Wednesday, August 24, 2016

When is Limited Resource Utilization "Hoarding"?

For all the importance of private property, sometimes its legal structure includes passive elements which further restrict economic activity for the resources at stake. Indeed, resource hoarding doubtless contributes to a monetary hoarding equivalent during recessions, to a greater degree than recognized. Only consider how prosperous cities often wish to maintain local environments (and their existing values) so as to discourage greater population densities. When does limited resource utilization become a problem?

Some aspects of resource utilization are far more passive than others, hence hidden from view and rationalized a bit differently. For instance, when governments allow specific companies to hoard knowledge application for themselves, the natural result is going to be higher prices.

What is not recognized in the current Epipen debate for instance, is that even though the herbal remedy ephedra was widely available to the public for centuries, in the U.S. we lost the battle (2004) to use this vitally important herbal remedy, via our own resourceful means. While my allergies weren't so strong as to to need ephedra, I suspected this latest regulation would hurt limited income folk who suffered from severe allergies - or worse - anyone experiencing severe allergic reactions, such as the Epipen is intended. The only surprise is that it took twelve years for this problem to surface.

Now, if ephedra gets used at all it is likely tucked away in doctors prescriptions, intended for those fortunate enough to have the discretionary income to visit doctors when they are sick. Worse, now there is not even a competing pharmaceutical company left standing to provide a similar product, to Epipen. Unfortunately, I doubt that many individuals in this debate have connected the dots between the loss of ephedra in a "free" marketplace, and the current situation. Hence I would say that the protection of the public from itself in using ephedra, is nothing but knowledge hoarding. Perhaps we deserve the high prices we get for "protecting" ourselves! Of course I don't think so, but sometimes it is hard not to be cynical.

Bonnie Carr revisited an apt historical example of hoarding in a recent post, which we had also discussed some months earlier in a related context. Thomas Jefferson had written to James Madison, just prior to the beginning of the French Revolution:
In the letter, Jefferson discusses the land use situation in France at a time when the population was facing inadequate stocks of food, noting that much of the land had been claimed by the French nobility, and that it was illegal for anyone to hunt or fish on the land that may only be used for recreational purposes...
Jefferson did not say government had a responsibility to feed people or guarantee land, or game, or what have you. In my interpretation, he said government should prevent hoarding, a supply side policy aimed at the availability of raw materials for subsistence. It is what I would call the ultimate in what today we call a libertarian approach to practicality that answers the question: are people entitled to do what they like when it harms or deprives someone else of a means of survival. Jefferson's answer was, obviously, no. 
It's not easy to imagine knowledge hoarding in the same sense as land hoarding. But ultimately, the result can be the same. And when practical, freely available knowledge is disregarded in the constant efforts to protect us from ourselves, that means more lost discretionary income, and possibly even less food on the table for middle income families whose children suffer from strong allergic reactions.

Granted, some resources are not as important as others, for daily life. But governments and special interests aren't good at telling the difference, as they continue to define how resources of all kinds can be applied in the marketplace. Perhaps citizens would not clamor so for protectionism from other countries, if special interests and governments weren't so interested in the domestic protection of everyone from themselves. Meanwhile they imagine doing so on our behalf, as practical knowledge continues to be undermined for wealth capture. Clearly, this strategy is not working.

Tuesday, August 23, 2016

A First Mover Illustration of General Equilibrium Limits

Some readers may recall my praise of Hernando de Soto in an early post. Hence the title I chose here reflects an inadvertent service he has also accomplished. De Soto's extensive work exposes the fact that secondary market limits in knowledge use, pose issues for land and property ownership as well.

