Tuesday, September 27, 2016

What Happens When All Labour Becomes a "Special Allocation"?

While such a designation may seem impossible (one hears "We'll always have jobs"), enough of this form of hiring could eventually occur that - without an active societal response - many more of us could find ourselves unemployed in the decades to come. And should this unfortunate circumstance occur, one's ability to work in a normal (or formal) context, would increasingly become the exception rather than the rule, as traditionally defined labor is replaced by automation wherever possible.

In other words, the ability to work and provide for oneself and others on personally meaningful terms, would become a special privilege! Only consider how relative formal work circumstance has already become, given the fact many of us have lived in places (yes, in the U.S.) where those who are fortunate enough to gain paid work, are consequently deemed "special" human beings and treated accordingly.

Hence ultimately, we all need to become more cognizant of work which is defined on exceedingly "special" terms. Only remember these often amount to arbitrary limits, in which one's level of skills capacity means efficiency gains strictly for organizations, rather than personal efficiency which occurs through active negotiation, to gain comparative advantage for ourselves and others. It is not beyond our means to create institutions which would honor (on formal economic terms) the comparative advantage we seek among ourselves for time based product.

After all, comparative advantage for personally determined time value, would exist as a broader economic landscape which represents a wide spectrum of time value and skills capacity. Only think how carefully "special" is presently defined. For instance, is what we personally deem "special", even on offer in graduate level university economics courses? I compared dozens of offerings more than a decade earlier, before realizing that economic exploration (beyond the core) was quickly capped, towards the end of one's formal studies.

Should we continue to allow "special" to mostly exist as exclusive and determined outside of our own personal input, then perhaps economics is not even about people at all. Indeed. If so, what point is there in blaming capitalism, if the real culprit is ourselves, for forgetting our basic worth? Whatever one may think of Tim Worstall's approach in the above link, he has a valid point:
The destruction of jobs isn't something which defines capitalism. It's something which defines economics. 
Our basic starting point is that human desires and wants are unlimited. We also note that we have scarce resources with which to sate those desires and wants. Economics is about the allocation of those resources to meet them. 
Sometimes, it makes sense for certain job functions and categorizations to be destroyed when resource capacity outside of ourselves is an integral part of the process. Automated job designations do not destroy the potential of our time value. Rather, they reduce production functions which in some instance are no longer the best means by which to derive product.

What many have forgotten is that time value is both product and production means. Even more important, is the fact our time is the most scarce resource of all. Our focused attention (in the form of personally designated time) is central to specific skills settings and knowledge based services capacity. Yet we still lack the formal economic space to use it as a basic commodity. As such, one's time would gain value in use qualities which make elements of personal choice, a valid component of normal economic exchange.

By making room for the scarce allocation of our time, individuals would once again become integral to economic life, via markets for our own time value in relation to that of others. Time value as a basic commodity or good, would become a valid economic component of the very efficiencies we seek.

When I watched the presidential debate between Trump and Clinton, two words especially came to mind, within a matter of minutes of the discussion: broaden trade. In other words, the definition of what trade actually consists of in the marketplace, so as to move away from today's national "beggar thy neighbor" inclinations. Perhaps Miles Kimball was thinking along similar lines, for he has a quote from Henry George today which serves as a suitable way to end this post:
When we consider that [labor] is the producer of all wealth, is it not evident that the impoverishment and dependence of [labor] are abnormal conditions resulting from restrictions and usurpations, and that instead of accepting protection, what [labor] should demand is freedom? That those who advocate any extension of freedom choose to go no further than suits their own special purpose is no reason why freedom itself should be distrusted. For years it was held that the assertion of our Declaration of Independence that all men are created equal and endowed by their creator with unalienable rights, applied only to white men. But this in nowise vitiated the principle. Nor does it vitiate the principle that is still held to apply only to political rights. And so, that freedom of trade has been advocated by those who have no sympathy with [labor] should not prejudice us against it. Can the road to the industrial emancipation of the masses be any other than that of freedom?

