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The relationship between Money and Economic Growth
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24-03-2016 9:14pm#1KomradeBishop wrote: »Yea but the real economy isn't a two-person system. The real economy depends on debt, because it has banks and a monetary system built upon debt.
The way this system is run, creates a real and significant burden on household incomes, due to how it depends upon the growth of debt.
Your 'lets assume a two-person economy' is a 'lets assume a tin-opener' statement.
It's silly the way so many people who have studied economics, mistake oversimplified models as representative of reality.
Who do you think owns the banks and receives their profits on interest? People!
And the economy is just a grouping of trillions of two person transactions.
Nobody who supports this perpetual debt system can explain their position. You just say the economy depends on debt because banks depend on debt. We could function perfectly fine without banks creating debt but that would slow down innovation due to lack of capital.
If someone can explain why the real economy cannot grow without debt (even though it has done in the past and continues to do so today) I will accept I'm wrong.0
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Mod Note: Please adhere to the standards of this forum when posting - posters in this forum in general and this thread specifically should be able to back up arguments with academic literature.0 -
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You're right. In the long run, Money is Neutral and, as the Solow model illustrates, improvements in productivity are what drive economic growth in the long term.0 -
I think this is the first time I have ever agreed with kyuss.0
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Actually - and this time I'm using Steve Keen to debunk my point, not to make it - I've had a mistaken view of this, where I've been mixing up the stock of money/debt, and the flow of interest, which this article explains well (albeit in a slightly hard to grok way):Who do you think owns the banks and receives their profits on interest? People!
And the economy is just a grouping of trillions of two person transactions.
Nobody who supports this perpetual debt system can explain their position. You just say the economy depends on debt because banks depend on debt. We could function perfectly fine without banks creating debt but that would slow down innovation due to lack of capital.
If someone can explain why the real economy cannot grow without debt (even though it has done in the past and continues to do so today) I will accept I'm wrong.
http://web.archive.org/web/20150402064537/http://www.forbes.com/sites/stevekeen/2015/03/30/the-principal-and-interest-on-debt-myth-2/
Previously I had missed how the interest on debt can recirculate in the economy, and so I thought it would have a compounding effect on the amount of debt in the overall economy - this is wrong though, since the interest recirculates.
So I'd agree that the economy doesn't have to be based on perpetual debt (which is what the debate is primarily over) - it is still based on debt, insofar as money is sourced from loans/debt, though I'm not sure if your posts disagreed with that.
I do think however, that more complicated factors can make the economy tend towards excessive/compounding debt costs - e.g. banks hoarding rather than recirculating interest, economic conditions making debt servicing more difficult/untenable - but I'd need to think about that a lot more; it's definitely not as simple as how I'd previously viewed it though.0 -
A pity, as this is one of the rare times that Kyuss disagrees with Kyussezra_pound wrote: »I think this is the first time I have ever agreed with kyuss.
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KomradeBishop wrote: »So I'd agree that the economy doesn't have to be based on perpetual debt (which is what the debate is primarily over) - it is still based on debt, insofar as money is sourced from loans/debt, though I'm not sure if your posts disagreed with that.
I do think however, that more complicated factors can make the economy tend towards excessive/compounding debt costs - e.g. banks hoarding rather than recirculating interest, economic conditions making debt servicing more difficult/untenable - but I'd need to think about that a lot more; it's definitely not as simple as how I'd previously viewed it though.
I agree debt can grow the economy, just as a contraction in lending can contract it.
I think a lot of the problems managing debt are social/psychological ones, for example the herd mentality. If all your friends are buying houses then you feel like you should be doing that too. It's the same with bankers. They will engage in more profitable (and therefore riskier) practices if they see their competitors doing the same and will try to keep outperforming each other. People can also be overly optimistic of their future economic prospects more often than not leading to poor decisions (on both sides of a loan).0 -
You're right. In the long run, Money is Neutral and, as the Solow model illustrates, improvements in productivity are what drive economic growth in the long term.
