Don't Forget About Basic Resource Scarcities

Not long ago, some became convinced society's main problem was finding better ways to share resource abundance! But it didn't take long for a global pandemic and the vicissitudes of war, to remind everyone once again that resource scarcities are still part of the equation. For mature economies in particular, resource scarcities in the utilization of time and place are starting to impact how the Fed manages inflation. Limited markets in time based services are evident in high skill human capital, but this phenomenon is also emerging in simpler forms of (highly sought after) personal attention. Meanwhile, place based scarcity is reflected in the high costs of housing relative to actual incomes. 

Still, it's easy to forget how these imbalanced markets affect current underlying inflationary levels. Instead, macroeconomic discussions tend to alternate between employment issues or irresponsibility on the part of fiscal and monetary policy. At the very least, some of our supply side resource scarcities should resolve in 2023 via resource substitution, which can in turn help ease inflation. Unfortunately though, time and place based resources need to be framed in more understandable context, before the Fed benefits from supply side assistance towards monetary stability. In the meantime, the Fed is reduced to inadequate measures such as reducing traditional housing starts, when what is really needed is more accessible non traditional housing production!

One way to think about the natural scarcities of economic time and place, is determining how we created too many additional layers of artificial scarcity to the real scarcities we already face. It could also help to respect the rationale that existing institutions initially used for additional limits to market access, then move forward to create new beginnings from this understanding.

Respect for existing institutions which work with resources involving time and place based product, means fewer attempts to dismantle them, and more attempts to evolve production processes where these institutions are actually growing fragile. Consider for instance what it actually means when builders cannot afford to build affordable homes for low to middle income consumers! Recall as well the fragile nature of healthcare institutions which can ill afford to function in many areas which don't benefit from vast wealth holdings. Both of these are institutional fragility. New institutional efforts would do well to create alternative means of social support to address where older institutions can no longer easily function. 

Indeed, by not attacking existing institutions directly, we can still respect how they evolved to address different sets of social realities and historical contexts. For instance, Nimby based zoning allowed people to at least partially manage their personal fears around living close to others they didn't know enough to trust. Likewise, skills use limitations were a way to address people's fears about what might happen if they paid for services which turned out poorly. And enforced professional limits in human capital, also made it possible for professionals to live among others who already benefited from higher and more directly derived incomes.

Nevertheless, regulatory moves which increase artificial scarcity now mean basic non discretionary markets beyond reach of average consumers. Such markets also require a level of monetary representation which makes the job of central bankers more difficult. What's more, these domestic market income sources - not to mention their corresponding housing representation - contribute to an NGDP growth level which is currently too high to maintain economic stability. Clearly, more is now at stake than missing markets for lower income consumers, as this aspect of market dominance could compel central bankers to impose additional reductions in aggregate demand. Alas, doing so would further reduce the output potential of discretionary markets in more direct wealth origination sources as well. 

Should new institutions arise to create broader domestic market options, they would nonetheless need to acknowledge the main reason consumers tolerated earlier forms of market dominance for so long despite lack of access: trust. Many countless regulations arose in environments where social trust had been eroded at least to some extent. Hence people became willing to pay dearly (when and if they could) for specific quality promises in time based services and housing options. New institutions need to build much more than just greater economic access, for they would need to restore societal trust through time value which doesn't require the same level of monetary compensation as in decades past.

At the very least, we've been quite fortunate our current services sectors functioned as long and as well as they have. Nevertheless, we appear to have entered an era in which today's services sectors could impart undue burdens for inflation, should new domestic markets not materialize. For this reason I might add that when it comes to Fed inflation management, I would probably understand if they maintain a "hawkish" stance in response to continued supply side inaction. Especially should NGDP levels remain as high as is currently the case. 

"Political" Equilibrium is Not the Same as Natural Equilibrium

When might politically motivated budgets create too much confusion for general equilibrium conditions? Even though there's no clear answer, economic dynamism and long term growth potential may depend on how these matters are ultimately approached. It's now apparent that the fiscal dominance of today's service centered economies, could hinder progress in the near future.

Until recently, ultra-low interest rates were becoming taken for granted as inevitable. And not only did this prompt national governments to borrow in excess of earlier norms, it discouraged a rational general equilibrium framing as output driven. This loss of a quantitative understanding, has made it even more difficult to create productivity improvements in domestic markets. Instead, the fiscal "freedoms" of late are fueling the ambitions of multiple political parties. Alas, the results aren't encouraging, since fiscal policies tend to reward specific group preferences instead of positive market outcomes.

However, does fiscal irresponsibility account for a rising equilibrium rate, and might this impact equilibrium stability? Scott Sumner considers equilibrium effects, and notes: 

The "natural" or equilibrium interest rate also has multiple meanings, but generally refers to the interest rate that provides for some sort of macroeconomics equilibrium, such as stable prices. Throughout most of the world, the equilibrium interest rate has been trending lower since the early 1980s. Until now...

He continues:

A more complete model of the equilibrium interest rate might also account for the political economy of fiscal policy. Suppose that the natural interest rate falls so low that politicians become tempted to run larger budget deficits. Eventually, the deficits become so large that the equilibrium interest rate begins rising again. 

In retrospect, the new UK Prime Minister also went too far with the extensive tax cuts of her fiscal package.

All of this makes me wonder whether ultra-low interest rates are not a stable equilibrium, at least in most places. I still believe that low rates are a technically feasible equilibrium, but perhaps it is inevitable that politicians in many countries will abuse the privilege of almost costless borrowing - right up to the point where that privilege is removed.