No one ever claimed that increasing economic access would be an easy process! Being a "first mover" in real life has its dangers, hence the more influence one has in the course of their lifetime, the more this may need to be taken into account. Tyler Cowen notes a paper which considers a set of results from de Soto's efforts, in "How useful is it to formalize land titles?" Here's Cowen:
This piece helps explain why Hernando de Soto's ideas, however useful they may be in some regards, have not quite transformed either the world or for that matter the practice of development economists. 
Here is a good sentence from the paper. "The cost of processing the inheritance of an asset valued at US $11,700 is about US $2,300." Legal systems are a normal good, and legalizing everything too quickly leads to burdens as well as benefits..."When property rights are transformed to very poor people, preserving legal tenure will likely entail onerous expenses..." 
If there is anything that can be said about general equilibrium conditions: a secondary marketplace framework for time based services, has little choice but to conform to discretionary income values appropriate to high income levels. Otherwise, present day time investment commitments would involve too much risk, to adequately secure asymmetric compensation. Unfortunately, the knowledge limits inherent in these guidelines, means a great deal of impracticality is involved across income spectrums, in the provision of legal, health related and educational services.

These disadvantages would be taken into account by equilibrium corporations, which would simplify the use of knowledge based structure, in particular for those who would gain from linking time value with asset formation. It's a process which would give knowledge use a chance to gradually evolve - over time - as a major productivity component in a primary marketplace for time value. However, knowledge use simplification would take place so as not disrupt the valuations or pricing structures of today's prosperous regions.

It helps to remember that what appears as though poverty (at first glance), is a result of many causes. Some of this varied commonality is also voluntary, in the sense distilled resource capacity allows individuals to focus on certain life challenges which aren't necessarily available, on general equilibrium terms. Hence the equilibrium corporation would provide alternate equilibrium options for people who struggle for whatever reasons to meet the demands of general equilibrium.

Land ownership needs broader definition, to assist this process. In a recent post I discussed the possibilities of land as symbolic coordination value. Often, land value is tied to a continuum of previous organizational capacity which experiences strong serendipitous gains. By making room for flexible coordination points as a part of ownership processes, people gain choices that go beyond the either/or framework of ownership in the present. In particular, legal ownership constructs need more choice sets not just for lower income levels, but also for multiple aspects of ownership which include ongoing business risk.

The struggles of developing nations in this regard are instrumental, in part because they point to unresolved issues between income levels and knowledge use in developed nations. Indeed, potential solutions for 21st century problems need to be devised in ways that meet a wide range of economic circumstance, regardless of the nation involved.

Sunday, August 21, 2016

The Hidden Value of Discretionary Income

Statistically speaking at least: we've been told that this is the best possible time to be alive, in terms of overall quality of life improvements. Clearly, free markets have greatly contributed to a positive outcome. Why then, is so much societal angst directed towards free markets and globalization alike, in such a fortunate historical moment?  In today's developed economies, a growing lack of discretionary income (due to regulatory non tradable sector crowding out), contributes to much of today's uncertainty. And a lack of discretionary income, also means a lack of possibilities in terms of major life options.

Some of our most significant quality in life gains, have taken place on terms which leave too little room for personal negotiation in the marketplace. Further: important though they are, some of the more significant earlier improvements have been blocked from further innovation. I am particularly concerned about a lack of plumbing and electrical innovation, as contrast with ongoing technological gains elsewhere. Indeed, Robert Gordon's emphasis on plumbing systems and electrification as some of the most beneficial aspects of 20th century innovation, highlights this irony. Instead of collectively throwing up our hands and insisting innovation's best days are past, why not redefine building component functions on more accessible terms, and in ways that allow building technology to respond to changing economic circumstance.

Since building innovation processes have yet to occur  - either in terms of mass manufacture which includes built in tech design or 3D print local adaptations, everyone's freedom in terms of discretionary spending and personal choice, has been compromised. Low tech and resource intensive housing for all, was a realistic response when given population sets had more exposure to international resource capacity than is presently the case. It was that additional exposure across multiple income levels, which accounted for some of the discretionary spending that made the twentieth century a high water mark for a myriad of life options, among lower income levels.

Community design with flexible components would restore discretionary choice for lower income levels. More discretionary income, means more spontaneity and more life challenges become possible. It should go without saying that people simply feel better when their ongoing obligations are balanced with interesting variations in routine. But this fact may not have had adequate consideration, since non tradable sector wealth capture has reduced spontaneous marketplace choice, time and again.

