PeakTrader.com

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PeakTrader:

Edward, non-productive investment is saving, for whatever reason, including uncertainty. Productive investment requires risk.

I’ve explained before, the creation of capital is the result of efficiencies in production, to produce more output with fewer inputs, which allows the economy to expand, and monetary policy helps smooth-out business cycles, because economic boom/bust cycles (not to be confused with asset booms and busts) are inefficient.

Of course, there are market failures, which should be corrected. Nonetheless, capitalism and monetary policy have improved living standards for the masses tremendously.

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Edward, it works one way. The only way to move from one economic revolution into the next is through efficiencies. It’s a question of how fast the economy is allowed to expand.

WIthout going into detail again, r & g can both rise or both fall (see height of Information Revolution, including the Clinton boom, and the current depression). It should be noted, there’s a positive relationship between return and risk.

And, increased inequality doesn’t necessarily decrease demand or cause a fall in living standards. It can raise living standards (see U.S. compared to Western Europe, including Germany).

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There are many factors that can slow growth, e.g. market failures, inappropriate taxes, spending, and regulations, restrictive monetary policy, contractionary fiscal policy, etc.

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It should be noted, the U.S. not only had a high r at the height of the Information Revolution, from 1982-07, it had a strong per capita real g, even with increasingly larger trade deficits, which subtract from g. Income inequality increased, because a large proportion of the workforce had substantial real income gains, while immigrants from poor countries reduced low-income real wages and raised low-income productivity. Moreover, “the Great Moderation,” from monetary policy, after the long-wave bust cycle from 1973-82, when the Fed inflated the economy to prevent a depression, contributed to a higher r and g. Economic boom/bust cycles, because of periods of strain and slack, are inefficient.

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