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Thanks for the added insight, but....
I still can't figure out why future productivity growth, or an economic
expansion, needs the extra money creation to work better at making new
innovations? Why should a piece of paper, an IOU backed by the
government, have anything to do with bringing new idea's to market? The
money is only a convenient way to transfer some sort of implied value
from one person's hands into another person's hands. It just makes it
easier for the inventor to create or consume whatever it is needed to
create their new masterpiece. If the inventor still needs a partner to
try out or perfect a new idea, he or she still needs to convince
someone, maybe a banker, to provide the needed funding.
If prior increases in productivity add value to the nation's pile of
stuff and you don't inflate the money supply, then I think all that
happens is the value of the dollar would go up. It represents the
output, or more of the stuff, made by a nation's innovators and, I
think, can only be valued in the currency of that nation's producers.
It seems to me that the only thing that would change is the amount of
money needed to fuel the new ideas. Since the value of the dollar goes
up, and no inflation of the money supply, I would need fewer dollars to
fund my idea. I still need to compete with everyone else's ideas for
getting my funding.
I know this is simplistic, but isn't this kind of intuitive? Am I still
wrong about this?
Dan
hostmaster wrote:
>
> Friedman's is exactly the model I have in mind. To some extent we do
> see productivity gains "passed along" to the consumer. Market forces
> however do come into play and without an expansion of money supply in
> accordance with productivity gains we experience a choking off of
> capital available for growth (of both inovation and production) as
> more and more successes (that have created and benfited from the
> productivity gains) compete for the same limited capital pool for
> their own growth.
>
> The federal reserve bank in San Francisco used to have a game in their
> lobby (I don't know if they still do) where the visitor could adjust
> knobs for interest rates, money supply, and taxes and then watch the
> effect on the economy in terms of inflation and productivity. Their
> algorithm included lag time from the time of change until the effects
> rippled thru the economy and reflected the ripples thru the feedback
> loops. It was quite a challanging game to maintain growth and avoid
> collapse while fiddling with the knobs. Only very slight tweaks used
> sparingly from time to time (like flying a helicopter) were ultimately
> successful.
>
> Boater805
>
> At 06:32 AM 5/18/2008, you wrote:
>
>> This is an interesting discussion and one in which I'd like to join with
>> my take.
>>
>> Milton Friedman stated that inflation is and always will be nothing more
>> than a monetary phenomenon. I believe that this makes a lot of sense.
>> It hearkens back to the simplicity of the barter system of trade.
>>
>> You bring up an important point, namely, that productivity gains can
>> offset inflationary growth in the monetary base. I believe this makes
>> sense also. If we can produce more stuff with fewer resources, then the
>> price of that stuff should come down relative to everything else.
>> Right? If we increase the money supply by the same amount, give or take
>> a bit, then I would think that price reductions from productivity
>> improvements would be erased. Perhaps remaining about the same as it
>> were before the inflation of the money supply. So, why is that maneuver
>> by central bankers necessary at all? Why can't consumers just keep the
>> benefits derived from these productivity improvements and passed along
>> to the masses, creating a higher standard of living for all?
>>
>> What am I missing?
>>
>> Just my thoughts.
>>
>> Dan
>>
>> hostmaster wrote:
>> >
>> > Ira's post in thinly veiled nonsense. Yes, the Saudi's still have
>> > almost 2 million bbl/day reserve output available. However, the
>> > Saudis CORRECTLY point out that an increase in production by them
>> > would not have any material effect on the markets. The markets
>> > themself are setting the price largely due to speculation in futures
>> > trading (the sort of thing this list is really supposed to be about
>> > but that Ira's article totally ignored to comment upon). A look at
>> > the price fluctuations compared to net changes in inventories shows
>> > they are decoupled and therefore therefore we can conclude price is
>> > not currently linked to supply/demand. In fact the net inventory
>> > changes in crude oil (both in the US and globally) show that prices
>> > are rising while inventories are rising. Rising inventories indicate
>> > a declining demand (or at least demand in excess of supply). Either
>> > way one wishes to interpret it the conclusion is that price is
>> > decoupled from supply and demand and an increase in supply would
>> > merely increase inventories without moderating prices.
>> >
>> > Likewise, Ira's rant goes on about inflation and interest rates and
>> > money supply expansion without discussing productivity. While I won't
>> > attempt to argue that productivity gains completely offset some of the
>> > money growth supply factors, the fact Ira completely ignores that part
>> > of the equation again exposes his tirade for what it is (as opposed to
>> > any kind of sound financial analysis). I have been a member of this
>> > list long enough to know that Ira is not a fool nor unaware of these
>> > counterbalancing economic factors. Therefore I can only conclude his
>> > article was authored deliberately in a way to justify a viewpoint
>> > rather than to provide a financial analysis of any kind. That's just
>> > my opinion but if you go back and reread his tripe in detail I think
>> > you will find it funny instead of freightening.
