I call my website ldquo economics in the age of paper money rdquo because our economy no longer works the way it used to when gold was money. Most economists, however, have not grasped the profound significance of the change in the way our economy works now. Our economy is turbo charged, but the operating manual that still guides the economics professions was written in the days of the horse and buggy. If we don rsquo t learn how to operate our new economic system, it is very likely to crash. Back in the olden days ndash before world war i ndash gold was money, governments balanced their budgets and trade between nations balanced. Sound money, balanced budgets and balanced trade were the core principles of economic orthodoxy and the foundation stones around which all classical economic theory was built. Capitalism worked the way it did because gold or more precisely a gold based monetary system would not allow it to work any other way.

The gold standard forced governments to balance their budgets and it forced trade between countries to balance. In the 19th century, if a government spent more than it took in as taxes, it had to borrow money to finance that budget deficit. When gold was money, there was always a limited amount of money in the economy and governments could not create any more of it. Therefore, if a government borrowed a lot of money, there would be less money available for the private sector to borrow.

That would cause interest rates to rise and higher interest rates would cause the economy to suffer. Therefore, governments did their best to balance their books ndash at least during peacetime. When gold was money, trade between nations had to balance because if one country bought more from another country than it sold to that country, it would have to pay for that trade deficit with gold. A persistent trade deficit would drain away all the deficit country rsquo s money and impoverish it. Soon that country would not be able to buy any more imports because it lacked sufficient gold to pay for them. Therefore, in the past, nations were very concerned to ensure that they imported no more than they exported.

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Operating within those binding constraints that the gold standard imposed, the capitalist economy grew through a process of investment and capital accumulation. They would save that profit ndash or, in other words, accumulate capital hence capitalism. Investment and capital accumulation drove the economic growth dynamic under capitalism.

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The transition from a gold based monetary system to a fiat or paper monetary system occurred in stages beginning in world war i, when all the european nations went off the gold standard, and ending in 1971, when president nixon announced the us would no longer allow other countries to exchange the dollars they held into gold, thus destroying the bretton woods international monetary system. Thereafter, money was no longer ldquo sound rdquo , governments no longer had to balance their budgets and trade between nations no longer had to balance. Governments could create money from thin air and budget deficits and trade deficits could be financed with paper money denominated debt. Every sector of the economy took on much more debt: the government, the households, the corporations and the financial sector. Total debt and, therefore, total credit in the us first topped $1 trillion in 1964. Consequently, the economic growth dynamic ceased to be driven by investment and saving. That explosion of credit created very rapid economic growth in the us and around the world.

However, in 2008, the private sector began to default on its debt on such a large scale that our new, credit based economic system came very close to complete collapse. Had the government sector not intervened by increasing its debt by roughly $5 trillion since then of which $2 trillion was financed by paper money creation , we would now be in a great depression as bad or worse than the one that occurred during the 1930s. Many people think that if we just cut government spending on welfare or have fewer government regulations or fire some bureaucrats that after a short while we will once again be back in some kind of capitalist nirvana. The truth is that there is no way for our 21st century credit based economic system to return to the gold based monetary system of the 19th century.

It would completely break down if we tried to return to a system based on sound money, balanced government budgets and balanced trade. If our economic system, which i call creditism, collapses after a four and a half decade long, $50 trillion expansion of credit, our civilization will not survive it. Generally, people increase their day to day expenditure until middle age, but spending drops thereafter. But it is difficult to determine exactly what drives the fall in spending as people age. Most people think that declining income leads to cutting back on non essential purchases. If you have less purchasing power, it is easier to cut back on holidays than it is on food. But their data, primarily drawn from the consumer expenditure survey from 1980 to 2003, provide an alternative explanation for why expenditure falls as people enter old age.

Block Style Argumentative Essay

But three categories do see declines: food, transportation and personal care which includes clothing. To explain these trends, messrs aguiar and hurst argue we cannot just look at fluctuations in financial firepower. For example, beyond the age of 60, when people are more likely to be retired, expenditure on transport to work declines. Non work travel time actually increases over the second half of the life cycle people have more time to go to museums and see friends. But, overall, the effect of retirement is so strong that total travel time, and spending on travel, drops. The authors also argue that, as people age, their relationship with time changes.

Economists are fond of the phrase opportunity cost , which refers to what you forego in order to do something else. An hour spent preparing a meal at home could be an hour’s foregone earnings it might make economic sense to go to the local takeaway instead. Rather, they may take pleasure in spending time making a quality meal, rather than buying it. And the authors find that the decline in expenditure on food consumed away from home after middle age is driven by people visiting fast food establishments or cafeterias less frequently.