Indeed, the Washington Post notes the new Prime Minister's predicament and adds

Across the supposedly advanced economies, the return of inflation has magnified the riskiness of extravagant political gestures. For the most part, however, politicians have not gotten the message.

How to think about all this? For one thing, I'm inclined to believe that fiscal policy (rather than monetary and supply side circumstance) would not be responsible for a rising natural interest rate, whether or not a government "crosses the line" in this regard. Especially since fiscal policy correlates with credit dominant outcomes which substantially differ from the time correlated aggregate output of natural equilibrium. 

In terms of aggregate output potential, total hours worked are an important part of the equation. Specifically, when considering equilibrium potential, one might ask: How much aggregate output is defined by exponential representation, versus the linear representation of (naturally scarce) time and place dominated output? Especially since fiscal dominance could eventually be undermined by expectations in the secondary markets of applied knowledge. And if service sector output doesn't presently appear linear, it's because areas of exponential gain are not being adequately defined in relation to the scarce resources of time and place defined product. In all of this, the fiscal dominance of political equilibrium is not well suited for the creation of a better defined and stable general equilibrium.

Too Many Market Claims on Nominal Income

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

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

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

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

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

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

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

Monetary Stabilization Needs Real Economy Stabilizers

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

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

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

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

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

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

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

When Monetary Representation Becomes Fragile

Can monetary policy retain a stable and relatively constant level (near to mid term), given the uncertainties of the pandemic? Since this most recent recession began with extensive supply side disruptions - subsequently impacting aggregate demand - no one knows for certain. However, even though the Fed has yet to adopt NGDPLT, the Mercatus center has created a new measure called the NGDP Gap, which among other things will highlight nominal income stability. This new measure could help people determine how closely the Fed adheres to representing economic activity without undue gaps or changes in valuation.

Nevertheless, overall monetary representation may remain somewhat fragile in the years ahead, even if central bankers adhere to an optimal course. Only consider how prior to the pandemic, monetary policy became compromised by structurally uneven equilibrium coordination between tradable and non tradable sectors. The latter is more prone to price making than the former. Plus, they represent human capital in highly different ways which have yet to be fully accounted for. By way of example, the marginal revolution which is so important to tradable sector activity, is less a determinant of economic outcomes in non tradable sector activity. Ultimately, better defined economic roles are needed for all human capital, before non tradable sector activity ceases to detract from equilibrium balance and optimal monetary representation.

Extensive price making in non tradable sectors tends to compromise aggregate output, which in turn makes it difficult to align aggregate output with a stable nominal income trajectory. Since price taking involves better coordination of all resource capacity, it has proven simpler for monetary policy to represent tradable sector output, during long periods of relative tradable sector dominance. However, once general equilibrium is dominated by price making outcomes, assets tend to experience additional pressure as well. As asset values rise, some become convinced that monetary policy is too "loose", even though this actually may not be the case. Rather, when full economic participation is limited to subsets of given populations, the consequent output reductions impose higher prices elsewhere, thus making it appear to some that monetary policy has become too expansionary. In short, monetary policy may struggle to contribute to optimal aggregate output, once price making becomes dominant in general equilibrium.

Fortunately, this sectoral imbalance could be addressed through a broader interpretation of human potential in the marketplace - one which includes more price taking for time value in equilibrium context. By bringing greater economic value to all human capital potential, we could also do much to stabilize monetary representation. A better representation of aggregate time value, would make it simpler for a level nominal target to serve as a reliable snapshot or historical memory of economic value. Toward this end, the adaptation of time use potential as a valid economic unit, might help to restore money to its vital role in defined economic wealth and value.

Further, time use as an expression of economic value, creates more space for a wide range of maintenance functions which otherwise become limited in mature economies, as budgets are strained by competing objectives. Time arbitrage would not only preserve time value for society as a whole, it could contribute to maintenance activities involving a broad spectrum of knowledge and skill, so as to better preserve already existing wealth.

Knowledge Preservation In a Time of Pandemic

Many are understandably focused on the short term effects of COVID-19, and what needs to be done in the here and now. However, even though it's not easy to pause and reflect on broader concerns, there are possible long term effects of the pandemic which likewise deserve a careful response.

In particular, this pandemic exposes the fragile nature of how societies currently manage and reimburse their most important knowledge providers. History has made evident, how some pandemics culminate in events which undermine such systems. Skills arbitrage as the sole means of knowledge provision and application, is less sustainable over the long run than it may appear. All the more so, since compensation for these skills is compromised through over reliance on debt arrangements. Too many currently provided services, include vague expectations of reimbursement later in time from future generations. But what if something about this arrangement, should radically change? For instance, suppose future generations lack a sufficient level of income to fulfill yesterday's promises?

Whenever substantial levels of societal wealth are lost, pandemics tend to impact how people organize their lives at basic levels of operational capacity. These losses are only exacerbated whenever applied knowledge is too closely held in high density populations, as is currently the case in our productive regions. If the economic patterns of major cities are disrupted, productive capacity becomes all the more important elsewhere, to ensure that vital threads of current information and applied knowledge can continue. We need to ensure that knowledge and skill can be encouraged and maintained via a full range of population densities and intellectual abilities. The more places and settings where skills capacity is fully tapped, the better prepared civilizations could become, to face moments of crisis and uncertainty.

