Don't Pine After "Lost" Networks. Create Time Value Networks

MIT News, in "How network effects hurt economies", (ht Mark Thoma) highlights a recently published study of which Daren Acemoglu is also an author, and notes:

More precisely, Acemoglu and his colleagues have found cases where industry-specific problems lead to six-fold declines in production across the U.S. economy as a whole. For example, for every dollar of value-added growth lost in the manufacturing industries because of competition from China, six dollars of value added growth were lost in the U.S. economy as a whole.

Let's briefly break this down, because a "six fold decline" could be somewhat misleading. Granted, there are immediate - and sometimes lasting - losses to local business formation, when a manufacturer closes its doors. However, the most important losses tend to be in specific regions which are also offset elsewhere, in ways which may not be represented by this study. Also, due to the multiple channels which contribute to redistribution of still existing wealth, actual revenue losses (from revenue which had previously accrued to redistribution for non tradable sector activity), are not as easy to discern.

Another factor in all this, is the degree to which service sectors as future growth, was basically taken for granted prior to the Great Recession. Yet this confidence was abandoned as "push came to shove" and tradable sectors "failed" to provide their once reliable wealth to tap for existing government obligations.

Instead of forever looking backward, and dreaming of recapturing more tradable sector revenue for non tradable activity, why not strengthen time value networks as a future wealth source? The time value of the future could be set free, from its crippling dependence on asymmetric compensation and tradable sector wealth. Ultimately, this process would once again strengthen domestic tradable sector activity as well, because additional marketplace participation would eventually increase local demand for tradable goods.

In many respects, protectionism is little more than a response to an incomplete marketplace - in this instance, of aggregate time value. Stop pining for the marketplace of the past. Populations can take advantage of today's manufacturing and digital realm to rebuild the capacity of time value where it is needed most: individual economic activity, in relation to to the time value potential of other individuals.

Protectionism as a response, would also damage the fiat monetary systems which nations have relied on for the asymmetric compensation which makes it possible to coordinate much needed knowledge use at national levels. Whereas the time value networks that are needed for long term growth, are those which could develop on symmetric terms and contribute to local knowledge use and services creation.

How to think about potential for time value networks? The work objective (a "good job" as "meaningful" with perks) is no longer externalized as something that is "supposed" to be provided by others. Instead, local groups would create the internal conditions they seek, for mutually agreed upon work settings that provide greater measures of economic stability.

Aggregate time value is especially needed now, as general equilibrium conditions continue to be strained by the fact that governments attempt to provide infrastructure and services for those whose time value has not been included - a major factor why nations are reluctant to allow more immigrants within their borders. Only by increasing responsibility at local levels for infrastructure and services creation, will populations once again be able to feel better about the ability of all individuals, to contribute to wealth and economic vitality.

Is "Need" a Valid Concept in Economics?

Need: Is it an actual part of the economic lexicon? Or are there good reasons why need isn't directly associated with standard economic thinking? Perhaps the answer depends on how the word is referenced. For instance, the need for what is still a missing marketplace in terms of services potential and asset formation, is a different dynamic than "need" for seemingly reasonable fiscal policies.

How does one visualize need for something that doesn't currently exist? The forms of marketplace potential which aren't immediately obvious, exist in relation to how economies are defined in terms of societal wants. Whole sets of aggregate resource potential may be dismissed out of hand, because of a lack of economic access on the part of those who would benefit. In a recent Money Illusion post, a commenter expressed concern about (supposed) needs in terms of infrastructure, and Scott Sumner replied:

...my econ teacher once forbade me from using the term need. What people need and what they can buy are two different things. I'm trying to explain the world as it is.

This makes sense, insofar as governments and the private sector proceed in similar manner for their wants in the marketplace. However, this reality leads to distortions, in terms of economic outcomes and fiscal measures. Both public and private institutions - through the guise of what they want - define societal "need" upward, wherever it is possible to do so. When private interests "want", governments often oblige with regulation, if policy makers are rewarded for the favor. Then, governments may end up with dubious reasoning for societal "need", as a proxy to fulfill its commitment to those earlier expressed wants.

