Regular readers know that I prefer posts with more than a single example. However, my strength is quite limited in recent days by a chronic pain issue which I hope to take care of sometime this week, after six months of self management that are no longer working. While I've needed to manage headaches the last fifteen years with over the counter medication, it became a daily process as of last July. Hence I hope to find someone who will remove the two teeth which are responsible for making these headaches (and now neck aches) a daily concern. As of recently, all I want to do is sleep.
Herein lies the problem, in terms of intellectual property. Tooth pulling in the U.S. - important though it might still be - is not a task that just any self respecting dentist wishes to perform anymore. But other individuals are not able to perform this service in their stead (as far as I know) on economic terms. Tooth pulling could be considered an "ordinary" aspect of intellectual property wealth captured by default I suppose - missing marketplace and all. Perhaps there are supply side options in some U.S. cities, but the need to find means for travel is additional stress which someone who has already been in pain, does not need - especially for such a basic services issue.
So I have a question: if professionals are understandably less eager to perform mundane - but necessary - chores as part of their repertoire, why not give the marketplace back to others to do so? (I know, this is a general equilibrium suggestion re further labor division, not time arbitrage) Apparently teeth pulling is a negative signal regarding one's professional status, and indeed the task may no longer provide sufficient revenue to pay the office bills, in areas where dentists seek to gain the most return for their extensive investments.
Of course, value for time based services is also in the eyes of the beholder. Reliable teeth pulling is right up there with "the best" value in use services - should anyone find themselves resorting to slurping down broth and cream of wheat, because it hurts too much to chew real food. And life can feel even more dicey all around, should others need to rely on anyone who ends up in these circumstance.
Plenty of trips to the ER, are also the result of a general lack of access to dentists. Granted, I could apply for government assistance for some reconstructive dental work. However, I've had to seek out time based services on these terms several times over the years, and have long since grown weary of the process. In fact...If I never have to ask for government help again I will be perfectly happy. Hah, perhaps that should be a tombstone inscription for those who are "dead" serious! All joking aside, I've already been reminded that it was dangerous to wait, as long as I did. With a little luck, I'll find a dentist this week who will do the job, so I can get my strength back.
What brought this subject to mind, was a paper about the fact intellectual property has increasingly substituted for labor. While one thinks of intellectual property rights as important for cutting edge material, author protection, and also experiential goods, these protections also exist for the mundane aspects of time based services (i.e. life) which everyone needs but providers can't charge the fees which pay for general equilibrium. Since the paper is in the form of a file, I provided a link to Arnold Kling's (referencing) post, so that readers can download the paper as they wish.
Even though the political left and right may actually agree about intellectual property problems, their ideas for coping with this reality could scarcely be further apart, at present. I hope to spend some time with the above referenced paper, and share some further thoughts about it soon.
Sunday, January 10, 2016
Friday, January 8, 2016
Notes on Solow Model Effects in General Equilibrium
I had begun a post yesterday on this subject only to delete it, links and all. Yet today these thoughts remain uppermost in my mind, so I'll try again from a different angle. The Solow model in general equilibrium, is an instance when microeconomic effects also play a substantial role in macroeconomic outcomes. The (internal) labor force substitutions implied by the Solow model, have played out in slow motion in recent decades, as tradable goods formation has given way to the growing wealth of non tradable sectors.
As best as I can tell, interest rates began their long term decline, once the consumption requirements of housing/services and their accompanying credit became more important for non tradable sectors. These revenues provided additional funding for asymmetric compensation, in what could be termed a steady state economy around 1980. Many governments increased their reliance on asset formation during these years, as tradable goods wealth became less prominent. According to Wikipedia,
Today's services formation claimed their dominant role in the wealth of GDP, through following the Solow model as it had been utilized by tradable sectors. Again, these organizational patterns kept capital and labor in check, while focusing on output growth. But what about the results? While this time based product approach should contribute to per capita growth, it's the fixed capital and labor (in relation to output), which places internal limits on both time value and knowledge use (human capital) options. These limits - in turn - affect both the nature of time based product, and ultimately the dispersal of knowledge which is associated with time value.
Hence the Solow model for time based services organization, may negatively affect both aggregate participation and aggregate knowledge use gains. Diversity in knowledge use options is at stake, when time value is replaced by separately existing (duplicative) product to protect the bottom line and limit expense in asymmetric compensation.
Instead of knowledge use growth, asymmetrically compensated services increased output by generating product which substituted for time value. One example is the use of prescription drugs, which now substitutes for a wide range of time based healing activities that were employed for centuries. In other words, less time has been asymmetrically compensated for the specific circumstance involved between provider and recipient, to arrive at the desired services product. Likewise for what had been more spontaneous forms of research, prior to the twentieth century.
