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Domenico de Simone
Excerpt from the book
“Where is theEconomy of theRich Going?”
MALATEMPORA EDIZIONI - ROMAFirst issue: march 2001
 
Chapter 4
The State
...................................................................................................................................The thing that counts is the pure statistical fact that tells us that  production has increased. A funny example of the distortion in thecalculation of this statistical monument – the GDP - lies in thisextremely recent occurrence in the USA. We know, among otherthings, that the GDP is made up of the balance of payments, meaningthe algebraic sum of the positive amount of exports, minus imports.The fact is that, if there is a strong drop in imports as an effect of thecrisis, which obviously translates into less consumption, the GDPincreases, as this resulting amount will necessarily increase.Therefore, although it produces poverty in the general population, theeffect will be an apparent growth in wealth.So let’s try and understand the discrepancies that hide behind therealization of equilibrium models and what horrific consequencesthey entail. Price levels depend on four variables:1) production costs, 2) demand, 3) supply and 4) the amount of circulating money.We must consider that, for historical reasons, the cost variable tendsto decrease, whereas the variable regarding circulating money tendsto increase, and neither of them follow a linear trend but have aconstant direction. Even the other two main variables, demand and supply, have ahistorical tendency to increase in direct proportion to one another.The theory of equilibrium describes the dynamic trend of the fourvariables and their relationship with another two variables, theunemployment rate and profits, which collectively depend on thesevariables and, in turn, influence their trends. In ideal conditions, the unemployment rate is constant, costs and profits drop, supply and demand increase in parallel and the amount of money increases less than cost reduction1.
 
 For decades, the growth of the system was ensured by the control of these variables thanks to the intervention of governments on costs,employment and supply, and of the financial authorities on thequantity of circulating capital. Profit and demand depend on themarket. In this pretty picture, one can understand the control of the centralbanks on interest rates, which determine the amount of money that iscreated, the worries regarding the drop in employment rates or ontheir excessive growth, the need to slow down growth (i.e. production)to avoid the imbalance with demand or to put the breaks onconsumption to avoid putting pressure on prices, etc. etc.The growth rate of Western countries and, to a variable degree, of theentire world over the past three decades, gives this model its prestigeand credibility.But there are a few things that this model doesn’t say, and that falsifythe whole process.
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Libertyed

Great atricle in learning how our economy works..! Tweet this atricle below: http://theprivatemembership.com/twitt...

reply04 / 16 / 2009
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