Clearly, we should no longer rationalize that it is somehow reasonable, to limit the use of valued knowledge and skill to areas of high population densities. But how to begin the vital task of reinvigorating small communities? Even though I've long argued for time arbitrage as a way to do so, admittedly a part of me is now overwhelmed by current events. I find myself wishing "if only" such processes had been put into motion earlier, so the preservation of already existing human capital, might also be a simpler matter.

Alas, I did not realize how the need for new knowledge use patterns, would become particularly relevant during my own lifetime. Like many others, I feel as though being swept along in a vast tide of change - one which makes me question my own ability to return safely to shore this time. And like many, I'm not certain whether it is still feasible to craft a fully effective response, or to safely bypass the political battles now occurring. If only new patterns of wealth creation had already been pursued in earnest! Dare we still hope that much of our wealth is not lost in the years to come? Can our most productive areas still reach out to other regions, in hopes of lifting them up?

Meanwhile, society continues moving in the opposite direction, as exemplified by additional closings of rural hospitals. As it turns out, hospitals - despite their institutional importance - are exceedingly fragile in economic terms. If we are to deal successfully with the present crisis, we also need for healthcare to transition from the fragility of skills arbitrage, to the open ended and simpler nature of time arbitrage. Time arbitrage would not attempt to offer "perfect" solutions. Rather, it would seek to remain present for all concerned. In time arbitrage, patients could hopefully express what they need from others, and perhaps gain a real chance of being taken seriously. Sometimes, when illness strikes, it's not so much survival which is at stake, but rather finding the most peaceful way possible to overcome one's fear of the unknown. Each of us as patients deserves in moments of fear, not to have to face those moments completely alone.

Healthcare could be envisioned as a most basic element of organizational potential, for all citizens of community. Healthcare provision in all its countless variations, deserves to be part of the reciprocity of mutual assistance. Such assistance could eventually be paid in the real time of people who are alive today, instead of future generations which deserve better than to be saddled with debt obligations of a past which never really belonged to them. We can build meaningful ways to be with others in their moments of greatest need, and yet do so without bankrupting anyone or anything. It's time to build anew, starting with more flexible versions of rural hospital organizational patterns.

As Marc Andreessen recently noted, "We're all necessary, and we can all contribute to building." Should we embrace the mindset of crafting stronger realities, we also gain the ability to create long term solutions which can benefit governments as well. We might finally be able to offer our governments a viable path to address the debt burdens they have already accumulated. Living with one another on reciprocal terms in the here and now, is no small matter. Let's get started. Again, we are all in this together.

Mutual Reciprocity Could Alleviate Fragile Systems

One of the main issues many communities now face, is the fact that neighbors who live in close proximity to one another, lack reliable methods for mutual assistance on a regular basis. What were once common and spontaneous forms of social reciprocity, have gradually been supplanted by formal service roles. However, these more recent patterns of social and economic organization, feature "empty spots" which are exacerbated by unfortunate events such as the COVID-19 threat. Regular readers are familiar with my advocacy for time arbitrage. I remain convinced that a marketplace for time value, could help to fill empty areas where there are now few roadmaps for mutual reciprocity.

In the months ahead, attempts to control the spread of COVID-19 will doubtless add more burdens to healthcare and financial systems alike. Ultimately, societies are going to need more than centralized patterns of knowledge and skill, to bring productive agglomeration in services to areas where it is needed most. How might we build a stronger economic context, for time based services at local levels? After all, decentralized patterns for the use of applied knowledge and skill, could help restore personal autonomy to average citizens. Plus, local patterns for skilled services generation, would make it simpler for all individuals to assist one another, during all kinds of public emergencies.

Healthcare providers already struggle with the limited capacity of present day healthcare systems. The U.S. in particular, is ill prepared to fully respond to widespread health threats. For example, self quarantine might become an important strategy, since little additional hospital capacity exists if millions become seriously ill at once. It would not take much, for a pandemic to overwhelm what our present systems can realistically provide.

Another way to think about what is possible for local services coordination, is the integration of lifetime education with local strategies for applied knowledge. Only consider what could be gained, if local property taxes were redirected to support local educational efforts which augment the possibilities of informed mutual assistance. Fortunately, there are viable ways to create stronger knowledge use systems. Long term commitments to the time value of all citizens, would help address the systems fragility of our times.

When Governments Enforce Limits to Growth

Why is it so difficult to understand, how protectionism and favoritism can negatively impact economic outcomes? Nevertheless, the latest example is obvious to observers far and wide, at least beyond the confines of the White House. Which makes it all the more frustrating, that 10 percent tariffs on imported aluminum and 25 percent on imported steel, will actually be implemented. As Gregory Mankiw noted, Trump even managed to unite a polarized country: "How often do Jeffrey Sachs and the Wall Street Journal agree?" And Mickey Levy of E21 wrote:

The economic effects of these tariffs on the macroeconomic environment will depend critically on whether they damage business and household confidence...the danger is if these tariffs adversely jar confidence - perhaps fueled by foreign retaliation - heightened uncertainties would lead businesses to tone back their expansion plans and the trajectory of consumer spending would be softer.

Supposedly the tariffs would be "helpful" for reasons of national security. But where do the majority of these imports come from? James Pethokoukis explains:

That reasoning is pretty much ridiculous, unless the Pentagon has given Trump reason to think it's possible that the 1st Armored Division might one day be racing toward Toronto, or Army Rangers parachuting into Rio de Janeiro. The top two suppliers of steel imports to the U.S. are Canada and Brazil.

