"Medium Term" Concerns are Becoming Short Term Realities

Fitch recently downgraded the United States' long term ratings to AA+, but why? For many economists and policy makers, their recent report is both confusing and seemingly, untimely. Others however, such as John Cochrane and Olivier Blanchard, argued that the downgrade makes sense, and I agree. 

Indeed, there are good reasons for immediate concern. Among those but certainly not limited to, are higher interest rates on government debt, the rising debt stock, and rising healthcare costs. Unfortunately, in the 12+ years I've paid close attention to such matters online, these fiscal issues have often been scarcely noticed, other than occasional warnings to take heed and "do something". 

Consequently, the general lack of seriousness about the matter, made the the medium term seem as though something which would never arrive. In short, there's a broad based unwillingness to face fiscal burdens head on, which has left us with a government no longer fully committed to its debts. Alas, it is futile to insist "This is about Republicans" because - after all - Republican representation is part and parcel of our institutional makeup. Perhaps that explains why Olivier Blanchard declared our budgetary process is no longer reliable. 

There's little denying as well, how the world has changed after recent domestic market inflation which is far trickier to eradicate than tradable sector inflation. In his support of the Fitch decision, Adam Ozimek explains how excessive inflation made the world economy a heavier burden for many consumers. I get that for younger workers with good incomes, non tradable sector inflation is more of an irritation than anything. However, for many who have recently retired, such as myself, there's still a higher price level for housing and vital time based services which may be permanent, even if it no longer increases. This reality has dramatically changed the life expectations and trajectory of retirees who are mostly dependent on Social Security.

Again, much of what transpired relates to the secondary or non tradable sectors I've written about over the years. I still believe a lot of fiscally induced austerity could have been avoided in the near future, had proactive measures been taken for building manufacture and knowledge maintenance in domestic markets. Yet governments now focus instead on industrial policy which largely involves tradable sector activity. While some of this could turn out well, still recall how many of these institutions eventually find their way back to good deflation via internal means. Whereas we could have realized clear benefits from innovation in domestic non tradable sectors. Indeed, careful attention to the creation of good deflation in these markets, might have kept our government from becoming so unstable in the first place. 

In all of this, what if Fitch wasn't an "appropriate" institution to raise a fuss about government fiscal shortcomings? Axios wrote: 

There is no doubt that U.S. policymaking can be a messy affair and that the current deficit trajectory is problematic. But it's not as if credit analysts have special insight into the scale of those challenges or how likely they are to spill over into some kind of default or crisis.

Well, who else should have suggested taking action, in their stead? For that matter, what institutions have we created, that are specifically positioned to address such concerns? Perhaps one reason such warnings went unheeded, is that no such institution exists. What we have isn't designed for these tasks in the first place. It seemed every time institutional "onlookers" referred to the medium term problems of fiscal burdens - even onlookers with extremely important responsibilities - people reasoned how they should not concern themselves with such things. 

The result? We inadvertently destroyed much of the impetus that might have existed, to address "medium term" concerns regarding fiscal burdens. Nevertheless, kudos to those who continued to sound the alarm just the same. That said, talking about it was only a starting point. The real challenge in all this, was to start doing things, and often just simplifying things, so as to actually reduce daily living costs for consumers on a regular basis. Then, and only then, a real chance to reduce government fiscal burdens as well, in a way that likely doesn't necessitate punishing austerity. Is there still a chance of doing so? I have grown tired and weary, and I'm hardly the only one.

Our Meritocratic Knowledge Systems Are Quite Fragile

War can create many problems, and this time it includes difficulties for supply side circumstance, central bankers, and monetary policy. Some are also debating (although they are divided) how Putin's actions will ultimately affect global currency patterns. I'd suggest that while no one knows how long global dollar dominance could last, this is still an opportune moment for special interest groups to dial back on their dependence of global financial flows for monetary compensation. Especially since this decades long global positioning has added to income inequalities, many of which stem from administrative privilege. In particular, inequality in the U.S. is largely due to tax dependent secondary markets (and their associated housing valuations) where knowledge and skill are essential. 

Meritocratic organizational patterns in dependent markets have become like an endangered species, by aligning too closely with other aspects of elite tendencies (both left and right leaning) in advanced economies. Consider how this matters, for political opponents are now so opposed to each another that both sides are losing the ability to effectively function. This really matters for merit based organization, once profit becomes defined as the strongest limits possible to total applied knowledge participation. Even though the patterns we observe are more often knowledge use losses in rural areas, this is nevertheless symptomatic of continued losses for valuable skills in general, in all of society.

For decades we have taken administrative dominance for granted in the compensation of meritocratic time based knowledge. But unfortunately, administrative capture of monetary value for time based skill sets, creates extensive participation limits in terms of both supply and demand. When price making is used in excess of price taking in equilibrium conditions, the result is inevitably reduced societal coordination patterns (hence loss of mutual trust) for knowledge use. Indeed, our housing asset markets closely represent the pinnacle of what people hope to achieve in monetary compensation for knowledge and skill, instead of the compensation many citizens actually receive. 

The supply side conditions which allowed this circumstance have only been exacerbated since the turn of the 21st century. Small wonder that our educational and healthcare institutions now experience problems at systemic levels with few solutions on offer. Yet applied skill losses tend to occur in ways that aren't necessarily evident, such as in U.S. justice scenarios which greatly impact both lower and middle income levels. For that matter, much of the cultural resistance to vaccines took place in "red" states where rural areas have already long since lost their hospitals and other local healthcare settings.

Should we finally reform knowledge centered citizen participation, recall as well, how closely linked these time based services are with housing. States such as Texas (where I live) have been heavily dependent on property taxes to fund the services citizens rely on, for instance. There are other important economic connections between housing and services as well. A prime example is how the Fed frames housing as a transmission mechanism for monetary policy, which in turn affects the money available for services in given time periods. 

Hence when we highlight possibilities for greater housing affordability, it helps to remember that services access and participation would be closely connected to these efforts. Since services values are reflective of housing, only recall that good deflation in housing would require good deflation in time based services costs. This time based adaptation of local property taxes would only work for citizens if they can actually count on lower mutual time costs for group coordination. In many earlier posts I advocated for time as a formal economic unit. Fortunately, we could design means to connect economic time value to originating wealth or monetary value, via local building patterns for participating groups. I continue to hope that production and ownership reform efforts such as these, might be considered in the near future.

The Economic Freedoms We Still Need

Only in retrospect is it apparent how many economic freedoms we've lost - especially in recent decades. But how to respond, as special interests and legislators alike continue to place limits on our personal agency? 

In particular, consider how we seek to participate in the economy - not just as consumers, but as producers. As producers, we get the chance to experience economic freedom via active and meaningful roles with others. Consequently, the personal agency that derives from active use of skills potential, is more important for personal identity than is sometimes recognized. 

Our active participation in society is vital to innovation possibilities in both our physical and intellectual environments. However, realizing the potential of innovation, also requires that individuals keep a full range of production rights, so that such rights are not constantly diverted to preferred groups and associations. Not only do we need to protect permissions for personal management of physical resources, but also the necessary permissions which allow us to assist others through the use and application of knowledge. 

For that matter, our extent of personal freedom as producers and consumers, affects our ability to retain knowledge. In a recent study the authors discovered that people learn more readily when the relevant material is freely chosen. Despite the fact this education comes with a given bias, the bias framing lends greater meaning to the actions we choose. Indeed, according to the study, "the learning rates were slower in the forced-choice situation than they were in the free-choice one."

The economic freedoms that individuals need in their roles as producers and consumers, are crucial if societies expect to preserve a full range of economic access for all concerned. Production rights matter for ongoing activities which are practical and necessary, but also those which are aspirational and experiential. Perhaps one of the simplest ways to think about production rights is to consider a broader context in which economic freedom is possible. The simplest approach for me in this regard, is to envision how economic freedoms could contribute to the societal processes of maintenance, building, creating, understanding and healing. 

