Re: how to compare living standards

On Tue, 14 Mar 2006 15:01:41 -0600, "Jim Blair" <jeb@xxxxxxxx> wrote:

"William F Hummel" <wfhummel@xxxxxxxxxxx> wrote in message

On Mon, 13 Mar 2006 11:48:45 -0600, "Jim Blair" <jeb@xxxxxxxx> wrote:

"William F Hummel" <wfhummel@xxxxxxxxxxx> wrote in message

"Investing" in the sense of buying stocks in the secondary market is
merely trading, not investing. Only the purchase of new issues can be
thought of as investing, although those funds often go to paying down
debt, buying other companies, or issuing bonuses to employees rather
than adding to the productive capacity -- which is what investing
really means.

But people buy stock in the first place because there is a market where
they are bought and sold.

Yes, there generally has to be a market. Your point is?

That a "secondary market" supports a primary market. When people put money
into a mutual fund (stock, bond, or "growth") they are both "saving" and
"investing" even if the dollars they put in are not delivered directly to companies and
used as capital.

The secondary market is basically a gambler's market. It supports the
primary market only by creating liquidity in company shares. There
would be little interest in purchasing new shares of a company unless
there were a market to subsequently trade those shares.

If everyone were to spend those dollars on consumption instead, less capital
would be available.

Spending on shares in the secondary market is not what we mean by
aggregate investing. As just noted, the role of the secondary market
is to provide the liquidity necessary for the sale of new shares.

Do you say that the "capital market" does NOT supply capital?

No, where did you get that idea?

I thought that is what you are claiming when you say above "buying stocks in
the secondary market is merely trading, not investing".

Yes, that's what I said. It is merely trading, not investing in the
economy as a whole.

Are Americans currently spending too little of their income and saving
too much?

I really don't know.

So do you disagree with Tony's claim that:

"As a nation, we do not save enough, period. ....To save more we need to
spend less."?

Tony's statement has definitional problems. "Saving" really means
increasing productive capacity, not abstinence from spending.
Spending can be either on productive capacity or on consumption.
Whether we have an imbalance between the two is not at all clear. Our
economic output almost always runs well below its capacity, not for
lack of financial capital but for lack of aggregate demand. That's
why economic performance is basically a demand-side, not a supply-side
problem. Recessions are always associated with inadequate demand.

But Reagan didn't win the Cold War.

He sure tried to.

... He wasted billions on things like
Star Wars and a 600 ship navy. The Soviets didn't capitulate because
they were out-gunned. The Cold War ended when corruption and utter
economic failure could no longer be hidden from the Russians
themselves. Credit Gorbachev with the major credit in bringing down
the empire.

So instead of wasting money on a military buildup and SDI we should have
disarmed and spent that money on domestic problems and tax cuts?
Because they were destined by History to collapse in 1989 no matter what we
did?

Do you really think the only alternative to a military build up is to
disarm? With several thousand nuclear warheads and missiles to launch
them, there was no need to spend all that money on such foolish
programs as SDI and a 600 ship navy. The Soviet system was rotten to
the core and would have collapsed regardless. Imagine how much better
the US economy would have performed if that money had been spent on
infrastructure (roads, bridges, waterways, rails, air traffic control,
etc).

The federal deficits between 1990 and 9/11/2001 have no such excuse.

Yes ,like read my lips "No new taxes" until the Democrats finally
forced a little budgetary sanity on the Republicans.

Bush 41 made a mistake and it resulted in a recession and cost him the
election. I think the outcome would have been different if he had resisted
the Democrats, stuck by his campaign pledge, and made the issue in the 1990
congressional election "To reduce the deficit by cutting spending vote GOP;
to cut it by increasing taxes, vote Democratic". I say the GOP would have
taken over the Congress years earlier than they did. (for better or
worse).

The recession in 1990 may have cost Bush the election, but that
recession was not caused by anything Bush had done. An important
factor was that the country was tired of 12 years of super high budget
deficits. During the eight Reagan years, the average deficit was 167
billion. During the four Bush years, the budget deficits were 152,
221, 269, and 290 billion, respectively, and all in spite of the
strong economic growth for most of the period after 1982.

Compare that with the eight Clinton years, in which the average budget
deficit was 40 billion. Dubya inherited a 127 billion surplus in
1991, and by 2004 was had run it into a deficit of 521 billion.

I agree that private companies can also waste money and make poor
investments. But they don't do that on the same scale as the federal
government.

Private companies have provided many horrible examples.

What private company pays employees to not work for generations, like the
Ag Dept pays farmers to not grow crops? Or to grow things that no one wants
to buy?

That's not an example of government bureaucratic waste. It's
Congressional legislation.

When evaluating the efficiency of government or private spending, it is not
only (or even mostly) "bureaucratic waste" but the "efficient implementation
of a wasteful policy".

No, the efficiency of government is measured in the productivity of
its employees and managers, most of whom report directly or indirectly
to the President. The decisions of Congress on spending and pork are
an entirely separate matter when comparing government efficiency with
that of the private sector.

.

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