Jobs Are Also a Cost. How to Respond?

"Also" is part of the title, as I recently emphasized investment as a cost. Given the fact today's organizations completely depend on the Solow Residual to realize production gains, both public and private institutions can be expected to return to this basic principle - in spite of the occasional diversionary tactic such as Trumponomics.

Consequently, how to generate more output via fewer (costly) jobs, even while building an environment which could provide means for individuals to remain economically viable? While I continue to stress a marketplace for time value as an option, a recent post from Mark Perry encouraged me to consider some specifics. Perry (of AEI) highlights several individuals in his arguments against "jobism", and I'll include a previous quote from Richard McKenzie:

Job creation (and protection) is a favored goal of our leaders because it appeals to existing political interests and is seductively misleading and counterproductive. It is also one of the easiest goals to achieve. To create or kill jobs, all Congress has to do is to obstruct progress and kill or retard opportunities for competitiveness and entrepreneurial spirit.

Ultimately, we need to juxtapose traditional job creation with mutual forms of reciprocity, on formal economic terms. Given the slowing pace of worldwide economic growth, the employment constraints of the Solow Residual especially compel us to look for new options. Mutual employment would be different from the jobs offered by present day institutions, in part because efforts to create social and economic value would extend both ways.

Mutual employment means more choice for all concerned, than offering one's time for hire to institutions that are in search of specific skill sets. One reason for the versatility of time arbitrage, is the fact one's time (for services production and consumption) is like one's own money to spend. The process is backed by newly generated money, if and when others accept one's offer via their own newly generated time commitment. Each unit of time becomes a new source of commodity wealth, which allows compensation to take place via internal means.

A marketplace for time value, would allow individuals to transform time value for services into a formal means of economic quantification. What's particularly important is the fact this process doesn't rely on money as the sole means. Should time value gain the ability to serve (alongside money) as a medium of exchange, unit of account and medium of account, new incentives for economic growth would be unleashed. Participants would gradually be able to build welfare enhancing nets of social support, which can be difficult to realize through monetary representation, alone.

In some respects, it's difficult for money to provide safety net functions for all incomes at a comprehensive level. Why so? Money represents the totality of what is both fixed and random resource capacity. This wide range of resource capacity continues to grow, in relation to the fixed scarcities of time use potential. If that weren't problematic enough, a wide range of time aggregate potential, is only being lightly mined by today's institutions.

Even though money - as the sole representation of all wealth - has provided tremendous value as an economic tool, it lacks the depth to capture the full potential of time use. Even though time value has infinite potential for product differentiation, its fixed scarcities make it difficult for time product to compete directly with other resource potential. Consequently, individuals find themselves compelled to select from time production and consumption options which feel oddly limited, in contrast with the possibilities our minds suggest.

Time value as a measure of wealth, would more closely mirror the variety and differentiation, which a massive degree of investment in human capital has made possible. The gains in product quality over time from a fixed point of time aggregates, would provide production gains in a context which isn't really at odds with the Solow Residual, as is today's uncertain services quantification. Granted, the time we choose to commit to others, would remain a cost in the ultimate equation. But it's a cost that we ourselves would choose to bear, from the resource capacity which would already be ours to spend.

When are Divisions of Labour an Adaptive Strategy?

One reason this question is important, is the fact that, since Adam Smith's time, divisions of labour are central to the stories we've told ourselves about progress. For tradable sector product, divisions of labour have meant greater productivity over time, in the form of both increased output and product quality. Nevertheless, something has been missed in this recounting: labour divisions for non tradable time based product, don't translate into the same productivity gains.

Consequently, even though divisions of labour contribute greater quality to time based product, they have not generated output gains in time based product formation. This current institutional reality, in turn limits services complexity to the most productive regions of the world. Worse, some non tradable sector labour divisions are so investment intensive, that their knowledge use restrictions contribute to polarization and societal division.

