5 ms·

"As for the real world you can observe demand satiation right now among different ranks of the rich. Look at billionaires. They consume much more than the man w

"As for the real world you can observe demand satiation right now among different ranks of the rich. Look at billionaires. They consume much more than the man who has only a few million in the bank, but sub-linearly more." Which is why the growing wealth inequalities are bad for the overall economy. The rich can't spend their money with enough scale or velocity.

robotresearcher 10y ago
But the money of the rich is in circulation in the form of investments. Why is retail spending better for the economy? I'm genuinely interested.
- czinck 10y ago
  I started to type out about how those investments need to eventually end up as a product on the shelf (metaphorically, B2B counts) to keep the supply/demand cycle going, but I don't think that's necessarily true. The money should end up as either all salary, or some salary and some product, but the salary gets spent so the supply/demand wheel keeps spinning. If too much goes to salary than the investment stops making sense and the rich will hoard cash instead, but I don't think we're in that situation. Could that be why QE was pumping so much money into the economy with inflation staying low? I bet there are statistics about the amount of cash people and companies are hoarding now vs 50 years ago, but there's too many confounding variables for me to figure it out.
  - robotresearcher 10y ago
    Even cash deposits are held in banks and (a large fraction of the total held by any bank can be) loaned out into circulation.
- slv77 10y ago
  Depends on how it was earned and invested. For example assume that a new billionaire is minted by a lottery with 100 million people buying a $10 dollar ticket. Long term it's neutral but in the short term it effectively removes $1B in near term consumption from the economy and spreads it out over 100+ years. On the other side a million people will likely better invest and sound a thousand dollars than one person will invest one billion.
  - robotresearcher 10y ago
    But the new billionaire doesn't stuff her mattress with ten million hundreds. She buys investments, which go back into the economy. Or she puts cash in the bank, which goes back into the economy....
    - slv77 10y ago
      The money she collected from the lottery ultimately represent a call option on someone's future labor. After the lottery that call option has been handed to a single individual who may never make that call in her lifetime. The effect is similar to the coal mining town's company store where you can only buy what they sell at the price they set. The effect is to concentrate economic activity in specific sectors where banks are willing to lend which means the economy is less flexible overall. An economy with $1B of debt and $1B in savings spread over 10,000 people is going to be more diverse and resilient than 9,999 people who have $1B in debt and one person with $1B in savings invested in housing and car loans. The best outcome would be if she invested in new equity in a company that created a positive ROI in excess of what the lottery ticket buyers would have produced. Anything else is a net negative.
- ArkyBeagle 10y ago
  At one point, something like 70% of GDP was consumption. It's less now. This is fine so long as investments move. We have such a high degree of aggregation of capital now that it sort of doesn't. It's sort of ... pinned down in the light cast by the public markets. Even mutual finds are just now coming of age, much less the things that were innovations on them.
logfromblammo 10y ago
Which is something I don't really understand. In a sandbox game like Minecraft or Dwarf Fortress, once I have met all the objectives built into the game, I can invent new and ridiculous objectives, such as "build a fortress entirely out of obsidian 200 z-levels high". Once you're rich, and can no longer spend all your income on everything you can think to consume yourself, you can buy a megaproject. Run a political campaign for PotUS. Build a working town, like Disney's Celebration, Florida. Develop a self-driving electric car. Build a city that floats on the ocean. Start a Mars colony. Build a single Dyson heliostat. Breed elephants down to the size of Great Dane dogs. Develop sono-videophones so that dolphins in zoos can talk to each other. Cure one or more types of cancer. Breed a horse that wins the triple crown. Found a religion that out-grosses Scientology and Mormons, combined. Repave all the highways in your state, and do a structural integrity assessment of all the bridges and overpasses, too. There are countless ways to spend a colossal pile of money. How does one get control of so many resources with a finite and exhaustible amount of imagination?
- mitochondrion 10y ago
  They didn't get rich by spending everything they had, they got rich by saving (and investing) everything they could.
  - logfromblammo 10y ago
    It doesn't matter how they got rich; what matters is what they need to do going forward. As they say, "past performance is not indicative of future results". If the ultra-rich do not spend enough, they might begin to undermine the foundations of the economy. Then, if enough people can trace the apparent cause of their suffering to the wealth inequalities, they will start killing and/or looting rich people, possibly without regard to their individual conduct. So by all means, if you think you're strong enough, go ahead and hoard ever increasing amounts of wealth, without limit. There's a distinct likelihood that your estates will never be besieged by hordes of starving peasants, and that you or your heirs will never be kidnapped for ransom (or revenge) if you ever attempt to travel beyond your own holdings, and that you will never be shaken down by corrupt officials. The less people perceive the systems of civilization to be fair, the less apt they are to respect its rules of conduct. It only takes one pissed-off person to make your life Hell, and there are 7 billion candidates out there just waiting for you to give them a good reason. We got from the beginning of the industrial age to now by burning coal and oil. But if we continue to do so now, it is likely to eventually make the surface of the entire planet uninhabitable, rather than just Beijing. Responsible people have therefore been shifting to more technically advanced sources--such as wind, solar, hydro, and fission--to meet their power needs. In the same way, people who have grown so rich that they could buy anything they might possibly want must alter their habits to avoid poisoning their own environment.

