Recently in comments at The Money Illusion, Scott Sumner estimated that tight money (insufficient NGDP) could have been responsible for at least 40% of unemployment in October of 2009. While he acknowledges that nominal targeting can't account for such a significant amount in the present, he estimates that it could still remedy about 20% of present unemployment - if in fact level nominal targeting were the monetary rule for the Fed. Of course, there are other unknowns as to whether expectations for level targeting would close the gap further, but much also depends on supply side efforts. However, Scott's remarks indicate that even with continued efforts to make NGDP the monetary policy rule for the Fed, all of us need to be thinking about that other 80 percent.
What really concerns this blogger is the fact that supply side efforts have practically no coordinated response amongst different regions which share similar problems in structural issues. There is so much which could be done that would benefit both free markets and the problems of unemployment. It is hard to see how expectations can be improved for future growth and managed demand on the part of the Fed, as long as some on the supply side find it too convenient to use the Fed as a whipping post for past irrational exuberance. A managed and coordinated supply side response for further wealth creation and economic inclusion, would stop some of the nonsense in that regard.
Government solutions for unemployment have always been a bit ad hoc, but in a sense that's not quite the fault of this institution. Unemployment is not an easy issue to respond to, because it involves many facets of our economic lives and lifestyles. Governments would likely coordinate wealth creation strategies with their citizens if in fact people knew what they wanted to accomplish and were willing to work on it together. At the larger level, unemployment depends on not just supply and demand side factors but also the ways in which property usage gets configured and acted upon in the marketplace. While economists understandably look to government for potential supply side efforts (taxation, etc.) as a former business person I tend to look towards Main Street for solutions, if only because of the extensive degree that economic breakdown is observable here.
There are numerous possibilities for coordination strategies which cut across broad swathes of interests. Possibly the best strategy of all to address unemployment is that of making livability easier in general for all members of society, many of whom would respond by creating new businesses and hiring again. While it is second nature for systems to turn to greater complexity over time, sometimes complexity takes the wrong forms and unravels the primary advantages of the systems themselves. A lack of small business formation was just one of the problems of unnecessary complexity.
The primary reason coordinated efforts are needed is the fact that numerous first mover problems exist across the board. Those first mover problems only thwart individual efforts to gain greater simplicity and access. Main Street needs to reinvent the ways it thinks about both wealth and knowledge use, especially for the benefit of younger generations. While the thought of doing so remains daunting, many local economies realistically have little choice, as a prevalence of lower income occupations in the future means that both infrastructure and services provision need to be planned and acted upon in new ways. Once coordinated systems are in place for greater economic access, not only will expectations for growth resume but broad employment levels can also return.
Yes...but what about those problematic lower income levels? For one thing, the present stagnation remains somewhat misleading, in that it represents static formations of wealth definition. In linear terms for instance, one thinks of job share as a way to better inclusion. However, a better way to think about economic inclusion is to tap hidden supply and demand in more extensive terms. Once this happens, and true innovation in building environments is also allowed to take place, income potentialities can be reassessed. In non linear terms, there is a good chance that what appears as low income presently does not have to be so, at all.
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