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Foreign Invaders crisis cost $150B in 2023, forcing some areas to cut police and fire services: report Israel kills head of Hezbollah Intelligence. Status: Not Logged In; Sign In Economy See other Economy Articles Title: The US is living below its “means” Source: billy blog, Alternative Economic Thinking URL Source: http://bilbo.economicoutlook.net/blog/?p=14649 Published: May 28, 2011 Author: Bill Mitchell Post Date: 2011-05-30 23:13:13 by lucysmom Keywords: deficit spending, a little richer, a little poorer Views: 14490 Comments: 28 The US press was awash with claims over the weekend that the US was “living beyond” its “means” and that “will not be viable for a whole lot longer”. One senior US central banker claimed that the way to resolve the sluggish growth was to increase interest rates to ensure people would save. Funny, the same person also wants fiscal policy to contract. Another fiscal contraction expansion zealot. Pity it only kills growth. Another commentator – chose, lazily – to be the mouthpiece for the conservative lobby and wrote a book review that focused on the scary and exploding public debt levels. Apparently, this public debt tells us that the US is living beyond its means. Well, when I look at the data I see around 16 per cent of available labour idle in the US and capacity utilisation rates that are still very low. That tells me that there is a lot of “means” available to be called into production to generate incomes and prosperity. A national government doesn’t really have any “means”. It needs to spend to get hold off the means (production resources). Given the idle labour and low capacity utilisation rates the government in the US is clearly not spending enough. The US is currently living well below its means. But the US government can always buy any “means” that are available for sale in US dollars and if there is insufficient demand for these resources emanating from the non-government sector then the US government can bring those idle “means” into productive use any time it chooses. Spending equals income. Someone has to spend for incomes to exist. For incomes to grow there has to be growth in spending. There are three sources of spending growth in a macroeconomy – the external sector (if net exports are positive); the private domestic sector; and the government sector (if the budget is in deficit). That is indisputable. Economic growth is defined in terms of production and production only occurs if there are goods and services being purchased. Firms do not produce to hold inventory. Firms may invest in response to their guesses about future sales. These guesses will be heavily influenced by current consumer actions. So when you get commentators and high-level monetary officials arguing that growth comes from not spending you have to ask why anyone would listen to their views and why they are paid to express them. I don’t mind bloggers who do it for free saying what they like but when highly-paid and highly-visible express views that are not grounded in any economic theory that is comprehensible but nonetheless seek to influence the policy debate then I get angry. Click for Full Text! Post Comment   Private Reply   Ignore Thread   Top • Page Up • Full Thread • Page Down • Bottom/Latest Begin Trace Mode for Comment # 25. #11. To: lucysmom (#0) I see that the economic illiterates are out in full force today. LOL. jwpegler  posted on  2011-05-31   15:01:58 ET  Reply   Untrace   Trace   Private Reply   #19. To: jwpegler (#11) To: lucysmom I see that the economic illiterates are out in full force today. LOL. No kidding. The article is so poorly written, so utterly devoid of reality, that one wonders how such ignorance can persist... But the fact that she posted it (without a /sarc note) tells me she's hopelessly clueless. A great article, that completely blows her Keynesian propaganda out of the water, is below: Why GDP Calculations Are A Joke Note, in this article the terms: ”fake money”, “debt based fraud”, “funny money”, “debt based money”, and “violently imposed fiat currency” all refer to US Federal Reserve Notes created in an uncollateralized manner. GDP supposedly refers to the market value of all goods and services produced within a country in a given period. It is often considered an indicator of a country’s standard of living. The mainstream media often raves about how great it is when GDP rises, as if this is somehow a legitimate measurement of economically productive growth. GDP as a measure of productive growth becomes patently preposterous when the Federal Reserve artificially induces a credit expansion and the Federal Government is responsible for 40% of a nation’s GDP spending. Let us look at what constitutes the GDP calculation: GDP = private consumption + gross investment + government spending + (exports - imports) The part of this calculation that turns GDP into a flaming joke is the addition of government spending and the fact that it is primarily consumption based. Ask yourself if it makes sense that a production indicating performance measure is based based on consumption. Only in the mind of a self-deluded kleptocrat are the two related. Given that we live under a corrupt