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You are making a very common mistake, the idea that investment is not spent in the broader economy. Savings/investment does push resources into the economy. A

by ckinnan 11y ago

You are making a very common mistake, the idea that investment is not spent in the broader economy. Savings/investment does push resources into the economy. An investment in Tesla, to use your example, is immediately put to work buying supplies and hiring researchers. It isn't like the investment is sitting as stacks of paper in a room at Tesla HQ. Similarly a bank uses its savings to lend to people and businesses, who in turn use those resources to buy homes or fund businesses. A student loan is very much spending, the purchase of college tuition with it in turn funds professors' salaries, campus operations, and so on.

dvk 11y ago
Money spent speculating on TSLA does not get to Tesla. Except perhaps indirectly in motivating Tesla employees who hold stock.
- zo1 11y ago
  Agreed. Ownership of the stock has become it's own separate monetary-earning "entity", especially as the companies are more interested (for some unknown to me reason) in increasing their stock-price, instead of creating income for their owners.
logfromblammo 11y ago
The money that moves from investor to business is given in exchange for an equal amount of ownership in the business. That does not, in itself, generate any beneficial economic activity. Here is the degenerate case. Someone creates a corporation. They take $1000 from their pocket, put it in the corporate strongbox, issue 100 shares at $10 each, value the corporation at $1000, and put the shares and the key to the strongbox back in their own pocket. There is a lot of movement going on, but nothing has really changed. The corporation still doesn't do anything. Now suppose that another investor joins in. They add $1000 to the strongbox, and take 100 shares. The value of the corporation is now $2000. Really pile it on, now. 98 more investors each add $1000 to the strongbox and take 100 shares. The corporation is now worth a whopping $100k, with ownership split 100 ways. This is still a null entity to the larger economy. Now let's have the corporation buy a moneymaking machine that costs $100k up front, and makes $100k per year. The investment $100k goes to the manufacturer, who now gets to spend it. The corporation hires a machine operator at $50k/year and spends $4k/year on insurance. The employee gets to spend half of what he makes with the machine. The corporation is now accumulating $46k in profit per year. The owners are sitting on ass, cashing fat checks, and the employee is dutifully sending out those checks. That's fine. Without their pooled investment, none of them could have purchased the moneymaking machine alone. But the benefit does not come from the investment. It comes from spending money and doing actual work. Without that, you're all just building a new box to hold your money. Now here's an alternate scenario. The person who would otherwise be the machine operator employee borrows $100k with 12 $3k quarterly coupons, and principal to be repaid after 3 years. (That's about 10.8% annual interest.) Each quarter, he makes $25k with the machine, pays a $3k coupon, spends $12k in living expenses, socks away $9k to pay off the principal, and $1k to insure the machine. After those 3 years, the operator can now spend that extra $12k/q on something other than living expenses. Now we'll go one step further, and instead of getting that $100k from borrowing on a bond, the operator rents the machine from the manufacturer for $4k per quarter (insurance included in lease), and buys it outright after 3 years. Why would the manufacturer even consider that? Answer: he can't build the machines and operate them at the same time. The machine that builds the moneymaking machines must necessarily make more than $100k worth of machines per year, after all. If demand keeps up, the lease-to-own option could be bringing in more income than cash-and-carry sales. So what do the investors really add, here, from the perspective of the machine operator and the manufacturer?

by ckinnan 11y ago

dvk 11y ago

Money spent speculating on TSLA does not get to Tesla. Except perhaps indirectly in motivating Tesla employees who hold stock.

zo1 11y ago
Agreed. Ownership of the stock has become it's own separate monetary-earning "entity", especially as the companies are more interested (for some unknown to me reason) in increasing their stock-price, instead of creating income for their owners.

logfromblammo 11y ago

The money that moves from investor to business is given in exchange for an equal amount of ownership in the business. That does not, in itself, generate any beneficial economic activity. Here is the degenerate case. Someone creates a corporation. They take $1000 from their pocket, put it in the corporate strongbox, issue 100 shares at $10 each, value the corporation at $1000, and put the shares and the key to the strongbox back in their own pocket. There is a lot of movement going on, but nothing has really changed. The corporation still doesn't do anything. Now suppose that another investor joins in. They add $1000 to the strongbox, and take 100 shares. The value of the corporation is now $2000. Really pile it on, now. 98 more investors each add $1000 to the strongbox and take 100 shares. The corporation is now worth a whopping $100k, with ownership split 100 ways. This is still a null entity to the larger economy. Now let's have the corporation buy a moneymaking machine that costs $100k up front, and makes $100k per year. The investment $100k goes to the manufacturer, who now gets to spend it. The corporation hires a machine operator at $50k/year and spends $4k/year on insurance. The employee gets to spend half of what he makes with the machine. The corporation is now accumulating $46k in profit per year. The owners are sitting on ass, cashing fat checks, and the employee is dutifully sending out those checks. That's fine. Without their pooled investment, none of them could have purchased the moneymaking machine alone. But the benefit does not come from the investment. It comes from spending money and doing actual work. Without that, you're all just building a new box to hold your money. Now here's an alternate scenario. The person who would otherwise be the machine operator employee borrows $100k with 12 $3k quarterly coupons, and principal to be repaid after 3 years. (That's about 10.8% annual interest.) Each quarter, he makes $25k with the machine, pays a $3k coupon, spends $12k in living expenses, socks away $9k to pay off the principal, and $1k to insure the machine. After those 3 years, the operator can now spend that extra $12k/q on something other than living expenses. Now we'll go one step further, and instead of getting that $100k from borrowing on a bond, the operator rents the machine from the manufacturer for $4k per quarter (insurance included in lease), and buys it outright after 3 years. Why would the manufacturer even consider that? Answer: he can't build the machines and operate them at the same time. The machine that builds the moneymaking machines must necessarily make more than $100k worth of machines per year, after all. If demand keeps up, the lease-to-own option could be bringing in more income than cash-and-carry sales. So what do the investors really add, here, from the perspective of the machine operator and the manufacturer?