It's a process which can lead to a peculiar form of fiscal abuse. Government "wants" lead to greater complexity in defined consumption settings. But raising the bar wherever possible, makes the fiscal policy which accompanies these definitions, less effective over time as an economic stimulant. Fiscal obligations become a form of indebtedness, which slowly undermines the ability of fiscal policy to positively affect economic conditions.

Only consider a single example from 1936. At the time, Washington and the national economy were still sufficiently "lean" that fiscal policy - in the form of a lump sum payment to WWI veterans - actually contributed to aggregate supply. My grandfather purchased a tractor with the money, which meant he was able to plant and harvest more crops than previously. Not only did this make him less dependent on family members for help, he was also able to hire labor - a process which was doubtless repeated by other fortunate farmers as well.

If only economic circumstance could be so responsive to stimulative policy in the present. Private industry faces similar flexibility issues, as the cumulative regulatory effect of multiple "wants" has become a hurdle of financial obligation to be traversed before additional activity can play a role. Often, the sole compromise left in environments arbitrarily defined upward, is yet another rise in minimum wages. Of course this public/private fallback position further distorts equilibrium conditions, and runs counter to economic logic as well.

When exorbitant definitions for public and private consumption "wants" are firmly ensconced in regulation, innovative adaptations for resource use have little fertile ground, in which to take root. New ideas run headlong into already existing resource requirements, for building and physical infrastructure. An apt example is today's plumbing mandates which indiscriminately apply, yet are increasingly out of reach of the resource capacity of lower income levels. Still, the problem isn't so much one of "small" wage capacity, but the fact building component innovation has been held back.

What if specific income capacity - as opposed to need - was taken into consideration for production and consumption definitions? Income fluctuations and wants are not set in stone. Any attempt to design a consumption or income base that "takes care" of someone's need is a bad strategy. What is possible, are design initiatives for local asset formation and services generation, which facilitate individual production and discretionary choice. Instead of a "need" baseline for consumption, leave a fallback position for personal risk, which makes it feasible to regain one's time value and resource capacity.

Non Tradable Sectors as a Point of Economic Origin

Normally, much of the economic activity in non tradable sectors follows that of tradable sectors - a factor which contributes to recent mercantilist arguments. However, the real problem in this regard is that fiscal activity has appropriated too many aspects of non tradable sector activity, in relation to potential tradable sector wealth aggregates. While some of today's fiscal troubles stem from excessive commitments in terms of ongoing redistribution, the bigger problem is that governments seek further revenue from areas that have already been government defined - hence already reliant on redistribution flow!

Non tradable sector activity needs to become a point of economic origin, in order for governments to escape the trap of excessive reliance on existing wealth for their commitments. With the help of a new form of corporate structure, it would become possible to initiate non tradable activity on terms that are not fiscal in nature. By compensating time based coordination as commodity wealth, long term growth can slowly - but surely - overcome the monetary and fiscal impasse which leaves monetary policy too close to the zero bound.

Thus far, few have directly addressed the fact that too much non tradable sector wealth is derivative of tradable sector activity and asset formation. Consequently, some now pine after the previous prosperity that tradable sectors provided, before technology meant fewer workers were needed in these areas.

What is missing in protectionist arguments is the fact that more tradable sector income now exists as international monetary flows, than the tradable sector income that would remain, should nations resort to mercantilist "solutions". Indeed, more money is readily available for government redistribution needs (with today's available international tradable sector flows) than would be the case if developed economies were to resort to nationalism.

Without non tradable sector formation as a point of economic origin, economic stability is possible. However, many regions would remain in a holding pattern of "waiting" for more individuals to permanently exit the marketplace. While this strategy is feasible, it is not desirable. Plus, this rationale ignores the fact that insufficient marketplace representation is still a problem for millions in developed and developing nations alike.

The time value which exists for individuals in relation to one another, is the great untapped resource potential of our time. Just as yesterday's institutions generated sufficient design for economic freedom in the past, tomorrow's institutions - given the chance - could do the same. Best, time value is the primary alignment for other forms of resource capacity as a whole. Even though this alignment has been partially forgotten in the present, with a little luck, it will be remembered, soon.