You're imagining a world without debt but with the economic relations which debt allows as your starting point. You're also presuming that all the enterprises which debt has created exist.
For example the first problem is how an industrial middle class can emerge from a feudal agrarian economy, for instance, without debt. Of course Irish cottage industry, like weaving etc. could provide this change, without capital transferring from the upper class it is hard to see how much industry could be formed without debt.
Secondly you seem to presume that in a modern capitalist economy companies like Facebook, Sony, and other big employers, and even many of our SMEs would be around without debt. They just wouldn't. And those that would be created would be a lot more likely to go bust and not exist even if they were started up.0 -
ezra_pound wrote: »You're imagining a world without debt but with the economic relations which debt allows as your starting point. You're also presuming that all the enterprises which debt has created exist.
For example the first problem is how an industrial middle class can emerge from a feudal agrarian economy, for instance, without debt. Of course Irish cottage industry, like weaving etc. could provide this change, without capital transferring from the upper class it is hard to see how much industry could be formed without debt.
Secondly you seem to presume that in a modern capitalist economy companies like Facebook, Sony, and other big employers, and even many of our SMEs would be around without debt. They just wouldn't. And those that would be created would be a lot more likely to go bust and not exist even if they were started up.
Debt has definitely sped up the rate of development over the past 5,000 years (Author David Graeber says it was invented in 3500 BC in Sumer). However, it is not the only form of capital. Equity is also used. It's ironic you mention Facebook because that is a huge enterprise funded almost entirely by private equity from the beginning (>95%) and to this day has very low debt levels compared to its size.
My question is this: Why would we not progress beyond a feudal agrarian economy using equity capital alone? People are always willing to invest in good ideas, especially if they think it will make them better off. I think progress would be much slower because of the lack of leverage which multiplies returns but I still think it would be possible.0 -
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ezra_pound wrote: »You're imagining a world without debt but with the economic relations which debt allows as your starting point. You're also presuming that all the enterprises which debt has created exist.
For example the first problem is how an industrial middle class can emerge from a feudal agrarian economy, for instance, without debt. Of course Irish cottage industry, like weaving etc. could provide this change, without capital transferring from the upper class it is hard to see how much industry could be formed without debt.
Secondly you seem to presume that in a modern capitalist economy companies like Facebook, Sony, and other big employers, and even many of our SMEs would be around without debt. They just wouldn't. And those that would be created would be a lot more likely to go bust and not exist even if they were started up.
My point is a bit more general - it's that if you want to understand the determinants of long run economic growth, then the monetary system only comes into it to the extent that financial innovations are themselves improvements in productivity. My understanding is that the level of debt or the amount of money in the economy doesn't affect long run growth, nor is it the case (as some people, not you claim) that the monetary system would collapse in the absence of economic growth or something along those lines.0 -
I've studied economics, I've never met a professor who believes that debt must increase perpetually to create growth. I agree that debt increases growth, but in the absence of debt the economy will still grow, just not as quickly.
I am not sure about your economics professor but this is not something that you believe in economics. It is a fact. Perhaps this video will be of interest to you as it explains what I said in very simple terms. Then, being an economist yourself, you can shed some light on why it is incorrect and I will have learned something new today? I know many economists who do not and cannot dispute this as it is common knowledge to those that wish to know it.
https://www.youtube.com/watch?v=I_x626joik00 -
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Who do you think owns the banks and receives their profits on interest? People!
And the economy is just a grouping of trillions of two person transactions.
Nobody who supports this perpetual debt system can explain their position. You just say the economy depends on debt because banks depend on debt. We could function perfectly fine without banks creating debt but that would slow down innovation due to lack of capital.
If someone can explain why the real economy cannot grow without debt (even though it has done in the past and continues to do so today) I will accept I'm wrong.
Banks are private institutions. I don't understand why you say the people would beneift?
