Friday, February 12, 2016

Some Thoughts on Sticky Wage Considerations

Are sticky wages rational? Given the nature of sticky general equilibrium conditions, perhaps. Substantial compensation is expected, when sacrifice and extensive investment are needed to access high skill employment. Consequently: instead of attempting to roll back asymmetric compensation, a different approach is needed. Symmetrically arbitraged time value could generate a broader base of labor force participation over time, and generate more growth than general equilibrium conditions presently allow.

The challenge in alternative equilibrium is to "loosen" high skill requirements (and by extension, wages) for local groups which opt to use time value equally. Both wage and skill requirement "loosening" would gain assistance from "just in time" knowledge use, and active (i.e. not replicative) forms of knowledge product. By substituting time arbitrage for skills arbitrage, time value becomes an actual form of private property. Individuals would gain the ability to personally negotiate for time preferences in the workplace, instead of relying on outside groups to do so in their stead.

However I've gotten somewhat ahead of myself. The immediate concern is existing sticky wages and the extent to which they create negative effects for employment levels, now. Why isn't it possible to "unstick" wages, so as to increase labor force participation (and by extension, growth) in general equilibrium?

It can be difficult to create flexible wages, for the sought after work which is recognizably stable. Plus, these are the workplaces which anchor general equilibrium conditions. There are many interlocking factors which are taken for granted in general equilibrium, hence it is difficult to dislodge some without affecting others. Even though a wide range of jobs have become flexible in terms of time use and income, much of this is the more marginal category of gig employment. Consequently, this more readily available work is considered a temporary measure, until one becomes more fully engaged in the marketplace. Meanwhile, the line for full engagement continues to grow longer...

Relative to non tradable sector employment, tradable sector wages are less sticky because they are more responsive to pricing structure and market conditions. Since time value in tradable sectors is separate from finished product, both skill sets and time use in the workplace are easy to adjust or even transform. Whereas the time based product of non tradable sectors has been slower to evolve.

If that were not enough, non tradable sector activity remains a secondary market. Instead of generating wealth through internal means, knowledge based services rely on redistribution and other preexisting wealth. As a result, skills value became associated with political positioning, on the part of associations which manage knowledge product. These are the stickiest wages of all - the ones most in need of assistance from local corporations, to generate new supply and demand in the marketplace.

New marketplace capacity will also include new rights to produce, or put simply, rights to work. Previously, "rights to work" were sought in tradable sectors. Exceptions to right to work laws were carved out for non tradable sectors, in part due to the greater degree of time investment that was necessary for employment. For non tradable sectors, the issue was not so much one of providing "more" employment, but making certain that existing employment had sufficient protection.

Another aspect of sticky wages is continued pressure for rising minimum wage levels. Employment losses are not always obvious afterward, because of the degree to which further unemployment is shifted elsewhere. The recent closures of Walmart stores in rural areas across the U.S., provides a good example, how retail and restaurants may respond to higher minimum wages. As it turns out, the loss in this instance was not only that of jobs, but also marketplace capacity. Rural residents will now need to pay an essentially hidden price, in that they will need to drive further to access stores (or restaurants) which can keep their doors open after wage increases.

Wednesday, February 10, 2016

Notes on Endogenous and Exogenous Growth Factors

Endogenous and exogenous factors - while they are sometimes difficult to discern - impact growth potential in multiple ways. Recently, Nick Rowe considered endogenous and exogenous effects regarding immigrants in relation to total factor productivity. Two questions he raised I'll note here:
I wonder if TFP really would be exogenous to the sort of policy experiment I'm using my model for?
I wonder if social/economic institutions really would be exogenous to the sort of policy experiment I'm using my model for?
Institutions exist in both endogenous and exogenous capacities, and total factor productivity depends in part on how different institutions interact with one another - both locally and internationally. Family formation and knowledge/time based services are examples of endogenous institutions, while traditional manufacture and commodity wealth represent exogenous institutions. In particular, tradable sectors contribute to exogenous (international) monetary flows. However, tradable sector wealth tends to accrue in regions with already existing geographic and knowledge product advantages.

How might one think about endogenous and exogenous factors in terms of worldwide economic conditions? Until the Great Recession, developed nations were able to continue the growth of their local, non tradable sectors via connections to still expanding growth in tradable sectors around the globe. As tight monetary conditions now affect exogenous (international) wealth, the implications this also holds for endogenous wealth formation, should be more obvious.

