Nominal Income Limitations, and Other Mysteries of Life

My readers can be forgiven for shaking their heads at me for this post: it's mostly an exercise in comparing income expectations in tradable and non tradable settings. Nevertheless I am fascinated by the implications of different sets of demands on nominal income. One can only wonder where nominal income might actually "land", if people were more aware of differences in levels between varying metrics and so adjusted for the differences over time (between local/non tradable versus global or tradable consumption). It seems as though the two exist in very different dimensions at the moment - dimensions which are not helped by the fact that interest rate targeting is still the norm. For one thing, there is the possibility that interest rate targeting suppresses consumption of the goods that are actually in greater demand, be it empty shelves or crowded waiting areas. Non tradable goods as a whole are also susceptible to internally created inflation, even though many salaries in these areas appear depressed or stagnant. Thus the problems in their organizational structures often mean less money gets allocated overall, for the roles non tradable goods fulfill in local services and production. Please bear with me, I promise this gets easier to read.

In a scenario with nominal targeting, how much balance could be achieved between the different income to consumption metrics of tradable and non tradable goods production? Nominal income has long appeared "flat" because many local non tradable goods, including the institutions of the building industry, are not yet structured in free market terms. In terms of technological production , income goes a long way, hence no help is needed from either governments or insurance generally for tradable goods consumption. Healthcare was taken out of competitive settings in part because of earlier knowledge limitations, but the longer it remains out of a free market, the more it too brings local economies out of balance with global markets. Clearly, supply side restructuring needs to happen in order for nominal targeting - when it is ultimately adopted -  to have the best effect possible for better economic balance and equilibrium.

In terms of supply side restructuring, I specifically refer to the non tradable income and consumption settings which local economies increasingly create. Because, in the present, such settings do not reflect the smoothing of income levels as they travel around the globe. Some have speculated that this growing local control over incomes may be in part responsible for less mobility in the U.S. However, I do not suggest supply side restructuring as bringing living standards down to a lower level, but as greater focus on skills arbitrage, use of technology, and a return to mobility options. To be sure my arguments for housing may have sounded like lower living standards to some, but they are not. For sake of comparison, think of the evolutions our tradable electronic goods have been subjected to, over and over again. We started out with products that took a lot of space and provided limited options, and finally gained products that take very little space but provide many options. In the process, the price of those options has decreased dramatically.

Unfortunately, nothing of the sort ever happened with housing, and too few until now have demanded answers. Yet, the fact remains that such innovative processes could turn our demographic and personal struggles with housing (especially as housing ages) into a past memory...why have we not taken that leap forward into a better, more secure future? What's more, lightweight and sturdy housing could be transparent so we could screen the outside environment when we want, then let the environment back in, when and where we want. The electronic devices that we carry with us now, could be built into the pull apart individual building components which could be replaced as needed. But housing issues cause me to frequently digress: this example was simply to explain that small box versions of todays homes are not what anyone has to resign themselves to, in an age that needs different concepts of living and working. Plus, we are capable of creating positive economic "experience" environments for ourselves, which would also express GDP and income ratios in somewhat different terms.

Let's consider already existing differences in contractual arrangements, between what mostly works out to be tradable and non tradable goods. Even though interest rates are higher on average for credit card transactions, not only are these contracts more flexible, they tend to reflect global goods consumption, which is also priced in greater accordance with production efficiencies. That makes credit cards less of a long term burden, than contracts for 30 year mortgages or school loans. Thus the nature of the average credit card contract tends to be more manageable, whenever income is uncertain.

Whereas, long term contractual arrangements are what cause the most headaches for budgets now, especially as some incomes have adjusted downward. This is why the issue of sticky wages and inflexible markets in general looms so large, for the non tradable aspects of our economy are where more rigid aspects of contractual arrangements tend to be. What's more, non tradable goods are readily captured by local definitions of wealth flows overall. Here, one finds the real discrepancies between income which have less to do with personal obligations, and more to do with the ways in which geographic locations succeed with knowledge capture and utilization. Such forms of knowledge capture are unfortunately not sustainable for the long run, as they place cities and towns  in unnecessary zero sum games of exclusive skills utilization.

One of the best ways to move beyond zero sum games is to move towards tradable goods in both services and product offerings, wherever it is possible to do so. Such efforts would go a long way to allow cities and towns to harness globalization for their benefit, instead of trying to destroy globalization by competing against it. This is an important point which local currencies often miss within present day non tradable metrics. By supporting existing local economies at the expense of global or tradable goods, people are giving up the option of goods which are already affordable for the citizens who have the least money of all.

Moving towards tradable product allows local economies to gain the efficiencies of globalization, and also gives all citizens a chance to still trade for goods which no one chooses to produce locally. There is a lot to be said for the country which is willing to export to low income individuals the product which perhaps cannot be produced for them at home. By integrating local economies for all income status, any community can embrace globalism and its own citizens at the same time. A reasonable goal for any society is to choose tradable service and product offerings over non tradable, wherever it is possible to do so. That goal is especially important for individual skills and aspirations, the subject of my next post.