Why has this occurred, and what might be done? First: product which is directly linked to time, is incapable of self replication. The output gains which are possible are those which exist elsewhere, by which other individuals contribute to the creation of more time based product in a similar capacity. However, as the reimbursement of time based product is currently structured (via secondary market formation), participants depend on the same pool of potential revenue, for time based service formation in a given equilibrium.

Since the present organizational capacity of time based product remains revenue dependent, its representative associations are often reluctant, to approve separately existing replication that results in expanded output. After all, if revenue cannot be internally generated (to expand output), expanded output mostly means diluted revenue to compensate those who already provide important knowledge and time based services. Perhaps due to the focus on product quality by only the "most qualified" providers, output loss has been treated as an inevitable result, by all concerned. Nevertheless: for the time based product of non tradable endeavour, hard divisions of labour have proven to be a poor strategy for the preservation of valuable knowledge and skill.

This form of non tradable sector activity inadvertently divides labour in ways which - instead of promoting societal progress - increase class divisions for knowledge use which only grow wider with the passage of time. Yet the intent of labour divisions by tradable sectors was never "set in stone". From the beginning, divisions of labour were intended as flexible tools by which institutions could adapt to changing consumer preferences and needs. Indeed: if management or workers had insisted on hard and specific definitions for knowledge or skill to produce tradable sector product, it's difficult to imagine how the Industrial Revolution would have ever taken place.

Divisions of labour are not an adaptive strategy for institutions to evolve and grow, when quality is demanded by extensive investment which in turn limits the quantity of time based product that is possible. Fortunately, the divisions of labour which contribute to time based product, could become more flexible in the future. But in order for this to occur, personal time value needs to more closely reflect the resource capacity which people actually have at their disposal. Symmetric compensation and coordination, sets the template for aggregate time value to operate as a true marketplace: one in which individuals can discover the time based product they are most comfortable with.

Best: the fact that wealth can be internally generated through symmetric compensation processes, is actually a side benefit. By placing the possibility of time negotiation on a common platform, individuals can use time value for evolutionary and adaptive gain, much as divisions of labour have been utilized in tradable sector activity for as long as anyone can recall.

When there is no marketplace in which time value can exist in relation to its own resource capacity, time aggregates must be compensated from other system components. As asymmetric compensation proceeds apace, individuals often find themselves compelled to rely on debt, as the sole means to honor time based commitments and responsibilities.

So long as economies grow rapidly, it's possible for individuals to adjust for vast differences in asymmetrically compensated time value, through additional debt loads. But when economic stagnation sets in, the "more output for less labour" Solow residual, acts like a slowly tightening noose, gradually undermining the possibility of full employment, social inclusion and continued growth. Even though the Solow Residual means production benefits for tradable sector activity, there is no "more output for less labor" equivalent for time based product. If there are not enough individuals participating in the output potential of time based product, ultimately there are too few consumers for either time based product or tradable sector product.

It's time to begin thinking differently about the present organizational capacity which insists on hard divisions of labour for time based product. Otherwise, non tradable sector activity will not be able to adapt and evolve in sustainable ways. The global economy is in desperate need of nations looking inward, to see what they have been doing wrong at home, instead of obsessing over the industries that have succeeded by putting flexible divisions of labour to good use for the right reasons. A marketplace for time value would not only protect domestic employment at home, but also the vast quantities of knowledge use and skill which are part of the present day global economy.

The Limits of Indirect Reciprocity

Of indirect reciprocity, Shawn Parrish recently wrote:

One of the behaviors that humans display a lot is "indirect reciprocity". Distinguished from "direct reciprocity", in which I help you and you help me, indirect reciprocity confers no immediate benefit to the one helping. Either I help you, then you help someone else at a later time, or I help you and then someone else, some time in the future, helps me.

In recent centuries, indirect reciprocity has especially made it easier for populations to coordinate a wide range of activity, among individuals who would scarcely be able to coordinate such activity on direct terms. However, there's a problem. As the wealth divide between aggregate time value and the value of all other resource capacity continues to grow, there are corresponding difficulties in coordinating living and working arrangements, between a wide range of income levels. For instance, even though prosperous regions can remain open to tourists and visitors, it's less of a simple matter now, for them to make permanent space for those with low incomes. One important reason, is that individuals with smaller income are less able to contribute to the high costs of either extensive infrastructure building, and/or maintenance.