Maintenance is the foundation which supports all the others. From an economic standpoint, sometimes we struggle to maintain economic complexity, since maintenance activities in certain respects are the least compensated of the entire group. Yet even though some maintenance activities are basic in nature, they make it possible to sustain everything else, not only in terms of knowledge and information, but also our physical realities. When we lose crucial economic freedoms at a foundational level, our personal autonomy tends to be compromised in areas of higher levels of economic complexity as well. 

As lower level economic freedoms have been lost, so too society's ability to successfully engage in the higher activities of healing and mutual understanding. Only consider how activities in this regard could otherwise bring the actions of healing to a higher order in terms of positive societal intentions. Even our abilities to build and create are being blunted, and basic healing options are in disarray. In all of this: When people insist that intentions mostly lead to negative outcomes, only recall that intentions always begin at individual and personal levels, and they are both positive and negative in nature. It is only when positive intentions are disallowed, that the inevitable negative intentions societies also hold, come to the fore and gain the upper hand. We need to revive the positive intentions which can protect our economic freedoms, while there is still time to do so.

The Solow Residual is on a Cultural Collision Course

Perhaps there are broader implications of mature economies which we have yet to fully explore. For instance, skills arbitrage which includes highly sought human capital, is distributed (for knowledge providers) in ways which leave little room for further inclusion. But what about intellectual activities which are sometimes more desirable for participants in work settings, than their actual (or potential) consumers? Is is logical to think of participants in the latter example as the "moochers" of economic systems? Even though others who also rely on general equilibrium redistribution are more likely to benefit from the fact their skills include high consumer demand? Or, if "moochers" were somehow disallowed in a time of stretched budgets, what would this suggest about the value - or lack thereof - for experiential services in general?

What's more, how does the Solow residual factor into these considerations? For one, redistribution for the secondary markets of knowledge provision, is also dependent on total factor productivity. Much of TFP is expressed by the Solow residual which Investopedia defines as:

The Solow residual is the portion of an economy's output growth that cannot be attributed to the accumulation of capital and labor, the factors of production. It is a measure of productivity growth that is usually referred to as total factor productivity.

Alas, progress and long term growth as defined by the Solow residual, were more reliable before the dominance of non tradable activity in services generation. Previously, when tradable sector activity comprised a greater portion of general equilibrium, societies were naturally more inclined to make room for intellectual activity - regardless of how it was applied in the marketplace.

As it turns out, more than the Solow model will be needed for wealth creation, before societies regain confidence in full market application for intellect and knowledge. Meanwhile, aggregate productivity is compromised, as high demand human capital gradually crowds out other desirable economic activities. If this weren't enough, "moocher" arguments question redistribution patterns in their entirety, on identity based terms. Arnold Kling, in "Maybe we *are* in an Atlas Shrugged" moment", responds to the recent take down of Scott Alexander's blog, and notes:

Scott Alexander, Less Wrong, and the Intellectual Dark Web occupy a sort of Galt's Gulch. They see the moochers as intellectually deficient. They are trying to uphold an old-fashioned value of scientific objectivity against the moochers' assault of oppressor-oppressed framing. 

Kling further explains his perspective:

I think of the conflict in Randian terms, as industrialists vs. moochers. The industrialists (not in the Rand sense of heavy industry but in the sense of software eating everything) take pride in having shown an ability to build something. It might be something as humble as a section of computer code that gets used. Or it might be as grand as a successful company, or two. The moochers have never built anything, and they are looking for other ways to assuage their egos and fight the zero sum game of status. The moochers have found that social justice activism is a useful weapon for lowering the status of the industrialists.

One problem with the "moocher" categorization, is that until recently, direct sources of originating wealth were easier to come by. Indeed, only a century earlier, most anyone in the U.S. could still take part! Unfortunately, as traditional forms of Solow model productivity have become ever more efficient, the places where wealth origination still takes place, continue to retreat from our personal view as a society. How many local economies are still included? Not near enough! In the aftermath of tremendous Solow model efficiency (on tradable sector terms), is it really reasonable to define millions of individuals and communities as "moocher" status? Doing so is demoralizing for average people with average intelligence, who may desire to build their lives up through physical means. It is also demoralizing for people who - on the other hand - could be happy with life as a series of meaningful experiences.

These are just a few reasons, why we need to redefine what wealth origination actually consists of, in the time based terms which all of society could still utilize for productive and meaningful lives. Until we do, we may end up pointing fingers at society's supposed "losers", while investing in "special" human capital which only continues its collision course with the global redistribution patterns of today's wealth.

Intentional Market Design and Economic Freedom

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

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

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

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

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

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

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

Utilitarian Capitalism (Could Be) Anti-Fragile

How sturdy will our capitalist systems prove to be, in a time of international pandemic? More specifically, are our present day organizational structures more fragile than we previously imagined?

If only it were possible to address this crisis with more utilitarian options, additional fiscal stimulus might prove worthwhile. Instead, most current fiscal stimulus - other than provisions for pressing healthcare needs - will scarcely alleviate the financial burdens which emerge during the course of this pandemic. And unfortunately, too much of our non tradable sector capacity is structured in ways that are profoundly anti-utilitarian. A lot of fiscal stimulus is going to be lost to portions of the economy which are not basic to getting things done, in the days ahead.

In recent decades, much of our supply side capacity became focused on experiential and "quality product" markets. While these markets are valuable, all too often they leave few options for lower income citizens - as consumers - to meet life's basics first. For the most part, our non tradable sectors chose anti-utilitarian routes, in that they were largely designed to create the greatest good for the least number of participants. As governments come to the aid of these now (unexpectedly?) fragile systems, policy makers will find it difficult to meet the needs of their most vulnerable citizens. Unfortunately, the sum total of fiscal stimulus in the days ahead, will create additional debt burdens which still don't address overall economic stability or a safety net for lower income levels.

Eventually, people are likely to demand more basic and utilitarian systems than we presently have, for what are largely non discretionary needs. As Arnold Kling noted in a recent post, "Normal is not an option...Expect supply chains in the future to have a lot more redundancy and to be less driven by cost minimization." An important challenge, however, is to also preserve wealth and productive economic complexity as best we can. The sooner we bring a more utilitarian and flexible approach to our non tradable sector markets, the better.

Regular readers know how much I've praised tradable sector activity in general, since much of its dynamism stems from a uniquely utilitarian impulse. How so? Tradable sectors tend to create the greatest economic good for the greatest number, via product options which represent all income categories, not just those of the middle and upper classes. This is a profound utilitarian result which underlies the prosperity of the recent era we have mostly taken for granted.

But achieving such results in our domestic settings, would mean a refusal to arbitrarily limit supply side definitions in (mostly) non discretionary markets. Until non tradable sectors gain some room to breathe freely, our economic systems are going to become increasingly fragile. Alas, it has finally become evident that strict adherence to specific definitions of quality product, costs lives. At a White House conference earlier this week, Dr. Deborah Birx defended our late start in diagnostics testing for COVID-19, and in doing so she often repeated the need for "quality" product. I must have cringed every time she did so. While the quest to allow only "quality" product is understandable, unfortunately it has led to fragile and incomplete markets, especially in housing and the use of time centered knowledge and skill.

Only recall for example, how continuous calls for quality product eventually led to losses of healthcare provision in rural areas. David McCullough wrote in The Pioneers that when Dr. Samuel Hildreth settled in Marietta, Ohio (1808), the town had "about 180 dwelling houses, and nearly 1500 inhabitants". Yet Dr. Hildreth would be sharing his new practice with five other doctors who were already there!

In all of this, there are both physical and intellectual dimensions to the kinds of utilitarian markets which are urgently needed. Once we finally open the participation of applied knowledge to all citizens, we may also gain greater chances of surviving pandemics. Likewise, should we decide to build a full range of living options representative of all income levels, utilitarian capitalism could come to the rescue of both lives and financial systems. Granted, all such efforts will take time. But it is worth pursuing them now, to make a difference for personal and economic stability in the years to come.

