Might the Fed Be "Purposely" Holding Back Growth?

In a recent post, Scott Sumner reasons that the actual scenario is just the opposite. While he adds that "the Fed may start holding down growth in the future", recent gains in NGDP growth are not to be denied:

One can't just argue that the Fed is holding down growth, without providing any evidence. All the evidence points in the other direction, that the Fed has been juicing the economy.

Juicing? He adds:

Some will inevitably argue that there has been a supply side "miracle" that's hard to see because the Fed refuses to "let the economy rip". Supply-side miracles leave very specific tracks in the data, such as a slowdown in inflation. But inflation has been rising. And of course that doesn't explain the strong NGDP data.

There's certainly no supply side miracle yet. It's always good to remember that actual supply side contributions which increase output, aren't the same as those juicing "contributors" which tend to create additional inflation and output uncertainty.

Even as Scott stressed recent strength in the data, he noted the the possibility of recession in the near future. However, he also echoed an all too common emphasis on short term data. Some of us feel this short term emphasis can be unfortunate, since it's already too easy to neglect how a permanently lowered growth trajectory affects many statistical indicators. Many have rightfully noted how the present "expansion" lasted a long time, because it was a weak expansion to begin with.

I've another qualm, regarding some of the discussions which followed his post. Scott adheres to a model which doesn't take into account the fact that market and employment conditions might actually worsen, over time. My main concern in this regard, is that excessive price making is becoming a threat to markets in general, for it can directly impact both output and employment. It's not feasible for every economic actor to price make in general equilibrium. Are too many economic actors attempting to do so? If so, how could we make sense of what is taking place? Yes, there's a model hidden somewhere in this possible scenario.

Since many central bankers closely adhere to inflation targets, price making has been restricted to internal inflation which is not always as simple as it may appear. However, inflation targeting only makes it easier for price making to partially crowd out revenue which would otherwise accrue to more efficient and dynamic markets. In all honesty, I don't know how much this growth reducing effect could be reversed via NGDPLT, should it be the main targeted response. After all the imbalance between sector dynamics is a structural problem, and a production norm could pose similar restrictions for asymmetric non tradable sector dominance.

In aggregate, of course, price making is not an option for everyone. But how does any society know, when the process becomes insidious to the point of no return? And what does this have to do with the possible intentions of the Fed, regarding growth? It's the imbalance between tradable sector and non tradable sector activity, and the prevalence of price making in portions of the latter, which makes it so difficult to determine whether the Fed is maintaining an optimal position in terms of monetary representation.

Again, all of the above has bearing on why I promote the economic option of price taking in non tradable sectors - particularly for time based services. We presently lack context for doing so, because services are normally structured in ways that don't allow for immediate reciprocity of time and resources. Resource reciprocity is what makes it a simple matter, for tradable sectors to utilize the spontaneous and wonderful coordination of price taking options. Even though many economic actors would prefer to work with more equal templates, markets can get stuck in positions where price making appears as though the only reasonable choice.

Chances are, the Fed is not purposely holding back growth. Nevertheless, its hands are tied by our present lack of ability to coordinate time based services in a more productive and dynamic context. In all of this, the Fed is only adhering to sub optimal general equilibrium realities which have yet to be addressed.

If asymmetric compensation could ultimately be reduced to levels where price making doesn't undercut general equilibrium gains, symmetric compensation could help restore output and employment certainty. We need coordinated price taking markets which account for the actual scarcities of our time, as a valid part of economic dynamism. At the very least, one can hope.