Part of the confusion - whenever additional money is warranted in the economy - involves the acknowledgement of new supply side growth. Additional monetary capacity adds to that which should already replicate existing services and production patterns. New economic growth means a greater degree of aggregate spending, which shifts price levels of (already) existing resource capacity downward to reflect the addition of new resource capacity. Hence countless attempts to stifle growth (and inflation) are a paradox, given the fact limited marketplace options can place more price pressure on existing goods.
Some mysteries remain, regarding the quantity theory of money. For one, money "travels widely", and in so doing affects pricing structures around the world. This has particularly been the case for the U.S. since the seventies - a fact which has completely changed the nature of inflation as it was once measured at national levels. In many instances, money that is created locally, moves into a global context which is not yet well understood. Even though there are means to determine the wealth of global tradable goods, the financial instruments which came to represent (otherwise) non tradable asset structures have proven more complicated.
How to think about the local economic circumstance of production, asset formation, wages and income? Nominal income is a more reliable economic constant than asset formation, commodities and other resource use. Without the reliable time based aggregates of labor force participation, commodity shocks become more likely. This is just one reason, why societies need to ensure a place for everyone, in terms of economic participation.
Even though assets, capital and commodities sometimes appear more reliable than income, all of these can be negatively affected, when labor force participation suffers. Only consider the recent commodities bet on the part of oil producers, to produce as much oil as possible in current economic conditions, in spite of lower labor force participation in the U.S. Normally, employment from services formation follows smoothly from the monetary flows of traditional production, but service formation has been dampened to some degree. Many services need to be approached on more direct terms, so that greater labor force participation can also maintain normal production patterns. The fact that commodity prices have declined, indicates the mistake that central bankers have made in dismissing the importance of employment and nominal income.
The best long run strategy for monetary stability is a level nominal target, on the part of central bankers. Inflation targets are a measure that was designed for a very different world than the one which relies on monetary policy in the present. Further, in order to make certain that long term growth remains a real possibility, policy makers need to actively work with citizens to maintain a full monetary representation for time value. Even though monetary compensation for hourly time aggregates would be minimal, local support systems could be integrated into these efforts. In particular, this would also ease the growing pressures on both Social Security and Medicare in the U.S., in the near future.
How to think about the local economic circumstance of production, asset formation, wages and income? Nominal income is a more reliable economic constant than asset formation, commodities and other resource use. Without the reliable time based aggregates of labor force participation, commodity shocks become more likely. This is just one reason, why societies need to ensure a place for everyone, in terms of economic participation.
Even though assets, capital and commodities sometimes appear more reliable than income, all of these can be negatively affected, when labor force participation suffers. Only consider the recent commodities bet on the part of oil producers, to produce as much oil as possible in current economic conditions, in spite of lower labor force participation in the U.S. Normally, employment from services formation follows smoothly from the monetary flows of traditional production, but service formation has been dampened to some degree. Many services need to be approached on more direct terms, so that greater labor force participation can also maintain normal production patterns. The fact that commodity prices have declined, indicates the mistake that central bankers have made in dismissing the importance of employment and nominal income.
The best long run strategy for monetary stability is a level nominal target, on the part of central bankers. Inflation targets are a measure that was designed for a very different world than the one which relies on monetary policy in the present. Further, in order to make certain that long term growth remains a real possibility, policy makers need to actively work with citizens to maintain a full monetary representation for time value. Even though monetary compensation for hourly time aggregates would be minimal, local support systems could be integrated into these efforts. In particular, this would also ease the growing pressures on both Social Security and Medicare in the U.S., in the near future.
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