Asymmetric Versus Symmetric Compensation

While the good news is that employment for knowledge workers is finally on the rise, another aspect of this development is less certain: the rise of non routine work, after centuries of what was most frequently compensation for routine work. Indeed, the asymmetric compensation that is connected to work as externally reimbursed (publicly and privately), is closely tied to the nature of general equilibrium conditions.

As a result, many who gain work in the near future - at any level of skill - will often do so on non routine terms. Further, it is mostly prosperous regions that will realize full employment levels through these means. Even though areas lacking in economic complexity will still have asymmetrically compensated work, much of this work will only be available for a fraction of the local population. Plus, the emphasis on non routine work in less prosperous areas will not be as substantial, as for larger city based employers which have more incentive to tap technology gains.

Many gains in scale have already been realized, for money in relation to the existing resource capacity of general equilibrium. As a result, further automation to replace labor is a primary remaining means of arbitrage for both public and private institutions. However, what does this development suggest, for cities and regions which sometimes lack the necessary capital, to use automation for routine activities?

Some could benefit from the organizational capacity of symmetric compensation - particularly to generate much needed services and time based product. For that matter, time based service product has scarcely been tapped for the wealth gains it represents at aggregate level of economic activity, due to the fiscal constraints of asymmetric compensation. Time based product also exists in relation to the environment that personal time value helps to create. Arbitrage potential can be generated through local definition and internal coordination of production and consumption patterns. As Dietz Vollrath recently noted:

...aggregate productivity growth depends not only on individual technologies, but crucially on the distribution of workers using those technologies.

Symmetric compensation takes place through equally coordinated time availability. Symmetric compensation can also generate new wealth, since existing time value is matched so as to back other time value. Those who participate in the local corporate structure of knowledge use systems, would also have greater choice as to routine work patterns, before investing further in automation capacity. For instance, it helps to remember that maintenance is still the base for many forms of economic activity. Some of the replication that is needed for maintenance - in particular for educational purposes - benefits from personal and individual attention.

Another benefit of symmetric compensation is the fact it allows greater economic complexity for services formation. Otherwise it can be difficult to generate a wide range of time based activity in many areas, particularly on self sufficient terms. Once the initial hurdles of skills variance are accounted for, groups become able to set up and organize self sufficient services activity which would otherwise require either extensive assistance from state and national revenue, or private wealth sources.

Matched time value is not just employment for employment's sake. Unlike externally defined employment options, individuals would take part in an ongoing process of mutual employment, which allows them to determine the kinds of activities they can best accomplish on their own, versus those which they particularly gain from sharing with others. Once the organizational capacity of symmetric compensation is better understood, no one would need to fear the decimation of the workplace by automation.

Getting to Tradable

Among the first, basic questions a local corporation would ask: how can a given set of non tradable components become more tradable, so as to provide more producer/consumer options for all involved? In spite of wide variance between tradable and non tradable sectors, they intersect in ways which hold broader production potential than is sometimes realized. Non tradable sectors can become much more flexible and accessible, by incorporating elements that are normally associated with an innovative tradable sector.

Often, local corporations would not choose to directly compete with tradable sector institutions which already exist for traditional manufacture. The better part of tradable goods production doesn't need many (international) locations to provide sufficient product, for consumers as a whole. In recent decades, developing nations are also coming to terms with this circumstance. Indeed, a reassessment is needed, for populations to proceed in an increasingly knowledge based economy.

By no means does this imply that local corporations wouldn't have good production options. Rather, mass production would need to be utilized differently - particularly for building components and infrastructure. Even now, a wide array of tradable goods remain in the wholesale and retail environments of non tradable sectors. How might local corporations take advantage of future mass production potential, only as an integral part of local settings? Which communities would be well positioned to take on the challenge? These areas represent a starting point for investment and income generation, beyond the initial wealth generation of knowledge based services.

