This is why I'm not really a big fan of stimulus incentives that essentially hand out money for people to spend - i.e. stimulate consumption.
What we need to stimulate is innovation + production (better, quicker, faster, cleaner ways to doing things).
N.B. Stimulating consumption isn't necessarily a terrible idea when it has a downstream impact on production. In fact, this lets the market drive innovation, which historically has been a good idea.
The problem is the credit environment really screwed with this -- "Wealth" was appearing that wasn't tied to some genuine increase in production. Usually this works. Extend some credit, someone builds something new/cool and we've created wealth. It doesn't work when it just leads to increased leverage.
.. And so this vanished, because it wasn't really there.
Everything has a cycle + I think it's time to turn away from stocking the consumption boiler and boost grass-roots innovation.
Unfortunately, I don't think that stimulating production or innovation is a good idea either.
When you just stimulate production, it is true that production will increase but not in a way the consumers actually want. The evidence for this is that production has been stimulated (along with consumption) for a long time due to artificially low interest rates. The housing boom is a boom in production of houses.
"booms" in general are caused by the illusion that there are more savings than in reality exist - i.e. lowered interest rates, easy loans, etc. This causes the business to over invest, thinking there is enough in the way of resources to do so, and the consumer to consume more, thinking the same thing. Unfortunately, because the lower interest rate does not coincide with increased savings the businesses soon find out that there are not enough resources to complete their projects. This is when the boom starts to stagnate. In the late '90s, the scarce resource was programmers and IT employees, who were increasingly hard to find as businesses continued to hire them all for new internet projects.
Artificial stimulation is a very bad idea in either case, consumption or production. It is especially bad when you stimulate both at once.
However, I don't think you have to worry about innovation too much. Especially in this period of economic decline, people will be able able to innovate even without stimulation ;)
Certainly. The two things are rather related: if you remove the appearance of danger, people will get themselves into more tight spots. It's amazing how many more people with four wheel drive get stuck in mud than normal cars ;)
This is why I'm not really a big fan of stimulus incentives that essentially hand out money for people to spend - i.e. stimulate consumption.
What we need to stimulate is innovation + production (better, quicker, faster, cleaner ways to doing things).
N.B. Stimulating consumption isn't necessarily a terrible idea when it has a downstream impact on production. In fact, this lets the market drive innovation, which historically has been a good idea.
The problem is the credit environment really screwed with this -- "Wealth" was appearing that wasn't tied to some genuine increase in production. Usually this works. Extend some credit, someone builds something new/cool and we've created wealth. It doesn't work when it just leads to increased leverage.
.. And so this vanished, because it wasn't really there.
Everything has a cycle + I think it's time to turn away from stocking the consumption boiler and boost grass-roots innovation.