Creating Wealth
There seems to be a lot of disagreement on how
to improve the economy.
The different economic proposals remind me of
the various schemes for perpetual motion machines
submitted to the patent office.
Just as we know from first principles that
you cannot create new energy by mechanical manipulations,
I don't see how you can create new wealth by financial manipulations.
I think to improve the lives of people you need new discoveries
and inventions. In the past things like the industrial revolution,
the agricultural revolution, the automobile, airplane and computers
have made people better off. Sure governments can ruin things
by abusing people, but I think things like tax policy and government
spending are more about how existing wealth is distributed rather
than making everyone wealthier.
So I was happy to see this quote from the economist and
mutual fund owner John Hussman on his web site
http://hussmanfunds.com/wmc/wmc120924.htm:
An increase in price alters the profile of investment returns
by turning prospective future returns into past returns (and vice
versa when prices fall), but economic wealth is only created
by the generation of additional goods and services
(and cash flows from an investment standpoint) that actually emerge
in the future. Security
prices are a place-holder until the expected future goods, services
and cash flows actually arrive. Raising the price that investors
pay today for in return for some fixed payment in the future does
not create wealth in aggregate.
This is also in line with
Tyler Cowen's
The Great Stagnation.
I would bet that if a new cheap source of energy were found
(think cheap and safe nuclear fusion)
our current economic problems would mostly disappear,
whether we followed Keynesian or Hayekian economic policies.
And furthermore whatever policies were being followed at the time
would be given credit when in fact they had nothing to do with it.