general equilibrium will (hopefully) remain stabilized. And even though level NGDP targeting is not the stated approach of the Fed, central bankers have more closely adhered to nominal stability since the mistakes of the Great Recession. The greater danger now, however, is that monetary stabilization could be threatened by extensive supply side disruptions. Adjusting for optimal aggregate demand will be quite the challenge, since present supply side uncertainties - unlike many previous shocks to the real economy - are due to factors too numerous to understand.

Consequently, despite what it can accomplish in the near future, monetary policy still needs to adjust to lost general equilibrium capacity, at some point. In other words, accurate nominal representation also depends on what the real economy is able to accomplish. Clearly, there is a great deal of interdependence between the nominal realm, the physical realm, and human oriented aspects of our economic lives.

Again, consider what present uncertainty consists of, insofar as many chains of financial obligation are being disrupted. How will society respond? Understandably, fiscal policy also seeks to stabilize general equilibrium conditions. Nevertheless, doing so is only feasible up to a point. All the more so, when fiscal stabilization attempts to include many activities that are not essential to getting things done.

In all of this, many small businesses won't survive, and some Main Streets could end up even less dynamic than before. For instance, one third of Americans missed their rent payments in April. This means problems for renters and landlords alike. Stephen Cecchetti and Kermit Schoenholtz explain what financial institutions also face:

Banks will not be able to dodge the financial fallout. Many borrowers are likely to suspend repayment soon, presaging widespread default. We will not know the extent of the damage or who will ultimately bear the costs, for some time.

Yet this time really is different, as they further note:

Rather than the financial system undermining the real economy, it is very much the other way around. With few exceptions (like Sweden), advanced economies have entered a form of suspended animation. As a result, households and business are losing income that they can never replace. The hope is that the COVID-19 crisis does not trigger a full-fledged financial crisis, exacerbating what is already destined to be the most severe global downturn since the 1930s. 

Many households and businesses are going to need financial options in the foreseeable future, which rely on lower monthly expense levels. Hence when considering basic ingredients for economic stability, simplification of everyday living circumstance is key to making this possible. By way of example, in my most recent post , I suggested flexible building and infrastructure options as a way to address structural physical aspects of the real economy.

Likewise, broader options for economic participation and use of human capital, are needed for non physical aspects of our environments. We need locally applied time arbitrage, to rescue what are increasingly endangered knowledge chains. Two recent articles offer unsettling examples. From NPR:

According to a report released this month by the Chartis Center for Rural Health, nearly half of rural hospitals were already operating in the red before the COVID-19 crisis.

Further, Dylan Scott writes for Vox that hospitals are cutting staff "just when America needs them most". Even though the initial healthcare losses took place largely outside of hospitals, staff cuts are beginning to spread inside of these institutions. Only recall that much of this problem stems from the fact today's healthcare is heavily dependent on existing wealth - much of which is in jeopardy at least in the short term.

Let's create simpler procedures and settings for ownership and economic participation, so that individuals and businesses aren't jeopardized every time a month's revenues fall short. Ultimately, we could end up struggling to maintain general equilibrium in its present configuration. But even if existing wealth is somehow diminished, imagine what could still be done, to strengthen and preserve its core.

Why not make our physical and non physical environments easier to access for all concerned. If we can shake loose structural rigidities how productive activities are "supposed" to occur, oppressive financial burdens could be lightened as well. A direct structural approach today, would be better than the indirect response of a debt jubilee later on. Perhaps debt jubilees of the past also reflected the unwillingness of societies to relax their own expectations for working and living requirements. Debt jubilees may have been no real panacea, if they left in place the same rigid requirements that negated the economic participation of millions - even in good times. Let's work on reducing unnecessary barriers to ownership and economic participation, so that a better new normal might eventually emerge.

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.

The Cost of the Conduits is Too High!

One might easily imagine the dispersal of knowledge through society as freely flowing through conduits - much as pipes for electrical wiring or channels for water. But how effective are flows of knowledge today, since knowledge protection via rival use means diverting channels to pay the bills? What happens, if conduits for knowledge dispersal in society become so limited, that citizen participation essentially dries up like a river which no longer meets the ocean? Already, we observe where limits to productive agglomeration in prosperous regions are cutting off other avenues for getting things done - not just in the U.S. but across the globe.

That said, by no means are today's knowledge conduits the only ones faced with excessively high costs. Main Streets in general have similar requirements for getting things done. Unfortunately, when the sought after "show horse" versions of retail landscapes don't function as planned, full scale working horse versions aren't often permitted in their stead. Johnny of the blog Granola Shotgun, describes the "working horse" model and how simple it could be to implement, if only it were feasible to do so. He recently visited a flea market which was

composed of an old asphalt parking lot, tents, and portable shipping containers. There isn't anything about the place that costs much to build or maintain yet it functions like a traditional human scaled Main Street with mom and pop shops. 

This was no "fashionable" flea market, either. Rather, it contained essentials and much more:

Quite a few vendors were selling tools suitable for small scale businesses. Landscaping equipment, carpentry implements, compressors, and restaurant supplies could be purchased by people looking to start their own micro enterprise on a tight budget - possibly right there at the same flea market. The whole place was one giant interactive incubator. 

There were plenty of tasty meals to choose from and even inflatable slides for the children. He continues:

This place is a work horse. It grows small businesses from scratch without recourse to bank loans or government subsidies. It provides products and experiences that are genuinely needed in the community. And it costs almost nothing to create compared to the usual economic development model meant to induce artificial prosperity through tax holidays and subsidies for mega projects. Notice how any parking lot is instantly ADA compliant for people in wheelchairs who require a barrier free environment. This is amazingly good urbanism built in the absence of complex bureaucratic proceedings. 

