While I might not go so far as to call these concepts covariate relationships, services factors affect aggregate spending capacity to a considerable degree. Since I am convinced that a nominal level target can provide the most reliable measure of monetary activity, I also try to "connect the dots" between institutional gridlock and the havoc it can play with monetary stability.
There is a simplicity to the nature of the NGDP level target which can be difficult to decipher, especially for anyone who has thought differently for decades. Even so, the efficacy of the measure has been questioned, as income potential turns into a moving target. What concerns me is that some central bankers may be tempted to change a fiat monetary regime back into a no growth commodity standard. In the latter, income aggregates might not hold the central position that they need, for optimal resource utilization.
In part, some policy makers appear to have grown weary of the "shenanigans" of a consumer driven economy which - among other problems - allocated for service needs too randomly in the twentieth century. As growth trajectories have "downshifted", a considerable amount of money remains parked to protect the asset structures already generated and claimed in earlier debt formations. Some onlookers remain confused, in that a vast degree of money was created which nevertheless didn't spread through the economy. What appears as though loose monetary policy remains deceptively tight, even in the U.S.
If this were not enough, services growth has been difficult to track or measure in relation to more familiar economic indicators. Unfortunately, since these inadequate dynamics are proving so difficult to change (or understand), central bankers appear as though backing out of earlier wealth formation in slow motion. Yet they do so with no "plan B" to move forward again, which only leaves them trying to restart the same mechanisms which broke down the first time. Not being able to see beyond the failed plan A, leaves central bankers in "stealth mode". This "stealth mode" - refusing to allow a return to the earlier growth trajectory or explaining what happened - has still not gotten the attention it deserves.
Inflation targeting can also downplay the earlier centrality of individual participation, in a time of growing automation.The sticky nature of institutional gridlock in the marketplace certainly isn't helping matters in this regard. Hypocrites of all political stripes nonetheless try to maintain a services marketplace for themselves, even as they insist on no more growth or services for anyone else.
Why is aggregate spending capacity - which relies on targeting the intersection between economic participants and resource use - so important? Fiat money also represents a relationship where income sets up recognizable geographic patterns between asset formation and broad services flows. This pattern is more complex than a commodity standard, where "formal" economic flows (from production and commodities) don't have the same middle class assets to services capacity. Also the pattern is only partially complete, in that many services formations still rely on international wealth flows for their monetary valuation.
Earlier commodity standards often relied on a less developed marketplace - consequently with less need for knowledge use and skills capacity, other than what was demanded by production and manufacture. Even though today's production requires high skills, it does not require a large labor force.
Working the land was still a viable survival option, before economies grew more complex. Importantly, earlier agricultural ties are inadequate for populations which appear as though "not needed" in the workplace. This is why it would benefit both developed and developing nations to seek means to open the service marketplace to broad citizen participation. In the process, monetary flows could be stabilized, as informal markets become integrated into the broader economy. Broad based knowledge use in the marketplace is important not just for a civil society, but for human aspiration as well.
I am quite skeptical, as to whether developed nations would remain monetarily stable by opting to return to commodity standards. Why then, might that even be a possibility? Earlier income expectations are slowly whittling away with inflation targeting, along with gradual removal of monetary flows as debt structures are decreased. Nations also react to disinflation by paring back services. But instead of "giving up" on full scale service formations, services need to be reconstructed on monetary terms so as to become a central component of the marketplace. This would prevent the loss of countless hours of investment in human capital.
Until structural change is possible, services formations in some instances will continue to decline relative to population. Just one unsettling example of this discrepancy: I live in a state where mothers can now leave newborn infants at any number of public places if they don't have the means to take care of them. That law was intended to keep as many infants alive as possible, to make the best of a bad situation. Even though the law is helpful in some respects, it is incredibly sad that populations have resorted to such measures - all the while pretending that services are not really a necessary part of the marketplace. The fact that Obamacare cannot be expected to work, only means that people need the right to heal, once again.
Solutions are not "found" for government budgets or anything else for that matter, by pretending that missing marketplaces do not matter. Pretending only generates political nonsense and unnecessary personal hardship. Only consider how today's low labor force participation was once not so problematic, in that direct possibilities for resource use were often possible until the early twentieth century. It would be quite difficult today, for the U.S. population to return to informal economic circumstance.
How, then, to revive formal labor force participation? This needs to happen, if developed nations are to maintain a robust fiat monetary standard into the future. The good news is that time use aggregates and knowledge use potential are nowhere near utilization capacity in the present. Both represent an abundance of wealth which can be tapped for new community formation. Time arbitrage can maintain assets to services equilibrium, albeit in revised income/consumption versions from that of the twentieth century. Local economies can provide complete investment, production and services functions which also augment the existing international equilibrium.
Service formations need the accountability of production norms much as any other manufacture, if knowledge use is to remain a widespread component of wealth formation. Matched time use would allow that to happen. Knowledge use systems as newly generated growth could protect fiat money structures, by making certain that services remain a vital component of economic activity at all levels of income.
Services need to become directly created wealth, so that they are not limited to the largess of government or private industry. The additional income potential of services would also allow aggregate spending capacity to maintain monetary stability. Let's hope that the role of income as central to nominal targeting remains intact, in the years to come.