Defined Equilibrium as Defined Product Quality

There is a practical dimension for the potential of defined equilibrium: People would gain economic freedom to define products they regularly use, which are also linked to place and time. In other words, there would be more opportunities to take part in the construction of product which is part of our everyday lives. Non tradable sector product is heavily represented by the basic scarcities of time and place, hence lower income levels could greatly benefit from personal management in these areas.

Without such options, non tradable sectors impose numerous quality requirements on product with time and place connections - especially building construction and services. However, governments are poorly positioned to generate affordable non tradable sector product, in part since quality requirements for luxury product create additional governmental revenue. What's more, when governments seek to impose regulations on non tradable sectors, sometimes the only way to do so is to grant additional favours to the private interests involved.

Ultimately, more decentralization is needed, to prevent these unfortunate incentives from reducing the economic access of even more low income groups. Locally defined equilibrium settings could allow citizens to determine the extent of quality requirements they can reasonably afford. It helps to ask: Which quality gains are obviously real and possibly deemed necessary? How difficult is it, to separate these categories from what are perceived as luxuries?

Fortunately, tradable sectors have been answering such questions with extensive market choices for a long time. Indeed: In recent centuries, alongside the beautiful and exclusive, we have countless examples of inclusive and accessible no frills production. While there are of course notable exceptions, much of this tradable sector product proves capable of fulfilling the required task with minimal fuss and expense. Why has it been so difficult to gain similar options in our non tradable sectors?

Defined equilibrium settings could provide such opportunities, by bringing aggregate non tradable sector costs more in line with the (monetary) wealth potential of tradable sector revenues. These decentralized communities and areas would function in certain respects like opportunity zones, except they would provide new economic opportunities for those willing to invest with personal time commitments. This is an altogether different approach, from the opportunity zones open to investors who are primarily concerned about monetary results. By allowing time units to assume economic value, there would be considerably more breathing space, for society to fulfill its most important tasks and challenges.

Local participants would be able to contribute to non tradable sector innovation, if they can regain sufficient legal production rights in defined equilibrium settings. These locally zoned permissions would once again make it possible for individuals without college degrees, to become part of decision making processes for housing, infrastructure and time based services needs.

Nevertheless, local citizens would have plenty of prior assistance in their efforts to construct simpler functionality in services and the physical building components of their environments. Hierarchical organization remains quite rational in earlier stages of manufacturing components, for instance. These are complex processes which require precise and standardized procedures to function as intended. However, citizens need a stronger say in production management, once physical resources are configured for the "final" product forms that support living and working arrangements.

By far one of the most important aspects of defined equilibrium, would be simplified legal settings which everyone can understand. Legal complexities are problematic enough in any circumstance, but they particularly get in the way of productive lives for those with small wages. When are extensive regulations and legalities actually necessary? In the book Life Without Lawyers, Phillip K. Howard considers this issue:

Two great intellectual currents came together over the past century to bring America to this state of hyper-legalism. The first, which grew naturally out of the Industrial Revolution, is the idea of organizing to do things. Frederick Winslow Taylor, the father of scientific management, preached the idea of creating systems in order to increase productivity. Organization is undeniable essential for complex products. Henry Ford's assembly lines proved that...Today we assume unquestioningly that any activity will be more effective if we detail in advance how to get the job done.

Instead of greater effectiveness, the non tradable sector hierarchical result has led to extensive problems in societal coordination, along multiple dimensions. All too often, the rigid rules of non tradable sectors get in the way of mutual respect and mutual assistance, instead of creating efficiency. It's time to experiment with defined equilibrium settings, so as to make non tradable sector markets more accessible for all citizens.

If the Economy and Middle Class are OK, What's Wrong?

Understandably, people hesitate to take seriously the warnings of bearish observers, when the economy appears to be in good shape. What need is there to complain, given the relative ease of finding employment in many environs? That might help explain why a Reason interview with Russ Roberts was simply titled "Economist Russ Roberts Isn't Worried About The Middle Class."

Of course, reality is more nuanced - as is Russ Roberts, who carefully considers the issues presented in his podcasts. Still, who would deny the correlation between today's dynamic economy and the strength of the middle class? Hence for participants in a recent Gallup poll, non economic issues took precedence over those with more obvious economic implications. 25 percent of respondents were specifically concerned about government and poor leadership, while only 11 percent believed economic issues in general to be a higher priority.

Since the economy is strong, and the middle class appears to have little worry in this regard, why are policy makers paying such lip service to its economic problems? (Particularly if the public's real concern is policy makers?) Scott Sumner explains:

Politicians often complain that middle-class Americans are lagging behind because the system is rigged against them. They are right. But the politicians don't tell the entire story. Only a modest part of the rigging is done by big corporations like Facebook, Google, Goldman Sachs and JP Morgan. The biggest problem is various interest groups comprised of middle class people, who rip off the general public.

If we had free markets in health care, dentistry, optometry, fire protection, home building, car retailing, and many other industries, then we could shed enormous numbers of workers from useless activities. These workers could then produce useful output elsewhere, dramatically boosting real GDP and living standards. 

That's a lot of market restrictions! Sumner ruefully adds:

If a politician promised to crack down on doctors, dentists, teachers, firemen, and older homeowners (like me), they'd certainly get my vote. Unfortunately, that's pretty much the only vote they would get. 

He also acknowledges the extent of improved living standards since the seventies, in spite of all that has stood in the way of such gains. Indeed, for higher income levels, ongoing maintenance in existing physical infrastructure will continue to contribute to public health for the foreseeable future. One observes this especially in areas undergoing gentrification, where extensive municipal and related building costs are still feasible to uphold. On the other hand, lower income levels and communities left behind, may suffer more health setbacks in the decades ahead, if physical infrastructure does not benefit from extensive innovation in the years to come. Hopefully, production reform in these areas will eventually bring municipal costs into a more affordable range for millions of citizens and thousands of communities as well.

As things currently stand, aggregate costs for physical infrastructure and vital time based services are accumulating faster than aggregate government revenues. Alas, buried in these costs are the same public/private crony connections which enrich the lives of some middle class individuals, while making it increasingly difficult for other citizens to fully participate in a modern economy.

For me it is somewhat surprising that more people don't see long term economic burdens in a context similar to governmental issues. After all, it won't be long, before the lack of governmental resources in relation to existing obligations, begins to negatively impact pensions and overall governmental ability to tend to a full range of financial obligations. Once this occurs, taking to the streets in protest, may not be as useful a response as one might imagine.

How to think about our inevitable budgetary shortfalls? In many respects they no longer belong to some distant and unimaginable future. Yet there is still ample hope to turn things around if - instead of casting about for blame - citizens become familiar with the underlying economic structural realities which have brought us to this impasse. It would be better for all concerned, if citizens could explore more decentralized and less costly ways to accomplish important tasks at local levels. A structural approach to growing societal burdens, would mean less severe budgetary ramifications, once the days of reckoning become more obvious. Fortunately, we can build new options for sustainable organizational capacity, in both services generation and physical infrastructure. Why not take a no blame approach this time, in doing what needs to be done.

Personal Production as a Human Right

Markets can't really be considered free, if too many of us aren't being recognized as active contributors to supply side processes. How so? Where once our economic efforts were largely connected with physical production, our economic priorities now are more likely to be associated with time based product. In this context, our time is more important at an experiential level for all concerned, than was the case when most product assumed forms separate from ourselves. Clearly, we face a quickly evolving set of economic circumstance which needs a careful response. Today's services dominance suggests we reexamine whether we are actively contributing to positive personal outcomes - not to mention outcomes which are as voluntary as possible.

Nevertheless, there is considerable confusion about the shift to services production. Presently, many assume only certain forms of human capital need apply for participation on economic terms. Some organizations arbitrage skill so as to manage time based services in ways that are poorly aligned with what providers and recipients prefer. Further, many aspects of personal skill which are important for the applied knowledge of modern economies, are off limits to those who don't complete formal educational processes that involve extensive monetary investment.