He adds, in spite of a report from the Commerce Department that metals imports eroded weapon making ability, the Defense Department only needs 3 percent of total U.S. steel, or 70% of the U.S. market. And the economic argument is at least as bad, since Trump is possibly hurting the many, just to help the few, by increasing the price of "commodities used to make a vast array of products for businesses and consumers."

According to Politico, Trump's tariff decision spurred retaliatory threats from close allies as well. Both Australia and China expressed concerns that other countries would follow the U.S. lead, and retaliate. Indeed, the EU could target $3.5 billion of U.S. imports at the outset.

It's astonishing no one could convince Donald Trump that tariffs are generally a bad deal for everyone concerned, instead of making a stronger economy more likely. Of course, other limits to growth due to political favoritism have been in place for well over a century - even if these limits don't have obvious implications re employment outcomes. Presently, the degree to which knowledge use limits affect employment potential, no one really knows.

Washington's focus on supposedly retrievable twentieth century jobs is off the mark. Especially since technology and automation impel us to reconsider, what work and wealth creation in the 21st century is all about. However, it's difficult to start a dialogue about this reality, when existing wealth is being jeopardized by an insistent focus on the past. Hopefully in the years to come, this unfortunate circumstance can be changed.

What is the Opportunity Cost of Basic Income?

There are days when our little globe feels as though beyond comprehension, and answers to important questions feel even murkier than usual. Today being one of those days, I thought, perhaps a good excuse to ask an "impossible to answer" post title! What are the upsides and downsides, for adopting Universal Basic Income? Is this one of those policy decisions which may not fully face the scrutiny of opportunity cost discussions beforehand, because of underlying budget considerations?

For that matter, opportunity cost as concept, is mostly a brief discussion topic in economic studies. Timothy Taylor makes the point in a recent post, that opportunity cost doesn't receive the educational consideration it would appear to warrant. Taylor cites an essay from Michael Perkins which argues that "opportunity cost is more useful based on the quantity of what is given up, rather than on attempts to calculate the value of what is given up". From the essay:

The idea of opportunity cost helps to address five issues that range from the simple and basic to the complex and sophisticated...the fundamental economic problem: Faced with scarcity we must make choices, and in choosing we are confronted by costs. The second purpose, equally basic, is to see cost as an alternative foregone rather than dollars of expenditure. Its third purpose is to identify, and to correctly establish, what the foregone alternative is. Its fourth purpose is to use the appropriately identified cost alongside an appropriately identified benefit to make (and to analyze) a rational choice. Its fifth purpose, and its most complex and sophisticated, is to derive theorems about the determination of relative prices.

Among the important factors to stress regarding Basic Income, in spite of appearances, is the reality this is a scarcity choice, in the general equilibrium terms of national budgets. Ultimately, one of my main concerns about Basic Income, is the negative effect it could have on a nation's future output potential, due to the marketplace structure which was previously funded by government budgets. Different nations have different approaches, hence outcomes depend on how services organizational patterns contribute to a national medium of account. As Guy Sorman notes in a recent City Journal article, for instance, in the Finnish model, everyone will receive this income, but the welfare bureaucracy will also be shut down.

And that is precisely my concern. Even though welfare bureaucracy is inefficient and worthy of being rid of, knocking something down because it is "tiresome" is no way to maintain structural output at national levels. Worn down by budget battles, some may find it advantageous to be done with various programs and earlier legislative commitments. Even so, are the private marketplace alternatives which comprise aggregate supply, being actively pursued? Left unaddressed, existing limits in private organizational capacity would mean negative supply shocks. Will output in terms of knowledge and time based services, be lost? Even though Basic Income may be touted as bureaucratic innovation, the reality could be a downsizing of economic expectations.

While a Basic Income approach seems improbable for the U.S., deep fissures in the Republican party (ht Arnold Kling) suggest that something similar could occur - simply out of default circumstance. Given the lack of cooperation between parties on policy and programs, budget issues for healthcare in particular could eventually force the issue. One reason Basic Income appears an unlikely fit for the U.S., is the fact that many welfare subsidies tend to be routed to service providers instead of recipients. While grappling with the potential costs re Basic Income, Nick Rowe wrote in comments to a recent post:

When I think about switching to UBI I "see" a graph with disposable income on the Y axis and market income on the X axis, and I see a total mess representing the current system, and I see UBI as using OLS to fit a line through the existing plot. And so it's self-financing by construction assuming no behavioral changes.

Of course politics being what they are, behavioral changes can be expected. What happens, after the implementation of Basic Income? The "money for all" selling point, makes it easy to initially ignore the reality of general equilibrium conditions for services consumption, and their associated level of aggregate demand. Consequently, it's easy to downplay the fact that opportunity cost for Basic Income would be quite real.

Nevertheless, "income for all" is appealing for those who worry about long term job prospects, alongside those now weary of paying for "services for all". What a disparate coalition! In short, Universal Basic Income appears as though a general equilibrium experiment, equivalent to decimating an unwieldy structure without building a replacement. Even though Basic Income would be fiscal policy, in a sense this is fiscal policy which has come up against hard limits. Monetary policy would be better positioned to overcome those limits and resume a strong trajectory for long term growth. Still - in order to regain a strong growth trajectory, production reform is also needed, on real economy terms.

Where Does Commitment Begin?

And are strong commitments presently possible, in an overall sense? What happens when governments and certain business interests insist on economic conditions for their personal enrichment, which are not conducive for a wide majority of citizens to maintain commitments and goals? Perhaps these seem like odd questions, but they matter in part due to reasoning on the part of upper income levels, regarding lower income levels.

