What We Can Do, What We Can't Do

New years are a good time to reflect on life's possibilities, especially when it comes to societal progress. Nevertheless, how do we distinguish between realistic potential, versus what is essentially wishful thinking? For example, even though the world needs a lot more mutual respect and civility, desired outcomes such as these cannot be coerced. 

And while Adam Smith and many others celebrated the free markets which so contributed to civility in recent centuries, much of this fortuitous societal coordination takes place in tradable sector activity. Still, it's not unreasonable to ask: Could our non tradable sector markets also contribute to greater civility? How might they gain their own newfound freedoms? In particular, is it feasible for the resource of our scarce time, to garner more economic and societal value in the near future? Or will vital markets for time value, remain outside our realm of direct influence?

In the twentieth century, housing and time based services were regulated in ways which reduced the degree of autonomy and control individuals held over their own destinies - particularly those with substantial income limits. If millions were to regain control via new production and consumption potential, how much civility might we all regain in the process? At the very least, we still benefit from the civility which goes hand in hand with high levels of tradable sector resource coordination. And while we will never put a stop to what's bad in the world, we could still create more good, by allowing symmetrical (hence reciprocal) coordination of time via market tested means. Time arbitrage is one entry to this realm of possibility. It is a broad spectrum approach for improving personal autonomy and self worth, with potential to bring new hope to people from all walks of life.

With additional economic value for mutually coordinated time, millions more citizens would derive a greater sense of self worth. Consider one important reason why this matters. So much in the world which is unfortunate and destructive, includes the reality of poorly defined self worth. How can we expect people to be trustworthy or unfailingly good to others, when their time use potential lacks sufficient economic value to build a normal life? Granted, not everyone would personally benefit from stronger markets for time value. Just the same, millions more would finally learn to effectively negotiate with others for their wants and needs. I believe that gaining the chance to do so, would result in fortuitous circumstance whereby people are more inclined to be kind and civil. 

Even though the passing years have given me cause to excessively dwell on what can't be done, I still believe we are not helpless to act in positive ways. Clearly, we have reason to do so, when the evening news also dwells on what we seemingly cannot remedy. While there will always be instances when no one can decipher personal motivations for violence and hatred, there will still be positive ways to respond. Sure, some market efforts are going to fail, sometimes even miserably. But I continue to believe that viable and carefully representative market platforms are the best means we have, to build a better, more inclusive future. Plus, as Ricardo Hausmann recently noted in "The Missing Link in Economic Development":

If someone is not doing something that we as a society value it might be because they can't, not because they don't want to. This weakness in economics has far-reaching implications for our understanding of economic growth and development, which is fundamentally about the social accumulation of productive capabilities.

Markets should not be so willing to devolve, into a twisted rational of what societies supposedly can't do. When they become rigid and inflexible, does anyone really wonder why capitalism gets disparaged? Why not work to ensure greater freedom for our vital domestic markets, so they might better contribute to human civility and hope for the future? Why not 2021 as the perfect place to begin? Lets turn our non tradable sectors into realms where we regain hope for what we can do as a society, instead of remaining hopelessly divided over what we can't do.

Wrap Up for December 2020

"Although cities are often categorized as lonely places, city dwellers are actually more likely to have a neighborhood spot than those living in other types of communities." 

Will we keep turning politically inward?

The 911 emergency medical system has been sorely tested by the pandemic.

"The 2018-2019 tariff increases represent the largest return to protectionism in the U.S. in the post-war era."

Some considerations regarding federal budget deficits.

A case study from Canada for low long-term interest rates.

Plus, Greg Mankiw asks, are low interest rates a boon, or a danger?

Logistics are a major concern for mass vaccinations in the days ahead.

Optimism and pessimism are generally warranted. Still, those who can't imagine a better world ultimately lose their motivation.

Future gasoline demand may not reach its pre-pandemic levels.

Why hasn't more attention been paid to the big questions of economics?

Arnold Kling reviews Classical Liberalism and the Industrial Working Class by Alberto Mingardi.