Part Time Specialization as Growth Strategy

Part of the rationale for new local corporate structure, would be to promote knowledge specialization as it now occurs, but in the smaller population densities which struggle to remain a part of surrounding complex economies. How so? By transforming single sets of specialized responsibility, into more diverse sets for local adaptation. As part of the process, individuals would also share more normal maintenance routines, so that participants need not be strictly relegated to routine tasks on a continuous basis. Closer proximity for shared activities during the course of the day, would make these changes possible.

More flexible specialization would generate greater economic complexity than has been possible thus far, both for regions "left behind" and for areas which were never sufficiently economically complex to begin with. Indeed, historical examples abound, when knowledge use capacity did not require the population densities that began to appear as though necessary for knowledge use in the twentieth century. Previously, the most talented and accomplished individuals often worked in multiple disciplines - some of which included the standard maintenance which became associated with class divisions in the twentieth century.

Why is part time specialization needed, for greater knowledge use dispersal? Today's more prosperous regions have limited ability to generate broader marketplace capacity, for knowledge use on asymmetric terms. This is also reflected in the reluctance of the most prosperous cities, to provide greater economic inclusion than what already exists.

Because asymmetric compensation must rely on preexisting wealth to generate further economic complexity, there is only so much room for new participants, as worldwide growth begins to slow. Knowledge use systems would not only make it possible to preserve vital knowledge use, but also provide much needed growth for those who continue to invest in time value, and hope for economic inclusion. Even better, these systems can do so on the symmetric terms which are capable of generating new wealth.

Knowledge use systems would allow specialization without the necessity of full time employment - either of a specific specialty or for multiple time arbitrage options. Consider the Keynes conundrum for instance, in present day general equilibrium terms. Why hasn't economic progress lowered working hours and increased leisure? Tyler Cowen recently gave an interesting lecture about this topic, and noted that many individuals simply prefer to work full time. But there is also another factor. In spite of the gains of tradable sectors, many now recognize that the requirements of today's non tradable sectors don't always make it easy to work part time. Not only do today's rich work more, they also spend more, in keeping with the substitution effect.

There is also a spatial component to general equilibrium settings, which encourages the substitution effect. Today's primary forms of transportation allowed large populations to coordinate specialized time value over broader distances and higher population densities. An important reason why knowledge workers have not been able to coordinate time based services in lower population densities, is the fact they don't have sufficient local customers to do so, full time. This can be problematic, given the fact that full time work in specialty fields may be necessary to meet one's financial commitments for educational investment.

By integrating education (for knowledge based services) with local coordinated work structure, individuals would not have the educational burdens which normally require full time work in given specialties. Alternative equilibrium settings would mean shared compensation, for mutual learning settings.

Part time specialization in smaller population densities and at closer quarters, would make it easier for individuals to more closely adhere to their natural rhythms for work preferences during the course of the day. Whereas eight hour days (for a specific task) are logical when transportation is a major issue, close quarters for work diversity makes it possible to shift responsibilities more often.

Even though economies of scale in the twentieth century often meant losing local work in tradable sectors, these losses should no longer be necessary for knowledge use product. The time based knowledge product that people have to gain, is exactly what they are willing to create. Hopefully, the 21st century will be noted for the fact that more individuals gain the chance, to become a part of the process of wealth creation.

Wrap Up for March 2016 (Albeit Late)

Several days later and I am finally returning to the land of the living! It was the second episode (this year) of a full blown migraine which kept me from blogging. Hopefully those dastardly things will ease up for a while. I've been able to self manage them for almost twenty years, and decided to take a brief look back at the process in this post.

Not surprisingly, an economic origin of sorts. The real headaches began, when it became obvious that rent in a new location would prove too high for my bookstore to remain in operation. Afterward, there were good years of employment when headaches weren't much of a problem.

Initially, there were no local over the counter remedies and I found help from herbal remedies. Before too long OTC remedies were available. OTC remedies mostly stopped minor headaches unless they proceeded "too far", which meant nothing else productive was going to get done for a while. Once that happens no medicine really works. For me the average "worst part" of a full blown episode is about 36 hours of not being able to sleep, eat or concentrate on anything, and sometimes up to eight hours of not being able to drink water.