What is being missed, is the degree to which endogenous wealth remains dependent on the exogenous wealth of tradable sectors. For instance, it becomes more difficult for nations to "come to the rescue" with fiscal policy, when international wealth (i.e. sources of fiscal revenue) is steadily losing value in the international marketplace.

No one should lightly dismiss the problems which tradable sectors are now experiencing. While non tradable sectors could ultimately generate growth capacity through more direct means, this process has not yet begun. In the meantime, tradable sector wealth has already begun to slow. Once these forms of production capacity are lost, they can take a lot more time to rebuild, than it ever took to lose capacity in the first place. And no one can safely assume such rebuilding would automatically occur!

Thus far (since the Great Recession) central bankers have mostly attempted to rely on stabilization methods which protect financial interests. But international economic conditions have gradually proven this approach insufficient. Meanwhile, as the Fed remains reluctant to maintain aggregate spending capacity, a too strong dollar is now depressing growth potential, internationally. An article from the NYT points to some of the confusion in this regard:
Did global output rise or fall last year? It all depends on what currency you use to keep track. Measured in dollars, global growth recorded the first drop since the end of the financial crisis late in the last decade, declining by nearly 5 percent, from $77.3 trillion to $73.5 trillion. That's largely because of the dollar's rise, which makes the output of countries with weaker currencies seem smaller when measured in dollars. But if you count in euros, growth soared by 13.6 percent.
Consider what has already occurred, in terms of further monetary tightening on the part of the Fed. As Lars Christensen noted in a recent post, the dollar embarked on a sharp rise two years earlier. This process has gone on mostly uninterrupted, since Janet Yellen's leadership role began in February of 2014.

Due to the dollar's appreciation - particularly given the dollar's additional role as a monetary anchor  - aggregate spending capacity worldwide has been somewhat diminished. While this is reflected in the recent worldwide devaluation of commodities, the problems don't stop there. A growing inability for developed nations to deal effectively with structural issues in their non tradable sectors, contributes to political and social polarization both locally and nationally. Also at stake, are broader questions regarding the capacity for long term growth.

One issue in this regard, is a lack of understanding how a nation's budgets work differently from either local or state budgets. National budgets in particular, tend to have have exposure to the international or exogenous wealth of tradable sectors. In a recent post, David Glasner notes that national budgets are not analogous to local budgets, and he explains: "In the intertemporal context, consumers have a given resource endowment but prices are not known." Potential contributions from exogenous forms of wealth aren't easy to determine (hence price uncertainty), given the fact they are shared by multiple nations for resource coordination potential.

The relationship of endogenous to exogenous resource capacity needs to be better understood, especially since the former has such a strong correlation with nominal income. The endogenous/exogenous relationship also has bearing on the ability of nations to maintain general equilibrium conditions, which in turn allows sufficient knowledge use capacity to continue on asymmetric terms. These are also the forms of sticky wages which matter most in general equilibrium, for endogenous non tradable sector activity.

Central bankers have fallen short, in part due to their inability to consider the correlations between endogenous and exogenous factors of aggregate wealth. As a result, they have prioritized financial stability over nominal stability, which only destabilizes the relation of income to existing equilibrium. This in turn has the effect of reducing asset valuations, and also the value of existing exogenous wealth. Which is vitally important, because maintenance of international wealth capacity, can preserve the primary links nations hold with one another.

Present economic circumstance are somewhat different than what existed in the Great Recession, because the main problems are more exogenous in nature. By way of comparison, the financial crisis included a lack of response to internal structural problems. Lack of resolution in this regard only contributed to current circumstance. In that central bankers believed they actually "took care" of the problems stemming from the Great Recession, this likely has bearing on their slow response and denial of the fact that little has actually been resolved.

Monday, February 8, 2016

What Prisons and Military Draft Rationale Have In Common

Both have served over time as ways to "contain" individuals, who may otherwise lack economic access. However, a draft free military nonetheless relies on volunteers from rural regions in particular, given the (present) lack of economic complexity in these areas. Many among the marginalized - wherever they are - have few economic means to prove themselves trustworthy, "useful" or possibly both.

While these are generalizations, I believe they still apply in part because of labor force participation rate circumstance such as this. Might today's greater numbers of unemployed youth, mean a return of the draft? Even though a NYT article looked at the possibility of a draft for women in the near future, the danger of a renewed draft exists for all involved, especially now that there is growing pressure to reduce prison populations.