Local corporations could eventually compete with other regions to create experiential product, as well. The difference between this form of experiential good versus the directed efforts of - say - Disney, is that results would be gradual, from the spontaneous efforts of individuals acting in concert for common visions. Over time, the cumulative results of group endeavor would generate interest on the part of others. Knowledge use systems would maintain regular ties with other communities utilizing this structure. One benefit of this growing network is that local participants would gain broader travel options, than what now exists for those with small wages - particularly in the U.S.

An important aspect of getting to tradable, is the ability for groups (who are actively considering living/working in a given community), to define consumption patterns for the physical environment at the outset. Local corporations would have the advantage of combining tradable and non tradable sectors under one "roof", which means the benefits of lower overhead and costs accrue to the whole group. One benefit to this set up, is the fact these groups would not have to rely on taxation of assets in order to create services. As a result, greater flexibility in zoning, regulation, and consumption definition is possible.

However: in a long term sense, greater flexibility exists for services based options than for building component options. Once a given community adopts a formula for asset formation and infrastructure which works well, it would basically want to stick with that format. Fortunately, shifts in services provisions (with changing population demand), are easier than changing infrastructure and asset patterns - flexible though their physical layout may be. Hence a broader (more tradable) marketplace for lifestyle options would exist across a given network of local corporations (or knowledge use systems), while a broad services marketplace would exist within each node of the network.

One of the best immediate options for production potential, is more local food production than often exists outside of homes in small communities. Many regions remain hamstrung by present day regulations, which can restrict competition to a mere handful of restaurants in small towns. As a result, many will cook at home when they might have preferred to eat out. How many individuals do my readers know, who wanted to cook for the public, but were stymied by what was required? Restaurants and food service in general, are an excellent hybrid example of tradable/non tradable economic activity, which would immediately benefit from lower overhead in organizational patterns.

A marketplace for time value, would lend a tradable quality to services organization which otherwise hasn't been possible. Even before employment became threatened in services formation, both producers and consumers faced limited choice sets, in part because of the ways organizational capacity needed to be met. In knowledge use systems, time value does not need to conform to a single realm of possibility. Individuals and groups alike would be able to work at a pace which more closely reflects their capabilities and time availability.

For instance, those labeled as handicapped, disabled or otherwise, would gain opportunities for matching services based time with one another, when others don't have sufficient time to match services with them. One could think of this process as including multiple racetracks for ongoing economic endeavor, for tortoise and hare alike. Local education in particular, would make certain that more than one track remains open, so that one's personal time remains fully tradable through the course of a lifetime.

Time Based Defined Product - Meritocratic or Egalitarian?

Arnold Kling has several recent posts concerning non marketable outputs, undefined product and the importance of these factors for the organization of firms. While Arnold makes some good points, undefined product is not always the best approach for organizational capacity. Fortunately, it is possible to define time based product at the level of individual activity, so that services formation can be better adapted to individual needs.

While horizontal alignment for services structure is also egalitarian, income "equality" is not a sufficient rationale. Rather, equal monetary compensation for time value (as an economic starting point) serves practical purpose in group based investment structures. Equal time compensation allows individuals to discover how they want to create time value, instead of being compelled to do so according to the skills sets which special interests are most inclined to compensate. Plus, the time arbitrage connection - which leaves no residual balance - allows direct wealth creation and knowledge use which can be defined on personal terms.

Time value as undefined product, works best for organizations whose product is not limited to specific populations, time frames or locations. Tradable goods in particular tend to be outward focused, and these organizations are the ones which often benefit from the productive gains of scale. Divisions of labor which exist as undefined product, usually contribute to productivity in these circumstance. Also, meritocratic executive compensation makes sense for most tradable goods in this context, because the "right" sets of skills can mean tremendous gains in marketplace capacity.

