I’ll take a pass. I may not like certain political agendas that various people are pushing, but I have no interest in stopping them from doing so. But just out of curiosity, would this include rich people making politically motivated movies as well?
I was encouraging everyone to ratchet back on all the hostile language that did nothing to promote the discussion. That would include opening a post with references to a “steaming pile” and closing it with references to persons being “idiots.” You were not the only poster who engaged in such behavior and I specifically did not single you out for rebuke. If you want to spend a few more posts calling attention to yourself and your behavior while pretending that you had done nothing to contribute to the belligerence of the early posts that threatened to derail this thread, you can do that, but it would seem to me that if you actually wanted to participate in good faith, you would simply post genuine responses to the discussion instead of whining that you had some deep need to hurl insults (within carefully delineated lines) in GD.
Given that I was explicit both in my initial post and in my first response to you that this was a specifc instruction to maintain order in this thread, your dishonest “clarification” is bullshit.
Every other poster appears to have recognized that the thread was on the brink of spinning out of control and has simply continued the discussion minus the personal hostility against which I have cautioned everyone, not you. Only you seem to have a need to dance around protesting an innocence that had not been questioned while making it a point to stick your toe over the line to see whether I am watching.
Your next flouting of the good order in this thread will earn you a Warning.
“Trickle down” is the theory that when the wealthy accumulate a larger share of the economic pie the money will “trickle down” to the middle and lower classes as the wealthy use their money to invest in companies, which hire people with the money, or buy services and goods with it that leads to hiring by other companies. It was very popular with the Reagan administration but has since been more or less completely discredited, as the “trickle down” effect so rosily predicted by conservatives in that era (and in every era since) never really actually … occurred. But it’s still very popular with some economists, because it constitutes a rationale for the wealthy having more money, and wealthy people endow think tanks and economic chairs and such, and so being pleasing to the wealthy can be a pretty good gig for an up and coming economist.
“Economic multiplier” is more straightforward. It refers to the fact that money spent in different ways can have a greater or lesser effect on local economies. Let’s say Joe Megabucks gets 10 million bucks from a stock split in one of his investments. He can do whatever he likes with it. If he lets the money stay in the stocks, his money has a very mild multiplier effect on the national economy.
But suppose he spends the money on gold bars from India. And when he gets those gold bars he buries them in his back yard. This has a strong multiplier effect in India, where the money is spent and respent. But none at all nationally or locally.
Suppose however Joe Megabucks uses the money to start a Wingnut factory in his hometown of Megabucksville. The factory employs about a hundred people. They eat at local restaurants and buy groceries from local stores etc. The best way to understand the “multiplier effect” is to imagine a “buck” that Joe Megabucks gives an employee in salary. (Could be a thousand, bucks, a hundred bucks, ten bucks, or one buck, the principle is the same no matter the amount.)
Said employer goes to Mom and Pop’s Video Shoppe and spend the buck on a movie rental or three. Mom and Pop have now been enriched by that buck as well. Two dollars have in essence gone into the community now. Mr. Vito, owner of the shoppe, is so happy with all the extra money he’s making from all the rentals by factory employees that he decides to celebrate, and goes out to the Pink Pony club on Route 7, where he slips the buck into the garter of Cherry Suites, a dancer there. Three dollars spent locally.
Cherry, real name Irma Klump, is hungry after her night of dancing and goes to the Sunrise Cafe and has the all night breakfast special before heading home. She pays for it with the buck. Four dollars spent locally.
Mr. Spivitz, the owner of the Sunrise Cafe, goes to Walmart the next day and buys a pair of socks for his son. Five bucks spent locally, but Walmart uses the buck to buy inventory from China, so the money is out of the economy at that point.
That would make the multiplier effect of that buck in wages four, in terms of the local economy, because four people/businesses have had the benefit of it before it went outside the economy. That’s the multiplier effect, in essence, and that’s also why communities like to attract factories and warehouses and even prisons, anything that hires lots of people – they bring in lots of money to local businesses, which is very taxable.
Versus no local multiplier effect for the money spent in gold bars.