All too often, the former don't fully recognize when they set up game boards which don't allow the latter to effectively participate. As a result, "twenty times" the patience might be required of a low income person, as the amount of patience required by someone with high income, to achieve a related outcome in monetary terms. The person who doesn't have to "purchase" patience quite as often, gets a stronger constitution to pass to the next generation. Yet if consumption possibilities were more broadly defined, the additional required patience to achieve lower income goal sets would not be necessary every single time!

Too many basic consumption requirements are defined on mid to high income terms. As a result, a missed single link can break an entire consumption chain which is needed as a combined set, in order for low income individuals to maintain responsibilities. Today the media overreacts to long term psychological effects, on the part of some who found success in poverty's wake by the skin of their teeth - such as sports figures in unfortunate moments of anger with family members. Buying patience too many times in a day is like drinking too many cups of coffee to stay alert - the effect only lasts so long. It's easy to assume that low income individuals have little patience, resolve or commitment, because one can find examples anywhere they look. Furthermore, impatience or broken patience becomes a logical end result, eventually.

Public dialogue has become somewhat odd in this regard. Recent struggles - particularly those regarding race, immigration and protectionism - surface in ways the media "forgets" are related to still lingering economic concerns. Even so, Washington elite became comfortable with economic circumstance at least a year ago. That's when they began to reason that all is well, hence it's time for everyone to "buck up" and take care of themselves. For instance, the Fed has dreamed of returning to normalcy, practically since the Great Recession began. Now, their earlier monetary commitments are finally coming to an end and "liftoff" is imminent. Normal NAIRU is the latest fad, hence anyone such as myself who remains concerned about lagging labor force participation rate is just a scoundrel, according to progressives such as Bill McBride.

Even so, political campaigns are digging for some government commitment "crumbs" to offer up to the population. The latest reasoning? Some conservatives are realizing that - oh my yes - success in life depends on one's ability to form strong and lasting commitments. This further seems to suggest tax breaks in particular for children whose families were "smart enough" to remain intact. God willing, maybe these incentives will nicely align and the pieces will fit...

Many lower income individuals are quite the same as anyone: they want to commit to life goals, for this is the most human of desires. But not everyone has the same degree of strength or good fortune, to respond to the way major consumption definitions are set by governments and special interests. How does one make long term commitments to goalposts which are purposely placed out of reach of everyone but the strong? And yet one is ultimately judged for the fact they fall short of the goal time and again. Where was the consideration, for the fact a singular societal goalpost might possibly have been unreasonable in the first place.

None of this is a matter of calculated tax tweaks and indignant calls for higher income levels. No tax tweak or income level is ever going to catch up with temptation on the part of governments and some businesses as well, to manipulate certain consumer definitions beyond reasonable hope for lower income levels. Every tax tweak, income increase and arbitrary consumer definition further enriches governments and their crony friends, even as these tactics further impoverish citizens. Will anyone really fool themselves into believing humankind can remain strong by encouraging environments purposely designed to remain out of reach of the weak? In a recent blog post, Adam Gurri wrote these words,

I don't think it's possible to have a good life without commitment. 

Indeed. Indeed. First, do no harm. Do no harm.

Skills Valuations and the Productivity Factor

Productivity mysteries abound, regarding the applications of knowledge and services in the marketplace. Where does one even begin to sort out the wheat from the chaff? In yesterday's post, I considered the advantages of alternate equilibrium settings (locally coordinated investment in time and non tradable goods) for more directly targeted growth. Productivity matters, and matched time use would provide greater clarity about the resources involved for the creation of new product.

But wouldn't these new services arrangements be inefficient in the beginning? Certainly. Anything at the outset is going to be a long way from optimal capacity! However, matched and coordinated activity over time would become more efficient, not less. Unfortunately, the opposite has often occurred, for indirect compensation of knowledge use.

So why start with a blank slate for time use? Direct compensation for directly matched time would generate a new growth trajectory, for labor input which has gradually been lost from the economy. Only this time, "labor" won't be quite the right term, for the work many would seek to coordinate on individual terms.

By returning time value to the marketplace, renewed aggregate demand would also allow traditional production to regain strength. Even though traditional production gains are associated with less labor, this process can backfire when time is an important part of what customers seek. Often, the time of others is most valued when individuals seek to confirm or augment processes which they already have in motion, to tend to their own needs.

Productivity in terms of knowledge related services is seldom clear, for numerous channels are involved before compensation comes into play. When time use is compensated through indirect means, it's difficult to discern how output and costs relate to the resources which are actually involved. Hence the greater the complexity in this regard, the greater the possibility of a negative supply shock. From a recent article by Warwick McKibben at Brookings, in support of a nominal target (HT Marcus Nunes):

Falling productivity would cause both a rise in input costs and a fall in output. An inflation targeting central bank would tighten monetary policy as input costs rose but in doing so would reduce real GDP in the economy. Thus monetary policy would lead to a worse outcome for the real economy than caused by the shock alone. 

This is already an issue for healthcare costs, which crowd out other choices in knowledge use, and other monies which could contribute to the economy. Would the "crowding out" healthcare effect still be an issue for a nominal target in primary equilibrium? Perhaps, but the costs of healthcare would not limit growth to the same degree. In other words, a nominal target should prove capable of stopping the losses which are still accumulating.

