[Dr House]

Now how can that be called "saving"? Just because it adds money to the same side of the bank's balance?

Yes. It represents a store of unused money which becomes available for investment, thus being added to the national savings rate.

Why not fixing growth of monetary supply simply to the demand for higher money supply within the same mechanism?

That would mean essentially allowing the money supply to free-float, with all the problems that entails.

The European Central Bank, just as the German Bundesbank before it, is by law free from any government intervention and set monetary policy on its own within certain parameters.

In theory. In practice, if a central bank doesn't do what the government tells it to, it loses its "independence." Remember, central bank board leaders are generally apointed by the executive branch.

I still do not understand why. We have established that saving is not a necessary condition for credit, as credit can be a function of the growth of the money supply.

We had also established that newly printed money being added to bank balance sheets represents savings, and that adding too much new money is dangerous to the economy.

We have also seen that money is not lost when it isn't saved but spent

Money spent on imports doesn't help the domestic economy, neither does closing the economy off from external trade in all but very big countries. A savings-driven economy is thus optimal.

that the more is spent, producers can finance investments directly without even needing credit.

If it is spent domestically. Again, money spent on imports is wasted from a production perspective.

I'm getting suspicious that your true reason is not an economic, but an ideological one, as you hope to avoid a welfare system by your system of forced saving (which can never provide for people who never had an opportunity to save anything). I certainly don't see the economic sense

I advocate welfare benefits for the working poor (including subsidizing their provident funds), welfare for the disabled and guaranteed work programs for the unemployed. I just have a strong aversion to rewarding the indolent.

I advocate high savings because they have economic benefits. They are to an extent replaceable, but no alternative available can sustain an investment rate as high as a high rate of domestic savings, except for foreign investment which then creates a level of dependency.

Well, as long as income is largely bound to labor, my first aim is to provide jobs. I'm fine with alimenting people by welfare, though, if they are not needed, but in the opinion of most people this seems not to be desirable, so as a good politician I would aim to create as many jobs as I could.

Capital expansion will always create jobs. Expansion of manufacturing services will create more jobs than expansion of retail, as it leads to the expansion of support services for manufacturing and higher retail demand itself. for a developing country focus on labor-intensive manufacturing in order to erase unemployment is smart, but in the long term you wanna look to expand capital intensive manufacturing--which creates better living standards in addition to more jobs.

So, it's all the same as long as the money stays in circulation, right? Because money saved on a bank account stays in circulation; the bank will see to that, and it is in fact the only way that interest can be realized. So if interest, aka GDP growth, can only be realized by circulating money, the method of circulation should not be important -- whether I circulate it myself or the bank does it for me with the money on my savings account, doesn't matter.

Yes, as long as the money is invested. The central theme here is that the rate of investment needs to be as high as possible, as it is investment which creates production, which creates wealth.

The trade balance just has to be, well, balanced, that's all, no? That is, if you can't achieve autarky, see that you export as much as you import.

A positive trade balance can be captured and used to expand production or services even further, and the excess can be invested abroad and create revenue streams at home. Either option creates ever-higher standard of living for your own citizens. Thus the trade balance should be as highly positive as possible.

What does forced saving have to do with the trade balance?

High savings allow for high rates of fixed capital investment, and greater production. They simultaneously curtail consumption for obvious reasons, which means less is imported and more is exported.

Translation, please? You sound like a PowerPoint bullshitting session become flesh.

Leveraged investment is investment done on credit, which requires a certain amount of collateral. If a company invests on credit, it can borrow as far as the debt/cash ratio will allow, which means it can invest significantly more money than it could if it only relied on its operating income to invest. If the debt/cash ratio is 10:1 for example, a company with an operating income of $50 billion a year can borrow half a trillion dollars with its own cash as collateral, which allows it to expand its operation far more than if it only invested from its own income, which means it gets greater economies of scale and can sell cheaper. However, if a company does that (and most do), then interest becomes a hige component of its costs, thus having a savings rate as high as possible (which causes low interest rates) becomes important.

The downside however is that leverage magnifies the risk inherent to investment, which is why I also think debt/cash rations should be limited to 5:1.