Why is this problematic, in terms of aggregate output and labor force participation? First, recall that services organization is not yet offered as free standing wealth, and its formation remains nested within the wealth creation of traditional production. Institutions reduce labor costs, in part because asymmetric compensation relies on preexisting revenues. Even though asymmetric compensation is logical - given wide variations in aptitude - this approach remains dependent on a growing tradable sector, in order to maintain employment capacity. Presently, worldwide tradable sectors have become somewhat weakened, by the fact that time value is not a source of wealth creation in its own right.
Consider why the Solow Model was able to maintain strong labor force participation, for so long. The Solow model was perfectly suited for tradable goods formation, given the fact that tradable product value need not be affected with a smaller time component. Also, the Solow model of reduced labor force participation (in time based services) relative to output, was not problematic decades earlier, so long as tradable sectors were growing in relation to non tradable sectors. The present problem occurred, as non tradable sector growth gradually overtook tradable sector growth. Instead of directly addressing the issue as it developed - however - governments in developed nations used asset formation, to compensate for their loss of revenue flows from tradable sectors.
Once the greatest benefits of the Solow model process became sidelined, government compensated by raising the consumption requirements for both asset formation and services product in non tradable sectors. Prior to the eighties, when individuals lost a job, they were often able to gain new work through still growing diversity in tradable goods formation. Finally, tradable goods sectors lost the ability to generate more labor force participation at aggregate levels. From that point forward, services employment developed insofar as these sectors received revenues from asset formation and the remaining redistribution of traditional manufacture.
Clearly, the Solow model - "workhorse" though it remains for tradable goods structure, is insufficient for the potential growth and stabilization of time based services - either in mature economies or developing economies for that matter. When the most important product is time based, one cannot remove time value from the equation and expect the same result in terms of knowledge use diversity and human capital.
Without a clearly designated marketplace which represents the finite nature of time value, productivity is lost because individuals can't discern time value in relation to one another (i.e. comparative advantage). Without this capacity, civility in general also suffers. Hopefully, production gains for the 21st century can be approached through better organizational capacity, than what has transpired thus far.
As best as I can tell, interest rates began their long term decline, once the consumption requirements of housing/services and their accompanying credit became more important for non tradable sectors. These revenues provided additional funding for asymmetric compensation, in what could be termed a steady state economy around 1980. Many governments increased their reliance on asset formation during these years, as tradable goods wealth became less prominent. According to Wikipedia,
The steady state economy is an entirely physical concept. Any non physical components of an economy (e.g. knowledge) can grow indefinitely.Of course - unfortunately - it has quite become obvious that knowledge use has not been able to grow indefinitely, once nations reach a certain degree of maturity in their tradable goods structure. Citizens are increasingly on edge, as the still secondary role of knowledge use, places time based services into the crosshairs of competing groups.
Today's services formation claimed their dominant role in the wealth of GDP, through following the Solow model as it had been utilized by tradable sectors. Again, these organizational patterns kept capital and labor in check, while focusing on output growth. But what about the results? While this time based product approach should contribute to per capita growth, it's the fixed capital and labor (in relation to output), which places internal limits on both time value and knowledge use (human capital) options. These limits - in turn - affect both the nature of time based product, and ultimately the dispersal of knowledge which is associated with time value.
Hence the Solow model for time based services organization, may negatively affect both aggregate participation and aggregate knowledge use gains. Diversity in knowledge use options is at stake, when time value is replaced by separately existing (duplicative) product to protect the bottom line and limit expense in asymmetric compensation.
Instead of knowledge use growth, asymmetrically compensated services increased output by generating product which substituted for time value. One example is the use of prescription drugs, which now substitutes for a wide range of time based healing activities that were employed for centuries. In other words, less time has been asymmetrically compensated for the specific circumstance involved between provider and recipient, to arrive at the desired services product. Likewise for what had been more spontaneous forms of research, prior to the twentieth century.
Why is this problematic, in terms of aggregate output and labor force participation? First, recall that services organization is not yet offered as free standing wealth, and its formation remains nested within the wealth creation of traditional production. Institutions reduce labor costs, in part because asymmetric compensation relies on preexisting revenues. Even though asymmetric compensation is logical - given wide variations in aptitude - this approach remains dependent on a growing tradable sector, in order to maintain employment capacity. Presently, worldwide tradable sectors have become somewhat weakened, by the fact that time value is not a source of wealth creation in its own right.