As tradable sectors continue to reduce their employment needs, time based services will be a logical transition for many in the coming decades. However, important time based services are presently arbitraged between individuals and the impersonal interface of public or private enterprise, rather than voluntary personal negotiation. Alas, this approach has unfortunately contributed to losses of personal autonomy. When people lose the ability to play active roles in production and consumption which involves extensive personal interaction, they may be forfeiting certain aspects of human dignity and respect in the process. Even though such losses may be more subtle than many of the human rights highlighted in recent centuries, they are still quite important in terms of well being and happiness.

Why haven't more individuals taken a stand in terms of personal production rights? For some, the trade offs can be reasoned away, due to a dynamic consumer economy of material abundance. Among the many benefits of a fortuitous tradable sector history, a wide array of luxuries have essentially been transformed into "necessities".

However, look more closely, and one realizes that skilled time based services have not followed a similar path, nor are they are likely to do so in their present organizational form. Yet non tradable sector requirements have conditioned citizens - especially in recent decades - to accept a wide array of time based services as absolute societal necessities. Otherwise, governments may not have been as willing to bear the burdens of redistribution now required to reimburse skilled services. Nor do the burdens fall solely on governments. Services costs are built into business obligations, just as the costs of applied knowledge compel citizens to seek higher paying employment, than the economy is able to create for all concerned.

If we can reclaim our own capacity to produce as a human right, eventually we would be able to bring down some of these costs and burdens. Clearly, the ways in which we all need to be able to produce for ourselves and others, are important not only for well being, but also human survival. Given the relatively recent historical emphasis on human rights in general, especially those of a political nature, perhaps it isn't surprising that societies have yet to deeply consider economic rights. For that matter, production reform potential for applied knowledge, is just part of the production reform societies need, to bring costs of living back in line with future income - hence revenue - realities. In particular, production rights would also extend to our contributions to the physical environments we live in, as well. Fortunately, we can start anew with organizational patterns for production reform which - instead of adding societal burdens - might ultimately relieve them.

When is Hierarchical Structure a Good Approach?

When do hierarchies contribute to getting tasks accomplished more effectively? This is an important consideration for time arbitrage, which would mostly function via horizontal divisions of labour in relatively flat organizational patterns. Many participants in these processes - regardless of age - would assume active responsibility for the services they seek to create and provide. Often, one's limits in this regard would stem from what other individuals are willing to accept, rather than what institutions refuse to allow in terms of skills provisions and access.

Some aspects of our working lives don't particularly benefit from hierarchical patterns of organization. All the more so, when vertically aligned decision making imposes unnecessary costs and makes it needlessly complicated to get anything done. Fortunately, a wide array of time based services could adapt to a simpler framing which encourages internally managed decision making. Our present day services institutions use hierarchical approaches in part since vertical structure makes it easier to price make for additional income. However, the price making which often comes with hierarchies, discourages the price taking that is full societal time based coordination and participation. Yet it's the latter which encourages people to reach out to others for the full course of their lives. Without such encouragement, the constant permissions process of meritocracy can lead many to believe they are "unworthy" to take part in even basic forms of mutual assistance!

Meritocracy also gets in the way of natural expression. Ideally, an important takeaway for many forms of time based product, would be how participants perceive the experience. Nevertheless, when these activities are institutionally (externally) defined, there's little consideration for the actual circumstance which individuals may face. This inability to take unique factors into account, can detract from the shared experiences of providers and recipients. How much freedom do they have to manage and create a services experience, in the interactions of institutionally defined time based product? If these services could be offered on simpler terms, free markets would more closely represent what individuals actually want to create and provide for one another, as freely participating agents.

On the other hand, there's an entirely different set of organizational considerations, if divisions of labour contribute to final product which is clearly delineated from human input. By way of example, we find strong rationale for externally defined divisions of labour in tradable sector activity, since its final product is the sum of many different - yet specific - actions. Without divisions of labour standardization in such instances, final product could not serve its functional purpose. Hence tradable sector final product is likely to be composed of many different divisions of labour which benefit from external and possibly hierarchical coordination.

Even though time arbitrage could provide many opportunities for non hierarchical patterns of organization, there are still occasions when hierarchical organization could be efficient and even desirable in these settings. For instance, externally defined divisions of labour can be useful to define skills expectations in local projects which are seldom needed. Some skills sets may not be needed locally, to an extent they can be readily included in the local educational patterns of time arbitrage.

Another rationale for hierarchical organization is when multiple participants may be new to local coordination processes. In these instances, communities may not have had time to contribute to local learning opportunities which would simplify egalitarian approaches to mutual assistance. Nevertheless, many hierarchical requirements for services generation need not be ongoing. After all, most individuals hope to assume more autonomous roles in their working relationships, once they become familiar with the needs, expectations and aspirations of their own participating groups.

There are also hierarchical considerations for workplace teams, since team members frequently contribute specific skill sets to the outcomes of group endeavour. Healthcare in particular developed a team approach in the 20th century. However, while healthcare team based price making has functioned reasonably well for higher income levels, it hardly suffices for lower income levels. By way of example, if Medicare in the U.S. were extended to all citizens, the present healthcare system would be quickly bankrupted! A better approach would be to allow lower income levels to adopt knowledge use systems which allow them to internalize educational alignments for mutual assistance. Time arbitrage could ultimately create means for participating low income groups to meet a wide array of healthcare activities.

A certain amount of hierarchical structure would also come into play, for the start up community design of knowledge use systems. Importantly, organizers would want to ensure that community designs aren't needlessly divided between opposing visions of the good life. Everyone's time is scarce, and time arbitrage would include time commitments as a component of local community taxation. Hence opposing visions could quickly get in the way of local aggregate time use possibilities. System co-founders would not be doing their job, if they don't work to ensure that diverse community designs are feasible which reflect the full range of what individual groups hope to create.

Once a given community design is determined, local grid and infrastructure patterns would reflect the main services lifestyle preferences, via a walkable core. From here, more flexible lifestyle and transportation options would begin to define community peripheries. Once these physical aspects of community design are in place, walkable town centers would become a welcoming place for people of all ages, in free markets which represent true services freedom of expression.

Have We Lost Our Desire for Freedom?

And might economists be traveling a similar path? In an article for Cato, Pierre Lemieux reviews James Buchanan's What Should Economists Do?

Economists continue to be mainly interested in advising Leviathan on how it can manipulate people rather than how it can help people better achieve their desires, as Buchanan thought economists should do.

Perhaps the impulse to advise states instead, explains why economics sometimes becomes so political that its contributions to growth and prosperity are called into question. Lemiuex continues:

In America, both major political parties now seem to embrace government power as the only means of "running society" as opposed to spontaneous coordination through markets and individual liberty.

He notes how Buchanan feared that citizens preferred the state to make decisions on their behalf, in order to secure a stable outcome. Might we assume, then, the sacrifice of personal freedom as necessary for a life of relative tranquility?

Chances are, such a disheartening assumption isn't quite so simple. By way of example, most people I've known (including both sides of my family) are quite stubborn about giving up most levels of freedom, in terms of what they hope to gain for themselves! Plus, when governments do reduce freedoms, they tend to do so in ways that aren't clear about what's being further eroded - all the more so for lost production rights which generally morph into more professional ways of getting things done. In many instances, when citizens demand better outcomes in the form of economic access, they aren't exactly offering up their freedom as a sacrifice. And they may also be seeking amends for earlier losses in production means.

Further, the creation of artificial scarcities via professionalization of intellectual property, is how present day special interests assume and share greater authority with government. Given this reality, it is inaccurate to assume governments as the only ones with "parental" inclinations, considering the additional authority bestowed on private interests. When citizens lean excessively on government, they often do so because they believe their market options have been otherwise limited.