So why don't local governments embrace more of this sort of pop up grass roots mom and pop enterprise? Officials are in a trap that requires them to boost the tax revenue to pay for all the attenuated infrastructure and municipal overhead that's accumulated for decades.  

Alas, municipalities are caught in the same show horse mindset for time based high skill services. Granted, there are vast troves of information and retail possibilities in the digital realm for individuals to access, especially when Main Streets are missing in action. But these economic options don't even come close to replacing the economic dynamism and person to person interaction that were once taken for granted at local levels. Apparently these timeless versions of free market activity could only be recreated by citizens who inexplicably now need exclusive permission, not only to take part in simple physical retail, but also today's knowledge centered economy.

To be sure, some overhead costs have evolved as ways to minimize "riff raff" and security risks. But the perceived need to keep up appearances has completely backfired for countless communities and millions of individuals who wish to take part in local business and service opportunities. More flexible building and infrastructure components, and permissions for knowledge use are needed. Chances are the new landscapes for retail and services wouldn't often resemble the flea markets of yesterday, but they still need to be equally simple to assemble.

Affordable components and permissions for living and working, would mean millions more can get back up and start over, even after they've assumed risks which proved too extensive. Who doesn't want to appear successful, especially since appearances have been legally required in most environs? Hence it's somewhat understandable that business people take excessive risks for the success signal, up to a point. Yet just the same, many individuals with successful flea market operations ended up making the leap to brick and mortar locations, then had no thriving flea market to return to, afterward.

What is not understandable, is the lack of economic options with safety valves that cushion the hard landing of individuals who unsuccessfully assume risk. Without those safety valves, individuals exit only reluctantly after many attempts to stay connected, and their lives can be irretrievably lost to solitude in the process. We need a new version of opportunity zone, one which makes far fewer exits necessary. Opportunity zones could create flexible permissions and incremental ownership options for those who are directly invested, not just outside investors who are expected to maintain the high cost status quo. It should not always have to cost so much to participate in economic life. People should not have to give up on vital connections years or decades ahead of schedule. All the more so, since demographics have shifted in ways which include needing to remain employed as long as possible.

Global Scale Adds to Local Diversity Potential

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

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

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

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

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

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

The Visceral Nature of Economic Freedom

What is economic freedom? How is it different, from the political freedoms which have long been more widely discussed? For one, economic freedom is closely linked with psychological health and well being. Yet this connection has often been misunderstood, despite the millions who risk everything to build a meaningful life through self employment and entrepreneurship. Are the potential economic patterns which might help preserve freedom at its most basic level, simply too boring to discuss? Or are they actually misconstrued as a form of undesirable economic planning?

Unlike the intellectual arenas of political freedom, much about economic freedom is instinctive and personal in nature, hence not always as easy to put into words. Yet much that comprises the foundations of economic dynamism, results from countless individual struggles to preserve one's dignity and self respect in society.

Economic freedoms are also about the circumstance and resources which people have to work with in the here and now. Since freedom is generally discussed at an abstract level, more mundane aspects of economic freedom can easily get lost in translation. Consequently we are more often reminded what freedom is not, than given clear scenarios what personal freedoms might actually consist of. I recall a similar lack of understanding nearly a decade earlier, after reading Hayek's The Road to Serfdom. As it turns out I wasn't the only one. In their recent conversation for Medium, Tyler Cowen asks Russ Roberts which Hayek book influenced him the most:

That would be Fatal Conceit. It's certainly not The Road to Serfdom, which is the book everyone tells me they've read or that they plan to read. I say, "Don't read it. It's really slow going...The style is even more turgid than some of Hayek's other work."

For those who are fortunate, economic freedom helps to preserve social connections later in life when it otherwise might not be possible  to do so. Paul Samuelson detailed some of the incentives and difficulties of the self employed in the 11th edition of Economics, noting how many small scale efforts are doomed from the start, "When the owners' initial capital is used up, they are finished":

Who, on a Sunday jaunt to the shore or mountains, has not pitied some self-employed drudge, whose own efforts and those of the entire family hardly suffice to let them break even? 

Still, people will always want to start out on their own. Theirs may be the successful venture. Even if they never do succeed in earning more than $15,000 a year, there is something attractive about being able to make your own plans and do the variety of tasks that a small enterprise or franchise operation calls for. 

In the almost four decades which have passed since those words were written, how many still recall, just how basic is our desire for social inclusion in a viable economic context. Especially those of us who strongly relied on such framing, to help make up for our own social inadequacies! Recently I came across a study suggesting small business ownership could contribute to happiness and well being, and found myself wondering, isn't that already obvious?

Perhaps these differences between the mundane reality of personal freedoms, versus society's more lofty versions, is part of what stands in the way of a small government approach on the part of today's political parties. If so, it might help explain why those who have been left behind, remain neglected. It's easy to assume the poor consist of people who either haven't tried, or aren't willing to. But among these, are also plenty who have tried, and also started anew, many times. Millions of us embraced and thrilled to those fleeting moments of business success for all they were worth. There's many a fading photograph and local news story of once dynamic Main Streets to tell those stories, and some of them are our own. Have the earlier personal benefits of economic freedom simply become too mundane for a 21st century economy? Once again, Russ Roberts:

But most people who are poor are poor because they do not have the tools, the skills to contribute to the modern economy. They have circumstances that keep them from rising. I've been deeply saddened by the failure of people on so-called our side - the people who believe in smaller government - to think at all about that, to think at all about human flourishing by the people who are struggling. I think that has been a terrible mistake.