Over time, knowledge use systems could relieve the problematic inefficiencies of indirect time compensation. That in turn would encourage more diverse growth, which had previously been "put on hold" by the growing needs of the healthcare system in particular.

There are differences between applied knowledge use and experiential knowledge use which need to be more closely examined. Granted, some knowledge does not gain its value from directly applied settings. In many instances, knowledge might be considered product insofar as it represents either indirect or personal value. However, experiential knowledge has "uncertain" value. Therefore, when no marketplace exists for time coordination and compensation, experiential knowledge value can be lost - at least in an economic sense.

Experiential product has meaning because it contributes to the value of our time. But in primary equilibrium - where time values are compensated according to merit, skill variance, education and tightly defined "needs",  the marketplace for time and the space for experiential knowledge product are lost. So when productivity is considered within the perspective of time use, alternate equilibrium provides additional pools of knowledge use potential which primary equilibrium is not at liberty to provide or support.

Today's healthcare budgets contribute to monetary crowding out, with knock on effects that add to an ongoing, slow motion negative supply shock. The healthcare dilemma is one of the main reasons why knowledge use systems need to begin their journey as a practical and applied discipline. To some degree this only makes sense, because experiential knowledge and product flourish once central marketplace options have become fully engaged. Once local citizens gain a shared, practical skills base, it becomes easier to branch out into broader educational and experiential settings.

In summary, coordinated time use could "lessen" productivity somewhat, during the initial phase of systems start ups. As the process continues, output and real GDP would eventually begin to grow again. Equal time use allows for practical and applied elements of time arbitrage to come into balance with supposedly "impractical" elements. Productivity is about more than what can be achieved within given institutional settings, for it also involves the gains of populations as a whole.

Thoughts on The Importance of Income Aggregates

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

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

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

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

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

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

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

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

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

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

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

Thoughts on Supply Shocks, Unemployment and Inflation Avoidance

Last week Timothy Taylor posted "A Primer on Ukraine's Economic Troubles", which is one of the more thoughtful commentaries regarding Ukraine's present struggles. In particular, this paragraph stood out:

Because Ukraine's trade deficits are large, Ukraine depends on large flows of capital from other countries, and thus has high and unsustainable levels of debt service to pay. A potential answer here is to devalue the currency, and there was a 40% devaluation back in 2008. But when so much of what a country buys and sells is in world markets, a large devaluation of your currency is wildly unpopular--in effect it makes the costs of all exports rise and the costs of all imports rise.

Admittedly I want to contrast some aspects of this scenario in what are relative terms, and what follows is somewhat random. Even though Ukraine's economy is only partially developed, its citizens are as resistant to inflation as anyone: such as the disgruntled shopper I highlighted in a recent post. Many nations now rely heavily on what is bought and sold in world markets. However that is more beneficial for any nation, when economic interdependence is more a matter of choice than one of necessity. When the dependence is perceived as necessity, that just adds to supply shocks - especially when political ramifications are involved. Another consideration is that supply shocks can have more complex monetary implications, when a nation does not have a fully developed service sector.

Indeed, monetary expansion can be somewhat risky for any country whose "natural" rate of unemployment appears to be increasing: something which has been on my mind since Taylor's post. Again, this goes back to aggregate participation in the economy or lack thereof. Any nation which seeks to replace human labor with technology has to consider potential negative monetary effects. Plus, economic participation on the part of all citizens, means fewer problems for nations which seek a higher growth trajectory. That should hold true for a number of reasons.

Even developed countries may not benefit from imports to the degree it would seem. For one thing, those with fixed incomes are more exposed to inflation in general. That means they often resist the optimal and efficient prices of discretionary goods, because of the degree to which their income is already captured by local and not so efficient non discretionary product. Part of the problem is that much of what is clearly efficient production (capable of good deflation), often falls into imports and exports categories. Whereas local economies with "captured" consumers may not have the same pricing incentives to reach global consumers. Some medical complexes in the U.S. approach this differently, however, with appeals to consumers worldwide which are not necessarily offered to local consumers.

What's more, policy makers don't always have the appreciation for good deflation values which some imports represent. Instead, imports may be seen (still) as competitors for local production which - again, often has the ability to produce for a higher cost than what the import would represent. This can have repercussions in other areas of production as well, such as the effects of higher sugar costs for U.S. food production.

These are just some of the elements which reduce the benefits of good deflation where it does occur. Therefore the consumer is left with a consumption basket more heavily weighted with less productive elements from government and special  interests. If that were not enough, central bankers still try to skim inflation away by further reducing nominal income potential. All of which leaves the consumer more aggravated at headline inflation, which takes much of the blame for what could be better and more efficient adjustments all around.

Services Really, Really Need Economic Value

...And institutions cannot provide that value for us, we need to figure out ways to do that ourselves. Institutions can only give us the degree of services necessarily for them to reach their goal of selling the actual profitable product (also true for non profits), so that they can remain in operation. We just haven't taken on the task of thinking that important fact through, so far. We have been somewhat blindsided by the fact that services are the most important part of the economy, but even they struggle to grow now, in their present incarnation. What seemed to be a panacea for progress only recently, is therefore called into question. Many present day service environments tend to be big, bold and full of today's busy "private space" attributes, which may even try to echo some casual public spaces. Yet their definition of wealth is chock full of capital components, which is a tremendous part of their cost and overhead. But take a closer look and reflect: where, exactly are the people...the social atmosphere? They may greet you with a smile and go deftly about their duties in your presence, but that's about as far as it goes.