Consider the timing of U.S. prison growth, which experienced broad expansion for nearly four decades. Prison growth gained momentum after the loss of the draft in the seventies. Prison containment was also a factor which reduced unemployment statistics for the U.S., in relation to other developed nations. Even though recent trends toward prison reform are surfacing, as Tyler Cowen notes from a recent Huffington Post article, the War on Drugs needs to be replaced with stronger and more locally driven economic engagement. Plus, the present rate of prison population decline is slow. At 1.8% per year, it would take 88 years for prison populations to return to their 1980 level.

Prisons also became a local response, for areas which found themselves too far removed from economic activities which were becoming centralized in the cities. In a sense, exclusionary tactics on the part of non tradable sectors have contributed to prison populations and the potential for the restoration of the draft in the U.S. Hence the ball is now in the court of today's non tradable sectors, to provide a counterbalance for a growing lack of freedom and economic uncertainty.

There's another consideration as well. How would governments propose to continue providing basic services for prisoners, the military, and others who are becoming marginalized, as limits to growth in non tradable sectors become more prevalent? When I looked on Google to find recent articles about lack of healthcare - for instance - multiple articles surfaced from the early days of the Great Recession. Hence I couldn't be certain, whether there has been overall improvement in services access since that time.

However, I did find several links which indicate ongoing problems - here, here and notably, here as well. It may be that Washington would like to see cutbacks in the prison system because of the lack of healthcare access that prisoners already experience, especially when healthcare for veterans has been on short supply as well. All of this, when healthcare provider limits are still emerging for the payers in today's system (Obamacare) who can bear the most financial responsibility.

Forgive me for one rant in this post, because it needs to be said. Where on earth is all that bountiful physician supply that people seem to imagine? And then there's this. What might these circumstance imply, regarding other marginalized groups whose access is in question? In the U.S. there are strong incentives, for rational individuals to avoid what has become the overwhelming burdens of physician responsibilities. Knowledge use systems would need to generate new means for supply and demand in healthcare, as one of their first priorities.

Hopefully, Washington will resist any urge that some policy makers have to reinstate the draft. Instead of viewing today's marginalized as an inevitable burden on society, it is time to ask for their help in rebuilding society and a stronger economy as well. It is time to find ways to bring the marginalized back into the fold, to generate new wealth and assist in the services they will need in the future.

Saturday, February 6, 2016

Authentic Time Value

An important aspect of economic thought is scarcity (yes, even now), in spite of the fact recent gains in tradable goods "abundance" have their own story to tell. Even though time is the most important resource we all have, present day institutions are not well equipped to account for personal time scarcity. Fortunately, local corporations could eventually allow individuals to manage time preferences through mutual employment settings. However, personal time value will need to be carefully thought through, in order for this to occur.

Prior to the widespread use of money, people coordinated for time scarcities through their personal relation to existing resource capacity. Eventually, skills sets became more closely associated with monetary value rather than time or (other) resource value. However, this process (initially) occurred through asymmetric compensation, which gradually made it more difficult for groups to locally coordinate knowledge based activity.

Meanwhile, many skills sets (rather than time value) came to be thought of as private property, but this mindset also made it more difficult to achieve knowledge dispersal through those earlier means of social coordination. Much of the existing wealth of the present, greatly benefited from what had been more spontaneous forms of knowledge dispersal. As economies grew more complex, more skills sets gradually took on private property boundaries of their own. Individuals were increasingly expected to invest for what became chances of access to this new form of private property, rather than for knowledge use as a natural outcome of personal efforts.

This also made it more difficult to coordinate one's time investments with actual time use preferences. Time use coordination in personal and social circumstance, came to be directly correlated with whether one's time already had recognizable value on economic terms. As skills sets were increasingly disallowed in the marketplace unless one had social "clearance" for them, it became more difficult for the marginalized to improve their lot in life, and also for valuable knowledge use to play an active role in economic progress.

Before time value (in relation to resources) gave way to the designation of specific skills sets as private property, personal time use options included recognizable boundaries which backed one's ability to negotiate with others. Today, cultural expectations have grown more confused - not just in the sense of recognizable assistance in local group settings, but also in terms of time based coordination and expectations for family activities.

A marketplace for time value, would restore the authentication of one's personal time use options at an economic level. This would recreate more respectable boundaries for time use options, and allow individuals to more effectively negotiate for mutual assistance in all capacities of life. This is especially important for lower income individuals, who remain much too dependent on now fragmented forms of cultural expectations.