More than ever, populations need different levels of infrastructure design and commitment, so as to maintain both direct and indirect reciprocity with one another, on economic terms. Many of life's important challenges can be met by those with smaller income levels, so long as provisions remain in place for design capacity which allows more innovative and less costly infrastructure. Otherwise, much of the indirect reciprocity that populations once took for granted in prosperous regions, will only become more difficult to maintain over time. Unfortunately, when wide income variance leaves too little room for basic forms of social and physical infrastructural options, trust is one of the first casualties.

Still, it's possible to generate more direct forms of reciprocity, for the time based product which is now in short supply. Doing so, would help to address the growing disconnect between incomes at a structural level. Not only does today's disconnect increase societal distrust; this vast income divide makes it appear as though millions are incapable of contributing either to their own destinies, or the destinies of others. However, in order for people to gain greater means for reciprocity - whether direct or indirect - they need the freedom to do so. Today, it is this freedom, that is missing. And without the right to contribute to our societies the best we can, others will continue to think that we are not capable of doing so.

Notes on Investment vs Consumption Outcomes

When is it profitable to forgo consumption? On the other hand, when is it profitable to include consumption as desirable (productive) outcome, since it is actually part of an ongoing investment process? Consumption as an active component of investment could be particularly helpful, when investment does not include gains in scale for measured output. Specifically, investment in human capital, because time based product can't replicate a specific time unit.  Nevertheless, the fact that consumption outcomes are an important factor for investment inputs, is not well understood. As a result, both production and consumption outcomes are uncertain, in part because of the terms by which current investment definitions take place.

Is the world still progressing in a reliable manner? I still believe it could, given the chance to do so. But after reading an article from Adam Smith Institute, "The World is Getting Better", I knew I needed to try harder, to explain how (present) economic stagnation stems from a marketplace which lacks investment strategies to accommodate today's abundant resource potential. New forms of organizational capacity are needed - capacity which would not be dependent on gains in scale in the traditional sense of defined marketplace output. Even so, gains in scale would eventually accrue in a broader qualitative context, via the increased output and availability of productive agglomeration. In the meantime, human capital - in its most interactive form of time based product - has become increasingly difficult to access.

Granted, we can still take comfort from the fact our world continues to benefit, from the resource capacity unleashed by centuries of economies of scale production, in tradable sectors. The above linked ASI post noted that a ten year old girl 200 years ago, could not have expected to live longer than 30 years. From the closing paragraph:

The progress was achieved by capitalism, not socialism. It was done by people prepared to forgo present consumption and to invest instead in the technologies that increased productivity...It has uplifted the lives of billions, and is still doing so.

What about today? How do we think about delayed consumption, given the fact many forms of investment don't necessarily translate into a greater quantity of tradable goods? Is is possible to emphasize quality as means to move forward, where point of origin quantity (for final time product) is defined by time scarcity?

Indeed, the same method of intensive investment utilized for tradable sector activity, was adopted for the divisions of labor which involve high skill and knowledge use in secondary market activity. But where the intensive investment of capital for tradable goods meant more marketplace output, intensive investment for human capital didn't provide the same benefit for time based product. Instead, this organizational approach translated into sticky wages, rigid marketplace outcomes, and growing divisions of knowledge use between differing income levels. Basically, these forms of human capital investment didn't necessarily translate into greater output, because much of the final product was time linked.

In these instances, time value equates to a fixed quantity general equilibrium outcome, one which is increasingly hidden in governmental definition of services capacity. Consequently, society has had to take part in the burden of shared human capital investment (think healthcare investment costs), to access the output that remains possible on high cost investment terms. These built in investment costs presently hold back the potential for stronger, more dynamic consumption outcomes.