Because economists who advance it aren’t popular with the wealthy.
Yeah, and they would be entitled to all the interest that a pack of cigarettes’ worth of stock can earn in a year. Which woulnd’t even buy them … a cigarette. Fact of the matter is, investing works a LOT faster and easier if you have a lot of money to invest vs. a little. Just because you can afford to buy a stock, it doesn’t mean you’re rich or anything like that.
And those penny stocks … such a GREAT investment, typically, I hear. :dubious:
Well, of course it would, to prevent the running dogs from poisoning the minds of the…wait! it was a trap! Damn, outsmarted again!
Thanks for picking this up. From what I remember, this “multiplier effect” (again, ME) from Econ 101 was not due to loaning money (though you’ve certainly described one way money “inflates”). Rather, the example given was that someone buys a $10 item; the seller then has $10 to spend. IIRC, the ME is tied to profit (that is, the difference between manufacturing cost and selling price – is that the margin rather than profit?). We’ll say the seller made a profit of $2. That $2 is what makes the whole shebang a non-zero-sum game. (Right?)
Now that $2 is passed along in the course of another transaction; again, only a fraction of the transaction is profit, but that fraction again is created as part of the transaction. More money from nowhere! although a much smaller amount. This wealth creation was explained as providing an asymptotic return; IIRC, the figure given was 15%. In simpler terms, I suppose, I’d describe it as compounding wealth. That 15% figure is the ME of which I was thinking.
Does that sound right (or familiar)?
That may be. Although I’m not sure the details matter to the broader point; I guess that the main thing was the idea that a large middle class was beneficial. Perhaps this is a case of begging the question; as I say, it’s not clear to me. If so, another question is raised: is a large middle class [beneficial | detrimental | irrelevant] to an economy? Why?
As examples, the groups of people and their worth are just for (simplified) illustration. Snapshots, if you will, taken at an arbitrary moment in time. To further the illustration, assume the the length of time that is under examination is exactly how long it takes for the ME to be exhausted (more precisely, to reach a neglible amount of return).
In the real world, disparities between/among constituents would arise. Also, the illustration is grossly oversimplified. Not that that normally stops economists (homo economicus, anyone?). Let me put it this way. Assume two bell curves representing wealth distribution, one very flat/wide and one very tall/skinny. Is there a relation between the shape of the curve and the volume of trade?
Note that although the area under both curves is initially the same (i.e., both situations start with the same total amount of wealth), I’m asking about the wealth created through subsequent transactions. Linking the two is quite a step, I think. But the conjecture is that vastly more, yet smaller, individual transactions would create more wealth than fewer, but larger transactions. All due to the ME: even if each transaction adds a very small amount of wealth, it will still create much more wealth than if vastly fewer transactions were made.
Granted, as above. Is that the only way money “inflates”? Am I correct that the very act of making a sale (with a corresponding profit) is also “inflating” wealth? If not, then it seems to me that the bulk of any economy is stagnant; money gets pushed around in what is close to a zero-sum game. But again, correction and education are welcome.
I agree if “it is impossible for a person given to get more than 100k or lose a portion of his 100k”. But that’s not what I’m saying. Assume instead that goods are manufactured; in true Marxian form, the profit gained (or, the wealth created) is solely due to the labor a person expends. For illustrative purposes, posit that everyone expends the same amount of labor and is rewarded exactly the same amount for their expenditure. Each person’s individual wealth grows, as does the total size of the economy.
However, people can choose to save rather than spend; the amount unspent does not generate any wealth (via the ME), as it is removed (at least, temporarily) from the economy. In other words, there is a smaller number of transactions. One reason a person might spend rather than save is to “keep up with the Jones’s”. It’s not clear to me why this isn’t plausible (although admittedly contrived).
Exactly. Well, almost, anyway; some adjustment is required to adhere to my examples. Given the “Marxian situation” I outlined just above and the two groups of people I set up earlier, I’ll figure the luxury wealth available. Assume that each person requires $10K to live. In the case where all 1000 people are (initially) worth $100K, all have $90K to spend on luxury items ($90M total). In the other case, only 10 people have money for luxury items, although those 10 people have a whopping $8.99M apiece! That yields a total of only $89.9M luxury dollars. Not a (relatively) huge difference, but one might consider $100K a substantial amount. (If my math is wrong, please let me know.)