Unfortunately, they're necessary, as the law is so complicated (and has to be so complicated in a complicated society).

I realize this. It's my estimation that the law should be simplified, and tort in particular needs to be reined back as it's out of control.

American lawyers seem especially gluttonous, though.

It may have to do with the fact they're American.

[greysnow]

Yes. It represents a store of unused money which becomes available for investment, thus being added to the national savings rate.

I thought money creation by a central bank was normally done through refinancing credit already taken out. That's not saving. Saying that that and genuine saving is the same would be like saying that the money I save and my monthly wages are all the same. They're not. They would show up on the same side of my personal balance, if I could be arsed to draw one up, but one represents a deferral of spending and one represents fresh income. In the case of the bank, even the source for both is not the same, since savings would accrue "from the bottom up", from the bank's customers, and credit refinancing comes "from the top down".

Why not fixing growth of monetary supply simply to the demand for higher money supply within the same mechanism?

That would mean essentially allowing the money supply to free-float, with all the problems that entails.

Probably we misunderstood one another here; I was referring to the normal refinancing mechanism where commercial banks borrow money from the central bank.

In theory. In practice, if a central bank doesn't do what the government tells it to, it loses its "independence." Remember, central bank board leaders are generally apointed by the executive branch.

But central banks in well-governed capitalist states are on a long leash. In Germany, the Bundesbank enjoyed a large degree of legal independence, with government interference next to impossible. It was really quite independent, though tightly bound by law, and it worked well while it existed. The Wikipedia article could be better, but for what it's worth: http://en.wikipedia.org/wiki/Bundesbank.

We had also established that newly printed money being added to bank balance sheets represents savings, and that adding too much new money is dangerous to the economy.

No, we haven't established the former, see above. The latter we agreed on from the start, but it doesn't belong in this argument.

Money spent on imports doesn't help the domestic economy, neither does closing the economy off from external trade in all but very big countries. A savings-driven economy is thus optimal.

So you are moved by nationalist reasons? Well, I'll leave those to the nationalists. But I can imagine one way in which a high savings rate is not ideal. Banks and funds like to reinvest savings in some sectors at the disadvantage of others, and where they're not tempted to line their own pockets (or are blinded by unrealistic yield expectations, as in the current crisis), they tend to be very conservative in risk assessment. A high savings rate does not necessarily benefit small entrepreneurs without much collateral, but a high private consumption rate can. A high savings rate can make conditions worse for start-ups. Also, from the saver's perspective, it's a) an illiberal infraction of property rights (though as a kind of socialist I don't necessarily have a problem with that), and b) if those savings are supposed to replace a scheme of wealth redistribution (like a guaranteed minimal pension or unemployment benefits or the like), this is to me the socialist an unfair, conservative, right-wing move with all the usual problems, i.e. what about those who never could save anything, what about those who lose their job without their fault and are not re-employed because of their age etc.

If it is spent domestically. Again, money spent on imports is wasted from a production perspective.

That fact that you are not exactly a globalist is noted. That doesn't matter, as I am critical of globalization too. But I doubt that the commonalities go much further, as you seem to see trade conflict as a natural, inevitable state of things between nations, am I correct? BTW, what is your opinion about the new leftist Latin American politicians who aim to become economically more independent of the USA by strengthening their own ties? Not favorable, I suppose?

I advocate welfare benefits for the working poor (including subsidizing their provident funds), welfare for the disabled and guaranteed work programs for the unemployed. I just have a strong aversion to rewarding the indolent.

This word "indolent" only ever crops up with people who have been raised in the American sphere of cultural influence. It is a heartless, egoistical word, a word a Dickensian stooge might use to justify his avarice in the face of horrible poverty. They're all just indolent, you know, if they would only work. In my experience, there are such people among the unemployed; I personally used to be one for a time when I was younger; but they are very, very few and far between (and I wouldn't let them starve either just because they are lazy. Laziness is not a capital offense, and I'm against the death penalty anyway). Most unemployed who refuse a certain job do so because it's a shit job, and I won't blame them for that. Besides, there are factually less jobs than there are people looking for work, at a ratio of about 1:10 in Germany, and with further automation this ratio is bound to become still worse. We do have less work to do than we did a century ago. That means we either have to redistribute work so that everyone has a chance to work less and everyone has a chance at a real job (which is often impractical for various reasons), or we simply hand out a sum of money to tide people over until they can find a job (classical welfare), or we institute a guaranteed work program.