Consider why the Solow Model was able to maintain strong labor force participation, for so long. The Solow model was perfectly suited for tradable goods formation, given the fact that tradable product value need not be affected with a smaller time component. Also, the Solow model of reduced labor force participation (in time based services) relative to output, was not problematic decades earlier, so long as tradable sectors were growing in relation to non tradable sectors. The present problem occurred, as non tradable sector growth gradually overtook tradable sector growth. Instead of directly addressing the issue as it developed - however - governments in developed nations used asset formation, to compensate for their loss of revenue flows from tradable sectors.
Once the greatest benefits of the Solow model process became sidelined, government compensated by raising the consumption requirements for both asset formation and services product in non tradable sectors. Prior to the eighties, when individuals lost a job, they were often able to gain new work through still growing diversity in tradable goods formation. Finally, tradable goods sectors lost the ability to generate more labor force participation at aggregate levels. From that point forward, services employment developed insofar as these sectors received revenues from asset formation and the remaining redistribution of traditional manufacture.
Clearly, the Solow model - "workhorse" though it remains for tradable goods structure, is insufficient for the potential growth and stabilization of time based services - either in mature economies or developing economies for that matter. When the most important product is time based, one cannot remove time value from the equation and expect the same result in terms of knowledge use diversity and human capital.
Without a clearly designated marketplace which represents the finite nature of time value, productivity is lost because individuals can't discern time value in relation to one another (i.e. comparative advantage). Without this capacity, civility in general also suffers. Hopefully, production gains for the 21st century can be approached through better organizational capacity, than what has transpired thus far.
Wednesday, January 6, 2016
Comparative Advantage and the Marketplace for Time Value
In a recent article from The Freeman, Michael Munger suggests that comparative advantage should be downgraded as a primary concept, and that trade has evolved in ways which appear to make other factors more important. Here's Munger:
There are other market considerations where comparative advantage will continue to hold importance as well. The most obvious example of comparative advantage in tradable sectors, is agricultural product which often needs specific geographic circumstance. Geography is also important for comparative advantage, in locally managed (non tradable sector) wealth endowments such as natural beauty, historical tourism and multiple forms of group coordinated experiential product.
How to think about comparative advantage in terms of time use, when time value is an important part of the final product? Unlike product which essentially exists separately from time use, service product not only includes how we feel about the production or consumption process, that impression becomes an actual component of the economic interaction.
This is why comparative advantages between providers, consumers and their mutually associated time/place agreements are so important. Whereas coordinated time and place for tradable goods is often not a central component of these forms of exchange, because tradable goods are mostly utilized - or otherwise experienced - separately, after the point of purchase.
Internally (group) coordinated time based product, would include comparative advantage of one's "basket" of time use options, in the decision to produce or consume. Personal concerns for production and consumption of time based product, would not be about "best bargains" or the like, but rather meaningfulness and effectiveness for mutually shared time. Even so, comparative advantage would benefit from a marketplace for time value (alongside money), for these elements of personal choice to be possible.
A marketplace for time value, would generate local conditions for time to serve (alongside money) as a medium of account, a medium of exchange and also a store of value - albeit in far simpler terms than these associations carry through monetary exchange. Granted, a time based marketplace would be neither possible or desirable, in the normal value in exchange conditions of general equilibrium. Just the same, the spontaneous nature of external coordination also carries asymmetrical costs which automatically limit the services that are possible in general equilibrum.
Time arbitrage would provide the option of symmetrical costs for time value, which could both simplify and increase the availability of services production. To be an entrepreneur of one's own time production, is to add real value. Indeed, it is fair to suggest that - in the eye of the beholder - possibly as much value as any new tradable good in the marketplace.
Comparative advantage is not a separate concept at all. It is simply an explanation of the implications of the division of labor and opportunity cost.For tradable goods sectors, Munger's arguments are reasonably solid - in terms of untapped potential in these areas. As to non tradable sectors, however, comparative advantage has scarcely been utilized in the immediate or personal sense, where time based services particularly count. Not only would comparative advantage in service formation allow for a freer market in services, this concept also suggests organizational shifts in time utilization which have yet to be explored. Until now, comparative advantage in services has often been replaced with hierarchical expectations which have also substituted for knowledge use options.
There are other market considerations where comparative advantage will continue to hold importance as well. The most obvious example of comparative advantage in tradable sectors, is agricultural product which often needs specific geographic circumstance. Geography is also important for comparative advantage, in locally managed (non tradable sector) wealth endowments such as natural beauty, historical tourism and multiple forms of group coordinated experiential product.
How to think about comparative advantage in terms of time use, when time value is an important part of the final product? Unlike product which essentially exists separately from time use, service product not only includes how we feel about the production or consumption process, that impression becomes an actual component of the economic interaction.
