Sunday, December 17, 2017

Wealth Creation and Capture Have Macro Effects

Why don't our current economic models take the general equilibrium effects of wealth creation, versus wealth claims, into account? Especially since factors such as consumer debt, government subsidies and other forms of redistribution all diminish the natural Wicksellian interest rate? While some advanced economy debt still contributes to wealth origination, our prevalent consumer debt patterns (for instance) are mostly claims on what today's existing wealth and income can provide in the future. Even though aggregate spending capacity greatly depends on what is monetarily allowed in the immediate present.

Had I not allowed myself to be sidelined from math in high school (and then waited too many years to try again), I would have sought to build a model which could highlight the general equilibrium effects of wealth origination alongside claims on future wealth. Such claims could be discerned, through the identification of primary wealth origination and today's revenue dependent secondary markets, such as today's healthcare.

The macroeconomic effects of wealth creation and capture are important for many reasons, not the least of which public and private designations are not the identifiers of wealth origination. Even though governments routinely engage in wealth capture instead of wealth creation, private industry does the same, particularly during periods of non tradable sector dominance. Only consider how today's government associated multipliers work poorly, since a large percentage of fiscal activity is ultimately earmarked for wealth capture. Yet it's easy to forget that government multipliers hold some positive relevance during periods of tradable sector dominance, when governments are more likely to contribute to new tradable sector formation. On the other hand, government subsidies for existing tradable sector activity, are more often another example of cronyism in the form of shared wealth capture.

Fortunately, not all wealth capture is negative in nature. When non tradable sectors aren't subjected to extensive artificial constraints, secondary market activity can often contribute to economic dynamism and monetary velocity. In emerging economies, secondary market financial activity and redistribution for high skill knowledge use, can sometimes lend stability and dynamism for new points of wealth origin. What's important, however, is recognizing when the tipping point of secondary market dominance over primary market formation, begins to affect macroeconomic outcomes. By no means is this danger limited to economies that successfully mature. By paying closer attention to the aggregates of tradable sector and non tradable sector activity, societies would also find it easier to understand when a nation's debt accumulation, begins to present problems for economic stability and dynamism.

Sometimes a critical perspective from others, makes it easier to reconsider the fundamentals. That was certainly the case for me after reading a post (HT Miles Kimball) that not only questioned DSGE models, but today's limited options to DSGE thought as well. Of course it's all too easy to be critical of DSGE models, but what's interesting is that so many are skeptical for entirely different reasons! There's a wide range of viewpoints involved, by no means limited to economists, as to why DSGE models aren't effective in the real world.

Today's general equilibrium perspectives - especially when simplified - don't square well with structural real economy factors. The authors of the above linked post, note that for Freshwater people, "government has no effect". And "Saltwater variants add in the Calvo fairy to make up for the fact not all prices respond to shifts in equilibrium."

It's interesting, that only a few basic concepts of equilibrium are up for broad discussion. Yet consider how a Calvo fairy could matter. Secondary markets, as they they moved towards equilibrium dominance, were also more likely to establish inflexible prices (price making). Walrasian equilibrium at least held more validity, during the earlier dominance of tradable sector activity which relied more on price taking - hence simpler forms of equilibrium coordination.

Too much price and wage stickiness exist now, for a real semblance of the early equilibrium to be reclaimed. After all, the first perceptions of equilibrium evolved in times of tradable sector dominance. By no means does that suggest the DSGE model is more useful. Remember that DSGE evolved as governments were consolidating their share of the wealth gains, from still expanding tradable sector dominance. That economic circumstance is part of our economic past and has been for decades, even though there has been little response to this reality, thus far.

In other words, changing sectoral conditions, and their long term effects on general equilibrium growth potential, have yet to be accounted for. Unfortunately, earlier sectoral patterns which suggested equilibrium structure during their turn, have shifted beyond recognition. Meanwhile, the wealth capture effects of secondary market activity are being hardened with regulations and rules from special interests that remain determined to secure reliable monetary flows. Needless to say, these flows will remain "reliable", until - finally - they no longer are.

