[jmherbener]

That’s correct. When the Fed lowers interest rates artificially, it causes entrepreneurs to invest in the wrong lines of capital capacity and consumers to increases consumption. The boom is a period of mal-investment and over-consumption.

http://mises.org/journals/qjae/pdf/qjae15_1_1.pdf

[Jthomp76]

How do we measure genuine growth in our economy? You said above its ok if we buy most things from abroad an don’t manufacture on our own. Is production of goods a sign of a healthy economy? If we don’t produce anything, where can we see growth elsewhere?

[jmherbener]

Economic progress occurs when we have more and better consumer goods to enjoy. Because consumer goods are heterogeneous, it isn’t possible to scientifically measure economic growth. GDP is a crude attempt at a metric of our capacity to produce final goods and services. Private Product Remaining is a better metric, because it nets out of GDP, the influence of government.

http://mises.org/daily/2231/

GDP in 2012 was $16.2 trillion. In other words, the production of final goods and services in the United States during 2012 was $16.2 trillion. We do produce things. Exports minus Imports in 2012 was -$535 billion. So our trade deficit was 3.3 percent of GDP. Surely, these facts do not warrant the conclusion that “we don’t produce anything.”

[Jthomp76]

We sure are buying tons of stuff! (Domestically and imported). By your logic we are doing great. Why do so many Austrians seem to think we are not doing so well (economically speaking)?

[jmherbener]

Our economic problems are the result of Fed monetary inflation and credit expansion, government regulation, and government expenditures, taxes, and debt. None of our problems are the result of trading with the Chinese or having higher time preferences.

I suggest you read Tom Woods’s books, Meltdown and Rollback.

[Jthomp76]

Could it be that our high time preferences and trade deficits are a result of these policies? In other words maybe they are not the disease but a symptom? Are we not consuming a lot more than we normally would (or should) absent some of some of these conditions you mention? Is it ever possible to consume too much? Is it not sometimes healthier to save?

Sorry, I’m having a tough time grasping this. I appreciate your time!

[jmherbener]

Certainly, our time preferences can be raised by government policies, social security being a prime example. Trade deficits could be caused by currency manipulations of the government. Monetary inflation and credit expansion can increase our consumption by lowering interest rates.

And, hypothetically, if everyone in the world had extremely high time preferences, then we would begin to consume our capital stock and our standards of living would collapse. But our world economy is not like that, at least not yet. As we would expect, there is a spectrum of time preference that people have from extremely low, like the Chinese who currently save 45 percent of their incomes, to extremely high, like those in Denmark who have slightly negative saving rates.

http://www.gfmag.com/tools/global-database/economic-data/12065-household-saving-rates.html#axzz2mQbQP1el

So, in our world, people with different time preferences mutually satisfy them through lending and borrowing. Because all these different people live in an integrated market economy, they all enjoy the standards of living that the division of labor and capital stock built from the past produce. Those with higher time preferences shift their lifetime income from the future toward the present. By borrowing. they are able to consume more than they otherwise could sooner and must consume less than they otherwise could later. But their lifetime consumption is determined by their lifetime production. Those with lower time preferences shift their lifetime income from the present toward the future. By lending, they must consume less than they otherwise could sooner and get to consume more than they otherwise could later. But their lifetime consumption is also determined by their lifetime production.

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