The rich don’t consume, they invest. You sounded so plausible for a moment there! And how does investment contribute to aggregate demand? If you by 1000 shares Cheesicom and they sit on all their cash, which is what US Corps are doing, and don’t give their employees raises, which is ALSO what US Corps are doing, how is that contributing to demand?
I wish I could claim it was only my standard, but it ain’t. I already stated my views where influenced by reading John Rawls and the utilitarian philosophers. Who decided that they should not be entitled to a fair share? Or actually, I know the philosophical arguments. I rejected them a long time ago.
It disgusts me that a person ‘rights’ in this world depends on what zip code they were born in. Everyone on this planet is equal. An amazing concept I know. I think I picked up that bit from some philosophers who were running around a couple thousand years ago. I found their arguments far more compelling.
As far as distribution, more than few Europeans had some ideas on that, and have done a greater job that we have in making it happen.
No, the root of my ideology is that wage labor is no longer sufficient to ensure a decent distribution of the benefits our society has created - rich, poor and middle alike. In the short term that means increasing the opportunity for people to not be wage earners, and in the long term a basic income will probably be necessary.
No, it is about pure numbers and reading history. Too often, the only way the poor can remove the barriers holding them down and creating the disparity is through revolutions. Often very bloody affairs. I do hope we can avoid most of that this time around, but the longer certain people continue to advocate the status quo is sufficient and do not try to help the transition to a more equitable world, the odds increase that the poor will resort to their usual tactics. Thus the difference between Egypt and Libya.
It may sound trite, but it is still true: “You can be part of the problem or part of the solution.” Myself, I would prefer to work on solutions than to try to keep propping up a failing system. I know I would prefer a peaceful transition before that system completely fails and there is blood on streets.
Nope. The rich are sitting on 2 trillion dollars that the financial pros want to get a hold of. They are begging the rich to let go Most of It sits in off shore banks evading American taxes.
The rich don’t consume anymore than the poor? They certainly seem to have more expensive belongings. Saying “the rich don’t consume, they invest” is horribly simplistic and you cannot truly believe this.
Note how you specifically take a case where a business sits on all the cash. You know quite well that this usually isn’t the case. If you buy 1000 shares of that company, it can buy more capital goods and hire more, both of which increase the velocity of money which is half of the aggregate demand equation.
In the case where the business doesn’t spend the money, then it effectively functions as a sort of savings and if it’s done widely enough through an economy, you can then still get stuck with a liquidity trap. In that case, the State can do what I outlined previously to increase aggregate demand.
Hear hear!
Non-rich people should not have to pay any higher effective tax rates than rich corporations, people and churches. Let’s start a constitutional amendment.
What kind of idiots will give their money to the same financial pros who created the Great Recession? It’s the same people running the big firms in most cases, and in all cases, the same KIND of people, because there were almost no sanctions against the financial pros for their failures. And the law still allows the financial pros to set up Vegas style wagering, just different kinds of wagers. Nobody trusts the financial industry any more.
They are not buying capital goods, and hiring has been very slow for decades, with wages stagnant for decades. See: productivity increases. The businesses won’t get off the cash until they are sure it won’t be pretty much stolen by the financial industry. And that may be a long time.
Oh, yes, printing money, nothing like massive inflation for people whose income hasn’t gone up in decades. That’ll go over big.
But there are far fewer of them. It’s far more profitable to sell basic goods to the mass market than luxury goods to the niche market of the wealthy. Which is why policies that increase the concentration of the wealth at the top drag the entire economy down.
But most stock transactions DON’T increase capitalization. Unless the company happens to be issuing new shares, they just shift ownership. So the transaction doesn’t allow the company to buy more good or hire more. It just concentrates control in fewer and fewer hands.
Huh? Buying shares doesn't increase the velocity of money. Velocity of money isn't part of the aggregate demand equation. The most important part of aggregate demand is consumption and the biggest part of consumption comes from middle class consumers simply because they are far more numerous than the rich. And at a more subtle level, increasing aggregate demand isn't a fundamental problem during a normal economy. It is a serious issue during a recession but most of the time there is sufficient demand in the economy. And in any case the best way to increase demand is to increase middle class consumption.