What, then, does the increasingly fragile nature of secondary market domination, suggest for future wealth potential? Regular readers know that I am no liquidationist, for I believe extensive use of knowledge can be recreated, on primary market terms in which no debt or redistribution is needed. My main concern is that if present systems break down from secondary market dominance, so too will an extensive portion of today's knowledge use and economic participation. So far as that goes, any economist who suggests that today's political polarization is not linked to macroeconomic outcomes (and some have of late), might want to reconsider. If we don't craft a better understanding of macroeconomics before too much political fallout occurs, there's no guarantee we'll get the chance to preserve prosperity, should we wait too long.

Many continue to believe that the spending of nations can somehow derive from future debt obligations. Still, every nation reaches a point when nominal spending capacity must be maintained from the wealth that is currently being generated, rather than the wealth that is being claimed. True, it's difficult to give up the idea that wealth can somehow derive from what is already claimed, in part because this allows special interests to control the ways in which economic activity takes place. Societies find it desirable to control how wealth generation and capture occur, and so they can - again, up to a point. Once the process goes on too long, and too much wealth creation is stalled, equilibrium expansion through wealth capture is no longer possible. Do we have the collective courage to allow new points of wealth origination and general equilibrium growth, on the part of individuals outside the purview of special interests? Only time will tell.

Thursday, December 14, 2017

Technology Will Affect Skills Compensation

In a recent McKinsey Institute report, "What the future of work will mean for jobs, skills, and wages", the authors write:
Our key finding is that while there may be enough work to maintain full employment to 2030 under most scenarios, the transitions will be very challenging - matching or even exceeding the scale of shifts out of agriculture and manufacturing we have seen in the past.
They highlight in particular that "Automation will have a far reaching impact on the global workforce." It also helps to consider what is being defined as "full employment" in this context, which is recent statistics and employment gains. Nevertheless, current employment levels don't account for what have been gradual losses in labour force participation, which were exacerbated by the downward monetary adjustments of the Great Recession. In other words, the oft stated challenge is mostly to maintain, what are already less than ideal levels of labour force participation.

Until recently, technology - more often than not - gradually led to increased output which meant further employment opportunities. But non tradable sectors tend to apply technology somewhat differently. Over time, intangible forms of input and product measure have become sheltered from general public view - perhaps for political and other reasons. As a result, it's difficult to ascertain how a wide range of resources are being measured and utilized, or how compensation is actually taking place. And when the relationship between aggregate input and output for services production becomes murky, human capital investment for specific skills use is less certain as well.

Fortunately, even though the extent of future skills compensation is in doubt, we can respond by assigning greater economic value to the use of our mutually held time priorities. Despite the uncertainties of technological change, our personal time preferences for getting things done, are important to us and for others as well. While it would be slow going at first - learning to measure and ascertain mutual time preferences - the eventual result would be organizational work patterns that are more spontaneous and transparent, than the institutional skills use patterns of the twentieth century.

Indeed, the subjective values of our work challenges and other personal commitments, would play out quite differently from the time commitments of institutional skill requirements. When we focus on time value and priorities, time management includes not just the higher skill levels our institutions seek, but also the full range of skill levels which we seek to coordinate with others in multiple aspects of our lives. And unlike the skills that our institutions sought - yet technology is now able to replace - we can still prioritize our time preferences, even as the skills we utilize, are more likely to be those ones we deem most important.

A marketplace for time value, would give voice to our time priorities. Another benefit of time arbitrage: By utilizing the time that individuals and groups actually have at their disposal, the price taking mechanisms which prevailed during times of tradable sector dominance (when resource use was more transparent), once again become possible. When individuals coordinate the time they actually have for daily activities, each hour in aggregate functions as a pricing mechanism for local group settings. Even though our time is rival (one cannot be in two places at once), the rival time/place limits of various skills functions would gradually become evident, allowing individuals to plan for what is already being provided, versus what might still be added to the overall mix of service generation.

