Re: Where to now?

On Tue, Nov 20, 2012 at 5:45 AM, Kevin O'Brien <[email protected]> wrote:
> Right now, there is a ton of cash that is mostly on the sidelines
> because the people who have it do not see opportunities for productive
> investment.

"Cash on the sidelines" is a useless concept, and perhaps worse than
useless, actually misleading.

Except for money that is taken out of circulation by the Fed or the
Treasury, all the cash in the economy must be "somewhere". Every cash
transaction has a buyer and a seller -- cash just passes from one
entity to another. The same goes for stocks, bonds, capital equipment,
etc. If someone sells, someone else must buy. The speed of circulation
of money is quantified by something called monetary velocity. But even
monetary velocity is not a useful concept in the context you are
describing.

If you want to better understand investment and productivity, you need
to think in terms of capital stock (the quantity of capital, and the
type of capital) and labor productivity (the amount of labor, and the
areas of specialization). For example, you may be of the opinion that
more labor (of a certain speciality) should be allocated towards
increasing the capital stock (of a certain type). However, just
deciding on the specifics of what labor to reallocate and what capital
stock to increase is extremely complex, let alone determining how to
cause the labor to be reallocated in the way you might wish to
increase the capital of which you would like to see more. Top-down
management of a $15 trillion economy is virtually impossible, and
despite constant claims to the contrary by politicians, the best that
can be hoped for is to provide incentives that might possibly, in some
indefinite amount of time, nudge some parts of the economy slightly in
the direction some people might like.