Anytime anyone mentions productivity increases without the corresponding wage increases/stagnation is only understanding part of the equation.
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Productivity increases necessarily implies wage stagnation, even decline because a) most likely there is an increase in automation or best practices which makes the job easier to do, easier to do jobs or increase in automation means that there is a larger supply of people (or machines) that can do the job which drives down wages. In some instances if labor is shifting to outsourcing, then there may be a corresponding wage increase;
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the other part of the equation is lower prices; when people were supposedly making more money, how much were goods and services back then? See tvs, computers, cars, clothes. Some food prices have increased but that is mostly due to increase in fuel. Anecdote: My side practice has not raised fees since we opened. We’re supposed to be the low cost alternative, so we can’t raise fees if our competition is not raising or in some cases dropping them.
Mass market goods means that there is even more competition on price, and consumers seriously consider alternative goods. In this area, profit is highly dependent on volume. Niche products have the fatter profit margins, and time to market and volume are secondary considerations.
Cite? Increase in stock prices means that the firm now has more capital to draw upon or draw credit from. One of the biggest financial instruments for a firm is its letter of credit. A sharp decrease in stock price means less probability for a loan and a reduction in the line of credit (especially in today’s economy). A decreasing or stagnant stock price is not going to attract investors which will lead to a decrease in the stock price.
[sorry, quoted out of order] Since capital attracts capital, or in other words: it takes money to make money, you’re going to have to explain this one a little further since wealth concentration will happen anyway without government intervention.
They don’t change their consumption patterns significantly based on income changes (at least as much as for the poor).
If you make $1Billion a year, you spend some amount of that. If you get an extra $1M, you aren’t going to say “oh boy, now I can get that iPad I wanted”. They already buy every consumer good they need. You just get a bank account with a slightly different number. Sitting on the sidelines waiting for demand to increase so they can be effectively invested.
If you make $100K, and get an extra $1K, you might just spend it.
If you are living paycheck to paycheck, spending every dollar you make, and get a couple extra dollars, they will go straight into the economy as demand.
When did I say massive inflation? I specifically said to increase aggregate demand a few percentage points above aggregate supply. This means there would be inflation of a few percentage points.
You say hiring has been slow for decades, this is false. Do you not remember the 90s when the unemployment rate was around 4-6%?
You say “they are not buying capital goods”, this is plainly false. Businesses haven’t bought machinery, buildings, raw resources and such for the last decades? This is obviously false. When a business buys these, it is buying capital goods.
Lantern, aggregate demand= quantity of money X velocity of money. Did you learn something else? If so, I would like to know what it is because I might be wrong.
Also reread what I wrote. I said buying shares allows the business to buy capital goods and hire more, both of which increase the velocity of money. Do you deny this?
Hamster, you seem to think that if something is more profitable for a business, it is better for the economy as a whole. There’s no reason for this to be true. It’s better for the shareholers but no reason to think it’s better in the aggregate.
You say that it’s more profitable, have you looked at the profit margins of grocery stores? There is more volume, true, but how you get that it’s more profitable in such a broad way, I don’t know.
Also, shifting ownership means someone else now has more income.
I don’t get why you are all debating this. Hamster king said there had to be demand, I said that Reaganomics* is compatible with policies which insure sufficient aggregate demand. It is plainly true that someone making 200K consumes more than someone making 20K and that if I buy machinery, raw resources etc it increases aggregate demand. And again (third time now) if there is not sufficient aggregate demand, do what I said previously. No, it will not result in massive inflation because aggregate demand will be a few percentage points above aggregate supply.
Your insistence that demand is supreme is just a botched version of Keynes’ theses which he would be ashamed of.
- To know wherether ot not I agree with that plan, I’d have to know more about it, I’m not arguing for it.
The aggregate demand equation usually refers to C+I+G+NX but I realize that you are referring to is the quantity theory equation where MV equals nominal income which can be considered equivalent to AD. However it’s not a particularly helpful way of thinking about the ways of increasing aggregate demand since velocity is a much more obscure variable than the components of aggregate demand like consumption and investment which have been measured and analyzed in great detail.
