Before proceeding further, it's a good time to back up and review some of the priors for this blog. These are simply some thought processes which work for me as an informal framework, in terms of how I put together ideas in general. While I believe that economic flexibility is paramount, it is the simple rule of nominal targeting that makes flexibility understandable in a quantitative sense. Consider that we might be fortunate enough to have multiple "moving parts" come together relatively well (with a ton of effort on everyone's part, by the way) yet there would still be the chance it "comes unglued" because NGDP was not adequately considered for all the economic actors involved. Why even take the chance? Why would anyone knowingly allow so much damage - in other words - just because of one factor which could have been readily tended to?
One could consider nominal targeting as today's new "gold standard", as Scott Sumner pointed out not long ago. To do so puts the fact of our participation front and center, and Market Monetarists consider nominal targeting the most reliable point by which other factors can actually make sense in overall context. While such rationalization makes perfect sense in terms of money printing, the validity of the point remains lost for a number of reasons. Some people are not convinced that the representation of our participation in aggregate is actually paramount, and others who do believe in adequate skills representation, are nonetheless convinced that money originates from loans, which of course is only true in a partial and endogenous sense. This puts Market Monetarists in a somewhat odd (default?) position, of monetarily representing human skill potential to a greater degree than either political factions on the left and right. Thus, by arguing for appropriate monetary representation, the Market Monetarist also argues for the greatest monetary equivalence possible for knowledge and skills use.
Regarding the belief in loan contracts as money origination: while money is frequently tapped into at the stroke of an accountant's pen, that monetary equivalent is already accounted for in the system at an overall level, in spite of discussions which never seem to get resolved to the contrary. Commenter Jonathan Cast sums up nominal targeting quite well, in this question posed to Lars Christenson at The Market Monetarist: "...isn't NGDP the best way to set a fixed value for the dollar, since the value of the dollar is either 1/NGDP (the fraction of national income it can purchase) or the productive capacity of society/NGDP (the volume of actual output it can purchase)?" Even as money may be "moved into position" by a loan contract, that particular method is simply another way of accessing what one would already have set out to do - in the first place - either as a consumer, a business or other entity.
What I consider a second equivalence are the environments we set out to create through supply side factors, especially in a physical sense. This in fact relates to the loan contract, in that such contracts try to freeze what would otherwise be a far more natural momentum in economic processes: one that would not be so caught up in business cycles, in particular. What's more, while we see some of the movement of these contracts "showing up" in terms of quantity, their overall valuation or representation is not directly shown in GDP measurement, which is why contrasting them with a nation's economic movement adds little clarity to the process.
More importantly, the focus on assets - and balance sheets which often represent them - obscures the actual timeframes required of economic actors to meet their obligations in an aggregate sense. One reason that is especially important relates to levels of national debt. The further any economic actor from meeting one's obligations in the aggregate, the more governments are expected to pick up the slack, meaning the greater strain on a nation's budget in a larger sense. This is also why a nation's actual debt load is only part of the story.
A third kind of equivalence is that of our latent knowledge and skill attributes, the degree to which they might presently be integrated into a broader economic framework, and how they might also account for continued growth in a long term sense. While nominal targeting seeks to optimize this process in the present through cyclical aspects of an aggregate demand framework, there are further possibilities as to what NGDPLT suggest for potential skills utilization in this regard. The time element of the economic actor, central to a nominal targeting framework, also suggests time as a coordination point which adds clarity to transmission between knowledge/skills utilization, capital and assets. Such clarity is needed, because political factions are frequently torn between either downplaying the importance of knowledge and skills, or trying to include them in such a manner that just makes inclusion appear arbitrary and somewhat ad hoc.
In the next post, I will further detail some important aspects of this third equivalence. Doubtless, anyone who has kept up with my posts has some lingering questions by now, and so some specifics are in order! Even though some of the suggestions will be preliminary, they nonetheless allow me to "connect some dots" that I've tried to connect for quite some time and so I feel good about that.