At the same time, we've failed to make the case for freedom, and to the extent that even saying that seems foolish...It's not literally true, but the last prominent politician, I think, who made the case for liberty and freedom in and of itself was Maggie Thatcher. Reagan, to some extent, also, but Maggie Thatcher did it relentlessly. That's so out of fashion in our times. We've become so consequentialist. The idea that liberty is a principle worth defending in and of itself is really, really difficult. 

I find it strange that people tie small government to the Republican party. The Republican party doesn't make the case for liberty...We don't have a political home for our ideas and I think the intellectual home has failed badly for our inability to make the case, either for liberty in and of itself, and to understand how and why people who are being left behind by our economy, and what policies might help them. I think that's an utter failure of our side, and it's a tragedy. 

Commonalities That Matter For (Economic) Community

Often I've suggested mutually held commonalities as a starting point for new community formation. Domestic summits, for instance, might provide means to bring individuals together, to explore the possibilities of building a productive services environment. However, not all social commonalities are necessarily conducive to positive bonding processes. What rationale might individuals actually have, for living and working in close proximity to one another, which could result in mutually beneficial outcomes?

In particular, one doesn't just throw a bunch of people together who aren't wanted elsewhere, as "Johnny" of the blog "Granola Shotgun" noted recently. He rightfully stressed the irrationality of taking groups of homeless people (who aren't wanted in particular neighborhoods or areas), to relocate them en masse elsewhere. Plus: How would anyone imagine that the native residents of the new location, would be okay with these social outcasts now in their backyard?

There needs to be positive rationale, for individuals to make concerted efforts toward progress and join forces in doing so. Such rationale goes well beyond the (albeit) understandable desire to escape unfortunate circumstance. While the above referenced blog discussion centered around the homeless, it could equally apply for other social outcasts such as former prisoners, individuals recovering from addiction, or those seeking to escape domestic violence. Even in the best of circumstance, should relocation occur based on a common negative identity, how could all these individuals be expected to adapt to a permanently close physical proximity to one another? Many probably would be unable to do so. Alas, there needs to be more to life as well, than being granted some version of a tiny house along with a government check.

Instead of attempting to build new communities based on unfortunate commonalities, it makes more sense to envision new startups in which individuals are uniformly hopeful for better and more successful futures. These are also more likely to be the individuals whose level of trust in others has not been completely shattered by previous life experiences. That's not to say that people with low levels of trust don't also deserve a chance to start over, by any means. Only that such individuals would likely need more outside assistance, until they have a chance to rebuild trust and self respect via mutually beneficial working relationships.

Even what may appear as fortunate commonalities or success indicators, isn't necessarily a good starting point for economic community. In order for communities to succeed, they need a diverse range of individuals with a wide range of skill capacity and personal interests. Perhaps one commonality in such a framework, would be a common belief in the idea of success as desirable in group context. Just as it isn't helpful to build anew from a failed identity set as a group starting point, community as social or political identity is hardly a sufficient base to build upon.

The commonalities that matter for economic community, also cut across many lines of common reference. Low income as a common denominator could provide a helpful starting point. After all, adaptation to low wages over time, could mean a greater appreciation of environments which benefit from simpler zoning requirements, cost effective building manufacture and low maintenance ownership potential. The low maintenance factor is particularly important for individuals who - for any reason - might otherwise find themselves undermined by high costs of ownership and/or maintenance requirements. Many social outcasts and others fall into this category, yet simple low maintenance environments could help bring the strength and stamina they do have, to the fore.

People may be good candidates for new communities, who have reason to believe they could thrive in these open ended free market settings. Yet not every new start will succeed, and every apparent failure would have its own story to tell, to those willing to listen. Much also depends on whether participants have the commonality of faith in the potential of their fellow human beings, regardless of one's personal disappointments and setbacks. Those who hold the belief a better future remains possible through combined efforts, may be able to contribute to a new continuum of knowledge based endeavor, based on services productivity. With such hopefulness as a place to begin anew, many other aspects of economic community could eventually follow.

"Making Room" for Experiential Choice

Where we live does much to shape our lives. Douglas Clement of the Minneapolis Fed recently highlighted a study which argues how one's choice in location can be a special asset:

...think of location choice as an investment decision. A person without savings who loses his or her job can survive the shock by moving to a less-desirable city, "borrowing" from that location to pay current living expenses. In contrast, someone benefiting from a positive shock - an inheritance, say - might "invest" in a good location and enjoy sustained payoff from its better housing, schools and employment. Either decision involves an intertemporal transfer of consumption - choosing whether to consume now or save for a rainy day.

While monetary aspects of location strategies are important for young adults - particularly anyone with a college degree - experiential considerations are involved as well. However, without a college degree, location strategies are a bit more complex. What restrictions do these individuals currently face, as they seek to "make more room" for positive experiences in their lives through location choice?

Even though it's often argued that money can't really "buy" good experiences; alas, one's financial standing has more bearing on the nature of positive experiences than it initially appears. In many instances, the places we work and live require a level of non discretionary income which leaves little for experiential choices and the well being they make possible. Ultimately, a broader array of experiential options are needed, for anyone whose monetary compensation comes up short for discretionary spending.

