In a Measure of America Report, it was determined that well being rose in every state (of the U.S.) except Michigan between 2000 to 2010, based on life expectancy, education and earnings. However, would such measures have held true for the states from 2010 to the present? To be sure, this is the right kind of report to bring out when people want assurances that the economy is returning to normal, especially when it "appears" recovery is just around the corner. Just the same, this is no time to say, job done! Just look at this great report! As James Pethokoukis of AEI titled a recent post, the Fed has essentially washed its hands of the new normal U.S. economy. Ryan Avent at The Economist is not any happier, in that it has become clear that the Fed is reluctant to engineer the escape velocity which would allow the economy to escape the zero bound: a circumstance which now also leaves the U.S. closer to a "Japanese equilibrium."
While the states report wanted to look at factors besides GDP to gauge economic well being, the three it used were misleading in a number of respects. To date, educational gain has continued apace whether or not compensation (let alone integration) for said education happens. Plus, both life expectancies and earnings in this time frame are a carryover from decades that were part of a positive equilibrium overall. To get a true feel for recent changes in the economy in an immediate sense, it helps to look at the patterns between our nominal income and aggregate consumption. NGDP measures are also the closest proximate we have to daily and ongoing realities: here, graphs especially tell the visual stories. Even though NGDP may not (presently, at least, for it could) register well being in a collective gain sense, it does tell us now whether we are actually doing our best to maintain it.
While GDP may not seem especially important in certain respects (not all money making is of a positive nature, duh), it really depends on what we are trying to determine through the use of the indicators themselves. There's a tremendous difference between, say, here's the money a nation (or city as it could well be) registers, and the way the money components actually interact with one another. In GDP, a nominal focus also allows us to zoom in on some of the important particulars. Nominal targeting readily shows changes re inclusion and exclusion of economic actors involved, and also shows how people go about meeting their present and ongoing obligations to one another: which after all is what printing money is really about. Much about our economic lives can come into sharper focus through the level targeting of NGDP. What's more, consideration of local conditions through the process can bring the economic picture into an even clearer view.
Why do local concerns even matter for NGDP? After all, nominal level targeting is supposed to be about aggregates and national levels. Part of the beauty of nominal targeting is that it is capable of scaling up or down - in other words - local to national in terms of income to consumption obligations and expectations. That's just a simple model aspect of the measurement itself. Just as important are the patterns that local economies tend to generate - and repeat - in an aggregate sense. What happens in local economies doesn't just stay in local economies. They imprint further examples in other regions which utilize resources in similar ways and tend to create similar employment patterns as well. Effects depend in part on whether the resources reflect long term economic flows (educational investment) or are more contractual and fixed in nature (housing ownership).
When we "come in closer" to look at the particulars, we also get a feel as to some of the larger concerns people have, why NGDPLT - for all the promise it holds as a central bank rule, nonetheless has some remaining obstacles in its path. For one thing, there are structural concerns that get far more wordplay in excuses instead of solutions: which is why Paul Krugman had this retort: "I get annoyed at the phrase structural reform, especially in Europe by very serious people". Structural issues aren't the only ones that seem to mean a million and one different things to different individuals. So, too, does the unfortunate designation: inflation. However the news isn't all bad, and I want to argue in this post that local economies have the capacity to tease out some of the pertinent issues in both structural and "inflation" designations, through specially targeted measurements that indicate how overall flows might be effected.
Inflation - by any other name please - especially lurks in the places that we have every capacity to observe more closely. Countless costs get attached at every step of economic processes, without anyone really stopping to calculate the effects (While such a process would be daunting at national levels, local measures could provide examples for larger patterns). These completely counterproductive processes occur because various elements react to one another instead of coordinating with one another in the same economic environment that they share. Indeed, some of these hidden costs (rent for someone), still exist outside any actual measurement of income to consumption capacity, which is what makes it difficult to determine whether any inflation at all can actually be attributed to central bank activity in recent decades.
Where tax monies or subsidies are a significant factor, the idea of maker versus taker in any redistributive sense becomes even more skewed. These are the sorts of black holes where good deflation born of productivity gains are swallowed, by taking of said gains through every means imaginable, before they are realized by the consumer at any level. But unlike some, I have a fascination as to how one figures out what lies in those black holes! (Aahh, now you know why this blogger wishes she had kept up with math when she was young) I remain convinced that local economies are the primary source of a significant amount of their own unemployment. Anyone want to convince me otherwise? Go ahead, make my day!
It is - in part - these aspects of complexity that also make some wonder whether the gains of nominal targeting might not get buried in the details, but a closer look at the nominal workings of local economies could give us a chance to break through a considerable amount of that complexity. There are so many ways to determine what actually affects prices that have nothing to do with inflation as we once knew it. There are also many different kinds of structural roadmaps that could be contrast with each another. Both of these processes need to happen in specific ways, so that people know what is actually at stake. This is no time to simply stop the process of economic rediscovery, just because some of the national numbers look "prettier on paper". Out here in the real world - for instance - the hard reality remains that the better unemployment number for the Fed is mostly more people dropping out of the workplace. In fact that is likely what the Fed is counting on, by tapering QE before it gets too close to the unemployment deadline.
Admittedly my perspective of the measurement capacity of nominal targeting is somewhat different, for I really came to the idea itself with a Main Street viewpoint of the potential it held. While this makes my perspective somewhat unlike the language of those who approach nominal targeting with a financial or macroeconomic background, it was that implied potential for the transformation of local economies that made me so excited about NGDPLT in the first place. Ultimately, internal resets and coordination could take the place of a long series of reactions that only hurt everyone in the long run. Better knowledge use coordination and dispersal could also make many communities more competitive with one another than they are now. Nominal targeting could keep local economies better grounded in their expectations overall, as they gradually gain a better feel of the perimeters they actually have to work within: a perspective that also makes the "pie" larger over time. While some of this might appear as structural reform, what it is really about is simply people learning how to live with one another again, and each successful example is potential for others in a nation, as well.
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