Too many of the earlier means by which individuals once assisted one another have disappeared, even as labor force participation has continued to decline. In turn, many individuals - in spite of attempting to follow rules that once provided economic inclusion - find themselves unable to prosper. Not having sufficient means of economic interaction is dangerous. After all, making oneself useful in the world, is the best way to protect both identity and survival. How many have witnessed this instinctual knowing even in the eyes of children, who are too often turned down in their attempts to assist adults with life's challenges?

The best part of time value authentication, is that a new framework for personal negotiation would be encased in a monetary, services based framework. Personal time use would once again be respected and validated as a form of private property, with recognizable economic boundaries for individuals and groups alike. One might reason that a marketplace for time value isn't really "necessary". But money as a stand in for both personal time value and other forms of resource value as well, would create a more understandable world.

When asymmetric compensation is the only way to reward time and skill, this process eventually leads to excessive replicative knowledge product and other bots, to do our thinking for us. I'm not sure humans are genetically wired to accept such dystopian results. It would be far better to face up to technological concerns while economic conditions still remain at a (relative) high point. Otherwise, the desire of many to escape technological realities they don't feel connected to, could mean the possibility of losing valuable knowledge and economic gains.

In a marketplace for time value, competition for mutually held time scarcities, would also set group coordination processes into motion. Those who develop high skill sets would be sought out, and the knowledge that their time is scarce, would impel local groups to prepare more of the desired skills capacity which individuals would gradually seek through the course of their lives. While this process would begin with pragmatic services needs, it would gradually generate stronger economic complexity, as local groups seek out more experiential forms of knowledge product. Today, experiential product remains held back, as societies struggle with a still growing burden of asymmetric compensation for practical product needs.

Might individuals "waste" their time potential in these settings? A certain quote applies, which if understood, would impel individuals to prepare for the long run. "Be picky with who you invest your time in. Wasted time is worse than wasted money." A marketplace for time value, would clarify this reality in ways that go well beyond the partially confused incentives of asymmetric compensation.

Thursday, February 4, 2016

When General Equilibrium is Not Enough: Recession Debates

The recent supposed "normal" is not an inflation story, even though central bankers still use these threadbare descriptions that resulted from a different era of growth. Today's economic conditions also highlight a hefty dose of social and economic exclusion, which in particular don't do justice to inflation or Phillips Curve conclusions on the part of the Fed. Regular readers already know I don't find these aspects of general equilibrium framing to be sufficient, for the circumstance of the present.

When supply side factors hinder inclusion in general equilibrium, real economy factors emerge which - given the chance - can also initiate recessionary trends, such as occurred in 2008. As a result, circumstance in the real economy sometimes needs to be distinguished from the "recession as technicality" garden variety. The latter is the result of Fed overreach - particularly given excessive discretion, instead of a monetary framework which promotes monetary stability.

Even though the supply side factors of real economy conditions aren't responsible for recessions (statistically speaking), supply side factors do have the ability to strongly affect nominal growth direction - be that direction positive or negative. Plus, one does not always know whether better numbers reflect greater marketplace capacity, or simply more wealth capture. In spite of supply side shenanigans in this regard: what is at stake monetarily, is that the wrong Fed response (or overreach) exacerbates a given supply side "direction". For instance, David Beckworth indicated in a recent interview, how the latest U.S. recession was already underway before the Fed finally intervened, but the Fed made it much worse with an inadequate response.

How to think about the larger real economy conditions, which now impact growth potential in the near future? While I have serious issues with Robert Gordon's resignation about future growth, I must admit that the way Larry Summers sums up his viewpoint in this Prospect article, is one I have harbored for some time, due in part to my own family history.
Gordon's most compelling argument is that the greatest generation was also the luckiest generation.
Over the years, I've noticed that family members from my Dad's generation, usually didn't have the same problems with class polarization that now affect family members. In those historical moments when economic access is similar, there's also less need for anyone to judge. While some will still insist luck has nothing to do with it, my response is simply that general equilibrium conditions may no longer be sufficient for economic access. Those earlier conditions Gordon attributed to good fortune, existed in part because crucial elements of today's general equilibrium formation, were still being defined. As general equilibrium has become more exclusive, people will still play musical chairs, even in (statistically defined) non recessionary instances.

