Friday, October 2, 2015

Long Term Growth Needs More Production Capacity

Granted, it's easy to become confused about the need for further productive capacity and monetary representation, when the public has basically been told that limits to growth have already arrived. Even the Fed continues to insist it has been extremely accommodative, in spite of the fact diminished aggregate spending capacity proves this wrong. In the arbitrary rationale of policy makers, the globe is supposedly awash in production capacity, hence now needs to cut back, according to central bankers. But how does any of this square with the fact - as Kevin Erdmann has amply illustrated in numerous posts - that housing remains artificially constrained?

Worse, what does it say about the degree of human capital which - in spite of much personal investment - still remains untapped in the workplace? Did governments expect populations to indefinitely carry the consumer role, while not gaining the chance to become contributors and producers of services as well? Perhaps the real "limits to growth" are mostly about limits to imagination on the part of policy makers, how populations could play a greater role in the knowledge based production of the future. The fact that everyone needs production roles in order to consume, is still being overlooked.

Why would governments short their citizens, in terms of marketplace production? Consider the primary role of governments in developed nations, for wealth generation in housing assets and services formation. Both have become defined on terms requiring investment beyond the actual capacity of many citizens. Consequently, the resources required just for participating in everyday work environments, appear as though out of reach. And each call for a higher minimum wage base only compounds the problem.

 Of course restrictions in production have meant additional profits, for the benefit of both governments and special interests. However there's one problem with this strategy. In many instances it would not be problematic for tradable goods, which tend to exist as multiple choices and consumer options. Unfortunately, artificial scarcity has been generated in non tradable sectors which lie at the heart of economic access. As a result, many workers in the twentieth century came to rely on pensions and other forms of compensation besides Social Security, to maintain lifestyle patterns during retirement. Those built in costs of living - once so beneficial to additional government revenue - have ultimately resulted in pension obligations which are becoming increasingly difficult to honor.

The best way for many municipalities to address this problem in the future, is to allow innovation in both building and services sectors, so that pensions will no longer be necessary on the part of the average citizen. That means more production in the form of knowledge based services and housing, to generate a broader marketplace for all concerned. Fortunately, production reform could greatly reduce the costs of basic non tradable goods, especially for communities which are willing to start over.

Many municipalities will eventually need to pursue new organizational patterns for employment, which include less overhead for the costs of doing business. Some cities and regions will doubtless seek to compensate services through the same asymmetric means that have been possible all along. Others could generate work through symmetrically coordinated time, which means considerable changes in asset structures and working environments. With a little luck, greater production capacity can be generated before governments let too much long term growth potential slip away.

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