A recent post from Nick Rowe has me thinking how aggregate spending capacity correlates with taxable wealth formation. When Nick debated the potential of a debt to NGDP structure, Bill Woolsey pointed out the fact that a debt to tax revenue structure could be more effective, given uncertainties regarding tax formation stability. Tax revenue potential would vary from aggregate spending capacity, in part because of constantly shifting income flows between active and passive resource use. For instance, when the U.S. had more active use of human capital in a manufacturing economy, higher rates of taxation did not present the same kinds of problems that they present now.
When the marketplace for time based product remains uncertain, is it possible to keep aggregate demand, and aggregate spending capacity in perspective? Governments need to consider whether the wealth they tap for tax based purposes is passive or active, because the latter is more reliable. In particular, this is why assets or capital which are results of stored income, don't always hold up well for tax purposes in the long term. Most important for any government seeking stable means of redistribution, is a direct association with present use of human capital - not just its end results. And while human capital redistribution is strictly for voluntary time based coordination, other forms of resource windfalls are for government obligations which are not ongoing. Otherwise, tax and time value for redistribution, become complicated beyond any hope of rescue.
While supply/demand debates are mostly approached in macroeconomic terms, the results matter for family, state and local budgets. Why is this important? Individuals and policymakers alike tend to view the economy through the lens of specific budgetary and accounting perspectives. Even so, there is quite a problem in this regard: time aggregate values do not (yet) exist in direct relation to accounting perspectives or macroeconomic perspectives.
As a result, time value in association with high skill knowledge use, has little direct relation to either local accounting equations or politically perceived limitations for national budgets. Instead, high value skills sets have mostly been structured according to what they can command through a national medium of account, which also incorporates international resource sets wherever possible. For instance, the U.S. healthcare system attempts to straddle both worlds, and has become impossible to measure in meaningful terms.
Hence local time aggregate potential has become more asymmetric over time. Instead of remaining aligned with local determinants of aggregate spending capacity, high value skills sets became aligned with international economic circumstance. This is one reason why policy makers often overreact to the domestic economic conditions of other nations, which they perceive as affecting their own. In the meantime, cutting budgets in one place so as to tend to needs elsewhere, mostly hollows out the marketplace, with too little thought as to what likely happens next.
Since a substantial degree of time value originated in a fiscal context which responded to total resource capacity, much of the services marketplace is now constrained. For example: in spite of projected healthcare obligations in the near future, populations as a whole are less willing to take on additional tax burdens than they once were. One thing for certain: already existing fiscal obligations will not be helped by a still declining labor force participation rate.
If the time value of populations as a whole cannot contribute to general accountability, protectionism and mercantilism become natural responses - so as to "safeguard" the kinds of resources which still serve to supplant the value of human capital, where needed. Without the stability of time aggregate functions in economic systems, populations may become willing to completely disregard even the simplest macroeconomic theories.
Still, services of all kinds will need to become easier to understand and measure than they are now. One reason politicians still "want their (old) jobs back" is the fact manufacture meant tangible and easy to measure income streams. As a result, much of what became "intangible" wealth in recent decades, will need to become tangible realities. And in order to accomplish this, citizens will need the courage to provide a green light for their own economic representation.
Time value in the form of services coordination, needs to become a valid contributor to economic activity. No one can afford to forget that human capital is the point of origination for the supply side. Otherwise many local governments and marketplaces will struggle - even in the near term - to maintain dedicated income streams. That means standing up for the capacity of human capital as the most reliable source of wealth there is. It means standing up for the hopes and dreams that people still hold, well into the future.