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Pragmatic Capitalism

Capital for Living a More Practical Life

What about savers?

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Your article totally leaves out the important foundation of an economy which is savings. Devaluation of a currency hurts savings which discourages investment. I think you should add this subject to your article.

https://www.pragcap.com/this-commonly-referenced-usd-purchasing-power-chart-is-useless/

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Posted by Clint Schubert
Posted on 02/13/2017 8:58 PM
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Hi Clint,

I think you have the causation wrong here. Savings does not create investment. Investment actually adds to savings. In the aggregate, when one person saves they are reducing someone else’s income. If everyone saves then no one has any income. When someone invests (builds something for future production) then the investor has their investment assets AND someone else has their investment spending. In the aggregate, it is investment which adds to savings.

But there’s something more important going on here. The currency will always get “devalued” over time because we exist in a credit based monetary system. That is, we have finite resources in a world where there is infinite credit. So, you have a very high likelihood that real resources will “inflate” relative to the quantity of credit that exists. But this doesn’t tell us the whole story. If I build a washing machine I am obviously using many more resources than I would have if I just went to the river and cleaned my clothes by hand. If I borrowed money from a bank to create this washing machine then I will almost certainly bid up the cost of these resources relative to what they would be had I decided to clean my clothes by hand. BUT, despite the inflation I am now better off because I have a machine that automates the cleaning of clothes that might have taken me several days. Therefore, my living standards have increased DESPITE the rise in inflation.

Now, the problem you’re referring to is different. You’re implying that people won’t invest in the things that improve our living standards if our currency is being “devalued”. I would argue that the evidence against this is pretty clear. Since 1913 the human race has experienced a huge increase in living standards. This is not even a controversial matter. In the last 100 years we’ve gone from spending 80% of our incomes on necessities to now spending just 50% of our incomes on necessities. We are so much better off today that now we are having debates about how terrible it is for everyone to be fully insured. Ha. What a world!

https://www.pragcap.com/the-myth-of-declining-american-living-standards/

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    Cullen Roche Posted by Cullen Roche
    Answered on 02/13/2017 10:05 PM
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      @Cullen
      >”Since 1913 the human race has experienced a huge increase in living standards. This is not even a controversial matter. In the last 100 years we’ve gone from spending 80% of our incomes on necessities to now spending just 50% of our incomes on necessities.”

      I agree with you on that part that quality of life is vastly improved now to what was 100 years ago. Heck, its even better than 10 years ago thanks to the internet / smartphone age.

      However I must disagree with you that we spend less on necessities than in the past. I’m not sure which particular demographics this statistical study was conducted to come up with that 50% figure, but I question its accuracy.

      Low income earners constitute probably the majority of the workforce (if you include recent college/university graduates). Unless they are lucky enough to get a prestigious job at a fortune 500 company straight out of college, they are more likely to share flats and go pay cheque to pay cheque having barely enough to save in a month. I’ve also heard anecdotes (probably on the extreme end) that Masters and PhD students end up working in Mcdonalds for a while just to pay back their loans.

      Only after years of experience (and perhaps luck) can one hope to climb the ladder and earn enough that <50% of their income has to be spent on necessities*, and have the rest of the 50% free to spend on luxuries / investments.

      *(I'm assuming by necessities you mean access to food, water and shelter)

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      Posted by Incognito 7
      Answered on 02/14/2017 1:51 PM
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        My data is from the BLS. Housing has increased whereas food and clothing have declined substantially. The net is a decline in the overall income spent on necessities. The BLS has hashed this out in excruciating detail. To reject it you have to be willing to believe in “alternative facts”. :-)

        https://www.bls.gov/opub/uscs/

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          Cullen Roche Posted by Cullen Roche
          Answered on 02/14/2017 1:55 PM
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            @Cullen

            I’m not completely rejecting the research. Just that averaging results tend to mask considerable realities. The average does not indicate how spread the data is. How large or small are the error margins / standard deviations? Perhaps what I am looking for is a frequency spectrum of the population and percentage spent on necessities.

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            Posted by Incognito 7
            Answered on 02/14/2017 2:31 PM
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              I don’t see how this is even controversial? Our food sources are so abundant and so calorie rich that we literally have an obesity epidemic. 150 years ago the human race worried about being able to consume enough food to survive. Today we eat so much that it is literally killing us.

              150 years ago you would have been lucky to have a roof over your head that kept you alive throughout the year. Today we live in houses that are so technologically advanced that you’re considered poor if you don’t have central heating and air.

              150 years ago you were lucky if you could obtain shoes that actually had soles. Today we’re considered poor if we don’t have the latest edition of the Air Jordans.

              150 years ago you probably would have been willing to spend 100% of your income on these types of items which we now consider standard parts of our lives. People have it so good and they don’t even realize it. And yet most of us find endless ways to complain about how tough modern life is. Most of us literally have no idea what it’s like to live a difficult life because we’ve been massively spoiled by our modern technologies….

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              Cullen Roche Posted by Cullen Roche
              Answered on 02/14/2017 2:42 PM
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                And in accordance with the economic principle named “Ricardo’s Law of rent” that increase in the cost of housing is in itself a result of an increase in incomes.

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                Posted by Dinero
                Answered on 02/14/2017 6:43 PM
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