Now, as I said, if “necessity items exhibit less of a multiplier effect, which may be incorrect”, then the case of equal wealth distribution applies the ME to an amount of $100K that is simply never created in the other. So, the amount of wealth never realized in the uneven distribution example is $100K * ME. Over time, the totals continue to diverge, and by an ever larger amount. So, the difference in luxury spending in the case of an even wealth distribution causes the total wealth amount to grow faster (i.e., be more strong) than in the other.
Again, I’ll reiterate that these examples are highly contrived (even if they seem plausible to me). I don’t necessarily see this as a problem, since the same can be said about innumerable economic theories. They illustrate how an even distribution of wealth might be “better” (that is, a faster increasing “pie”) relative to an uneven distribution. Which, IMHO, is quite a decent theoretical point. I am, of course, interested in why it may be invalid, but would hope that flaws are thoroughly, yet simply, explained (that is, what conditions should be tweaked and how that leads to a different conclusion).
I’m at work atm so I don’t have a lot of time, but I remembered this old article by Cecil that might be helpful (and I thought you’d trust this more than an explanation from WSG or Money). Its not really about what you are asking, but it touches on what you are asking. Anyway, thought I’d post it in case you were interested.
-XT
That, and increases in productivity.
I still don’t see why it would, unless you can demonstrate that less profit is being generated because fewer exchanges are occuring.
This is assuming the percentage of profit of one exchange of $100K is the same as a hundred exchanges of $1K each. If you can demonstrate that a hundred exchanges of $1K each will happen, but (on average) one exchange of $100K will not, then you have gone a long way to show your point. But I don’t think you can assume it.
Yes, it does (in my understanding). Among the things that drive a modern economy are [ul][li]increases in productivity, as I mentioned, and the difference in perceived value among buyers and sellers. [/li]
I have $10, and you have a widget. I want the widget more than the $10, and you want the $10 more than the widget. So I give you the money and you give me the widget.
Both of us are happy, because we have increased our total value of holdings (as we perceive it). [/ul] That’s what drives sales, and therefore causes a total difference in perceived value.
Because most “savings” don’t remove wealth from the economy. See Scylla’s earlier description of what banks (and stock-issuing companies, and so forth) do with their money. It seems to me to be just the opposite - investments generate more transactions than immediate spending. I spend $100 on a widget. The widget maker mades a $2 profit. Total amount by which the economy increased: $2.
I put the same $100 into a bank. The bank then lends it to someone, who builds a widget factory and sells a hundred widgets. Total profit: $200. The chairman of WidgetCo pays $8 in interest to the bank, and the bank pays $4 in interest to me. Everyone is happier than they would be if I had spent the $100 at once.
I have to think about your luxury wealth problem. I have a hunch it is like the doorman and the missing $2, but I may be wrong.
Regards,
Shodan
Unless, of course, the bank makes bad loans. Impossible, I know, but theoreticly… Might they not then turn to the government for a bail-out? Of course, the gov, being loathe to interfere with the sacred machinery of the free market…sorry, Free Market…would sternly refuse, of course, but I’m just talking theory here…
The depths of my ignorance on these matters occurred to me last night; I appreciate the corrections. “Making the economy less volatile” didn’t make sense when I read it later.
As am I. Along with the trade-off of a lessened tax rate.
I don’t want to hijack, but I’ll put forth my opinion on this matter (just as an explanation, nothing more). My default position is that more people “doing better” is preferable to fewer. Of course, it’s not quite so simple (nothing ever is, right?); “better” is inherently comparative and thus needs some metric applied. To me, a purely monetary metric is inadequate. What to use instead is highly contentious (and I don’t have an answer), and discussion would warrant a separate thread.
Huh? I was thinking of Mel Gibson. Are you a fan?
