The Feds Effort Has Done Nothing

[Cache Landing]

Quote from sprstpd:

As a sound national policy, I think you must reward people for responsible financial behavior such as saving money.

Everyone loses with high inflation, especially retirees who are living off social security which is based on faulty government inflation calculations to begin with. The discrepancy between reality and the government's perception of reality will get even worse with high inflation. I have no doubts that the government will make up more ingenious methods to massage the numbers so they don't have to pay what they owe on social security. The retired are going to be slaughtered.

To respond to this I would have to put aside my feelings that g-ment shouldn't really be involved in the economy at all.

But assuming that g-ment should be involved, as a g-ment you should reward people for financial responsibility, but not for hoarding.

Your goal is not for people to save their money, but rather to invest their money in growth. In any case, it is essentially impossible for money to be saved and not invested. The bank will use saved money to invest for their own gain even if you choose not to invest on your own, thus creating inflation unless the reserve requirement is raised to 100%. This results in much slower growth as compared to a country with a lower reserve requirement.

A person is only more wealthy if they are able to accumulate a greater proportion of the available currency. If the money supply remains constant, then simple population growth encourages hoarding. It is then becoming of the g-ment to at least have inflation equal to the population growth.

Beyond that, the best way to encourage people to invest their money is to create inflation which causes them to lose buying power if they don't invest.

 

[Cache Landing]

Quote from makloda:

Thanks to productivity growth the real income of the average working person increases over time in all developing countries - admittedly much more so in the better educated deciles than in the bottom deciles of the spectrum.

A gardener/burgerflipper/janitor in the US doesn't have much of a competitive advantage compared to a worker in Asia or South America. The US and many countries in Europe (notable exceptions are the Scandinavian countries and Switzerland) have done a terrible job of investing in human capital in the last 25 years, now the middle and lower class are paying the price as highschool graduates are inept in basic math, spelling and grammar and the sciences. Of course, all I see on ET is Bernanke and only Bernanke himself being blamed for every single economic problem worldwide instead of politicians responsible for education, federally funded basic research, schools and universities.

From the Dallas Fed, 1998: In calculating the cost of living in terms of time on the job, a good place to start is with the basics--food and shelter. For example, the cost of a half-gallon of milk fell from 39 minutes in 1919 to 16 minutes in 1950 to 10 minutes in 1975 to seven minutes in 1997. Using current numbers for private-sector, nonsupervisory jobs, the average hourly wage was $17.71 at the end of 2007. What's the price of a half gallon of milk in the US currently? How bad is it?

I used $2.50 (not sure if this is accurate) and I get 8.5 minutes. Worse than 1998 but still much better than the 70s.

To expand on this idea, we can use the proportion of gross income comparisons.

In the 60-70 period, food and beverage made up about 25-27% of the average household gross income. It is currently at about 12-15%. Other things that have gotten "cheaper" are clothing, transportation, and entertainment. Housing has stayed constant, while medical care has skyrocketed.

 

[sprstpd]

Quote from Cache Landing:

But assuming that g-ment should be involved, as a g-ment you should reward people for financial responsibility, but not for hoarding.

Beyond that, the best way to encourage people to invest their money is to create inflation which causes them to lose buying power if they don't invest.

I don't see where you draw the line between a "saver" and a "hoarder." Both are financially responsible.

Inflation causes people to buy commodities to preserve their wealth. I don't think that is the intended goal of the government.

 

[Cache Landing]

Quote from sprstpd:

I don't see where you draw the line between a "saver" and a "hoarder." Both are financially responsible.

Inflation causes people to buy commodities to preserve their wealth. I don't think that is the intended goal of the government.

The intentions behind saving and hoarding are quite different. Hoarding results from the belief that there will be a shortage or lack of wealth and it is in your best interest to store up as much as possible. Hoarders expect that this shortage will cause the "money" to increase in value or that they will gain buying power simply by holding their wealth. This causes them to put off even necessary purchases.

Saving is the setting aside of money with the intent of using a larger sum for a greater purpose. Saving doesn't assume that the money set aside will simply increase in value by default, but rather that the saver will be able to accomplish a desired goal that would not have been possible without a certain degree of accumulation.

Anyway, it absolutely is the intended goal of g-ment. Their goal in economic terms is to sustain expansion phases for as long as possible while minimizing contraction phases as much as possible. This is exacerbated by the fact that we have relatively short re-election periods, so officials cannot absorb 2-3 bad years simply because a contraction phase is needed to balance things out.

In order to do this, they must encourage high consumption and investment. Inflation encourages consumption as you indicated, for preservation of wealth. If you don't buy it now it will just get more expensive.

Inflation also encourages investment over saving. Those who save will lose buying power, while those who invest will generally beat inflation and earn a real return.

This enhanced consumerism and investment leads to long expansion periods and makes the g-ment look good.