Monday, September 26, 2016

Skills Fluency and the Marketplace for Time Value

In "How I Rewired My Brain to Become Fluent in Math", Barbara Oakley stresses the importance of repetition and memorization as building blocks for learning. This is all the more important for math, since one must also rely on what has previously been learned, in order to further progress. Fortunately for Oakley, she was only in her twenties when she decided to make up for the "lost time" of her high school years.

For anyone who waits until later in life to return to math studies (as I discovered the hard way), it can be even more important to make room for memorization and repetition of class assignments, if lessons are to be retained beyond class semesters and become part of one's long term memory. Fortunately, some of today's digital formats assist in this repetition, via presenting the problem till it's properly done.

However, no one should have to be limited to digital means (or other forms of media for that matter), in order to become fluent in any subject. All knowledge and skill takes on additional meaning, when we maintain personal associations with others, in both its acquisition and use. Or - as some have wondered - if robots and automation are (eventually) expected to outperform humans, then what's the point in learning and doing in a high skill knowledge context? The experiential component of knowledge use in relation to time use, is at the heart of this issue. Fortunately, the time value that takes place in equally matched context, need not be threatened by technology, as is the "burden" of compensated high skills value in secondary markets.

Meanwhile, without a marketplace for time value, compensated skills value is often deemed too important, to be "squandered" on the above mentioned reinforcing mechanisms for knowledge acquisition. Consequently, public K-12 education tends to focus on a basic or core understanding, whereas reinforcement in this regard is likely to take place on informal, mostly non economic terms. Often, this is simply additional support one may receive from family, peers, and possibly tutors, especially for higher income levels. The monetarily expected time/skill limits of the teacher in the workplace, may inadvertently become the skill limits of the student as well.

Even though public school teachers are increasingly held accountable for student aptitude, there's little room in the monetarily compensated skills of most teachers, to provide the additional reinforcement of repetition and memorization. This especially presents a problem for low income students, in committing material to long term memory.

The knowledge use systems of an equilibrium corporate structure, would approach learning as an incremental process: one which also provides monetary compensation for peer based mutual efforts in providing assistance. In particular, a marketplace for time value could also increase skills fluency, by creating room for memorization and repetition as an economic part of the learning process. Equally important, is the fact that compensation for mutual assistance, would increase the range of subject study and possibility, beyond core subject elements. Skills fluency would begin younger in life, as students pursue the subjects which present the greatest challenge for them.

Through equally coordinated time value, even the education of young students would become part of a newly generated primary marketplace, with its associated cumulative gains over time. When students become responsible for their own roles in learning, education takes on more personal meaning via connections with others in one's environment, instead of marketplace abstracts. And these additional student roles would remove much of the burden from both parents and older individuals who assume teaching roles, who consequently are freed to assist young students where it matters most.

Saturday, September 24, 2016

Primary Service Formation and the Coasean Approach

Could service formation benefit from an internalized Coasean approach? Just as firms continue to organize for production gains in terms of tradable goods, a similar approach is possible for time based services capacity, only within a combined supply and demand framework. Also, groups would coordinate time based product in relation to its actual dimension within existing group structure, instead of generating service product for open markets. However, this directly managed approach makes it possible for time based services to exist as new wealth formation, in a primary marketplace capacity.

Wikipedia explains Coase, in the Theory of the Firm:
According to Ronald Coase, people began to organise their production in firms when the transaction cost of coordinating production through the market exchange, given imperfect information, is greater than within the firm.
Few examples of "imperfect information" are as extensive, as government fiscal transmission capacity for time based services product. Fortunately, time based services markets can realign where it is possible to do so, while generating greater product clarity in the process. Local underperforming economies could finally address service issues which continue to undermine long term growth, and the effectiveness of fiscal policy. Indeed, until now, economists may have been reluctant to take a proactive approach in support of more extensive entrepreneurial activity, because of the political barriers to positive market adjustments and streamlined transaction costs.

Just the same, a wide array of service product is now mostly being coordinated for middle to upper income levels in general equilibrium conditions. If economies are to regain the growth trajectory which existed prior to the Great Recession, time based services product needs to be brought within reach of the lower portion of the income spectrum, on primary market terms that generate new wealth. Lower income levels would greatly benefit from an alternative equilibrium approach, to generate time based services via more efficient means.

