Mainstream economists use the word demand as a stop gap in lieu of a more detailed understanding of the dynamics driving increases and decreases in output. While individual consumer preferences determine which goods are produced, how much consumers are willing and able to spend has virtually no impact on economic output as a whole. Rather…
Intro: The U.S.’ long-term productivity decline has its roots in its declining savings rate, which is a partly a result of fiscal and monetary policy decisions. Any reduction in foreign investor demand for dollars would require the U.S. to raise its savings rate or encounter an investment collapse in order to run a current account surplus.…
Intro: While there are many factors which help determine real GDP growth rates across countries, countries with low levels of GDP per capita, high levels of human capita, political stability, financial stability, econoomic freedom, and business freedom will tend to experience rapid growth. High savings rates are also a key factor, along with growth in…
Intro: Not all economic indicators are created equal when it comes to their usefulness in predicting economic inflection points. Leading indicators such as profit margins, equity prices, and the yield curve tend to provide a useful guide to future changes in real GDP growth, while income and employment data merely reflect economic changes which have…
Intro: While we often hear that consumption drives growth, in reality it is the productivity of businesses that creates growth by investing in the production of goods to satisfy consumer demands. Their success depends on the availability of real savings (land, labour, and capital) in the economy and the business environment. All economic growth is…
Intro: Profit is a reflection of productivity, which in turn depends on the availability of land labour and capital and the business environment. Profit signals to businesses that their efforts are adding value and their production is in line with consumer demands, which incentives them to produce more. . The productivity of labour depends on…
Intro: Growth does not result from an increase in demand, but from an increase in profitable ways to satisfy that demand. The idea that a lack of demand can cause a recession ignores the key point that demand is infinite and that any withheld consumption now must be in anticipation of future consumption. Mainstream economists…
Intro: Recessions do not just fall out of the sky and it usually takes a long period of economic distortions to build up before they occur. Recessions are the painful healing process that forces businesses to shift production more in line with consumer demands and the availability of real savings. Most economists find it impossible…
Intro: While saving is often considered a drag on growth, nothing could be further from the truth. All investment that takes place must come from real savings in one form or another, either saved domestically or borrowed from abroad. More saving may reduce the output of consumer goods in the near term, it does so…
Intro: The complex nature of the global economy can make it difficult to conceptualize how the economic system works. If we remove money from the equation and simplify the economy into a few sectors, it can help us understand fundamental economic principles such as: how and why savings drive economic growth; how interest rates allocate…