Friday, October 17, 2014

Where Is Supply Side "Forward Guidance"?

For some time, there has been a lack of supply side momentum in the U.S. economy. As public and private institutions became less able to adapt and innovate, central bankers maintained demand on a steady course for a consumer driven economy. But with the Great Recession, central bankers stumbled as they overreacted to supply side issues. Even as the Fed concentrated on improving monetary policy afterward, supply side issues still weighed heavily on the reluctance to maintain growth. Of course the U.S. is far from alone in this regard - even so, that is no excuse.

Yet who is in any position to promote widespread cooperation and coordination in this regard? Never mind an Ebola czar! A czar to repair systemic supply side breakdowns - particularly in non tradable sectors - would make a lot more sense. Perhaps because there's so little forward momentum in supply side terms, the marketplace hangs on to every Fed utterance, to determine the degree they will continue to support monetary demand conditions.

Instead of maintaining monetary stability, the Fed continues to get distracted with responsibilities which should have been assigned elsewhere. If monetary policy were a dependable (i.e. boring) process, more business activity could be safely undertaken, with the knowing that adequate monetary flow would be present to make success more likely. Because of ever changing discretion that is not well accounted for, uncertainty on the part of private interests is further reflected in Fed uncertainty, in a negative feedback loop.

This leaves forward guidance as a continued emphasis on demand based consumption growth. However, that also means the same government responses which made little sense prior to the Great Recession. In these circumstances, it is difficult to know whether the Fed can be relied upon, so long as discretion trumps a rule to maintain a level for aggregate spending capacity. In spite of the dominance of the supply side, they remain hobbled by the fact that few can form any group consensus which reflects local economies and the possibilities held therein.

By hardening their institutions and their gains, many among the supply side - and also governments - have turned their backs on the future. The rejection is so strong that it has upended a lot of monetary common sense rationale which existed prior to the Great Recession. Because so many components of the workplace and marketplace are stuck in yesterday's patterns, no one really knows where to begin the process of untangling them.

Hence many supply side factions leave it to the government to assure the public that growth can slow down yet all will "be well". How do Republicans expect to win "no growth" campaigns while the economy "dog paddles" its way into the future? Apparently by making the opposition look even worse. Looks like there's going to be a lot more moral and smear campaigns that are not very inspiring for voters, at this rate.

Everything about this scenario is completely unrealistic. No nation can expect to remain secure and stable, by averting its eyes from declining growth. The voices of those who are trying so hard not to be left behind, need to be taken into consideration and acted upon. Real strength - the kind that molds the character of steadfastness - happens when populations are not afraid to turn around to retrieve those who have stumbled and fallen.

Granted, there are always going to be ebbs and flows in economic activity. But this decline is completely unnecessary, given the resource potential - let along the human capacity - that is currently being wasted. Not only is the threat of decline being ignored, central bankers are trying to gloss over it as though the economy is returning to normal.

Should nations give up on continued growth and further economic integration, that means populations take the chance of giving up on themselves. There's just no good reason for doing so. Millions of individuals are still being impacted by the fact that nothing has really been done, and this is no time for political factions to stand in the way of progress. Forward guidance should not be offered up as false promises in hopes the patient will not go into cardiac arrest. There needs to be real action behind the promises.

Governments and central banks can no longer use the rear view mirror to determine what lies ahead. While neither cannot be expected to play central roles in production reform, the efforts of others to move forward will at least need their blessing. If factions among the existing supply side cannot begin the process of renewed growth, others can begin the process in their stead. Time is of the essence. Anyone who is displaced by automation in the years ahead, will need viable alternatives that offer new hope. New growth need not disrupt what already is, but it needs to progress beyond today's limitations, just the same.

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