6 ms·

Some explanations as per Ray Dalio https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0

Fredej 9y ago
Thank you! I've been looking for this video for quite a while! It's a fantastic video for explanation for how the economy actually works.
- splintercell 9y ago
  I just want to point out that what it explains relies upon the Keynesian or Saltwater School of Economics. The assumption being "Spending drives the economy", the Chicago, Austrian and other free market schools of economics believe that "Savings drive the economy". Based on this distinction lies the distinction between the policy proposals advocated by Liberals and Conservatives, Democrats and Republicans. Irrespective of which of the above statements "Savings drive the economy" vs "Spending drives the economy" sounds right to you, it's important for people to understand that this distinction exists on a fundamental level in economics (and in today's political climate, even more important than holding an opinion on which two statements are right, it's important to understand that the difference exists).
  - Fredej 9y ago
    Thank you for the clarification. Does a similar video exist from the "Savings drive the economy" point of view?
    - deleted 9y ago
      [deleted]
    - owebmaster 9y ago
      Probably not because that never happened.
      - didgeoridoo 9y ago
        Where do you think the money for business investments and commercial loans comes from? And do you think that either of these has anything to do with economic growth?
        owebmaster 9y ago
        They ALL comes from governmental mechanism and spending.
    - _joel 9y ago
      I'd lookup Hayek, who has a different take on it compared to Keynes
      - deleted 9y ago
        [deleted]
      - wavefunction 9y ago
        Hayek, Friedman and Keynes provide a good starting point for three main strains of modern economic thought. While Friedman is often portrayed as a 'synthesis' or mid-point between the philosophies of Keynes or Hayek on a linear plot, I found him to be closer to Hayek philosophically.
    - didgeoridoo 9y ago
      Google "Austrian business cycle theory" for lots of material on the idea that boom & bust is caused by over/under-investment as a result of monetary policy distorting the "price of money" by manipulating interest rates. I haven't looked too deeply into whether it's a useful or explanatory theory, but that is what they believe.
    - splintercell 9y ago
      I couldn't find a video that well done, but there are videos explaining this stuff. One of this is Austrian Business Cycle Theory where you can look it up. https://www.youtube.com/watch?v=te-xwqKApAE https://www.youtube.com/watch?v=te-xwqKApAE But as I said, everybody has an opinion on "savings vs spending" (just look at the responses to my original comment), and it's such a clear classification that at that end of the day you can divide every individual on one or the other side of this debate. Savings vs Spending is actually more accurately defined under "Say's Law". Whether you believe Say's law to be true or not. Keep in mind, pro-spending side defines Say's law different than pro-savings side (it's like pro-choice vs pro-life). The economic ideas which fall under "Savings drives the economic growth" are: Free Market policies, deregulation, privatization, reduced govt spending, (most) Republican/Conservative economic policies, anti-war, lower taxation, global trade, anti-protectionism, "Work and jobs will always exist". The economic ideas which fall under "Spending drives the economic growth" are: Increased govt spending (includes war spending), regulated markets, nationalized industries, UBI, Welfare, "machines will do everything one day", higher taxation, (most) Democratic/Liberal economic policies, higher spending on education, universal healthcare, infrastructure spending. Funniest part about economics is that if you try to look at "evidence" then you'd find both the side being able to present the same events as an evidence of their theory being right. New Deal is simultaneously an example of how govt spending got us out of recession and how it dragged the recession to 10+ years.
  - kspaans 9y ago
    If savings are put into banks or investments, is there even a significant difference between saving and spending (for the whole economy)?
    - stinkytaco 9y ago
      In my opinion "spending vs. savings" is not the best way to put it. It would be better phrased as "debt vs. savings", or maybe even "growth vs. stability". I don't think even an Austrian School economist would argue that spending doesn't drive an economy -- that's what an economy is -- but rather that spending driven by debt is problematic. The argument is that more debt in an economy creates inflation by definition and destabilizes the market. They will cite countries that have less debt (among businesses and individuals) tend to have more stable economies and higher exports. Of course, this is partially because they are selling to countries with higher debt, so I don't think it's as simple as either. EDIT: Also important to point out that Austrian school economics are against manipulation of monetary policy. They argue that interest rates, credit and savings ought to be driven by market factors rather than the government. It's not so much "debt is bad", but rather "artificially driving up debt by manipulating monetary policy is bad".
      - padobson 9y ago
        It's more like investment vs. consumption. Keynesians would say the government should employ policies to increase overall consumption in the economy (aggregate demand). Austians would say government shouldn't do either, but rather allow the free market to find the correct balance between consumption and investment. They are particularly against monetary policy because it increases overall investment in an economy (aggregate supply). The problem is that artificially high rates of investment inevitably lead to businesses offering goods and services that cannot be sold profitably (malinvestment). That's why Austrians believe that artificially low interest rates cause business cycles.
    - RobertoG 9y ago
      The idea that banks lend savings is wrong. A bank is not constrained by savings to lean. When a bank lean money is creating that money as a liability for the borrower and a asset for itself.
  - warrenm 9y ago
