What monetary factors lie within a nation's ability to control? Actually, "control" is too strong of a word. Still, reasoned management is important, in terms of gauging the money populations need in order to maintain economic stability. For instance, nominal targeting on the part of the Fed would not be "planning" in the normal sense of the word. Instead, a nominal level target would simply be a commitment to stabilize ongoing contractual expectations, to the best degree possible.
One reason the Fed remains "off course" with inflation targeting, is the fact it went along with numerous top down proposals for wealth generation in recent decades. Some of the financial structures in this regard also served as efforts to maintain a centralized economy. The Fed's unfortunate desire to steer the economy on financial (instead of monetary) terms, has led to more wealth capture than might otherwise have materialized. Inflation or deflation in these circumstance, mostly exists insofar as economic access is not adequately considered.
As a result, there is too much emphasis on prices and asset values, instead of overall monetary representation. Only consider the recent Billion Prices Project, which tells some misleading "inflation" stories. This project data can be easy for gold bugs to cherry pick, as JP Koning emphasized. And just as many remain overly concerned with inflation, others grapple with the vagaries of finance - instead of the circumstance which gave finance the power it still holds.
Is there a way to move the emphasis away from prices and financial constructs? What matters most beyond monetary factors, are the ways in which individuals, groups and other concerns organize the tasks of production and services formation. The ways these organizational factors interact and overlap, are among the most important measurement indicators which take place within a nation's borders.
Often, what appears as though inflation or disinflation, has more to do with how local structures for production and services are generated and maintained. Whereas the small community relies on limited taxation capacity, prosperous areas often augment services formation well beyond expected base structures. Still, in both settings, non tradable goods tend to be chosen for the consumer on their "behalf" as part of a non negotiable package. Presently, too many pricing structures remain hidden, which presents unnecessary economic instability down the line for individuals and communities alike.
Thus far, prices for non tradable goods have not been as easy to standardize, as goods traded across borders. Just the same, the standardized pricing of tradable goods does not accurately reflect the primary spending patterns of local economies in many instances. Even "local" or national manufactured goods may only have production in a number of regions, and yet experience sales around the world. Production of tradable goods - which seems easier to quantify than non tradable goods - isn't quite the helpful endogenous measure of GDP that it appears to be.
Presently, the Fed often fights the wrong battles, by looking for economic signals in too many of the wrong places. As a result, they miss the structural problems which still stand in the way of maintaining a smooth growth trajectory. Even though structural issues are not the Fed's responsibility, those concerns cannot simply be left untended - particularly while the Fed also shoulders the blame for what lies outside its realm.
Special interests tend to look the other way from the imbalances they generate, and the result is undue pressure on other parts of the economy. This is why it is helpful, for citizens to gain some understanding regarding structural factors which can negatively affect economic stability. In particular, some entrenched interests likely suspect the pressures they generate... hence are glad for everyone to be obsessing over a billion prices, instead!
How can further clarification be brought into local services structures, for the measurement of GDP? Even though inflation in these areas is problematic, (and it certainly shows up in the figures) it helps to ask: in relation to what, exactly? Does the use of one's time count as viable product...or not? How society ultimately answers these questions really matters. In any complex economy, services and the asset formations which exist alongside them, are central to economic activity.
When civilizations break down, a lack of understanding regarding knowledge use roles can cause skills networking complexities to disappear for centuries at a time. Of course, that's a long term consideration. As to immediate concerns: when services and knowledge use roles are not well defined, any production norm which might otherwise apply in traditional manufacturing terms, only results in arbitrary caps for economic access and continued progress.
A number of issues need to be considered in this regard. For one, a point of production reference becomes possible, when skills arbitrage allows the measure of time aggregates for services formation. Not only does this provide means by which to gauge knowledge and skills capacity, it allows time use - hence individual capacity - to be considered as product in its own right.
Services inflation is mostly problematic when it is approached through indirect means, which generate hidden and overlapping cost structures. In recent centuries, many forms of knowledge use were subjected to the indirect compensation of redistribution and production processes because this was the only approach institutions could reasonably take to generate further economic complexity. Fortunately, knowledge now has the capacity to be dispersed through digital means, which could make direct services formations possible. Not only would this be beneficial for the measurement of GDP, it would also bring the endogenous factors of local economies into better balance with tradable goods and international monetary flows.
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