Hence meritocratic compensation is the right approach for most tradable goods organizational structure. As Scott Sumner recently noted - incentive and merit can be vitally important for economic outcomes. However a caveat: meritocratic compensation provides the most benefit for the forms of economic dynamism which exist in broad - often international - context. Organizational capacity for tradable goods continues to improve living standards across the world, and it pays to reimburse CEOs in accordance with their ability to make a difference in that regard. When corporate structure is of a size that it possibly affects the economic equilibrium of nations - as Lars Christensen recently noted - this is not a scenario where egalitarian monetary compensation for CEOs makes much sense.

Why, then, is service formation such a different circumstance? Time based product exists in local and specific context. As a result, time dependent product does not conform to the same marketplace dynamic as product which exists separately from time. For one thing, the "need" for a few individuals to organize the activities of others is not automatic, particularly when economic activity is time based and capable of becoming defined product. When time value is integral to product, labor "saving" mechanisms do not always contribute to product quality.

Time based (defined) product is also a quantitative reality. For instance, few question that the skills of surgeons may be preferable to alternatives. Just the same, the time and skills sets which are specific to surgeons, are limited to a specific subset of any given population, at any given point in time. Thus far, meritocracy has provided the monetary reward (compensation) for the surgeon's time and efforts. Through these means - however - it remains difficult to ascertain what the marketplace actually desires or might otherwise create. Even if budgetary caution were "thrown to the wind", merit based time value still can't generate a quantitative change in the marketplace.

It has proven difficult for nations to embrace free trade and encourage domestic economic activity at the same time. Plenty of confusion exists, regarding time based activity in terms of productivity and the economies of scale which sometimes apply. Among other things: in times of uncertainty, this causes governments to question the same beneficial free trade activities which they previously supported.

Governments need a stronger line of demarcation between organizational capacity for time based product, and product which is readily distinguishable from time value. Otherwise, when too many benefits from scale are used to reward time based product, the process can slowly undermine public support for free trade. Meritocratic compensation is worthwhile, when the result is a broader marketplace for the product in question. However, when meritocratic compensation is not capable of contributing to the marketplace in quantitative terms, egalitarian compensation for time based activity can bring much needed balance to the process.

Inflation and the Endogenous Factor

What monetary factors lie within a nation's ability to control? Actually, "control" is too strong of a word. Still, reasoned management is important, in terms of gauging the money populations need in order to maintain economic stability. For instance, nominal targeting on the part of the Fed would not be "planning" in the normal sense of the word. Instead, a nominal level target would simply be a commitment to stabilize ongoing contractual expectations, to the best degree possible.

One reason the Fed remains "off course" with inflation targeting, is the fact it went along with numerous top down proposals for wealth generation in recent decades. Some of the financial structures in this regard also served as efforts to maintain a centralized economy. The Fed's unfortunate desire to steer the economy on financial (instead of monetary) terms, has led to more wealth capture than might otherwise have materialized. Inflation or deflation in these circumstance, mostly exists insofar as economic access is not adequately considered.

As a result, there is too much emphasis on prices and asset values, instead of overall monetary representation. Only consider the recent Billion Prices Project, which tells some misleading "inflation" stories. This project data can be easy for gold bugs to cherry pick, as JP Koning emphasized. And just as many remain overly concerned with inflation, others grapple with the vagaries of finance - instead of the circumstance which gave finance the power it still holds.

Is there a way to move the emphasis away from prices and financial constructs? What matters most beyond monetary factors, are the ways in which individuals, groups and other concerns organize the tasks of production and services formation. The ways these organizational factors interact and overlap, are among the most important measurement indicators which take place within a nation's borders.

Often, what appears as though inflation or disinflation, has more to do with how local structures for production and services are generated and maintained. Whereas the small community relies on limited taxation capacity, prosperous areas often augment services formation well beyond expected base structures. Still, in both settings, non tradable goods tend to be chosen for the consumer on their "behalf" as part of a non negotiable package. Presently, too many pricing structures remain hidden, which presents unnecessary economic instability down the line for individuals and communities alike.

