What makes GDP a good measure for macroeconomics in general, and monetary policy in particular? GDP records economic flows as they occur - at least to the best degree possible, given present constraints in services formations. Therefore I can't help but be concerned, when I hear ongoing arguments to replace GDP with something "better". Whatever "better" may be, chances are it would not be something that indicates how much money is needed in the marketplace in a timely fashion. Such arguments - while some might provide excellent discussion for domestic summits - now mostly distort the Fed's monetary role even further than has already occurred.
GDP measurement structure serves as a reminder, how important it is to maintain flow dynamics which are still being diverted. Economic vitality? A once great river comes to mind, which scarcely has enough water left after numerous points of capture, to make the journey to the ocean. All too often stocks and flows aren't even considered in the same context, particularly since government spending is part and parcel of the same flow patterns. Fiscal spending creates imbalance in stock and flow, because there are few definable points where redistribution aligns with social purpose.
By no means is this the only unnecessary complexity for GDP. Through emphasizing financial priorities over monetary priorities, the Fed is also responsible for fostering public doubt as to the efficacy of the GDP measure. To be sure, GDP accounts for plenty of dubious spending. Still: this is not the fault of the structure, but the nature of the economic activity which people grudgingly accept when they cannot negotiate their way to better strategies. Much skepticism results because of willful obfuscation as to stocks and flows, rather than inherent flaws in the actual measure of GDP.
Why is this important? Consider the financial bailout on the part of the Fed, which sacrificed aggregate spending capacity and put the "Great" into the most recent recession. One can reasonably ask...what were they thinking? By bailing out the banks instead of assisting the monetary system, central bankers took a real chance on losing the public trust. Too many in power had already became convinced, that the ends of wealth were now more important than the means. Today, there's mostly enough money being printed to maintain preexisting contracts, while worries over inflation have not even been a real issue for the past two decades.
This "preserve the ends" mindset is now being echoed in countless ways: from the insistence on further taxation of already existing capital, to a growing chorus to replace GDP with indexes which capture any number of socially desirable ends. There's just one problem: every one wants to lay claim to the end result of dynamic activity, instead of tending to the processes which allow those activities to continue taking place.
How to get back to more dynamic circumstance? For one thing, GDP components need the complexity of intellectual challenge and incentive as positive economic drivers, instead of endless negatives such as legal obfuscation, designed to limit economic access. GDP also needs the dedicated hours and applied time of individuals who seek to find the economic meaning in their lives. Too many means have been diverted into the intellectual equivalent of warfare, which serves to destroy the resource utilization capacity of anyone who stands in the way of special interests.
Another means of limiting economic access, has been the spatial separation of economic activity in order to provide a stronger tax base. In some instances, separation of buildings for specific activities just makes it more difficult for would be participants to remain connected to the entire process. This is why some new communities would seek further economic integration by zoning for combined working and living areas. Multiple use environments which make room for all generations, also have a calming effect which goes a long way to smooth the passages of life.
Governments have difficulty generating job formation comparable to the private sector, because they are too focused on distributing the ends, rather than assisting the creation and/or maintenance of the means. To be sure, infrastructure investments were once able to provide useful means. Presently however, no real consideration for different lifestyle and income options has yet come into play. These are important issues which go well beyond the roads and bridges of the 20th century. Some of those recent "shovel ready" proposals were attempts to add onto preexisting systems, without having to think too hard about the matter.
Even though new pathways can't be expected in more prosperous regions, many areas would likely consider a fresh start. Incremental ownership options would provide means for generating new economic dynamism. Not only could incremental ownership be utilized in local investments and flexible building components, but also time use options for knowledge work and personal endeavor. Why not give tax codes and political struggles a break? If growth is to be restored, it is time to once again focus on the means, instead of constantly shuffling and struggling over the ends of wealth generation.
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