"Our standard of living rises only if our... efforts result in more output for a given number of hours of work."Our standard of living will rise over time as long as we are producing more than we consume.For example, if you were alone in the world with nothing, you could become "wealthy" by building a house, farming, etc. Even if the speed of your building and working the land never changes, your standard of living will rise over time; you'll start with nothing and end with a house and endless supply of wine, cheese, meat and veggies.
“Government has a dismal record when it comes to making productive investments, because the incentives are not properly aligned; the profit motive is missing.”Restated:Politicos through the mechanism of government have a dismal record when it comes to making productive investments, because the incentives are not properly aligned; the profit motive is missing.
Stone Glasgow says:"...if you were alone in the world with nothing, you could become "wealthy" by building a house, farming...your standard of living will rise over time."Yet not of that is true. Things become wealth only because of exchangeability. If no one else is alive on earth, no exchange can happen. Thus, the house, the produce of farming and the like are not wealth.Also, no standard of living can arise because there is no one else for which comparison can happen.The concept of a living standard is a rhetorical one, often used for political purposes. By what measure does one define the standard? Is it the number of joules contained in food and heat a person can gain in exchange?And yet, such a concept exists only to compare one man to another.
Smack says:" Things become wealth only because of exchangeability. If no one else is alive on earth, no exchange can happen. Thus, the house, the produce of farming and the like are not wealth.Also, no standard of living can arise because there is no one else for which comparison can happen."If you are alone the house and wine is still exchangeable, even if no one is there to exchange. It still have the ability to be exchanged. If you are uncomfortable with this terminology, imagine there are two men alone in the world (but it's not necessary).Similarly, a "standard of living" rises in comparison to the man's previous life, with no house, wine or cheese. If this also bothers you, think of two men again, and imagine one of them building a house and the other sleeping on the beach.The other man is not needed, but you can see that even with your complaints, two men create the comparison and the trade that you desire.
"Stimulus" spending is probably not inflationary. It may raise the demand for money because of its temporarily higher "velocity," but should have no real inflationary effect. It simply moves assets from very productive people to others who are probably much less efficient, who will produce something that no one really wants.Fed spending (quantitative easing) is certainly inflationary, and creates misallocation of resources.Bank lending (also a method for creating new currency) is also probably not inflationary, even at reduced interest rates, because each loan effectively trades ownership of a real asset (like a home) for new assets called dollars.Because the process of issuing a bank loan effectively shifts ownership of the house to the dollars, and those new dollars can always be traded for the house used as collateral (by paying off the loan with dollars), the new dollars generated by new bank loans are unlikely to be inflationary.
During this era, we have a novel experiment underway which is unintentional but worth observing. It is the comparison between American "free market" capitalism and Chinese top down management of the Chinese economy with massive government programs for high speed rail, alternative energy, etc.; incentives for other sectors of their economy; and incentives for foreign companies to invest in Chinese companies - with significant restrictions. We also see the Chinese government encouraging Chinese companies to acquire natural resources assets around the world and, indeed, the Chinese government actually paying for the development of rail lines and seaports by Chinese companies in emerging economies so such natural resources can be shipped to China. The Chinese have a global strategy integrated with the perceived needs of the Chinese economy.It is an existential test for the USA in a way that the old USSR never was a challenge to our economic system and the "American Way of Life".
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