Production drives long term growth.
Consumption drives short term growth.
The Congressional bailout was designed to short circuit the liquidity trap thats manifested in US Banking by stimulating short term consumption. This was the correct treatment, as we are in a liquidity trap and direct stimulus to consumers is whats prescribed.
As far as supply-side growth. Revolutionary inventions or process improvements slash production costs while maintaining profit margins.
Consider a pencil maker. Pencils cost 50 cents to make and sold for 1$.
A breakthrough in pencil construction reduces manufacturing cost by 50%.
The pencil now costs 25 cents to make and is sold for 75 cents.
Profit margin stays the same, cost goes down.
This is how economic growth arises through supply side innovation.
Consumers, although earning commensurate income, have more money to spend on pencils via price deflation. That excess income is spent on more pencils (or cars, or vacations) than before and the economy expands.
That economic growth lay in unlocking the dormant cost of production that was otherwise 'wasted' in the process of creating the product --- and "giving" it to the consumer.
All historical booms resulted from a revolutionary supply-side innovation - steam engine, car, assembly line, appliances, computer etc.
Supply-side growth is incremental and inches along, everyday.
But only during times of revolutionary innovation does its effect result in a massive deflationary BOOM that is the Holy Grail of economic growth.
The 2001-2007 Bull Market was largely the result of a massive credit expansion and not any appreciable supply-side breakthrough. Credit gluts give birth to unsustainable Bull Markets and we're witnessing the faltering of one right now.
Many argue that overseas outsourcing was the supply side driver to this recent bull run.
To an extent, they're right. In the short term, outsourcing suppressed prices low enough to finance the Iraq War and half trillion dollar budget deficits -- at a palatable 6-10% inflation.
Long term, the economic health and wages of this country are being exported, piece-by-piece.
Factories that used to pay US workers 200$ to make a widget now pay a Chinese laborer 40$, sell it for less and still make bank. The fatter margin goes to shareholders and American wages are decimated.
Hydroblunt has explained this well before.
Americas economy depends on wage earners (spending). By eroding wages at home by exporting jobs abroad, the economic base that drives this country is rapidly chipped away and sold to foreign powers that are building their own Empire with the toil of our people.
Of course this is horrible policy, but driven by Corporate America and sold to an ignorant sheep class who couldn't tell you which way the wind blows on any given day.
The credit situation is the bread and circus meant to distract us while our economy is raped & pillaged.
The powers that be have decided to blow out America. Sink the Titanic, as it were. Until we take back the controls, hoping for an economic Renaissance won't save us.
Consumption drives short term growth.
The Congressional bailout was designed to short circuit the liquidity trap thats manifested in US Banking by stimulating short term consumption. This was the correct treatment, as we are in a liquidity trap and direct stimulus to consumers is whats prescribed.
As far as supply-side growth. Revolutionary inventions or process improvements slash production costs while maintaining profit margins.
Consider a pencil maker. Pencils cost 50 cents to make and sold for 1$.
A breakthrough in pencil construction reduces manufacturing cost by 50%.
The pencil now costs 25 cents to make and is sold for 75 cents.
Profit margin stays the same, cost goes down.
This is how economic growth arises through supply side innovation.
Consumers, although earning commensurate income, have more money to spend on pencils via price deflation. That excess income is spent on more pencils (or cars, or vacations) than before and the economy expands.
That economic growth lay in unlocking the dormant cost of production that was otherwise 'wasted' in the process of creating the product --- and "giving" it to the consumer.
All historical booms resulted from a revolutionary supply-side innovation - steam engine, car, assembly line, appliances, computer etc.
Supply-side growth is incremental and inches along, everyday.
But only during times of revolutionary innovation does its effect result in a massive deflationary BOOM that is the Holy Grail of economic growth.
The 2001-2007 Bull Market was largely the result of a massive credit expansion and not any appreciable supply-side breakthrough. Credit gluts give birth to unsustainable Bull Markets and we're witnessing the faltering of one right now.
Many argue that overseas outsourcing was the supply side driver to this recent bull run.
To an extent, they're right. In the short term, outsourcing suppressed prices low enough to finance the Iraq War and half trillion dollar budget deficits -- at a palatable 6-10% inflation.
Long term, the economic health and wages of this country are being exported, piece-by-piece.
Factories that used to pay US workers 200$ to make a widget now pay a Chinese laborer 40$, sell it for less and still make bank. The fatter margin goes to shareholders and American wages are decimated.
Hydroblunt has explained this well before.
Americas economy depends on wage earners (spending). By eroding wages at home by exporting jobs abroad, the economic base that drives this country is rapidly chipped away and sold to foreign powers that are building their own Empire with the toil of our people.
Of course this is horrible policy, but driven by Corporate America and sold to an ignorant sheep class who couldn't tell you which way the wind blows on any given day.
The credit situation is the bread and circus meant to distract us while our economy is raped & pillaged.
The powers that be have decided to blow out America. Sink the Titanic, as it were. Until we take back the controls, hoping for an economic Renaissance won't save us.