Imagine for a moment, that all firms and organizations might somehow realize gains in productivity, by reducing labour in relation to capital (in aggregate) while increasing output. For that matter, most productivity potential, with its associated expectations for gains in standards of living, continues to be thought of on these terms.
Clearly, the marketplace doesn't necessarily follow the above described pattern, especially where quality product is concerned. In particular: Until recently, non tradable sectors have been relatively free to up the ante on quality product requirements, due to the centuries long growing revenue of tradable sector output gains. However, once non tradable activity began to dominate tradable sector activity, its relative lack of ability to scale meant less growth in aggregate output, which ultimately contributed to substantial adjustments in monetary policy as well. The growth of non tradable sector activity as a component of GDP, especially in time based product, was also due to broad government support and extensive financial networks. One could say that private industry's desire for quality product requirements, mostly received the blessing of public institutions, in spite of the burdens that created for the latter.
Of course it wasn't always this way. Centuries earlier, tradable sector dynamism and global output grew, as artisan quality product was transformed into mass production. Oddly, we've yet to come to terms with the reality of artisanal non tradable sector product requirements as an actual regression in standards of living. Small wonder, because it can be easy to confuse the financial obligations of quality living environments with gains in standards of living. What, exactly, does ownership of a nice home require in terms of personal commitment for the full extent of one's working years, for example? Yet relative time commitment requirements are one of the best means we have, to decipher true gains in standards of living and total factor productivity. Today's non tradable sector requirements also explain why Keynes never realized his vision of a world in which future generations would no longer need to work full time.
Much societal progress is a result of those earlier tradable sector output gains. Today's total factor productivity will remain compromised, until innovation is finally allowed to do its magic on the ways in which our non tradable sectors are constructed. For one, service sector activity isn't so much about reducing labour in relation to physical capital and aggregate output, as output gains which include a greater measure of total human capital potential. Many non tradable sector production processes need further clarifying, especially insofar as how quality expectations affect supply side realities.
Again, once service sectors started to dominate economic activity in developed nations, markets emerged as a considerable portion of GDP, which were not readily amenable to gains in scale. Since the Great Recession, the Fed never completely recovered the previous growth trajectory level which had essentially been maintained for well over a century in the U.S. If total factor productivity is to be restored to a more dynamic level, the general revenue demands of present day non tradable sector activity will need to become better managed. Not only do more direct forms of growth need to emerge in non tradable sector activity, this growth needs to be permitted to an extent that tradable sector activity can once again contribute to higher growth levels as well.
Periods of service sector dominance call for more direct means of conceptual organizational capacity, than what are presently being observed. The economic option of labour symmetry - or time arbitrage - could provide a path toward greater productivity which no longer detracts from existing general equilibrium revenue. Presently, some aspects of total factor productivity are being compromised by limited sets of human capital demands on total revenue. These existing demands have only become more evident, as service sectors comprise as much as 80% of GDP in developed nations.
Perhaps a reasonable limit for asymmetric services sector patterns would be in the range of 50% of GDP, so that general revenue balance could be restored between all sectors. By no means would such an adjustment suggest that service sector growth be diminished - only that more service sector activity would occur on symmetric or immediate wealth creation terms. By allowing more supply side in services product, more discretionary income would once again be able to flow towards the dynamism of tradable sector activity.
One advantage of such an approach, is that a growing percentage of non tradable sector activity could function with a similar production norm of good deflation, such as what naturally occurs in tradable sector activity. Greater balance between tradable and non tradable sector activity, might also allow monetary policy to return to normalcy. After all, central bankers would no longer be as compelled to keep extensive amounts of human capital sourced income, out of the active circulation of general revenue.
A significant amount of today's income representation is also parked in assets which can't fully contribute to economic dynamism. Yet GDP is representative of our economic journey, not a supposed destination. Let's ensure that more individuals take active part in our economic journeys, instead of having to watch from the sidelines. It's possible to tap human capital in ways which could capture its full potential. We can make excellent use of far more, than what only the best and the brightest have to contribute.
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