Thursday, December 26, 2013

U.S. - Monetarily "Boring" Already? Perhaps Not!

Word has it that monetary policy in the U.S. might even be so "good" (relatively speaking) that it could become boring soon...Say it isn't so! (Lars I'm not picking on you personally) To be sure, in some respects it appears as though monetary issues are headed back towards "normalcy", as statistics and bottom lines continue to improve. Might this state of affairs even be reminiscent of the Great Moderation in the U.S.? Okay I'm being a bit melodramatic, but then I'm not quite yet ready to sing "Happy Days are Here Again".

Fortunately I'm in good company with plenty of Market Monetarists, who remain concerned whether greater economic stability is a certainty in the years ahead. Still, 2013 was a year for progress and not just in the U.S. by any means. Indeed, there has been enough improvement in the economy that Scott Sumner anticipates Market Monetarists will no longer expect further monetary stimulus in a year's time, give or take some wide variances in opinion among MMs!

In a sense the ongoing challenges come down to a one word question: Why? That is, why is Market Monetarism embraced by its advocates, and what they believe it can accomplish. Reasons - of course - vary. Yet individual positions will matter more, as the conversation moves forward. To a degree, advocacy for Market Monetarism came about as a somewhat impartial observation, regarding indicators that appear most capable of providing monetary stability. That basic premise of course continues to be the case. But behind the premise, also lie the millions of lives that have been affected by long term unemployment. What's more, this strict focus, which does not really include an active (symbolic) "why" except in terms of statistical efficacy, is frequently challenged on its face by those who doubt its capacity. This is true not just of economists but by observers in general.

And even though a nominal level target can provide economic stability, there is not yet a symbolic explanation for its rationale in anyone's mind. That means nominal targeting remains susceptible to misinterpretation or misapplication - even when people don't necessarily realize that this is happening. In the process of reaching out and attempting compromise with the concept itself, I've seen Market Monetarists ridiculed too many times because they allowed the conversation to take place solely in measurement based terms. Something is still missing here. We need to be able to indicate why this measurement can provide stability, beyond the economic language itself. What is it specifically about the level target that has this capacity? Can this stability still happen even if money no longer operates under recognizable circumstances?

It's not good if I question the continuing premise of IOR, for instance. Whether or not I believe normalcy is possible with IOR, laypeople have to be able to relate to the answers to these questions or they will not find reason to back the Market Monetarist framework. After all, we need all the support we can get, when in fact bureaucracy, business and academia obstinately stand in the way. In the 20th century, seemingly it would have been enough for central bankers to be convinced of the applicability of a nominal target rule. Even if central bankers were open to nominal targeting now, that alone might not be enough to create overall agreement in the 21st century. Certainly the political realm is not ready to provide productive input at the moment or any time soon, and we need to craft a broader appeal that reaches to the heart, not just the mind.

The gains of a nominal targeting rule - while they may appear to be about one institution, really are nothing of the sort, for the economic gain they represent goes well beyond the idea of institution itself - even if the action is something embodied by an institution that represents economic activity. Therefore the discussion of Market Monetarism suggests the possibility of reaching beyond institutions for solutions in general. What's more, a Market Monetarist solution to unemployment problems that is fully integrated with economic participation at all levels, is much preferable to an MMT solution for instance that would attempt to provide a base income with no true ties to consumption and production capacity.

To be sure the fact that I don't live in a "bustling" city has some bearing on my personal viewpoint.  Not much here appears truly different than the days of the recession, re what is observable on a daily basis. Indeed, more shops and restaurants around the nearby downtown area have continued to close, in spite of oil production capacity gains. None of the recent stimulus efforts have changed my basic outlook. I remain convinced  that rural areas especially need domestic summits at a national level, so as to find greater coordination for economic participation as government roles decrease over time. And, I'm frustrated that nothing is happening on the supply side in terms of organized action for economic coordination, in spite of the incredible possibilities that exist. Let alone the time that has passed that something - anything could have been tried at a national level. Instead we've gotten mostly diatribes against economic activity in general, and little more than theatrical reactions to the diatribes!

Seeing as how much of the economic discussion remains mired in political think tanks, prominent publications and academic environments - economics blogs notwithstanding, the debate is stuck. It's not accomplished what I thought it could, and I apologize for the scattered confusion of thoughts in this post as I worry about this problem. Something about these formats is apparently still not ready for the widespread national discussion which needs to happen. Nor have these debates inspired anyone to take to the road to bring about economic momentum across the country. Taking to the road to talk to people instead gets totally wasted on political elections. Believe me I would take to the road and talk to everyone who would listen, if I could, right now.

Many cities in the U.S. do not feel that they have reliable strategies to move ahead in the future, in spite of the recession in the rear view mirror. Plenty of cities would be glad to take part in domestic summits as well: cities and rural areas likely have more in common for new services strategies than they realize. Supply side services issues such as this are still not connected in anyone's minds to monetary stability, but they really need to be. While economists can sometimes support public efforts for economic revitalization and also help with such efforts when asked directly, it really is up to individuals outside of institutions to take up these vital economic issues on their own. Even though they are in the interest of city and country alike, domestic summits are outside the purview of specific institutions.

What's more, the services we capture through economic coordination are a major part of what our government cannot provide for us, though it would if it could. None of us can afford to continue leaving our Main Streets and neighborhoods devoid of real life, anymore. If we focus on this and make plans for the growing reality of economic transformation, these are positive actions for the future that our government will eventually be able to support.

Before Obama was even elected, it bothered me to hear him speak of change because I just didn't think he had a way to make it happen. Not then, not before the economic situation overall had become so desperately obvious. To his credit, I have heard him say that it is all of us that need to make a better reality. One only hopes that he - or whoever follows him in the White House, will give us the chance, if and when we come forth with potential solutions of our own. Until we do, nothing about our monetary reality will be boring - or certain, for that matter.

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