It is not about supporting it... It is the way it works. Why do you say I cannot explain my position. You have not expained your position but simply deny it.
here, I posted this in the other forum, it explains it as many other people and sources will and can explain it. The question is: do you want to learn it?
https://www.youtube.com/watch?v=I_x626joik00 -
My understanding is that the level of debt or the amount of money in the economy doesn't affect long run growth, nor is it the case (as some people, not you claim) that the monetary system would collapse in the absence of economic growth or something along those lines.
They have a word for when not enough debt is pumped into the system. Recession. When no debt is pumped into the system, then there would be an economic collapse.0 -
They have a word for when not enough debt is pumped into the system. Recession. When no debt is pumped into the system, then there would be an economic collapse.
Recession is in short when the economy stops growing, this is a problem as while the economy gets more efficient and needs less workers, the population doesn't shrink accordingly. e.g. a steel factory needed 50 years ago 5000 workers, today they need 500 and have an output that is 10 times as much. Those 4500 workers need jobs, when the economy is growing, new jobs are created for those people. If they don't get jobs, this will cause the state to spend more for welfare.
Anyway, if the state stops pumping money in the economy this causes the economic growth to dwindle, cause public projects, won't be worked on and no workers are hired. Cause which company will in reality finance a motorway from Galway to Cork? Those 4500 people from above would be really happy to work here. In theory the state in a recession should put money in the system and when the recession is over raise taxes and reduce spending again. In reality, as soon as the state starts raising taxes, the economy, that was bailed out will start to complain that they need the tax breaks and stimuli to keep adding workers.
Also debt is often seen as bad, while in reality you have to differ. What is this debt for and what return of invest will it bring? Scholarships and reduced education fees return the state far more money than invested while the winter Olympics in Socchi are disaster for the state, as all the buildings are now ruins that are rotting away. Short term it might be good but long term it doesn't pay back. Only the friends of Putin profited from it. (cannot think of an example in Ireland)
Also pension funds, like to invest in states as they can be quite sure to get their money back. So if you have a private pension, you might be creditor of the Irish state. If the Irish state would completely eradicate its debt, your pension fund might look for something similar safe, that might not be as safe as we thought, see credit default swaps that played part in the 2008 economic crisis.
@Andrew I think 90% of the GDB is the magical border, after this, in theory the economy suffers as paying back the debt takes too much of the resources.
P.S: And I would always worry about the content of youtube videos that claim to know the truth. Especially as there are several economic theories, backed by economists, that are conflicting.0 -
I think this is something that's only a theoretical possibility though - a bit like most economic models - because you can't actually stop people creating debt at an individual level, all it requires is trust between two people.Debt has definitely sped up the rate of development over the past 5,000 years (Author David Graeber says it was invented in 3500 BC in Sumer). However, it is not the only form of capital. Equity is also used. It's ironic you mention Facebook because that is a huge enterprise funded almost entirely by private equity from the beginning (>95%) and to this day has very low debt levels compared to its size.
My question is this: Why would we not progress beyond a feudal agrarian economy using equity capital alone? People are always willing to invest in good ideas, especially if they think it will make them better off. I think progress would be much slower because of the lack of leverage which multiplies returns but I still think it would be possible.
Ever lend a family member some money, and write down the balance owed? You just created an IOU, a form of debt.
If such a theoretical system no-debt were possible to put into practice, it would likely be plagued with deflationary problems as well - which has severe political repercussions, which would likely reinforce the existing wealth/power of the feudal elite, rather than reduce it.
You haven't explained the form of money which would exist in such a model either - and this is the problem with most economic models:
Arguably it is invalid to model any economy (ones applicable to the real world that is), without first modelling how money works within it (which typically involves modelling an intertwined monetary/banking system).0 -
Depends what the financial innovation is - a lot of 'financial innovations' led to financial instruments, that have/are being used, to loot the productivity of the real economy, for the benefit of the financial economy (such as the instruments used during the housing bubble).My point is a bit more general - it's that if you want to understand the determinants of long run economic growth, then the monetary system only comes into it to the extent that financial innovations are themselves improvements in productivity. My understanding is that the level of debt or the amount of money in the economy doesn't affect long run growth, nor is it the case (as some people, not you claim) that the monetary system would collapse in the absence of economic growth or something along those lines.
