Fundamental relationships

Making things requires two main ingredients: natural resources and our time and effort. We use these to create tools (capital), which help us make more things from natural resources.

When we produce things, we create two results: the items themselves and the money we earn from them. In the long run, how much money we make compared to others affects what we can buy relative to others.

Our opportunity to pursue happiness grows when we have more free time and buying power. The only way to increase both at once is to become more productive (do more in less time).

Having the opportunity to pursue happiness doesn't always mean we'll be happier.

We become more productive by creating better tools and finding smarter ways to work.

Improving productivity requires sacrifice and changes how society operates.

As productivity improves, some jobs disappear, and new jobs are created.

Everything we make gets used up (consumed). What we consume equals our income plus any new debt, minus debt payments and savings.

Improvements in how we work at our jobs can help us buy time saving goods like dishwashers that make us more efficient at home. The labor participation rate tends to rise with efficiency in our homes.

Things like chainsaws can be business tools or time-savers at home. Both help us be more productive.

Houses are for living in and saving time, and should therefore be included in consumption not investment spending.

Borrowing money to buy fun things (like RVs or vacations) boosts the economy short-term. But since these don't help us earn more, paying back the debt can limit our future opportunities.

Spending borrowed money always gives the economy a quick boost. It leads to long-term growth only if it helps us become more productive.

In the US, money flows through a two-level system. The Federal Reserve creates the base money, and banks create the money we use. The base money multiplier explanation of how the Federal Reserve stimulates the economy is incorrect.

The total debt in the country is crucial because regular people ultimately have to earn the money to pay it all back.

When debt and asset prices (like house prices) rise quickly, it often signals a coming economic crisis.

When the Federal Reserve buys lots of assets, it affects relative income.

In the long run, what people believe and value drives economic vitality. 

All our economic activities must fit within the limits of Earth's resources.