Saturday, June 4, 2016

Notes on Income Consumption Ratios

This is another phrase which deserves a glossary term, and it has close parallels with circles of sustainability. I don't think of an income consumption ratio as strictly singular, because in some respects it would respond to variance in a given alternate equilibrium.

There are similarities to the calculations of a mortgage to income ratio, but my Wikipedia search for mortgage (or rent) to income ratio came up short. Still, many recognize that this cost shouldn't be more than 30 percent of one's income. A mortgage or rent percentage of income would be considered a singular ratio, due to longstanding cultural expectations for housing in general equilibrium. Apparently this ratio is no longer clearly designated, since lenders now combine it with debt factors held simultaneously with housing costs. Just the same, personal resource capacity for housing debt is a crucial consideration.

In general equilibrium conditions, bankers have the responsibility of judging whether people may be capable of acquiring loans - hence in many instances whether they are capable of economic access. In alternate equilibrium, loans would no longer be necessary to generate economic access and economic viability. Rather than loan formation as a point of economic origin, participants would generate new wealth directly, through coordinated time value. Matched time value would gradually accrue towards asset formation for living, working, and (eventually) investment potential. Alternate equilibrium would generate economic access internally, with income consumption ratios that reflect the resource capacity of the group in question.

Income consumption ratios would be built into local corporate structure, as means to combat excessive zoning and regulation which increases costs. Building and infrastructure components would be sought which particularly have cost benefits, from innovation in both materials and methods. Time based product for services would take a similar free market approach, to avoid the regulatory circumstance which derails the income and wage expectations of general equilibrium.

All too often, municipalities and governments alike have sought to do the opposite: i.e. create as much internal cost as possible, as favors for special interests. The result of course is that everyone inadvertently pays more. Adam Smith aptly explains what happens, in the chapter "Inequalities Occasioned by the Policy of Europe" ("The Wealth of Nations"):
The government of towns-corporate was altogether in the hands of traders and artificers, and it was in the manifest interest of every particular class of them, to prevent the market from being overstocked, as they commonly express it, with their own particular species of industry; which is in reality to keep it always understocked. Each class was eager to establish regulations for this purpose, and provided it was allowed to do so, was willing to consent that every other class should do the same. In consequence of such regulations, indeed, each class was obliged to buy the goods they had occasion for from every other within the town, somewhat dearer than they might otherwise have done. But, in recompense, they were enabled to sell their own just as much dearer; so that, so far it was as broad as long, as they say; and in the dealings of the different classes within the town with one another, none of them were losers by these regulations. But in their dealings with the country they were all great gainers; and in these latter dealings consist the whole trade which supports and enriches each town.
While economic circumstance today are much changed since the time in which Smith wrote, the consumption requirements of national governments continue to echo this equilibrium imbalance. For one, the "losers" are still countryside residents, due to the knowledge based services these folk are expected to purchase from more prosperous regions. Not only is it difficult for rural populations to gain the option of living and working in today's low density U.S. cities, it has also been difficult to either access or create knowledge based services where they actually live, with the resources at their disposal.

Even though local corporate structure would only reclaim discretionary production/consumption choice at the margin (through alternate equilibrium), the fact such a structure is in operation would help to gradually restore economic growth. This is all the more important, given the fact central bankers have shifted to inflation targeting as a way of indicating they are no longer willing to provide adequate monetary representation for all concerned. Inflation targeting is an arbitrary cutoff point, which functions for the benefit of credit origination and governments, instead of citizens.

And consider what has not been publicly addressed in this regard. The societal consent which once existed for all producers to continue raising their own sets of production demands, is no longer in effect. Are central bankers no longer willing to respond to the commitments of nominal expenditure, on the part of the public?

Today, the nation state gains from the limitations on free markets that exist for both time based product and housing. Just the same, national definition of consumption expectations only distorts the reality of wage and income potential, on the part of many citizens. By introducing a public awareness of wage potential that is better aligned with resource potential, consumption expectations and consumption realities can finally come back into a better balance for all concerned.

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