Monday, October 21, 2013

Products are paid for with products

According to Say, "Products are paid for with products" and this a very powerful statement no matter how simple it may sound. It's useful to note that some of the most beautiful and powerful ideas were quite simple in nature, but the arrival to those ideas is the difficult part. Such a simple notion as paying for a product with a product when trading is very powerful, especially since the United States has such a large trade deficit. The reading gave me the impression that the economic principles that should be followed are not followed in actuality, and an reason of why I got that impression is that very same trade deficit in the U.S. How do we pay for products with products if we have a deficit? It appears we don't pay for the things we consume, so a lot of what we consume likely simply accrues debt. That may be a scary thought that we are consuming products right now that will need to be paid in the future, but it is very important to remember that "Products are paid for with products."

This leads to the question of why we consume products we simply cannot afford? Well, that's where I found Keynes's influence on modern macroeconomic policy. At first, I disagreed with Keynes on many aspects of his theory, but after reading through the material my position changed considerably. It's easy to label Keynes's General Theory as erroneous, but there is more truth to his theory than at first glance. It would be a mistake to underestimate the impact he had on the world's economy because, in many ways, he helped shape the world of the present. Thus, I believe that life is better right now with debt than it would have been without it, but how that affects the future is a very difficult assessment to make because nobody actually knows all the explicit and implicit affects of the current debt we are currently accumulating.

Furthermore, Keynes showed that keeping money in circulation is important for future economic growth by encouraging investment and it spending. That may also seem to be a very simple notion, but it shouldn't be forgotten that the simplest notions are often the most powerful ones. Finally, Keynes appears to be one of the figures in economics that created some of the greatest positive changes in current economic policy. Still, a problem I found was that much of what the principles developed by Keynes aren't fully functioning correctly in the economy the way he wanted them to, so there are obvious problems in the implementation of even basic economic principles. People do not behave exactly as modeled, and that is what makes economics such a difficult and demanding discipline, so I hope we will fix our troubles in economics such a correcting the current trade deficit (just an example).

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