Even though technology will continue changing the structure of present day workplaces, we all have more options for the work that matters most to us, than is currently recognized. Some of this work is complex, and some of it is simple. What's most important, is that all the work we find worthwhile, has value. A marketplace for time value, could also restore the value of our own personal priorities, in relation to others. Even though technology will affect skills compensation, it need not get in the way of the patterns we ultimately choose for out time commitments, in terms of mutual responsibilities and aspirations. Technology may pose a threat to today's skills arbitrage status quo, but it need not pose a threat to the potential of time arbitrage.

Tuesday, December 12, 2017

Broad Tightening Ahead, and The Phillips Curve Problem

Is it a lack of faith in high labour force participation levels for the near future, which encourages central bankers to continue tightening monetary policy? Or - instead - are central bankers inclined to believe that employment for all who seek it, is strong and will remain so? Something about actual employment and cumulative output gains, isn't quite adding up. According to Bloomberg:
Wall Street economists are telling investors to brace for the biggest tightening of monetary policy in more than a decade.
And it isn't just Wall Street, because other central bankers will be following the lead of the U.S. in this regard. Much of the rationale for doing so, has been based on the Phillips curve as an indicator of an "overheating" economy. But what, exactly, is overheating? Plus: Given an undue emphasis on the Phillips curve - even though its reliability is dubious for mature economies with services dominance - central bankers are likely to continue tightening monetary conditions in the near future. They appear determined to do so, even though dependence on the Phillips curve relationship between employment and inflation, has become problematic.

What makes the Phillips curve an ill suited economic indicator? Among the possible reasons, is a strong institutional trend away from price taking toward price making, in recent decades. Price making occurs at so many levels of product formation, that it negatively impacts overall productivity and investment. In particular, the employment losses which accrue from price making, aren't just a problem for societal coordination. They also make it difficult, to correlate today's supposed "full" employment levels with inflation expectations.

When tradable sector activity was still dominant, so too was price taking, as a coordination factor among many firms. The once natural tendencies of price taking, also meant firms had more options for hiring, based on the optimal resource capacity at their disposal. But as non tradable sector activity came to the fore, its organizational capacity contained numerous incentives for price making, which meant a certain degree of employment potential would be left on the sidelines.

This lost employment potential is doubtless a factor, in the gradual (long term) decline of labour force participation. Unfortunately, the Fed is paying closer attention to recent employment statistics for decision making, instead of what has occurred to aggregate employment levels over time. Indeed, gradual employment losses are reminiscent of the nominal level target losses which were incurred in the onset of the Great Recession, even though those losses took place within a single time frame.

Some are well aware of what the Fed has not considered, regarding aggregate employment circumstance and the nominal income losses of the Great Recession which were never fully regained. Even though market growth presently appears strong, investors are not quite as bullish as economists, this time around. And perhaps for good reason.

Sunday, December 10, 2017

Can General Equilibrium Wealth Become "Overfished"?

Oddly enough, yes. Over time, non tradable sectors which are secondary markets (because of their wealth or revenue dependence), can pose problems at a macroeconomic level in a mature equilibrium. Even though equilibrium imbalance is exacerbated by government subsidies, secondary market dominance can also affect the structural patterns of tradable sector activity, in ways which extend well beyond government debt obligations.

Nevertheless, secondary market dependencies on general equilibrium wealth, are presently believed to be benign, in terms of equilibrium growth capacity. Meanwhile some continue to debate whether a certain amount of government debt is reasonable, but secondary market dominance makes debt stability a moving target. When secondary markets are dominant, they continue to crowd the sectors which generate wealth as points of origination (and function like natural fish stock regeneration in the oceans). This process - in turn - further lowers the amount of government debt which could be sustainable over the long run.

