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To: GraceZ who wrote (91146)	10/2/2007 6:30:06 PM
From: Elroy Jetson	Respond to of 306849

Bravo Grace.

To: GraceZ who wrote (91146)	10/2/2007 8:10:27 PM
From: neolib	Respond to of 306849

I'm sure that you also have some portion of savings that reflects your preference for liquidity, a cash cushion just in case your investments can't always be readily exchanged at favorably rates for cash. Sure, which is merely invested in a different manner. It still is invested. I have zero paper money or gold stashed in my mattress, something I assume is true for the vast majority of all savings in the USA. We may make fun of CDO's but CD's, money markets, etc are all also (or once were) innovative ways to invest, while having varying degrees of liquidity and risk. The notion that a significant fraction of savings should sit uselessly in a vault, and hence one should design a monetary system primarily to protect that savings style strikes me as foolish. I want a monetary system that enhances my 90% of savings, not my 10%. EDIT: I see your next paragraph notes much of the above. However, I should note that checking accounts still pay interest. No bank in its right mind sits on any more useless cash than required by law. It gets put to work somewhere. Primarily because the level of trust in the financial sector is lower elsewhere (although it might be around zero here on this thread). Good point. My bent is to see if the trust can be elevated, rather than accept "We're all doomed.." One could say the monetary system would work better if it was fiat but acted like a gold based system, in that the rate of growth wasn't equal to the GDP but equal to the long run rate of productivity growth, which is the true measure of wealth. Good starting point. But how does that factor in population growth which is also GDP growth? I still have a mental block wrt to doubling the population, doubling the GDP (say at fixed productivity) but claiming the money supply should be constant. The reason inflation is preferred over stable or deflating money supply is because of how productivity gains are unevenly distributed. People who are in those activities that experience high productivity growth will experience relatively higher wages whereas those who are in areas which cannot experience high productivity gains (it always takes four people to play in a four string quartet) will have a shrinking percentage of the nation's income, or experience relatively falling wages even in a stable money supply. I must think about that a bit. Does not seem correct. AFAIK, one of the big problems we face is that certain sectors of the service economy (teaching, medicine) where productivity gains are low due to the individual interactions required, have seen the most steady cost increases. Industries with high productivity gains have seen employment and sometimes wage pressure. In many cases it has more to do with insulation from off shore competition more than internal productivity growth. So I see the cost of college education getting a bigger piece of the pie, and same for healthcare, as a result of low productivity, while manufacturing has a decreasing portion of the US pie, in contradiction to your above statement, which would lead me to expect the reverse. If anything, I would agree that industries with high productivity growth might well see higher profitability which makes its way to good compensation growth at the upper end (owners, CEO's) but I don't see any per se link to compensation increases for those working for wages in those industries. Do you see this differently? However, it still remains a question of competitive position. If all others in your sector see similar productivity improvement, it does not mean anyone makes more money. Your products are simply sold for less. They can do this directly with income redistribution type taxes/subsidies or indirectly with inflation I'm still at a loss to understand why inflation takes from the wealthy and gives to the poor. I'm assuming the wealthy don't park their money in a vault where it does nothing. If they did, it begs the question of how they got wealthy. With your last paragraph I very much agree. None of these systems come close to the supposed ideal that people advocate for them.

To: GraceZ who wrote (91146)	10/2/2007 8:50:38 PM
From: neolib	Read Replies (1) \| Respond to of 306849

<i. One could say the monetary system would work better if it was fiat but acted like a gold based system, in that the rate of growth wasn't equal to the GDP but equal to the long run rate of productivity growth, which is the true measure of wealth. So we have now had the following proposals for money supply growth: 1) Zero 2) savings growth 3) productivity growth 4) GDP 5) Fed's > GDP approach Do you see why I'm confused? There are (supposedly intelligent) economists who will back any of the above. I admit I'm not an economist (intelligent or otherwise, LOL!) so how do I know who is clueless and who is not? Elroy at one point or another backed three of these (1, 2, and 4) but seems most attached to 1). Since you proposed 3) I'd ask what happens if the savings rate > productivity growth and you are on a gold standard? It is pretty easy to envision 3% savings and 2% productivity. Since the savings are all hard currency, where does the 1% shortfall come from? Assume these thrifty savers keep all their gold in a mattress (or vault, same effect). Please do not tell me they "invest" most of their savings, hence no gold required. This is a society that saves the good old fashioned way, whatever "interest" their savings make is off the fact that productivity makes manufactured goods cheaper to buy in the future. Hence they are satisfied leaving their loot safely and worthlessly in a mattress. BTW, I much appreciate both posters educational lessons! When I go read Wikipedia articles one can't poke the obvious week points, so you don't learn much.