While the appreciation of the real s exchange rate kept a lid on prices for tradable goods, non tradable goods, especially services, remained a source of inflationary pressure.

And that contribution is probably an underestimate, because income generated on the tradable supply side produces income that becomes demand on the non tradable side a multiplier effect that crosses the tradable non tradable boundary.

International commodity prices will continue to rise, increases in domestic labor costs and prices of non tradable goods cannot easily be stemmed, the international economic situation will encourage further capital inflows, and asset inflation will persist.

However, as discussed above, many factors other than the relative prices of tradable goods determine the imbalances, particularly in the case of the dominant reserve currency.

The US tradable sector is growing.

And if housing and mortgage security prices don t just fall but collapse, everyone should remember that construction employment falls faster than employment in tradable goods can grow.

With the tradable sector neutralized and the non tradable sectors maxed out, the economy lacks sufficiently powerful growth engines.

That means increasing capital and human capital intensity across both the tradable and non tradable sectors of the economy.

Meanwhile, the non tradable side should grow.

The tradable sector accounts for just 30 of the US economy (by value added), and employment growth in the tradable sector is negligible.

This scheme implements tradable quotas among the EU States.

Rising incomes require rising productivity. That means increasing capital and human capital intensity across both the tradable and non tradable sectors of the economy.

If employment growth in the non tradable sector dominated by government and health care falters, the tradable sector will have to take up the slack.

As a result, the large non tradable sector and the domestic demand portion of the tradable sector cannot serve as engines of growth and employment.

Modern services are becoming increasingly tradable, providing new export opportunities.

But there is a much better strategy than tradable permits.

In such economies, that pattern not only typically depended on leverage it also enlarged the non tradable side of the economy and shrank the tradable side.

El Salvador is constrained by inadequate production incentives in tradable goods.

And yet, given that the non tradable sector is constrained by its reliance on domestic demand, recovery if it comes will depend on the tradable sector s growth potential.

Finally, an inadequate understanding of structural inflation (the growth in prices for non tradable assets) has generated the false belief that China can maintain similar levels of inflation and exchange rate stability as the OECD economies.

Labor intensive industries in the tradable sector must be allowed to decline.

The speed of structural adjustment is also strongly influenced by how easily employment can shift from an economy s non tradable to its tradable side and across segments of global supply chains.

As China becomes richer, its middle class citizens will not just buy more tradable goods like cars, electronics, and appliances they will buy housing and a host of non tradable services, too.

Many of these jobs will be in the domestic, urban, non tradable service sector.

If exports are to grow substantially, the scope of the tradable sector must expand.

Particularly in the US, employment generation has been disproportionately in the non tradable sector.

In an open economy, deleveraging does not necessarily impair the tradable sector so thoroughly.

This will mean more investment in tradable industries, more employment overall, and faster growth.

On the technology side, labor saving innovations in network based information processing and transactions automation have helped to drive a wedge between growth and employment generation in both the tradable and non tradable sectors.

The main point is that restoring growth requires a careful analysis of structural balance, attention to demand constraints in the non tradable sector, and a focus on the impediments to expanding the tradable sector.

Non tradable activities are akin to a country s sports leagues different people like different teams.

In the economy s tradable sector, comparative advantage always shifts, causing structural change and creative destruction.

The tradable sector is expanding and is not dependent on leverage to generate aggregate demand.

The so called emissions trading system aims to control carbon emissions by allocating tradable permits.

But, given adverse trends in the tradable sector and the non tradable sector s exhaustion as a source of job creation, a more likely scenario is that unemployment remains stubbornly high, despite a return of normal growth.

Prices

The non tradable side of any advanced economy is large (roughly two thirds of total activity).

High value added, higher paying jobs, especially in the tradable sector, generally require highly educated people.

Consumer prices

Bargain prices.

Food prices are soaring. Oil prices are at historic highs.

Competitive currencies promote and protect modern tradable industries that employ a substantial share of the labor force.

Jobs are moving from construction (and related occupations) into tradable goods and services production (and related occupations).

Housing prices peaked in 2006, and equity prices peaked in 2007.

Shortages of natural gas increased fertilizer prices, pushing up food prices.