Even though sectoral interdependence contributes to economic strength and complexity during periods of tradable sector dominance, this dynamic can go into reverse, once tradable sectors no longer dominate. So long as general equilibrium continues to recognizably expand output, the "common resource" of its wealth is generally available to those who participate. In these circumstance, more "fish" (points of completed wealth origination or reciprocity) are being born, than are being pulled from the oceans. But once secondary market wealth claims reach a certain point, the common resource of general equilibrium revenue becomes "overfished", and aggregate coordination begins to falter.

High skill providers of (non tradable) time based product in particular, are like "fishermen" who compete to draw from the same "ocean" of general equilibrium, or point of origin wealth. While it's problematic enough when governments become compelled to reduce their "catch", it's even more problematic when central bankers try to do so by arbitrarily reducing the size of the ocean's monetary representation. I found the image of an overfished commons helpful, for it provides clues how sectoral imbalances can affect macroeconomic outcomes. In " Natural Fisheries Overtaken by Aquaculture", Timothy Taylor writes:
Fisheries are a standard example for economists of the "tragedy of the commons". For any individual fisherman, it makes sense to catch as many fish as possible. However, if all fishermen act in this way and if the number of fisherman grows steadily over time, the underlying common resource can become depleted and unable to renew itself. In fact, this scenario has actually taken place with the world's natural fisheries, where production peaked a couple of decades ago and has been stagnant or declining since then...
There are two ways out of this box. One way is to figure out a method of limiting what fishermen catch, which would over time allow natural fishing stocks to rebuild so that the total catch could be greater in the medium- and long-run...The obvious difficulty is while it would be in the broad interest of a fishing industry to have limits on what can be caught, the practical issues of determining who should be allowed to catch how much and enforcing such decisions can be difficult.
The other approach is to have the fish-production migrate away from wild catch, and move toward "aquaculture", in which a certain body of water is no longer a common resource, but instead is owned by a fish producer. Aquaculture appears to be on its way to surpassing natural catch.
When services are generated via redistribution from other sources, for any product that is still directly connected to time value, its providers must still "fish" from the common "ocean". Hence recent healthcare mergers, while they may be able to contain costs to a certain extent, would not be able to expand the marketplace, except for where they do so without labour as a part of final product.

We could also have knowledge use production which preserves labour, yet does so by migrating away from the spontaneous "wild catch" that is increasingly limited to higher income levels and causing many groups to doubt the efficacy of formal education. Time arbitrage, since it would generate new resource capacity from within, could be likened to aquaculture in the above example. Where one's time can purchase the time of others, the process is equivalent to setting up new "pools" from which the use of knowledge and valuable skill can emerge.

Indeed, such a system would be similar to the conceptual gains of aquaculture settings, for knowledge, research and mutually valued employment. With time value as a reciprocal measure, knowledge use could be organized on wealth creating terms. And like the aquaculture example, which (hopefully) replenishes ocean capacity over time, so too, the defined equilibrium which could work to stabilize the greater capacity of general equilibrium.

Friday, December 8, 2017

Baumol Effects are Different From Productivity Gains

Why so? Baumol effects act as another form of wealth capture (or at the very least, redistribution), for the wealth of existing local equilibrium patterns. Whereas, productivity gains translate into overall additional output, for existing equilibrium in aggregate. One way to think about this: Productivity is more about gains in output, than gains in wages - particularly when and where service markets have come to dominate mature economies.

Baumol effects in prosperous communities and regions can lead to higher wages for workers in general. However: since many of these workers aren't (yet) positioned to directly contribute to local wealth origination, their local access - regardless of skill level - could be priced out of reach. Especially so, if their input potential isn't connected to a primary market or wealth origination position.

These thoughts are my response to the local wage differentials which Arnold Kling addressed in a recent post, "Are locational wage differentials also productivity differentials?" One of the issues that was debated in comments, was whether specific wages were valued more highly, because of the level of wealth they were associated with.

