Saturday, June 20, 2015

GDP: Don't Shoot The Messenger

GDP is supposed to be representative of our existing monetary obligations in aggregate...or is it? When monetary authorities become distracted by a host of factors including the complexities of finance, fiscal wish lists, invisible digital "luxuries", and even happiness factors, actual monetary obligations can be forgotten. Even though aggregate spending capacity is key to monetary stability, its importance continues to be downplayed in monetary policy.

If that were not problematic enough, some believe that a digital "revolution" is reason enough to allow deflation to occur. What is forgotten, is that good (or naturally occurring) deflation happens when supply side circumstance give it the chance to do so. In spite of consumer gains in the form of entertainment and communication, the costs of housing and services have yet to benefit from innovation which would improve standards of living on the monetary terms that matter most. Instead of "wishing" away onerous economic obligations through bad (forced) deflation, it makes more sense to face unnecessary supply side burdens head on.

Meanwhile, central bankers - and others - have chosen to obfuscate and misrepresent the monetary means which exist to meet ongoing responsibilities. As a result, populations remain confused as to the actual nature of monetary representation. GDP (and the money it measures) is simply the messenger, which provides the "news" regarding economic conditions which populations create. Don't shoot the messenger!

Scott Sumner recently noted that digital deflation is not a good idea, and Tyler Cowen also responded to Scott's post "...we know what a boom looks like and this ain't it." Cowen adds:
Debts and bills must be paid, and jobs must be created at wages people will take, whether or not you're having fun with Angry Birds or cursing at your (least) favorite bloggers...So don't aggregate consumption gains with productivity gains, proudly parading a single number and claiming that everything is fine. It is better, and more accurate to say, "We've now learned to really love those Brussels sprouts, but we may still be in deep doo doo."
Like many other Baby Boomers, I have gradually learned to interact with digital social media. Even so, the digital experience remains a far cry, from how it feels to get out and experience the world firsthand. What's more, experiencing the world firsthand is not always easy, for those who lack economic access. How many individuals would choose the vitality of the marketplace over the internet, if that were truly a viable option?

Ultimately, everyone needs to participate in the economy, and recent actions on the part of the Fed make one wonder whether this fact is actually being taken seriously. It would be far better for the Fed to level with the public, regarding its mistakes in the Great Recession. Unfortunately, while the Fed pretends it is innocent of any wrongdoing, some are being convinced to return to a gold standard, and perhaps even bring it closer to home.

There needs to be greater clarity about the nature of fiat money, and the roles which national governments can reasonably expect to fulfill in the future. Until this occurs, many will remain confused as to what fiat money is supposed to accomplish. Supply side intransigence is at the root of too many problems which need to be addressed. If some remain convinced that "too much money" is being printed, the appropriate structural response is to decipher why given levels of monetary printing are needed in the first place, then what to do about needed changes. Important in all of this is to be proactive with these issues as they actually exist, instead of reacting in ways which only make things worse.

No comments:

Post a Comment