This is why comparative advantages between providers, consumers and their mutually associated time/place agreements are so important. Whereas coordinated time and place for tradable goods is often not a central component of these forms of exchange, because tradable goods are mostly utilized - or otherwise experienced - separately, after the point of purchase.
Internally (group) coordinated time based product, would include comparative advantage of one's "basket" of time use options, in the decision to produce or consume. Personal concerns for production and consumption of time based product, would not be about "best bargains" or the like, but rather meaningfulness and effectiveness for mutually shared time. Even so, comparative advantage would benefit from a marketplace for time value (alongside money), for these elements of personal choice to be possible.
A marketplace for time value, would generate local conditions for time to serve (alongside money) as a medium of account, a medium of exchange and also a store of value - albeit in far simpler terms than these associations carry through monetary exchange. Granted, a time based marketplace would be neither possible or desirable, in the normal value in exchange conditions of general equilibrium. Just the same, the spontaneous nature of external coordination also carries asymmetrical costs which automatically limit the services that are possible in general equilibrum.
Time arbitrage would provide the option of symmetrical costs for time value, which could both simplify and increase the availability of services production. To be an entrepreneur of one's own time production, is to add real value. Indeed, it is fair to suggest that - in the eye of the beholder - possibly as much value as any new tradable good in the marketplace.
Tuesday, January 5, 2016
Reverse the Decline: Just Do It
Perhaps the good news, is that economic decline is not inevitable. However, few monetary or structural means (to reverse decline) have been actively considered, and NIMBYs of all stripes are still "winning the day". The Fed has not addressed its own mistakes which greatly contributed to the Great Recession, nor have central bankers in the U.S. proposed the option of a level nominal target. And in spite of ongoing contractionary effects, the Fed is doubling down on the harsh tool that is interest on reserves. These monetary policy actions - alongside the premature process of rising interest rates - could lower economic output for the foreseeable future.
Why have policy makers been so determined to continue monetary tightening in a sluggish economy? One way to address this unfortunate circumstance, would be to make loan origination unnecessary for the economic activities of local corporations. Monetary origination in these instances would begin with mutually backed services endeavor, which in turn would also be utilized for local investment in infrastructure and asset generation.
Since banks have seemingly grown "weary" of making loans, it is time to consider new forms of wealth creation which do not require loan formation. While loan processes will always be needed for high volume activity and major economic players, the participants who reside in areas which lack sufficient economic complexity, are ready for new sets of monetary and economic options.
This is one reason I've suggested time backed money, in order to create a broader, more stable foundation for wealth through knowledge based services. Time backed money would provide long term mutual coordination for services needs, which consequently would not need to rely on other forms of existing wealth. Since this approach would also generate further services growth on monetary terms, knowledge use systems would prove capable of assisting governments with long term budgetary issues.
Supply side conditions are such that many market participants have painted themselves into a corner. How many recognize the fact that since central bankers have chosen to limit monetary formation, someone is being shorted? One reason Fed language has become so obscured, is that straight answers re what is occurring, would not be pretty. Indeed, an honest assessment might be deciphered as such: "We can no longer back all of your existing obligations to one another, even if we can't tell you so, directly."
As a result, everyone's existing output and total resource capacity are at stake. Indeed, how could central bankers, who are themselves accountable to supply side interests, have been expected to explain to various interests that they needed to reconstruct their own organizational capacity on more productive terms? Since too few individuals had the professional audacity to promote innovative reform, central bankers are now instead refusing to honor the manner in which non tradable sector costs are routinely presented to the public - even while populations are reassured regarding benefits from widespread good deflation!
Had good deflation occurred to the degree suggested, no central banker would now feel the need to "draw the line" on actual compensation for spending and expenditures, in private. Because of the way this situation is playing out, there's a chance that bad deflation will generate further losses which cannot be regained. It was not my intention to come across as inflammatory with this post. Still, I needed to search for some form of rationale, in order to make sense of what has become broken logic in the political sphere, all around. As Scott Sumner recently noted,
Why have policy makers been so determined to continue monetary tightening in a sluggish economy? One way to address this unfortunate circumstance, would be to make loan origination unnecessary for the economic activities of local corporations. Monetary origination in these instances would begin with mutually backed services endeavor, which in turn would also be utilized for local investment in infrastructure and asset generation.
Since banks have seemingly grown "weary" of making loans, it is time to consider new forms of wealth creation which do not require loan formation. While loan processes will always be needed for high volume activity and major economic players, the participants who reside in areas which lack sufficient economic complexity, are ready for new sets of monetary and economic options.
This is one reason I've suggested time backed money, in order to create a broader, more stable foundation for wealth through knowledge based services. Time backed money would provide long term mutual coordination for services needs, which consequently would not need to rely on other forms of existing wealth. Since this approach would also generate further services growth on monetary terms, knowledge use systems would prove capable of assisting governments with long term budgetary issues.
