Re: how to compare living standards


"tonyp" <tonyp@xxxxxxxxxxxxx> wrote in message
news:rN2dnZNU1tbb1b_Z4p2dnA@xxxxxxxxxx

"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.

TP:

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?

Hi,

According to your logic (i.e. "demand side thinking") spending 100% of your
income immediately on consumption would provide the most "effective demand"
and so would most effectively stimulate the economy. And you could continue
to do that for your entire working life--40-50 years.

But how is that consistent with your claim above?

(Of course I agree with your opening claim, but I say that it is not
compatable with demand side thinking. It is a supply side idea)


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.

Why?

I agree that there can be some situations where a less extreme demand side
claim can be made. That is, that a shift from saving/investing to immediate
consumption (not 100% consumption, but "more than now") would improve the
economy.

On an individual level, sure sometimes it is wise to borrow to spend money
now that you don't have. I did that to buy a house and it was one of the
best "investments" I made in my life.

But I still agree with your opening claim as applied to the USA today..


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.

So we see the issue the same way? In the USA today, will that marginal
dollar be better spent by the government or by a mutual fund?
Not "Congress vs Enron" but "Congress vs the weighted average of all US
corporations (stocks and bonds) and city improvement projects (municiple
bonds) and Savings and Loans and whatever else diversified growth mutual
funds invest in".

Again, when those rich (i.e. high imcome) Liberals protested their income
tax cuts, they did so by giving the money they saved in taxes to what they
considered to be a "good cause". A better use of the money. And NONE of
them gave any of it to the US treasury (or at least none that I read of).

Can't you see the irony of that? None thought the government would spend
the money in the best way. Is that any way to protest a tax cut?

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.

There is the size of the pot and also the effectiveness of the way it is
spent.

But FICA transferres money from those who might have spent it or might have
invested it, and gives it to retirees who are much more likely to spend it
immediately than to invest it for long term growrh. I mean when you are
over 65, long term investments don't look as attractive as they did when you
were 40 :-(

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

On this I agree. It is not clear.

But a few big winners can offset a lot of losers. Because losers are
limited to what was invested, but the gains of the winners are essentially
unlimited.



,,,,,,,
_______________ooo___(_O O_)___ooo_______________
(_)
jim blair (jeblair@xxxxxxxx) Madison Wisconsin USA.
This message was brought to you using biodegradable
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