 If you need something from your service providers, you'd best tend to your business quickly. If you came here to this service environment expecting conversation in some measure, chances are you came to the wrong place unless of course family and friends are with you. There are plenty of service folk who would linger over a real conversation if they could, but that's not what they're getting paid for. What's more, if their time is valuable enough that they won't be replaced by a computer, chances are they have no time for small talk, or even explanations as to the actual service provision.

The point is not necessarily that this state of affairs is bad (or horrible?). Just that we do need alternatives to this odd state of affairs, on any number of levels. For some of us there are few other remaining social or economic options, and the lack of those options makes much of life feel like this impersonal component. Yes, these services have economic value of a sort, but it's not value that feels organic or personally fulfilling, even in some important higher non repetitive skill aspects. What's more, the services provision by actual humans is kept to a minimum as it is the most expensive component of an already expensive operation. How do we reconcile the need for real social engagement with the organizational characteristic that is now services both public and private? How do we reconcile the fact that many of us will be a part of this environment at several points in our lives, maybe more, and expected to interact in the same detached manner for the duration of our stay.

Here's a thought experiment. Suppose you're in a hospital with the latest amenities...no worries about a capable staff in terms of tending to your illness or injuries, but your mobility is severely limited. No problem, someone will have time to help, right? Mmmm, maybe not so much. You were there for two months and only got help brushing your teeth three times. Okay, now I need to move to the upbeat and important part of this post before my reader decides to jump off a bridge! Consider for a moment: given the choice between a safe nondescript but inexpensive environment with someone willing to help you with utensils for meals, or the "low help" environment with all the latest tech amenities (except no robots to pick up that dastard piece of meat), which would you choose? Well, maybe the choice doesn't really have to be proffered that way, if we are willing to think about how to hold wealth differently, so that choices don't have to be ungodly stark and forbidding.

Such a set of affairs serves to remind why economic life was so important in the first place. Yes, we freely help family and friends and they help us, but without definitions of economic spontaneity, (agreed upon choice arbitrage sets) it not only becomes hard to do that, it becomes hard to feel free. What's more, the help proffered starts to feel coerced, and neither provider nor recipient remain happy in the exchange. This is what some on the right don't always consider, when they assume family can just take over when services are cut, or perhaps some on the left when they think about gift economies. So where to begin? Thankfully this morning I woke up with a clear head so I will start from the beginning...

When we are in the midst of our workday, we not only want to be focused on the task at hand, but also productive on our own terms. Only one problem: that energy on our part needs to be more in accordance with the natural rhythms of our mind and body, if we are to maintain health and sanity. Think how we might do that either as an entrepreneur, or how we would pace ourselves for personal tasks on our own time. When we feel ourselves most capable, we are likely to choose high skill non repetitive work according to our own rhythms. As we progress through the day, we may cycle into work less demanding on our mind, possibly more repetitive and/or physical, in which we can allow our mind to continue processing ongoing high skill non repetitive tasks at its own pace. Sometimes it really helps us to stop for a moment or two just to be, well...social.

While the above is just an example, it is our own mind/body efficiency process that is often undermined in external institutional settings which demand their own rhythms. Being in relative control of circumstances is also the aspect of "being the boss" which contributes most to our overall health. Skills arbitrage asks each of us to be the boss of our own personal working rhythms, instead of performing someone else's non stop, which only adds to everyone's health bill in the present. While skills arbitrage settings are a way to reestablish our own mind/body work and activity options, such coordinated settings would also be an important component of economic stability This is what is meant by the idea of becoming a skills entrepreneur - a process which can be aided by localized wealth capture of a far more beneficial kind than presently utilized.

How might we think about this process in a broader generalized sense? There are (for the purposes of this blog of course) five basic patterns of economic activity, which also suggest our need to look beyond specific career categories. All of them are important and none really more so than the others, except that only one accounts for actual separate product completely independent of our limited time. And yet it represents ongoing economic activity in the other categories...hmmm, sounds like the "problem" doesn't it. It's fair to say that - in a sense - nominal targeting seeks to represent everything here but the unpredictable and (sometimes) larger than life building component outside ourselves. Here are five areas of economic activity, in a broad sense:

Maintenance - Building - Creating - Healing - Understanding

With skills arbitrage, we would use our time as a base to grow, coordinate, and manage our skill sets, and nominal targeting could work especially well for the monetary aspects of this process. Institutions have depended on the building discipline either directly or indirectly through transfer, which is why they are only able to scratch the surface of services we actually need from one another. Now there is something very basic in all of this. Physical products have a  separate economic life of their own, unlike ourselves, in which they might be resold continuously if they do not deteriorate or become a casualty of public unrest or uncertainty. Not so for our actual allotted time: it's a one shot deal, revolutions or not, as nominal targeting knows all too well. That's part of why aggregate time components make such a good anchor when strong economic diversity does exist. Some commodities, assets, capital and products can fluctuate wildly in value when skills coordination becomes uncertain. Which is why - for instance - when we "get it right" with social structures, negative supply shocks tend not to be so severe. But when we try to build our lives as though the value of our individual time does not matter, demographic fallout such as the present is just one of the unpleasant results.

Of all the skills we utilize, maintenance is by far the most important and time consuming part of life. This is our economic base in a social sense, as we utilize maintenance for the other disciplines whenever we somehow "repeat" the others, or "retrieve" their original condition, such as one might achieve when cleaning or repairing a building. Maintenance is also the bigger part of education, as we pass on (or restate) what others have already created, "healed" (in a combining sense) or understood. We create anew especially when old patterns no longer work, heal patterns in conflict with one another, and understanding is also the result of the healing process.