Supply side conditions are such that many market participants have painted themselves into a corner. How many recognize the fact that since central bankers have chosen to limit monetary formation, someone is being shorted? One reason Fed language has become so obscured, is that straight answers re what is occurring, would not be pretty. Indeed, an honest assessment might be deciphered as such: "We can no longer back all of your existing obligations to one another, even if we can't tell you so, directly."
As a result, everyone's existing output and total resource capacity are at stake. Indeed, how could central bankers, who are themselves accountable to supply side interests, have been expected to explain to various interests that they needed to reconstruct their own organizational capacity on more productive terms? Since too few individuals had the professional audacity to promote innovative reform, central bankers are now instead refusing to honor the manner in which non tradable sector costs are routinely presented to the public - even while populations are reassured regarding benefits from widespread good deflation!
Had good deflation occurred to the degree suggested, no central banker would now feel the need to "draw the line" on actual compensation for spending and expenditures, in private. Because of the way this situation is playing out, there's a chance that bad deflation will generate further losses which cannot be regained. It was not my intention to come across as inflammatory with this post. Still, I needed to search for some form of rationale, in order to make sense of what has become broken logic in the political sphere, all around. As Scott Sumner recently noted,
After 2003 the GOP took some increasingly silly positions on a wide range of issues. They became widely viewed as the "stupid party".If Republicans unexpectedly refused to focus on growth and economic concerns, Democrats would have done so in their stead, were it possible. That's just the problem. As services continue to remain dependent on traditional production, both services and traditional production are held back, since services wealth thus far has not gained the organizational capacity to strike out on its own. Perhaps in the years ahead, knowledge use can remain a stable factor not just for fiscal goals, but monetary goals as well. Let's reverse the decline, and begin the process of envisioning new services formation on monetary terms.
Monday, January 4, 2016
Time Based Markets as Secondary Markets
Why is healthcare, as a time based product in many respects, "differently priced"? Timothy Taylor notes this as a "market malfunction" in a recent post, and he says:
Imagine secondary markets as encased (or nested) in the primary markets of commodities and asset formation, even though they ultimately take different forms and have contributed to wealth thus far through less quantifiable means. Hence there are different outcomes for both output aggregates and pricing structures in secondary services markets, than one might expect from traditional manufacture, for instance. Cultural factors can also play a role, in the monetary values which are assigned to knowledge use.
Since the most important form of knowledge based product remains linked to time and place, pricing for time based services plays out through a wide range of potential resource capacity. Time based services flourish where resource potential is abundant, yet may be sparse and poorly compensated where (economic) complexity is missing. These factors explain why some time based product is not exposed to the price leveling effects of international markets, which rely on common internal characteristics of specific firms. Even though time based services product needs more "tradable" characteristics, it shouldn't be expected to carry the same pricing characteristics across space and time which apply to time compensation in tradable sectors.
Consider compensated time value from a broader perspective for a moment, i.e. one of general employment capacity. In a sense, any compensated time value can be thought of as a secondary market, and today's compensated time value still originates from already existing wealth sources. However, there is a crucial difference for time value which is compensated as free standing and time based services, versus time value as compensated within specific organizational structures that designate time value according to internal resource availability.
It helps to remember that free standing (defined) services product is compensated "externally" (multiple institutions), either by monetary (private) or fiscal sources, which have in common various local/non local preexisting wealth.* While free standing services product relies on multiple institutions to generate unique time value pricing, compensation for time value within tradable sectors relies on single institutions, for similar sets of internal resource capacity. This is what allows salary formation in tradable sectors to come closer to the pricing levels that are also represented by product which is sold worldwide.
Another important aspect of time value as a secondary market, is that supply side conditions have been more conducive for the resource capacity which generates product existing separately from time value. In other words; commodities, products and asset flows can be bottlenecked by limits in aggregate time value - a process which also reduces much needed velocity. Even though recession is associated with excess demand for money, there is also excess demand for time value - particularly when tight monetary conditions are shorting aggregate time value into the foreseeable future.
Importantly, if formal time arbitrage were to be adopted, it would still be a secondary marketplace much as other nominal income is represented. Also, formal time arbitrage would generate compensation (i.e. prices) for time value which don't necessarily correlate with prices for time value in other economic context. As alternative equilibrium, local corporations would internalize symmetrically coordinated services formation, much as worldwide corporations organize time value for product which exists separately from time value.