The concept of money neutrality to me, seems to be an extremely confused one - it concedes that money is not neutral in the short-run, but then claims that it is neutral in the long run - but the 'long run' is just a sequence of short-run events, and any long-term trend is a consequence of those short-run events.
This is a view Kalecki held: (sourced in link at bottom)In fact, the long run trend is but a slowly changing component of a chain of short run situations; it has no independent entity
Or as Joan Robinson would put it:In the long run, we are in another short run.
Or of course, Keynes (but in full context...):The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.
The idea of long-run money neutrality, seems to be used, to imply that you can model economies without modelling money, banks and debt - but if modelling these is required, to model short-run trends in the economy, it follows that it's required to model long-run trends as well.
So it may be true that there is a long-run trend, but it is driven by short-run dynamics which depend on money non-neutrality - which means money/debt helps drive growth in the short-run, which by-extension long-run growth is attributable to as well - so you can't escape having to model money, the monetary system, banks and debt.
This is one reason why I'm very suspicious of 'in the long run' and 'ceteris paribus' type statements, as usually being misleading. Another good quote, from Kalecki: (in the link, sourced from a peer reviewed journal)In sum, in neoclassical economics the “long run” cannot be a temporal concept. It does not refer to any real world process of evolution or change. Even notional processes are shown to be difficult to conceive. “Long run,” by definition, refers to a situation in which no mistakes are made and all the (theoretically expected) adjustments are achieved. It is not in time, it is not even a secular trend. It is just an aprioristic statement of what the world would look like should the theory be correct (emphasis in the original).
There are good arguments here about this, but it's a bit verbose:
http://bilbo.economicoutlook.net/blog/?p=124730 -
It's a long video though, it's not really fair to expect others to watch it. Better to put the arguments in your own words.Banks are private institutions. I don't understand why you say the people would beneift?
It is not about supporting it... It is the way it works. Why do you say I cannot explain my position. You have not expained your position but simply deny it.
here, I posted this in the other forum, it explains it as many other people and sources will and can explain it. The question is: do you want to learn it?
https://www.youtube.com/watch?v=I_x626joik0
If that video refers to debt being perpetual, due to the interest to be paid on debt, worth looking at my first post in the thread - I used to think the same, but I just realized I was confusing stocks and flows (interest payments on debt are just a 'flow', which the bank returns to the real economy - it's potentially possible for them to hoard this money though, which could bring instability).0 -
Debt has definitely sped up the rate of development over the past 5,000 years (Author David Graeber says it was invented in 3500 BC in Sumer).
Yes, but it has a complicated history. It happened many times, but the general order was, rapid economic growth, and just as rapid economic collapse. And this is why there have been so many historical proscriptions of debt. The form we have now comes from a time where European Jews were the only people allowed to handle debt. Jews were heavily restricted in the fields of employment they could undertake. Jewelry, very literally gets it's name from shops that sold precious metals and minerals, and importantly safely stored them. People would get Jewels or metals by hook or by crook, they would store them at the Jewelry shop, then use the dockets as money.
Debt (or you can call it capitalism...but so many people have such distorted ideas of what capitalism is, you know, like the landlord who cheats his tenants thinks it's an act of capitalism, when it's really just the act of a gobshoit, and in a world without capitalism, he'd still be as much a sneaky gobshoit), it isn't responsible for creating all the things the boosters boost of. It just speeds things up. When the Europeans arrived in the Americas in 1492. The Europeans were not in fact that much more technically advanced than the Americans. And in fact they had a higher standard of living than the Europeans, this being their downfall. They didn't live in cramped filthy conditions like the Europeans, with pigs in the parlor, etc. European diseases wiped them out.
