Let's get the basics correct, already!

marke said:

Money is the medium of exchange for swapping goods made by labor. It is the labor which creates the marketable goods of value, not the paper printed on the press.

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Great. So, explain how money is created "based on real wealth."

JohnfrmClevelan said:

Great. So, explain how money is created "based on real wealth."

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A farmer raises corn and he wants to exchange that corn for a new kitchen table made by a carpenter. Originally goods, services and manufactured products were valued on the market by comparison with other goods and services and money was the exchange medium. Money was not the wealth which was created by labor. Money represents the value or level of wealth a producer obtains from the goods or services he provides by labor. Producers of goods and services obtain the wealth that is inherent in those goods and services as measured by their market value.

JohnfrmClevelan said:

Lately I have seen a few misinformed claims on various things that end up as tangential sub-threads in other posts, so I thought a good, basic, economics-minus-the-politics thread was in order. So I will start off with a few points for consideration, and maybe debate (if you consider them incorrect).

Banks do not lend out pre-existing money (like money from our savings accounts). Instead, banks create M1 money by expanding their balance sheets via loans.

The government spends not by borrowing, but by simply creating and spending liabilities (assets to us, though) into the economy. There is no debt to be "repaid," only liabilities (in the accounting sense only) that may or may not be extinguished by taxation.

The economy can only grow with an addition of new demand, which requires increased private sector debt and/or federal deficit spending and/or a trade surplus and/or net dis-saving. And in the U.S., the latter two almost never happen. See Circular Flow of Income for an additional explanation.

A greater disparity in income generally leads to increased federal deficits, in order to make up for lost demand.

Entitlement programs are a boon to the economy, while tax cuts for the rich are costly to the economy.

Have at it.

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I get more alarmed when the so-called journalists and their editors who write pieces on the economy clearly have no idea of how things work.

marke said:

A farmer raises corn and he wants to exchange that corn for a new kitchen table made by a carpenter. Originally goods, services and manufactured products were valued on the market by comparison with other goods and services and money was the exchange medium. Money was not the wealth which was created by labor. Money represents the value or level of wealth a producer obtains from the goods or services he provides by labor. Producers of goods and services obtain the wealth that is inherent in those goods and services as measured by their market value.

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Yeah, great. But money comes from somewhere. It doesn't just appear when you build something of value.

It appears that you have dismissed my "blathering incoherent nonsense" without having the first idea of what you are talking about, and absolutely zero counterargument.

Hawkeye10 said:

I get more alarmed when the so-called journalists and their editors who write pieces on the economy clearly have no idea of how things work.

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Do you have something specific in mind that you would like to refute?

JohnfrmClevelan said:

Those weren’t meant to be political, just conversation starters. If you don’t think something is correct, then make an ECONOMIC argument supporting your position. Because I can defend both of those claims with economic arguments.

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Then keep to the economic data that support your contentions.

It's the only way to match what one says in a debate with what is actually happening.

Most on this forum don't even understand the data when they see it with their own eyes - but that does not make the economic data any less valid.

Just less liked - as do most truths that are uncomfortable when one's economic concepts have been frozen in time since Reckless Ronnie ripped down upper-income taxation in the 1980s. (See here.)

We keep talking about taming Budget Growth, but it keeps swelling, and swelling, and swelling. And who is the major beneficiary of that burgeoning deficit? The DoD, which consumes 50% of the Discretionary Budget (see here), the Non-Discretionary part (debt-repayments) going to paying for the Discretionary part of the budget!

PS: What really happened under Reagan? The Budget kept swelling! See here.
PPS: Taxes: What people forget about Reagan

Why does the Budget Deficit keep swelling?

Because successive governments (Dem and Replicant) refuse to take the bull by the horns and implement Total Budget Reduction.

See here:


And whyzzat? Because reducing the budget never got anybody elected PotUS or reelected to Congress ... !

A MYSTERY OF HUMAN NATURE

JohnfrmClevelan said:

Great. So, explain how money is created "based on real wealth."

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Money is NOT created out of "Real Wealth". Wealth is created out of money obtained because Taxation of Income is far too low.

Money is inserted into the economy by means of the Federal Reserve Board that creates-and-lends it to banks at a suitable interest banks. Whereupon, Banks borrow it to re-lend (with a profit) to Consumers who have what economists call "A Propensity to Spend".

Without that willingness to assume New Debt, consumers do not borrow to build/buy a new house or new car or ... whatever!

It's so damn simple. What is complicated is the Propensity to Spend, and no economist I know has managed to explain when/where/why and how that works.

It's a mystery of human nature ...

PS: Having researched the subject, I did find this interesting commentary about JM Keynes who did try to explain the magic of human spending. Well worth the read, here: The Psychological Law of Consumption - from this excerpt:

"... men are disposed, as a rule and on the average, to increase their consumption as their income increases but not by as much as the increase in the income."

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Nice try, but I (for one) don't buy that entirely. It means (I think) that we behave in a manner that is displayed also by others in the social-group in which we live. That has a small beam of logic. But I think the Propensity to Spend though psychologically a societal behaviour is one also anchored in the thought processes of humans. (But, I, for one, cannot explain how or why.)

(Which is perhaps why we should accept simply the explanation of "Keeping up with the Joneses ..." ;^)