Incremental Ownership Could Restore Hope for Millions

The COVID-19 pandemic poses problems not only for small businesses, but homeowners and renters as well - especially those with limited incomes. Indeed, according to CNBC, 28 million individuals could possibly end up homeless. For perspective, approximately 10 million lost their homes in the Great Recession.

Alas, when it comes to maintaining financial flows, rental costs are similar to the monthly obligations of mortgage payments. Both can be substantial enough to derail personal autonomy for renters and homeowners alike, if sources of steady employment are jeopardized. Given this reality, when income streams are disrupted for any reason, it's not always easy to regain one's footing afterward.

Incremental forms of ownership could do much to lower the risks of economic uncertainty for all concerned. And should employment opportunities prove unreliable, flexible ownership options could allow many individuals to gradually rebuild their lives without the undue risks so often posed by the costs of housing. By purchasing the most basic elements of living needs first, when income streams are sufficient to do so, ownership can accrue incrementally on terms that don't require debt. Fortunately, "pay as you go" ownership could lessen the monthly obligations faced by those with limited income and/or unstable employment sources. Once individuals are able to establish basic elements of ownership, temporary disruptions in wages would be less likely to derail the whole process.

Also, from a macroeconomic standpoint, flexible ownership arrangements could ultimately lead to simpler roles for monetary and fiscal policy. By reducing the contractual debt burdens of housing, monetary and fiscal policy would have less incentive for overreach. Greater flexibility for citizens could mean greater flexibility in policy responses. After all, since private enterprise in the U.S. has considerable flexibility to hire and fire at will, is it not logical to offer citizens that same degree of flexibility in markets for housing?

Given the wide variance in income levels today, incremental ownership could prove an advantageous response to economic uncertainty. Many citizens could thrive in environments where simpler living arrangements are possible - citizens who otherwise tend to struggle with what is presently required. Already, companies are starting to experiment around the world with a wide array of building materials and modular components. Hopefully, there will also be communities in the U.S. in the years to come, where simpler ownership options are welcomed and encouraged.

Notes on Trade Offs in Systems Design

Even though governmental gridlock is often frustrating, in some respects it can be more practical than the alternative. Among other things, gridlock acknowledges extensive competing demands on government budgets. And due in part to changes in lifestyle and individual priorities, some budgetary commitments no longer contribute to economic dynamism as ably as before, such as traditional physical infrastructure. Unfortunately, an undue focus on traditional infrastructure tends to detract from systems design options which more accurately mirror a fundamentally changed economy.

Systems maintenance trade offs are important as well. When we can't decipher how our time commitments translate into societal obligations, it only gets more difficult from there, to apportion remaining time for our own needs. We've gradually tossed much of our redistribution potential, via taxation, into a vast chasm of societal responsibilities. Could some of these processes take place on more productive terms? Even highly skilled knowledge is in certain respects a mundane maintenance function, yet we have few settings where it can be readily applied as such. In the future, as budgets become more constrained, what monetary values might public goods and services continue to hold? We need to create new market options while we can still think clearly about what will be involved. In other words, well before budgetary shortfalls make it necessary to do so on more stringent terms.

Each of us has a limited amount of money, time and resource capacity, for what societies wish to implement and hopefully, maintain. Alas, it is becoming less practical over time, to further add to environment maintenance costs (whether local, state or national) without clear specification of the trade offs, not to mention which income groups are actually expected to be responsible for costs. Much of what currently transpires is no longer realistic for societal coordination, given the wide variance in today's income levels. All the more so, when money mostly serves as a stand in for personal time or resource commitments.

Despite the importance of systems design on multiple levels, the broader trade offs that impact societal well being are not being accurately debated. Future systems design will have a greater chance of success, if and when it takes our broad income diversity into full account. Whenever income levels prove insufficient for systems maintenance, we can build respectable and desirable alternatives in the form of new environments, for those who lack the full monetary rewards of meritocracy. I would be remiss if I didn't add: When it comes to trade offs in general, this part of the public discussion has scarcely begun. Plus, when trade offs are discussed from a public choice perspective, it's not helpful when they are framed as "we would be better off without", if no market alternatives are being actively prepared for implementation. The rise and fall of Obamacare is just one egregious example.