Recall as well, how governments set themselves up as mediators between private interests and the public, whenever private interests elect to limit their direct negotiations with citizens. Alas, that's the price special interests pay, when they demand further concessions from government for their benefit! Why would they assume they could somehow keep the resultant government meddling from happening on their turf? As it turns out, what is likely the citizen's innate desire for freedom, comes into conflict with the strong desire for economic freedom on the part of special interests. And when this process goes too far, some begin to assume "freedom for me but not for thee" means no meaningful freedom remains possible, hence become willing to proceed from this political assumption. Let's just hope we don't go there, for we are already too close in some respects. We see how other nations have already gone there before us and may do so again.

When special interests gain additional production rights, knowledge based artificial scarcities affect our freedom to choose as both producers and consumers. In Life is a Series of Presentations, Tony Jeary explains how imposed scarcities affect human decision making:

We are surrounded by advertising messages that promise certain deals "For a Limited Time Only" or "While Supplies Last"...Ironically, one of the main reasons we respond viscerally to these come-ons is that we cherish our freedom to choose. According to a field of study called reactance theory, writes Dr. Cialdini, "Wherever free choice is limited or threatened, the need to retain our freedoms makes us desire them (as well as the goods and services associated with them) significantly more than previously. So when increasing scarcity - or anything else - interferes with our prior access to some item, we will react against the the interference by wanting and trying to possess the item more than before."

Again we probably have not lost our desire for freedom. It could be more likely that nations lose freedoms through endless struggles to maintain them. When are special interests to blame? Is this a process set into motion when citizens lose too much of their ability to directly negotiate with special interests? What happens when citizens can't directly contribute to how market engagement takes place, or how markets are ultimately defined? Yet when citizens end up turning to government intervention instead, doing so often makes things worse. If special interest groups were more approachable, chances are citizens would not be as inclined to seek out governments as intermediaries, and governments might lose some of their paternalistic attributes.

Importantly, while governments tend to relish paternal roles just the same, their effectiveness in this regard will likely be reduced in the near future. It is becoming far more difficult to protect those who lack means to protect themselves, now that the bar for economic participation has been raised so many times by governments and private interests alike. Alas, governments have considerably damaged their own effectiveness, by making extensive agreements with private interests to control supply, even as they become indebted for the support of that supply. These losses in government and market effectiveness, only make authoritarian tendencies more dangerous.

What might these realities suggest for those who (still) believe in free markets? Since libertarians have had such limited success in the political arena, perhaps they might encourage economic settings where political concerns are put aside. Idealistic libertarians who have seemingly gotten nowhere in Washington, could contribute to local market generation which would be geared towards all participants, not just those who happen to have high incomes. When markets work for everyone (and yes, in the U.S. they were more efficient when I was young), there is less incentive for anyone to ask governments to intervene on a regular basis.

For that matter, opening useful markets which were previously shut off, closed down, or prevented from emerging for the first time, could once again encourage lower income levels to become more supportive of markets and free enterprise in general. These markets don't have to materialize in the prosperous regions of national stages where they pose problems for special interests. Nor need these market conditions become imposed on special interests, by authoritarians who are fed up with market limits which impact their own constituencies. They could be constructed in decentralized equilibrium by libertarians, instead.

It hasn't worked out well for economists or libertarians to get caught up in the cultural and political struggles of our day. And it's doubtful that many of us will be able to reduce authoritarian tendencies by engaging in the who gets what of cultural debates. Fortunately, there are still economic solutions that present better options for all concerned. Let's move forward once again, by ensuring that markets create real and useful choices for citizens of all income levels.

Markets Could "Find a Way" for Services

In a post for Econlib, "The Market Finds a Way", Scott Sumner states:

Experts often warn that we are soon going to run out of a natural resource. If so, then we might expect an increase in price which encourages conservation.

What if the impulse to conserve comes well before the price rises? Consider how markets for time value in high skill services, essentially took this approach in the 20th century. Still, even though augmented time value (which includes extensive human capital investment) can be priced at a premium, many forms of time value haven't been factored into the same general equilibrium equation. Consequently, supply side conservation of special skills capacity, may come at the expense of supply side potential for markets as a whole. Clearly, some disequilibrium circumstance is due to artificial scarcity, which may ultimately result in an incomplete market equilibrium for time value.

Presently, the resource potential of aggregate time value appears less promising than should be the case. For many individuals, the total value of their employment potential (working time hours) is insufficient to compensate the service product they may need from existing service markets. These limits in coordination capacity have meant unnecessary production losses and arbitrary supply side limits for markets as a whole. Given the growing demand for high skill services, immigration controls are now the latest prominent "conservation" efforts. As fully compensated time value becomes hoarded by the relative few, more nations are convinced that the time value of millions is insufficient to make their potential contributions worthwhile.

On the other hand, natural resource capacity other than time value is more likely to experience conservation efforts after periods of marketplace abundance and accessible pricing. Time as resource has suffered from imposed artificial scarcities to such a degree, it's difficult to contemplate the fact of its real scarcity for all concerned. Hence the confusing framing of actual resource potential for time value, makes it difficult to build dialogue for a more realistic approach to human capital and applied knowledge conservation.

Sometimes the best way to overcome the problems of market limitations - whatever their cause - is to simply create a new approach for production, altogether. In the above linked post, Scott Sumner goes on to note how aquaculture proved to be much more than a response to high prices, since it also created market solutions for the seemingly intractable problem of overfished oceans:

In many cases, however, that price increase unleashes a new and unforeseen alternative supply. Consider the fishing industry which used to rely on fish caught in the ocean.

He then highlights a graph showing that while capture production peaked in the mid-1990's, there was a considerable rise which was completely attributable to aquaculture. The difference? Capture production was slightly less than 100 m tonnes in 2015, while aquaculture increased total production for that year to approximately 175 m tonnes.

One can also imagine "fish caught in the ocean" as comparable to current service provision expectations in general equilibrium budgets. Many of these "overfished" expectations for applied knowledge are in need of a more concise, locally organized approach. Since aquaculture exemplifies a locally managed setting, it can be likened to a defined equilibrium, much the same as human capital with a potential for local development.

Like aquaculture, time arbitrage could build new resource capacity which exists independently of what the "ocean" (general equilibrium) continues to supply. And like aquaculture, time arbitrage might ensure that more human capital resources become part of the harvest. After all, when time resources are already scarce to begin with, why should aggregate time value become even more scarce due to human capital potential which is still being thrown overboard? With a little luck, markets could still find a better way for the future of services generation.

Can Democracy be Preserved?

Are our brains not as well suited for democratic participation, as one would expect? Rick Shenkman, author of Political Animals: How Our Stone-Age Brain Gets in the Way of Smart Politics, highlights some arguments from Shawn Rosenberg, who is decidedly pessimistic about democracy's future prospects. In a speech to the International Society of Political Psychologists in Lisbon, Rosenberg insisted to the group that despite what autocratic leaders might do to undermine democracy, citizens hold the real blame. Shenkman notes Rosenberg's reasoning:

Democracy is hard work. And as society's "elites" - experts and public figures who help those around them navigate the heavy responsibilities that come with self-rule - have increasingly been sidelined, citizens have proved ill equipped cognitively and emotionally to run a well-functioning democracy. As a consequence, the center has collapsed and millions of frustrated and angst-filled voters have turned in desperation to right wing populists. 

His prediction? "In well-established democracies like the United States, democratic governance will continue its inexorable decline and will finally fail."

Presently, excessive centralization as to how knowledge gets utilized (in the U.S.), only makes it more difficult to bring the opinions of rational citizens to the table. Democracy is not so much problematic as a societal concept; but rather, because of the unevenness in its application, as special interests continue to capture means of knowledge based production. Since the reality of lost production rights has not been addressed, citizens vote instead for access to service production outcomes. Indeed, many understandably believe this to be their only option, even if it often does not make sense. Worse, the ongoing struggle for quality services access is based on supply side means which were structured as secondary markets for wealth creation.