The pandemic recession includes shifting patterns of energy demand.

Sam Hammond and Brink Lindsey share their ideas with David Beckworth, for more inclusive and dynamic growth.

How has the middle class changed?

Scott Sumner takes on MMT logic. Plus here and also at Econlib. Some conclusions.

What if "store of value" really isn't a particularly useful designation for money? However, Scott Sumner has a different take.

"Do bankers understand money?"

What determines whether inflation occurs?

As it turns out, class biases can even affect Christmas card reciprocity.

There's renewed interest in the Einstein-Szilard refrigerator.

Why hasn't the euro become more dominant?

There are gender differences for one's personal inclination to cooperate.

Addressing the federal fiscal imbalance.

David Wessel opines on rising federal debt.

For Beethoven, freedom was important.

It's been 73 years since American migration was this low. 

Covid doesn't go away just because impatience wants it to.

Alexander Hamilton would not have endorsed MMT.

The value of time currently estimated by the U.S. government, is too low.

"People who agree with market prices have a low expected subjective gain from trading. People who disagree may either become spectacularly rich, or spectacularly poor."

Some benefits of a multigenerational workforce.

What might someone actually mean, if they express a lack of concern about inflation?

David Glasner highlights the relationship between Say's Law and Walras's Law.

Even when populists lose control, those who are left behind continue to feel abandoned.

Is inflation really dead? Not so fast...

How should income inequality be calculated?

Health provisions are an important part of the year end pandemic response bill. Nevertheless, healthcare budgetary gains are temporary.

2020 also brought "advances in AI language generation".

"while tiny houses have far more potential than their scale might suggest, it's at the other end of the size spectrum that the most major breakthroughs in construction remain to be made."

However, originating tiny house communities will need a new approach which includes innovative infrastructure, before older communities are likely to consider tiny homes as viable alternatives.

Fires pose unexpected problems for plastic pipes.

Is racial identity associated with support for free trade?

There are plenty of economic challenges ahead for Biden.

Thomas Sowell on writing (2001): "The manuscript of Basic Economics sat around for about a decade." (HT Timothy Taylor) 

Robots dancing as if 2020 were a good year! 

Post Highlights from 2020

Here are some reflections on posts from 2020. This has been a year which - for many readers - is thankfully almost behind us! I wish everyone the best for 2021.

Jobs as a Form of Societal Permission

Even though artificial intelligence can improve aggregate output in non tradable sectors, tradable sector activity includes AI exponential effects as direct wealth sources. This particularly matters since we've long relied on the monetary redistribution of exponential output, to create jobs as societal permission. Since production efficiencies are translating into relatively less tradable sector work (and its associated exponential output revenue), we need a more direct wealth creation approach for time based product, to ensure that non tradable sector services retain societal permissions as well. After all, some of our most meaningful and challenging work lies in these areas. Artificial intelligence could also be utilized (via societal permission) to augment symmetric time value for all individuals in services generation.

The Hidden Danger of a "Fully Grown" Economy

Once the pandemic finally recedes, will we still be grappling with economic stagnation? For instance, some argue that a decades long slowdown actually indicates economic success. Even if such assertions are valid, problems remain - especially in terms of inequality. After all, millions continue to hope for a stronger growth trajectory which increases their own chances of active participation in the economy. In the meantime, too many non tradable sector market options are not responsive, to the reality of lower income levels. Since production reform is still needed in non tradable sectors, it could be counterproductive to rely on the idea of a fully grown economy as capable of supporting economic stability.

It's Time to Build Strong, Lightweight, Yet Affordable

Millions were already trying to find ways to live more affordably, before the additional burdens of pandemic circumstance. Since non tradable sector options for lower income levels were already limited to begin with, governments face additional struggles in assisting citizens who need help the most. If real innovation had been made possible for low cost housing, financial burdens would not be so severe, now. Chances are, more societal upsets such as pandemic could occur again, sooner rather than later. Before that happens, let's ensure that more low cost living options become available.