However, mobility factors are also important, because when local employment at any skill level ends up defined as wealth capture or redistribution functions (for existing local equilibrium), local housing markets automatically act to reduce additional access. Otherwise, local coordination could take place at a reduced aggregate time price point, along a full range of skill levels (only remember for instance that supply side limits for physicians are based on urban - rather than rural - demand and associated constraint). Again, the Baumol effect expresses the time based coordination that appears locally "reasonable" among different skills groups, once the equilibrium dimensions of primary market formation are established.

Importantly, many forms of high skill employment also act as a form of wealth capture in local equilibrium, whereby local providers gain additional monetary advantages beyond what were already established via state and national levels. In other words, it's not just low skill workers who benefit from Baumol effects, but also high skill workers, whose "complete" monetary compensation takes place in a socially or politically sanctioned secondary market capacity.

Time arbitrage could reduce the necessity of today's excessive reliance on Baumol effects, as a form of economic access. One of the potential benefits of time arbitrage, is that by acting in a primary marketplace capacity, it wouldn't detract from the primary marketplace wealth distribution of local equilibrium which is already in effect.

New options for primary wealth formation are vitally important. Otherwise, it is becoming more difficult for citizens to access - particularly via social mobility - the already existing wealth of primary market points of origination. All the more so, when much of this general equilibrium capacity is already claimed via services dominant organizational  patterns. If time could purchase time, with skill and knowledge use as part of the package, knowledge use and service generation could begin to organize as new primary market capacity. Eventually entire attitudes toward skills potential on the part of all citizens, could change for the better.

Processes such as these could occur alongside existing prosperity, and in places where relatively little prosperity exists. Granted, few have taken seriously thus far, the concept of improving economic conditions where people already live. But when so many regions and mature economies are intent on closing their doors to those who still seek access, social mobility faces multiple constraints. A newly created economy at the margin, could be the best response.

Wednesday, December 6, 2017

Notes on Productivity, Mark-Ups, and a Bold Response

This post will hopefully illuminate some common threads in my recent reading and writing. In "Productivity Growth and Real Interest Rates in the Long Run", Kurt Lunsford of the Cleveland Fed, considers negative interest rates in a context of long term productivity growth. He writes:
The results of this Commentary suggest that low productivity growth is not driving persistently negative real interest rates. The results also indicate that an upward shift in productivity growth will not necessarily lead to higher real interest rates. Finally, the results suggest that low productivity growth does not condemn the economy to low or negative real interest rates.
Even though low productivity growth doesn't necessarily condemn the economy to lower interest rates, the Fed's best approach to productivity issues, is to make certain its commitments for monetary representation are fully honoured, for all participants. Otherwise, central bankers can inadvertently contribute to needless destruction in wealth generating potential. In particular, today's (unfortunate) interest rate targeting shouldn't include Fed second guessing, as to whether existing marketplace circumstance could diminish aggregate capacity. (Especially if private sector participants become anxious to take action, which I'll explain towards the end of this post.)

Indeed, a level nominal target would not only prevent such second guessing, it would lessen the Fed's arbitrary impact on economic forecasts, and make it more likely that the natural interest rate finally turns positive. Interest rate targeting of late, includes too many judgement calls, as to whether real economy factors will worsen productivity by generating less aggregate output, in relation to aggregate input.

I've written frequently regarding services as a drag on productivity, but in some respects, services are nonetheless associated with productivity gains. For instance, Stephen Broadberry has documented services productivity in terms of organizational capacity changes:
The key to achieving high productivity was the "industrialisation" of market services, which involved the adoption of high-volume, low-margin methods to produce industrialised or mass market services.  The uneven spread of industrialised services across sectors and across countries explains the shifting comparative productivity performance of Britain, the United States and Germany.
"The Social Transformation of American Medicine" was - in many respects - a documentation of the numerous occasions when physicians resisted services industrialisation. Did the physicians' preferences for autonomy, stand in the way of productivity gains?

