Economic Growth Importent for Life

Added: (Wed Mar 22 2006)

Pressbox (Press Release) - Economic Growth Importent for Life
Kamala Sarup

The rich do two things with their money: (1) buy consumer goods and
services or (2) invest it to earn interest or dividends or value
appreciation. Money just doesn't sit around doing nothing or just
pass around from one rich person to another, again doing nothing
productive. Most of it is used to create additional money, goods and
services. In this way the GDP usually continues to increase.

We should investe our money to companies that use it to buy plant and
equipment to create additional value or we could invested in stocks,
funds and bonds in domestic and foreign markets. That money is used by
the recipient firms to create additional value. In that process,
executives, managers and laborers receive money to spend and invest.
In return, we receive interest or dividends on our account that we use
to buy goods and services and reinvest. The money doesn't just
circulate pointlessly. While circulating it is *USED* to create more
value to its holders. That's the whole point of money. In itself, it
is valueless - mere paper. It is what it can do that is valuable.

The only money that is useless is that which is hoarded. That happens
on a large scale when people and businesses lose confidence that their
money will bring a satisfactory return, i.e., more money, so they stop
buying and investing. They just hold it. That can cause a recession
or depression.
The reason we don't have depressions much any more is that the
government can put money in circulation and make some investments
itself and *HOPE* that people will gain confidence use it to spend and
invest to keep the economy running. No guarantee that will happen, of
course, so depressions
are always possible.

Another possible problem is created by the imbalance of consumption
and investment, but that is another story. The relationship between
tax amounts, tax rates and productivity (goods & services output /
labor input) and "prosperity" (per capita GDP at constant price
levels) is not obvious from a priori reasoning.
Increases in per capita GDP depend on increases in productivity. Productivity
increases are made either by (1) workers producing more goods and
services per unit time than they did before, i.e., working "harder" or
"smarter", not longer), or (2) substituting machinery for labor, which
requires investment, which requires saving some of the earnings. The
question is whether nongovernment ("business") workers using their own
earnings or
government workers ("governments") using the nongoverment worker
earnings in the form of taxes is more productive. That depends on
what each group does with its earnings and taxes.

If government and nongovernment workers either (1) do not work harder
and smarter, or (2) spend all their earnings on consumption, i.e.,
save and invest nothing, either on machinery, infrastructure or social
services (educated and healthy workers tend to work "harder" and "smarter"),
then productivity and per capita GDP will not increase. The question
then becomes whether government or nongovernment workers are more
productive or save and invest more to obtain increases in
productivity. The answer
is determined by trial and error, i.e., experience, and not by theory.

Some claim, without proof, that all economic activity, including
defense and justice, would be more productive if performed by
nongovernment workers. Communists claim, without proof, that all
economic activity would be more productive if perfomed by government
workers. Libertarians and socialists, without proof, make claims
somewhere between these
polar types.

Through experience, we have seen many cases of nonproductive pursuits
by both government workers ("governments") and nongovernment
("business") workers. In the U.S. since its founding, trial and error
has resulted
in the present mix of government and nongovernment economic
activities.

An American Economist Stanly said recently with me " Assume that we
are a business executive and earn million per year. We spend of our
cash each year on goods and services, such as food, clothing, shelter,
medical care, private schools for children, cars, boat, vacation,
gardener, housekeeper, etc. The poorer sort, i.e., wage earners, use
what we give them to buy mostly consumer goods. A small part might be
saved and invested like us or our friends, although on a much smaller
scale.

If we invest of our cash in bank acccounts, stocks, mutual funds and
bonds of other companies or governments, all of which use it to invest
in technology (producer goods), and consumer goods and services.
Again, wage earners get some of the money. For the use of our money,
our receive more money as interest and dividends.

If we decide to sell our stock and invest it in other securities so as
not to be top heavy in one stock. The recipients of that cash invest
it in producer and/or consumer goods to improve their businesses. To
do that, some of the money goes to other
laborers, managers and executives who use it just as we do. Again, we
receive interest and dividends.

He further argued "The same things are happening to all our rich
friends. The money isn't just shuttling back and forth among our
friends, which would be a useless exercise. We are all using it
partly to experience the "good life" and partly to become still richer
by prudent investment.

(Kamala Sarup has been nominated as Universal Peace Ambassador (2006)
in the framework of the Universal Peace Ambassadors Circle, Geneva
Switzerland.Kamala sarup is an editor of peacejournalism.com )