It’s a neverending source of amazement to me that two people are capable of looking at the same phenomena and drawing completely different conclusions. Reacting to the same phenomena as David Stockman was in the post I wrote about here, at Quartz Matt Phillips writes:
The fact is central bankers, for all their nearly magical powers, can’t keep the global economy moving forward alone. It’s clear that elected governments now need to act by spending some of the money central banks created, either with investment projects or with tax cuts.
This isn’t a controversial claim. John Maynard Keynes warned 80 years ago that when interest rates got near zero, they would become ineffective—â€pushing on a string,†as Keynes artfully put it—and government spending would be required. And Milton Friedman in 1969 argued an economy mired in a deep depression and deflation could always print money and give it away.
Just as borrowing is time-shifted consumption so is investment. Borrowing draws future consumption into the present while investment postpones present consumption to the future.
Unfortunately, “investment” is a word that has become sadly debased over the last couple of decades. Building Boulder Dam was an investment. Buying a financial instrument in the assumption that its value can only grow is speculation. Is buying a hamburger an investment?
“Unfortunately, “investment†is a word that has become sadly debased over the last couple of decades. Building Boulder Dam was an investment. Buying a financial instrument in the assumption that its value can only grow is speculation. Is buying a hamburger an investment?”
Not really sure where you were headed with this. A financial instrument called a stock certificate or a loan and security subscription agreement used to finance the building of a widget machine is an investment. The day trader who buys shares of that stock six weeks after issuance and then sells three days after purchase has engaged in raw speculation.
A stripper who purchased three condos in Miami in one year and intends to get a home equity loan on one and flip the other two,in 18 months is a raw speculator. Mr and Mrs John Q who exit their city high rise apartment and buy a 3 bedroom house in Lombard after learning the mrs is expecting twins are investors. And a Chinese businessman who buys a luxury 10,000 ft home in San. Fran is a money launderer.
A financial instrument in a zero sum market, called a futures contract, is a hedging mechanism that is pure speculation but still provides value in that it provides insurance and liquidity to assist in the functioning of markets.
As for burgers, let’s default to a GAAP accounting concept and say it only provides consumption value for a matter of hours and therefore by convention is consumption, not an investment. Except for In-n-Out burgers, I hear.
Mainly, that not all spending is investment. Some is. Some is just plain old consumption. And some is just pissing money down the drain.