Education: Let's Restore Local Community Threads

Ask members of small rural communities about their most pressing circumstance, for what is often a two part response: Securing reliable housing and maintaining a full range of local services. Likewise, these are also important issues for left behind urban communities. In short, many areas in the U.S. would benefit from a more innovative approach to building/infrastructure manufacture and time based services. Local citizens need to be directly involved with these processes as well. The recent pandemic especially highlights a need for local healthcare coordination which reduces dependence on scarce hospital beds during public emergencies. Mutual assistance in educational efforts could go a long way towards alleviating this problem.

Fiat Money as a Framework for Human Capital

Fiat monetary policy has been largely responsible for the transition to a knowledge based economy, in recent decades. However, even though many nations got off to a good start with this approach, a stronger real economy methodology is needed to support monetary policy. In part due to extensive price making in time based services, the present services dominant general equilibrium lacks inclusive levels of economic participation, ownership and growth potential. More opportunities for economic integration and knowledge use are needed, for millions of citizens who still seek means for productive engagement with others. 

Notes on Trade Offs in Systems Design

When we think of budgetary needs for infrastructure, how do we frame system wide efficiencies? One reason this is an important issue, is that today's infrastructure does not fully meet the needs of many individuals and communities. Some systems trade offs are sub optimal since their designs don't reflect the resource capacity of lower income levels. How might a wide range of infrastructure more closely respond to what people can actually contribute? Just the process of answering this question, could go a long way to reduce a wide range of negative externalities, which societies all too often think they "must" live with.

The Solow Residual is on a Cultural Collision Course

Experiential time value between individuals is subjective. Even so, economic time needs to be understand in terms which are sufficiently concrete to measure in relation to shifts in long term productivity. Without such a perspective, there is a societal tendency to either accentuate or downplay activities with important economic ramifications. And presently, many time based services are considered intangible, in that much of their organizational structure is contrary to the resource reciprocity of tradable sector production. Due to their intangible nature, both practical and so called "impractical" forms of time based activity are being called into question. Ultimately, economic time value needs to be more reciprocal and immediate in nature, so as to better contribute to future productivity gains.

Design Markets That Let Basic Incomes Meet Basic Needs

If more markets could readily serve all income levels, citizens would not need to constantly call on their governments to come to the rescue. We have lacked the economic freedom to create markets which could tend to basic needs for lower income levels. Such markets, if they existed, would not need to be constantly questioned in terms of efficacy and worth. However, should societies elect to create forms of basic income in the near future, why not support non tradable sector production reform, so that basic income recipients might build respectful lives for themselves. 

When We Forget How to Live and Let Live

Before the pandemic, there were already pressing structural issues which had long been neglected. For instance, political polarization has been in part due to artificial scarcities. Yet despite the artificial scarcities of professionalized time, the time we have to fulfill our societal obligations is truly scarce. How might we do a better job of improving economic time value for all citizens? Should we elect to do so, the time we all have to get things done, would go much further than is the case today. And once we become more confident in the ability of our time to accomplish what is necessary, perhaps more of us will also become more inclined to live and let live.

An Economic Alternative for the Baumol Effect

When it comes to services and the need for greater productivity, there's a paradox. How to create greater efficiency in services (for continued prosperity), when we wish for more personal attention (time) from others than they can provide? Wouldn't productivity gains translate into even less time availability? Alas, so long as services are funded by other sources of wealth, yes. However, we do have ways to work around this long term problem. By matching our economic time directly with others, we could create direct forms of wealth via symmetrical alignment. Local transformations in educational patterns, could go a long way to make this process possible.

Economic Considerations are Vital for Sustainability

Even though the sustainability of our planet is often debated - and rightly so - economic sustainability deserves a more central role in these dialogues than it has received thus far. Broader and even holistic considerations need to be taken into account, when it comes to general equilibrium stability and long term economic prospects. One significant problem in this regard, is how many of today's institutions no longer function well for lower income levels. When societies neglect the structural circumstance which affect these groups - such as recently noted by Nicholas Eberstadt for AEI - economic conditions will eventually suffer the consequence.  