As a baby boomer, I can attest to the nature of greater discretionary income in earlier decades which contributed to the allure of many a Main Street, in communities of all sizes. I suspect it is easier for everyone to feel more positive about free markets, when a sufficient degree of discretionary income can alleviate daily burdens at all income levels.

Another important aspect of discretionary options is in terms of knowledge use. Knowledge has valuable experiential qualities, for individuals from all walks of life. However, when the most "valuable" knowledge is sold purely as a form of economic access, for many this will crowd out the desire to learn, simply for the love of learning. Already, too many aspects of experiential knowledge have lost much of their allure and wealth potential in the marketplace. In order for knowledge acquisition to continue as a vital economic function, societies need to make certain that the primary knowledge use of non tradable sectors, doesn't crowd out the allure of knowledge as discretionary choice and experiential good.

In summary, lack of discretionary income becomes problematic, when loss also translates into fewer life options. Already, political struggles regarding public choice options in particular, have become quite intense. What if less non tradable sector regulation meant more discretionary income and lifestyle options? What if people became less compelled to dictate their beliefs and preferences to one another? Perhaps there is a connection between these two seemingly unrelated circumstance.

Saturday, August 20, 2016

Specialization and Trade: Adam Smith's Priority

When asked what model would adequately consider patterns of specialization and trade, Arnold Kling responded (in part):
The most important aspect of specialization and trade is that we specialize in just a few tasks but we enjoy the product of millions of tasks. This fact was noticed by Adam Smith, but it has not been "formalized" in any useful way that I can think of.
One reason that urban agglomeration has become so important in today's more prosperous regions, is that specialization and trade now extends to organizational patterns which were not considered particularly important on economic terms, in Smith's time. In other words, he would have called many of today's time based services "unproductive" - vital though they may appear, otherwise. While high skill human capital holds considerable value, it has yet to be organized in ways which directly contribute to wealth creation. As a result, one's skills capacity which is not associated with tradable product, is mostly arbitraged in a secondary market of already existing wealth, which is only indirectly associated with primary wealth formation.

Unlike the forms of specialization Smith spoke of which contributed to tradable sector productivity, much of today's specialization in terms of time value has an entirely different purpose: offering sets of knowledge use in the most "concentrated" form possible, via extensive investment in one's early years (normally), to be followed by skills repetition in high population density environments which can reward the investment risk involved. Even though skills repetition leads to greater efficiency, this sacrificial investment approach - which includes long initial years of uncompensated effort - has led to a dearth of important time based services capacity in regions not capable of providing a similar level of compensation for high investment risk. It's an efficiency result which detracts from the coordination efficiency potential of total factor productivity.

Kling's post provided a helpful reference point for models that take organizational divisions of labor into account. One could say that specialization and trade was relatively "pure" in Adam Smith's time, since so many divisions of labor contributed to the actual wealth of tradable product. Indeed, one of the most overlooked aspects of models in general - given services dominance over tradable sectors in developed nations - is that time based services have yet to be organized in ways that contribute to wealth. Alas, budget deficit formation for time and knowledge value is not the same thing. As a result, the fiat monetary structure which supports so much knowledge use and time based endeavor in the present, is not trusted by many political constituents.

Smith - and other early classical economists - recognized themselves as standing "outside" of the actual wealth creation model which they highlighted. Only remember that Adam Smith referred to those who were hired for activity in which time was the only discernible product, as "unproductive". In this framework, one could say that Adam Smith became "productive" not when he was hired to mentor or lecture, but when the separately existing product of his books sold in the marketplace! What would Adam Smith have thought about the changed nature of today's economic realities? One has to wonder, especially when entire markets are built which present problems because they were not conceived as wealth creation structure in the first place.