Why is experiential choice so important, and what does it involve? Several factors determine our overall lifestyle choice sets. Workplaces can be vital not only when they offer possibilities for intellectual challenge (knowledge use as experiential choice), but also insofar as they make home and automobile ownership more realistic. Home and auto ownership open up possibilities for a whole range of enjoyable activities which go well beyond intellectual endeavour, should this be missing in one's work. For those who lack a reliable full time job with benefits, it's not just a matter of going without sufficient personal space or social mobility. Unfortunately, the experiential possibilities that come with meaningful relationships can be reduced as well. And in many instances, two part time jobs simply can't create the security that can be generated via a single workplace commitment.

It's the experiential options in our lives that provide the greatest chances of achieving happiness. Fortunately, intellectual challenge can be what we make of it regardless of circumstance, but pursuing such endeavour without the added engagement of workplace friends or family, can be quite lonely. While some of life's most meaningful pursuits also take place in solitary nature or the countryside, the city living option is still quite important for a wide range of experiential options, particularly when we're young.

Should one's experiential life choices become limited, it's easy to become too reliant on social media and related forms of entertainment, especially should we face difficulties traveling or visiting friends and family. Also: Even though services such as Uber and Lyft now make it simpler to gain city employment, options such as this likely won't be available for rural areas in the foreseeable future.

A two pronged place based approach is needed - one which brings new forms and means of housing and transportation within reach of those with small incomes. After all, good experiential options shouldn't be limited solely to the realm of well compensated workplaces, where people already have more experiential options than time to exercise them.

In the country, rural areas would benefit from community design which (re)creates walkable options for living and working. Cities and populated regions could grant special zoning permission, for areas of flexible building components/infrastructure to generate space for mutual services and access to city jobs. Importantly, the best way to design such community efforts is through mutual ownership of the endeavour that creates social mobility for those who take part. One unique aspect of this for profit enterprise, is that it can be built through the diverse groups which directly benefit from their mutual commitments to one another.

A Meditation on Physical Infrastructure

Among the reasons I've promoted flexible forms of physical infrastructure, is that ownership patterns for more permanent and capital intensive infrastructure, are in a state of flux which may take decades before the dust begins to settle - alas, literally and figuratively. Clearly, the process could profoundly affect societal expectations for overall economic conditions, as well. While some may scoff at the idea of physical infrastructure which local groups could simply pick up and take with them at will to get things done, the adaptability of these movable parts could prove priceless in the short run, for institutions that are able to embrace life on such terms.

Indeed, it can be overwhelming to contemplate, just how many aspects of basic physical infrastructure, now lack fiscal revenue reliability from either governments (or other institutions) which once seemed prepared to "guarantee" long term maintenance and sustainability. The nature of highway networks here in the U.S. is just one example, how our economic expectations became augmented and to some extent taken for granted, since the latter half of the twentieth century.

Let's step back in time for a moment, to consider how the dynamism of tradable sector activity, made so much of these earlier infrastructure upgrades possible. During periods when the general equilibrium circumstance (of today's developed economies) began to take recognizable form, it was difficult to ascertain how capital intensive long term maintenance obligations would eventually prove difficult to uphold - in part due to rising labour costs. Nevertheless: Paradoxically, the rising wages of long term tradable sector dominance, made it feasible for majorities of citizens to take part in the taxpayer obligations which funded so much national infrastructure in the first place.

It's when nations experience periods of rapidly rising wages (especially as tradable sector activity remains dominant), that their ability to define and create capital intensive infrastructure is at its greatest potential. Plus, capital intensive decisions during periods of tradable sector dominance, give additional impetus to general equilibrium possibilities at a national level. On the other hand; for developed nations which have become obliged to subsidize non tradable sectors as dependent organizational capacity, there may be little left over, to offer continued support of permanent physical infrastructure which is already in place.

Once non tradable sector activity (inevitably) begins to dominate any long term economic cycle, it becomes more important for societies to designate ownership patterns for physical infrastructure, which directly include the individuals who are close to the spaces and time frames such patterns represent. Otherwise, too many individuals would lose the forms of economic access which make for a normal life. In the meantime, many citizens in developed nations have become less supportive of infrastructure which they aren't likely to personally utilize, and this societal reluctance could make quite a difference, for the ways our physical and economic landscapes take shape in the foreseeable future.

Now is the time to begin building more flexible forms of physical infrastructure, which are geared towards solution sets and ownership patterns that reflect the resource capacity of local groups who rely on them. Adaptability also means the ability for everyone to experiment, so as to discover how the use of knowledge can reconfigure more effective means of services generation. And just as strong and lightweight building components might physically define such living/working spaces, these components could also transform what are excessive burdens for electrical and plumbing requirements. In particular, future transportation needs to involve a lot less cement, and a lot more alternative means for moving people and things from place to place.

Early stages of defined equilibrium settings would first need to stabilize the steady state nature of knowledge building through time arbitrage, with its somewhat limited wage structure, before branching out into broader ownership patterns which could (once again) provide more diversified infrastructure options. At the very least, in the here and now, the more that nations are willing to give their citizens a chance to create knowledge centered wealth at local levels, the more fiscal revenue may remain available to maintain the transportation networks of the 20th century. It means a lot presently, to be able to keep moving ahead one step at a time.

Economic Inclusion is a Decentralized Option

Florian Ranft in "How can we spread the benefits of the digital economy?", expresses concern about an emerging economic model "where value creation is driven by intangible assets and investments", and notes:

Given these dramatic changes, policy makers need to update their economic thinking of work in society and find policy solutions that better reflect the unfolding changes of big tech and innovation that includes shifting the debate on digital from micro to macro and rethinking how the distribution of the economic benefits of digitalisation can be translated into an inclusive growth model.