A lack of systems design which could take different lifestyles and income levels into account, has also led to struggles whereby various groups attempt to impose their lifestyle preferences on other groups. In many instances it would be simpler to start from scratch, especially for the creation of walkable communities. New beginnings in systems design could ultimately lead to less political polarization, and more hope for the future. Restored hope in decentralized prosperity, could likely mean less struggle over opposing visions of the "good life". No one has ever successfully imposed their version of "best life" on any one else. People are far too stubborn for that to happen. So why do centralized governments keep trying to impose either/or lifestyle scenarios, which they inexplicably expect all citizens to live by?

However, the cronyism of special interests, has inadvertently contributed to today's either/or scenarios as well. Now, consider the consequences: When governments give in to the protectionism impulses of private interests, where is the logic in belittling citizens for responding by demanding similar protections? Despite the fact that protectionism has come full circle, and of course the global implications, there may yet be time to back away from this precipice. Why not work to reduce centralized and protectionist impulses while we still can. Why not build upon systems design which makes room for everyone, not just whichever fortunate individuals happen to be in power at any given moment. Ultimately, the best way to achieve sustainable trade offs, is to create ample economic options - options which allow all income levels to contribute and participate in society.

For Progress, Basic Innovation Remains Necessary

When it comes to societal progress, inventions that improve basic aspects of living are as crucial as they ever were. In considering why this is so, one also hopes future progress studies will encourage participants to envision basic innovation as much more, than past historical records. Innovation is not solely about creating new economic options, to further tempt those who already have plenty to spare! Indeed, with concerted efforts to innovate local environments, productive transformation could come to non tradable sector activity where it is most needed: time based services, building components, and physical infrastructure.

Oftentimes, achieving more supply side output means getting more people involved in the entire process. Alas, societies tend to lose this perspective, and they end up traveling paths in which ever fewer citizens are able to go. And while a more inclusive economy is often discussed in terms of greater monetary redistribution, basic forms of real economy activity are actually more important, so that all citizens can remain fully engaged. Much about societal progress relies not only on our active participation, but our personal ability to contribute to system maintenance as well. However, without ongoing production reform which lowers basic systems costs, they eventually become unsustainable, as growing majorities of citizens find themselves unable to contribute to systems upkeep.

Another way to think about supply side possibilities: How can we create more good deflation in these basic areas of our lives? What the supply side makes possible in terms of production and consumption, often matters much more than our actual income differences. Only recall, how the benefits of good deflation in tradable sectors have led to greater economic access and centuries of progress. Production reform in non tradable sectors would ultimately translate into additional economic activity, allowing millions more to build meaningful lives.

In certain respects, good deflation functions as other forms of productivity gains, in that it achieves more output via the resource capacity already at our disposal. This is why we also tend to observe lower costs in areas where good deflation does occur. That said, quality product gains also affect this relationship. In particular, preserving good deflation potential in non tradable sectors, means being careful not to allow perceptions of quality product to determine the extent of our personal economic time commitments. Especially given required costs for personal environments which are already non negotiable! Many businesses already have ample incentive to increase productivity, so why hasn't a similar approach been applied to the resource potential which communities actively share? After all, there are plenty of means for doing so, which can preserve the freedom and autonomy of all involved.

Without the possibilities of good deflation, too much non tradable sector activity would remain a financial burden for limited income communities. It's time for real change in these basic systems. Even though existing inequalities will always be with us to some extent, we could still bring vast progress to non discretionary goods, services and environment structure which involves asset ownership. Whether or not societies prosper in the future, may well depend on how our non tradable supply side capacity is organized and conceptualized. There's plenty of work to be done, to improve these vital areas of our lives.

Wrap Up for June 2020

Adam Tooze and David Beckworth discuss the broader implications of global dollar dominance.

Bonnie Kristian suggests we live more of life outdoors. "The comparison to consider is not outside vs. inside but outside with approximate normalcy vs. inside with endless contortions in pursuit of safety."

The magnitude of sponsorship bias is statistically significant.

Dierdre McClosky: The intoxication of power, and the other f-word. Who still values "human liberty and human flourishing"? Or are we instead forever doomed to fight it out in the streets, over competing visions what humanity "should" be?