Our desire for personal autonomy is not the real problem for productivity, because this preference is intricately connected to how we perceive our relationships with others in all aspects of our lives. Time based product is experiential, in ways which go beyond the practical necessities of knowledge based product. However, personal autonomy can unfortunately encourage widespread price making, as opposed to the price taking that is (informally and spontaneously) suggested by the marketplace for group coordination. Only recall that price making, from a production standpoint, increases the amount of input that is necessary, before output is possible. Which means it's lousy both in terms of economic progress, and the ways in which societies coordinate mutually desired activities over the long run.

Mark-ups are just one example of the problems which arise re price making. George Lundberg, M.D. (and editor of JAMA) in "Severed Trust: Why American Medicine Hasn't Been Fixed" (2000), noted the problem of mark-ups when he wrote:
I had to do one test at a time, and the cost was passed on at a fairly high rate for those days. The hospital charged five dollars for one blood sugar analysis. Then automation entered the laboratories in the late 1950s and early 1960s. The first major instrument was the Autoanalyzer...This instrument revolutionized the chemical lab business by making it possible to load multiple serum samples from patients into the machine and to run through one after another without any handling by humans. So what happened to the price? It stayed the same. The hospital continued to charge five dollars per test even though one person, running the machine, could do fifty in the time it used to take to do one. Why did the hospital continue to charge five dollars? Because it could get it.
Standard practice now may require blood sample analysis every hour, and sometimes instantaneously. I knew many pathologists who received a percentage of all the income coming into hospital labs...Many other medical procedures have a similar pricing history. Changes are initially high because of the labor-intensive nature of developing new procedures. The coronary artery bypass operation provides a perfect example. The surgeons who pioneered the procedure spent a lot of time and money on research and development. They spent many hours in laboratories, working with animal models, to perfect the technique. The time they spent with their first patients also was intensive. Everything was new, and it all required close monitoring and attention. The total cost for the new procedure exceeded $60,000 - a reasonable price considering the investment that had gone into it.
But then more and more surgeons learned the procedure, often in the course of their regular residency training. They had no research and development costs, and their patients did not need to be so intensively monitored. In fact, the bypass operation now is the most common in hospitals, but the charges haven't moderated in many places...Over and over again in the medical marketplace, a new commodity is introduced, high prices are charged because the commodity is rare, but the prices are maintained even when the commodity is commonplace. Why does this happen? Because the patients do not know any better, the insurance companies let it happen, and the purchasers do not care or are hoodwinked. This is how the costs of care in this country have gotten out of control.
Consider these markups in a context of aggregate productivity, where input demands in excess of output potential, have macroeconomic effects. In "Aggregate productivity and the rise of mark-ups", the authors note that average mark-ups in the U.S. have been increasing over the last 20 years, which in turn has coincided with slowing productivity. They add:
Mark-ups increase firm's prices and reduces their production. A high average mark-up reduces output and depresses the demand for labour and capital, generating low aggregate employment and low aggregate investment. It reduces the aggregate labour and capital shares, and increases the aggregate profit share. In fact, increasing average mark-ups has been proposed as an important cause for the declining participation rate, the slow recovery, the weakness of investment, the decline in interest rates, and the declining labour share in the US economy.
However, the level of average mark-up does not, by itself, affect aggregate productivity. Instead, aggregate productivity depends on the heterogeneity of mark-ups across firms. From a social perspective, low-mark-up firms are too large and high mark-up firms are too small. This inefficiency in the allocation of resources across firms, reduces aggregate productivity.
Baqaee and Farhi expressed that "low-mark-up firms are too large". Might this mean that recent healthcare mergers will choose the option of lower mark-ups, as political intransigence is unexpectedly being parlayed into private action? This is what healthcare providers have actively fought off for as long as many can remember. Perhaps autonomy would not have been lost to hierarchy, had individuals and institutions not turned the gains of high-volume low-margin methods among providers, into high-margin final product for healthcare consumers.

