I fully acknowledge that I slept through most of high-school economics, so bear with me as I stumble through this question.
From my understanding, one implication of trickle-down economics (or supply-side economics) is that whatever anybody wants to do with money is good for the economy. Hence, the purchase of the canonical fleet of jet-skis is actually a good and moral thing, for it provides employment for the salesman, the machinist, the guy who does the custom paint job of semi-nude women, etc. When I go bankrupt, I can sell that depreciated asset to someone else who can also get value from it. All this I get.
What I wonder then, is there any such thing as a bad use of money under supply-side economics? Is it possible actually to destroy value? Let’s say I inherit a million dollars. Instead of altruistically investing it in a fleet of turbo-charged monster trucks for quail hunting, instead I decide to sink it in some loser no-win scheme like buying a year’s supply of grain for a small village in Bangladesh. Or, I buy a truckload of specially prepared blowfish sushi and ship it to Arizona in of my fleet of monster trucks, but with the heat and all, it doesn’t exactly make it in edible condition.
Since I haven’t created any jobs or durable wealth, it would seem that according to supply-side economics I must have somehow harmed the economy. Is that accurate? Why or why not, and in what terms would this be measured or expressed? I’m willing to do outside reading, I just don’t even know the terms involved to describe this scenario.
Edited to add… and what are the implications if, say, a whole country engages in activities as I’ve described? What eventually runs out?
First and foremost it’s bad for the economy because you’re part of the economy and it’s bad for you. However, the examples you gave both move the money back into the economy in one form or another. If you were to simply convert it to cash and physically destroy it, or hoard it forever, you would be removing the money from the economy (thereby deflating it a little). This can benefit or harm a huge number of people if the amount in question is substantial enough.
It’s not like there is a magic grain fairy that you pay to get the grain to the village in Bangladesh. It takes farmers to farm the grain, factories to process it, and trucks/ships to ship it. All of that creates jobs, just like manufacturing turbo charged monster trucks.
I would think as long as you spend the money then you are doing the economy some good though you personally may suffer, you will help the whole. During a recession if everyone saves their money it makes the recession worse and pushes Aggregate Demand down aka The Paradox of Thrift.
Then why does everybody keep griping about America’s historically low savings rate? It would seem to me that it’s best for the economy that everyone save nothing and run a small amount of manageable debt in order to keep every dollar in play. I understand that’s bad for personal finance. I just wonder what is the long-term deleterious effect of everybody buying entertainment and non-durable crap that they don’t need, rather than putting it into something that is going to generate value (like real estate, education, small business, etc)
You just said it. It’s wasting resources on crap that has no long term value instead of using to build more wealth and better long-term infrastructure. Think of it on a personal level. If you owned a house, what would happen if you spent all your money on Beanie Babies and nothing on fixing the roof or maintaining the yard? It would eventually fall apart and look like a crackhouse.
On a national level, what would eventually happen is that we would no longer have the educated workforce and infrastructure to produce the crap we buy and those jobs would go somewhere else.
IIRC, supply side economies advocates putting money in the hands of people who create business so that they can hire more people and produce more goods and services. Now I suppose the question is do they actually create more businesses that help everyone or do they just consume more?
Not all economists think that the low savings rate is worth getting one’s panties in a knot over. I am not a macro-economist, but one of the several arguments is that education spending and durable household goods like washing machines count as spending, not savings, when in fact they are arguably investments.
The key phrase in pool’s post is “During a recession”. Since World War II, America’s economy has expanded far more often than receded. In a growing economy, savings is good for the economy, because your bank will lend the money to businesses, who will invest it to improve their production, leading to more sales, more employees, more taxes, etc. In an expanding economy, either saving or spending is good for the Aggregate Demand.
The problem with our low savings rate is that eventually, we get too old and sick to work, and have to retire, and most of us are not frugal enough to survive on Social Security alone. But that’s a microeconomics problem, not a macroeconomics problem. If you spend every cent you make, you will help other people, but hurt yourself.