However, addressing the economic uncertainties of a digital era is becoming more difficult, for centralized economies in which both time based service product and housing costs representative of time and place, have gained a dominant structural position. These forms of product often don't benefit from additional output in ways that naturally stimulate additional revenue for wages, taxation, or other societal needs. In other words, the response to "Where is the path?" (for greater inclusion) in these circumstance, might be "you can't get there from here"!

Alas, it could occasionally become necessary to "start the trip" from somewhere else. At the very least, decentralized options for new employment and infrastructure potential, could make it possible to create stronger marketplace integration and vitality. Sometimes - just as Diane Coyle seemed to suggest in a recent post re work in digital times - it's not enough to simply hope for more inclusive economic conditions and expect a meaningful response. Just the same, this changed structural circumstance has few obvious fixes that readily translate into policy objectives. Hence policy makers may instead opt to give a green light to a new institutional context, in which decentralized possibilities for economic engagement could be explored.

Only consider how intangible forms of production have created a backlash of relatively tight monetary policy, partly due to the increased difficulty of redistributing either wages or providing support for existing infrastructure via centralized means. By way of example, how to think about this argument from Florian Ranft?

A straightforward solution would be to simply readjust the tax burden between capital and wage income. As machines become better at substituting human labour, sustaining a high level of taxes on worker's income may not be a good idea, potentially driving unemployment and inequality. 

Unfortunately, "one size fits all" taxation models worked better when when more tangible forms of tradable sector production - for instance - could be further sourced for revenue and redistribution. Whereas today's machines and automation frameworks may instead augment professional income hours which bear little connection to output gains. Capital enhancing machinery was certainly easier to tax, when it held direct responsibility for aggregate output gains. And 21st century human capital - in relation to earlier capital frameworks - has essentially become a taxation boondoggle.

Meanwhile, lower income level taxation is also where citizens have few means of access to the legal workarounds that are enjoyed by professionals and corporations alike. What much of this boils down to, is the fact less tax revenue will be available than governments now expect to access in the near future. As more residents become responsible for the infrastructure of their own environments, they will need to be able to assume greater roles in the simplification and design of local infrastructure. It's past time, to explore new avenues for building components and infrastructure which allow communities to better represent a full range of income levels.

In all likelihood, the most effective decentralization models of the near future, will be those which - instead of relying on random taxation measures to tend to ongoing needs - instead find ways to generate more marketplace diversity for local infrastructure, building components and time centered services, on direct terms. This would include integrating available revenue for community obligations into local ownership patterns. By making all local participants owners and co-creators, economic inclusion would indeed become a viable option. Nevertheless, the process will likely become somewhat different from the taxation and redistribution expectations of the present.

Granted, it's easy to think of approaches such as tax simplification as ways for individuals with high income levels to escape "undue" governmental burdens. But the reality is that a more carefully thought through approach, would bring a full range of economic activity within reach of all income levels, many of which experience little gain from the governmental taxation they're presently expected to bear. Done right, the tradable sector activity which scales in tangible ways could serve well into the future as supportive of centralized power. Still: It's the intangibles which can be the undoing of advanced economies over time, if and when citizens lack means to more carefully manage the resources they actually have at their disposal.

Ranft, in the above linked CapX article, also mentioned the possibility of "plural ownership models".  Here, the most important question for such endeavour might be "Does the product in question already have the capacity to scale up?"

If it does, there may be little need for communities to organize cooperative settings around these products and goods. Future governments should maintain some leeway in the redistribution of revenue derived from tradable sector output gains, so long as open global trade remains actively encouraged. It's product which isn't readily amenable to scale, that occasionally benefits from the assistance of local cooperative effort. Ultimately, we would all benefit from a better understanding when local economic coordination can assist both citizens and aggregate output, versus the traditional economic framing in which spontaneous coordination for production, will fortunately suffice.

Time Arbitrage as Direct Ownership Reciprocity

How might time value - as an operational unit of economic wealth - function in a different context from for profit and not for profit institutions?  Even though time arbitrage would hold less monetary value than minimum wage, this seeming drawback is offset by the fact time value would serve as direct ownership reciprocity. It's the direct negotiation capacity that time arbitrage could lend to local environments (including real money/time wage effects), which would gradually build up the economic viability of time aggregates in relation to monetary aggregates.

Consider why this is important. While now existing forms of corporate ownership are quite functional, they mostly serve as indirect means of ownership reciprocity. For instance: If corporations don't appear to have a lot of social responsibility, shareholders also mostly lack real responsibility to the corporation, for that matter. Still, this form of ownership is so flexible, that it's standard for average citizens to have corporate earnings as part of their retirement accounts.

What's also needed, are flexible ownership arrangements which include a more direct form of reciprocity. This would allow participants the economic option of being directly accountable to each another in local settings. It's clearly not an approach that would suit everyone, yet it could provide tremendous benefits in terms of newly created ownership capacity. Such options are particularly important, if non tradable sector activity is to become more viable in terms of ownership and production opportunities for lower income levels.

Indirect forms of ownership such as shareholding, are particularly logical when corporations can benefit from increasing gains from scale. Increasing gains of scale are not only important for long term growth, but for the discretionary social options of not for profit institutions - given their secondary market status. Importantly, when markets are increasingly shaped by special interests protecting product that doesn't scale, the lack of overall scale potential can mean less general equilibrium revenue is still available for non profit operations over time.