Asymmetric compensation for time based services - widespread though it may presently be, remains fragile to changing economic conditions. When the economic circumstance of nations becomes fragile, so too does asymmetrically compensated services formation. In some instances, this form of knowledge based services would no longer be perceived as necessary, should economic conditions not remain conducive for full asymmetric valuations. While individuals would of course continue to desire services, they would nonetheless purchase time based services in relation to personal time constraints and personal resource access. Only consider the differences in this regard for income levels, to note how different services demand could actually play out, in contrast with other forms of product demand.
As a result, time based services are dependent not just on the monetary support of assets or other output, but also aggregate income representation. Hence policy makers should not make the mistake of assuming that time value - as a secondary marketplace - is only a secondary priority. On the contrary, time value should be considered among the highest priorities for central bankers, if economies are to remain stable.
*A bit of perspective: local corporations would coordinate internal resource capacity alongside the compensation of time value for service formation, much as worldwide corporations presently tap internal resources to compensate time value for labor in general. Also, even though time arbitrage would not be dependent on already existing wealth, it would still be a secondary marketplace in the sense that it would need to take place through a system of ongoing organizational capacity.
Both asymmetric and symmetric time value are "unique", in contrast to the common pricing factors of an international tradable goods marketplace. Time value relies on unique conditions and environments, hence unique pricing, and it is highly finite in relation to otherwise "infinite" resource capacity. The danger for asymmetric pricing is to assume that the relationship between time value and other forms of resource capacity is not important.
One of the signs of a well functioning market is that prices for very similar goods or services are much the same in different places.Clearly, similar pricing isn't the case for healthcare, which for purposes of this post will be included in an overall - or theoretical - time/knowledge use services designation. First, I should begin with the fact that the post title is based on an observation which - as someone who is not an economist - has taken me years to decipher. There are many reasons why secondary markets matter, in that they play a relatively new role for macroeconomic outcomes and long term growth potential.
Imagine secondary markets as encased (or nested) in the primary markets of commodities and asset formation, even though they ultimately take different forms and have contributed to wealth thus far through less quantifiable means. Hence there are different outcomes for both output aggregates and pricing structures in secondary services markets, than one might expect from traditional manufacture, for instance. Cultural factors can also play a role, in the monetary values which are assigned to knowledge use.
Since the most important form of knowledge based product remains linked to time and place, pricing for time based services plays out through a wide range of potential resource capacity. Time based services flourish where resource potential is abundant, yet may be sparse and poorly compensated where (economic) complexity is missing. These factors explain why some time based product is not exposed to the price leveling effects of international markets, which rely on common internal characteristics of specific firms. Even though time based services product needs more "tradable" characteristics, it shouldn't be expected to carry the same pricing characteristics across space and time which apply to time compensation in tradable sectors.
Consider compensated time value from a broader perspective for a moment, i.e. one of general employment capacity. In a sense, any compensated time value can be thought of as a secondary market, and today's compensated time value still originates from already existing wealth sources. However, there is a crucial difference for time value which is compensated as free standing and time based services, versus time value as compensated within specific organizational structures that designate time value according to internal resource availability.
It helps to remember that free standing (defined) services product is compensated "externally" (multiple institutions), either by monetary (private) or fiscal sources, which have in common various local/non local preexisting wealth.* While free standing services product relies on multiple institutions to generate unique time value pricing, compensation for time value within tradable sectors relies on single institutions, for similar sets of internal resource capacity. This is what allows salary formation in tradable sectors to come closer to the pricing levels that are also represented by product which is sold worldwide.
Another important aspect of time value as a secondary market, is that supply side conditions have been more conducive for the resource capacity which generates product existing separately from time value. In other words; commodities, products and asset flows can be bottlenecked by limits in aggregate time value - a process which also reduces much needed velocity. Even though recession is associated with excess demand for money, there is also excess demand for time value - particularly when tight monetary conditions are shorting aggregate time value into the foreseeable future.
Importantly, if formal time arbitrage were to be adopted, it would still be a secondary marketplace much as other nominal income is represented. Also, formal time arbitrage would generate compensation (i.e. prices) for time value which don't necessarily correlate with prices for time value in other economic context. As alternative equilibrium, local corporations would internalize symmetrically coordinated services formation, much as worldwide corporations organize time value for product which exists separately from time value.
Asymmetric compensation for time based services - widespread though it may presently be, remains fragile to changing economic conditions. When the economic circumstance of nations becomes fragile, so too does asymmetrically compensated services formation. In some instances, this form of knowledge based services would no longer be perceived as necessary, should economic conditions not remain conducive for full asymmetric valuations. While individuals would of course continue to desire services, they would nonetheless purchase time based services in relation to personal time constraints and personal resource access. Only consider the differences in this regard for income levels, to note how different services demand could actually play out, in contrast with other forms of product demand.