Thus far, prices for non tradable goods have not been as easy to standardize, as goods traded across borders. Just the same, the standardized pricing of tradable goods does not accurately reflect the primary spending patterns of local economies in many instances. Even "local" or national manufactured goods may only have production in a number of regions, and yet experience sales around the world. Production of tradable goods - which seems easier to quantify than non tradable goods - isn't quite the helpful endogenous measure of GDP that it appears to be.

Presently, the Fed often fights the wrong battles, by looking for economic signals in too many of the wrong places. As a result, they miss the structural problems which still stand in the way of maintaining a smooth growth trajectory. Even though structural issues are not the Fed's responsibility, those concerns cannot simply be left untended - particularly while the Fed also shoulders the blame for what lies outside its realm.

Special interests tend to look the other way from the imbalances they generate, and the result is undue pressure on other parts of the economy. This is why it is helpful, for citizens to gain some understanding regarding structural factors which can negatively affect economic stability. In particular, some entrenched interests likely suspect the pressures they generate... hence are glad for everyone to be obsessing over a billion prices, instead!

How can further clarification be brought into local services structures, for the measurement of GDP? Even though inflation in these areas is problematic, (and it certainly shows up in the figures) it helps to ask: in relation to what, exactly? Does the use of one's time count as viable product...or not? How society ultimately answers these questions really matters. In any complex economy, services and the asset formations which exist alongside them, are central to economic activity.

When civilizations break down, a lack of understanding regarding knowledge use roles can cause skills networking complexities to disappear for centuries at a time. Of course, that's a long term consideration. As to immediate concerns: when services and knowledge use roles are not well defined, any production norm which might otherwise apply in traditional manufacturing terms, only results in arbitrary caps for economic access and continued progress.

A number of issues need to be considered in this regard. For one, a point of production reference becomes possible, when skills arbitrage allows the measure of time aggregates for services formation. Not only does this provide means by which to gauge knowledge and skills capacity, it allows time use - hence individual capacity - to be considered as product in its own right.

Services inflation is mostly problematic when it is approached through indirect means, which generate hidden and overlapping cost structures. In recent centuries, many forms of knowledge use were subjected to the indirect compensation of redistribution and production processes because this was the only approach institutions could reasonably take to generate further economic complexity. Fortunately, knowledge now has the capacity to be dispersed through digital means, which could make direct services formations possible. Not only would this be beneficial for the measurement of GDP, it would also bring the endogenous factors of local economies into better balance with tradable goods and international monetary flows.

We Are Our Own Safety Net

Where does the line between a services economy - and a safety net - begin and end?  These divisions aren't easy to determine, particularly since many of the same services are still utilized along the entire income spectrum. As a result, political attempts to cut off the "undeserving" (whether defined by left or right) are often incapable of reaching their targeted audience. Ultimately these circumstance come down to all of us, regarding what is possible to maintain in services spectrum, and what is not.

If we want "exclusive" results as the primary defined product, then the nature of our product tends to (impartially) exclude more of us over time. These decision making processes regarding service product definition, need to be addressed. In many instances, services need to become directly compensated wealth, through the equal time use of skills arbitrage. Indeed, much about societal interpretation of total factor productivity is on the line.

Tradable goods have brought such wealth to the world, that it's easy to forget how specialization serves completely differently ends in services (for both providers and recipients), than in traditional production. Because this is not yet taken into consideration, time use has been increasingly segmented into concentrated high end use and low end use, wherever time use is even deemed "necessary" at all for productive purposes. If services can continue to prosper in the developed world, the different paths and means of specialization that services require, need to be recognized and honored.

Traditional manufacture and its related production gain can still support present day service formations, to some degree. However, the Great Recession - in some respects - represented a tipping point. For real growth to remain possible in developed economies, vital service formations need to be rebuilt so as to contribute to progress under their own steam. This is particularly important, for the time use coordination which would still allow knowledge use to thrive well into the future.

Indeed, tradable goods still provide the primary lens through which the "real" economy is envisioned, and for understandable reasons. Don Boudreaux provides a quote from "The Rational Optimist" (one of the best "feel good" economic books to date), and it focuses on tradable goods:

Trade, says Johan Norbert, is like a machine that turns potatoes into computers, or anything into anything. Who would not want to have such a machine at their disposal?