I felt the need to reflect on these basic aspects of capitalism and ownership, after coming across some articles in which the authors expressed solidarity with the rationale that capitalism "can't last forever". They may as well have said "good riddance"! Nevertheless: Again, how would we propose to rid ourselves of these reliable constructs, without carefully thought through institutional replacements - particularly those capable of taking the (presently negative) service sector effect on scale into account? Of course I'm starting to sound like a broken record, but could we instead build new institutional structures which also provide scaffolding for the wealth creation we already have in place?

Bryan Caplan emphasized something recently which also encouraged me to write this post:

Perfect competition is socially optimal in industries with constant returns to scale.

It's difficult to recall when I've come across a quote which so simply expresses the rational for time arbitrage, in terms of time based product. When monopolies are formed in markets which generally exhibit constant returns to scale (such as time based product), over time the initial error will compound, as societies bear more more of the burdens for quality product costs. In the process, knowledge dispersal and resource efficiency can be compromised as well.

Since time based product features constant returns to scale (automation changes product structure and is a different matter), we need options in which time arbitrage can function as small forms of competitive equilibrium. This would allow individuals to negotiate preferred time options in direct relations to others. Perhaps one might refer to this form of organizational capacity as time profits, in contrast with for profit or not for profit institutions. Unlike time profit activity, most for profit and not for profit organizations will likely always function in a close relation to the total resource capacity of general equilibrium conditions. Indeed, their organizational structures are often more similar than is sometimes acknowledged.

This subject matter deserves a lot more elaboration than I'm able to provide today. However, I will return to these thoughts as soon as I'm able to wrap up work which covers the earlier phase of this project. Presently the first book of the upcoming series is demanding my full attention. Some of what I touched on in this post, will be further developed in the third book of the series.

Prosperity Isn't a Class or Geographic Destination

Why is it, that instead of encouraging prosperity in already existing circumstance, we often feel it's necessary for people to relocate to different nations, cities, regions, or even different social classes? Indeed, such reasoning occurs across the political spectrum. In a recent article for Brookings, Richard Reeves summarizes:

Restoring the fortunes of the American middle class is a policy challenge. It is a political challenge. And it is an economic challenge. But it is a cultural challenge, too. For a start, let's start treating each other with a little more respect.

Fortunately, the middle class is hardly a lost cause! Nevertheless: By attempting to fit entire societies into a single definition of social desirability, it's easy to become too afraid of what could still happen, instead of productively responding to present realities. For instance, one should not have to be a member of the middle class to qualify for home ownership, yet this unnecessary burden has particularly been imposed since the Great Recession. If we were able to acknowledge the actual economic circumstance of the marginalized, we could better understand how their ongoing efforts to improve their lives, mostly go unnoticed.

Prosperity need not be a matter of class standing, or a struggle to fit into someone else's ideas of economic success. When societies are stable, they are more likely to encourage a full range of options for economic engagement, a range which accurately reflects the resource capacity people actually have at their disposal. If governments and special interests weren't so intent on forcing entire categories of skills and resource capacity into narrowly defined rules for working and living, people might be less inclined to judge others according to their physical stamina or income level.

Meanwhile, the struggle that matters most is at the bottom income levels. Let's work on improving our overall economic settings here, instead of obsessing over the reliability - or lack thereof - of future middle class wages. Let's begin anew by becoming more willing to expand the horizons of those deemed short on social skills, college degrees, or "perfect" health for that matter. These individuals need the legal permissions and production rights that only we as citizens can make possible, to meaningfully improve their life circumstance. It should not be illegal, for those who appear as though in need of help, to be able to legally help themselves.

When the marginalized lose societal permissions to improve their lot, other citizens gradually find themselves more likely to fall into similar traps, such as were initially set for those unable to protest the losses. We don't often recognize how these traps may too eventually affect our lives, for they result from cumulative, yet often unseen small actions, taken to protect those who are already strong.

Given the chance, people with limited resource capacity could still create real wealth. Importantly, wealth need not be defined as "cutting edge" or supposedly "superior" in nature to already existing wealth. For that matter, new economic activity which is reciprocated at the outset without debt, could actually be more historically important, than wealth which requires such extensive debt no one really knows when it will finally be repaid.

People could one day live in settings deserving of respect, which don't demand high income levels to create. Instead of simply seeking respect as vested in building values and credentials, why not make it about how people derive economic meaning, whatever their surroundings may be. Ultimately, we need to find better means for storing continuous economic value in our aggregate time capacity, and not just our buildings where credential value is still being frittered away. As Ian Hathaway recently noted, too many potential solutions for wealth building are overlooked because they don't seem significant enough:

So, before continuing down The More of Everything path, consider an alternative. Sometimes the answer is more of something. But often, a more relevant question is how well something is being done. Are you getting the most out of what you already have? What can be done to improve community cohesion today? To what extent are the existing pieces integrating in a productive way? 

In my experience, the answer to these questions comes not from adding, but from activating and transforming. That makes it an issue of culture and mindset, and means that seemingly small changes in behavior - adopted widely and practiced consistently - can have a big impact on outcomes down the road. It's not always the big moves that get you where you need to go.  

How well are we actually tapping the aspirations of humanity at a basic level? We don't have to continue throwing out the skills and intellectual capacity which our present institutions can't effectively use. Instead, we can do something different. We can build new institutions, which are capable of building real wealth from all we have to offer.