He said, batting big, brown innocent eyes…
To give the question more attention than it may be due, I don’t know. A lot of progressive politics is like that, it is more a matter of direction than policy. Clearly, there is a balance point where a mans personal wealth should be a neutral factor in his political power, but I suggest we are far from such a point now. I would be loathe to penalize a citizen for his wealth, public-forum wise, but suggest we seek out ways to neutralize his capacity to buy a bigger megaphone than his fellow citizens.
Shirley that’s reasonable?
As it is for most people.
Much of my argument against class warfare is based on my understanding that allowing people to keep more of what they earn (after the necessary functions of government are funded) is that this leads to “the greatest good for the greatest number”. It is a highly counter-intuitive notion - it is hard to believe that robbing Peter to pay Paul doesn’t benefit Paul as much as letting Peter alone. But, as my investment example shows (and the history of Marxism), it tends to be the case.
I would say that there is a minimum living standard that can be achieved thru transfers, as inefficient as that may be. And the necessary functions of government need to be paid for. But once you have reached that, the justification for taxation (in my view) disappears. It is not legitimate to tax someone (as I have said) just because he is making more than most. His earning more does not harm anyone; indeed, just the opposite. Rich men fill a lot of bellies with what they spend, and a lot more with what they invest. The millionaire I mentioned earlier created a business that supported a couple of dozen families. Certainly the government could have said, “he is earning way too much; tax it away”, and then maybe handed it over to some poor family. What they did worked out better.
My non-monetary metric, then, is to say that as long as no one is starving or otherwise in serious want - we can quibble about the levels - and the government has enough to fulfill its Constitutional duties, then everyone gets to keep everything they have and the only legitimate question is “what is the least disruptive way to collect that amount of money?” Not “how can we jigger it to transfer what Bill Gates earned to those who voted for me”. And, in return, everyone has an opportunity to get rich themselves. It can be done. All this crap about how the rich are holding me down is nonsense. Just the opposite is true - the more investment, the more jobs and growth (subject to the usual limitations of human frailty).
Robin Hood was a public menace. The Sheriff of Nottingham for President!
Regards,
Shodan
I am interested and I would “trust” an article from the WSJ or Money (after all, foundational economic theory is both common and dry enough that I should think it would be difficult to claim bias; that may or may not be the case for political positions espoused there). Thank you. However, it doesn’t really address the issue I’m raising, but is a separate method by which wealth is created.
OK, so there have been 3 methods of wealth creation outlined thus far: (1) loans, (2) value differential between buyer and seller, and (3) increases in productivity. Good, this is educational – are there more?
Right. My conjecture is that more transactions provide a greater number of times the ME comes into play. If you’re familiar with “big-O” notation from computer science, it would be similar to comparing constant versus linear (or quadratic, or exponential, or whatever) time algorithms. At times, it seems plausible; at others, it strikes me as silly. Mostly, it seems plausible, which is why I’m still pursuing it.
A different way of putting it would be to refer to, as you put it, “the difference in perceived value among buyers and sellers”. The greater the number of transactions, the greater this differential comes into play. In each, wealth is created; whether or not vast repetition of small(er) differences over a few large(r) ones would result in a higher total wealth is exactly my question. Put that way, it once again seems plausible to me.
Yes, of course that’s right. I’m sorry, that was careless on my part; I was thinking of “money in the mattress”, not savings in a bank that can be subsequently loaned.
I would appreciate it. As much time as this is taking out of my schedule, it’s been worthwhile thus far and I sincerely appreciate the responses.
All taxation is social engineering, one way or another. You might object to government management of the economy, but economic history shows that both too little and too much government management is bad. Too much reduces efficiency, too little allows large oscillations in the business cycle that hurt almost everyone.
Progressive tax rates shouldn’t be punitive, but they might be if the mass of people react against the rate being too low for the rich. They should more or less balance the pain, with the recignition that incremental dollars are worth less to a person the more they have already. That’s not class warfare. Saying the rich should pay 99% tax because they are greedy might qualify, but so would saying the poor should pay at the same rate as the rich because a dollar is a dollar.