In all of this, education has mostly been intended as a sorting mechanism for a meritocratic elite. If democracy is to be preserved, education needs to become actual engagement in the workplaces and consumption choices of a modern economy, especially in left behind communities. Yet the danger now, is that formal education is questioned regarding its true applicability for citizen majorities. These are the wrong arguments, for education needs to be transformed into economic integration at all levels of society. Losses in knowledge based production rights have proven particularly difficult for countless smaller cities and communities, since it leaves them ill positioned to take part in a 21st century economy.

We have to be careful going forward, once people in positions of power start to reason that most citizens aren't "smart" enough for democratic engagement. That's not so much a natural fact of life, as something that special interests have made more prevalent over time, in their attempts to limit the settings by which meaningful discourse and economic action take place. Such limits create perceptions of genius scarcity, not to mention an imagined scarcity of citizens deemed capable of contributing to societal well being. One's ability to take part in knowledge based work has gradually become more dependent on merit and social position. Only consider how this plays into progressive attitudes as well, as elites denigrate rural citizens who instinctively rebel at being left in powerless positions. Ultimately, preserving democracy means creating new and productive means of economic engagement, for the regions and individuals now stranded along society's periphery.

Fortunately there are still ways that authoritarian impulses might be overcome. However, the most promising approach would be for prosperous regions to actively reach out and become more supportive of regions and communities along society's periphery. New organizational patterns for applied knowledge would allow millions more to take part, in work which also happens to be conducive to the creation of responsible and thoughtful citizens. By taking a decentralized approach to new services generation, small communities would also contribute to a larger whole, by creating new wealth and economic vitality.

Democracies could be preserved, via local forms of direct democracy which align time value for the generation of new service markets. Democracies could still prove sustainable long term, should policy makers gain the courage to restore knowledge production means to the many, not just the few. Future prosperity may well depend on it. There is plenty of logic in augmenting knowledge production means, instead of constantly struggling over knowledge production outcomes.

How Beneficial Is Self Interest?

Without a healthy dose of self interest, most of us would be hard pressed to gain the respect of others or maintain a strong sense of identity. Even so, self interest is one of those areas in life where balance does matter. How to know, when self interest goes too far?

Adam Smith is often recalled, as someone who promoted self interest as important for its civilizing effects on society and contribution to economic dynamism. Indeed, Smith's advocacy in this regard could help explain why self interest is often attributed to modern day capitalism. Nevertheless, self interest is too basic an element in human behavior, to assume it is somehow responsible for either capitalism or other ideological patterns.

Pierre Lemieux,  in"Self-Interest and Capitalism are Not Synonymous", stresses this reality as well. Nevertheless, some have used their support of capitalism as an excuse to impose their own self interest on others to an excessive degree. Again, recall that markets have the greatest capacity to generate civility, when individual self interest is tempered by the self interest of others via ongoing processes of negotiation. Regular readers may recall I've noted losses of civility in non tradable sector services, where personal negotiation is generally lacking for the presentation and experience of time based product. Here's Lemieux:

The superiority of free markets is that they efficiently reconcile the personal interests of the different individuals in society. Efficiency means that free markets lead each individual to serve his fellow humans while pursuing his own self-interest and this in a way that promotes general prosperity. In a socialist or crony-capitalist context, economic interactions become a zero-sum game.

Economic interactions can also become a zero-sum game when taxpayers foot the bill for extensive amounts of time based product, yet millions remain unable to benefit in any meaningful capacity from what these applied knowledge subsidies provide. Alas, these subsidies are more likely to reduce supply side capacity, instead of strengthening it. Lemieux concludes:

Evaluating public policy in a classical liberal or libertarian perspective amounts to asking not whether it furthers my interests or yours instead, but to which extent it allows free markets and their supporting institutions to work; to which extent it allows people to trade according to their own reciprocal interests; or, in certain cases, to which extent such policy emulates the workings of free markets:

Excessive self interest on the part of both public and private enterprise, has contributed to social and political circumstance where life feels more harsh than usual. Let's make more room for free markets which extend to time based services, so that each individual has a greater chance of equal participation with others in the workplaces of the 21st century.

Wealth Can't Be Built On Merit Alone

What makes meritocracy such a long term problem for societal organization? If merit remains the primary workplace option, skills differences among citizens will eventually be magnified in ways which make democracies more fragile than is already the case. I've promoted time arbitrage in part because it could contribute to workplace participation without the present political impulse to sort groups differently, based on prior privilege or the lack thereof.

Granted: To a certain extent, merit based organizational patterns - despite their exclusivity - are logical for getting things done. If institutions can fully compensate employees for their expertise, problem solving on these terms can be quite efficient. When national wealth benefits from extensive use of scale, public and private interests will abundantly reward specialists who - in turn - pay dearly for their human capital investment requirements.

The problem? Dependent markets not only get lots of things done via already existing wealth, extensive price making is also part of the equation. For instance, the Baumol effect includes large percentages of non tradable sector activity at high skill levels. However, this largely rival form of knowledge dispersion can only generate economic dynamism up to a point. Indeed, the barriers to modern economy access are already apparent, for the productive agglomeration of today's knowledge based economy is centered in a relative few prosperous regions. Are we really ready as a society, to impose drastic limits to wealth on these terms?

In the past, "special" locations for skill sorting and applied knowledge weren't so problematic, since millions remained actively engaged in activities where extensive amounts of price taking were also important for social cooperation and economic cohesion. In many of these settings, competition tended to be more pure and transparent. Communities and cities didn't need total integration with high skill knowledge in order to generate prosperity. Now they do. All the same, those who were left behind, will need stronger organizational patterns that utilize the skills capacity which is already in their midst. Fortunately, this also means rediscovering the wealth creation potential of price taking, instead of trying for yet another share of the price making pie - given the claims it has already endured.

Productive agglomeration will need to be conceptualized differently, so that more skills potential might be tapped in time arbitrage context. Since considerable revenue potential has already been apportioned to price making, groups will need to start anew, with price taking mechanisms that allow time value to function as wealth, alongside money. Otherwise, the long term dangers of sorting for skill on price making terms, will only become more evident in the near future.

Let's Focus on Means, Not Outcomes

Alas, sometimes the Fourth of July serves as a reminder that freedoms have become less certain than they once appeared. Political ideology has especially been damaging for personal liberties, as it increasingly focuses on outcomes instead of means. If Democrats once appeared as though the party most responsible for struggles over governmental redistribution, that has changed. It is disconcerting that Republicans who once advocated for wealth creation on the part of all citizens, continue to shift toward a deterministic and essentially outcome based stance.

Any time a nation decides to limits means of production to the province of special interests, it may eventually be in danger of losing both economic and political freedoms. Organizational hierarchies for knowledge based means, have led to supply side realities which left little room for reform from within. Yet sharing the means of production is quite a different concept than it once was. Unlike the traditional manufacture of discretionary goods, much of knowledge based production is non discretionary. As a result, individuals have lost much of their freedom to participate in activities which - instead of being largely a matter of choice - are often basic requirements for living a normal life.

Outcomes for knowledge based endeavour, also tend to be couched in terms of access and cost. Is there a difference? Not as much as one might imagine, because they are both about supply side outcomes rather than means. Tim Taylor recently noted the distinction, perhaps in hopes that dealing with healthcare policy in terms of cost rather than access might bear fruit. Nevertheless, cost and access in this instance are inextricably linked, making them all the more difficult to internally resolve.

Again, nothing can really be done without ultimately addressing the limits of today's knowledge centered production. Likewise, the desire to slash public spending for education and healthcare, in hopes that private enterprise will step in to fill the void, misses the fact that the supply side would still be faced with a constrained equilibrium, in terms of the extent to which it can fully compensate human capital investment seeking entry. Production means have long since determined marketplace outcomes for the organizational patterns currently in use. Unfortunately, these patterns have inadvertently led to a devaluing of human capital potential at a global level, even though that would scarcely have seemed possible before the recent era of high skill services dominance.