Friday, August 19, 2016

We Create Our Own Freedom

In "The Intellectual as a Celebrity", Alberto Mingardi wondered why the latest economic "pop stars" (according to the Financial Times), lean decidedly left. Are they iconic because they are beautiful, or because they are so persuasive? Indeed, the anti-market bias sounds "sensible and authoritative", which is why so many people take these individuals seriously.

Too many hours have been lost already this morning in my attempts to respond to his post, so I'll just leave it at this. We create our own freedom. Should we choose not to do so, no government, no private interest is going to secure our economic freedom on our behalf, no matter how much we imagine their willingness to do so.

We can pretend we don't like icky free markets all day long, since it is apparently the cool thing to do, but as someone who lives on a very limited budget, I dare any reader to voluntarily go a month without the economic ability, and/or the right to produce what is meaningful for himself or herself. Believe me it's not as much fun as some imagine. Should we choose not to support the kinds of markets one recognizes as capable of providing true choice, ultimately the result is that we lose our own freedoms - economic or otherwise.

One dangerous aspect of today's economic stagnation, is that governments can't be expected to hire (or otherwise reimburse) us all, even as they attempt to steer markets on our behalf with the "blessings" of private interests. Indeed it is difficult to tell in a time of captured wealth, where any real difference exists between the captured wealth of public enterprise and private enterprise, in the non tradable sectors of the economy.

And the tradable sectors which made freedom and democracy possible in recent centuries, are gradually losing their ability to provide the wealth that the elite of today's non tradable sectors still rely on. If non tradable sectors do not become more inclusive and innovative in an era of growing automation, everyone is going to lose this struggle. No one can expect anyone else to guarantee their freedom, especially if societies remain forced to use knowledge in miniscule segments of approval from high skill sectors. Prosperity will not last long if nothing changes. Democracy would certainly not survive for long. We can do better than this. Let's create a marketplace for time value.

Wednesday, August 17, 2016

Healthcare and the Value of Facing Reality

Among today's news headlines, Aetna has scaled back on Obamacare exchanges. According to CNN Money:
The insurer will stop offering policies on the exchanges in 11 of the 15 states where it currently operates...
The company noted Monday that it has lost $430 million in its individual policies since the exchanges opened in January 2014. 
Aetna said its policyholders are turning out to be sicker and costlier than expected. 
Of course, even though Aetna is a major insurer, as Jim Pethoukis noted, "All five insurers are now shrinking their footprint." That being the case, what might be expected of U.S. healthcare provisions in the near future?

Facing the reality of what has played out in recent years, is not easy. Even though healthcare has not operated as a free market: as healthcare is currently structured, a truly competitive marketplace would hardly be a straightforward process. Indeed, healthy competition at this point could pose a threat for investments at multiple levels, in general equilibrium conditions. Not only because of the degree to which healthcare markets have reduced competition among their own ranks, but also because of the hurdles that providers have to overcome, just to participate.

Regular readers know this is why I have suggested creating a free market for healthcare, but on terms which don't pose direct threats to mainstream structures. After all: when competition is possible, institutions gain the chance to further evolve, when the need to do so becomes particularly obvious. More competition means more choices, and more product output as well. Consider a positive example in this regard from Shawn Parrish, who highlights what proved to be a win-win scenario via Andy Grove, former CEO of Intel:
As late as 1981, Intel Corp. had massive dominance of the worldwide semiconductor business...They got designed into the IBM PC, one of the first popular computers, in 1981. Life was good.
The problem was that everyone else wanted into the same 1988 Japanese manufacturers had over 50% of the global market. 
Think about it. Healthcare in the U.S. has been able to prevent everyone from getting "into the same business", many times over! But to what end? Parrish continues:
At first, as most all of us do, they tried to cope with the old reality. They tried running faster on a treadmill to nowhere. This is the first true difficulty of facing a new reality. Seeing the world as it truly is. The temptation is always to stick to the old paradigm. 
Even as Andy Grove slowly woke to the new reality, he faced tremendous resistance from those who weren't there yet. Eventually, he was able to convince others to move on, from the memory business into microprocessors, where Intel could once again differentiate itself and effectively compete.