How might the additions of pandemic debt affect healthcare provision in the near future?

"The Budget and Economic Outlook: 2020 to 2030"

A time of cognitive dissonance.

Perhaps this isn't a good time for economic predictions.

Will Big Tech decentralize across the continent?

One reason long term debt can eventually become unsustainable, is due to how it reduces a nation's fiscal options.

Hierarchical rank as a strong determinant of income.

Musings on permanent assumptions in a quickly changing world.

"Throughout history, humanity's energy use has moved towards more concentrated, convenient, and flexible forms of energy."

What might it mean to "abolish" the police?

The Royal Society of Arts viewed its role as one of "filling in the gaps", for the dispersal of applied knowledge. They wanted to supplement what already existed, rather than attempt to supplant it.

"...the current design of the US treasury market is not adequate for handling surges in trade demands on stress periods like this."

Can longer-run economic growth continue to match the pre-COVID pace? "...in the past three months, the expansion of the Fed's balance sheet matches the entire increase from 2008 to 2013."

In January, it was expected that "projected federal debt would exceed 100 percent of GDP in 2031...In a preliminary revision of its budget projections, released in April, CBO estimated federal debt would reach 100 percent of GDP this year and 108 percent in 2021."

More resources for transportation infrastructure?

When taxpayers are essentially asked to bail out businesses in a time of pandemic, should they be allotted a portion of the wealth afterward?

Unfortunately, in many smaller communities, prisons have become a public jobs program.

"Sins of Omission and the Practice of Economics"

What made the second long expansion different from the first?

David Andolfatto explains why a standing repo facility could be beneficial for the Fed.

Why have banks been so slow to raise interest rates on savings accounts?

How long can Medicare stay solvent? Due to COVID the fund could face serious difficulties by 2023. Thus far, reductions in Medicare spending have been more politically palatable, than raising the Medicare payroll tax rate.

Monetary policy is not one dimensional.

Are Americans still future oriented?

Human capital is one aspect of GDP in need of greater clarification.

Greg Mankiw notes how the Council of Economic Advisors role has changed.

The results of MMT policies can linger for a long time.

Physician Vivian Lee discusses her book, The Long Fix with Russ Roberts.

"...central bank seigniorage in both the U.S. and other developed countries is a very small part of overall government revenues."

How might COVID-19 affect economic behavior long term?

Transitioning in  healthcare is only getting started.

Without a level NGDP target, negative supply side fears could easily become a self fulfilling prophecy.

Urbanism could look quite different after the pandemic.

Will the Fed repeat the errors of 2008?

For Libertarians, Sustainability Matters for Economic Freedom

Is it possible for libertarians to find political support which isn't diluted by excessive identification with conservatives or progressives? While alignments such as these are understandable, they still tend to result in lost freedoms. And all too often, if economic freedoms are lost, it's only a short step further to lost political and social freedoms as well.

Too many ideological arguments turn around personal preferences for either government or business dominance. As it turns out, this reasoning is too simplistic for the economic complexities of our time, especially since many aspects of private and public enterprise are quite integrated. While this integration has often created positive outcomes, in other instances it results in negative complexities which make life more difficult for everyone.

The main issue at hand, however, is how both public and private endeavour are losing their ability to maintain real economy activity at consistent growth levels. What can we do, to ensure the extensive progress of recent centuries is not put at risk? I continue to hope that libertarians will assume new roles in promoting more sustainable forms of wealth creation. In many instances, doing so would include taking part in local economic experiments which promote both the well being of lower income groups and small communities.

Especially paramount is our need for sustainable local economies. Since much of our healthcare is stymied by centralized organizational patterns, the U.S. particularly struggles with today's pandemic circumstance. Part of our inability to productively respond, is due to the built in structural limitations of today's high skill service generation. Locally provided skilled services - where they are in fact possible - are caught in the political struggles of centralized revenue flows and their macroeconomic patterns. Indeed, these service patterns became more prominent with the added wealth of globalization. Hence it's not helpful, that losses in globalization could also lead to a partial demise of these centralized form of skills arbitrage.

