Why is Economic Stagnation Still Problematic?

Even though there's been encouraging signs of growth recently, context matters. After all, the limited growth trajectory which originated in the Great Recession, has not changed. Further, since recent income gains have largely accrued to upper income levels, many individuals (and regions) have yet to recover from at least a decade of economic stagnation.

Nevertheless, for many who prosper, the all too recent economic crisis is already forgotten. Hence renewed calls to further tighten monetary policy, and the collective wish to simply move on. The world economy has "never been better", right? Authors from quite different backgrounds also find it tempting to ride the optimist bandwagon. Such rationale provides much needed encouragement for the average reader, especially given today's political instability. Yet the still growing prosperity of developing nations, makes it easier to ignore the fact that something has gone wrong, in terms of the shared prosperity of today's developed nations.

Of course, who really wants more growth, or believes it could make a positive difference? How could more growth lead to shared prosperity if it hasn't done so already? Haven't people grown weary of a "material world"? As Diane Coyle writes in a recent post:

It's tempting to accept that growth is so over, given how much stronger the sustainability concerns are now than in the 1960s. But I don't think it's so simple.

Indeed. I would add that the sustainability of knowledge also depends on the continued momentum of economic integration and inclusion. Which is precisely what today's equilibrium dependent knowledge based economy can't provide.There's two problems with today's non tradable sector dominance, especially in nations such as the U.S. with large populations:

1) Today's most critical forms of knowledge use tend to rely on the monetary flows made possible by wealth in which resource capacity was settled at the outset (no debt or redistribution as the activity base). The reason this issue has become so important, is the extent of economic activity which now takes place in conditions which lack direct resource reciprocity. What's difficult to directly observe, is that resource matching at the outset creates the general equilibrium dimensions which can readily be tapped at any given moment, by all economic actors. And presently, more of us are seeking to tap into wealth which already exists, than are actually adding to wealth creation via resource reciprocity at the outset.

2) When vital forms of knowledge use are structured as secondary markets, these organizational patterns are dependent on an essentially fixed pool of existing resource capacity during times of economic stagnation. Most supply side reform efforts run headlong into the fact that present providers consequently can't expand their marketplace capacity, unless they're willing to dilute the income they already claim. Hence attempts to increase supply for healthcare practitioners, and building density of areas with desirable employment characteristics, are not well aligned with the realities of those who own real estate or practice high skills trades in prosperous regions. In a sense, recent calls for supply side reform in non tradable sectors - sensible though such calls appear - aren't always essentially different from what progressives have sought, via taxation.

Consequently, today's non tradable sector dominance, in which private sectors are heavily dependent on government largess and closely held production rights, has led to political stalemate. Small wonder for instance that the U.S. has "hit a wall", which seemingly demands the building of a wall, as if doing so could somehow address the underlying domestic supply side issues at stake.

We need defined equilibrium options that won't dilute the income or real estate value which residents of prosperous regions have already claimed. By building defined equilibrium capacity via immediate resource reciprocity, we wouldn't have to plead with special interests to dilute their income or asset values, to create additional economic access.

In the centuries when tradable sector activity was dominant, perhaps it was still reasonable for non tradable sector activity to be organized solely as dependent or secondary markets, where individuals could also benefit from the Baumol effect. But given the present day dominance of non tradable sector activity, it's time for these sectors to make room for resource capacity which is utilized at the outset without debt or redistribution. Fortunately, non tradable sector activity can be organized as primary markets capable of generating new wealth. Just as tradable sectors have done, all along.