How could price making processes ultimately lead to disequilibrium? Each supplier or provider expects given levels of general equilibrium resource capacity, yet not all participants have sufficient understanding where (current) aggregate capacity actually stands. Whereas price taking, with sufficient view to the resource capacity currently in use, implies a more sustainable general equilibrium.
Even though the wealth capture of price making does occur in tradable sector activity, these suppliers tend to have greater awareness of a full range of specific resource capacity in play, especially as it pertains to the product in question. Consequently, tradable sector prices are more likely to contribute to broad resource coordination or "best use" for everyone concerned. An added benefit for monetary policy, is how price taking patterns for tradable sector activity include reasonably constant price levels over time. This in turn contributes to their potential as a recognizable production norm, as a useful consideration for monetary representation.
Alas, the random mining of human capital in non tradable sector activity, has led to a different outcome for coordination potential - especially since the latter decades of the twentieth century. And, as the price making of non tradable sector activity came to dominate tradable sector price taking, monetary policy makers responded by capping aggregate monetary representation (inflation targeting) which effectively sets limits for high skill participation, via the asymmetric compensation which today's professionals require.
While the Baumol effect of price making for skilled time product is understandable in some settings, it creates problems elsewhere, when local income conditions lack the additional benefit of global wealth. Increasingly, professionals avoid such settings as well, which often limits pragmatic knowledge use where it is needed most. This disequilibrium of sectoral imbalance, and its exacerbation due to tight monetary policy, has led to what is essentially the equivalent of human capital dumping on a wide scale, not to mention the lost sunk costs of educational investment.
Nevertheless, there remain arguments in favour of non tradable sector price making, particularly given its capacity for spontaneous national coordination of time product. With a little luck, governments could continue to support this form of knowledge use, so long as they recognize that other means of knowledge use generation will become increasingly necessary in the future. At least since the turn of the century, asymmetric compensation has proven insufficient to integrate millions who continue to invest in human capital, with hopes of full economic participation.
It's the economic connections to time and place which make it difficult to determine the full extent of human capacity at a general equilibrium level. Once price making for human capital reaches a certain threshold in a services dominant economy, societies find it more difficult to maintain general equilibrium potential for all citizens. Even though local price making is rational for time based product, the aggregate pricing effect creates a disequilibrium of reduced production and consumption. And as central bankers have become more focused on combating the inflation implications of price making, monetary representation becomes less effective for all economic participants. What can be done?
First, we can make peace, with the fact today's professionals can only coordinate time based product with others up to a point. From here, we can begin the process of recreating time based product, via the price taking means of time arbitrage. Such an approach would make it possible to generate new wealth which builds stable connections for the valuable product of time and place. Best, doing so would establish service generation patterns which more closely follow the stable production norm patterns of tradable sector activity.
Time arbitrage would eventually allow a rebalancing of services generation to take place. Since time value in relation to itself does not generate inflation, services generation on these terms would eventually make it simpler for monetary policy to fully represent all economic actors, as central bankers (finally) become less inclined to continue their irrational fight against sectoral imbalance. Even though there will always be a certain degree of non tradable sector inflation via professional price making, other citizens have a more sustainable option for knowledge use, via the price taking of a services production norm.
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