Boudreaux continues:

If you doubt or otherwise do not see the truth of this claim, just look around and ask yourself, "How much of what I see around me - my computer, my cell phone, my shirts, my jeans, the automobile parked in the driveway...did I make myself? How much of what I see around me could I possibly make myself?"...Your answer to each question (if you are not intellectually blind) "None of it."

Certainly, Boudreaux has a point. Just the same, we can be misled about our ongoing ability to specialize in the production of goods separate from our time. That in turn leaves us in doubt about the ultimate trajectory of our time use. When it comes to the product which consists of our time use on service based terms, "None of it" no longer applies. Indeed, our focus and attitude can often be the main takeaway on the part of the customer or the citizen, depending on the environment of our time use.

Why is it so hard to think of today's services - in all their complexity and variety, as an actual component of progress and overcoming scarcity? While we capture "special" time use fragments (fought over knowledge components) as capable of replication for production, the aggregate time use continuum - in and of itself - is understandably viewed as a detractor to production gains.

Economic access still appears as though a "taker" of productivity, because local group optimization methods in services have yet to be tried. Instead, services have depended on either political good will or fortunate residuals. In other words, we "mine" the knowledge which is quite evident on top of the ground - not what is hidden beneath the earth. Hence, aggregate time use as production gain is difficult to fathom. But without it, no reliable safety net is possible.

Consider an ordinary definition of productivity which makes sense: GDP divided by total employment. We gained economic - hence at least a partial degree of social freedom, by applying this process to product separate from time, in which we generated wealth by utilizing fewer hands for specific ends. In services, the goal would be to preserve economic (hence social) freedom by engaging time use toward individually agreed upon ends. Otherwise, services tend to regress into distinctly "unfree" realities and limited markets. Equal (coordinated) time use turns the unknown realm of services residuals and transfer processes, into a known and measurable quantity for knowledge use and real growth.

These different types of specialization need to work in sequence with one another. The primary difference is that a labor residual still applies to generate product separate from time, whereas equal time use coordination generates direct wealth and economic freedom, in the latter. A close application of these separate processes would make it possible to measure production gains for the long run.

Really Simple Production Stories, With Examples

Aahh, I had to shut out the world for a brief time, interesting links and all, to return to this line of thought from a post a couple days ago, before I lost the extra notes (I lose things way too easily). What happens to all the "good deflation" of tradable goods that meant progress for - quite literally, now - centuries? It's not too far off the mark to suggest that local economies have "eaten up" such progress and "gotten away with it", in any number of historical ways: two of the most important today are new definitions of limited economic access, along  with the unfortunate illusion of declining wage capacity.

The clearest manifestation of this economic self limiting phenomenon (which is nothing new) was ongoing movements of population segments which had little money, or access to land and construction as it was (inefficiently) designated. Plenty of wars get started with this particular form of "kindling", in spite of whatever seeming enlightenment exists otherwise. Europe has had its gypsies (something we don't hear a lot about, here in the U.S.), then there was the frontiers of the New World which in some ways recreated much of the limited land and construction designations of the Old World (something the latest inhabitants of said New World weren't keen on discussing with the Old, as to acquisitions terms). The latest broad based solutions for problems of the marginalized  were innovations in property titling, which allowed much greater stability for all classes until recent decades. But already I digress. In this post I need to stick with the present and growing need of local economies to stop looking for ever more ways to dispossess their marginalized, and find new internal growth frontiers for all, both within geographic perimeters as well as the (still) untitled spaces of our knowledge capacity. One way to consider this is to look at how wealth is actually being apportioned, in the most basic sense possible.