Debt has far more downsides than the boosters let on. Potatoes were quite good to the Irish before the famine. An Irish potato farmer, and their family would do a little digging, plant a crop large enough to feed a family for a year, and have enough to brew and distill for enough poteen to spend a large part of the year drunk, and sleeping the drink off. For a labour to calorie ratio the potato is second to none. Look at the modern Irish, capitalism has freed us from the prison of leisure.0 -
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KomradeBishop wrote: »Depends what the financial innovation is - a lot of 'financial innovations' led to financial instruments, that have/are being used, to loot the productivity of the real economy, for the benefit of the financial economy (such as the instruments used during the housing bubble).
The concept of money neutrality to me, seems to be an extremely confused one - it concedes that money is not neutral in the short-run, but then claims that it is neutral in the long run - but the 'long run' is just a sequence of short-run events, and any long-term trend is a consequence of those short-run events.
This is a view Kalecki held: (sourced in link at bottom)In fact, the long run trend is but a slowly changing component of a chain of short run situations; it has no independent entity
Or as Joan Robinson would put it:In the long run, we are in another short run.
Or of course, Keynes (but in full context...):The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.
The idea of long-run money neutrality, seems to be used, to imply that you can model economies without modelling money, banks and debt - but if modelling these is required, to model short-run trends in the economy, it follows that it's required to model long-run trends as well.
So it may be true that there is a long-run trend, but it is driven by short-run dynamics which depend on money non-neutrality - which means money/debt helps drive growth in the short-run, which by-extension long-run growth is attributable to as well - so you can't escape having to model money, the monetary system, banks and debt.
This is one reason why I'm very suspicious of 'in the long run' and 'ceteris paribus' type statements, as usually being misleading. Another good quote, from Kalecki: (in the link, sourced from a peer reviewed journal)In sum, in neoclassical economics the “long run” cannot be a temporal concept. It does not refer to any real world process of evolution or change. Even notional processes are shown to be difficult to conceive. “Long run,” by definition, refers to a situation in which no mistakes are made and all the (theoretically expected) adjustments are achieved. It is not in time, it is not even a secular trend. It is just an aprioristic statement of what the world would look like should the theory be correct (emphasis in the original).
There are good arguments here about this, but it's a bit verbose:
http://bilbo.economicoutlook.net/blog/?p=12473
The first few quotes you've put there are a bit out of context. They don't dispute the existence of a long and a short run. Rather, their point is that, even if in the long run the economy will find some sort of equilibrium in which everything is grand, we should still try to use fiscal and monetary tools in order to smooth out fluctuations around a long term trend.
I'm not just implying that you can model economies without money - I'm saying that there exist models of Economic growth, which don't include money, which explain well many long term trends which we see in practice, such as conditional convergence (see the Solow Model). And the long run neutrality of money isn't just some sort of theoretical concept - it's an empirical fact: over a 30 year period, there's no relationship between the amount of money in the economy and the rate of economic growth. Quotes from people asserting that the long run doesn't exist don't hold up well against models and evidence which show that it does, and which show that it's a useful concept that can be used to explain lots of phenomena.
Furthermore, it's pretty clear how it is that there can be both a long and a short run: the definition of long and short run is pretty clear and intuitive. In the short run, certain quantities are fixed. Prices, a firm's capital, a firm's technology, a firm's plant and equipment, a person's educational level etc. In the short run, other quantities are not fixed - in particular, for firms, how many people they employ, and for a person, how many hours they work. In the long run, it's simply the case that all of these things are flexible.0 -
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I am not sure about your economics professor but this is not something that you believe in economics. It is a fact. Perhaps this video will be of interest to you as it explains what I said in very simple terms. Then, being an economist yourself, you can shed some light on why it is incorrect and I will have learned something new today? I know many economists who do not and cannot dispute this as it is common knowledge to those that wish to know it.
https://www.youtube.com/watch?v=I_x626joik0
As my post earlier in the thread implies, Youtube videos aren't an acceptable source material on this forum. You should be able to back your argument with academic references.
I'd also note that that that video would take a very long time to both watch and unpack, far longer than would be reasonable. I short, I'd advise that it's very misleading and in many places completely wrong0 -
P.S: And I would always worry about the content of youtube videos that claim to know the truth. Especially as there are several economic theories, backed by economists, that are conflicting.