As a result, time based services are dependent not just on the monetary support of assets or other output, but also aggregate income representation. Hence policy makers should not make the mistake of assuming that time value - as a secondary marketplace - is only a secondary priority. On the contrary, time value should be considered among the highest priorities for central bankers, if economies are to remain stable.
*A bit of perspective: local corporations would coordinate internal resource capacity alongside the compensation of time value for service formation, much as worldwide corporations presently tap internal resources to compensate time value for labor in general. Also, even though time arbitrage would not be dependent on already existing wealth, it would still be a secondary marketplace in the sense that it would need to take place through a system of ongoing organizational capacity.
Both asymmetric and symmetric time value are "unique", in contrast to the common pricing factors of an international tradable goods marketplace. Time value relies on unique conditions and environments, hence unique pricing, and it is highly finite in relation to otherwise "infinite" resource capacity. The danger for asymmetric pricing is to assume that the relationship between time value and other forms of resource capacity is not important.
Sunday, January 3, 2016
When Education "Overcame" the Technological Divide
Today, technology (once again) appears capable of reducing labor force participation, in the near future. However, it won't be as easy for fiscal policy - much of which still includes the compensation of knowledge based services - to "come to the rescue". This is problematic, in that services formation has been a greater contributor to growth than traditional manufacture, for decades - particularly in developed nations.
Fortunately, broad educational integration proved to be a strong contributing factor, for greater labor force participation in the twentieth century. Increased services formation also smoothed over losses in agricultural employment, as work on the farm gradually became a small percentage of the population. Small wonder, that the progressive movement gained momentum which resulted in real knowledge based gains. But how much of this desire to "bring education to the masses", was more about the creation of educational jobs, as governments benefited from technological wealth?
Education remains vitally important, in spite of the fact its current configuration is generating doubts. "Education as access" (to a crowded general equilibrium) is less certain, in worldwide economic circumstance which now include excessive monetary tightening. Among other problems, education's current organizational capacity, will prove less capable of contributing to long term growth.
Granted, some degree of formal education will remain tenable, but a growing number of nations may not be able to sufficiently maintain asymmetric compensation for knowledge use. The progressive format for education is no longer enough. Not only is formal education too open ended for a wide range of actual work patterns, but education as experiential product was largely abandoned, in favor of the product of access. As a result, real value is in danger of being lost, for multiple disciplines of which their greatest contribution is in the form of experiential product.
Education needs a more direct connection with daily life, in order to overcome the new technological divide of the 21st century. In an earlier era, fiscal support for educational capacity perhaps made more sense. But today, education needs to come into its own - in terms of pragmatic challenges and experiential challenges as well. A marketplace for time value - in particular - would allow education to become better integrated with everyday life.
If educational capacity hasn't sufficiently evolved, there's also the fact that widespread knowledge use potential is a relatively new circumstance. This value in use potential need not be a threat, to the value in exchange services systems which define today's most prosperous cities and regions. The fact that not everyone can live in the most desirable regions of the world, should be incentive enough to bring knowledge use to those who have inadvertently been shut out from wealth and prosperity. Should this occur, education and knowledge use could gain the ability to overcome the technological - and social - divide of the 21st century.
Fortunately, broad educational integration proved to be a strong contributing factor, for greater labor force participation in the twentieth century. Increased services formation also smoothed over losses in agricultural employment, as work on the farm gradually became a small percentage of the population. Small wonder, that the progressive movement gained momentum which resulted in real knowledge based gains. But how much of this desire to "bring education to the masses", was more about the creation of educational jobs, as governments benefited from technological wealth?
Education remains vitally important, in spite of the fact its current configuration is generating doubts. "Education as access" (to a crowded general equilibrium) is less certain, in worldwide economic circumstance which now include excessive monetary tightening. Among other problems, education's current organizational capacity, will prove less capable of contributing to long term growth.
Granted, some degree of formal education will remain tenable, but a growing number of nations may not be able to sufficiently maintain asymmetric compensation for knowledge use. The progressive format for education is no longer enough. Not only is formal education too open ended for a wide range of actual work patterns, but education as experiential product was largely abandoned, in favor of the product of access. As a result, real value is in danger of being lost, for multiple disciplines of which their greatest contribution is in the form of experiential product.
Education needs a more direct connection with daily life, in order to overcome the new technological divide of the 21st century. In an earlier era, fiscal support for educational capacity perhaps made more sense. But today, education needs to come into its own - in terms of pragmatic challenges and experiential challenges as well. A marketplace for time value - in particular - would allow education to become better integrated with everyday life.