Nominal income factors extend well beyond the circumstance of the short run, which contribute to the nominal growth trajectory over time. What's confusing is even though central bankers influence long term growth through immediate action (especially needless destruction of supply side capacity), real economy elements determine the nature of the trajectory as well. Hence these reinforce each other in ways which move beyond simple calculations of recessionary periods. When market monetarists express the desire for a stronger growth trajectory, they are also promoting greater confidence in monetary policy and marketplace conditions. For instance, as Marcus Nunes indicates in a recent post:
I believe that even if there are no rate hikes in 2016, that will not be near enough to get the economy "unstuck"!...What's needed is a reversal of nominal growth expectations that translates into a reversal of actual nominal growth.
Where things get tricky in this regard, are the ways in which real economy conditions intersect with monetary policy conditions. Market monetarists stress the need to keep monetary policy dialogue as simple as possible, with a rule which would limit Fed overreach and overreaction. Ultimately, the long term growth trajectory does depend on supply side circumstance. Even so, that is no excuse which should allow anyone to get off scot free, by refusing to pick up the torch that is future growth potential. There are means to do so, which have yet to be explored. And those means include the fortunate possibility, of being able to overcome present day limitations in general equilibrium conditions.

Wednesday, February 3, 2016

Notes on Coordination Issues for Time Dependent Product

Not all product formation leads to the same economic results in the marketplace. And presently, economic capacity - in the broadest sense - still depends on whether product originates from tradable or non tradable sectors. Knowledge based product is largely time dependent, even though some aspects of services product will always be viable with little need of time or labor compensation. Granted, separately existing knowledge product (which is replicative) can reduce labor costs in budgets - a process which also smooths time based coordination difficulties for asymmetric compensation.

Even so, replicative knowledge is not sufficient, insofar as individuals experience knowledge as a truly valuable experiential or practical good. If a strong growth trajectory is to be regained in the near future, organizational capacity needs to make the most of time aggregates as a whole, instead of only utilizing the most skilled in the marketplace to generate replicative and non time dependent product. The most important forms of services provision are about individuals in relation to one another, not just individuals in relation to existing institutions. Monetary policy would also need to make this service product distinction, so that broad based  backing of local services creation would be possible.

Presently, the critical differences between time dependent non tradable sector activity, versus non time dependent tradable sector activity, are not being taken into account. As a result, product from both sectors is treated as though interchangeable. While interchangeability occurs to some degree for the higher income levels of general equilibrium, this process doesn't hold for small wage settings.

As a result, time based services for small wages and income, need additional coordination within a separately existing and time based continuum. Granted, one does not often think about the problems that occur when general equilibrium tries to "fold" in small wage capacity. Possibly the best example in this regard, are painful discrepancies for services coordination at lower income levels, in hospitals which constantly have to make hard decisions whether to even assist people who won't be able to pay for services.

Meanwhile, time based services product is still treated as though abundant, in spite of the fact that relative to other forms of wealth creation, asymmetrically compensated knowledge use will only become more scarce with the passing of time. And yet consider how Brad Delong defines an age of abundance in a recent article:
The challenges we face are now those of abundance. Indeed, when it comes to workers dedicated to our diets, we can add some of the 4% of the labor force who, working as nurses, pharmacists, and educators, help us solve problems resulting from having consumed too many calories or the wrong kinds of nutrients. 
Note the fact Delong doesn't distinguish between the real abundance of tradables product, versus the supposed abundance of purposeful application for economic time value, particularly in a time of declining labor force participation. The 4 percent of the labor force he cites for instance, is not equivalent in terms of actual marketplace capacity in the same sense that is true for agricultural workers. Why? Time based product includes ongoing economic activity in both supply and demand of time value. Delong continues:
More than 20 years ago, Alan Greenspan, then-Chair of the US Federal Reserve, started pointing out that GDP growth in the US was becoming less driven by consumers trying to acquire more stuff. Those in the prosperous middle classes were becoming much more interested in communicating, seeking out information, and trying to acquire the right stuff to allow them to live their lives as they wished.
Does anyone see some problems with Delong's assumptions? Too few are taking into account, a still existing dependence on previous wealth (particularly that of the now less "desirable" material stuff!) and government redistribution, to create the knowledge based services product which is now sought. In order for time based services to contribute to the "abundant" marketplace Delong imagines, they need a front row seat where it becomes possible to originate new wealth through knowledge use. There is no avoiding the fact that fiscal policy of the future will become mostly limited to the higher income needs of general equilibrium, and knowledge based services will need to be generated on more closely coordinated monetary terms for lower income levels.

This post actually began with some thoughts about recent efforts to expand liquidity through negative nominal interest rates. The comments section in a recent post from Nick Rowe, prompted me to retrieve an older post from Miles Kimball, in which he compared negative interest rates with an earlier strategy on the part of Silvio Gessell, for stamped money. Both represent efforts to increase liquidity which are sometimes difficult to provide, otherwise. I need to spend more time with these referenced links, but want to at least express some initial thoughts about the possibilities of a negative interest scenario at national levels, as opposed to the local levels which do not fully participate in general equilibrium conditions.

