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I've known poor families that are the absolute masters at resources management. Your argument is invalid because we have the "hoarders" holding most of the mone

by yardie 16y ago

I've known poor families that are the absolute masters at resources management. Your argument is invalid because we have the "hoarders" holding most of the money and doing jack shit economically except putting it in savings. And we have the poor who aren't even paid enough to buy the things they need much less have the ability to save. You want to see an extreme case of hoarding look no further than Japan. Where the people were so good at saving they never bought a thing which only caused the economy to stall further, ie., "the lost decade". The accumulation of wealth is never a good thing and we have a long history of booms and busts to prove it.

DuncanIdaho 16y ago
Why is economy stalling considered so bad? Would it be so much better if they just spent everything? Why is more production, consumption and pollution considered good? Can't you see that taking wealth of Warren Buffet and distributing it amongst the poorest would cause mostly problems. These people wouldn't use the resources to empower themseves or improve their position - they would mostly blow it for hedonistic pleasures.
- samd 16y ago
  There is nothing inherently wrong with consumption. Any strong economy must have a balance of consumption and savings (investment). Without consumption there is no income for businesses, and without investment there is no growth of businesses. Depending on the economic situation it can be beneficial for the government/Fed to either encourage increased consumption or investment. Giving poor people money is an excellent way to increase consumption because poor people tend to spend most of their income rather than save. In our current economic situation, with consumers cutting spending and thus causing businesses to cut production and jobs, giving away money to poor people would help to increase consumption and thus put people back to work. This is why government's around the world passed stimulus packages in the wake of the financial crisis. So don't demonize people for spending money, it's an essential part of our economy.
paulgb 16y ago
> doing jack shit economically except putting it in savings I'm not an economist so maybe I'm missing the bigger picture, but by putting the money in a savings account, aren't they increasing the amount of capital available and thus helping to lower interest rates? If nobody hoarded, there would be nobody to borrow from.
- socksy 16y ago
  To an extent, you're right. The Harrod-Domar model of development suggests that the amount of growth of an economy depends on the savings ratio over the capital output ratio. The reason for that is a bit mathematical, so bear with me: When Savings = Investment (assuming for simplicity, no foreign trade) S=I (1) now S=sY (2), where little s is the savings ratio, and big Y is GDP (output), and I=ΔK, which is to say investment is the difference in capital stock (which is the definition of investment). ΔK=k.ΔY where little k is the capital output ratio (amount of output produced per change in capital), so I=k.ΔY (3). Substituting (2) & (3) into (1) gives you: sY=k.ΔY rearranging gives you ΔY/Y = s/k or in other words, the rate of growth of GDP depends on the propensity of an economy to save, and then how much of that saving goes into output. So in a sense, you're right, but there's more to it than that. The problems occur when there's too much hoarding going on. Think of these two theoretical extremes: 1) Everyone saves, no-one spends. (Leaving aside starvation and human needs for the moment) - Obviously, since no-one spends anything, no-one ever gets paid. No transactions happen at all, and interest rates drop (no-one's borrowing anything!) so people suffer, and experience poorer standards of living as a result. There's a lot of money, but no-one's doing anything with it. 2) No-one saves at all, and everyone spends what they earn relatively quickly - In comparison to 1), this would mean that you're likely to be being paid a lot, and quicker. You immediately spend this money on goods, so your quality of life (in theory) increases immediately. It doesn't matter that you don't have the money any more, as the next person along that you spent your money on also immediately spends their money. Money travels around fast (the speed of which it does this is known as the velocity of money), and so you're soon being paid more money again, which again improves your quality of life. No saving takes place - but no-one minds as there's so much money going around that bootstrapping a business suddenly becomes a lot easier. Obviously, 2) is unfortunately rather impossible to achieve - due to various factors such as confidence and the difficulty in getting everyone to spend lots. One noted problem is that rich people spend more money than poor people - but they spend a smaller proportion of their income. Imagine someone with £100,000 pa (after tax). They spend say, 20% of their income at £20,000 a year. Now imagine someone earning a paltry £10,000 pa (after tax). They're likely to spend a higher proportion of their income, say 80% at £8000 a year. 10 of these poorer people will spend £80,000 a year. So the theory goes, it's better to have more people all spending and increasing the velocity of money, than a few very rich people all hoarding. In the real world, savings matter, because you can't get everyone to spend lots of money all the time. However, these savings accounts can't be high enough to jeopardise spending. It's a bit of a tightrope.

