Even though my proposed model for long term growth is somewhat "crude", perhaps no more so than the latest political arguments, which have once again become protectionist. While economists often have good explanations for economic circumstance, non economists such as myself could benefit from simple understandings re how the Great Recession came about, and how its aftermath could still be overcome. After years of following economics blogs - especially macroeconomic and monetary blogs - I am slowly learning to express my concerns to other non economists in ways that make sense.
While the worst of the Great Recession was due to monetary fumbling on the part of the Fed (in the U.S.), this recession also had a strong financial imprint. In particular, a housing crisis botched things further, mostly by trying to fit too many square pegs into round holes. However, the problem was not one of "too much" housing wealth, and calls to "burst" housing bubbles have been completely misguided. More housing is needed, but zoning - more than anything - limits housing markets where people desire to live and work. It also doesn't help that most housing is still generated on the non innovated terms of government and special interests - terms which don't always meet the needs of either consumers or local economic conditions.
Too much existing housing stock lacks a clear relation, to actual income capacity at various points along the spectrum. Again, none of this is to suggest that housing stock wealth grew "too much" because it did not. Housing shortages were already problematic before the Great Recession, just as they remain problematic, now. Arbitrary restrictions in housing, negatively affect the growth potential of both tradable sector activity and non tradable sector activity.
In a simplified model for a modern complex economy, housing could be considered the third component in a three part process. Whereas in simpler economies such as existed centuries earlier, housing stock was the second basic component of a two part wealth process. Local production in the form of tradable goods sectors had previously been the general rule, as the first wealth component. Today, many forms of tradable sector production are regional, instead of local.
As a result, some present day prosperous regions gain much of their strength from (nationally redistributed) service sector activity. Nevertheless, aggregate income capacity (nominal income) still proceeds first from tradable sectors. Tradable sector activity tends to be highlighted in times of economic uncertainty, when policy makers attempt to "retrieve" these forms of production so as to "get the jobs back".
Both tradable sectors and their associated asset formation, lead to non tradable sector wealth potential. Most important is that the latter reinforces the growth potential of the first. Non tradable sector work (thus far) has resulted from disposable income on the part of private industry, alongside the redistributed revenue of public wealth. In terms of GDP, services wealth also appears more substantial than tradable sector wealth, because it is directly tied to housing stock. In complex economies, housing and related assets assume both tradable and non tradable sector income. This wealth has been augmented to some degree, by government definitions for housing stock and infrastructure.
How to think about this, in terms of world growth? So long as worldwide tradable sectors continue to expand, it may not really matter, how non tradable sector composition contributes to the mix for growth potential. For instance, so long as international tradable sectors remain strong, they continue to generate time based services, hence additional asymmetrically compensated employment in prosperous regions.
However, when tradable sector wealth slows, governments need to take a closer look at the knowledge based services which have been subject to fiscal constraints. For if they don't, a slowdown in services formation can hasten losses in tradable sectors as well. How much services formation remains absolutely dependent on tradable sector wealth, for revenue? What services are lost in austerity for instance, which private enterprise hasn't structured (yet) to make possible via the monetary offset of central bankers? Given the fact that employment particularly relies on non tradable sector activity, more of it needs to be defined on monetary terms, so that knowledge based services are not lost in times of relative austerity.
The simpler economies which existed prior to today's developed nations, relied on tradable sectors for most forms of production. Given the fact that money was not as widely used as in the present, many communities were built with varying combinations of locally coordinated time and (physical) resource capacity. Today, a broad combination of tradable and non tradable income is responsible for housing stock and local asset formation, in general equilibrium. While local corporations could (once again) reintroduce local time and resource coordination, the process would occur on more formal economic terms.
Most important in all this is the fact that stagnation could be overcome, should time based services become capable of free standing wealth origination and work structure. In order to do so, local corporations would need to assume responsibility for services capacity, alongside broader definitions for the production of housing stock and infrastructure. Local corporations would work to preserve both local and global aspects of growth, through an understanding of the macroeconomic role they would seek to fulfill.
Also, the creation of knowledge based systems would address the now growing problem of government budgets - particularly that of the U.S. However, it is important to note that private sector special interests actually encouraged government "crowding out" to some degree, in general equilibrium conditions. Among other problems, crowding out could eventually lead to a diminished marketplace for time based services, if it is not addressed. This is why it is so important to tackle diminished marketplace capacity at the margins, through alternative equilibrium.