Since the product of time and place are scarce and don't readily scale, today's time based product providers needed to create revenue for income and overhead costs by limiting supply. Otherwise, it would not have been easy to fully function in the high value equilibrium generated via centuries of tradable sector wealth. Importantly, these earlier hierarchies were an understandable approach, which also worked reasonably well for a long time and for much of the populace. However, as services sector activity has come to dominate the economy, fewer individuals are now monetarily compensated at a level they can still access high skill services as currently constructed.

Consequently, greater means of production potential will need to be restored to those with limited sources of income, so they too will be able to participate in and contribute to a knowledge based economy. By creating new patterns of organizational means, full participation in a modern economy could once again become possible for the vast majority of citizens. For the sake of freedom and liberty, let's focus on restoring means, instead of struggling over restricted outcomes.

What Really Preserves the Labour Theory of Value?

Who still believes in the labour theory of value, rather than the more recent subjective version? Or, perhaps there's actually a more relevant consideration: How much personal belief in a labour theory of value manifests unconsciously, instead of at an ideological level? Chances are, unconscious attributions for labour value are a stronger contributor to economic outcomes than what is often debated. One might envision the general equilibrium result as power relationships in skills arbitrage, for that matter.

Indeed, underlying assumptions regarding labour value, greatly affect how high skill human capital has been conceptualized, especially since the workplace transitions of the twentieth century. Professional groups often rely on a non tradable sector structural framework which allows human capital inputs to take precedence over the aggregate outputs of time based product.

In this instance, it turns out that subjectivity cuts both ways. Consider how a subjective theory of value in terms of product, previously benefited from direct correlation with good deflation and recognizable gains in standards of living. It made sense to emphasize the subjective reality of product value regardless of labour contribution, when progress could be largely attributed to tradable sector productivity gains. But more recently, subjectivity has become associated with societal expectations as to what quality product represents. The consequent emphasis away from baseline utility, has muddied the waters for product subjectivity, especially for potential labour value contributions. Alas, quality time based product often includes excessive inputs at multiple institutional stages, before the product output intended for consumers actually takes place.

While my impressions re subjectivity dovetail somewhat with those of the Austrian school, many such discussions feel more relevant for historical periods of tradable sector dominace. Madson Pirie reflects on Carl Menger's many contributions to subjective value, and notes:

He founded what is now called the Austrian school. His crucial insight was to recognize that price is not based on what it costs to produce goods, as traditional economists had supposed, giving rise to the labour theory of value on which the edifice of Marxism is built, but on what the demand is for them.

He adds:

...value does not reside in the object, deriving from its input, but resides instead in the mind of the observer, representing his or her estimation of its worth. 

Even if arbitrary definitions for quality standards reduced the impact of good deflation for tradable product, at the very least many forms of tradable sector product provide standard utility which can be readily discerned. Alas this hasn't proven the case in non tradable sectors, where a reasonable baseline for product utility has long been abandoned in favor of requirements which - among other things - have muddied the waters of true productivity gains.

Given the subjectivity of economic outcomes, a better utility baseline is needed for non tradable sector product in general. A better definition of basic non tradable sector utility - especially for housing and time based product options - could clear some of the present fog as to how aggregate productivity, hence potential economic gains, might once again be measured with confidence.

Artificial Intelligence as a "Road to Serfdom"?

Even if so, AI would only be one of many factors which could exacerbate further losses of freedom in the years ahead. In particular, AI should not be scapegoated for the kinds of equilibrium defining actions which humans have been responsible for, all along. What's really at stake, is how individual actors and associations choose to implement artificial intelligence in markets and workplaces. Might its use become mostly limited to the augmentation of professional functions, for instance? Why haven't we thought more about the right to actively participate in applied knowledge, as a valid component of economic and personal freedom?

With complex issues such as these, it helps to recall how supply side considerations also impact economic outcomes - especially for the high skill time based product of service sectors. Given the fact non tradable sector activity has become largely responsible for the dynamism of advanced economies, how might existing opportunities for scale be encouraged? When basic aspects of domestic aggregate output are purposely limited, demand deficiency results. And unfortunately, these general equilibrium conditions don't readily respond to either fiscal or monetary stimulus, when basic supply side factors create most of the existing imbalance.

Today's best opportunities for scale, lie in the greater inclusion of all individuals in economic participation. How so? Our dominant sectors are heavily linked to time and place. Once assets or services are specifically time and place related, the greatest potential for gains in scale is in terms of aggregate participation. This reality is radically different from centuries of tradable sector dominance, in which gains in scale (and progress) were determined by a growing output trajectory which gradually required fewer labour inputs over time.

Plus, no society can remain free, should too many citizens find themselves excluded from the most basic forms of domestic economic activity with connections to time and place. In an article for Project Syndicate, Robert Skidelsky wonders whether AI might contribute to a "road to serfdom", in part because of the slowdown in wage growth:

Studies around the world show that people want secure jobs. At the same time, they have always dreamed of a life free of toil. The rise of the robots has made the tension between these impulses palpable.

Skidelsky also emphasized the fact that technology has in fact been able to bolster wage capacity for a long time. What I believe has not been highlighted enough, is the fact that non tradable sector dominance has proven responsible for much of the present wage conundrum. Yet while technology has already provided millions with workplaces essentially free of physical toil, AI is beginning to enter territory which is increasingly unappealing to professionals. After all, deep learning processes enable AI to supplant some aspects of work which are part of intellectual challenge. Most high skill work has always been free of toil in a "beast of burden" sense.

This is why the high skill work of the present, needs to be recognized for the intellectual challenge rewards it can actually provide, for anyone fortunate enough to take part. Most important, is that much of this is work people would actually be willing to perform even without pay, if the circumstances of their lives allowed them to do so. Just the same, the costs of living in our most prosperous regions not only require one to do desirable work for pay, it needs to be substantial pay to live in these settings as well. Consequently, we still have high hopes which - alas - won't be met, to somehow gain higher incomes and stable jobs for everyone who tries hard enough to obtain them.

Fortunately, good economic options are on the horizon. However, there's still plenty of social turmoil to get through before those options start to become more obvious. And the biggest hurdle which has led to so many dashed hopes, is the myriad of ways society has defined what success supposedly looks like. Presently, we are being ground under by a massive accumulation of societal expectations - even though many of them are little more than lifestyle illusions.

Once we recognize the possibilities of innovating the domestic parts of our economy - that is, the ones which so often manage to make our incomes appear too small, we can begin to redefine the non tradable sector equilibrium conditions which have made the maintenance of our present lifestyles so fragile. AI can help us in this challenge, by radically reducing today's human capital investment costs. Instead of struggling to bring income capacity closer to supposed general equilibrium "necessities", it makes more sense to allow non tradable sector equilibrium dynamics to reflect a wide range of local wage capacity. Eventually, variations on defined local equilibrium, could also give citizens the ability to ensure that AI improves the prospects of all human capital.

Notes on the Economic Nature of (In)Equality

Even though structural economic contributions to inequality are far from clear, they ultimately hold more importance than moral rationale, due to how they inevitably impact social outcomes at some point. Increasingly in advanced nations, it is the assets and services which are scarce due to their direct links with time and place, which matter most for how inequality continues to play out for most citizens. We need a better understanding how our non tradable sector expectations and demands - especially when exacerbated well beyond necessity - affect the conditions of general equilibrium.

Nevertheless, much more is still being expressed about the purported morality of wealthy individuals or firms than structural contributions to inequality (and regular readers also know I believe structural matters go well beyond taxation and regulation). Recently, for instance, Greg Mankiw wondered, what if the prototypical rich person is actually moral? Taking an opposite tack, Branko Milanovic (for ProMarket) wrote that "Davos elites love to advocate for equality - so long as nothing gets done."

While it is sometimes understandable to focus on immorality in marketplace activity, we need to understand the long term equilibrium ramifications, when economic activity which is naturally scarce (in terms of time and place) dominates activities which could otherwise contribute to scale and marketplace expansion. In particular, as economic activity which also experiences artificial constraints begins to dominate, it greatly affects general equilibrium outcomes. After a certain point in this process, inequality becomes entrenched in ways which are often difficult to overcome.

