Some people even believe in gods or wear a cowboy hat. Some are even clueless about the Nobel prices. This do not mean they are incompetent or wrong about everything else.
You may say that if a mathematician believes in gods that doesn't make him incompetent in Math, but if a so called "economist" believes in one of the oldest fallacies concerning economics, that's a different scenario, don't you think?
The article fails to mention that the correction in 1920, when millions (yes, millons) of soldiers returned home from a ruined Europe to a transition from war to peace time economy was completely different from the depression in the thirties in both cause and effect.
Err... lots of people coming back, with no jobs or money, wounded and all... shouldn't that make everything even worse?
And by the way, the cause of the 1920 crisis was exactly the monetary expansion done by the Fed during WW1.
Which planet do you live on? Those statements must be based on some political theory. It is certainly not sane economics. Capital accumulation slows economic growth.
What? Wow ... wait... so... buying more machines, training more people, that
slows economic growth??
I don't know what you think capital means, but
capital = means of production. Machinery, plants, tools, even immaterial things like knowledge, all these are capital. The more you have it, the more productive you are. Economic growth = increase in productivity.
Accumulating capital is the only way to sound economic growth. There's no "monetary magic" that, just by the printing of some paper, will create real capital from thin air and make a society richer. It seems you believe in this keynesian illusion.
I'll give you a real world example. My country has about four times the amount of fortune in an international fund as The USA has debt per inhabitant. It is from oil revenue which is saved in good times to keep the national GDP in check, and spent in worse times. We expect it all to be gone in 50 years because of an aging population and empty oil wells, but for now we are rich. When the crisis came in 2008, this country spent a lot of money from the fund to keep people at work and the economy going, and avoided recession. This spending from the fund increased GDP, just as putting money away keeps GDP from growing too much for us to stay competitive with the rest of the world.
I highlighted an important word from your paragraph.
You're talking about Norway, right? The funds of the Norway state are real savings. The Norwegian society produces more than it consumes, the state confiscates it but, instead of doing like most states in the world and burning it immediately, it saves.
That's exactly what I've said before, when I stated that savings is in the beginning of the economic growth chain.
First, you have savings. The more savings available, the easier it is to invest them in the creation of new capital. More capital, more production. More production, more consuming becomes possible and voilà, you have, at the end of the process, a raise in consumption. It was only possible due to the savings in the beginning, otherwise, if everybody consumes exactly what they produce, where will the new capital come from?
Memorize it:
Savings -> Investments -> Capital accumulation -> Increase productivity -> Increase in consumption.
So, when the Norwegian state forces its citizens to save or consume, it is provoking artificial changes in temporal preferences, but, at least, it's not completely illusionary - the savings were real.
But when a state prints money in order to artificially push down the interest rates, all he's doing is manipulating prices. No real savings are created. In this fake prices scenario, people will consume and invest more (since the interest rate is artificially low), and will not be interested in savings... the real savings will eventually dry out, and many long term investments that were started will have to be abandoned because there's not enough resources to complete it.
That's what will happen to the word economy in the near future. And will be strong!
Ah, and regarding spending increasing the GDP... of course, GDP is a measure of spending! That's what it measures, it doesn't measure savings!
Try to explain this to the Japanese. Japan has been troubled by deflation for two decades. Try to explain that this is good for the economy. I doubt you'll find anyone who agree with you. Only ten countries in the world have lower GDP growth than Japan.
As already noted by someone, Japan suffers from intense government interference. The "too big to fail" idea has made the government drain all the resources of its people to sustain big, wealth destroyer companies.
As I have noted earlier -- electronic goods are an exception because they increase productivity by themselves. Modern electronics lead to a productivity increase high enough to pay for the quickly decreasing value of the goods. There are many other examples, which all have the same property.
Well, I was thinking about electronic consume goods, not electronic capital. You claim that under deflation people don't ever spend. So why do people buy HD TVs? Why not wait forever until they get cheaper/better?
And you noted an important thing also: increase in productivity. Just a frozen monetary base won't cause price deflation. Frozen monetary base + economic growth = price deflation. And if the economy is growing, that means new capital is available. As you noted by yourself, these more productive capital compensates the deflation.
1. Save capital.
2. ?
3. Profit!
You don't save capital (if it's "saved", it's not being used as capital at least), you save resources.
And resources saved can be invested to create new capital. With new capital, then, Profit!
Capital will not increase productivity anywhere unless it is invested (which is the same as spent, just with different expectations). I can collect tons of gold in my basement. This will not lead to increased productivity anywhere.
You're confusing capital with resources. Of course capital increases productivity. And first you invest, then you have capital. Tons of gold in your basement is savings, not capital.
I can give it to poor people, who spend it. This leads to increased demand, and inflation, which lead to increased productivity because it is needed to fill the demand.
Here it's clear you're influenced by keynesianism...
So, people go and spend more. And then, magically, from nowhere, productivity increases! Machines fall from the sky, people wake up more skilled, electronic chips spontaneously mutate into faster circuits, just because you distributed money to the spending-poor!
Sorry for the irony, but, seriously now, how do you think productivity increases? Aren't you missing some important steps in this reasoning?
(And sorry all for the huge post...)
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