Time arbitrage can be used to alleviate the limitations of what the building discipline, or actual products of all kinds, brings to the table (there are some counterintuitive monetary aspects of the building discipline in the next post). The limitations of our time parallels can readily be overcome by factoring for differences in skills levels, drive, health and age considerations. Also, some basic skill set needs may be plotted out by voting mechanisms. Unlike the often counterproductive voting for scarce resources, voting for equal time sets works like a true pricing mechanism because each vote represents a direction for potential purposeful activity, not a demand. Therefore individual actors have the chance to work out the details between themselves. Even though our time would have a basic monetary base of reallocation, ongoing networks of coordinated activity would be the primary drivers of capital, assets and other products which get utilized in our combined efforts at economic diversity.

Anyone who visits some of the same blogs as myself, likely recognizes this post as the primary counter argument I've made so far, to those who want to settle long term unemployment issues with arbitrary income floors or skills auction remedies. I believe that coordinated skills arbitrage is capable of creating not just greater economic and social stability, but considerable additional wealth and fewer class divisions as well.

Real Life is Incremental, and Other Nominal Growth Targets

For those who aren't around macroeconomic dialogue every day, "supply shocks" may seem an odd sort of phrase, especially in that it covers quite a bit of territory in meaning. Plus, it refers both to what would be interpreted as positive and negative effects in both the marketplace and everyday life. Something happens and one sees the effects ripple out, from what could be anything from a weighty governmental decision to the discovery of a valuable new mine. Such a multitude of activities are occurring constantly, and one could tear their hair out trying to understand how each ripple may affect others.

If one wants to juggle these multiple effects, it's a complex job and not always rewarding. Certainly we need to understand how supply side effects work with demand side effects because one depends on the other. But there is a chance that we are making the job even harder that it has to be, for interest rate targeting has to constantly contrast at one factor against countless others to ascertain what is most important. Consequently the best thing interest rate targeting can do, is put a "lid" on the pot and hope that everything "cooks" well. Right now what's cooking, economically speaking, is a good reason to stay out of the kitchen.

For all the complexity and minds "hard at work", why then should the fact that someone makes the "wrong" decision make it even more likely that we may not have a job to go to, next week?  Is there any one factor in all those variables that could possible make the process a bit easier? There is, and what's more it isn't "all over the map" in terms of potentially available decisions or resources. It is the aggregate or nominal capacity of our own time, with the potential measure of hourly equivalents. What's more, our economic capacity is incremental in nature, which means with a little TLC, can grow at a reasonably steady rate. Don't get me wrong, for not everyone dwells on supply side realities like I do, as a contributing factor for economic health. I just don't think supply side realities are a good reason to continue with interest rate targeting which - in the present - basically wants to open the spigot for loans when supply side factors are good and close the spigot when times aren't so good. Economies need to be thought through a bit more carefully than that.

To be sure, I'm glad when Ben Bernanke considers all angles, even if I want to do a face palm when he talks about the economics of happiness. Something about the fact that he doesn't always sleep well at night, given the number of unemployed, is a bit comforting...perhaps it's the way in which he caters to various aspects of multiple realities that is the problem. For in his earlier research and writings it was clear that he "got it" - he knew exactly what the nominal anchor should be. How could anyone - who studied the Great Depression to any degree - not see that it was the tenacity of people to survive which was the only true constant? It was only when he took his present job, that the "trees" made it impossible for him to consider the whole "forest".

Why is it so hard to think of the logical targeting of incremental growth in the first place? While we think of herd mentalities in the marketplace, they also exist in the daily surroundings we create for ourselves. It's just profitable to sell the most substantial product possible, so this is what more and more providers focus on, and more municipalities (housing) for tax capture. Only everyone finally reaches a point where the middle classes can no longer reasonably buy the standard product without government help. The old ways of moving ahead incrementally in life and business can be forgotten, when the good times not only go for decades but do so by leaps and bounds. Somewhere along the way to greater prosperity, our institutions decide we should live like supermen and superwomen, capable of jumping over buildings and obstacles with a single bound. Sure, some people no longer have monetary equivalency anymore but hey I'll ignore that if you will...wink wink. Meanwhile we can just play the game of thrashing one another as to why the losers constantly lose. That game has been getting a little "old" lately, no? Nevertheless in the EU it's become the primetime that drives out all other viewership.

Our real lives have lots of expectations and big dreams too, which is why we're willing to sign on to the contracts our institutions demand of us even if they require the selling of our soul, to do so. We really don't know how to stop making the sacrifice, even if it has been formulated in increasingly unreachable terms. By the time another Great Depression rolls around, people have long forgotten what the world actually looked like when enough flexibility actually existed for people to "grow" their lives, educations and businesses in incremental ways. That's why governments rescues banks yet again, which afterward still want to offer our contracts in the same superhero terms, even after we couldn't clear the building the first time around.

We need to leave plenty of spaces in our lives for incremental growth, because otherwise the tendency is invariably to maximize potential gains right out the gate, every time. Business claims government does this (spends too much in the good times), but business does the exact same thing, i.e. they will see just how much they can get from their customers in the good times as well. NGDPLT shows this relation of income to consumption so that one knows when the line is becoming stretched, and that can only promote a far better understanding for long term growth.