Even discounting the social and political problems of the present, the fact that too many governments are contending with near zero bound monetary conditions for the foreseeable future, is a good indication that the economy would benefit from a more proactive stance on the part of economists. Granted, no one would want to "engineer solutions" for societal ills. Nevertheless: if the open pathways of economic freedom are not continuously encouraged and maintained, economic circumstance which are distinctly not free, will only continue to fill the void.

Without the preservation of economic freedom, more secondary markets become necessary - many of which rely on the wealth of the limited marketplace which remains free, in order to take place. While a substantial degree of secondary market activity is associated with government involvement in the economy, plenty of private market activity is structured along similar lines. One reason there's too little investment in the present, is that not enough primary marketplace formation exists, in relationship to the secondary marketplace formation which relies on primary wealth. Meanwhile, economists and entrepreneurs alike have tremendous stake in making certain that marketplace conditions remain strong for a full range of local asset formation and time based services. Otherwise, governments remain compelled to fill in the missing gaps, even when it's not possible for them to do so.

Historically, when primary marketplace formation exists in a greater capacity than secondary marketplace formation, economists can perhaps afford to be a bit passive in their approach to marketplace conditions. But when economic stagnation sets in with political gridlock and a lack of productive initiative, economists have far more to offer the marketplace than political positioning and policy recommendations. Today, economists have the ability to assist entrepreneurs, by providing an economic framing for the rationale of better defined organizational patterns. Fortunately, no one needs to assume that economists are powerless to respond to economic stagnation in the decades to come.

Friday, September 23, 2016

Economics: It's Personal

I know, economic thought can seem anything but personal. Mention economic rationale to others as an appropriate strategy for social problems, and the average person quickly loses interest, if they had any interest to begin with. That's often been my experience as a layperson, over the last thirteen years. Somehow along the way, economic thinking became disassociated from the circumstance of our daily lives, and it's not easy to get it back. Yet - at the risk of seeming pedantic - get it back we must, if only because identity politics and social justice diatribes are hardly going to get us to a better, more constructive place.

Part of a lack of productive dialogue is due to the fact that - as Narayana Kocherlakota noted - economic professors have been "doing well" for decades. Why fix what does not appear to be broken - at least from where one is standing? And since economists are the ones expected to address economic concerns, it's easy to assume that society as a whole is in little need of substantial adjustment, or the experts would already be on the case.

Indeed, economists are "on the case", but mostly in terms of the always popular identity politics, instead of where municipalities are increasingly overwhelmed - both socially and economically (and everyone imaginable is getting the blame for failed cities, as a result). Otherwise, economists are more inclined to closely examine local conditions, in parts of the world where local politics are less likely to interfere with one's own attempt to provide an objective view.

Only consider, the brief mention (if at all) in the news, when local citizens in struggling U.S. cities initiate discussions re lack of jobs and local economic opportunity. Why doesn't anyone take these earnest requests seriously? Why doesn't this initial hopeful economic framing on the part of local citizens, remain in the consequent discussion and  public response?

Instead, it all gets reduced to yet another round of identity politics reaction. Sometimes the riots, property damage and social destruction don't start in earnest until these valid economic points are roundly dismissed. Yet the economic foundation is a problem which few individuals respond to, at a gut level. Is real economic response (instead of reaction) not "interesting" or challenging enough, even for economists? What the heck is going on?

Even though it is rational to hope for greater social tolerance, populations can hardly expect to achieve social justice, when there are few economic means to make it so. Without such means, economists mostly become reduced to extended discussions and studies which suggest government should help the marginalized, or government should not help. Perhaps it is off limits to suggest that the marginalized could help themselves. Nevertheless, that's a lot of lost effort, not to mention the loss of any meaningful vote in Washington this silly season.

So the challenge is to once again make economics personal. Today, despite the danger of oversimplification and potential immediate counter response to the contrary, I'll leave it at a few suggestions that might at least make sense - particularly for the lay reader - at a gut level.

Where there is a very real and persistent lack of economic complexity:

1) Become willing to monetarily reimburse one another for the simple act of helping one another.