Presently, there is little understanding how the natural scarcities of non tradable sectors affect existing inequalities. These sectors are disrupting the circles of sustainability which tradable sector activity has brought to society in recent centuries. Thus far, the natural scarcities of place and time are especially problematic for wide income variance among citizens in advanced nations, where non tradable sector activity has already dominated tradable sector activity for decades - especially since the former offers few viable economic options for low income levels. Worse, the central bank policy response thus far, has been to withhold sufficient monetary representation, given the dominance in advanced nations of activity which does not readily scale.

Fortunately, the positive part of the story is of course that tradable sector growth in emerging nations continues to lessen existing inequalities across the globe. Any time that activity dominates in which ability to scale is a major component, the proceeds are readily spread among more citizens and participants. In particular, the capitalist contribution to inequality is not necessarily as strong as some on the left have imagined. In Why Most Things Fail (2005), Paul Ormerod expressed concern there was no theoretical framework in which inequality could be understood. He consequently questioned the relevance of the general equilibrium theory (pages 50 and 51) and added:

the most relevant feature of general equilibrium theory is that it tells us nothing at all about the degree of inequality in a society.

However, Ormerod also noted that capitalism delivered to a far greater degree than Karl Marx would ever have expected. Re Marx's "iron law of wages" theory:

The theory has been refuted empirically. The share of wages in national income is considerable higher than it was a century ago, and the share of profits smaller. Workers have become better off relative to capitalists. Indeed, we can go even further than that, for most workers have become in part capitalists themselves. Pension schemes, for example, receive much of their income from dividends on equities, which are, of course, paid out of the profits generated by companies.

Again, consider how wage gains accrued over the last century. It is fair to say that in many instances, the majority of tradable sector activity has been a great contributor to equality. As more individuals were brought into traditional manufacture, there were more consumers for output, and output expansion also (gradually) translated into higher wages. Non tradable sector activity lacks opportunities to equalize or redistribute income, in part because of its existing scarcity constraints for both time and place based output. Of course this is a global reality, and a recent sentiment from Edmund Phelps applies to advanced nations in particular:

The West is in crisis - and so is economics. Rates of return on investment are meager.

Despite the fact so many of us have become capitalists - at least to some degree - it turns out that investment for human capital functions radically differently, if and when it directly links to economic processes which don't scale. Output which doesn't scale is even more problematic since much of it has been expected to occur in places where real estate experiences its highest costs. All too often, what investment gains there are in these circumstance, lack many of the positive cumulative effects which tradable sector wealth provides. While we can't negate the importance of product which doesn't scale, we still need to start thinking outside the box, re how to capture and preserve for long term gain, the wealth of human capital.

Alas, we can't fully compensate all who want to provide skills arbitrage on monetary terms, once economies become dominated by non tradable sector activity. But we can think differently, how to achieve defined equilibrium gains when general equilibrium has exhausted its primary means of continued economic expansion. It's important to do so, given the fact inequality increasingly means an inability for many to participate in the present demands which non tradable sectors have imposed on general equilibrium settings.

Where is the Educational Upside?

A recent post from Bryan Caplan which references his book The Case Against Education: Why the Education System is a Waste of Time and Money, calls to mind a potential twist on the old "markets fail, use markets" argument. "K-12 public education fails. Use K-12 public education!"

Should this juxtaposition seem odd: Where is the structural private sector alternative, to the problems which currently face formal education? Regular readers know how I feel about this matter. Supply side institutions need a chance to meaningfully evolve so as to maintain economic and societal stability. Otherwise, immense quantities of wealth could be lost, should political opponents and populists get the chance to destroy institutions they don't like, despite a lack of institutions which could meaningfully replace them.

Nevertheless, public schooling is caught in an deep conundrum which casts shadows over what it has been able to contribute to a 21st century knowledge based economy. Long before recent voices were raised in protest, some were already questioning the value of present day educational roles. For example: In Gender (1982), Ivan Illich complained how men and women supposedly need "education" as part of growing up, then he continued (page 11):

In traditional societies, they matured without the conditions for growth being perceived as scarce. Now, educational institutions teach them that desirable learning and competence are scarce goods for which men and women must compete. Thus, education turns into the name for learning to live under the assumption of scarcity.

Alas, Illich is right about the scarcity part. In particular, artificially defined skills scarcity led to an incredible transfer of 20th century tradable sector wealth, to professional groups who specialized in time based product. Yet this good fortune could not last forever, and the process is also not well suited for sustainable knowledge use patterns in the 21st century. Already, parts of these non tradable sector supply side activities are being dissembled in the political arena. Nowhere are the results of artificially imposed knowledge scarcity more evident, for instance, than in today's healthcare systems.

Even though formal education doesn't function as well as markets in general, these deep institutional social patterns are nowhere near being superseded by a new reality. If we are to maintain economic stability well into the future (thereby allowing automation to successfully continue reducing labour hours in relation to tradable sector output), nations will need to ask all of their citizens to partake in the world of non tradable sector knowledge.

But we can't extend any such welcome on the earlier terms of wealth capture and non coordinated non tradable sector price making. We can't expand indefinitely, a wealth bonanza that was never intended to serve society as a whole. It's far from easy to think about the implications of this reality, which may partially explain the attitude of those who look forward to less mass production and lower population levels in the future. Ivan Illich also expressed his hope for lower mass production levels, decades earlier in Gender - alongside his desire for permanently reduced economic growth. Hopefully, my readers are well aware, that any heavy structural reductions in economic growth would be anathema to me.

In light of these observations, what about Caplan's essential argument? Even if every "rational" and/or extra bright student were to adopt STEM sensibilities as a way forward, our present system would not be able to miraculously expand its workplace offerings to include every aspiring student on today's generous terms. We have stretched beyond recognition, the boundaries of what originating sources of wealth can be expected to keep redistributing for dependent high skill knowledge sectors. Perhaps some of these harsh realities could help to explain why Lev Novikov, educator and start-up engineer, did not get a substantive response after numerous attempts for open discussion re Caplan's book. As Novikov explained:

The short version is that there was a lot of interest in reading the book, but very little interest in discussing it...The students were extremely reluctant to discuss the book, especially in a group.

Indeed, conversations over the course of the school year, basically came down to two points:

• I always knew school was wasting my time! Is this why you're trying to teach us to program and build stuff?
• I can't argue with his points, but I think he's wrong.

Part of the problem is the context of the discussion: Open ended, perhaps, but with few clear alternatives or positive ways to respond. If the argument feels hypothetical, it's also posed as though we should be rid of public education, whether or not trade-offs have been adequately considered. If this weren't enough, economics discussions are normally chock full of trade-offs! What has to be depressing for these kids, is their growing awareness that today's society doesn't really need many of these soon to be high school graduates, in any meaningful context. Young though they may be, many of them can readily discern the doors which are basically closed to them.

Since we continue to inhabit an economy which derives hierarchical services sector dominance from decades of mass production, we don't yet have a true educational upside. But many individuals love to learn. Many individuals also enjoy intellectual challenges and a chance to contribute to society. Let's not leave the impression that it is irrational for the overwhelming majority of humanity to desire a full life, should anyone happen to be born in the "wrong" circumstance. We can open the doors to a more inclusive and meaningful society, which does not require the high costs of today's non tradable sectors. After all, it is the costs of final goods and services in these sectors, which lead to irrational demands for higher wages than many employers are able to pay.

We need to explore possibilities for an educational upside which contributes to better economic outcomes for all concerned. The best way to do so, is to integrate education in all its diversity, with a full range of activities which people perform on a regular basis. Taxpayer expense for public education tends to be beside the point, especially since so much of this takes place via local property taxes. Let's discuss potential structural changes in education, without belittling those who are still trying to make the best of the system which still exists. We can build a new educational framework which illuminates productive responses to present day wants and needs, instead of simply working to undermine a system which in certain respects has largely outlived its usefulness.