The basic production story starts with people, some forms of capital, and the myriad of ways they interact to create product. One way the story gets told, now: there's a horrible global monster of technology which "eats" human labor". (Take that!  - says the local economy which carefully puts labor "back in" with outdated construction and swollen middle management). Another story, the one which actually assists in human progress, is that the share of product idea with capital creates more money - thus income - to be distributed among the human beings involved. For a long time, product was being created from these group endeavors which involved considerable time saving on the part of humans. In the mid 20th century, some of that time saving was added into the home itself, and later, the office environment. But then, the innovation process stopped cold, when it came time to make technologically efficient low maintenance building components, in part, because even the "makers" were a bit worried about the need for labor "going away"...

That's one element of the story, which illustrates that nothing about "maker taker" theories is as straightforward as some would have us believe. But there's more. Remember all those middle management cuts that started happening in the early eighties and continued, in many industries and tradable goods of all kinds? Hmmm, perhaps not so much because all that middle management has been replaced with - you guessed it - middle management in construction, healthcare and education. Where's the construction middle management???? Oh...finance.

Perhaps the moral of all this is some people were privy to the actual fact of wages continuing to rise with  productivity, in spite of some strange appearances otherwise in today's data and graphs. What's more, inflation targeting is the perfect way to hide...well, I don't want to sound like a broken record. No wonder some people in Washington are calling for an end to certain forms of measurements. The important part of all this is that people such as George Selgin, by bringing up the "pot of gold" in good deflation, just spoil the party for too many people who still continue to imbibe from the punch bowl in their own corner all along, even if it appeared to have been taken away from the main party quite a while back. In the best scenario, a falling price level would not be a sign of depression, but  instead that the punchbowl has in fact been removed from the premises after the party.

For Selgin I would just add: believe me, I get why you don't want to talk about that hidden punch bowl. I probably wouldn't be doing so either, if I had a "real" job! It just gets confusing to the people who don't know it's still in the back of the room. I started to link to the latest reply to Selgin (as to QE in the aforementioned interview) from Joseph Salerno at Mises Economics Blog but thought better of it, as they have come at Selgin more than once like a nest of hornets! Before I wrap this up I would add: the point is not to be rid of low technology construction, but to make it primarily an option for those who in fact have the extra money, to indulge in it if they so choose. The rest of the world deserves the option of high technology construction for every economic activity - or otherwise - that they might choose to partake in. And where there is less need for low technology construction, less need for middle management positions is sure to follow. Zero? Who knows.

This story is a very basic one in that it applies to lots of people. As economic access lessens over time, exclusivity rises. All kinds of "theories" arise (yet again) as to how this class of people don't deserve anything or that group of people don't deserve anything and so on it goes. People who care about the world, and consequently what happens to it, wake up one day to find war in their midst and wonder, how did this happen? How, indeed.

George Selgin, Good Deflation and the Problematic Non Tradables Sector

As QE begins the process of tapering off, confusion remains as to whether or not that is a good thing, albeit the inevitability of the process. (QE, will we "See You In September?") Just the same, central banks are careful to target a small amount of inflation, and are in general opposed to any overall deflation - whether bad or good - as George Selgin noted in this recent video. While his theories of good and bad deflation are sound, they nonetheless are somewhat drowned out in the cacophony of today's inflation targeting which can make it difficult to distinguish between other threads of monetary theory.  Selgin - in particular - further distinguishes his ideas from those he refers to as "zero inflationists", which may not always be apparent.

Even though it was somewhat disconcerting to hear George Selgin call for less QE in the above linked interview, that's in part because his thought processes can appear to run a bit counter to what Market Monetarists actually support. One looks a bit closer, however, and discovers that George Selgin is not so far removed from Market Monetarists as it might seem. As one commenter at The Money Illusion noted, Selgin is also getting better at relaying his ideas to the public nowadays, than when he wrote Less Than Zero back in 1997.