violently imposed fiat fractional reserve centrally planned monetary system, we have to take this into account when looking at the value of the GDP calculation. In a hard money free banking system that does not use violently imposed fiat currency or centrally planned interest rates, the spending of money (a real physical commodity that is scarce) necessarily can not occur until man labors to produce money in the first place. Since man needs things to live on before he needs money, first an economy will produce things, then each man will trade the things he produces for other things that he values more. Money as a trade intermediary follows the production of real goods and services, it does not precede it. The effort required to produce the money is what gives the money its intrinsic value, against which all other goods that are swapped for it are measured. If it takes 100 man hours of labor and resources to produce one ounce of gold, then any good that requires an equivalent amount of labor and resources to produce will be worth one ounce of gold. If gold becomes more scarce and difficult to obtain, it will take less and less gold to equate to the value of other products. This tells us that in a sane and rational economy that experiences efficiency increases due to technological advances and population growth, the normal tendency of prices in terms of gold should be deflationary. That is to say, if the cost required to produce gold does not fluctuate much and the supply of gold is conserved, yet the cost to produce other goods such as cars drops dramatically due to robotic technology, the “price” of a car in terms of gold should experience a constant deflation. Thus, less and less gold should equate to the value of a car in the long run. If the productive capacity of an economy expands faster than the supply of gold, all prices in terms of gold will deflate. This is entirely normal and healthy. Anyways, the point I’m getting at here is that the spending of debt based money does not stimulate more production, it can only direct what is produced in an economy. Economies are finite in their productive capacity, which means if someone prints up billions of dollars and spends them into an economy, the economy necessarily can not experience an increase in productive capacity in response to the demand surge for whatever is bought with that money, it is simply going to divert more of its already existing finite production capacity to those areas where demand is greatest. As Michael Pento of Euro Pacific points out: To be able to consume one must first have produced. If you consume without having produced, you are spending either borrowed or printed money. And the money that is being spent isn’t used to purchase capital goods, which can expand the productive output of the economy. Think of a country’s productive capacity in terms of a pie graph, with each slice of the pie constituting a given productive sector of the economy. Shrinking or growing the size of the pie graph would equal a change in productive capacity, while changing what is produced inside of that economy would alter how big each sector’s slice is. The current GDP calculation assumes that an expansion of credit actually grows the size of the pie. As I just demonstrated above, this is entirely fallacious. The most it can do is change how big each sector’s share is by directing production based on how the new money is spent. In other words, if more of the new credit is directed to the purchases of houses, then another sector of the economy must contract by an equal amount in order to meet the demand for housing construction. The only way the pie actually gets bigger is if more people join in the production of things AND the amount of available resources to produce things is expanded OR technology increases the efficiency of those who are already producing. Any time a sector of the the pie changes its share based on demand, unemployment MUST RESULT as physical resources are diverted to a different sector of the economy. Keynesian kleptocrats falsely believe that spending more fake money into an economy can put the “slack” workers to work doing something productive. This is clearly not the case because any spending of fake money into an economy will necessarily divert already existing resources. In the course of diverting those resources, they will cause the loss of already existing jobs. It is a zero sum game. The creation and spending of new debt based fraud does not increase the amount of productive resources available. If a new steel building is constructed and paid for using fake money, the steel used in the production of that building must have been diverted away from the production of fire pokers. Thus, fire poker production will contract and people will get laid off. Unless the kleptocrats can demonstrate how no preexisting resources are diverted by the spending of new money (which is obviously impossible), their claims of putting “slack” workers to work without causing a proportionate loss of other jobs is completely baseless. Even if they decide to put people to work digging ditches with their bare hands, they still run into the same problem of not increasing the productive capacity of the economy by