Ultimately, the result for all concerned in the above example, was more product and more choice in the marketplace, especially since protectionism was not a limiting factor. In other words, no one was stopping Japanese manufacturers from contributing to the marketplace. The fact no one stopped them, also encouraged Intel to further evolve.

Unfortunately, this is not the case with U.S. healthcare, which in terms of costs and reduced output has become a victim of its own seemingly fortuitous monopoly. One could say that Obamacare is the latest rendition of an old paradigm of purposely reduced supply, the treadmill to nowhere. Today's healthcare providers are the last ones "standing" - the last ones to preserve and utilize a vast array of valuable knowledge - much of which is scarcely even tapped, given present circumstance. Why go through the pain of adapting or further evolution, if there's no competition that makes it necessary to do so? Given this set of affairs, more individuals are likely in the near future to opt out of professional healthcare, unless they find it to be absolutely necessary.

At stake are millions of lives that could be cut short, if means are not found to bring this vast wealth potential out of the forgotten vault in which it is now stored. Facing reality is not something that can happen overnight. But the sooner that healthcare is given a chance to evolve, the greater the hope for a better future.

Tuesday, August 16, 2016

Algorithms in Endogenous/Exogenous Time Value Context

Even though the concept of algorithms has existed for centuries, it has gained importance of late. From the mathematical definition, in Wikipedia:
...a self contained step-by-step set of operations to be performed. Algorithms perform calculations, data processing, and/or automated reasoning tasks.
Algorithms could also be considered interchangeable with machines, in the sense of being rules based and consistent. Hence "man versus machine" becomes "man versus algorithm". While people are still employed in this framework, work tends to be exogenously defined, as sought after skills become less amenable to constant rules. Even so, traditionally defined production seeks to provide relatively "less" quality labor over time, in relation to other resource capacity, to achieve the desired result.

 As economic stagnation continues, algorithms of all kinds will play a larger role in the wealth capture that remains possible within traditional means. In some instances, this means more algorithms can be expected to replace workers where it is possible or otherwise appears necessary to do so. Yet the effects this has on productivity can be mixed, when lower labor force participation also means fewer consumers for the further production such algorithms provide.

That's the bad news. The good news is that where exogenously defined employment appears lacking, endogenously defined employment could make up the difference in terms of labor force participation. However, internal or endogenous time value will also focus on whether one's time value can contribute to a product result which exists in an independent capacity. In other words, this time value is somewhat different, from that which provided the partial sets of activity associated with traditional divisions of labor.

The primary benefit of algorithms thus far has been for tradable sectors, which in turn their wealth has extended to nations in general. Not only do exogenously defined divisions of labor make sense for end product that exists separately from time value, the nature of these divisions provides understandable connecting points with other production systems.

Not so, however, for the secondary markets of time based product, which do not readily respond to exogenous time use definition in beneficial ways. Here, productive capacity is lost within overall time aggregates, where individuals can only partially maintain the labor commitments required for externally defined production settings. More internal coordination methods are needed to capture endogenous production gains. However, these are more complicated, because they involve overlapping sets of algorithms (as network connection points), instead of the simpler version of connecting algorithms that occur within tradable sector networks.

One reason democracies have increasingly come under strain, is that nations attempt to approach welfare states as though time based product can be provided via the simpler connecting algorithm points of tradable sectors. While no nation should attempt to scale up overlapping systems for time value, governments do need to provide the option of local overlapping systems for time value, which take mutual sets of coordination into account. By so doing, it would become possible for lower income levels to rebuild and access primary services, instead of putting undue strain on currently existing systems.

These are things to consider, when anyone tries to determine how to personally define work options. Should someone ask, "What are algorithms good at, and what are humans good at?", there's a simple answer. Humans are best at providing product, of which the most sought after quality could be defined as personal attention to the matter at hand. Fortunately, it is possible to provide local and decentralized small scale coordination overlap, for groups which are willing to opt out of the benefits of a welfare state.