Wrap Up for May 2018

The job guarantee controversy, revisited. Timothy Taylor notes that yes, the U.S. job market would benefit from a broad shake-up. People are losing their patience for good reasons. But why haven't similar programs already been implemented in Europe? And that's just the first tough question. Also a response from Ed Dolan.

April 30th, 2018, was a critical turning point for the FOMC. And,

By paying banks more to hoard reserves than they could make by lending them, the Fed could effectively sequester those reserves, preventing them from contributing to increasing lending, spending and prices.

Is healthy food an important factor in depopulation?

When we asked rural officials about the importance of grocery stores, they shrugged: Affordable housing, jobs, schools and hospitals topped the list.

In the past, deficits didn't really spook markets. That could be changing.

From McKinsey: "The economics of artificial intelligence"

The Federal Reserve Board is one of the few institutions which has received normal treatment from Donald Trump. Can that last?

"Overheating" is hardly a likelihood from the dominance of a single indicator such as oil. Spending growth in 2018 hasn't been sufficient to warrant inflation concerns.

"Although AI is already in use in thousands of companies around the world, most big opportunities have not yet been tapped." "The fallacy that a computer's narrow understanding implies broader understanding is perhaps the biggest source of confusion, and exaggerated claims about AI's progress. We are far from machines that exhibit general intelligence across diverse domains."

Diane Coyle describes some current problems re GDP measure.

Will the pressure on profit margins from higher resource costs prove temporary?

"One of the things that comes up in studying the role of markups is an apparent paradox. The presence of markups can mean the value of aggregate output is lower than it otherwise would be, as it leads to a misallocation of inputs. But at the same time, it is possible that raising the average markup in the economy will increase the value of aggregate output. It would appear as if markups can be both good and bad for output."

Some images of jobs that are disappearing

"Can people afford American infrastructure?"

Productivity growth (a follow up post): Can we sort out positive productivity effects from negative allocation effects? Allocation markup can be positive with quality output gains, but to what extent? I also wonder whether the collapsing markups may reflect a relatively diminished aggregate supply in some instances. Especially when substantial portions of supply are dependent on government revenue. Nevertheless, if markups generated a 40% equilibrium loss in 2014, any possible efficient equilibrium outcome, would center around utility preferences.

Markups in healthcare made the U.S. an attractive market for innovation. "Yet being an engine for innovation doesn't necessarily translate into better outcomes."

Path dependency is an infrastructure problem.

Is future productivity expected to "rebound, stay the same, or decline further"? The authors suggest that "Future structural change will not reduce productivity much further." However, if the status quo were to remain intact, I'd suggest this may be due to reduced aggregate production in time based product. In other words, less use of applied and experiential knowledge at an economic level.

Henry Kissinger discusses the instability of artificial intelligence.

Cities: The passage of time affects "spontaneous complexity and intricacy".

"The benefits that the Affordable Care Act was likely to achieve in terms of expanding health insurance coverage were often oversold."

Vitalik Buterin shares some of his concerns re the need for decentralization

Interest rates have been trending downward for a long time.

Does "doing the right thing" enhance the bottom line? Some interesting experiments with corporate social responsibility.

Elite communities are leaving everyone else behind. What happens next?

"...as college became the default path to professions in the 20th century, apprenticeships fell out of favor with America's upwardly mobile culture."

Too few are taking into account, how this could eventually wreak havoc with our present prosperity: "America's Exploding Budget Deficit" Also, a global perspective.

Deductive vs Inductive Reasoning

One perspective is - of course - NIMBYs wanted it this way. "Early decade big city growth continues to fall off, census shows"

Technology Need Not Divide Us From Ourselves

An all too common theme, is that technology may soon stand in the way of our ability to pursue meaningful and productive lives. Nevertheless, this imagined "cloud" has a silver lining, for technology need not mean the loss of autonomy or personal agency. Ultimately, it is within our power to broaden the means by which individuals and groups alike, can benefit from technology and societal innovation in general.