their spending. – and yet GDP would still go up. This concept is critical to understanding why the addition of government spending totally negates GDP as a valuable metric for determining the real value of goods and services produced within a country, and the use of GDP as an indicator of living standards. Since GDP supposedly gives us the market value of all goods and services produced within a country, we have to ask what government causes to be produced with its spending. Given what we know to be true above: -Virtually all military spending causes a direct reduction in living standards. The military is the great waster of resources. It is a black void of doom into which real physical resources are consumed without benefit to humanity. The steel used in a tank did not go into the production of a car. The plastic used in a military computer did not go into the production of a cell phone. The labor used to man a carrier is not being utilized in the production of furniture. If military spending is required to protect existing resources, then the market will obviously work to meet the protection needs of resources holders at an exact level to that which they feel they need protection. Any military spending above this point constitutes gross waste. Obviously it is impossible for our wise overlords to know exactly what that level should be, just as it is impossible for them to know exactly what interest rates should be. Given that government spending is not based on consumer desires, we can extend the claim of gross waste to nearly ALL GOVERNMENT SPENDING. Since the government spends money based on political desires, it necessarily distorts our production pie chart by shifting resources into politically favorable areas of the economy. It will artificially expand production in a politically favorable area to the detriment of other areas that it deems will not provide as many votes. If the government artificially expands the number of colleges and college graduates by flooding those areas of the economy with artificially cheap credit, what resources were diverted in this process and has the inflation of colleges provided a increase in living standards for everyone more than had the market been allowed to manage that sector on its own? The answer should be obvious. In order for the government to spend money, it must first take it from those who produce. Since the government produces NOTHING and has NOTHING of its own to spend, any inclusion of government spending in the GDP of a nation is preposterous on its face. Why should the cost of an aircraft carrier, the cost IRS agent’s gun, or the cost of a politician’s salary be included in a metric that supposedly provides us with a standard of living measurement? Is anyone’s life better off because an IRS agent now has a shotgun with which to blow your head off with? Sure, the shotgun maker might be happy, but the fire poker maker is going to be sad, since he now has to pay a higher price for steel, because the steel was not left on the market for him to purchase. So, are the consumers of fire pokers, or anything else that requires steel, better off than they were previously? No. The entire basis of GDP as a measure of a country’s productive capacity and standard of living is a joke. A country that artificially diverts all of its resources into the production of housing and military hardware will devolve into a basket case. Such a country must necessarily import all of its other consumer goods. And since it is not producing anything of trade value, eventually the sellers of those imported goods are going to reject the funny money and demand real goods in return for real goods, resulting in a total implosion of the unsustainable system. All the while this is going on, the nation’s GDP will look spectacular. Capitalist Eric  posted on  2011-05-31   16:21:43 ET  Reply   Untrace   Trace   Private Reply   #22. To: Capitalist Eric (#19) (Edited) To be able to consume one must first have produced. If you consume without having produced, you are spending either borrowed or printed money. And the money that is being spent isn’t used to purchase capital goods, which can expand the productive output of the economy. This is exactly 100% right. Unfortunately, the economic illiterates on the left are incapable of comprehending this simple truism. That's why we are in so much trouble today. I have two sisters. The youngest one just doesn't get money and never has. As a result, she wound up in terrible debt a few years ago. My view is that she should have been allowed to go bankrupted and learn a lesson as a result. Instead, my other sister negotiated deals with her creditors that cut her debt in half (which is ok). Then my mom wrote the check to pay it off (which is horrible). My mom said she did it for the grandkids. What is my youngest sister doing today? Running up more debt. The government needs to be cut off, right now. No more borrowing, no more debt. Otherwise the politicians and their selfish special interests just won't learn. jwpegler  posted on  2011-06-01   15:49:48 ET  Reply   Untrace   Trace   Private Reply   #23. To: jwpegler (#22) The government needs to be cut off, right now. No more borrowing, no more debt. Otherwise the