Some Aspects of Waterfall Effects

For some reason I've had quite a case of writer's block regarding this description...but why? I've written any number of times about "waterfall effects" over the past year - only to delete the text before hitting the publish button. At the very least: if I try to explain a simple way of envisioning monetary flows in this post, perhaps I won't delete so much material in the future!

Why emphasize a vertical flow component? To be sure, money circulates in seemingly endless ways. But there have also been recognizable points of wealth origination, which act as "waterfalls" and provide lead ins to other important forms of economic activities. Sometimes, the breadth and depth of original flows, can make secondary and service related flows more likely to occur. When we think of momentary "captures" in quantitative terms, what might otherwise appear "unequal", is actually a dynamic result.

Until recently, commodities and manufacture were responsible for providing what is a still symbolic role, for monetary origination. However, they are increasingly augmented by secondary monetary flows which are substantial in prosperous regions. The only problem is that the secondary effect is far more subdued elsewhere, in places which are nonetheless expected to play by the same rules. As a result, too many regions in developed nations have had little choice, but to heavily rely on the redistribution governments have provided. As governments came to rely more on finance and consumer roles, the vertical nature of the flow became oblique in some respects.

While redistribution made centralization possible in the 20th century, the load which redistribution now carries has become too heavy. Thus the question eventually becomes: how might productive decentralization best occur? Governments have a chance to thrive, when they plan for decentralization alongside their citizens...rather than struggling to prevent the inevitable. A major part of this transition, means making certain the public understands the roles money could fulfill in their daily lives. In order for this to happen, the service path which governments originated through fiat money, needs further evolution in order to continue.

Monetary origin has generally been associated with commodities such as gold, and fiat money has struggled to transition away from those earlier interpretations. While fiat money allowed (largely) government defined services to become a substantial part of GDP in the twentieth century, services are still a confusing component in wealth based terms. The problem in this regard, is that many service formations are not yet sustainable. Not only were they indirectly generated as partial markets, but they were heavily subsidized debt producers, as well.

Diminishing returns to capital are making it more difficult to maintain the service formations of the present - let alone expand them to the degree that populations have already invested and prepared for. Readers know that I would like to see some services as a more definitive part of the overall equation. Services could also become points of monetary origination, which would result in horizontal and decentralized flows to augment the vertical flows of commodities. Everyone's spending is indeed someone's income, and this needs to be a macroeconomic axiom which people can get behind and believe in.

Present day wealth continues to rely on product separate from time use, alongside the activities of finance. Even though these wealth generators are but a portion of GDP (as are services and government activity), flow does originate from newly created product. However, finance wealth has strong correlations with already existing wealth, before it becomes capable of adding to the mix. Finance can not be expected to fill in indefinitely, for the missing gaps in a marketplace. For instance, as Mark Sadowski indicates:

In particular, changes in private nonresidential fixed investment precede changes in business sector credit market debt and bank lending, and changes in private residential fixed investment precede changes in bank lending.

In other words, real growth needs to be present before finance and credit channels can contribute to wealth in any long term sense. What's more, further contributions in that regard may become more subdued than in the recent past. Populations in the present, need the option of incremental growth alongside the high expectations which developed in recent decades. Incremental forms of growth would also make it possible to explore horizontal services growth. New growth patterns such as this could serve to stabilize vertical wealth flows, so as to prevent deflation and contribute to monetary stability.