The differences between all of the above matter for everyone, but in particular they matter for the middle class which appears to be suffering a "disappearing act" in the present. However, I have to ask: how are we even resigned to such unnecessary loss, given the gains of recent centuries and the knowledge and skills potential just waiting to be loosed into the economy at large? Even though I've talked a bit about these issues in recent posts (here and here), I feel compelled to continue, after a quarterly report by Edward Leamer and other economists from UCLA, which Ricardo Lopez touched on at the LA Times. Leamer was especially downbeat about future prospects for the economy: "It's not a recovery. It's not even normal growth. It's bad." From there he worried about technology displacing more workers, and yet he was also concerned that schools were not adequately preparing a workforce for the future (wait, what?), and then mentioned those outstanding student loans...
Let's break down this thought process a bit. For one thing, technology clearly does not have to displace workers. Everything depends on how we structure technology and what we want to use it for that we don't want to do ourselves, and how we want to actually hold that wealth in order to work with it. While education "shares the blame" in not preparing students for the present (as Leamer pointed out), perhaps not quite in the sense he specified, as the real problem is our need to integrate more of we learn into our everyday lives - something that none of our institutions have adequately addressed.
Part of our bad inflation exists because of the ways knowledge use has been locked up in the institutions we have relied upon. Good inflation allows room for our economic participation through nominal targeting, with our time as the primary anchor. However, we need to account for knowledge use in more specific ways, before the connection of our time with actual wealth can be better understood. If we concentrate on getting these factors better than they actually exist now, we could go a long way towards creating good deflation for the long run, instead of the bad inflation (or even worse, "tipping points" which create bad deflation) we end up with when we trust people to structure those things for us through the inadequate measure of interest rate targeting.
Bad inflation is like a dog chasing its own tail, because one sector keeps reacting to the other. However, this kind of inflation is no longer a direct result of the Federal Reserve, and hasn't been for quite some time. One of the primary problems with interest rate targeting is the fact that it obscures those points where the bad inflation of reactive sectors tend to cancel out the positive effects of good deflation. The Fed has carefully held the line on overall inflation - indeed too much so - since the Great Recession. The result is that when local economies continue to raise the bar - one sector to the other and yet overall inflation remains held down, that means someone is losing out in the process whether or not they have been efficient or have a good consumer base for their product. That means they end up letting employees go, as well.
Of course the next logical question is: how do we go from the bad inflation of inefficient or extractive capital and asset structures, to bad deflation? Oftentimes it's just the tipping point which is reached when too many people are trying to live within highly regulated one size fits all terms of living and working, which are not really well suited for all sizes of income in the first place. While housing clearly reached such a tipping point, it actually lost value in greater proportion than the representation of those who were stretched too far, which is why it has a certain amount of room to regain value in the present. The value it has consequently regained is good, especially in the sense that it allows other forms of valuations to remain closer to the overall balance they hold - a balance that can be quite delicate when housing value is truly threatened.
So, the good news in this regard is that there is still room to erase some of the bad deflation of the housing market of recent years. However the problems come in, when and if finance and construction do not realize the incredible break they were fortunate enough to receive from central banks in the first place. What's more, if they do not work to overcome the problems that created so much of the recent financial quagmire, not only will they suffer for it, but the central banks which helped them so are more likely to suffer as well. Finance needs to stop obsessing about the issues of regulation that the public would try to punish them with, and work instead with new, more efficient construction interests to provide real product for the public which means not having to get into such hot water and unnecessary risk again. Such product would also include undoing the regulations that limit economic access for untold numbers of people.
If the banks and financial institutions do not learn their lessons this time, too much of the product they offer will either end up once again appearing as high risk, or they could continue to risk bad inflation erasing the benefits of good deflation in other sectors, because of inefficiencies between income categories which our outdated building code regulations have not been willing to address for too long. In other words, it is time for both finance and construction to embrace the good deflation methodology that provided such a good life for many until recently: possibilities which were made possible by global tradable sectors. It's time for finance and construction to quit simply riding the waves of progress, and make their own waves of progress for a change. When they are finally willing to do this, and everyone does not have to have a high wage job just to live, the middle class will finally make a comeback, based on the technological gains of good deflation.
It should be a matter of self preservation for finance in general, to remember that many of today's youth will not be able to spend into and create the same kinds of environments that their parents lived in. (Tyler Cowen has a good post along these lines from several days back) While it may not ever be possible to erase student loans, it is possible to make a world for these young people that will provide them far more hope for the future than they have now. Take away the rules, the regulations, the laws and the zoning that prevent one and all from using technology from making strong and affordable building components that one could buy and resell, even with a minimum wage job. If even a fraction of the time and energy were spend on such components as has been spent on computer technology in recent decades, we would wonder how we put up with inefficient construction for so long: construction which many of us are simply not equipped to maintain, either physically or monetarily. Allow our youth to find their way to ownership and responsibility one step at a time, for they deserve far more consideration than they have received thus far.
This morning I went back to a video that Russ Roberts recorded with Ed Leamer three months ago, which also goes into greater details about the issues in the article for the LA Times. Part of a series by Russ Roberts, the above link is certainly worth the reader's time, and it includes good graphics as to how recessions since the Great Depression (in the U.S.) have differed from one another. In the video, I was especially reminded that Leamer is quite adept at pointing out some primary issues, yet he understandably falls a bit short in terms of solutions. However, here is how I would respond to his assertion that this is not so much a problem for Washington as it is for Main Street.
Washington and Main Street need to learn how to coordinate solutions together through monetary policy, and a vast mechanism of measurements by the Fed provides ways to do so. While the monetary policy of nominal targeting is the clear place to begin, everyone needs to understand the differences between good and bad deflation, and good and bad inflation as well, so that long term growth and greater employment can in fact result from such coordination. As to many issues involving bad inflation which are within our control, it always helps to remember that services and construction wealth are two sides of the same coin. As a result, their potential equilibrium with more tradable forms of global wealth can be addressed together.
Oftentimes, price controls (which decrease supply) have been attempted when profit gains were structured in such a way that good deflation was not possible, hence people have tended to forget that good deflation even existed as a solution. Seeing the negative results of price controls, bad inflation (within the overall capped perimeter) was allowed to continue, as the lesser of two evils. Price controls still exist within health care structures in the form of limited knowledge use access, which therefore affect the balance of all economic structures. However it is difficult to call present day healthcare "bad inflation" in a strict sense, in that we do not actually know what a "natural rate" of healthcare knowledge use participation would be, were it allowed.
Good deflation brings the life we all want within reach, whereas bad deflation just breaks down hard won progress. In future posts, I will begin exploring some specific ways in which the Fed might eventually be able to coordinate production measurement processes with the economic actors on Main Street, measures which would allow good deflation to happen in understandable ways.
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