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Sorry if this post doesn't do justice to a complicated issue, but to summarize somewhat imprecisely: The monetary system we now have creates perverse incentive

by wissler 14y ago

Sorry if this post doesn't do justice to a complicated issue, but to summarize somewhat imprecisely: The monetary system we now have creates perverse incentives. If people save, then it means they save money, which means that nothing happens. If they spend, then that causes economic activity. Under a proper monetary system, saving would be of something of value -- saving would be of wealth, ergo economic activity would be required in order to save. But under our perverse setup, "saving" just means flipping some bits in a computer.

jeffdavis 14y ago
Hmm... I guess that's the difference between saving and investment, although it's a somewhat fine line. I would think that foregoing consumption (i.e. saving) would make it easier for someone else to borrow that money and do something more productive with it. But perhaps that's not necessarily true. Anyway, complex issue, and I don't expect to understand it by the end of this thread.
- wissler 14y ago
  No, I don't think it is the difference between savings and investment because the dichotomy itself is an arbitrary artifact of the monetary regime. Saving should mean things like "saving grain for the next season". That's a real thing that one can use in the future. There are higher-order savings as well, such as futures. Under our arbitrary centralized monetary dictatorship, one that is coercively foisted upon us against our will (whether you agree with it or not is beside the point -- you can't opt out if you wanted to), if everyone "saves," then nothing happens. Economic activity halts. But if savings is in things of value, then to save must mean to cause economic activity.
malandrew 14y ago
Saying that we can either save or consume is a false dichotomy that suggests that a balance of the two isn't possible. The problem with the current system that promotes consumption beyond our income levels is that in the medium to long term it ties up more and more of the money being exchanged as money rent (e.g. interest rates on loans, credit cards, mortgages, etc.) for many people. If you keep spending beyond your income you eventually reach the point where you know longer have disposable income because you're servicing mainly interest. I've been in such a situation myself and know many other people who have also been in a similar situation. The problem with more and more money being tied up in financial services is that financial services are far less efficient as properly allocating capital than consumers buying what they want. One million consumers spending $1 each will better distribute a million dollars than one investment banker. The only time an investor can better allocate money is when there is demand, but there are structural reasons why a return on investment will not be seen for a long time, due to time spent on "ramp-up" activities such as construction or R&D. However even with these activities, we're now seeing a shift with financing models like kickstarter that turn the debt model on end. Kickstarter permits consumers to allocate capital more efficiently than an investor for goods and services that require up front cash. The ideal situation for individuals and the economy in the medium to long term is to spend exactly what you earn, no more and no less. This won't produce the best short term results, but also won't result in short-term hangovers later. We waste so much potential and productivity yo-yoing back and forth between periods of under capacity and overcapacity.

by wissler 14y ago

jeffdavis 14y ago

Hmm... I guess that's the difference between saving and investment, although it's a somewhat fine line. I would think that foregoing consumption (i.e. saving) would make it easier for someone else to borrow that money and do something more productive with it. But perhaps that's not necessarily true. Anyway, complex issue, and I don't expect to understand it by the end of this thread.

wissler 14y ago
No, I don't think it is the difference between savings and investment because the dichotomy itself is an arbitrary artifact of the monetary regime. Saving should mean things like "saving grain for the next season". That's a real thing that one can use in the future. There are higher-order savings as well, such as futures. Under our arbitrary centralized monetary dictatorship, one that is coercively foisted upon us against our will (whether you agree with it or not is beside the point -- you can't opt out if you wanted to), if everyone "saves," then nothing happens. Economic activity halts. But if savings is in things of value, then to save must mean to cause economic activity.

malandrew 14y ago

Saying that we can either save or consume is a false dichotomy that suggests that a balance of the two isn't possible. The problem with the current system that promotes consumption beyond our income levels is that in the medium to long term it ties up more and more of the money being exchanged as money rent (e.g. interest rates on loans, credit cards, mortgages, etc.) for many people. If you keep spending beyond your income you eventually reach the point where you know longer have disposable income because you're servicing mainly interest. I've been in such a situation myself and know many other people who have also been in a similar situation. The problem with more and more money being tied up in financial services is that financial services are far less efficient as properly allocating capital than consumers buying what they want. One million consumers spending $1 each will better distribute a million dollars than one investment banker. The only time an investor can better allocate money is when there is demand, but there are structural reasons why a return on investment will not be seen for a long time, due to time spent on "ramp-up" activities such as construction or R&D. However even with these activities, we're now seeing a shift with financing models like kickstarter that turn the debt model on end. Kickstarter permits consumers to allocate capital more efficiently than an investor for goods and services that require up front cash. The ideal situation for individuals and the economy in the medium to long term is to spend exactly what you earn, no more and no less. This won't produce the best short term results, but also won't result in short-term hangovers later. We waste so much potential and productivity yo-yoing back and forth between periods of under capacity and overcapacity.