2) Do so by means of a long term commitment, so that instead of local education being about some ridiculous abstract preparation for the "world of work", it becomes part of the world of work, and also about helping one another.

3) Prepare a yearly calendar for planned time in which everyone can both help one another and spend time with one another, and leave room not just for the necessary, but also for spontaneous efforts as well.

Thursday, September 22, 2016

Time Use Options as Intentional Paradox

How so? Many of us hope to make something positive and meaningful of our time value, only to discover that existing marketplace hurdles don't make our participation a simple proposition. Too many claims on 21st century marketplace context were already staked out, long before anyone realized how valuable some portions of our knowledge based territory, would eventually become.

Meanwhile, Derek Thompson of the Atlantic assumes that full time work isn't necessarily desirable in any instance, as he makes a poor assumption about today's rich, versus the current statistical reality:
The rich were meant to have the most leisure time. The working poor were meant to have the least. The opposite is happening. Why?
First, why should anyone care whether the rich or poor end up with more leisure time, than the other group? To me, that was a misleading way to frame the discussion. Nevertheless, let's briefly unpack the historical context, which is also associated with the very different times in which Keynes lived, in terms of wealth generation.

Granted, the rich of earlier centuries frequently had plenty of "desirable" leisure time, and many of those individuals would scarcely have understood the cultural context which we associate with the rich of the present. Much of today's wealth consists of compensation for high value skills capacity, rather than one's ability to manage broad swathes of resource capacity. In some respects, knowledge wealth is more closely held, especially in terms of equilibrium outcome.

Keynes did not know, the degree to which institutions would eventually sort for skills capacity in order to meet their goals. Consequently, should one's skills value be perceived as somewhat mediocre, according to institutional need, one may only receive compensation for labor on a part time basis, so as not to require additional institutional benefits. Whereas if one's time is perceived as more valuable because of skill levels, these individuals are pressured to "give their all" for the most efficient outcome.

While this reasoning makes sense in traditional production terms, it's an approach which leaves too many negative externalities. Not only are too many individuals left out of the economic equation, they can scarcely plan a life for themselves which includes either meaning or personal responsibility. When institutions select primarily for specific forms of skills value over extended periods, the concept of time value - so vital to interpersonal relationships and social cohesion - may be lost.

A new institutional structure is needed, which honors personal time value alongside skills value, so no one need settle for the leisure options that presently appear "best suited" according to income - such as fewer time based services for lower income levels. By allowing individuals to take part in the valuation process for both time and skills availability, a broader interpretation of knowledge use potential would eventually become possible. This approach would eventually lead to broader societal participation, as well.

In Voltaire's time, it was possible to persuade with words, especially given the new publishing environment. However, in the present, it seems we have come full circle, since far more than words are needed to generate good political and economic outcomes. People would greatly benefit from a formal economic structure, which makes it possible to negotiate for individual needs on more comprehensive terms.

Only when individuals gain the ability to do so, is it reasonable to expect the citizen roles we once took for granted, to come back within our reach. Much of the growing chasm between different segments of society is about meaningful knowledge use, rather than differences in income. Even though I've enjoyed writing this blog, the practical part of me will not be satisfied until it is possible to turn words into action. Fortunately, there are more practical means by which knowledge can be applied in efficient contexts, than what is occurring in the present.

Tuesday, September 20, 2016

Musings on Markets and Models

Recently I indicated to my readers that I was attempting to "delay" some mental challenges re primary and secondary markets, to better organize previous material more closely related to unemployment issues. However, my mind has a "will" of its own, and now a growing backlog of notes needs to be dealt with. Hence a recent post from Arnold Kling, provides a good excuse to clear my desk somewhat. After attending a discussion about Ryan Avent's new book "The Wealth of Humans" (am awaiting my copy in the mail), Kling noted:
As the conversation jumped around, I found myself frequently thinking, "Show me the model". That is out of character for me, because I have spent a lot of the last few years criticizing economists' use of formal models. But as people tried to speculate about capital accumulation, wealth distribution, and productivity differentials, I found that I could not follow what was being said. I needed to think in terms of supply and demand curves crossing, income adding up to output, and output equal to labor input times output-per-worker.
For me, a fully functioning and dynamic model, would be one which has sufficient primary market formation, that additional secondary market formation also makes sufficient sense to all concerned. Alas, that is not the case right now, as central bankers attempt to dampen the secondary marketplaces of the present through arbitrary means.