If educational capacity hasn't sufficiently evolved, there's also the fact that widespread knowledge use potential is a relatively new circumstance. This value in use potential need not be a threat, to the value in exchange services systems which define today's most prosperous cities and regions. The fact that not everyone can live in the most desirable regions of the world, should be incentive enough to bring knowledge use to those who have inadvertently been shut out from wealth and prosperity. Should this occur, education and knowledge use could gain the ability to overcome the technological - and social - divide of the 21st century.
Friday, January 1, 2016
New Year, New Equilibrium?
In the process of wrapping up notes and blog posts for the (old) year, I realized I'd missed a worthy of note post from David Glasner. His thoughts were also in response to recent discussion from Scott Sumner, concerning economic stability. Here's Glasner:
Presently, internal aspects of general equilibrium remain relatively stable, and the more pressing issues for equilibrium tend to exist in an external sense. Further, external factors contribute to changing dynamics over long periods of time, hence gradually change the shape of equilibrium in ways that don't readily show up in ongoing business cycles. These include changes in perceived potential for resource use, which can dramatically affect both growth levels and the vital relationship between time value and resource capacity.
The main reason income polarization is problematic, is the fact that little recognizable structure presently exists (in the U.S.) for low income strategies, beyond prison formation, increased use of civil asset forfeiture, and the War on Drugs. As a result, general equilibrium is becoming mostly oriented towards a higher income standard, where economic conditions are sufficiently complex for full societal integration. Whereas lower income levels are often unable to remain engaged, in ways that allow them to fully exercise either personal freedom or personal responsibility. And this is just a domestic aspect, of the problems for general equilibrium which come from external sources.
Why did policy makers find it necessary to generate "normalization" discussion, as though nothing about the economy had essentially changed? In a sense this approach was less complicated, than a full explanation as to why the economy was expected to resume activity at a lower trajectory, than what existed prior to the Great Recession. However, this "new" equilibrium is far from complete, given the fact income polarization has also taken a toll on potential output. If it has become impossible to consider what potential output might consist of, that is mostly because policy makers continue to hope - or reason - it won't be needed. Perhaps 2016 will tell the story, whether or not this is true.
The false premise held out by Friedman was that it is easy to get monetary policy right all of the time. It certainly wasn't the case for Friedman's pet rule, and I don't think that there is any monetary rule out there that we can be sure will keep us safe and secure and fully employed...We just have no theoretical base for saying that the free market economy is stable.He also referred to the deflationary spiral concept which Earl Thompson had constructed - a possibility I am somewhat concerned with as well. In certain respects the economy was set so as to grow at a certain rate, for well over a century. However, supply side "rules" for economic participation, have gradually grown more rigid. This is why I believe it might be more reasonable to reach for new growth through alternative equilibrium options. Glasner sums up his post:
...I still agree with Scott's bottom line: if the economy is operating below full employment, and inflation and interest rates are low, there is very likely a problem with monetary policy.As a monetarist I agree with this, and would also emphasize that adequate monetary representation is the primary economic component which could be managed with any degree of efficacy, from a national perspective. Other aspects of growth potential - including growth levels - remain dependent on supply side circumstance, and to a lesser degree (presently), government intentions. Hence policy makers are remiss, when they pretend that monetary policy is also "helpless" in terms of the appropriate management capacity it actually holds.
Presently, internal aspects of general equilibrium remain relatively stable, and the more pressing issues for equilibrium tend to exist in an external sense. Further, external factors contribute to changing dynamics over long periods of time, hence gradually change the shape of equilibrium in ways that don't readily show up in ongoing business cycles. These include changes in perceived potential for resource use, which can dramatically affect both growth levels and the vital relationship between time value and resource capacity.
The main reason income polarization is problematic, is the fact that little recognizable structure presently exists (in the U.S.) for low income strategies, beyond prison formation, increased use of civil asset forfeiture, and the War on Drugs. As a result, general equilibrium is becoming mostly oriented towards a higher income standard, where economic conditions are sufficiently complex for full societal integration. Whereas lower income levels are often unable to remain engaged, in ways that allow them to fully exercise either personal freedom or personal responsibility. And this is just a domestic aspect, of the problems for general equilibrium which come from external sources.
Why did policy makers find it necessary to generate "normalization" discussion, as though nothing about the economy had essentially changed? In a sense this approach was less complicated, than a full explanation as to why the economy was expected to resume activity at a lower trajectory, than what existed prior to the Great Recession. However, this "new" equilibrium is far from complete, given the fact income polarization has also taken a toll on potential output. If it has become impossible to consider what potential output might consist of, that is mostly because policy makers continue to hope - or reason - it won't be needed. Perhaps 2016 will tell the story, whether or not this is true.
Subscribe to:
Posts (Atom)