You say you would support guaranteed work programs for the unemployed, but those programs either redistribute work from normal jobs, i.e. normal jobs get lost, or they are additional "work", which tends to cost welfare agencies the same or more as welfare, and is often pointless drudgery instituted only for the benefit of making people work for work's sake, and prevent "indolence" in an almost Victorian manner; it is often just a disciplinary measure for those who have committed the crime of being unemployed. The former is what we have got in Germany with the Hartz IV reform, one effect of which has been to aliment low-cost jobs for employers at the expense of the tax-payer, as regular jobs are killed because they can be filled by --often qualified!-- unemployed people at minimal wage (or no wage at all), because the cost of living of those people is still financed by welfare. Now this is not how things should go in my opinion. A further (and, I believe, intended) effect of this has been to put added pressure on labor union negotiations for higher wages.

I advocate high savings because they have economic benefits. They are to an extent replaceable, but no alternative available can sustain an investment rate as high as a high rate of domestic savings, except for foreign investment which then creates a level of dependency.

Yes, the international dependency. I guess I don't see this as so dramatic for a first-world country.

A thought: Doesn't there come a point when high savings just are not reinvested? When the banks have too much money on their hands that is simply not taken out as credit? Interest rates would of course plummet, and because there is so much money removed from consumption, deflation would ensue, no?

Capital expansion will always create jobs.

What? Do you live in a world where automation didn't happen? Welcome to this time stream, extra-dimensional being.

Expansion of manufacturing services will create more jobs than expansion of retail, as it leads to the expansion of support services for manufacturing and higher retail demand itself. for a developing country focus on labor-intensive manufacturing in order to erase unemployment is smart, but in the long term you wanna look to expand capital intensive manufacturing--which creates better living standards in addition to more jobs.

Well, I didn't advocate the intentional expansion of retail, I said that higher consumer demand is good for retail jobs which would be one reason for me to allow high consumer demand. You are in favor of this as well, or how am I to read your quote? You are yourself working with the assumption that the additionally produced goods are also sold and bought, are you not? They are not given away. But for a good to be produced, there has to be a demand for it, and this demand is channeled through the trade sector (retail and wholesale; I include the market for investment goods in this, although it doesn't matter as the only function of investment goods is to produce either better or more consumer goods and services). So I cannot invest in the producing sector more than is needed, because where would all those products go if they are not bought by someone? Employment ultimately rests on higher demand for consumer goods, and I would do best strengthening that.

In the end, your only valid argument for a high savings rate is the nationalist one.

Yes, as long as the money is invested. The central theme here is that the rate of investment needs to be as high as possible, as it is investment which creates production, which creates wealth.

It is demand which creates production, see above.

High savings allow for high rates of fixed capital investment, and greater production. They simultaneously curtail consumption for obvious reasons, which means less is imported and more is exported.

So if every country institutes your policy, exports drop because there is no demand. Your scheme is not universally applicable but rests on the existence of different economic conditions for different countries, it seems.

Leveraged investment is investment done on credit, which requires a certain amount of collateral. If a company invests on credit, it can borrow as far as the debt/cash ratio will allow, which means it can invest significantly more money than it could if it only relied on its operating income to invest. If the debt/cash ratio is 10:1 for example, a company with an operating income of $50 billion a year can borrow half a trillion dollars with its own cash as collateral, which allows it to expand its operation far more than if it only invested from its own income, which means it gets greater economies of scale and can sell cheaper. However, if a company does that (and most do), then interest becomes a hige component of its costs, thus having a savings rate as high as possible (which causes low interest rates) becomes important.

Thank you for the translation, I understand now.

The downside however is that leverage magnifies the risk inherent to investment, which is why I also think debt/cash rations should be limited to 5:1.

You now need to legislate against your own plan?