If you are referring to the video I posted, then you may wish to know that there are multiple sources for monetary theory as explained by that one that will all tell you the same thing.0 -
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As my post earlier in the thread implies, Youtube videos aren't an acceptable source material on this forum. You should be able to back your argument with academic references.
I'd also note that that that video would take a very long time to both watch and unpack, far longer than would be reasonable. I short, I'd advise that it's very misleading and in many places completely wrong
sorry but this is ridiculous, I will see you all later in another thread, enjoy! bye bye0 -
KomradeBishop wrote: »I think this is something that's only a theoretical possibility though - a bit like most economic models - because you can't actually stop people creating debt at an individual level, all it requires is trust between two people.
Ever lend a family member some money, and write down the balance owed? You just created an IOU, a form of debt.
If such a theoretical system no-debt were possible to put into practice, it would likely be plagued with deflationary problems as well - which has severe political repercussions, which would likely reinforce the existing wealth/power of the feudal elite, rather than reduce it.
You haven't explained the form of money which would exist in such a model either - and this is the problem with most economic models:
Arguably it is invalid to model any economy (ones applicable to the real world that is), without first modelling how money works within it (which typically involves modelling an intertwined monetary/banking system).
I would not include debts between family members in this discussion because they are sometimes forgivable and usually don't involve interest, unlike debts between unconnected parties.
A currency could be asset backed such as the gold standard, but I agree it would be plagued with problems, as we have learned from Bretton-Woods.
To be clear, my argument is that growth can exist without debt, whereas the original argument was debt must always be increasing to experience economic growth. The two are linked but it's not a perfect relationship, in my opinion. Overall, I think debt is a good thing for the economy (In terms of growth), however it may not be good for economic equality, which is I think a lot of people's problem with it.0 -
Labarbapostiza wrote: »Debt has far more downsides than the boosters let on. Potatoes were quite good to the Irish before the famine. An Irish potato farmer, and their family would do a little digging, plant a crop large enough to feed a family for a year, and have enough to brew and distill for enough poteen to spend a large part of the year drunk, and sleeping the drink off. For a labour to calorie ratio the potato is second to none. Look at the modern Irish, capitalism has freed us from the prison of leisure.
But the Irish potato farmers standard of living is way lower than the modern Irish person's. He not only has less goods to his name, he has less choice of goods. I can eat practically anything for dinner tonight. He has to live on potatoes forever and hope a blight doesn't come. He doesn't even know what electricity is, I can talk to someone in China over the internet.
I would question whether it really was as easy being a potato farmer in the 17/1800s as you seem to make out, but either way, there is a reason most (if not all) farmers in this country choose not to live a subsistence lifestyle like the one you describe. They must value the extra consumption over the extra leisure time.0 -
To be clear, my argument is that growth can exist without debt, whereas the original argument was debt must always be increasing to experience economic growth.
There's many misunderstandings in economics. One is mistaking changes in GDP as reflecting economic growth. GDP is an indicator. The ECB program of QE, 2 trillion euro, or 4,000 euro from your pocket and mine, the purpose is to raise the GDP indicator as to fool some god or other, by inflating "assets". This will result in a economic growth by the measure of GDP. But if you were to use some other measure, popular before the use of GDP, like gauging economic growth through steel, coal, etc, production figures, the ECB program would not show growth as a result.
Debt needs the growth of debt, or it completely collapses.The two are linked but it's not a perfect relationship, in my opinion. Overall, I think debt is a good thing for the economy (In terms of growth), however it may not be good for economic equality, which is I think a lot of people's problem with it.
If you consider the US, average incomes have never been higher, but the median income is back where it was in the mid 90s.0 -
You haven't shown that the quotes are taken out of context, or that the authors agree with the concept of equilibrium.The first few quotes you've put there are a bit out of context. They don't dispute the existence of a long and a short run. Rather, their point is that, even if in the long run the economy will find some sort of equilibrium in which everything is grand, we should still try to use fiscal and monetary tools in order to smooth out fluctuations around a long term trend.