In the U.S., neither Democrats or Republicans have thought seriously about vital aspects of economic sustainability. Not only have long term budgetary possibilities been sacrificed to entitlement requirements, but short term policy actions fail to take broader market dynamics into consideration. For instance, what good can be expected of fiscal austerity measures that primarily result in arbitrary limits on knowledge based social interactions? 

Alas, there will soon be many inevitable fiscal limitations, whether anyone desires such budgetary restrictions or not. Given this reality, the least we can do is ensure they don't stand in the way of sustainable economic outcomes, by building more inclusive market conditions to benefit all income levels. And - in the meantime - we could encourage policy makers to loosen the regulatory restrictions of our domestic non tradable sectors. 

It's a shame we have experienced various forms of fiscal austerity which were poorly thought through and scarcely benefited anyone. In a knowledge based economy, if fiscal limitations are due to government spending on less worthy causes, the outcomes aren't necessarily as benign as the budgetary restraints of earlier times during tradable sector dominance. Only recall that preference for monetary stimulus during tradable sector dominance was also closely associated with economic stability and positive outcomes. Nevertheless, it is ironic that today, when discussions regarding budgetary restraint still arise, it's usually when one political party wishes to impose fiscal austerity on the party currently in power. 

Any discussion about long term debt and budgetary obligations is incomplete, if it fails to consider market dynamics as a whole. When policy makers lack this broader perspective, they may attempt to either avoid or impose fiscal austerity, without understanding the potential ramifications of their intentions. Further: While fiscal policy losses aren't necessarily problematic for governments during long stretches of tradable sector dominance, there are altogether different factors to consider, once a substantial portion of GDP is derived through fiscal redistribution for applied knowledge. Since this has in fact occurred, knowledge based non tradable sectors can be less responsive to monetary stimulus (in lieu of fiscal stimulus) than one might expect. What's more, much governmental redistribution - at least in the U.S. - is intended for higher income levels. Hence while economic growth is of course needed to continue responsible stewardship for planet Earth, more is involved. It's time to ensure that aggregate growth potential includes output and production gains for all income levels, not just those at the top. 

Ultimately, the greatest potential for economic sustainability occurs when new market possibilities are extended to all income levels and groups. Achieving this, means creating new market use patterns which go well beyond the limits some firms and organizations might otherwise impose on others.  Granted, profits will always be a necessary component of economic sustainability, both for profit based firms and non profit organizations. Just the same, the greatest profits are possible, when the greatest number of participants can actively pursue their own dreams and aspirations as well.

Wrap Up for November 2020

In monetary policy, "One of the most important goals of teaching supply and demand is to stop students from reasoning from a price change."

Coronavirus is making women more reluctant to start families.

"It's almost as if his leadership was reverse-engineered to erode civic trust."

At least 2020 did not also feature a financial crisis. The Fed has succeeded where others have failed.

Scott Sumner reviews Strategies for Monetary Policy by John Cochrane and John Taylor.

Correlating wealth and ability. 

Advanced degree holders can be permanently affected by recessionary circumstance.

We have not always been good at protecting freedom of speech.

Can Democrats reconnect with the heartland?

"waste is essentially a design flaw"  Useful perspective re the environment. Why not create more efficient forms of manufacture?

The message of hope and unity is especially important now.

When it comes to tiny homes, having wheels helps overcome regulatory hurdles and their consequent expenses.

Why have exchange rates been so calm?

Work/family balance has changed for female college graduates over the last century.

Auction theory continues to evolve.

Crowdsourcing for medical treatments.

"The panic of 1837"

In some respects the economic news is quite good for Biden.

What counts as progress?

Childhood and old age play important roles for human capacity.

Unlike other countries, Hawaiian coffee farmers are dependent on tourism, hence experienced considerable setbacks from the pandemic. 

Healthcare in a Biden administration could benefit from a bipartisan approach.

79 percent believe common ground is possible.

Well designed contracts can reduce government tendencies to skimp on routine maintenance.

Wall Street has gradually become more closely aligned with the Democratic party.

Intellectuals remain caught in the middle.