Coordination issues between time based services and other resource capacity would likely remain unchanged in national economy general equilibrium, through the sole contribution of negative interest rates. However, negative interest rates would allow for economic gains in tradable goods and stabilization of assets - both of which are no small feat. One problem would arise just the same, should governments expect to eliminate the use of cash, in that most finance costs are too high at the margin for those with small wages and income. If nothing else in these potential circumstance, groups with small wages and incomes would need to tend to monetary arrangements through locally managed means, to maintain economic viability.

While negative interest rates wouldn't benefit coordination for time based services nationally, local stamped money settings might partially fulfill this role, given the fact that this money would circulate within specific groups which already seek ways to coordinate time value among one another. This desirable liquidity component is quickly lost at national levels, however, where additional monies quickly enter the exogenous realm of tradable sector activity. Indeed, stamped money would need to note the difference between endogenous and exogenous wealth origin.

Non tradable goods and sectors are those most closely associated with income. Time value, knowledge based services and the assets which reflect them, are often the local environments in greatest need of stabilization. Fortunately, the stabilization of tradable sectors through negative interest rates in the short term (i.e. till more growth becomes possible), could also assist this process. In all of this, the environments which are most important for nominal stability, are those that are also endogenous and time dependent.

Monday, February 1, 2016

Once and Far Away, Inflation Was Not Imaginary...

Stephen Williamson's opening lines from a recent post, reminded me of the heyday of the inflationary seventies. For those old enough to remember, no training in macroeconomics is necessary to notice the contrast between those years and the present. Many from a young age believed that given enough energy and effort, they could accomplish their goals. How long, since conditions have felt quite the same?  Even though widespread inflation brought its own sets of problems, plenty of people were benefiting from additional money on the part of the Fed, some who otherwise would have remained on the sidelines. Williamson notes:
Here's a remark I've heard more than once from macroeconomists who are old enough to remember the 1970s. If you could go back to 1979 and tell people that the big problem facing  banks in 2016 would be getting the inflation rate to 2%, they would all have fits of laughter leading to cardiac arrest.
Even though times have changed, policy makers have so overreacted to the mindset of reduced growth, they are stepping all over themselves to hasten deflationary processes. Today's tight money knee jerk reflex, is the inverse of those earlier mistakes when the Fed consistently generated too much inflation in the seventies. Much as some insist now that printing more money won't "help", others reasoned then that inflation could not be "held back". But who at the time...really wanted to back off? In other words, who was willing to rely on an impartial and level headed monetary framework at the outset - a strategy which also would have meant not everyone would get to benefit from perceived opportunities?

For me, this is a worthwhile question, because it seems policy makers aren't willing to adhere to a true monetary framework unless it is temporarily "convenient" to do so. As a result, too many citizens have to pay the price for the Fed's participation in herd mentality thinking - whether a positive mentality (as in seventies growth), or a negative herd mentality such as the present.

Plus: by ignoring the loss of the nominal growth trajectory since the Great Recession, the Fed can too easily convince the public they are close to "overshooting" monetary targets, when in fact monetary representation remains well below the aggregate commitments which citizens actually hold. Is it really a mystery for example, how oil interests came to be the latest supply side casualty paying the price for insufficient money - here and elsewhere?

In the seventies, so long as everyone was anxious to benefit from worldwide growth, central bankers were willing to tolerate high inflation. High inflation - then as now for what is basically imaginary inflation - meant flimsy monetary policy excuses regarding the Fed's "helplessness" to counteract the problem. Those so called parties with the punch bowl took place a long time ago, and yet this story still provides the oddest rationale imaginable, why no one should expect the "luxury" of moving well past the zero bound, anytime in the foreseeable future. In a sense, excessive discretionary action on the part of the Fed, means that today's populations are being punished with tight monetary conditions for the "sins" of their elders. Even though the Fed was the one responsible for the "sins", or providing the punch!

The worst part? Developing nations may also have to pay the price in terms of growth potential, given that developed nations have reacted to earlier excesses by severely curtailing growth capacity. When central bankers act arbitrarily because of imaginary inflation, they are needlessly cutting short the possibilities of millions of citizens. Central bankers need to stabilize the monetary commitments which individuals make to one another, and policy makers should honor those commitments as faithfully as possible. The fact that monetary representation has prioritized financial interests over the rest of us, has only magnified the booms and busts which economies suffer.