Only survey the historical means by which we have chosen to benefit from technology in the past. Recall how the rationale of society's earlier decisions to disperse productivity gains, occasionally backfires to some extent. For example, we lost potential economic time value, when we chose immediate monetary gains (higher wages) over the ability to coordinate learning patterns with working patterns in the same environments. Whenever education is formally separated from workplaces, the results aren't always as helpful as one might expect. In an article for Brookings, "How history explains America's struggle to revive apprenticeships", Greg Ferenstein observes:

The fall of America's apprenticeships began as a political compromise between labor unions and business executives over how much to pay young workers-in-training after the industrial revolution. 

Technology's latest transformation is extensive use of data. Is data somehow "failing" us as well? In a review of "New Dark Age: Technology, Knowledge and the End of the Future" (James Bridle), Niki Seth-Smith notes:

More information is supposed to lead to better decisions, a cultural logic that has dominated the Western World at least since the Enlightenment. The warning that this relationship is breaking down, or perhaps is already broken, is being flagged across multiple disciplines. What Bridle attempts to do is to bring them all together.

Niki Seth-Smith questioned whether's Bridle's suggestion to "embrace uncertainty" was a suitable response. Societal fears such as this, also play into attempts to refuse technology the "upper hand". Yet technology need not define every waking moment of our lives, and it might only gain the "upper hand" if we are reluctant to believe it can still help us. Even deep learning AI applies skill use patterns in far more limited settings than individuals with average intelligence are capable of, and this will continue to be the case. To the extent our knowledge based relationships have partially broken down, we have expected our present institutions to disperse knowledge in much the same ways societies were able to do, prior to the 20th century. However, today's institutions are limited in their capacity to do so - especially when our economic time is structured as residuals in other production processes.

We need to reclaim our economic time preferences, so that we can once again function as a direct part of wealth creation. By allowing time to function as short term symmetric loans for mutually held time preferences, we could better choose when we want to augment or reduce labour, in relation to other forms of capital. We would also have better institutional means, by which to carry the use and experience of knowledge forward through time. By approaching wealth creation more directly, the resulting "first mover" position this process creates, allows us to work side by side with AI and other technology at the outset.

Instead of trying to stop technology in its tracks, why not take a closer look, to see where it could best augment our own reciprocal economic relationships with others. When we give economic validity to our personal time preferences, we restore our potential for personal agency, which in turn can be further enriched through technology.

What Purpose, Structural Reform?

Hint: Intentional market design is not a "one size fits all" construct, nor should it be. And yet too much political dialogue from both the left and right, treats structural reform as if one size fits all persuasions were the only possible kind in today's world.

Potential rationale for structural reform is also squandered, when policy discussions are mostly means to trash one's political opponents. Policy making serves little purpose, if the underlying incentive is to destroy someone else's wealth potential, rather than work together to build new platforms for wealth creation. Hence my dismay with some recent articles which cite failed structural reform efforts, as mostly another excuse to complain. In all these political struggles, no one will impose successful national "solutions" any time soon, given the highly diverse landscape of viewpoints, social values, and income levels that now prevail.

Structural reform could instead encourage platforms of legally sanctioned economic choices for all income levels, in terms of both consumption and production. For instance, if some don't believe Social Security will be there for them in the future, time arbitrage could make it possible for groups to coordinate for mutually desired time centered service wants and needs, over the course of a lifetime. Self directed education would also take into active consideration, the skills sets that are well suited for the work others seek. Presently, we have a very limited conception of supply and demand (or time price coordination) in time based services, since too much aggregate time value is lost to the price making mechanism of skills arbitrage.

Nevertheless, it's not been easy to imagine structural reform in decentralized settings, for those who need these opportunities. Lots of hard work is involved to initiate such processes; meanwhile, many remain unconvinced such effort is even necessary. If that weren't problematic enough, structural change requires careful attention to supply side issues, which is particularly boring to the average observer. As John Cochrane recently observed:

Supply side policy is not sexy - it involves clearing the sand out of many gears, not a Big Stimulus you can announce on the news.