Reducing the gap between winners and losers is far different from deciding which is which. Increasing the highest bracket 5% won’t make any winner a loser.
It all depends on what gets done with the money. I’m all for rejecting a tax increase to build a bridge to nowhere in Alaska. On the other hand, a kid who is missing out on a period of school where he can be learning so that a rich person doesn’t have to pay more tax might feel he is being injured. (In California we have one less period a day vs. NJ because of Prop 13. The injury is real in lack of time for PE, science, language, etc.) I know schools are local, but its the same principle and I hope less controversial than bringing up healthcare again.
As for Edwards, it takes all kinds. I don’t mind him - Mr. Bush, on the other hand, has always made me dream of punching him in the face - even back when I was a Republican.
The bottom line is that our giant government is going to affect the economy. We need to decide how it does so. If you’re in favor of the rich keeping everything, fine - just don’t pretend that is a value-neutral position.
There is a factor which is a subset of (2) - the expected profit on leveraged transactions. I borrow $100, with a 5% interest rate. I expect to earn more than 5% on the money. This increases its value.
Only if the total value of all the smaller transactions, added together, is larger than the total value of all the larger transaction(s). Are you assuming they would be the same, or do you have a reason to expect that the one would be larger?
Actually, even hiding it in the mattress (assuming a constant money supply) will benefit everyone else who has money, by reducing the available supply and thus driving up the demand. Not as efficiently as spending or investment, but there is a factor there.
All I have been able to figure out so far is that everyone would still be spending $10K apiece on subsistence, so that amount would still be circulating in the economy. But I can’t see how redistributing a certain amount changes the total amount available.
Of course, I can’t quite understand the Monty Hall problem, either. Maybe a more mathematical Doper can assist here.
Regards,
Shodan
Not necessarily. You need to look at what the consequences are of any particular action because sometimes the cure is worse than the disease (if there is a disease in the frist place). If rich man A should be discouraged from giving money to a poltical think tank, then I can’t see how rich man B shouldn’t be discouraged from making a political movie. So, unless you tell me what specifically you want to do, I can’t tell you whether it’s good or bad. Especially if I’m suspicious of the general idea in the first place, which I am about your general proposal.
Doh! Hijack in progress…
To be clear, I didn’t mean that to indicate most people didn’t. Again, pure exposition; different conclusions are only natural.
And I agree. However, I think of this in a similar way to the copyright issue – there is a point between the extremes that is “best”. With copyright, the extreme on one end is no intellectual property; on the other, total control. Some copyright advocates push for total control on similar grounds to what you said earlier about wealth (“THEIR capital”). Personally, I think that some amount of freeing control (that amount is always contentious) actually provides a greater total good. That is, some individuals lose some benefit, but that is offset by the aggregate benefit to a much larger population. For more of my personal view on copyright, see this thread; I think the middle part of post #144 is the most succinct.
In wealth distribution, the one extreme is “I got mine, now fuck off”. The other is “you owe everyone else what you have simply because you have it, you selfish pig”. As you say, somewhere in the middle lies the “best” for society. This notion of “class warfare” becomes more prevalent near either extreme. “Loosening control” in copyright is analogous to more wealth redistribution (that is, higher taxes).
OK, so maybe the hijack is coming back into line with the OP. In case it’s not obivous, let me spell out why I ask the question concerning lowering the income gap. To me, the argument that “the pie is increasing in total and everyone benefits, even if only a small number benefit (much) more than most others” is devastating. The best way to counter it would be to show that no, in actuality, having more people benefit would actually lead to an even larger “pie”. That undercuts any moralistic argument, fighting with common terms. I’ve conjectured one way that may be; even though I think it holds water, I’m still not fully convinced.
Is the principle sound? Do you disagree that all citizens, to the extent it is possible and practicable, should have an equal standing in the civic arena? Do you believe that the wealthy citizen is somehow more deserving of a louder voice? If you agree with me that this is unjust, as well as unwise, what steps should be taken? If we won’t permit one man more civic power than another due to his skin coloration, why should we permit it on the basis of wealth?
These are rather simple questions, your suspicions of my motivations notwithstanding.