While I certainly advocate for NGDPLT in a specific sense, it is still helpful to clarify the benefit of Gross Domestic Product as the "right idea" in a broader sense. Plus, any defense on my part feels appropriate now, what with monetary confusion all around and even suggestions as to new, supposedly more "evolved" measures. Of course, the GDP as measure which some complain about (even Bernanke has slipped into musings as to a "happiness" measure) can do a much better when it is in fact given more reasonable aspects of economic activity, to measure (or, it is what it is). Certainly, everything that registers monetarily is not a sign of progress - "broken windows", sticky markets, back door deals and all. But that doesn't mean the tool which sometimes seems to account for a carnival of absurdities is the absurdity!
What makes the GDP measure all the more appropriate is its intent to capture and reflect economic momentum. By doing so it suggests that the use and management of capital is only part of the story for economic activity and dynamism, in spite of what the financial realm and excessive focus on credit would suggest. Just the same, we are getting some strange arguments now that not only are services supposedly insignificant in wealth based terms (in spite of their representation in the economy) but that even consumption is somehow not a valid part of wealth creation. Ever notice how the hard right conservative suddenly becomes quiet as to continued progress and growth (even though normally such discussion would be ongoing), whenever "stick in the mud" austerity rears its ugly head? Austerity is nothing, if not a static idea as to what represents wealth in the first place.
Even though GDP measures are utilized especially for demand side rationale, they have significant implications and potential for coordinated supply side strategies, which have yet to be explored. For all the things that need to happen in structural terms to make our economy more meaningful, most of these can find adequate expression in the measurement of economic momentum, and even more so through nominal targeting. Particularly the fact that services can be thought of as pure velocity, gives additional meaning to the GDP measure for the potential it continues to hold.
Often, people hold different ideas as to what economic dynamism actually entails. Dynamism is what is actively occurring throughout the components of a system: or whether the interlocking parts are still creating motion in the entire structure along a reasonable constant (velocity). Differences in income might create problems insofar as they significantly block flows along major arteries of the system, and nominal targeting is also capable of considering this possibility. Perhaps we give the leaders of nations more credit than they deserve, for following the kinds of visions we thought they had. What once worked so well together in fiscal and monetary terms presently appears inadvertent, even arbitrary at times. Amazingly, fiscal policy supposedly entails a sense of economic direction, but most fiscal efforts today in the U.S. are about maintaining what has been, rather than envisioning a shared future.
For the U.S., present day requirements of the military and the entitlements of a retiring generation have become the main fiscal "meal", which leaves both political and business constituents fighting like dogs over any scraps that fall from the table. That leaves little real room for governmental negotiation in terms of economic direction, especially given the enormous amount of time lost to discussion about the "leftovers" in fiscal terms. Discussion about government debt loads and fiscal capacity are now are beside the point. It has become more dangerous by the day to wait for government to fulfill promises it can't uphold. This is a historical moment when the public needs to step forward to redefine and reclaim economic dynamism on its own terms. The considerable work which has gone into GDP measurement, alongside nominal targeting, can be most helpful for such efforts.
Few individuals in our political system are prepared to take part in such a dialogue for they are still hopelessly divided, as to maintaining what is left of the older reality. Implicit in any argument that GDP does not matter, lies a very real confusion what wealth creation actually is in the present. That makes it all the more important for the public to understand the continued usefulness of GDP measures, before moving forward. It is in large part the divisions of our political system that have led to a real loss of dynamism. Even as Market Monetarists ask for central banks to provide forward guidance, citizens also need to find their own commitments to focused action and shared economic visions, so that belief and trust in forward guidance is truly possible.
We are really fortunate that the public is able to take part in these concerns to a degree previously impossible, for it is the citizens of the U.S. who have the capacity to step forward and plan for a better future, when their government falters. We need our government, our monetary system in some capacity with plenty of resources for adequate measures, and the tool of GDP which can be made more meaningful through a basic rule of nominal targeting. But none of those can any longer be expected to get the job done on their own. Shared visions can create new economic dynamism, and also allow us to make better use of the important tools we already have in place.
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