Comments on: Sources of Economic Growth http://www.economicshelp.org/blog/economics/sources-of-economic-growth/ Economics Blog - current events and economics essays Thu, 18 Mar 2010 19:46:30 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Ralph Musgrave http://www.economicshelp.org/blog/economics/sources-of-economic-growth/comment-page-1/#comment-4741 Ralph Musgrave Thu, 22 Oct 2009 08:04:17 +0000 http://www.economicshelp.org/blog/?p=1913#comment-4741 Huck: You make an interesting point about low interest rates resulting in more saving. I think Warren Mosler is sympathetic to this view. See http://www.moslereconomics.com/ Huck: You make an interesting point about low interest rates resulting in more saving. I think Warren Mosler is sympathetic to this view. See http://www.moslereconomics.com/

]]> By: Huck http://www.economicshelp.org/blog/economics/sources-of-economic-growth/comment-page-1/#comment-4682 Huck Fri, 16 Oct 2009 03:59:41 +0000 http://www.economicshelp.org/blog/?p=1913#comment-4682 At the end you suggest that economic growth will come from a continuation of the current policies of low interest rates and quantitative easing. However, you also pointed out that consumers are unwilling to spend because they're trying to increase they're saving rates. I don't believe that economic growth will come from a period of low interest rates because the demand for money is not significantly effected by interest rates due to the fact that people are using technology such as debit cards and credit cards. Consumers are not going to change their spending habits significantly because most disposable income is concentrated in checking accounts. If anything, low interest rates are only going to encourage consumers to spend less and save more because the returns of having money in banks are less, making consumers poorer. In Brazil, there was a period of time that an increase in interest rates coincided with an increase in consumer spending because saving rates were so high. An increase in interest rates meant that consumers were seeing a greater return on their deposits, which lead to increase spending. I believe what happened in Brazil parallels with what is going on in the US and the UK and that the central banks are overlooking this detail (or not). However, there are no savings. Just a concentration of all disposable income in banks. (In other words, the IS curve is very inelastic due to these technologies.) A lower interest rate would only benefit bankers. With borrowing so cheap, banks can borrow at the discount rate and lend that money out over many times at significantly higher interest rates at the expense of average consumers. An increase in interest rates would encourage consumers to spend more, and perhaps encourage bankers to stop taking overzealous speculations. At the end you suggest that economic growth will come from a continuation of the current policies of low interest rates and quantitative easing. However, you also pointed out that consumers are unwilling to spend because they’re trying to increase they’re saving rates. I don’t believe that economic growth will come from a period of low interest rates because the demand for money is not significantly effected by interest rates due to the fact that people are using technology such as debit cards and credit cards. Consumers are not going to change their spending habits significantly because most disposable income is concentrated in checking accounts. If anything, low interest rates are only going to encourage consumers to spend less and save more because the returns of having money in banks are less, making consumers poorer.
In Brazil, there was a period of time that an increase in interest rates coincided with an increase in consumer spending because saving rates were so high. An increase in interest rates meant that consumers were seeing a greater return on their deposits, which lead to increase spending. I believe what happened in Brazil parallels with what is going on in the US and the UK and that the central banks are overlooking this detail (or not). However, there are no savings. Just a concentration of all disposable income in banks. (In other words, the IS curve is very inelastic due to these technologies.)
A lower interest rate would only benefit bankers. With borrowing so cheap, banks can borrow at the discount rate and lend that money out over many times at significantly higher interest rates at the expense of average consumers. An increase in interest rates would encourage consumers to spend more, and perhaps encourage bankers to stop taking overzealous speculations.

]]> By: tejvan http://www.economicshelp.org/blog/economics/sources-of-economic-growth/comment-page-1/#comment-4668 tejvan Thu, 15 Oct 2009 08:48:02 +0000 http://www.economicshelp.org/blog/?p=1913#comment-4668 interesting, I'll have a think. interesting, I’ll have a think.

]]> By: Ralph Musgrave http://www.economicshelp.org/blog/economics/sources-of-economic-growth/comment-page-1/#comment-4667 Ralph Musgrave Thu, 15 Oct 2009 08:46:09 +0000 http://www.economicshelp.org/blog/?p=1913#comment-4667 You give a conventional answer to the question: how do we grow the economy? You rightly mention quantitative easing and the budget deficit and explain how each of these works. I suggest these two can be merged and simplified, as follows. In 2009 in the UK the deficit has been roughly equal to the amount quantitatively eased. Deficit equals “1, wealthy individuals and institutions give money to government/central bank machine, 2, government/central bank machine spends this money, 3, government/central bank machine gives treasuries/gilts to wealthy individuals and institutions”. QE equals reversing items 1 and 3. Thus the only NET effect is 2, which certainly should be stimulatory or reflationary. I suggest that recognition of this “simplification” (if I’ve got it right) would cut out an awful lot of argument as to whether deficits and QE work, and if so, how. I’d be interested in your views. You give a conventional answer to the question: how do we grow the economy? You rightly mention quantitative easing and the budget deficit and explain how each of these works. I suggest these two can be merged and simplified, as follows.

In 2009 in the UK the deficit has been roughly equal to the amount quantitatively eased. Deficit equals “1, wealthy individuals and institutions give money to government/central bank machine, 2, government/central bank machine spends this money, 3, government/central bank machine gives treasuries/gilts to wealthy individuals and institutions”. QE equals reversing items 1 and 3. Thus the only NET effect is 2, which certainly should be stimulatory or reflationary.

I suggest that recognition of this “simplification” (if I’ve got it right) would cut out an awful lot of argument as to whether deficits and QE work, and if so, how. I’d be interested in your views.

]]>