Alas, we ended up with a dubious Big Stimulus instead, at precisely the wrong fiscal moment. But neither can anyone realistically expect to clean the sand out of every gear, without sacrificing far too much national wealth. Instead of trying to restart a national engine (which runs fine on some cylinders), structural reform is needed for the many engines which have essentially fallen away from the journey of life. Decentralized means of structural reform, could get many engines running again.

Even though at risk individuals often lack college degrees, by no means are these the only individuals, who suffer from a lack of full participation in society. Structural reform dialogues can be incredibly condescending, if individuals assume the marginalized are mostly an amorphous group which should settle for the political strategies of "winning" elite factions. This is true whether such strategies envision government guaranteed jobs, basic living wages, or perhaps the expectation these individuals should settle for vocational education and forget their intellectual challenges - at least in this lifetime. Indeed, if social justice is taken into account, belief in reincarnation serves an obvious purpose, if and when classes become so rigidly divided, that the faithful begin to expect any possible intellectual challenges among the marginalized, will simply have to wait till the next lifetime.

Often, individuals and communities which have been sidelined, continue to hold hopes, aspirations and dreams which are not all that dissimilar from the rest of the population. If we are to benefit from structural reforms in the near future, it would be because we finally gained the courage to permit all citizens to take part in wealth creation processes. Despite the fact many of us believe ourselves to be political enemies, we are still aligned with - and dependent - on the same general equilibrium wealth. Consequently, when we attempt to discredit others, we face the very real possibility of wealth destruction.

Indeed, many components of our economic systems still work quite well, but they can't be expected to carry the entire load. Only part of our systems are not functioning properly, which is why it's not easy to tell our economic story as a cohesive whole. If we continue to believe structural reform is too difficult, and take the "easy way out" of destroying what we don't like, all we do is deprive ourselves of the very economic oxygen we need to collectively breathe. Decentralized settings could just be the best option for structural reform. Decentralization, in order to become a viable economic tool, needs to function well for groups with diverse conceptions of the good life. The best way to preserve the stability of existing wealth, is to build new wealth, so that the struggle over existing wealth might finally have a chance to subside.

Output Capacity and Redistributional Flow

The redistributional flows of fiscal policy depend on reliable output, over time. But how would we know that - just because properties or assets can be assigned specific value for purposes of taxation - the assigned value is a true connection to the assumed output associated with the property?

This conundrum was uppermost in my thoughts, when I first read Progress and Poverty by Henry George in 2015. I found myself grappling with his land taxation ideas again, upon reading a ProMarket interview with Glen Weyl (coauthor of Radical Markets) which I followed up with a Russ Roberts interview. Henry George's work provided some of the inspiration for Radical Markets.

One of my concerns with Weyl's land use suggestions in the interviews, is that some forms of land use aren't actually capable of generating sufficient output for revenue potential - at least not in a straightforward way. Imagine three basic designations for land use: residential, government and commercial. Their approach to "output" is quite diverse! For that matter, private ownership of residential property in the present, is more closely associated with consumption, than production.

What does this reality suggest, for property as a complete form of taxation? After all, the only land (presently) with internally derived output capacity, is property set aside to create product which is readily separated from the scarcities of time and place. Other property usage is too caught in the complexities of general equilibrium flows (such as mortgage deductions), to serve as reliable means of complete taxation. Said another way, property which is utilized for tangible goods, exists in easily measurable form which is also simple to tax. When property is used for purposes which rely on the natural scarcities of time and place (physician time, hospital rooms), total land taxation of these institutions would only pull them further away, from what are already constrained output requirements, given the reality of today's operational costs.