Resource Flexibility Requires Investment Flexibility

When does private ownership actually hinder allocative efficiency? Generally, ownership makes it possible for individuals to put resources to good use. Even so, ownership of property in particular, remains legally designated in ways that sometime make it a blunt instrument for personal intentions versus actual outcomes. In other words, present day legal property constructs aren't quite as optimal as one might expect.

For instance: Over the years I've observed too many properties sitting in limbo indefinitely, once ownership is cut short through death or other forms of separation. Even though surviving heirs can sometimes reach agreement re property settlement without discord and hard feelings, often the process is difficult for all concerned - including the communities which contain these properties within their boundaries.

Among the reasons I've sought flexible and incremental ownership means, is the fact legal property disputes can sometimes make the difference between personal success and failure, in the course of one's lifetime. Today's inflexible ownership patterns also encourage people to assume others aren't capable of committing to ownership and responsibility. But often, many individuals could live more meaningful lives, if ownership options were constructed so as to allow people to build wealth gradually - thereby creating stamina for potentially broader personal commitments at the same time.

These market design priors on my part, encouraged me to take note of property arguments in a recent publication, "Radical Markets: Uprooting Capitalism and Democracy for a Just Society" by Eric Posner and Glen Weyl. Since I've not yet had the chance to read the first chapter (which is included with the above link), I plan to read some of the book reviews whenever possible. For instance, Diane Coyle wrote:

It's extremely thought provoking and clearly brilliant - yet also barking mad. This is the territory of thought experiment rather than policy proposal.

At the very least, some thought experiments could be tried in local decentralized market settings - they just don't need to overturn general equilibrium scenarios and fully functioning municipal frameworks. Vitalik Buterin's review of the book has some particularly useful perspective about the investment problem of market efficiency and allocation:

As it turns out, it is absolutely possible to have a system that contains markets but not property rights; at the end of the year, collect every piece of property, and at the start of the next year have the government auction every piece out to the highest bidder. This kind of system is intuitively quite unrealistic and impractical, but it has the benefit that it achieves perfect allocative efficiency: every year, every object goes to the person who can derive the most value from it (i.e. the highest bidder). It also gives the government a large amount of revenue that could be used to completely substitute income and sales tax or fund a basic income.

However:

Re-auctioning everything once a year completely solves this problem of allocative efficiency, but at a very high cost to investment efficiency: there's no point in building a house in the first place if six months later it will get taken away from you and re-sold in an auction.

Even though it's not reasonable to subject traditional private property to yearly auctions, some aspects of yearly auctioning could apply, should people use building components to spatially organize for mutual workplace patterns. While spatial organizational patterns for resource flexibility have long been part of business organization, we've yet to apply these organizational options to the broader coordination of time based service activities.

How to envision a starting point? Any planning for walkable densities needs careful consideration for those whose could especially benefit by closer proximity to core economic activity. New communities might structure around a double core - one with more traditional forms of zoning options, alongside a service based core where young and old alike would be able to purchase and manage their own areas for daily interaction with others. Instead of being institutionally segmented off elsewhere, away from the general public, many who are now arbitrarily marginalized, could finally take part in life on more spontaneous terms. In core settings for services generation, perhaps a yearly auction for property arrangements would come in handy, so that participants could use the process to pay for the yearly operational costs for the relevant properties.

Again, what would make the auctioning process possible for yearly operational costs, would be the ownership of flexible building components which could be moved about across the utility grids which these communities already have in place. While the latter would also be a form of incremental shared ownership, as far as I can presently discern, this form of ownership has a continual aspect which would need to be constructed quite differently.

Granted, the forms of investment suggested in this post, may not have the path breaking quality associated with "cutting edge" investment opportunities since they're intended for individuals who are less concerned with monetary reward than gains in lifestyle options. These groups wouldn't be investing for "more of everything", but using resources already at their disposal to create something which might otherwise not have been possible. While it's not feasible to preserve investment flexibility for some resource capacity, fortunately, alternatives are possible. As Ian Hathaway wrote:

So before continuing down The More of Everything path, consider an alternative. Sometimes the answer is more of something. But often, a more relevant question is how well something is being done. Are you getting the most out of what you already have? What can be done to improve community cohesion today? To what extent are the existing pieces integrating in a productive way?

In my experience the answer to these questions comes not from adding, but from activating and transforming...It's not always the big moves that get you where you need to go.

Sustainability Coexists With Wealth and Market Options

Why aren't economic options more widely discussed which could address ecological concerns and generate new wealth at the same time? For instance, dialogue re carbon taxation as a response to climate change, is problematic in that it would be yet another form of internal wealth redistribution. Is this as inventive a market approach as we can get? Still, there's no need to be as pessimistic as Ivan Ascher, who in a recent Project Syndicate article concludes:

Ecological devastation should be expensive, and the world no doubt needs workable strategies to move people away from dirty sources of energy toward greener, more sustainable alternatives. But to defer to markets to overcome the environmental woes of capitalism is a blueprint for disappointment - and a recipe for planetary suicide.

If - as Ascher believes - there's no market solution for climate change, what is realistically better? Why not build broad based market options that don't impose single solution sets on everyone? Indeed: How would we negotiate with one another to organize mutual priorities and obligations, if we didn't have market platforms by which to do so? Why do we act as though earth always has to be compromised by the process? Chances are, it's possible to create wealth which takes climate change into account, and do so without further redistribution of general equilibrium revenue.

