Friday, November 24, 2017

Growth, Output, and the Fiscal Control Factor

Recently, in "The Perennial Problem of Predicting Potential", John C. Williams of the San Francisco Fed wrote:
Potential output - the maximum amount an economy can produce over the long run - is an important indicator policy makers use to gauge a country's current economic health and expectations for future growth. However, potential growth can't be observed directly, and estimating it is difficult, even with modern, sophisticated methods. Modern policymakers are well advised to account for the perennial problems of uncertainty surrounding these estimates.
He adds:
Potential output depends on the supply side of the economy, that is, the number of willing and able workers and the amount that each can produce.
While this is true in a larger sense, regular readers are familiar with my arguments that primary or secondary marketplace positioning is also important for output and long term growth. Not only is too much secondary market positioning a long term threat, the Fed never accounted for the large drop in aggregate spending capacity at the onset of the Great Recession. What - specifically - about the supply side, might have contributed to the Fed's loss of faith in economic dynamism?

A considerable amount of growth potential is undermined because of fiscal control factors. Not only do these control elements ultimately show up as new Fed fiscal and monetary "tools", they also place further constraints on knowledge use and economic access. Meanwhile, citizens in developed nations are still being unnecessarily marginalized, due to constant revenue claims on output as it occurs. While some wealth "set asides" take place as government fiscal priorities and obligations, the existing revenue claims of the private sector are also extensive in two areas: high skill time based services, and finance.

Indeed: The recent dominance of time based services includes double uncertainties in this regard. Human capital investment is experiencing diminishing returns, as fiscal support of high skill product only enhances long term skill use differences, among citizens. Worse, policy makers attempt to hide who - and what - bears the greatest responsibility, for the human capital deemed "more capable" than the majority of the population as a whole.

Too much of the supply side now wants limits to growth, in the form of direct control over non tradable sector preferences for fiscal policy over monetary policy. Whereas monetary policy has the potential to contribute to reliable marketplace expansion and output gain, non tradable sector providers are sometimes uncomfortable with the dilution of marketplace domination which "easy" monetary policy may imply. In the past, some non tradable sector providers may have asked for fiscal assistance in part because such revenue was easier to control at local levels, than monies ("easy" monetary policy) which of course are not specifically directed towards special interests.

In all of this, what has often remained hidden, is the means by which fiscal policy has allowed some supply side participants to limit the marketplace growth they do not actually want. We need to move beyond the fiscal controls which stand in the way of long term growth and output gains. Fortunately, it would be possible to do so, by allowing high skill time based services to directly contribute to wealth creation. Even though aggregate time value as an economic unit would mean some loss of marketplace control on the part of special interests, it's worth taking the chance on renewed economic dynamism, if only to ease the political burdens of the present.

No comments:

Post a Comment