There's also a recurring thought about models which continues to stump me, because simple though it seems, I'm still missing something. Coordination is valued according to equilibrium. Single price structures for time based services in particular, refuse to work the same way in (invariably unique) local non tradable settings, as for the price coordination of tradable sector commodities and goods at international levels. Equilibrium definition makes all the difference for supply, demand, output and growth, because of the ways in which its tradable and non tradable sectors interact and also, respond to already existing factors. How to think about this?

Growth and output depend on the relationships between full equilibrium settings versus partial equilibrium settings. Full (international) equilibrium and its corresponding coordination/pricing mechanisms are best represented by tradable sectors and their related primary markets, which serve as a scaffolding for world wealth. Each secondary market necessarily operates as a partial equilibrium, which due to its construction can only take limited resource sets into account.

Fiat monetary formation also served as a formal recognition (by policy makers) of secondary marketplace importance, in the 20th century. Nevertheless, the underlying reasons for this more flexible monetary policy structure, were never fully resolved or understood. For instance: If central bankers were conscientious to maintain nominal income or aggregate spending capacity, they would be doing a better job of stabilizing the relationships between primary and secondary markets, than is presently the case.

Primary markets are most closely related to the exogenous measured wealth of nations, as opposed to the endogenous formation of (secondary market) credit and other facets of non tradable sector activity. Government backed economic activity and financial markets exist as the most substantial secondary markets, in part because of the extensive economic access and liquidity they make possible. The measured wealth of a nation also depends on its exposure to exogenous or worldwide wealth, which is reasonably captured by the measure of nominal income. For each central banker which accurately measures nominal income, it becomes easier for a nation to more closely reflect their own participation in exogenous wealth creation, alongside endogenous wealth.

While all of government subsidized activity can be considered as secondary markets (due to the partial equilibrium of revenue redistribution), many forms of financial product nonetheless fulfill roles as a point of market origination. Time and knowledge based services presently exist only in secondary marketplace roles, though they have the potential to function as (local tradable) primary markets as well. In the meantime, secondary market roles are not only quite important, they serve as what is sometimes the only means to coordinate time value, which otherwise doesn't readily correspond to general equilibrium market circumstance. Secondary financial markets are all the more important, since not enough of today's knowledge based activity exists in primary marketplace roles.

Perhaps most important for this post, is that secondary markets exist as partial equilibrium valuations which tend to quickly react to negative aggregate demand shocks, that particularly affect the broad valuation of tradable sectors. For instance, when excessive market tightening occurs, the commitments and investments of local high skill service providers can be threatened by slow - but nonetheless steady - disinflation strategy. Too few individuals realize that turning back the clock on globalization, could threaten the worldwide primary market scaffolding that supports today's general equilibrium revenue structure. Most - if not all - investment terms for high skill general equilibrium knowledge use, extensively rely on this framework.

Ultimately, more secondary markets need to be transformed into primary markets, so that the present backlash against globalization will ease. And given the present lack of (local) primary market roles for time value, it is all the more important for all concerned to understand how extensive investment commitments remain threatened by the "cold feet" of central bankers. These forms of knowledge preservation are all we presently have on formal economic terms, because time value does not yet clear (coordinate by price) in a complete marketplace context. Neither time value or knowledge preservation are understood in a complete framework, as a requisite necessary aggregate for human capital.

Given this reality, the fact credit does not recognize but a fraction of personal wealth potential, should make it obvious that credit only exists as a secondary market. Alas, many are fooled by the idea of interest as the price of money instead of credit, even though credit does not exist in a way which allows it to price or coordinate the general equilibrium broad wealth context it purports to represent. The fact credit markets are secondary, also accounts for the fact that inflation targeting is an inappropriate means to capture equilibrium wide dynamics for economic stability.