We need a new approach to high skill applied knowledge, and libertarians have the opportunity to take part at a time in history when it especially matters. Even though it is difficult to establish additional high skill services through fiat monetary systems, time arbitrage could provide much needed new sources of wealth and economic stabilization. All who believe in the continued viability of free markets, could benefit by making time based services more amenable to free market approaches such as this.

By allowing time value to function as a valid economic unit, we could encourage stronger coordination patterns between individuals - patterns which ultimately lead to more sustainable outcomes. Only recall as well, how immediate reciprocity in services could help alleviate long term budgetary problems. When it comes to non tradable sector production reform, goals such as these are worth pursuing. Let's build more reliable social patterns for economic sustainability, while there is still ample time to do so.

Globalization is Still Vitally Important

There are often unexpected similarities between conservatives and progressives. One in particular, are the growing numbers who no longer believe in globalization. Might they get their wish for considerable losses in this regard? If so, what might such a reality consist of?

For one, deglobalization would bring about sudden losses in overall wealth - losses that would doubtless prove devastating in unexpected ways. For instance, few would be prepared for the financial fallout that would occur. In the meantime, the COVID-19 pandemic continues to disrupt global networks which were already impacted by the trade wars. Recently, Kenneth Rogoff expressed his concerns about this circumstance, and I've highlighted a good portion of the relevant Project Syndicate article in this post:

Even if the United States turns a blind eye to deglobalization's effects on the rest of the world, it should remember that the current abundant demand for dollar assets depends heavily on the vast trade and financial system that some American politicians aim to shrink. If deglobalization goes too far, no country will be spared. 

Also from the introduction:

The post-pandemic world economy seems likely to be a far less globalized economy, with political leaders and publics rejecting openness in a matter unlike anything seen since the tariff wars and competitive devaluations of the 1930s. And the byproduct will be not just slower growth, but a significant fall in national incomes for all but perhaps the largest and most diversified economies.

He adds:

The US has more to lose from deglobalization than some of its politicians, on both the right and the left seem to realize...In particular, many of the benign factors that today allow the US government and American corporations to borrow vastly more than any other country are likely tied to the dollar's role at the center of the system. And a wide array of economic models show that as tariffs and trade frictions increase, financial globalization decreases at least proportionately. This not only implies a sharp fall in both multinationals' profits and stock-market wealth (which is probably fine with some), but could also mean a significant drop in foreign demand for US debt.

That would hardly be ideal at a time when the US needs to borrow massively in order to preserve social, economic, and political stability. Just as globalization has been a major driver of today's low inflation and interest rates, shifting the process into reverse could eventually push prices and rates in the other direction, especially given what appears to be a lasting adverse supply shock from COVID-19.

As Rogoff noted, globalization has especially been important for dollar assets. This globalization benefit helped build our strong services economy, and greatly increased income potential in the U.S. as well. Yet some among the wealthy may already realize, the extent to which their basic and augmented income sources could soon change. By way of example: Even as lower income levels restore earlier spending levels, the rich have not really begun to do so. Should they suspect long term income changes in the foreseeable future, there may be good reason. Even though the basic wealth of today's rich is largely correlated with human capital and national redistribution, globalized wealth contributed an additional layer to their income (via personal investments) which to some extent may be lost.

Nevertheless: Among the reasons globalization is now threatened, is that too many investment opportunities don't accrue to individuals who lack the base "requirement" of educationally enhanced human capital. And there are other important reasons why many citizens aren't impressed with the wealth of globalization. Chief among these, are the high costs of today's non tradable sectors - costs which particularly impact lower income levels. In all of this, many local economies still lack constructive ways to reach out to local citizens, after a decades long process of lost local manufacturing employment. Before many citizens become willing to embrace globalization, they would need new opportunities in economic participation - opportunities which are also linked with the resources of time, place, and community.

Should nations find the courage to recreate non tradable sector participation, the losses of globalization would not have to be so extensive. Production reforms could also provide means for nations to better manage their debt burdens. By not relying so heavily on debt for services generation, nations could lessen their chances of defaulting on earlier debt accumulation. Perhaps there is still time to restore confidence in globalization, by giving citizens the chance to recreate more abundant non tradable sector wealth, close to home.

Monetary Stabilization Needs Real Economy Stabilizers

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

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

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

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

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

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

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