[quote=FlyerInHi]As poorgrad pointed out, GPD is a snapshot and growth is ongoing, so allocation is important to the rate of growth. Allocation is fiscal policy.
The Fed controls monetary policy. They are focused on employment(productivity) because it’s better that being idle. They don’t want GDP to shrink. The Fed makes more money available, but people still have to do work to generate GPD.
On a worldwide basis, total debt can grow forever as long as GDP keeps on growing. In the big picture, debts are savings. They are a wash and don’t affect productivity.
CAr, if you and your husband could live forever, you could take on ever increasing amounts of debt as long as your income keeps on growing. You can move up to a better house every few years, buy nicer cars, take more vacations, thus always improving your standard of living.
Debts actually leverage your earnings and help you live better. Debts don’t negatively impact your productivity, they increase your productivity because an increasing standard of living makes you more productive. You don’t need savings if you can be productive forever.[/quote]
You’re assuming that incomes would rise along with asset prices; for many people over the past 10-30 years, that hasn’t happened. That’s why so many Americans believe that we have been in a very long-term recession/depression.
Why do you think a person’s productivity goes up with an increased standard of living? Once people get to the point where their basic needs are met and they have a sense of security — along with a few extras — improving their standard of living isn’t necessarily going to make them any more productive. It might even have the opposite effect as people don’t feel the need to strive for much more — without our consumption culture, most people in the US would probably be pretty happy with what they have. Does having a sleek, Euro-design washing machine (what you might claim is an increased standard of living) make a person more productive than someone who has an old-school machine that’s been working well for 20 years?
Most people who go into debt for consumption are doing so because their wages won’t sustain their way of life. This debt will pull consumption forward, but will leave even less money for future consumption because this household will have to maintain the same expenses that are already too much for them (the reason for the debt in the first place), along with additional debt servicing costs in the future. How is this good?
