Confessions of a Welfare Queen

[jack merchant]

Originally posted by stormbind
Just don't miss out the part about depreciation of products.

Most economic models make the assumption that products can be collected and the currency remains in circulation which means more "stuff" for people. That stuff is counted as wealth, and this part of the theory is not wrong.

But they fail to account for the fact that "stuff" turns mouldy, breaks down, becomes obsolete... That is their massive flaw.

Wrong. Most economic models look at consumption, not wealth - thus, the fact that a 10-year old TV may no longer have the latest features doesn't count; what most economic models look at is the rate at which they are replaced. Interestingly, this is why economists now realize that the inflation rate over the last 20-30 years has been systematically overstated by at least half a percentage point per year, as the price of all the average consumption basket doesn't take into account the fact that the quality of goods people consume has risen (think technological advancement).

Re the creation of money, here's a rather useful link detailing the process. As you can see, money can be created out of nothing (a note to the last sentence: while increases in the money supply can lead to inflation, this won't be the case as long as the demand for money increases along with it - not having enough money around can be as dangerous as having too much of it, witness Japan !).

Re executive pay: bigfatron and bholed already pointed out why CEO pay is seriously out of control. I would however submit that this is often rather a function of shareholders having too little influence than too much of it; essentially, if there is a market for CEO, it is so riddled with imperfections that you could almost make a case for government intervention here !