Weyl was concerned about landlords with large property holdings. Nevertheless, if these individuals are fully taxed on land, so too are countless more who don't receive the same benefits of scale. Consequently, for the latter - whether individual property owners or small landlords, there's not much profit involved in ongoing and often extensive maintenance costs. Profits that aren't consumed by the upkeep of traditional building structures, mostly accrue once land ownership begins to scale up. How would the typical single property owner give back land tax value, and have anything left over for property upkeep?

Again, there's a lack of output for redistributional flow as well. Owners of private residential property, tend to be legally bound (unfortunately) to not use residential properties in ways that generate actual output. Rather, land ownership costs have increasingly become the costs of access to productive agglomeration. In other words, while ownership of private residential property is supposed to be capital enhancing, much of this marketplace serves as a user fee for productive economic engagement - one influenced by regional, national and global factors, as well.

By far the most confusing aspect of land valuation (based on Weyl's suggested system), would be the completely taxed land parcels which are utilized for institutional purposes that already benefit from redistributional flows. Hospitals and schools in particularly are mostly organized as dependent secondary markets, many of which would not even be in operation, were it not for tax based revenue. And yet hospitals already need to rely on price making (markups), since the time and place specificity of their product limits the output they can generate, in relation to the value of their buildings and property. How does one fully tax them, based on the often valuable land where they happen to reside? Ultimately, long term taxation potential is contingent on output, and whether that output represents what the property can generate via internal means.

In spite of these problems with total land taxation, what's helpful in this renewed dialogue, is how everyone involved can reconsider aggregate resource capacity, with what is essentially a blank slate approach. This is really important, for decentralized approaches will be needed, to address the growing shortcomings of fiscal flows in today's centralized economies.

A blank slate approach, for instance, makes it reasonable to ask: What are the most important purposes our tax systems can serve? Can we create multiple versions, instead of one size fits all infrastructure requirements? How might we arrive at mutually desirable ends, if and when taxation turns out to be insufficient? When do we actually create new wealth which is actually viable as a revenue source for redistribution? Hint: When resource use or product are time or place dependent, they can be utilized more effectively at the source, but their output revenue can't be redistributed, unless extensive markups are involved. It's all about potential circles of sustainability, and today's governments need all the help they can get, given the growing fiscal burdens of the present.

Skills Arbitrage is Linear, Time Arbitrage, Non Linear

As skills arbitrage became increasingly important for reliable employment, employment possibilities in turn, were more driven by linear relationships. These realities affect societal decision making for skills use patterns, and also aggregate income expectations. For that matter, 20th century transportation systems made many of these linear divisions of labour expectations feasible - not just in terms of highly defined work roles, but also the broadly spread population densities which these institutional workplaces came to rely on.

While linear organizational patterns have contributed greatly to the productive agglomeration of the present, they are no longer sufficient to maintain either long term growth or economic stability. This is slowly becoming evident, since productive agglomeration and its associated economic complexity, is no longer well dispersed across diverse regions. Even though linear workplace organization can be simpler to control and manage, its extensive use now constrains not only aggregate growth capacity, but also the dispersal of productive knowledge use patterns.

Fortunately, time arbitrage could provide non linear options for new growth, through differently aligned workplace patterns and relationships. Non linear patterns feature in what are termed complex adaptive systems. How might one envision such systems? Wikipedia explains their nature:

A complex adaptive system is a system in which a perfect understanding of the individual parts does not automatically convey a perfect understanding of the whole system's behavior. The study of complex adaptive systems, a subset of nonlinear dynamical systems, is highly interdisciplinary and blends insights from the natural and social sciences to develop system-level models...They are complex in that they are dynamic networks of interactions, and their relationships are not aggregations of the individual static entities.

In a recent post Ian Hathaway notes that "startup communities are examples of complex adaptive systems", and adds:

Linear thinking works in individual sports like tennis or golf, but not in sports teams like baseball, where the integration of the pieces (the players) can be more deterministic of the outcome than the sum of the parts (the combined talents of the individual players).

