Urgent, Emergency!

An old Foreigner song from 1981 has been running through my head since yesterday, and with some of the recent blog posts redefining what are very important positions in Market Monetarism, not so hard to understand why. It's as though we are trying to maneuver a series of rapids in the river and can see the bigger falls up ahead in the distance, but still have not devised a way to get out of the river before...

Will we end up with a legacy of sunk costs in outdated thought processes and infrastructures that finally send us over the edge? Or will there be a chance for central banks to change course, before the next drop in NGDP makes the last drop look like a picnic in the park? I get a bit weary of appearing overly melodramatic, but every time I try not to, there is some element of economic news that is simply not good, and consequent reactions seemingly even further from any potential agreement . Point, counterpoint, and so on it goes. One is reminded of the old story about the roof in which a couple of holes were starting to develop (i.e. need for long term solutions), but there was no rain so "why bother with it" (somewhat inadequate models). Then, when the rain started...can't go outside to fix the roof now for it's raining (arguments for finance and fiscal policy as central)! So as the rain continues to pour in, we just set the usual QE buckets under it all and hope that the storm will stop any time so as to put the buckets away. Okay I really need to stop making goofy analogies now...

As Lars Christensen (The Market Monetarist) said, "The reason it has become harder to predict central banks is that we are no longer on autopilot in monetary policy." As we look back, what exactly was the automatic pilot he spoke of, that was applied prior to the Great Recession? Oftentimes it is possible for central banks to do nominal targeting and interest rate targeting together without significant divergence between the two, for when an economy is in good shape and unemployment is low, most economic actors also have a reasonably good ability to take care of their debts. Consequently the nominal measure of individual ability and the financials (said contracts and agreements) line up pretty well. While those contracts and agreements don't show up in NGDP or in macroeconomics for that matter (contrary to what financial pundits and others may insist) their interest rate measurements do.

As contractual arrangements "eat up" larger portions of aggregate totals, one's time potential is also subjected to previous claims, which means less spontaneity in economic terms. But the greater issue is that some of the contracts are taken on beyond the bounds of reason, in that too much basic product definition is placed out of reach of a sizable portion of the population itself. That fragility eventually extends into areas that once held more stability. In all, this lessens the accountability of aggregate time potentials, which in turn makes central banks more reluctant to follow the income and consumption patters of the economic actors as closely as before, because the contracts entered into over time may reduce actual economic momentum. If this were the end of the story, it would not be so bad. But alas, it is but the beginning, as those who extended credit now expect a day of reckoning, and it's not a pretty sight. In a sense, a lack of belief in the ability of NGDP level targeting to set things right, also represents a lack of belief by central banks in the ability of economic actors to tend to their own obligations. Yet, the punishment (NGDP withdrawal) becomes quite random. That is one of the most painful aspects of all, of an economy that allows finance to become - let alone remain - a prime factor.

What's more, the same governments that came to the "rescue" of the consumer (arghh, thanks but no thanks) are now part and parcel of the financial process that demanded more than its reasonable share of economic life, to begin with. Even as Scott Sumner pleads, "Please, keep finance out of macro" (linked above), some of the comments to that post were telling in that regard. However,  I need to stress that I'm not speaking of collusion (between special interests) in regards to any conspiracy schemes, but instead as once reasonable rationales which are now quite difficult to extricate ourselves from.

How else would governments have been able to sustain services in their present dimension and definition, if not for the wealth which the consumer is expected to provide through today's construction valuations? That's true for government at all levels. Again, the problem is that there is overreach in the overall construction to services definition for the income of most consumers to maintain, which is why consumers still struggle on a treadmill to achieve it now. Finance, building and construction interests have yet to figure that out, and get serious about redefining our environments in more technologically efficient and truly competitive ways. There may have been a couple of moments in recent posts regarding differences in tradable and non tradable production that I came across as somewhat of a conspiracy theorist. If so, I apologize for that.

While good deflation is certainly a possibility in the future, it is not a path we have even begun to walk, as it has been primarily utilized by many nations for exporting overseas goods thus far. By not changing the restrictive building and zoning codes of the present, we continue to ask that progress be defined on the backs of consumers, instead of through the technology that was built for human progress in the first place. So like Scott Sumner was compelled to do, it's time for me to do my own "begging" - only mine is to the finance, construction and building interests (and governments that back them): please, get real, now, for everyone's sake. We'll tend to the need to redefine services that can no longer be funded strictly on local taxation.

Update: Lots of people stay up later than I do, so I missed Nick Rower's post last night where he wrote: "I want us to take Scott Sumner's challenge seriously...(re Keep Finance Out Of Macro)...The fear I felt five years ago is mostly gone. But when I see that fear replaced by complacency and an apparent willingness to stick to much the same monetary policies that we had before the recession, I almost wish that fear would return".

Reading Nick's post, I once again thought how wrong it is for central banks to blame the citizenry, when it was them along with finance and construction interests and their unrealistic terms for product definition, that took away the better part of citizen discretion in the first place. That would be forgivable, if the central banks were willing to recognize that they were the source of the ultimate problem to begin with, and so set about addressing it! That's the unforgivable part, that they seemingly feel no need to pay attention to what people have realized by searching high and low to figure out: the need to change not only monetary policy, but also the terms of living and going about one's life that forced the need for such risk bearing terms in the first place. No amount of  austerity "fix" by central banks is going to remedy anything in this regard. They would rather go on dipping into the citizen's "future income jar" (refusing to acknowledge NGDP) when they have already dipped into the citizen's past and present income jar beyond reason, by the very contracts they wish to define as central to the economic process: the soul shattering shackles of loans that we understandably bear from the past, but deserve to move beyond in our future - starting now.