Re: how to compare living standards


"Jim Blair" <jeb@xxxxxxxx> wrote

Earlier you said:

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

If you apply the "demand side" view, spending all you have
stimulates demand, and that results in increased production
and investment in capital goods.


The problem with spending all you have, today, is that you may not have
enough to spend _tomorrow_. That's what I'm talking about. What are _you_
talking about?


If "demand drives the economy" why isn't borrowing to spend
on immediate consumption the way to expand the economy?


It is. Straight Keynesian pump-priming. Appropriate at needful moments,
but unwise as a permanent policy.


You also said:

Shifting some of our saving out of the
"Social Security Trust Fund" and into "IRA"s
does nothing to ameliorate that problem.

To which I ask: is money deducted from your paycheck for FICA
money "saved"? Or is it spent immediately?


We've been through this: whether you buy a necktie or a necktie factory,
you are _spending_ money. To build a necktie factory, you "spend" the money
I "saved" and "invested" in your necktie company, to hire bricklayers and
electricians. The fact that you spend it does not negate the fact that I
saved it, or that the factory is an investment.

The factory is a "real" investment, as I understand the term "real" to be
used in economics. The stock certificates you handed me in exchange for my
money are a "financial" investment on my part. Those fancy stock
certificates are, of course, worthless if you happen to be a swindler who
spends the money, not on bricklayers and carpenters, but on whores and
racehorses.

Now, about FICA and IRAs. Both are financial investments. One gets spent
by government, the other gets spent by corporations. Congress or Enron --
ya pays yer money and ya takes yer chances.

But how you divvy up a pot of savings between FICA and IRAs is a separate
question from how big the pot of savings is. I say that nationally, in the
US, it's too small.


Recall that during the dot.com bubble there were lots of
start up firms (OK there were too many)
and lots of venture capital. But after the bubble burst,
the number of start-ups declined sharply, probably to a more
sustainable level. If all that trading did not provide money
for venture capital, why the correlation?


Who are you arguing with here? The way bricklayers and electricians use
their savings to pay programmers and web-site developers to work at nascent
dot.coms is via the financial markets. The money passes through lots of
hands in between, with various financial commitments at every hand-off. Big
computers keep track of who owes what to who. Most of the dot.coms go bust,
but their workers don't have to give back their salaries. The computers
crunch through the wreckage and assign higher balances to some financial
accounts and lower balances to others. But all that happened at the
real-world level is that _some_ programmers and web designers got paid, for
a while, to do work that ultimately proved useless. Those people might as
well have been paid to watch movies the whole time -- except that nobody
could know, in advance, _which_ of them were working on useless stuff.
Meanwhile, some bricklayers and electricians made the right bets, and others
made the wrong ones. The former ended up with higher balances stored next
to their name in those big computers, the latter with lower ones.

It's not clear whether, as a nation, we made out well in the whole deal. We
paid some people to do useless work, but we also paid some to build Google.
We reshuffled some numbers stored in computers, to a large extent
capriciously. Meanwhile, we bought on credit from China, so I guess that
made everything come out all right.

-- TP


.

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