How to think about the difference? When groups work to create product or outcomes which benefit from specificity, linear approaches can be appropriate. However, many forms of time based product need not be quite so skill specific, at the individual level of providers and recipients. In these circumstance, often neither participant expects or desires a universally defined product or outcome - even though institutions may choose to impose standardized outcomes, so as to maintain control and reduce costs.

Time arbitrage could coordinate a more diverse range of skills and knowledge use possibilities, so that many services would ultimately function more effectively as free markets. Likewise - as Hathaway emphasized regarding startup communities - time arbitrage, in contrast with skills arbitrage, would "focus on the interactions between the people involved".

Coordinated team effort as an ongoing process, is a good way to envision time arbitrage potential. Group participants would align mutually desirable activities so as to create a more flexible range of services product, thereby making the process more relevant for all concerned. While we don't always associate greater autonomy and personal challenge with the nature of today's time based product, the digital era gives us an excellent chance, to reduce what is often unnecessary hierarchical organization in these sectors.

Prosperity Isn't a Class or Geographic Destination

Why is it, that instead of encouraging prosperity in already existing circumstance, we often feel it's necessary for people to relocate to different nations, cities, regions, or even different social classes? Indeed, such reasoning occurs across the political spectrum. In a recent article for Brookings, Richard Reeves summarizes:

Restoring the fortunes of the American middle class is a policy challenge. It is a political challenge. And it is an economic challenge. But it is a cultural challenge, too. For a start, let's start treating each other with a little more respect.

Fortunately, the middle class is hardly a lost cause! Nevertheless: By attempting to fit entire societies into a single definition of social desirability, it's easy to become too afraid of what could still happen, instead of productively responding to present realities. For instance, one should not have to be a member of the middle class to qualify for home ownership, yet this unnecessary burden has particularly been imposed since the Great Recession. If we were able to acknowledge the actual economic circumstance of the marginalized, we could better understand how their ongoing efforts to improve their lives, mostly go unnoticed.

Prosperity need not be a matter of class standing, or a struggle to fit into someone else's ideas of economic success. When societies are stable, they are more likely to encourage a full range of options for economic engagement, a range which accurately reflects the resource capacity people actually have at their disposal. If governments and special interests weren't so intent on forcing entire categories of skills and resource capacity into narrowly defined rules for working and living, people might be less inclined to judge others according to their physical stamina or income level.

Meanwhile, the struggle that matters most is at the bottom income levels. Let's work on improving our overall economic settings here, instead of obsessing over the reliability - or lack thereof - of future middle class wages. Let's begin anew by becoming more willing to expand the horizons of those deemed short on social skills, college degrees, or "perfect" health for that matter. These individuals need the legal permissions and production rights that only we as citizens can make possible, to meaningfully improve their life circumstance. It should not be illegal, for those who appear as though in need of help, to be able to legally help themselves.

When the marginalized lose societal permissions to improve their lot, other citizens gradually find themselves more likely to fall into similar traps, such as were initially set for those unable to protest the losses. We don't often recognize how these traps may too eventually affect our lives, for they result from cumulative, yet often unseen small actions, taken to protect those who are already strong.

Given the chance, people with limited resource capacity could still create real wealth. Importantly, wealth need not be defined as "cutting edge" or supposedly "superior" in nature to already existing wealth. For that matter, new economic activity which is reciprocated at the outset without debt, could actually be more historically important, than wealth which requires such extensive debt no one really knows when it will finally be repaid.

People could one day live in settings deserving of respect, which don't demand high income levels to create. Instead of simply seeking respect as vested in building values and credentials, why not make it about how people derive economic meaning, whatever their surroundings may be. Ultimately, we need to find better means for storing continuous economic value in our aggregate time capacity, and not just our buildings where credential value is still being frittered away. As Ian Hathaway recently noted, too many potential solutions for wealth building are overlooked because they don't seem significant enough:

So, before continuing down The More of Everything path, consider an alternative. Sometimes the answer is more of something. But often, a more relevant question is how well something is being done. Are you getting the most out of what you already have? What can be done to improve community cohesion today? To what extent are the existing pieces integrating in a productive way? 