My primary concern in terms of a (present potential) role for positive deflation, is that incentives in the non tradables sector are still not well aligned in this regard. In order for good deflation to be a positive contributing factor for nominal stability, hidden productivity problems need to be uncovered in a number of non tradable industries which also benefit from the lack of transparency at the Fed (of which convoluted inflation targeting is no small contributing factor). As a result, we have the positive deflation which results from "pure" tradable goods (those with few subsidies,  etc.) "hidden" by forms of local, state and national inflation which central banks do not create, but instead find themselves obliged to follow (through printing money) up to a certain point, at which they must then arbitrarily cap at the agreed to point.

Does the central banker's position (for not reflecting good deflation) have something to do with the fact that local economies often prefer to create wealth through less innovative processes in general? Positive incentives on the part of local economies are skewed, in that individuals have a limited range of choice for the most important components of consumption, once they commit to an area. That in turn means a pre-existing commitment to the real estate market and the services which in turn reflect the wealth levels the real estate market suggests. In other words, non tradable goods, so far, have not had the same incentives to innovate that tradable goods have, in that they don't have to compete with worldwide markets for a customer's attention. However this has led to lack of sustainability in their present form.

Central banks therefore end up with a delicate balancing act, because non tradable goods over time can become the larger representation of goods in an aggregate sense. Plus, bad deflation can result, when overall growth becomes too suppressed from the local non tradable sector advantage. Besides the need for nominal targeting to untangle these problems, structural change is also an important component so that real growth without inflation might be possible. However, structural change certainly means different things to different people, and admittedly, I approach this problem a bit differently than some think about it. The nature of a global economy, and its effects on markets in different areas, mean that no consumer options for lifestyle and consumption can be reduced to simple equations, for instance.

However, greater coordination of lifestyle and consumption options is possible, that would not only give non tradable sectors more incentives to innovate, but also to become more accessible and productive in the process. Ultimately, the best way to return to greater productivity and economic access is to transform some non tradable goods into tradable goods. Such an undertaking would not be so difficult as one might imagine, either for construction possibilities or actual components of individual time,. Were it possible to do this, good deflation may ultimately have a chance to work to everyone's benefit. I plan to do a follow up post on this subject in a day or two, which breaks down several approaches to production currently used, in simple terms.

Why Is Productivity Such A Confusing Concept?

Important though we know productivity to be for human progress, there are economists who nonetheless question the role of productivity in the present. Or - if they don't - some still discuss productivity in traditional terms which are reminiscent of the roles productivity played before services became such a vital part of the economies of the developed world. Whereas I share some of the same structural concerns that Austrians have, just the same I find myself limited in dialogue with many of those who are referred to as "Internet Austrians" because of this factor. I have two basic questions for them: "Have you created a valid mental space for services in the economy? Have you even considered the lack of innovation in construction as important?" Likewise, I worry that some on the left take services provision too much for granted, even as the services we need most continue to be outsourced to our families and ourselves in non economic ways.

Arnold Kling notes that he is becoming a "productivity measurement pessimist". He continues, "That is, I am becoming pessimistic that what we call 'productivity' is anything but a crude indicator of trends in living standards." His pessimism is certainly understandable, because the "waters" of production measurement have definitely been muddied to the point where some forms are nearly unrecognizable. However, it is my contention that we need to gain a better understanding of the ways productivity measurement functions, especially regarding the groups who utilize both knowledge and resources for economic gain. This is important not just for the future potential of nominal targeting, but also because of present and ongoing implications as to the stratification of income and the separation of classes.

In earlier posts I have touched on the inadvertent battle against globalization, on the part of local economies which have often been responsible for production confusions of the present. What are the sectors local economies turn to most, especially when they don't rely on manufacturing, mining or extraction activities? This argument from the Spring 2013 issue of the International Productivity Monitor (HT Conversable Economist)  gives us a clue, where the authors write:

Education, healthcare, infrastructure (construction) and government are large sectors of the economy that have lagged behind in productivity growth historically. This is not because of a lack of opportunities  for innovation and change but because of a lack of incentives for change and institutional rigidity.