Another difficulty for anyone such as myself who dislikes strong pain relievers (and finds them of little use), is the disruption of routine. Possibly the real breakthrough in migraine will come when medicine is able to move away from pain relievers in general, to a different way of approaching the whole process. Pain destroys a body, yet today's pain meds are in some important respects, not the way to prevent that from happening.

It's the effort to stay with routine (and a small amount of head pressure doesn't destroy concentration) that makes it tempting to take OTC pain medication more than once or twice a week. That's hard on the stomach. Oddly enough, much of the medication available by prescription has similar limit recommendations. Recently I heard about a possible migraine "breakthrough". This is much needed, because migraine is a chronic illness which doubtless affects life span. The best management (for many of us thus far) is diet related, which is also the part one learns gradually over time. Hopefully I've managed reasonably well, because there's so much left to be done...Ahh, on to links for the month.

In response to a post from Paul Krugman, Tyler Cowen asks, "What are the core differences between Republicans and Democrats?"

Private insurers aren't ready to hand over their black box..."Scotus is not the last word in transparency in health care" (AEI)

From the Economist, "The Party Declines"

Even before his rise, some pro-business Republicans were beginning to despair of the party, the congressional wing of which seemed to enjoy nothing more than shutting down the government and playing chicken with the debt ceiling...the most reliable way to tell whether a Republican voter was going to support Mr. Trump was whether he agreed with the statement: People like me don't have any say about what government does.

People will deny this is a problem until neither political party can provide what it wishes to provide.
From Alan Auerbach and William Gale: Once More Unto the Breach: The Deteriorating Fiscal Outlook

As production capacity has migrated from individuals to institutions, institutions continue to have negotiation power in the marketplace. Unfortunately, too many individuals have lost the personal power for negotiation, because of the loss of direct marketplace roles. This has bearing why it is so easy to exacerbate imaginary differences between individuals, and lead people to believe a strong leader will negotiate on their behalf. Whereas a strong leader threatens those who still benefit from the broad negotiation power and societal trust of institutions. This is why I believe a marketplace for time value - which would allow individual production for services generation - could restore both negotiation power and trust for the larger society.
http://www.bloomberg.com/news/articles/2016-03-04/is-the-u-s-job-market-frozen-by-a-lack-of-trust

Mark Perry at AEI: Some economic lessons about international trade for Donald Trump from Milton Friedman and Henry George

From Brookings: Understanding declining fluidity in the U.S. labor market

Reading this article, I actually found myself glad that the work I had expected to sustain me until retirement, was largely phased out in the early nineties, because it gave me a lot of time to consider the implications. Everyone can recreate meaningful work in which robots do not have to be overlords, but there needs to be social agreement as to how it can actually occur. Institutions which use asymmetric compensation will in many instances be compelled to substitute with robots wherever possible. In other words, the potential for economically compensated work always exists, but only in asymmetric form for a fraction of the population. http://blogs.wsj.com/economics/2016/03/10/americans-think-the-robots-are-coming-for-many-jobs-but-not-their-jobs/?mod=WSJBlog

Interesting, to see this argument addressed to Hillary Clinton from the Huffington Post (reporter Daniel Marans):
http://www.huffingtonpost.com/entry/hillary-clinton-1990s-economy_us_56e1ee56e4b0860f99d8675d

Dani Rodrik weighs in on the political backlash:
https://www.project-syndicate.org/commentary/the-politics-of-anger-by-dani-rodrik-2016-03

Written several years earlier, but this article on regional differences holds some clues regarding political turmoil: http://emerald.tufts.edu/alumni/magazine/fall2013/features/up-in-arms.html

Many of my readers will remember Ryan Decker, he was one of the co-authors of this Vox post: http://www.voxeu.org/article/decline-high-growth-entrepreneurship

Economics 21 looks at the looming student loan problem http://www.economics21.org/commentary/student-loan-defaults-new-data-show

A marketplace for time value could address this problem on multiple levels: https://www.aei.org/press/americas-mental-illness-crisis/

Inflexible labor markets are also something that the U.S. cannot afford to ignore: http://www.economics21.org/commentary/esflc-european-millennials-locked-out-of-job-market-03-21-2016

From Narayana Kockerlakota, The Fed's Misunderstood Dots: "In other words, the dot plot offers a great representation of how much officials disagree when the policy-making Federal Open Markets Committee forges a consensus."