>> >
>> > Boater805
>> >
>> > At 11:55 AM 5/17/2008, you wrote:
>> >
>> >> First of all, I seriously doubt if the Saudi's can raise output. I
>> >> strongly suspect they are at full production now.
>> >>
>> >> As to filling up the reserves, Bush is hell bent to keep the reserves
>> >> up rather than use them for a short term solution to high prices. (A
>> >> solution which would do little to help the price problem anyway).
>> >>
>> >> Ira's post offers some sobering thoughts but what would happen if oil
>> >> came down? What if it came down to $80? And if we stopped promoting
>> >> the insane idea of bio fuels driving up food prices? If grain came
>> >> down 50% and meat 30%? Then what would the consumer situation look
>> >> like? Science fiction? I don't think so. I think the whole ethanol
>> >> craze is being seen for just what it is, crazy. A fuel that costs
>> >> more to make, pollutes worse than fossil fuels, and drives food
>> >> through the roof is certainly not the answer. Atomic energy and
>> >> hydrogen fuel cells are where I'm putting my energy dollars from this
>> >> point forward. Solar and wind will be minor players, especially for
>> >> home use but they do little or nothing for transportation and large,
>> >> commercial purposes.
>> >>
>> >> So, a lot of the problems can be solved by simply forgetting about
>> >> ethanol and I feel there is a large amount of speculation in oil
>> >> now. We moved from 100 to 125 in days but demand most certainly
>> >> didn't increase by 25% in days. Who knows, maybe things will work
>> >> out after all.
>> >>
>> >> Bob
>> >>
>> >> At 01:46 PM 5/17/2008, you wrote:
>> >> >And strangly Mr.Bush justifies Saudi for not raising oil outputs,not
>> >> >only that he was not in a favour of stopping filling oil reserve
>> >> >near Gulf of Mexico...very strange attitude and this has been
>> >> >discussed among all leading newpapers round the world.
>> >> >--- In realtraders@xxxxxxxxxxxxxxx
>> <mailto:realtraders%40yahoogroups.com>
>> >> < mailto:realtraders%40yahoogroups.com
>> <mailto:realtraders@xxxxxxxxxxxxxxx>>, "Ira" <mr.ira@xxx> wrote:
>> >> > >
>> >> > > It is time to take a good look at where we are at this time. In
>> >> >the first quarter of this year more than 158,000 families lost their
>> >> >homes to foreclosure. The American public is going deeper in debt
>> >> >every day. In a society where 70% of the economy is driven by
>> >> >consumer spending, inflation and debt are economy killers. Millions
>> >> >of people have homes that are worth less than the mortgage amount on
>> >> >their home. When they look at the economics of the situation will
>> >> >they pay the inflated mortgage payments or walk away from the
>> >> >house? Family homes were the main source of their wealth and now
>> >> >with that gone they have no place to go for that extra money they
>> >> >need to pay the ever-increasing cost of living. Duke Power said
>> >> >that they are cutting off utilities to 50 people a day because of
>> >> >unpaid utility bills. Whether the government wants to admit it or
>> >> >not we are in a recession. We are also in an inflationary spiral
>> >> >that won't quit. The government is pumping liquidity into the
>> >> >system at an alarming rate to save the financial institutions that
>> >> >created a large portion of the problem.
>> >> > >
>> >> > >
>> >> > >
>> >> > > The balance of the article is on the web site if you are
>> >> >interested.
>> >> > >
>> >> > >
>> >> > >
>> >> > > Just one man's opinion.
>> >> > >
>> >> > > Ira
>> >> > > www.delta100.com <http://www.delta100.com/> <
>> http://www.delta100.com/ <http://www.delta100.com/>>
>> >> > >
>> >> > > No virus found in this outgoing message
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>> >> > > http://www.pctools.com/free-antivirus/
>> <http://www.pctools.com/free-antivirus/>
>> >> < http://www.pctools.com/free-antivirus/
>> <http://www.pctools.com/free-antivirus/>>
>> >> > >
>> >> >
>> >> >
>> >> >
>> >> >------------------------------------
>> >> >
>> >> >Yahoo! Groups Links
>> >> >
>> >> >
>> >> >
>> >>
>> >> No virus found in this incoming message.
>> >> Checked by AVG.
>> >> Version: 8.0.100 / Virus Database: 269.23.20/1452 - Release Date:
>> >> 5/17/2008 6:26 PM
>> >
>>
>>
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>> 5/18/2008 9:31 AM
>
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