Friday, April 25, 2014

Institutions of Economic Squalor

Maybe someday
Saved by zero
I'll be more together
--The Fixx

Jacob Hornberger taps the root cause of economic stagnation and decline: lack of savings. Savings represent the fraction of production that is put aside for future consumption. Savings provide for capital accumulation. Capital accumulation fosters investment that increases productivity.

Without savings, productivity cannot improve and standard of living cannot rise.

Lack of savings explains why third world countries remain that way. It also explains long term economic decline in the US.

JH highlights two institutions that are robbing the US of savings. Income taxes take approximately one third of all economic income from producers for redistribution to non-producers. A good portion of these resources would have been saved.

Savings are also dimished via currency debasement (a.k.a. inflation). Because currency represents a claim on production, printing more of it gives government and its special interests claims on other people's production. When economic resources produced by others are claimed by those holding newly minted cash, the amount of economic resources set aside and saved declines.

Instead of facilitating capital accumulation and prosperity, institutions of income taxes and inflation  reduce savings and foster capital consumption and squalor.

1 comment:

dgeorge12358 said...

The most ingenious technological inventions would be practically useless if the capital goods required for their utilization had not been accumulated by saving.
~Ludwig von Mises