Mark-ups. Who could resist them, while they were there for the taking, and so many individuals and organizations had the autonomy to do so. Of course the cumulative effects of countless "lucky" price makers, has doubtless contributed to recent government cutbacks in healthcare. Yet it remains to be seen how these mergers on the part of healthcare providers, will affect actual marketplace dimensions. Will we get more output, with less input - meaning, more productivity? Only time will tell.

Sunday, December 3, 2017

Medicare Cutbacks? No Rationale for Monetary Tightening

Clearly, there's problems with organizational patterns for healthcare, when losses in government support lead policy makers to assume the marketplace as a whole will be somewhat diminished as a result. Especially given basic structural reasoning, that private industry remains responsible for the dimensions of the real economy.

How many elites are giving up on economic dynamism, hence urging the Fed to adjust monetary representation downward, accordingly? In "What's Down With Inflation?", Tim Mahedy and Adam Shapiro argue that (expected) slow growth in healthcare prices is likely to remain a drag on inflation, and write:
We show that the key driver holding down acyclical inflation, and hence core PCE inflation over the past few years has been persistent changes to the health-care sector that began after the end of the recession. Specifically cuts to Medicare payment growth rates - which can affect prices throughout the health-care sector - have restrained health-care services inflation...Because health-care makes up a large share of PCE, price changes within this sector can have sizable effects on overall PCE inflation. We estimate that low inflation from this sector is currently subtracting about 0.3 percentage point from core PCE inflation, that is the measure that excludes food and energy prices. While health-care services inflation is expected to pick up in the coming years, it appears unlikely to return to its pre-recession level, which could restrain core PCE inflation for the foreseeable future.
Note first that "slow growth in healthcare prices" refers to expectations for aggregate or overall levels. However, my primary concern for this post, is with how the Fed is responding to cutbacks in fiscal support for healthcare. Given this rationale, the Fed is effectively allowing political curtailments for specific aspects of knowledge use, to be a drag for the monetary support of all economic activity. Why should political considerations for healthcare provision, be treated by the Fed as a negative supply side shock - particularly a fiscal adjustment that could prove relatively permanent? Where is the standard monetary offset to such a circumstance?

As Jeffrey Rogers Hummel indicated in a recent interview with Dave Beckworth (episode #83), "Inflation targeting doesn't do well with supply side shocks." Consider why this matters. If a nominal level target were in place, the loss in government spending for healthcare would be offset by monetary spending in other parts of the economy. As things stand, reactions to political healthcare constraints as negative supply side shocks, could make monetary policy directly responsible for the arbitrary reduction of long term growth potential.

Alas, this policy response, which does not take aggregate spending capacity into account, is an unwarranted judgement call about "necessarily" reduced output in general equilibrium. Nevertheless: When central bankers react by reducing monetary representation due to specific sectors, other areas of aggregate spending are affected.

Indeed, this central banker response could be likened to a form of unnecessary or artificial austerity, via the assumption that private interests can't maintain economic dynamism, when Washington is reluctant to maintain fiscal spending in any capacity. Are our private sectors prepared for the political fallout, should taxpayers become convinced this is the case? Already, the problems of healthcare organizational capacity, have contributed to further attacks on capitalism, in general.

P.S. Again: It's important to emphasize overall market reductions as responsible for "lower" (?) inflation in this instance. Consider the illusion of "lost" inflation in an insured family context. From JAMA, "Challenges in Measuring the Affordability of US Health Care":
The average employer plan had a premium equal to 9.2% of the median income in 1999 and increased to 18.4% in 2014.
Lane Kenworthy also recently noted marketplace limits in healthcare, when he stressed that "The share of wages going to benefits has been flat since the seventies (even though healthcare costs more), since - in aggregate - fewer employees receive healthcare benefits."