In any case capital gains are not a significant variable affecting velocity which is usually determined by things like the payments system and interest rates. And it’s far from clear that capital gains produce a significant amount of investment because the money doesn’t go directly to the companies unless they use a rising share price to issue more equity. And when consumer demand is weak companies aren’t going to buy capital goods when they probably have a lot of excess capacity anyway.
So tax cuts for the rich aren’t a particularly effective way of boosting AD. Increasing G (government purchases) is a direct way of boosting AD and if you absolutely want tax cuts middle class tax cuts which are more likely to be spent are far better than tax cuts for the wealthy.
It’s true that if consumer demand is weak, shareholder investment will not result in much business investment*. Is G gov’t purchase or gov’t expenditure? It may seem like a distinction without a difference but some expenditures are not purchases e.g.: the earned income tax credit which increases AD.
“In any case capital gains are not a significant variable affecting velocity which is usually determined by things like the payments system and interest rates”
Hence why I talked about the Fed lowering interest rates to increase velocity at the 8:49PM post.
It’s certainly true that a policy which only consisted of cutting capital gains and high bracket taxes would not suceed because once you’ve reduced those as much as they can go and you get a recession, what do you do? But that policy can be combined with the means outlined above.
*There are at least two types of investment. When I buy shares, that’s an investment. When the business I bought shares from takes that money and buy machinery, that’s another type of investment.
In terms of the measurement of aggregate demand and GDP the first doesn’t count as investment only the second one does. And when you buy shares it doesn’t go to the business. It goes to the existing shareholders of the company. Only if the firm issues new equity, something which is pretty rare, does the business actually get new funds to buy machinery.
In any case businesses are sitting on massive amounts of cash. That is not what is stopping them from investing; rather it’s a lack of demand in the economy and especially a lack of consumer demand.
Who consumes more - 500 poor person or one rich person who makes as much as those 500 put together? Who consumes a greater part of their income? Don’t call other people’s posts simplistic when your post looks like it assume there are as many rich people as poor people.
How about Apple?. $40 billion in the article from last year, I heard they now have $60 billion, but I think the cite is good enough. We also know that banks had stopped lending and were sitting on their cash for a while.
Effective demand comes from the masses of poor and middle class spenders. The rich have huge bank accounts, homes around the world and make huge foreign purchasers. Gates has a huge mansion that kept workers busy for a year or so building it. But money in lots of pockets would have a lot of people buying homes. Lots of workers making money and spending on entertainment, food and products. that is how an economy is sustained. The fact is huge money at the top does not trickle down. The top 1 percent have the wealth of 200 million Americans. That is not how demand is stimulated.
Higher income correlates with a higer savings rate, it’s true. I called what Evil Captor said simplistic because he said “the rich don’t consume, they invest” which is simplistic. My post doesn’t assume there are as many rich as poor people, it simply doesn’t. I said that the rich consume too, if the wealthy’s increase in wealth only translates into, say, 50% of what it would be for the poor, then have twice as much of it*. After that, I talked about how if AD is insufficient, the State can use other means to boost it.
If Apple is sitting on a lot of cash, then it isn’t investing it. As others pointed out, it’s just a transfer from one investor to another. If Apple did hire more and buy more capital goods, that would be an investment which would contribute to AD.
You take the specific case of Apple, again, it’s true that it can happen for specific businesses. The fact that it happens for Apple is not any kind of problem. As I said above, if it happens widely enough to create a liquidity trap, there are other means compatible with trickle down that can be used to put AD a few % points above aggreate supply (AS).
If the higher savings rate of the rich and businesses sitting on cash causes a problem, refer to what I outlined above. If you believe those means would be insufficient to put AD a few % above AS, please say why.
- There may be other reasons why you wouldn’t want the wealthy to become wealthier or why you would prefer to give tax breaks/money transfers to the poor and middle class. I’m in favor of it myself. But the idea that trickledown will lead to insufficient demand is simply false.
Gonzo, I have responded several times to your posts in previous threads and you have made a habit of just bitching about capitalism, the rich and imports and then not reply back when someone adresses you, do you really expect me to go for a round of that?
Sorry for double posting.
Lantern, thanks for correcting me on the definition of AD.