[Dr House]

I thought money creation by a central bank was normally done through refinancing credit already taken out. That's not saving. Saying that that and genuine saving is the same would be like saying that the money I save and my monthly wages are all the same. They're not. They would show up on the same side of my personal balance, if I could be arsed to draw one up, but one represents a deferral of spending and one represents fresh income. In the case of the bank, even the source for both is not the same, since savings would accrue "from the bottom up", from the bank's customers, and credit refinancing comes "from the top down".

In economics, saving is described as income minus consumption. So if the refinanced capital coming out of the central bank doesn't go into consumer spending, it's savings.

Probably we misunderstood one another here; I was referring to the normal refinancing mechanism where commercial banks borrow money from the central bank.

I understood you perfectly. Again, you're suggesting the status quo, which is that banks borrow from the central bank at whatever rate they see fit, with the danger associated with that.

The latter we agreed on from the start, but it doesn't belong in this argument.

Why wouldn't it? If we agree expanding the money supply too far too fast we can also agree that credit expansion through money supply growth must necessarily be limited by any limits placed on money supply growth. To sustain all its investments domestically, an economy needs a savings rate of at least 30% (economists estimate the fixed capital investment rate needs to be 25% to sustain current goods output).

So you are moved by nationalist reasons? Well, I'll leave those to the nationalists.

I'm moved by nationalism, yes, but even if you're anti-nationalist the role of the domestic government and of economic policy is nevertheless to improve the domestic economy.

I can imagine one way in which a high savings rate is not ideal. Banks and funds like to reinvest savings in some sectors at the disadvantage of others, and where they're not tempted to line their own pockets (or are blinded by unrealistic yield expectations, as in the current crisis), they tend to be very conservative in risk assessment. A high savings rate does not necessarily benefit small entrepreneurs without much collateral, but a high private consumption rate can. A high savings rate can make conditions worse for start-ups.

Very few manufacturing companies are small, and I'm not interested in stimulating retail as the spending multiplier from increased production of goods does that more than well enough. Start-ups, by the way, require large amounts of starting capital and are often leveraged to the hilt. An abundant savings rate thus benefits them.

lso, from the saver's perspective, it's a) an illiberal infraction of property rights

I couldn't care less.

and b) if those savings are supposed to replace a scheme of wealth redistribution (like a guaranteed minimal pension or unemployment benefits or the like), this is to me the socialist an unfair, conservative, right-wing move with all the usual problems, i.e. what about those who never could save anything, what about those who lose their job without their fault and are not re-employed because of their age etc.

As I mentioned, I don't advocate doing away with welfare entirely. If someone is disabled they should absolutely be taken under the state's wing, and if they're too old to work they should already have enough money saved to retire.

By the way, you're not a socialist, you're a social democrat. There's a difference. I'm probably more socialist than you given that I advocate bank nationalization.

That fact that you are not exactly a globalist is noted.

How perceptive of you.

That doesn't matter, as I am critical of globalization too. But I doubt that the commonalities go much further, as you seem to see trade conflict as a natural, inevitable state of things between nations, am I correct?

Conflict is a natural state in any aspect of international relations. Nevertheless, as conflict generally involves protectionism I would rather class it as competition. Free trade with nations at an equal or lesser stage of the value-added chain is quite beneficial.

BTW, what is your opinion about the new leftist Latin American politicians who aim to become economically more independent of the USA by strengthening their own ties? Not favorable, I suppose?

Not very. I would say freeing ourselves from economic dependency to the US is an important goal, but internalizing the economy is not the way to do it.

Yes, the international dependency. I guess I don't see this as so dramatic for a first-world country.

It isn't really, but regardless it means the increasing returns from domestic manufacturing go abroad, which denies the country part of the spending multiplier that comes with return on investment. I believe something like 23% of Australia's GDP is repatriated to other countries.

A thought: Doesn't there come a point when high savings just are not reinvested? When the banks have too much money on their hands that is simply not taken out as credit?

Savings exceeding investment opportunities at home are invested abroad, creating new revenue streams at home.

What? Do you live in a world where automation didn't happen?

Automation creates jobs in machine tools manufacturing, electronics manufacturing, IT, logistics, raw materials extraction... you have any idea how many people it takes to make a robotic arm?

