Thursday, February 22, 2018

Knowledge Production as a Monetary Constraint

One characteristic of today's non tradable sector activity - particularly given the structural shifts which have occurred since the Great Recession - is the nature of intentional constraints for knowledge use which translate into wealth capture. Only consider the income gains presently accruing to high skill services management, which doubtless contribute to the divergence between productivity and the typical workers pay as a "relatively recent phenomenon" described by Lawrence Summers and Anne Stansbury. Already, these recent high level income gains are leading to calls to pull back on monetary policy representation, as well.

Knowledge use constraints especially affect a nation's long term growth potential, and the marketplace limits they impose could help to explain some of the recent losses in national well being. While many continue to be concerned about the implications for lost middle income compensation, I've stressed how hierarchical services sector dominance affects marketplace suppression at the margins. These arbitrary limits to production and consumption, help to explain at least some of the lost aggregate spending capacity that originated in the Great Recession. Indeed, the extensive drop in nominal representation was never fully recovered, or otherwise sufficiently accounted for by the Fed.

Limits to production and consumption in knowledge based services, are also reflected in limits to housing ownership. All the more so, since there are few mass produced housing components or infrastructure options that represent the full range of income levels in the U.S. And while aggregate income gains are normally associated with greater growth and output, the fact recent income gains are linked to sectors which intentionally limit total output, likely contributes to calls from many quarters to pare back monetary representation. Even though the idea of a possibly overheating economy seems preposterous - given today's low levels of labour force participation - this is an important part of our structural reality which has yet to be addressed.

The real challenge is not to break up the dominance of today's knowledge gatekeepers, but to encourage them to support organizational patterns that would contribute to broader participation in the production and consumption of time based services. After all, until more people participate in these activities, the limits of knowledge production will act as constraints on aggregate levels of tradable sector production as well.

Wealth capture is an understandable impulse, and occasionally it can occur in relatively benign ways. But presently, extensive limits to active knowledge use have destroyed any illusions about benign outcomes, and not just in the U.S. Hopefully, some of our knowledge gatekeepers will become more open to renewed prosperity that does not arbitrarily exclude human capital potential at the outset.

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