politicians and their selfish special interests just won't learn. Agreed. And don't worry- it's going to happen, no matter what they do... The bankruptcy of the American government will probably end up being the best thing for Americans, since ~1780. It will forcibly remove the parasites from the productive, and force those who were only too willing to live off the forcibly-collected handouts, to stand (or fall) on their own. Throughout history, families stayed together, worked together, through several generations... The parents took care of the kids, who later took care of the parents in their final years... grandmothers, parents, children and grandchildren, all working together. The LIES of the government- starting with the "New Deal" (more like "raw" deal)- that we can have the government step in and take over the role of the family, when the senior members were at their weakest, is the height of arrogance and stupidity. Amazingly, the dumbed-down sheeple (like lucysmom) still believe this fairy- tale, and will stubbornly cling to it, even as reality sticks a boot up their ass... which will happen, when the financial collapse occurs. The learning curve will be steep and treacherous. Many will die, due to their blind belief in the nanny-state... You and I can continue to post the truth, and they will instead choose to turn on "Survivor" or "Dancing with the Stars," or debate about how their political whore is better than your political whore... They prefer to live in a state of willful ignorance, and would rather die than face the truth. And so they shall.. The saddest part of all of this... is that it doesn't have to end this way. But they'll have no part of any other outcome. Capitalist Eric  posted on  2011-06-01   16:24:30 ET  Reply   Untrace   Trace   Private Reply   #24. To: Capitalist Eric (#23) (Edited) Throughout history, families stayed together, worked together, through several generations... The parents took care of the kids, who later took care of the parents in their final years... grandmothers, parents, children and grandchildren, all working together. You are exactly right. They still do this in many Asian countries, most of which don't have much in the way of government welfare systems. It's not uncommon in Japan, Singapore, the Philippines, etc. to have three generations of people living in one house and extended families working together in one family business. This is the way that America was before the the Regressive Era. You are correct, the politicians have preyed on the most vulnerable in order to gain power for themselves. In the process, they drove up illegitimacy rates, increased divorce rates, and created a kind societal alienation that didn't exist 100 years ago before government really started to stick its nose in our business. It is all about to come collapsing down. The sooner the better. jwpegler  posted on  2011-06-01   16:38:26 ET  Reply   Untrace   Trace   Private Reply   #25. To: jwpegler, Capitalist Eric (#24) They still do this in many Asian countries, So your solution is to tell the grandparents currently living independently on SS to fuck off, and go live with their now adult children and their families just like the third world nations do it? Where maybe one or both of the married off kids are out of work? And they now have to feed the grandparents as well? Good luck with that. You may want America to look like the Philippines but most Americans don't. Godwinson  posted on  2011-06-01   16:47:17 ET  Reply   Untrace   Trace   Private Reply   Replies to Comment # 25. #26. To: Godwinson (#25) (Edited) So your solution is to tell the grandparents currently living independently on SS to fuck off, and go live with their now adult children and their families just like the third world nations do it? No, my solution is for the government to just go away. Then people will find their own path to success and happiness. This is called freedom and self- reliance. It's good for the mind, body, and soul. By the way, Singapore and Japan are NOT third world nations. They are among the nicest places on earth. jwpegler  posted on  2011-06-01 16:54:58 ET  Reply   Untrace   Trace   Private Reply   #28. To: Godwinson, capitalist eric (#25) (Edited) now have to feed the grandparents as well? Your very language is disturbing and demonstrates what's wrong with both America and Europe. Decent people want to take care of the people who brought them into this life and took care of them. Maybe having grandma at home to take care of the kids frees mom up to go have a career and make some money. Or maybe grandpa is bored to death doing nothing, so now he can get a part time job at the Home Depot and feel like a real man again talking about power tools with the guys. Being completely dependent on strangers, especially unscrupulous politicians, is not a life worth living. Working together with your family to move forward is a fundamental part of human nature. 20th century government has taken that away from us. It has to be restored. jwpegler  posted on  2011-06-01 17:02:21 ET  Reply   Untrace   Trace   Private Reply   End Trace Mode for Comment # 25. Top • Page Up • Full Thread • Page Down • Bottom/Latest

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