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March 20, 2014


Neil Wilson

Perhaps time to re-examine the underlying assumption of scarcity and the causality directions.

Households have never saved real resources. The concept doesn't make much sense.


Neil wilson is right. In a capitalist society as Keynes observed only firms and the state save by creating real capital. People tend to accumulate money and claims denominated in money. The financial system is often prone to crisis as it is hard to convert money claims into real goods smoothly over time. Buying houses is a form of accumulation of real capital for households. And houses yield direct utility as consumption goods while the owner resides in them.

The policy issue is rather should this form of asset accumulation be regarded as better than some other? Also can households really pay back the firms via the financial system if the firms end up providing the finance for residential Mortgages ?

There is a serious problem of low pay and many young people have growing student debts. Can the people who need housing even get a Mortgage and will they be able to pay them back?

Rather than inflating house prices as all governments have since the sixties they should find ways to increase wages for the population. Unless this happens you can see a huge imbalance developing in the economy over time.


I'd add extra questions for you Chris:

- Have investment opportunities actually shrunk, or has the psychological willingness to invest shrunk?

- Could all this be a result of improved analysis?
i.e. we now know that growth isn't a good route to profitability beyond a certain point. But companies used to operate on a philosophy of ongoing expansion - which used to include technological innovation as part of the increased market share plan...


Another question:

- Have investment opportunities actually shrunk, or has the required rate of return changed? Or the other factors? (e.g. inflation)

I note this because if we take a serious look at RRR and the other factors, they are all in the end the result of political choices. They are not natural factors. So maybe we don't have to treat them as such...


I'm amused by commenter attempts to distinguish real resources (which households have apparently never saved) and money.

There is no real functional difference. House holds when regarded as saving, have been accruing effective legal rights to real resources, whether that be in share ownership, bank savings or cash under the mattress.

This is because they have been creating real resources by their labour.


I very much share Chris' despair at the lack of political debate over anything useful. It's not really the politicians fault. It's a function of the prevailing rentier structure of the economy, which gives power to those who protect rents, i.e. extract crushing costs from productive labour and investment.

Of course there is loads that a state could in theory do to do promote long term growth. Unfortunately this would require taking a longer term view than the body politic, or more importantly electorate, is prepared to. Actually it wants next months rent, in full and on time.


@metatone -

Good point. The RRR is of course influenced by the (so-called) risk free rate of return.

Despite nominally zero interest rates, a rentier economy allows extraction of very low risk returns simply by collecting rent.

This in turn makes return from risky investment relatively less attractive.

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