Further, directly replacing shop floor labor with machinery is commonly known as capital deepening rather than capital expansion.

You now need to legislate against your own plan?

Not at all. Even with higher cash requirements companies still benefit enormously from higher availability of credit.

[hip hop bunny hop]

Math, science and technical (engineering, etc.) college degrees should be fully paid for, including room & board. Other college degrees (such as liberal arts) are generally a waste and should only be partially subsidized if at all. Worker retraining as part of welfare is a good idea though.

I'd really, really disagree with you on this. For most people, it's unreasonable to expect that you'll be in the same industry all your life. A diversity of skills which can be applied to multiple industries is the best bet one has of staying employed and being marketable. A Liberal Arts degree provides such diversity.

That being stated, a technical degree can be valuable - however, it's value is greatly increased when paired with a Liberal Arts degree.

[Dr House]

A liberal arts degree provides zero technical skills, and ideally a person should stay in one industry or a few all their life. It maximizes return on human capital investment, as it maximizes the experience and expertise of people in any given field.

[hip hop bunny hop]

It's unrealistic to expect that you can stay in the same industry forever and it's unrealistic to expect that a particular industry won't - at some point in the future - have no need for your particular expertise in that industry.

A diverse set of skills improves your marketability and improves the chance that - somewhere - there is a need for an individual of your talents.

Regarding the notion that a liberal arts degree provides 0 technical skills, that's simply not the case.

[Dr House]

What technical skills do liberal arts majors provide? I don't see any engineers, machinists, chemists, C&N analysts, logistics managers and the like walking around with English degrees.

[Ashoka]

yeah what do those poor sods with the Philosophy degree do with their life? Become Professors?

However, most politicians and lawyers have liberal arts degrees.

[Dr House]

I said technical skills. Unlike youse I don't subscribe to the insane and alarmingly popular belief that an economy consisting exclusively of people sitting behind desks shuffling paper is sustainable.

[Icon]

What technical skills do liberal arts majors provide? I don't see any engineers, machinists, chemists, C&N analysts, logistics managers and the like walking around with English degrees.

Writing?

I suppose this really depends on how we define technical.

[Dr House]

Writing?

Exactly, that's it. Liberal arts prepare a person exceedingly well for pushing paper, but that's not even remotely useful in any sort of production setting. Ergo, to maintain a healthy industrial economy they should be discouraged in favor of more technical fields.

[hip hop bunny hop]

I suppose this really depends on how we define technical.

How about we define it as a particular skill which, when put to use, the market is willing to pay the individual over $30k annually?

As a current student working towards a BA in "American Studies", I've taken courses in:

-film (production & theory)
-marketing
-economics

Those areas of education have some rather obvious applications.

However, the other courses I've taken - such as History, Womens Lit, and Anthropology - have also given me some very nifty skills and refined other skills which I already had, such as writing. It's hard not to improve your writing and rhetorical skills when you spend a few hours a day either a reading or writing about a fictional story. While writing in general may not be a technical skill, I think we can all agree that - after reaching a level of proficiency seldom attained - it does qualify as a technical skill. The same goes for ones reasoning abilities.

I believe so much in this, that I am getting my BA in a liberal arts field in preparation for a Master's in Library and Information Science - which will involve courses in computer science and the like. I am apparently not alone in this, as a newly minted librarian I talked to also opted for a BA in preparation for the masters program.

[Dr House]

Liberal arts do have their economic use, but the problem is that they aren't anywhere near useful enough to justify the sheer number of people taking them--people who take liberal arts because they can't hack a BS and should instead be learning skilled trades, which have been completely abandoned in the US.

[hip hop bunny hop]

I think you have to stop thinking of a liberal arts degree as an end point and view it as a logical extension of the broad education one receives in high school. A modern American life tends to span a good chunk of time and tends to have moments of complexity, and the education granted by liberal arts provides many tools which just may be needed in the future.

I agree that skilled trades are declining, but why not a BA and then learn a skilled trade?

[Figlio di Moros]

Because there's utterly no return on a liberal arts degree; I'd argue that I learned a hell of a lot more about life skills spending four years in the Navy than anybody ever learned from a BA.