robotresearcher 10y ago

But the money of the rich is in circulation in the form of investments. Why is retail spending better for the economy? I'm genuinely interested.

czinck 10y ago
I started to type out about how those investments need to eventually end up as a product on the shelf (metaphorically, B2B counts) to keep the supply/demand cycle going, but I don't think that's necessarily true. The money should end up as either all salary, or some salary and some product, but the salary gets spent so the supply/demand wheel keeps spinning. If too much goes to salary than the investment stops making sense and the rich will hoard cash instead, but I don't think we're in that situation. Could that be why QE was pumping so much money into the economy with inflation staying low? I bet there are statistics about the amount of cash people and companies are hoarding now vs 50 years ago, but there's too many confounding variables for me to figure it out.
- robotresearcher 10y ago
  Even cash deposits are held in banks and (a large fraction of the total held by any bank can be) loaned out into circulation.
slv77 10y ago
Depends on how it was earned and invested. For example assume that a new billionaire is minted by a lottery with 100 million people buying a $10 dollar ticket. Long term it's neutral but in the short term it effectively removes $1B in near term consumption from the economy and spreads it out over 100+ years. On the other side a million people will likely better invest and sound a thousand dollars than one person will invest one billion.
- robotresearcher 10y ago
  But the new billionaire doesn't stuff her mattress with ten million hundreds. She buys investments, which go back into the economy. Or she puts cash in the bank, which goes back into the economy....
  - slv77 10y ago
    The money she collected from the lottery ultimately represent a call option on someone's future labor. After the lottery that call option has been handed to a single individual who may never make that call in her lifetime. The effect is similar to the coal mining town's company store where you can only buy what they sell at the price they set. The effect is to concentrate economic activity in specific sectors where banks are willing to lend which means the economy is less flexible overall. An economy with $1B of debt and $1B in savings spread over 10,000 people is going to be more diverse and resilient than 9,999 people who have $1B in debt and one person with $1B in savings invested in housing and car loans. The best outcome would be if she invested in new equity in a company that created a positive ROI in excess of what the lottery ticket buyers would have produced. Anything else is a net negative.
ArkyBeagle 10y ago
At one point, something like 70% of GDP was consumption. It's less now. This is fine so long as investments move. We have such a high degree of aggregation of capital now that it sort of doesn't. It's sort of ... pinned down in the light cast by the public markets. Even mutual finds are just now coming of age, much less the things that were innovations on them.

logfromblammo 10y ago

Which is something I don't really understand. In a sandbox game like Minecraft or Dwarf Fortress, once I have met all the objectives built into the game, I can invent new and ridiculous objectives, such as "build a fortress entirely out of obsidian 200 z-levels high". Once you're rich, and can no longer spend all your income on everything you can think to consume yourself, you can buy a megaproject. Run a political campaign for PotUS. Build a working town, like Disney's Celebration, Florida. Develop a self-driving electric car. Build a city that floats on the ocean. Start a Mars colony. Build a single Dyson heliostat. Breed elephants down to the size of Great Dane dogs. Develop sono-videophones so that dolphins in zoos can talk to each other. Cure one or more types of cancer. Breed a horse that wins the triple crown. Found a religion that out-grosses Scientology and Mormons, combined. Repave all the highways in your state, and do a structural integrity assessment of all the bridges and overpasses, too. There are countless ways to spend a colossal pile of money. How does one get control of so many resources with a finite and exhaustible amount of imagination?

mitochondrion 10y ago
They didn't get rich by spending everything they had, they got rich by saving (and investing) everything they could.
- logfromblammo 10y ago
  It doesn't matter how they got rich; what matters is what they need to do going forward. As they say, "past performance is not indicative of future results". If the ultra-rich do not spend enough, they might begin to undermine the foundations of the economy. Then, if enough people can trace the apparent cause of their suffering to the wealth inequalities, they will start killing and/or looting rich people, possibly without regard to their individual conduct. So by all means, if you think you're strong enough, go ahead and hoard ever increasing amounts of wealth, without limit. There's a distinct likelihood that your estates will never be besieged by hordes of starving peasants, and that you or your heirs will never be kidnapped for ransom (or revenge) if you ever attempt to travel beyond your own holdings, and that you will never be shaken down by corrupt officials. The less people perceive the systems of civilization to be fair, the less apt they are to respect its rules of conduct. It only takes one pissed-off person to make your life Hell, and there are 7 billion candidates out there just waiting for you to give them a good reason. We got from the beginning of the industrial age to now by burning coal and oil. But if we continue to do so now, it is likely to eventually make the surface of the entire planet uninhabitable, rather than just Beijing. Responsible people have therefore been shifting to more technically advanced sources--such as wind, solar, hydro, and fission--to meet their power needs. In the same way, people who have grown so rich that they could buy anything they might possibly want must alter their habits to avoid poisoning their own environment.