In recent years, more individuals are considering the possibilities of a NGDP level target for greater economic stability. However there are still some unknowns, regarding the long term viability of a nominal target. Worries about needed skills sets in the marketplace still translate into long term uncertainty. Could lower employment levels negate some of the primary reasoning behind aggregate spending capacity?
Should the contributions of income and wages become less than a nation's commodities markets, supply shocks could become greater problems in nations which lose employment over time, even as they would be measuring income and wages as a component of the primary anchor. These issues are worthy of consideration, as developing nations also consider nominal targets. Low employment in relation to commodities could make a nominal target problematic in some circumstance.
How can the U.S. return to a full employment trajectory, and move beyond the obvious constraints which remain since the Great Recession? Even though labor force participation is still varied and complex in developed nations, more needs to be done in the years ahead to ensure it remains so. Without a doubt, a nominal target would be an easier sell to the public, if it also plays a role in overcoming labor market deficiencies. Even though monetary policy alone cannot bring about full employment, the degree to which it can assist the process, has been obscured by the fiscal and monetary battles which are far from resolved.
One recent aspect of the fiscal/monetary debates are fiscal helicopter drops versus open market operations on the part of the Fed. Nick Rowe pointed out in a recent post that monetary means are better than helicopter drops, because something remains after the fact of open market operations on the part of the Fed. There is still tangible wealth, should the Fed buy land instead.
Even though this makes more sense for Fed purchasing operations, a problem remains in that the value of land and related assets mostly reflects the value of skills sets which are being utilized in the marketplace. Presently, asset holding is frequently a strategy for needed skills sets which often cannot be taken for granted.
If skill sets are artificially limited, asset value and hence growth potential are also limited in aggregate. This also has bearing on the fact that the Fed can only support additional growth in the marketplace when it sees those efforts in progress. In other words the Fed cannot generate additional growth on its own, without coordinated intentions from supply side efforts in the marketplace. If it seems as though the Fed has more power than anyone else, some of that could be a result of self inflicted wounds all around.
First, the Fed needs to be aware of intent on the part of the public to generate new growth, and advocates for growth do exist. Perhaps next year instead of Jackson Hole, there can be a growth summit so that advocates from around the country can meet one another for the first time. (Hey a little daydreaming doesn't hurt!) Once the process of community projects is under way, the Fed can provide assistance for the incorporation of these activities into the measurement of GDP. Ultimately, compensation for these new economic projects can be explained on terms which are understandable to the public.
The fact that only so many jobs can be generated either through redistribution or production residuals, has slowly placed a cap on the amount of growth which has been possible. Fortunately,there is a way to overcome this problem: make services standalone wealth which count on monetary terms. Where government backed services and private profit can only generate wages and income up to a point, compensated time arbitrage can continue past the old boundaries.
Why is this the case? When time use is coordinated equally for local services needs, each matched hour leaves no remainder which needs compensation from redistribution or other profits. In other words, there is no debt: hence matched time becomes a standalone source of new wealth which is also monetary in nature. Even though local services might still have some characteristics of the earlier fiscal backing, they would no longer be exclusive and restrained to strict knowledge use choices. Knowledge work would only be limited by the available time on the part of local residents.
As standalone wealth, it would become possible to think of services on monetary terms. As a result, communities and regions which adopted these systems would be able to generate both work and product through their own capacities and resources.
After a certain point, this would make the newly created wealth of services just like any land, commodity or other asset which could in turn receive backing from the Fed. In other words, services formation as direct standalone wealth, could eventually become a part of open market operations at the Fed. The only limits to growth would be the actual limits on local time use coordination, for services.
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