Perhaps it's not really all about services - that is, those "odious" drains on budgets and redistributed wealth which make some on the right "see red". Thoughts of austerity and privatization of everything in sight - after all - are often intended to dampen the flow of monies which go towards services in general, especially since so many of them are provided by government. For a while I, too, was convinced that some services (as presently configured in institutions) were somehow responsible for negative correlations with aggregate productivity and wage levels, even though I was certainly not inclined to play the blame game in this regard. But now I have a sneaking suspicion something else is equally responsible for what "appears" to be lower wages: - local definitions of wealth capture which prefer to ignore the leveling effects (including wages) of affordability for so many global goods of the present. In such a context, raising minimum wages could actually be analogous to reducing lower income populations by simply allowing them time to leave town when they don't snag a job. And local isn't "crazy" about global these days, either. But global goods as moneymakers are especially beneficial for lower income citizens, just as they have always been. Local economies in the developed world, however, have inadvertently visualized wealth creation in terms of servicing primarily higher income and marginalizing lower income citizens, even when it was not their conscious intent to do so.
Nevertheless I spend considerable time concentrating on services provision in a more equitable and productive fashion, because those good are so vital and valuable, as pointed out in my last post. Getting services right - and readily available for the long run, is a tremendous part of the picture. Still, the closer one looks, services appear as simply a convenient target for singling out, so that no one will (quite) notice the other, quite significant targets of the blamers. When does "Made in the U.S.A." become mostly an excuse to lock out parts of the global economy just to have a big sulk? Just because a business provides goods to the public in the most efficient manner possible does not necessarily mean it is favored by the powers that be, especially if it has gone overseas. And yet, such businesses that survived by lowering costs were supposed to be the true drivers of progress! What really lies behind lowered costs? Hence, I am a bit dubious about maker versus taker arguments and will further attempt to explain why.
There are a couple of issues in this regard which seem problematic to me. Significant drivers of local wealth today often don't actually utilize recent production gains, in order to create product which is actually affordable to a general population. That's a big reason why government has so often been compelled to step in and "help". Yep, we know how that works out...then the locals will turn on government and blame government for helping them in the financial circumstances everyone agreed to in the first place! All those barriers to entry plus outdated 20th century low skill construction weren't particularly conducive for multinationals either, all talk of unions aside. We hear, "The multinationals left, so who needs them?" and so local businesses took over where manufacturing left off. But how many local economies were in part responsible for their compromised circumstance, by seeking ever higher rents and valuations to reflect the remaining citizens they preferred? When the multinationals left for greener pastures, the consumer often proved to be the last player standing for wealth as it became defined in the late 20th century, and the ever patient consumer tried as long as she could to maintain that illusion.
Some manufacturing is returning now, albeit in altered forms which are better adapted for the more exclusive and elaborate settings required in the U.S. compared to some countries (It seems some beneficial P.R. may be involved in the process). However, does economic space really exist for them at the moment? We are used to thinking of the most efficient companies as being the primary sources of wealth creation, and thus the ones we would most expect to find in the marketplace...but the process of inflation targeting may in fact be preventing manufacturing from optimizing some of its opportunities in the developed world. Too many entrenched special interests capture not only market share, but also a share of overall output which central banks remain careful not to overstep. Such special interests might not necessarily be keen on proposals of NGDP targeting, which would lift the veil on their portion of the take. I simply present this scenario as a possibility, because of the mystery of empty shelves in some big box stores, and one's inability to find any number of everyday products in smaller towns.
By creating environments that cater to upper classes and reducing environments that provide access to the lower classes (easy to do when productivity is never utilized in building components), local economies over time inadvertently create a different dynamic for income to consumption which is higher than actual income aggregates in more productive forms of economic activity. Thus, the creation of these not so productive local realms - yes I'm looking at construction interests of every stripe - end up with something that could be equally significant to the recognized Baumol's disease in services, in that it depresses what wages can buy through the widening of income to consumption ratios as surely as any taxation redistribution might "lessen" production aggregates overall. Small wonder incomes appear so depressed, when - had building technology followed the lead of innovation that occurred in other areas of life - our apparent income would be much higher now, even with the "drag" of services as they remain inefficiently allocated. In other words, lack of innovative and high technology construction made the overall problem worse than it had to be.
Income to consumption ratios are truly a mystery, because such measurements accrue to aggregates which don't really look at the differences in the ways wealth capture is set up across various production settings. As a result, we get not only charts showing reductions in productivity, but "mystery" charts which show reversals to income gains in all but the cities especially well positioned to capture knowledge based wealth (Ryan Avent had an illuminating chart recently which I'm still hunting for, so as to link). Certainly when Baumol looked at the effect of services on production, it may not have seemed necessary to account for the degree of less productive wealth capture through construction definitions, which nonetheless provided taxation for many services allotments in the first place: allotments quite asymmetric to the leveling gains of more efficient technologies and disciplines.
As a result, entrenched interests are crowding out not just needed services, they are also likely crowding out more productive businesses which - if they could - would serve as many customer as possible. This is also why interest rate targeting, which "holds the line" in regards to credit and contractual obligations for the less efficient and preferred wealth, makes life harder not just on lower income citizens, but the companies who would be more than willing to serve them. Unfortunately in the recent recession, some potential areas of blame have yet to be truly noticed, for they tend to be the ones yelling the loudest as to who is at fault. What's more, counterattacks by the liberal left tend to miss the underlying asymmetries. All of which comes down to this: support of interest rate targeting by both the left and the right mostly ensures that the entrenched interests still win the day, if indeed that can be called a "win". No small amount of inflation that local economies accuse central banks of, is in fact the inflationary measures imposed on local citizens by inefficient construction, and then the central banks dutifully follow with money printing to fulfill those locally defined obligations as best as possible.
How willing are our entrenched interests to hold both services and the affordable goods of a globalized economy hostage to the unrealistic expectations of what local wealth is supposed to "look" like, or "perform"? In this sense, local can also be extrapolated to state and national levels, for added effects which tend to play out as the better understood mechanism of protectionism. The sad thing about this state of affairs is that so many of these interests themselves profited handsomely from the affordable and truly productive parts of the economy which they now sideline in favor for exclusive terms of survival. We can do better than this, because local ramifications do eventually become global, when the patterns are not recognized and acted upon. Such separations only needlessly divide local and global economies even further, in the long run.