The Structure of Production Is Important - A-equals-A.com
 
In my last post, An American Memorial Day in Charlotte, I explained the reason America is the wealthiest nation in the history of the world. Our standard of living catapulted to the levels we enjoy today because our political and economic system respected individual human rights. Entrepreneurs felt confident they could save and invest without risk of wealth confiscation. As I explained in the last post, real savings makes capital investment possible. Capital investment allows us to be more productive, allows us to produce more of the things people value. All of the goods we enjoy must first be produced.

The production structure of an economy is not a simple lump-sum aggregation of homogeneous pieces. Think of it more like a coral reef that is built out over time: millions of interconnected pieces consisting of individual plans.

Increasing capital investment, made possible by real savings, actually accelerates the rate at which our economy can produce goods and services that satisfy people's needs and wants. America became prosperous because we invested in capital and we produced.

Currently, we are doing great damage to the production structure of America's economy. The Federal Reserve is sending a faulty signal to investors, savers, producers, and consumers. We are over-investing our scarce resources and we are over-investing in the wrong areas. This malinvestment is being done at the expense of savings. We are not stimulating growth or laying the framework for real recovery. Don't believe these stories for a second. We are destroying the foundation of the American economy.

The only reason we are able to sustain our high standard of living today is because we are eating into the saved capital from generations past. This is not stimulus. This is a sedative; numbing Americans to the inevitable day of reckoning.

Please see my explanation of the Business Cycle to see why the destruction of the production structure of an economy is particularly harmful. The theory of the business cycle explains what causes cyclical boom and bust periods ending in recession/depression. Take a few minutes to read through the explanation of the Business Cycle. This is very relevant to what is happening in our economy today.

A $ A

Click below to share this article on Facebook or add Dubbs Galt as a friend.
6/4/2010 03:36:44 am

When was the tipping point. When did we go from saving capital to eating capital?

Reply
6/4/2010 05:44:07 pm

Capital is not homogeneous so it varies by sector, but it's been pretty bad for the last 30 years. It went into overdrive in the mid-1990's. The last 10 years have been extremely horrible.

Since we don't produce and export anymore, pretty much all the cheap imports we enjoy are at the expense of saved capital.

Some of the charts here paint the picture - http://www.a-equals-a.com/the-debt-burden.html

Reply



Leave a Reply.