Costs for today's knowledge access, take place on asymmetric terms. While asymmetric compensation will remain an important institutional strategy, this organizational structure should not be expected to bear the entire burden of knowledge use and preservation in the future. It is possible - and desirable - to augment time based product through symmetrically coordinated time value. By doing so, investment and consumption can be combined in what might be thought of as a pay it forward process. Each unit of learning via compensated and matched time, would translate into individuals providing the same for those who follow similar educational trajectories. A "pay it forward" system of education and workplace participation, could create linked investment which eases today's societal burden, in terms of consumption outcomes for human capital.

Wrap Up for January 2017

It's hard to recall, when I've come across so many articles and posts that deserve more than a moment's notice. Right up to the end of the month, too - a busy January indeed.

Has someone in your life been saved by a globalized world?
http://www.aei.org/publication/to-make-the-world-better-think-small/

Fake news doesn't always come from the places one might expect.

The Maker Movement continues to grow.

Reverse repos are still sucking liquidity out of the economy.

The Future of Employment: How Susceptible are Jobs to Computerisation?

Labor supply is an important component of wealth creation. https://www.richmondfed.org/publications/research/economic_brief/2017/eb_17-01

From 2016: A Year defined by America's Diverging Economies:

The employment rate in rural areas was actually 2.9% lower in mid-2016 than it was in early 2007. 

"Money spent on wages and machines is not a benefit to the economy, it's a cost. The benefit comes from consuming the widget." (Scott Sumner) I would also add, consuming the (time originated) service. http://econlog.econlib.org/archives/2017/01/spending_on_con.html

"Zoning is political kryptonite, so cities are loath to take it on."  http://www.city-journal.org/html/where-buffalo-zone-14927.html

I'm in this category as an early "retiree", heh. http://www.hamiltonproject.org/blog/an_update_on_who_is_poor_in_the_united_states1

It's the physical and social infrastructure requirements around us (general equilibrium expectations) that keep a majority of the poor from working on economic terms. Again, as noted by Scott Sumner above, consumption opportunities provide more benefit than investment costs. https://www.aei.org/publication/most-poor-adults-incapable-of-work/

Who thinks these costs for raising a child are realistic?
https://www.usda.gov/wps/portal/usda/usdahome?contentid=2017/01/0004.xml&contentidonly=true

Why is it so hard to secure funding to maintain already existing infrastructure? This Strongtown post also generated commenter responses at Marginal Revolution.

Deindustrialization translates into hyper-incarceration in the U.S. I believe that locally coordinated mutual employment could provide a productive alternative. https://www.vera.org/the-human-toll-of-jail/why-are-there-so-many-people-in-jail-in-scranton-pa

Which states rely the most on federal aid?

Ben Bernanke explains the Fed's cautious approach to upcoming changes in Washington: https://www.brookings.edu/blog/ben-bernanke/2017/01/13/the-fed-and-fiscal-policy/

The growing tiny house movement, in spite of its enthusiasts (of which I am one), is likely to be constrained by a wide array of economic factors for now.

Hardly anyone seemed to notice Davos this year. http://www.businessinsider.com/davos-elites-suffering-acute-anxiety-over-the-dawning-of-the-trump-era-2017-1

A global services dataset?

Should social science be more solution oriented?

From Edmund Phelps: "Corporatism, and the Dearth of Innovation":

While private ownership remains extensive, the government now exerts control over much of the private sector. A private actor with a new idea often needs government approval to start up; and firms that enter an existing industry must compete with incumbents that usually already have government support.

The value of wanting - hence ultimately choosing - to work together.

Scott Sumner provides AS and AD material worthy of a macroeconomics textbook.

Rodrik asks, Is global equality the enemy of national equality?