Today's rich spend a lot of money. That matters. http://timharford.com/2016/03/capital-ideas-in-a-time-of-inequality/

"Basically, Trump is what would happen if the comments section became a human and ran for president." When I came across this quote recently, the fact that Trump for a while appeared to "take over" Scott Sumner's comment section at The Money Illusion, made more sense!

Rediscovering Work, and the Double Coincidence of Wants

Addressing the need to redefine knowledge based work on broader economic terms, should be front and center of today's discussions. Particularly when a Nobel prize winning economist (for trade patterns, no less) is right in line with Donald Trump, in suggesting mercantilism as an appropriate policy response. I apologize in advance for the portion of this post which comes across as a rant, but I never would have expected in the course of my lifetime for Paul Krugman to become an advocate for mercantilism.

If society does not create means to incorporate (literally) the knowledge and skill investment already contributed to the marketplace through educational costs, much of that personal commitment and effort will be lost. Seriously, did no one believe it wouldn't become necessary to transform non tradable sectors, once tradable sector production efficiency meant relatively less employment in all parts of the world? How many times have nations squandered economic evolution, on mercantilism, nationalism, and war?

Okay, time to take a deep breath...First, let's consider some of what would be involved, for redefining work on monetary terms. Recently, Nicolas Cachanosky of the Sound Money Project wrote why he believed money became necessary, in environments which did not initially require money:

To make an exchange, both parties need to know what the other party has to offer - this is an important limit to potential exchange known as the double-coincidence of wants. One important benefit of using money is that individuals avoid such situations.

The convenience factor of money as coordinator of economic activity, cannot be dismissed lightly. But what happens when individuals and institutions avoid the need for time based coordination, for too long? A problem has occurred, in that complete reliance on money without recognition of aggregate time value, has generated a limited marketplace for time value on its own terms. In particular: for personal wants and needs, some would benefit from the ability to negotiate for services based on mutual wants, instead of settling for the default product settings of institutions. Product choice options on the part of individuals and institutions - in particular for time based services - are not necessarily one and the same.

Without sufficient capacity to personally negotiate for time based product, the lack of a double coincidence of wants spills over into the personal sphere. As individuals lose sight of what is actually involved for economic reciprocity, social reciprocity also suffers. Indeed, reciprocity is not always correctly defined, by those one would expect to be able to do so. Early in the beginnings of this project (thirteen years ago), an acquaintance gave an example of reciprocity as visiting someone in a nursing home. In spite of the disconnect in this explanation, everyone recognizes what happens when people appear incapable of reciprocity. Such individuals may try to force others to do things for them, or else attempt to do everything on their own.

Reciprocity still involves a double coincidence of wants, whether or not money proves capable of smoothing the process of resource coordination. Without a marketplace for time value, some have few means to solve for the inevitable double coincidence of wants that are part of life. And when time based services markets are institutionally defined, the result does not always resemble what people would choose of their own free will. Not only do knowledge use and skill sets tend to be compromised in the "factory" school model, but also the all too similar model of hospitals and nursing homes.

Also, the lack of a free market for knowledge use, increasingly leads to problems at a monetary level. In spite of money's coordination ability in the marketplace, tradable sector organizational capacity is more effective in this regard than the time based services of non tradable sectors. Consequently, there is insufficient room for lower income levels to negotiate for time based product, without a marketplace for symmetrically coordinated time value.

Why so? Asymmetric compensation was not developed in association with the (monetarily represented) resource capacity actually available to fund participating groups, in nationwide systems. Indeed, determining actual value and resource availability in these circumstance would have been next to impossible - hence fiat monetary formation. Instead, valuations for knowledge use (in time based services) were generated which claimed resource capacity before populations as a whole were represented. As governments sought to extend access to skills sets as defined on those terms, the valuations have gradually became burdens on government budgets - even though only a portion of the public is represented for real time settings in services coordination.

A marketplace for time value, could gradually restore the lack of monetary balance which has resulted from these early prior claims for time value. However, the challenge of a time based marketplace is somewhat daunting, given a steep learning curve for smooth negotiation on these new terms. Consequently, many individuals will have to back up somewhat and ask some very basic questions regarding mutual assistance.