I'm not just implying that you can model economies without money - I'm saying that there exist models of Economic growth, which don't include money, which explain well many long term trends which we see in practice, such as conditional convergence (see the Solow Model). And the long run neutrality of money isn't just some sort of theoretical concept - it's an empirical fact: over a 30 year period, there's no relationship between the amount of money in the economy and the rate of economic growth. Quotes from people asserting that the long run doesn't exist don't hold up well against models and evidence which show that it does, and which show that it's a useful concept that can be used to explain lots of phenomena.
Furthermore, it's pretty clear how it is that there can be both a long and a short run: the definition of long and short run is pretty clear and intuitive. In the short run, certain quantities are fixed. Prices, a firm's capital, a firm's technology, a firm's plant and equipment, a person's educational level etc. In the short run, other quantities are not fixed - in particular, for firms, how many people they employ, and for a person, how many hours they work. In the long run, it's simply the case that all of these things are flexible.
The quotes definitely do dispute the concept of the long-run. They say nothing to support equilibrium (in fact, many of those economists believe economies can become stuck in states of dis-equilibrium).
I don't get why sometimes people say something is taken out of context, and then don't back that up with either sources or an argument - people said that about the Bank of England document when I first started posting it (claiming banks didn't create money when they make loans), before later conceding that it was correct - it seems like hand-waving away the quotations provided.
The very concept of long run neutrality of money is ill defined, and any long-run trends, can not be separated from the short-run dynamics that the 'long run' is based upon - this is what those authors were saying.
The evidence people use to try and prove long-run neutrality of money, does show a trend, but the very concept of long-run neutrality of money is theoretically flawed enough, that it can't be used as an explanation of that evidence - it doesn't even get that far, conceptually.
The evidence is real, but the idea that the theory of long term money neutrality explains it, is dubious.
Also, consider the real value of debts - inflation reduces and deflation increases the real value of debts - having a real (not nominal) effect on the economy (through the effects of e.g. debt deflation, as well as the effects this can have on peoples lifetime spending); this is contrary to the theory of money neutrality.0 -
Labarbapostiza wrote: »There's many misunderstandings in economics. One is mistaking changes in GDP as reflecting economic growth. GDP is an indicator. The ECB program of QE, 2 trillion euro, or 4,000 euro from your pocket and mine, the purpose is to raise the GDP indicator as to fool some god or other, by inflating "assets". This will result in a economic growth by the measure of GDP. But if you were to use some other measure, popular before the use of GDP, like gauging economic growth through steel, coal, etc, production figures, the ECB program would not show growth as a result.
Debt needs the growth of debt, or it completely collapses.
If you consider the US, average incomes have never been higher, but the median income is back where it was in the mid 90s.
The ECB isn't taking anything from your pockets when they engage in QE. When the ECB engages in QE it purchases bonds from the banks so that the banks can create loans thereby fostering economic growth. When the economy is back to normal the ECB can then sell those bonds again and tighten monetary policy.
Why would we use anything other than GDP/GNP growth to measure economic growth? Why use a proxy statistic to measure something that can be measured directly? If we were to use coal production as a measure of economic growth then the EU would appear to be in a 26 year long recession at least. We use GDP instead because GDP is deemed to be the best measure of GDP growth.
Median household income might be the same now in the US as it was in the mid 90s but median individual incomes have grown a great deal since then as shown in Where has all the Income Gone?0 -
But the Irish potato farmers standard of living is way lower than the modern Irish person's. He not only has less goods to his name, he has less choice of goods. I can eat practically anything for dinner tonight. He has to live on potatoes forever and hope a blight doesn't come. He doesn't even know what electricity is, I can talk to someone in China over the internet.
