Does productivity (Austrian view) or consumption (Keynesian view) fuel an economy? What are peoples' opinions on this?
Try not to bring gold into the debate if at all possible
Cheers for reply Timbo. I'm not sure you answered what I was asking as such though, and perhaps I phrased it incorrectly or inaccurately, and please feel free to correct me.
Many western economies have been using credit to consume over the last decade. Keynes was an advocator of this under a pretence that "in the long run, we are all dead". Keynes seemed to favour deficits and favoured consumption. Ideally a global fiat monetary policy would then inflate away large amounts of this in a perpetual cycle.
The Austrain economic message of sound money, savings and productivity has now started coming into the mainstream in light of a possible defunct and heavily criticised Keynesian style monetary system.
I was enquiring which school of thought would be carried forward into the future..
It’s driven by a bit more than that.It is productivity, which is driven by technological progress.
What I am effectively doing is kicking into touch all the nonsense you see in the press and media about "confidence" being something in any way important. It's not.
It’s driven by a bit more than that.
What about cost competitiveness (value)? Sure technological progress is a major factor but a product that is 10% better but three times the price is still not going to sell.
As a country that produces very little gold, but was a huge consumer during the Celtic Tiger "bling" era, our consumption of gold has got us into yet another fine mess, to paraphrase my own favourite economists, Laurel & Hardy.
I didn't know that they did una voce
If the abbots of the monasteries in the days of the Island of Saints and Scholars had been prescient, they would have designed and implemented a recycling policy for old gold chalices, croziers, amulets and torcs, instead of using them as land-fill. This could have avoided the balance of trade deficit created by the demand for the gold that the Tiger Cubs needed to emphasise their importance to themselves and the journos in "Howya" magazine.
Definitely worthy of further comment
It’s driven by a bit more than that.
What about cost competitiveness (value)? Sure technological progress is a major factor but a product that is 10% better but three times the price is still not going to sell.
Technological progress is the determinant of increase in income per capita (i.e. total factor productivity).
See: Solow growth model.
I'm familiar with the Solow growth model. What I don't get is how it accounts for competition between businesses, states and regions to apply technological development to the output of goods and services and how education, infrastructure and access to markets impacts on that growth.
Basically how does an micro-economic theory work in the real world.
I accept that technological advantage offers productivity advantage but I don't see how it outweighs efficient management, low wages, advantageous taxation models and access to markets all by itself. For example if company A use the latest technology to produce product X but company B also makes product X and pays only 10% of the wage rates of company A, works longer hours, pays lower taxes and has better access to the end market then they will still be able to get product X to market for a lower price.
The other factor is that technological advancement is mobile and can be exploited in low-cost (and even generally low-tech) regions. Therefore while the microeconomic model works in the micro environment of a particular corporation it cannot be taken as the dominant factor when developing the economic policy of a country (since that country cannot follow the technology and capital to low-cost high-return regions).
I could well be wrong, if so I’d love to hear why.
Thanks for the post Timbo. The issues I have the Solow models are:
1) It is specific to the country/region that it is measuring. In other words it measures the growth of the Chinese economy relative to the Chinese economy and not specifically per capita income increases within China or relative values internationally within the domestic model. The problem with this is more obvious when looking at many African economies where growth rates have been very high for decades at a time but population growth has been greater and so per capita income has dropped. Also, labour intensive production without a banking system to distribute capital, and a legal system which defines ownership (and so allows assets to be valued and leveraged), hugely limits the possibility of movement to higher-tech production and increases in per capita income levels. Which leads me to;
2) “Technology”. I know that in the context of an economic growth model "technology" is essentially the ability of a country/economy to combine inputs (labour and capital) to produce the optimum output but it's very hard to hold that thought and not drift back, however subconsciously, to thinking about technology at technological advancement.
I n a nutshell it is a good model for measuring output which makes it a useful tool to answer a specific question but it's hardly the economics equivalent of a unified field theory in physics.
Again, I'm open to correction on all of the above.
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