Local community infrastructure design could provide market options, especially for those who value environment settings which aren't presently associated with today's ownership structures. One could imagine - for instance - a mutually tended wildflower meadow community which includes an interesting variety of knowledge based challenges as well. For anyone who switched up home ownership patterns over the course of their lives just to see what different arrangements felt like, these market options would make sense.

Just like the challenges of intellectual endeavour, environmental design is a form of experiential product which could integrate time value commitments (arbitrage) as a "cost of local living" component. This approach would provide a wide spectrum of market based options for multiple income levels and lifestyle choices. A few years ago one often heard "there's an app for that". Wouldn't it be nice to hear, "there's a community market setting for that."

Fossil fuel is likely to remain a highly valued transportation option in the near future, especially since it would allow individuals to pursue solitary adventures at long distances which lie well beyond the commuting patterns now envisioned by purveyors of automated transportation. Hence most walkable community options would seek traditional transportation at the periphery, even as they include central core designs that allow groups to coordinate weekday work activity within walkable distances. To imagine how a 21st century society may want to envision transportation priorities (other than electric and/or automated), note four basic sets of transportation preferences:

1) Weekday walking for daily and ongoing activities with others.
2) Weekend (or vacation) walking possibilities for experiential activity.
3) "Traditional" fossil fuel means for daily commuting needs.
4) Fossil fuel means for the transportation of weekends and other exploration.

Much of today's dialogue remains centered around the third transportation option. A recent post from Scott Sumner is a good example, especially since he stresses the importance of expanding equilibrium potential wherever possible.

Since the first two categories are only partially addressed in the present, the equilibrium corporation would give them priority in potential infrastructure design. While the first set of activities is designed at the core (with special emphasis to include children, elderly and disabled), the second and fourth considerations would be placed in a broader set of networked design perspectives. One example could be networks of natural corridors that could extend between community locations at long distances. Corridors such as these would make it possible to walk (or bicycle, for instance) from one community to the next, either on weekend trips or possibly longer stretches of time.

One way to think about these possibilities is the fact that setting aside land for private aspects of shared preservation, recreates travel and local communities as desirable forms of experiential product. While "solid" buildings have been at the center of infrastructure focus for as long as anyone can remember, a 21st century network would highlight flexible building components as supportive of individual and group activity. Already we have begun this virtual process with digital means. By creating ways that people can pay for experiential product with time commitments, it becomes possible to bring variations on public good ideas into a private marketplace - one which makes it feasible to sustain miniature versions of enjoyable and desirable environments, through shared and incremental ownership.

The Ownership of Production That Matters Most

When we imagine the influence of artificial intelligence on future economic activity, does mass unemployment spring to mind? If so, what about calls to redistribute the revenue proceeds of AI? Alas, that approach would not work as imagined, in part because far more than output and additional revenue are involved, in what we as a society now associate with wealth and prosperity. If deep learning AI can't expand production and output via the traditional, easy to measure methods of yesterday's tradable sector dominance, what might this suggest, re ownership of production means?

As AI becomes more closely associated with non tradable sector activity, the experiential nature of our economic connections comes to the fore. Even though economic value is invariably subject to cultural interpretation, there's been a dramatic shift from our wealth associations as they relate to physical goods, to how we experience the use of our time with others. This helps to explain why students remain willing to assume high human capital investment risks, since work involving the mind is the most sought after product of our lifetimes. Nevertheless, the fact we value these forms of interaction so highly, could explain a growing reluctance to share deep learning with AI. But what might happen, should we elect not to do so?

Since AI could greatly reduce the costs of human capital investment, that changes the essential nature of our "necessary" human capital cost equations. Hence it's time for a broader exploration, of the economic priorities which citizens actually hold. Ultimately, the ability of artificial intelligence to absorb deep learning without extensive costs, could still work in everyone's favor. And even though it would no longer be rational to argue for the labour theory of value as associated with time based product, only recall how the dismissal of the labour theory of value for tradable sector production, brought countless goods within the reach of consumers, and led to the prosperity of our time.

Citizens will ultimately need to distinguish between taking part in the experiential wealth of knowledge, versus the monetary reward of doing so on 20th century terms. Even though deep learning AI might (instead) be used to augment individual professional income in the short run, this approach wouldn't broaden service sector activity or the use of knowledge in society. Instead, opting for shared prosperity is a matter of broader knowledge participation for populations as a whole. Indeed, the differences between earlier technology and the deep learning AI of the present, will have to be acknowledged in terms of the implications they hold for total factor productivity.

Additional output is in fact possible with the deep learning of AI, but it would occur via individual additive processes instead of the multiplication of earlier broadcast means. One sided broadcast communication has its place, but by itself is not capable of preserving a complex and dynamic economy. Fortunately, the "lit torch" of knowledge could extend productive economic complexity to the average citizen, with AI as local repositories for coordination and active application. If we are to assume the peer to peer relationship with AI that makes economic inclusion possible, what matters is ownership of local processes for the production of knowledge. Presently, however, citizens don't yet realize how much their input matters, to make this possibility a reality. Without the input of the average person, 21st century wealth creation processes might not go well. Everyone needs to realize what's at stake.

Should knowledge use providers and governments opt to dismiss the possibilities of AI deep learning, there's a gamble involved. As governments gradually confront rising national debt levels, how will they respond in terms of time based service cutbacks? Whether or not governments default on national debts, or whether they manage to reduce budgets before this happens, the outcome would be essentially the same, re today's extensive costs and subsidies for human capital which can't go on indefinitely. Ultimately, it would be advantageous for all of us to pair with AI, to give knowledge provision and application greater economic sustainability for the long run.