Scott Sumner highlights a recent paper in which he critiques the interest rate orientation in monetary economics.

What happens when high skill work is shifted towards part time options?

"How to think for yourself"

Why is money so important?

Macroeconomics could benefit from education re monetary policy mistakes and theoretical modeling in earlier cycles.

"Three MMT Fallacies"

"Reassessing the Golden Age of Invention"

Practices of all sizes have been affected by the pandemic.

Another reminder that MMT methods are not a long term solution.

When We Can't Always Get What We Want...

Somehow I find it fitting that Mick Jagger of Rolling Stones fame, studied economics before joining the group. Indeed, the song "You Can't Always Get What You Want", is an apt reminder how we seemingly forget to build vital need based markets. Yet if our domestic non tradable sector providers paid more attention to these areas, perhaps people would be less inclined to question the integrity of today's economic and political systems.

Granted, many producers face the temptation of raising the bar on product definitions where possible, so that product and services reflect consumer wants more closely than actual need. After all it can be quite profitable to do so. Unfortunately however, if too many non tradable sector producers choose this route, markets gradually become destabilized. What might be done? Again, cue what Mick Jagger and Keith Richards wrote:

But if you try sometimes you just might find

you get what you need

It's time to get serious about creating more accessible free markets in our non tradable sectors. We are confusing too many experiential wants with what is essentially necessary in order for citizens to thrive. For one thing, taxpayers face additional burdens, due to negative externalities caused by low income workers who lack sufficient income for even limited sets of non tradable sector costs. One indicator we have procrastinated too long in this regard, is that middle class citizens are beginning to seek "living" wages for non discretionary needs as well. Domestic protectionism might be out of control for instance, when a general lack of basic markets encourages politicians to mandate wage floors. And higher mandated wages only make it more difficult for employers to realize profits. We need to focus on production reform in markets where it matters most, to stop this destructive cycle.

Alas, even with fewer profits and businesses in operation, we can't always get what we want when it comes to "livable" wages for all employees. Yet today's workplace offerings are thought of as "meaningful" mostly when when abundant wages are part of the package. Perhaps it's not surprising that the most negative responses to my work thus far, have been due to my advocacy for good deflation in time based services income.

However, good deflation in time based services might be the only way to increase the use of workplace knowledge in more meaningful and accessible ways. Let's just admit it: Great wages are one of those societal wants which is impossible to fulfill for all citizens, via either fiscal means or private sector mandates. The sooner we face this reality, the sooner we can move towards a future of restored hope, as millions gain the right to inclusion in more productive organizational settings. For one thing, good deflation in time based services would do much more than simply address consumer "affordability". Good deflation in income and building requirements, would give us the legal and social grounds to share the work which people find most meaningful in life. 

One reason citizens expect so much from fiscal policy, is that governments are expected to be responsible for meeting many societal needs. The problem in this regard, is how governments and private interests raised regulatory and price bars on basic needs too many times. Each time these bars were raised, governments incrementally gave up their ability to influence or fiscally support citizens and economies, one unfortunate rule and regulation at a time. Now, many basic needs go unmet, as regulatory rules mostly accrue to the societal benefits (wants) of higher income levels. Among the sacrifices in this regard are the one time effectiveness of fiscal policy. Where once it held a valid role in addressing societal needs, now it is closely bound with specific political aims. 

Consider why this matters for inequality and applied knowledge preservation, as well. Fiscal policy now only holds a minor role in smoothing income differences. But more importantly, it is losing its ability to fulfill the role of spreading and supporting knowledge for the use of all citizens. To a large extent, these roles are diminished by the fact redistribution mostly augments the wants of specific high income groups. 

Which is also why I find it difficult to understand, the high hopes attached to fiscal policy "remedies" such as MMT. Even if political support for Modern Monetary Theory should turn into a policy option constant, what might its adherents hope to accomplish in any concrete sense? And that's not even considering the disparaging attacks MMT advocates tend to make on monetarist views. To me at least, Modern Monetary Theory advocates appear mostly concerned with middle class wants, rather than any need based structural issues faced by lower income levels. Granted, there is some good which can still be achieved via fiscal policy. However, we should let go of believing fiscal policy can actually address existing inequalities, let alone the productive use and preservation of knowledge in society. 