From David Beckworth: http://macromarketmusings.blogspot.com/2017/01/macro-musings-podcast-gauti-eggertsson.html and a recent paper: http://people.wku.edu/david.beckworth/fed_dirty.pdf

Some global demographic profiles, plus illustrations.
https://www.brookings.edu/blog/the-avenue/2017/01/23/aging-and-urban-divergence/

Interest on reserves is only worsening an already fragile situation. From George Selgin:
https://www.alt-m.org/2017/01/25/interest-on-reserves-a-secret-fiscal-weapon-were-better-off-without/

Immigration has always been the story: https://www.statista.com/chart/7729/the-united-states-is-a-nation-of-immigrants/

Just a few of many blogger efforts this month, to preserve the open economy that defines our lives.
http://monetaryfreedom-billwoolsey.blogspot.com/2017/01/imports-and-exports.html
http://www.env-econ.net/2017/01/daily-demand-and-supply-who-will-pay-for-the-wall-when-a-20-import-tax-is-imposed.html
http://cafehayek.com/2017/01/its-more-complicated.html
http://www.capitalspectator.com/trade-war-or-bust/
http://www.thebigquestions.com/2017/01/26/how-many-deaths-does-it-take-till-he-knows/

One has to wonder, how many centrists and moderates are still left? http://politicalcalculations.blogspot.com/2017/01/a-centrists-guide-to-media-bias-and.html#.WIttq4grLnA

Re tariffs, from the Economist: http://www.economist.com/blogs/buttonwood/2017/01/taxing-poor

On global talent mobility, from Vox

Larry White provides a useful update re efforts to restrict and/or ban cash: https://www.alt-m.org/2017/01/31/baptists-and-bootleggers-in-the-organized-effort-to-restrict-the-use-of-cash/

What do the Web people and Wall people have in common? Skepticism of existing institutions.
https://www.project-syndicate.org/commentary/generational-divide-political-disruptions-by-mark-leonard-2017-01

Some additional explanations and linked reference material for the ongoing discussions of border adjustments, tariffs, VAT and the corporate income tax.

If there's an apple cart to upset, it seems he will find it: https://marketmonetarist.com/2017/01/31/when-will-trump-accuse-denmark-of-being-a-currency-manipulator/

Free Trade? Don't Knock it Till You've Tried It

I know, the title isn't completely on the mark, for the world has in fact embarked on considerable free trade in recent centuries. But there's real problems on the horizon, which could negatively impact what thus far has been the most beneficial free trade of all: our tradable sectors. It is the lack of free markets for our aggregate time value (only the "best" need apply), which make job loss in tradable sector activity, appear more dangerous than necessary. As labor force participation declines in the face of non tradable sector protectionism at home, policy makers increasingly resort to protectionist actions, abroad.

Regular readers of this blog are familiar with my arguments for free trade. Perhaps mercantile reasoning would not have gotten such a stronghold, had existing trade imbalances already been addressed via a marketplace for time value. What many of us aspire to accomplish - and experience - in our lives, is scarcely represented in today's marketplace. This dearth of wealth creation is like a gaping hole, in both the supply and demand dimensions of non tradable sector activity. Hence the free market reference of my title.

A more recent aspect of protectionism, is the possibility of what - as far as I can tell - is essentially heavy tariffs that are somewhat disguised as border adjustments. The effects of such a revenue grab could play out similarly for low income levels and retailers - both of which have already been compromised by tight money conditions for some time. I'm concerned that the ongoing circumstance of grocery retailers is not well understood, at all. Scarcely anyone noticed not long ago, when some of them sounded the alarm about low profit margins which were making it difficult to keep their doors open. There's a good chance that extremely low profit margins for basic foodstuffs, is a sign of overly tight monetary representation.

Since grocery retailers are already in a compromised position, they may experience more difficulty in setting aside additional government revenue, than people realize. In all likelihood, already low profit margins would mean passing most additional costs to the consumer - some of whom may respond by cutting back on grocery budgets.

Also, some of the potency of free market advocacy (re gains) for the poor could be reduced, should widespread tariffs on imports be adopted. It saddens me to think of the extent to which tradable sector good deflation could be undercut by these measures, especially as nations begin to retaliate. However, grocery retailers have experienced additional layers of bad deflation since the Great Recession due to tight money, on top of decades of good deflation which brought food prices well within reach of most budgets. In all of this, non tradable sectors have been unwilling - thus far - to encourage free market environments which permit deflation of any sort.

