Mary Schweitzer writes:  
 
"Regarding financial intermediation: 
     Focusing simply on the level of savings and concurrent bank 
activities misses an important engine in the history of finance -- 
financial innovation.   
     The shift into modern rates of growth in the U.S. sometime  
around the 1810s or 1820s was preceded by a profound restructuring 
of financial institutions and markets.  As reducing transportation 
costs benefits both consumer and producer, so too reducing costs 
of financial intermediation benefits those who would fall into 
far different categories if you stuck to the rigid box category 
interpretations of macro growth." 
 
You still need to be cognizant of the impact of innovation on the  
balance sheet of banks.  Successful innovation reduces the cost of  
financial intermediation as well as introduces other financial  
products in the market place.  For example, the ATM technology  
reduces the (labor) cost of banking while it increases deposits from  
customers.  Deposits increase because customers reduce their  
desired cash-deposit ratios.  Thus for the economy, more purchasing  
power is made available for borrowers (possibly at a cheaper cost),  
and more investment spending also takes place.  Again we see the  
logical prior of savings over investment spending. 
 
I shall resist the temptation from Mary and some others to engage in  
a debate over redistributive or leftist ideology.  Not because I  
can't (and don't in other contexts; for a teaser, remember the 10th  
of the Ten Commandments, or "Suggestions?"), but because that will  
detract from the issue at hand: how do we go about doing "proof in  
economics", and whether worrying about the fundamentals would not be  
a more worthwhile endeavor than evaluating econometrics results or  
models.  So far, I think Larry Moss's point has well been confirmed.   
If we can't even agree on what is meant by investment and how it is  
financed, what's the point checking for levels of statistical  
significance, cointegration, etc.?  As my last econometrics professor  
used to warn, "garbage in, garbage out!" 
 
James Ahiakpor 
CSUH, Hayward