by yardie 16y ago

DuncanIdaho 16y ago

Why is economy stalling considered so bad? Would it be so much better if they just spent everything? Why is more production, consumption and pollution considered good? Can't you see that taking wealth of Warren Buffet and distributing it amongst the poorest would cause mostly problems. These people wouldn't use the resources to empower themseves or improve their position - they would mostly blow it for hedonistic pleasures.

samd 16y ago
There is nothing inherently wrong with consumption. Any strong economy must have a balance of consumption and savings (investment). Without consumption there is no income for businesses, and without investment there is no growth of businesses. Depending on the economic situation it can be beneficial for the government/Fed to either encourage increased consumption or investment. Giving poor people money is an excellent way to increase consumption because poor people tend to spend most of their income rather than save. In our current economic situation, with consumers cutting spending and thus causing businesses to cut production and jobs, giving away money to poor people would help to increase consumption and thus put people back to work. This is why government's around the world passed stimulus packages in the wake of the financial crisis. So don't demonize people for spending money, it's an essential part of our economy.

paulgb 16y ago

> doing jack shit economically except putting it in savings I'm not an economist so maybe I'm missing the bigger picture, but by putting the money in a savings account, aren't they increasing the amount of capital available and thus helping to lower interest rates? If nobody hoarded, there would be nobody to borrow from.

socksy 16y ago
To an extent, you're right. The Harrod-Domar model of development suggests that the amount of growth of an economy depends on the savings ratio over the capital output ratio. The reason for that is a bit mathematical, so bear with me: When Savings = Investment (assuming for simplicity, no foreign trade) S=I (1) now S=sY (2), where little s is the savings ratio, and big Y is GDP (output), and I=ΔK, which is to say investment is the difference in capital stock (which is the definition of investment). ΔK=k.ΔY where little k is the capital output ratio (amount of output produced per change in capital), so I=k.ΔY (3). Substituting (2) & (3) into (1) gives you: sY=k.ΔY rearranging gives you ΔY/Y = s/k or in other words, the rate of growth of GDP depends on the propensity of an economy to save, and then how much of that saving goes into output. So in a sense, you're right, but there's more to it than that. The problems occur when there's too much hoarding going on. Think of these two theoretical extremes: 1) Everyone saves, no-one spends. (Leaving aside starvation and human needs for the moment) - Obviously, since no-one spends anything, no-one ever gets paid. No transactions happen at all, and interest rates drop (no-one's borrowing anything!) so people suffer, and experience poorer standards of living as a result. There's a lot of money, but no-one's doing anything with it. 2) No-one saves at all, and everyone spends what they earn relatively quickly - In comparison to 1), this would mean that you're likely to be being paid a lot, and quicker. You immediately spend this money on goods, so your quality of life (in theory) increases immediately. It doesn't matter that you don't have the money any more, as the next person along that you spent your money on also immediately spends their money. Money travels around fast (the speed of which it does this is known as the velocity of money), and so you're soon being paid more money again, which again improves your quality of life. No saving takes place - but no-one minds as there's so much money going around that bootstrapping a business suddenly becomes a lot easier. Obviously, 2) is unfortunately rather impossible to achieve - due to various factors such as confidence and the difficulty in getting everyone to spend lots. One noted problem is that rich people spend more money than poor people - but they spend a smaller proportion of their income. Imagine someone with £100,000 pa (after tax). They spend say, 20% of their income at £20,000 a year. Now imagine someone earning a paltry £10,000 pa (after tax). They're likely to spend a higher proportion of their income, say 80% at £8000 a year. 10 of these poorer people will spend £80,000 a year. So the theory goes, it's better to have more people all spending and increasing the velocity of money, than a few very rich people all hoarding. In the real world, savings matter, because you can't get everyone to spend lots of money all the time. However, these savings accounts can't be high enough to jeopardise spending. It's a bit of a tightrope.