Advances in technology, are not due to us working longer, than in the agrarian age. Most employment is pointless. It seems as and when technology eliminates jobs, we go out of our way to create non jobs to save us from the void of leisure. We've degenerated as a lot of this employment, especially for the upper-middleclass, consists of nothing more than social grooming; they're like monkeys.I would question whether it really was as easy being a potato farmer in the 17/1800s as you seem to make out, but either way, there is a reason most (if not all) farmers in this country choose not to live a subsistence lifestyle like the one you describe. They must value the extra consumption over the extra leisure time.
I've seen a break down of what they ate. It was high calorie even by today's standards. It wasn't just potatoes, they'd have milk and bits of the pig the Brits didn't want. People in the towns had a much more monotonous diet, less healthy, lower calorie, consisting mostly of bread and tae.
They valued the extra consumption so they abandoned their lives of largely idleness to accumulate more consumables. Me hole, they did.
If you look at the enclosure acts of England. A greater element of their purpose was to force poorer peasants from the land and into the dark satanic mills of the industrial era. Long hours, few holidays, and much poorer diets, made these people several inches smaller than their rural ancestors.0 -
Except QE has failed to push more loans out in significant numbers, and has instead spilled over into asset/commodity prices, increasing the cost of living for people - taking money from their pockets (towards those who can capitalize on the boosted prices) - and causing a massive upward redistribution of wealth.Suryavarman wrote: »The ECB isn't taking anything from your pockets when they engage in QE. When the ECB engages in QE it purchases bonds from the banks so that the banks can create loans thereby fostering economic growth. When the economy is back to normal the ECB can then sell those bonds again and tighten monetary policy.
Why would we use anything other than GDP/GNP growth to measure economic growth? Why use a proxy statistic to measure something that can be measured directly? If we were to use coal production as a measure of economic growth then the EU would appear to be in a 26 year long recession at least. We use GDP instead because GDP is deemed to be the best measure of GDP growth.
Median household income might be the same now in the US as it was in the mid 90s but median individual incomes have grown a great deal since then as shown in Where has all the Income Gone?
GDP growth includes figures of growth from the financial industry - where a lot of the 'income' can derive from non-productive extraction of money from the Real Economy to the Financial Economy - which is not really a good thing to count as 'growth'.0 -
This is something I've heard elsewhere before, and it's an interesting concept, but one thing that I've seen as lacking with it, is are there good examples of jobs like this?Labarbapostiza wrote: »Advances in technology, are not due to us working longer, than in the agrarian age. Most employment is pointless. It seems as and when technology eliminates jobs, we go out of our way to create non jobs to save us from the void of leisure. We've degenerated as a lot of this employment, especially for the upper-middleclass, consists of nothing more than social grooming; they're like monkeys.0 -
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Suryavarman wrote: »The ECB isn't taking anything from your pockets when they engage in QE. When the ECB engages in QE it purchases bonds from the banks so that the banks can create loans thereby fostering economic growth. When the economy is back to normal the ECB can then sell those bonds again and tighten monetary policy.
No, you don't understand how QE works. What the central bank does is borrow the repayment from the future, that's handed to whoever they're buying the bond from. Then as they receive payments on the bond, those payments, the cash, is literally torn up. If they sold the bonds they'd still have to tear up the cash they'd receive
It does work like as if every man, woman and child, has been taxed four grand. But the beauty of the scheme from the perspective of the bastages who dreamt it, is so few people understand how it actually works, and this includes many cretinous politicians, they can get away with it.
And this is something that drives to drink.Why would we use anything other than GDP/GNP growth to measure economic growth? Why use a proxy statistic to measure something that can be measured directly? If we were to use coal production as a measure of economic growth then the EU would appear to be in a 26 year long recession at least. We use GDP instead because GDP is deemed to be the best measure of GDP growth.
The problem with the GDP/GNP indices is they can be gamed, and governments are often under pressure to game them. The old indices still exist. Some governments take them seriously others don't. Which is why England has a million estate agents, and Germany has a strong industrial base.Median household income might be the same now in the US as it was in the mid 90s but median individual incomes have grown a great deal since then as shown in Where has all the Income Gone?
That report is from 2008, using 2006 figures. Needn't I say, we're in a much different world now.0
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