 

Hopefully, my readers won't get the impression I view wants as a societal negative. I absolutely believe that wants can be positive as well. However, let's be careful to ensure basic needs are actually met, first. What's more, do so without changing the goalposts so as to obscure basic needs once again. For instance, don't insist that smartphones or credit use are absolute necessities. I don't need either in order to thrive, plus opting for these things would reduce my spending capacity in other crucial respects. Indeed, once basic needs are met, and one finally gets to breathe easier, the occasional wants of a tradable sector (retail) splurge need not break the bank at all.

When societies forget what it actually takes for lower income levels to survive, they also lose track of the extent to which progress actually takes place for societies as a whole. At the very least, tradable sectors have given us excellent examples for full needs based markets, especially when luxury adaptations come from basic commodification structures. Whereas non tradable sector activity, due to the existing scarcities of time and space, tends to leapfrog need based offerings for what may appear as societal progress, but in certain respects is instead luxury mandates for low income levels which can ill afford such requirements. 

Profit is integral to businesses and sustainable economies in general, but profits should not be sought by needlessly obscuring the differences between want and need. Too much of society is presently paying the price for this approach. For one thing, it is a simpler matter to determine basic survival needs than some imagine. Once we become willing to highlight the real differences, innovations for our physical environments in particular, could proceed from this understanding.

Until we realize good deflation in time based services and building requirements, these areas of our lives will remain structurally fragile. As things currently stand, the domestic markets of our non tradable sectors demand too much in terms of debt levels and redistribution, for governments and citizens to successfully shoulder these burdens in the near future. Let's commit to innovation in need based markets. Even though societies can't fulfill every thing their hearts desire, we could still do a much better job of market creation which addresses actual needs.

Some Thoughts on the Political Transition

Despite temptations to remain focused on Trump's cultural divisiveness, we can't afford to lose sight of what has become a substantial economic divide. Is it possible to shift toward a more productive dialogue - one that addresses our long neglected structural dilemma? 

And consider how economic divisions have only grown since Trump's time in office. These issues will continue to impact our political differences if they aren't brought out into the open. Indeed, we need to explore broader perspectives for future wealth creation, while it remains fully possible to do so. From a recent Brookings article re the economic divide:

The data confirms that the election sharpened the striking geographic divide between red and blue America, instead of dispelling it.

Democrats and Republicans disagree on policy approaches, but they both tend to come up empty handed on action based structural approaches. Consequently, the passive aggressiveness of political gridlock rules the day. Even though political gridlock seems the safest option to some, it is a poor substitute for non tradable sector innovation, long term growth potential and economic dynamism. Worse, political gridlock means additional cultural battles, as Democrats and Republicans compete over high income work- especially for careers which include governmental redistribution. 

In all of this, it doesn't help that Republicans increasingly take a protectionist or zero sum approach towards wealth creation. For that matter, many Democrats are doing the same. Plus, some Republicans tend to discount the importance of knowledge based services which are structured as secondary or dependent markets. We recently witnessed evidence of this in Trump's disregard of physicians, due to their need to treat Covid-19 as an income generating source. Once we create organizational patterns for healthcare as originating wealth sources (via time reciprocity), these important activities will finally be independent of endless governmental posturing and the ticking time bombs of budgetary crisis.

Both Democrats and Republicans will need to recognize that in healing the economic divide, left behind regions (urban, rural and suburban alike) will need to approach resource utilization differently. Once supply side solutions are embraced which address the reality of small incomes, millions of citizens can start building more secure futures for themselves and their families. We can all breathe a sigh of collective relief, once broader sources of wealth creation and prosperity become possible. 

Even though we seek common ground with Democrats and Republicans, we still should not rely on their political backing to achieve better economic and social outcomes. It's time to get started on free market templates for new communities, so that political polarization and societal divisions might finally be eased.