In my experience, the answer to these questions comes not from adding, but from activating and transforming. That makes it an issue of culture and mindset, and means that seemingly small changes in behavior - adopted widely and practiced consistently - can have a big impact on outcomes down the road. It's not always the big moves that get you where you need to go.  

How well are we actually tapping the aspirations of humanity at a basic level? We don't have to continue throwing out the skills and intellectual capacity which our present institutions can't effectively use. Instead, we can do something different. We can build new institutions, which are capable of building real wealth from all we have to offer.

What Makes Theoretical Framing Necessary?

Some of our institutions no longer function as effectively as they once did. Yet clearly, positive institutional change takes time. Small wonder so many citizens have long since grown weary, of thinking about the nature of our economic dilemma. For that matter, economic subjects are no longer a comfortable part of social discourse - especially when theoretical concerns are involved. We know that important disciplines have gone too far down the rabbit hole of specialization and inaccessible language, when citizens can no longer rely on important areas of study for cross discipline problem solving.

Nevertheless, I'm compelled to explain why it would be dangerous, to abandon what little does exist of a theoretical framing for economic discussions outside academia. Even though economists may not need to worry about losing their jobs anytime soon (perhaps why earlier theoretical framing has yet to be reconfigured), there's plenty at stake for the general public in this regard. One would think that since governments are becoming less inclined to take economists seriously, economists might rediscover the importance of reaching out to the general public for mutual problem solving. Ryan Avent's "The Wealth of Humans" (2016), gets to the heart of the matter. In his book intro, he highlighted the institutional dilemma:

And the institutions of work - apart from family, our most important piece of social infrastructure - can no longer be counted on to fulfil its many crucial roles - from the ordering of our days, to the allocation of purchasing power, to the strengthening of the social ties that are nurtured when individuals feel as though they are contributing positively to the community.

Ryan Avent emphasized economic developments in his book which deserve a lot more attention than they have received, thus far. For example, he stressed how it's no longer a simple matter to raise aggregate income capacity for the average individual, in developed nations. Which is why I keep repeating that we need a different wealth creation approach, to improve the value of the aggregate income that we either have or might reasonably expect. Avent also noted that the economic problems of our time are not going to go away any time soon. Which means we can likely expect decades of political and social disruption, before economic stability once again appears as though a realistic societal expectation.

There's an underlying theoretical framework which is a major contributor to these problems. Crucially, many of these issues are no longer solvable from a linear perspective. That said, it's quite difficult to introduce non linear elements to the majority of the conversations we do get to have, with others. One reason we get so much dialogue "retread" in linear territory - even though resurrected policy material no longer functions effectively - is the fact these conversations can be readily understood by both citizens and policy makers. And when economists do understand what's at stake, especially in terms of production potential and long term growth, too few presently share their concerns with the average citizen. What can be done, then, given the shifting tectonic plates of tradable and non tradable sector activity which have completely altered our general equilibrium realities?

Fortunately, it's not necessary for everyone to understand the theoretically cognizant patterns which could contribute to a "Monday morning" approach for mutual employment and long term economic stability. What is necessary, however, is a new institutional framework which addresses on legal terms the shifting nature of monetary flows and sectoral activity, thereby providing new means to live and work for the average individual which would not otherwise be possible.

In the five plus years I've worked on this blog, I've attempted to understand the nature of how such an institution could function. I'd like for this new institution to be referred to as an equilibrium corporation, since it would work to restore monetary equivalence in defined equilibrium environments, but who knows what others might eventually want to call these new economic platforms. A new institution would allow broader rights of production for all citizens to coexist with today's more exclusive skills arbitrage rights of knowledge production, for instance. With a little luck, I may be able to clarify my efforts so they might finally be more broadly understood. Ultimately, that's the goal of the book project, which I still have every intention of contributing to the blog sidebar. Now, it's mostly a matter of taking care of my health as best I can in the years to come, so this work might finally realize completion.