First I'll consider the more obvious of these: education and healthcare. It's important to stress that innovation in these areas does not have to mean the negative results of further economic exclusion and income stratification that may immediately come to mind in such arguments. What I'm concerned about is avoiding eventual default settings in this regard, where doing nothing does lead to less access and more extremities in long term economic outcomes. The problem for all of us is that everyone relies on education and health in their lifetimes, yet both structures were set up as exclusionary institutions whereby only some can expect to access them both in terms of use and participation. While such a services "production" setting may make sense for the institutions that profit from them, they set up imbalances that only grow over time, as governments struggle to include more individuals in knowledge use sets which are continually expanding.

The basic issue in this regard is that education and healthcare needs are the most representative of overall aggregate demand needs that any society has. However, aggregate need and participation in terms of time components is an anomaly for the residual component of time measurement in productivity. That sets up serious limits in access and definition for services, which can not be overcome as they are currently structured. Services can be set up as (integrated) self supporting structures at local levels, but people need clear rights to knowledge use before such a proposition is a true possibility. This is why I also advocate for the right to heal, because without such knowledge use rights and delineations for skills use potential, not only will people continue to lose access to health care over time, but knowledge use limitations in healthcare  also set up monetary devaluations in all other areas of knowledge over time. That means healthcare participation has the potential to overcome equally important and vital aspects of our educational lives - an ongoing process which has already been discussed extensively online.

There is much explaining to be done regarding the above paragraph but I need to move forward in this post! One aspect of this line of thought is especially important in the measurement of per capita individual participation, through nominal targeting. Just as Scott Sumner stresses that it is important not to reason from a price change, Marcus Nunes noted in a recent post: "Don't infer from a GDP component change". Why? Because when we consider monetary stability from the standpoint of per capita measures by participating individuals, prices and markets adjust to how the individual shapes the markets themselves through one's participation in them. George Selgin has considered the marketplace in a similar fashion, and his work with the productivity norm in a sense also intended to maximize economic participation to the fullest degree possible, by making certain that productivity measures are understood. When his PDF, Less Than Zero was put online in 2009, lots of interesting discussion ensued, and just Google "productivity norm" to check some of it out, where you will find posts by Scott Sumner, Bill Woolsey and David Beckworth from that time frame, discussing the concept.

Here's why adhering to productivity norms matters: the greater transparency they would allow also means a potential for more vital and inclusive services structures. A first glance and one might think "austerity", but by no means is that necessary, especially given the fact that so many today want to find work in the areas they study, only to end up settling for work in other areas. Local skills arbitrage systems can change that, over time, to allow many areas of knowledge to once again  flourish. Through productivity norms, nominal targeting and greater transparency, special interests would not have the same opportunities they have now, to steal participation from those who want and need it most. Something needs to be said, however, if Germany is indeed following a productivity norm, as I read in one argument against such norms: Germany, you're doing it wrong if you are...yet don't recognize the vital role for services instead of just partitioning your jobs part time! One reason Germany doubtless "gets away" with part time jobs, however, is the fact that its real estate markets are not as highly valued as many nations.

This post has already gone on a bit long, but I at least want to touch on the inefficiencies of construction and how they contribute to the problems of our present. Here's a thought experiment: why are health dollars able to go so much further in countries which lack infrastructure? They are not forced to take place in buildings of such expense that much of a nation's health care budget has to account for the ongoing use of that limited space (In the U.S. patients get juggled around in hospitals a lot). That's not to say that we should save money by doing healthcare "in the open", by any means.

However, the fact that building codes never took advantage of ongoing innovations in technology means we are all paying the price, in terms of limited access. The fact that innovation was never allowed in the buildings we inhabit needlessly stratifies society, which in turn destroys trust over time. We need to remove the building regulations that prevent mass market building innovation. Anyone who is allowed ownership of small scale building components efficiently produced, is also an individual who can be trusted in society to a greater degree. These are "dots" that need to be connected and acted upon. We do not need the distortions of outdated building codes making our incomes appear depressed when they could buy so much more with innovative construction - perhaps that could be one of the greatest money illusions of all.