Consider more closely as well, why credit serves neither as a point of either monetary or economic origination. Credit is a claim on what is already existing economic time value, from previous wealth formation. Credit is an endogenous response, to wealth which is both exogenous and endogenous in nature. And it is only as tradable sector wealth leads to greater economic complexity, that credit can become part of the process.

When central bankers choose to protect asset and credit formation over a continuous level of aggregate spending capacity, they cannot provide a stable lever for the delicate balance that exists between the additional coordination roles which primary and secondary markets of necessity provide for one another. This balance and coordination between the two matters all the more, given the level of dependence which non tradable sectors will continue to have on the exogenous wealth of international tradable sectors, well into the future.

Sunday, September 18, 2016

Knowledge Use Limits in a "Predictable Outcomes" Context

Among the more difficult aspects of economic stagnation, is that centralized structure can mean unexpected limits for knowledge use. So, too, the ability of societies to provide asymmetric compensation for a wide range of (massively investment backed) skills capacity. Asymmetric compensation in this context is either that of private institutional discretionary revenue, or government redistribution, to monetarily reward skills capacity.

Yet in today's world, for many individuals it no longer appears rational, to perform research or take on intellectual challenges, if no public or private rewards appear to be in the offing. In particular, more than just a dearth of monetary opportunity for specific skills sets is involved, because social connections also tend to be missing - if and when one is not (already) gainfully employed.

Consequently, many individuals are unable to (productively) engage in ongoing societal concerns, if a series of degrees is not a part of one's background (clearly this problem has not stopped a lot of unproductive engagement). One almost has to wonder, in spite of plenty of historical evidence to the contrary: how was it ever possible, for individuals to pursue intellectual challenges alongside others, through means other than higher education?

This is an important issue, since the present framework of institutional structure now places real limits, on the personal challenges that can be met by society on well compensated economic terms. While degrees are needed to participate in important aspects of present day realities, there will only be so much economic room - in spite of the extensive investment required - to assure inclusion on these terms.

Even more problematic, is that a higher degree of asymmetric compensation is being usurped by a wide array of crisis circumstance which crowd out ongoing maintenance functions. While this may simply present another cost factor for private enterprise, more is at stake for governmental budgets. What is not already committed to entitlement requirements, is increasingly expected to respond to systemic breakdown along the margins.

In light of this, governmental budgetary management includes a factor equally important to GDP correlation: how much revenue potential exists on discretionary terms? What purpose in demanding more taxation, if and when taxation can no longer respond to present economic circumstance? It is certainly difficult to assume the potential of fiscal measures for recessionary times, when discretionary revenue is overcome by both existing obligations and emergency funding needs.

Here, it helps to note how authoritarian regimes gain a certain degree of economic origin for their rationale. Should budgets lose room to provide funding for daily economic needs (that aren't entitlement or crisis driven), ironclad rules and automated procedures begin to substitute for knowledge use discretion and asymmetric compensation. While rules and greater automation are sometimes appropriate (depending on the purpose of discretion), there are also times when they substitute for better suited responses which include both compassion and human logic. It always helps to define: what is the lever, and to who does it apply, that discretion may serve.

"Predictable outcomes" via rules and regulations are - in part - a response to both public and private budget demands. But when do "predictable outcomes" also reduce our economic freedom? This is important not just in terms of authoritarian tendencies and more laws, but also automation as a response to every budget problem. Only remember that governments are not necessarily alone in their inclinations to reduce economic freedom, especially if private interests attempt to dismantle government processes without sufficient consideration of the knowledge use which could be lost.

Important though asymmetric compensation has been, and the knowledge use associated with what has been a useful economic tool, remember: monetary compensation and knowledge use mostly exist in a "permission only" format. What is sometimes missed by hard liners and inflation nutters, is that even the first mover position of tradable sectors is affected by this reality. Today, the permission of government to effectively operate on a wide societal scale is being challenged, as much of its existing revenue becomes bogged down in prior obligations.

Among the many reasons I suggest organizational capacity in the form of symmetric compensation: people would not have to constantly "ask permission" of authority figures, so as to get things done and respond to life's challenges. The "burden" of equally compensated time value for daily, useful knowledge application, seems small indeed, if it means regaining the ability to steer the ship of humanity.