One reason free markets have not been possible for knowledge based services, is that many remain afraid of the very freedom such a market implies. In a sense, life would be a lot easier if government could continue its broad role for knowledge use preservation and services coordination. But many governments no longer have the budgets to do so adequately, for much longer.

Megan McArdle, in "Listen to the victims of the free market", noted how the elite have been reluctant to talk about work in any meaningful way, in a post which is worth reading in its entirety. I'll excerpt some highlights, here:

And the giant hole at the center of this discussion we aren't having is work. We talk a lot about how to palliate the effects of a labor market that no longer offers many rewards to the less educated. We act as if jobs inevitably grow like weeds, in the fertile soil of capitalism. Or worse as if they were a sort of optional intermediary step i.e. the important business of distributing money and fringe benefits. Given how central work is to the lives of the elite, how fearful we are of losing our own careers, this belief is somewhat inexplicable. It's also politically suicidal, as the current moment shows us.

She continues:

There is no better example of the folly of the elites than the current fashion for a universal basic income among both liberals and libertarians. Instead of trying to figure out something hard, like how to build an economy that provides adequate work for everyone, the idea is to do something easy, like give them checks.

Let's hope that policy makers in Washington don't eventually resort to checks as a last out. It's worth the effort required, to rediscover work, instead.

Notes on Defining Economic Access

How might one think about economic access as a potential right, at least in a limited sense? The ability to define one's work on economic terms in relation to others, i.e. create one's work, is an important part of this concept. However, economic access is more than a right to generate work patterns on sustainable terms, because it includes an ongoing ability to take part in the consumption definitions of one's own environment, as well. Presently, our economic environments are externally defined, in ways that can even overwhelm those with professional incomes, to some degree.

Granted, prosperous regions now have the additional burden of an artificially restricted knowledge use marketplace at an international level - hence higher real estate costs. Just the same, many financial burdens are due to a lack of government responsiveness to factors which impact local costs. Externally generated requirements for a wide range of production and consumption in the marketplace, now contribute to uncertainty for a wide range of personal investments.

Jean Twenge, a psychologist at San Diego State University, understands the problems of economic access which also contribute to mental issues for young people. In a recent Quartz article, "Why are our kids so miserable?", Quartz writer Jenny Anderson addressed her concerns:

Twenge has observed a notable shift away from internal, or intrinsic goals, which one can control, toward extrinsic ones, which are set by the world, and which are increasingly unforgiving...The percentage of people who expect to get graduate and professional degrees, for example, has surged as have the number of people who aspire to secure a professional job. But the numbers of people getting these degrees and jobs has stayed flat..."Expectations have risen, but reality has stayed the same", she told Quartz.

A lack of economic access is also associated with inequality. In the past, inequality was most closely linked to whether one was able to derive income from private property. In the present, the most important resource capacity for economic access is knowledge use - particularly as one ages and it becomes difficult to continue the physical labor which many low skill jobs require. In certain respects, higher incomes are representative of a knowledge based marketplace which has yet to be developed. Jonathan Rothwell at Brookings writes about inequality (ht David Henderson):

Curbing this inequality requires a real understanding of its causes. Three of the standard explanations - capital shares, skills and technology - are myths. The real cause of elite inequality is the lack of open access, and market competition in elite investment and labor markets. To bring the elite down to size, we need to make them compete.

While Rothwell's challenge in this article is noteworthy, his suggested strategies are somewhat unrealistic to initiate in general equilibrium conditions. There are also "first mover" issues involved, that would make it difficult to reduce the income expectations for healthcare providers as they are presently construed in the marketplace. Healthcare providers not only face high overhead costs to remain in operation, but their educational expenses take many years to pay off, as well.

This is why an alternative equilibrium setting would work best for vital aspects of knowledge dispersal. Local corporations would design broad infrastructure support, for those who elect to engage in healthcare provision without the income normally associated with this activity. The lack of economic access in terms of inequality, is most problematic for the marketplace which remains missing - both in terms of production and consumption. Hence the problem for economic access is not about differences in income, but the underlying problem of lost marketplace potential.