Nevertheless, it must be tempting for policy makers to consider the high tariff route, since incomes for many have risen enough that tariffs may not pose a burden to the average consumer, as in the earlier days of the nation. Hopefully, policy makers will remember, that should tariffs once again become a reality, history has shown how difficult they can be to reverse. For anyone who still believes in the potential of free markets, it's more important than ever, to make one's voice heard in Washington in the days ahead.

Decentralization Now!

First, I want to reassure my readers that this post title is not intended as a political threat to anyone. Rather, what I wish to accomplish - via my own limited skills and means in a non professional capacity - is an appeal to the freedoms upon which nations have flourished, at least until the recent decades of increased centralization.

What initially prompted this post, was a recent Foreign Policy article from Daron Acemoglu, in which he argues that the political institutions in the U.S. are not enough to "save" us from Donald Trump. Unlike his previous work, where he noted that the success of nations depends on their institutions; here, Acemoglu emphasizes that the citizen is now the last defense. Hence others are now wondering: what to think, about this change in his stance? And Tom Pepinsky wrote:

One is to see with clear eyes that institutions do not constrain politicians automatically.

At some level, the citizen has indeed become the last defense. However, I believe that the appropriate response exists at an economic- not political - level. In other words, the best way forward is not resistance to Washington, but alternative solutions that provide more inclusive means for citizens than what today's institutions are now capable of. In particular, for those who might be visiting my blog for the first time, I advocate for viable solutions for those who are now constrained by small incomes, in environments which primarily demand large incomes to survive.

Calls for decentralized economic and governmental options have died down somewhat, in recent years. In retrospect, it's not difficult to see why. Due to wide income variance, decentralized government can become problematic when expressed primarily in monetary terms, because these structures also suggest escape from centralized structure, on the part of those with high incomes who continue to derive benefit from that same centralized structure. Consequently, the potential benefits of decentralized settings in which low income groups would finally have the discretionary freedom to create their own wealth, have been missed.

The aggregate time value of citizens as a whole, affects how efforts for decentralization play out in the real world. Limits to production rights for personal time use, means millions of citizens are not able to contribute to the validity of their own destinies. This matters, because when it comes to shared taxation responsibilities, time value is finite and extremely scarce, while other forms of resource capacity are not only random, they are randomly assigned. Hence the current disconnect between personal responsibility and the institutional/infrastructure requirements of our time. It is those requirements, which stand in the way of any possibility of an inclusive stance on the part of presently existing institutions.

If economies are to remain valid for small incomes, both infrastructure and local environment need local exposure to personal design and interpretation. All of the local time value that is possible, needs to be completely accounted for within a context of shared responsibility. Where national governments have stumbled most, is the redistribution of product which includes time scarcity, as protected by knowledge use limits. When time value can only be shared via exhaustive investment requirements, this meritocratic framework becomes the first exit ramp, on the highway to exclusive outcomes and lost freedoms.

Even though the new institutional framework of the equilibrium corporation would include its own infrastructural limits, these would be devised along an entire spectrum of production and consumption possibility in terms of the resource utilization of the groups which take part. Hence even though an equilibrium corporation would appear to have exclusive (local) communities, community setting options as a whole would be purposely inclusive by institutional design. If one cannot find sufficient means to match time value with others in one community, there would be many more communities in which further possibilities exist. Each little community would have its own preferences, by which local citizens could share the responsibilities that come with time based product, via their own personal means. Is this not a better approach, than imposed, top down default "solutions" that countless numbers of citizens are still expected to follow?

As it turns out, large nations such as the U.S. have proven incapable of providing these production and consumption options in large scale settings. When we attempt to impose single settings for production, consumption and infrastructure, we are in effect purposely limiting the freedom of all citizens. Yet there is no reason that high income taxpayers should have to bear the burdens of low income citizens who could realistically create their own forms of knowledge based wealth. Likewise, there is no reason why low income citizens such as myself, should have to pay for a wall they neither want, or need.