[Dr House]

I think you have to stop thinking of a liberal arts degree as an end point and view it as a logical extension of the broad education one receives in high school.

I happen to think the broad education one receives in high school is mostly a waste as well.

American life tends to span a good chunk of time and tends to have moments of complexity, and the education granted by liberal arts provides many tools which just may be needed in the future.

Very few liberal arts degrees prepare you for any economic activity other than pushing paper, which is economically necessary today for the simple reason that the primary driver of economic growth in the west has been the finance sector for the past 30 years. When that overbloated behemoth feeding on American credit card debt shrinks down to size, liberal arts majors are gonna be very screwed.

I agree that skilled trades are declining, but why not a BA and then learn a skilled trade?

Because a BA carries a staggering cost and offers an insignificant return.

[hip hop bunny hop]

Staggering costs? You can get a BA from a state run Colelge in South Dakota for less than $10k. You can get one from a state school in Missouri for less than $20k.

Regarding lack of utility, let's say you learn a skilled trade. You get a job at Titan Wheel. Titan's floor managers tend to be promoted from off the line. It'd be hard to imagine that one of the few guys on the line with a degree wouldn't be given particular consideration when they're looking for a new manager.

[hip hop bunny hop]

Because there's utterly no return on a liberal arts degree; I'd argue that I learned a hell of a lot more about life skills spending four years in the Navy than anybody ever learned from a BA.

I’m willing to bet you took very, very few upper level Liberal Arts classes.

[hannigaholic]

Very few liberal arts degrees prepare you for any economic activity other than pushing paper, which is economically necessary today for the simple reason that the primary driver of economic growth in the west has been the finance sector for the past 30 years. When that overbloated behemoth feeding on American credit card debt shrinks down to size, liberal arts majors are gonna be very screwed.

It depends what you mean by 'pushing paper', and I disagree that financial services are the main drivers of 'pushing paper' anyway. There are plenty of of service sector jobs that require degree-level analytical and argumentation skills. Pretty much all middle management positions ask for a degree, for example. Teaching also requires a degree-level skillset, which arts degrees provide. Research, publishing, government work and remaining in academia all require the sorts of skills imparted by arts degrees.

Just curious, how would you classify degrees such as accounting, business studies, economics ,and law? In the UK it's common for 'arts and social science' tend to get bundled together into a single faculty at universities, so the whole 'liberal arts' distinction is something I'm not used to.

Liberal arts do have their economic use, but the problem is that they aren't anywhere near useful enough to justify the sheer number of people taking them

But I do fully agree with this, and I think it's largely a direct consequence of initiatives (in the UK it's government-led) to get as many people into university as possible, whether they're suited to it or not; and if they're not suited to university to start with, then there's no chance they're going to study engineering or mathematics.

Also there's nowhere near enough focus on tradeskills during regular schooling up to the age of 18. I think I studied one 'technology' course (which included options like art, business studies, and drama) to GCSE level, and none to A-Level. If we're going to have a national curriculum, it should at least include something like plumbing or carpentry as a mandatory subject alongside things like English and the sciences.

[Dr House]

It depends what you mean by 'pushing paper', and I disagree that financial services are the main drivers of 'pushing paper' anyway. There are plenty of of service sector jobs that require degree-level analytical and argumentation skills. Pretty much all middle management positions ask for a degree, for example. Teaching also requires a degree-level skillset, which arts degrees provide. Research, publishing, government work and remaining in academia all require the sorts of skills imparted by arts degrees.

I know that most service-sector jobs require analytical and writing skills, et al. The thing is though that most service industries play support roles, and traditionally the backbone of economic growth has been goods production. Since the late seventies however, in the US and Europe the finance sector has become the primary driver of economic growth due principally to perverse incentives (central banks pumping out monopoly money for them to play with), and now they represent an important source of primary value added to North American and European economies, which is a problem because having no actual goods production to invest on they feed on American consumer debt--a situation which is, of course, unsustainable.

Just curious, how would you classify degrees such as accounting, business studies, economics ,and law?

Economics is a social science, law is a liberal arts degree and I believe business is as well, and accounting is a professional degree.