    The savings vs spending views were demonstrated beautifully in the 80s and 90s with the Asian crash: east Asian nations, as a whole, are savers, whereas western nations, as a whole, are spenders. But due to international demand - especially on Japanese production) - in the 80s and early 90s, those nations didn't spend on infrastructural improvements (factories running at 95-100% capacity (sometimes bursting even higher), so when they inevitably had to spend on capital improvement (expansion, new tooling, etc), they had to take production lines offline, which led to production drops, which led to their economy crashing. "Spend" and "save" (where "save" is a mix of capital investment and so-call "rainy day funds", and "spend" is consumerism) are far too often viewed as independent factors, when they rely on each other being in balance to keep the economy working well. When an economy spends everything it has (or more - which happens with credit that is too easy to come by), and forgets to plan ahead, it crashes in predictable cycles. When an economy saves "too much", it never grows (or crashes due to having too much capital investment and not enough demand). The US' coming out of the Great Depression - largely due to WWII production - was a giant case study on this: factories, production lines, and employable people were massively under utilized, so when demand was created (by gearing up for war), all those people and production factors were "available" to be used. In other words, they had been "saved" (from the economy's point of view) for a decade instead of "spent" (again, from the economy's point of view). This is part of why there is a "healthy unemployment" value that economists toss around ... generally in the range of 4-6%. Those "saved" resources (human capital, in this case) are available to be "spent" when needed. If you run at an unemployment level (regardless of whether that "employment" is production capacity, personnel, funding, etc), that is too low OR too high, you run into boom-bust cycles. That's what central banks try to regulate (albeit not very well, when viewed in the long term).
    - pjc50 9y ago
      > This is part of why there is a "healthy unemployment" value that economists toss around ... generally in the range of 4-6%. Those "saved" resources (human capital, in this case) are available to be "spent" when needed. > If you run at an unemployment level (regardless of whether that "employment" is production capacity, personnel, funding, etc), that is too low OR too high, you run into boom-bust cycles. I don't think this is a good summary of the theory - it's recognised that reaching the limits of capacity causes inflation, but no mainstream economist would refer to unemployment as a form of saving. Labour is a "wasting" good; you either spend a day or waste a day, you can't save up time while unemployed and spend it later. Economists prefer a minimum level of unemployment because it effectively prevents labour organisation being used to drive up wages.
rememberlenny 9y ago
This is a great presentation. I was going to link this.
zeep 9y ago
He says that interests rates can't be lowered when they are at 0%, but they technically could go negative... looks like Denmark has a negative interest rate, I wonder how it's working out for them. (https://en.wikipedia.org/wiki/List_of_countries_by_central_bank_interest_rates https://en.wikipedia.org/wiki/List_of_countries_by_central_b...)
- scarlac 9y ago
  > I wonder how it's working out for them Dane here. We're fine. It's not affecting consumers directly. The negative rates are locking at zero or close to zero. Government has talked about intervening if it would go negative, which I would tend to believe. I honestly don't know the exact consequences of what would happen in any case. I feel motivated to buy a new apartment because of the low rates, so I'm guessing it's working as it should. But that's all just anecdotal.
  - googletazer 9y ago
    >I feel motivated to buy a new apartment because of the low rates, so I'm guessing it's working as it should. But that's all just anecdotal. Would that be your first apartment? It seems to me that the programs of low interest rates are motivating the wrong people - people who already have significant assets and can borrow against them to buy another/several properties.
- yellowstuff 9y ago
  The argument against negative interest rates was that people could simply store cash in a vault and get a 0% return, rather than lend it for a negative return. In practice very slightly negative rates seem to work out because storing large amounts of cash in a vault is hard. However, it's probably still right to assume that if interest rates are meaningfully negative for a while everyone will switch to storing cash.
  - mikhailfranco 9y ago
    ... hence the War on Cash. They can also convert bank deposits into 'yellowstuff' and put that in a vault, or safe at home. However, the mining inflation rate in 'yellowstuff', plus fees for storage, come to a depreciation of about 1.5%. So if the WoC is successful, and NIRP policies demand less than about -1.5% interest rate, then there has to be a War on Yellowstuff too.

Fredej 9y ago

Thank you! I've been looking for this video for quite a while! It's a fantastic video for explanation for how the economy actually works.

splintercell 9y ago
I just want to point out that what it explains relies upon the Keynesian or Saltwater School of Economics. The assumption being "Spending drives the economy", the Chicago, Austrian and other free market schools of economics believe that "Savings drive the economy". Based on this distinction lies the distinction between the policy proposals advocated by Liberals and Conservatives, Democrats and Republicans. Irrespective of which of the above statements "Savings drive the economy" vs "Spending drives the economy" sounds right to you, it's important for people to understand that this distinction exists on a fundamental level in economics (and in today's political climate, even more important than holding an opinion on which two statements are right, it's important to understand that the difference exists).
- Fredej 9y ago
  Thank you for the clarification. Does a similar video exist from the "Savings drive the economy" point of view?
  - deleted 9y ago
    [deleted]
  - owebmaster 9y ago
    Probably not because that never happened.
    - didgeoridoo 9y ago
      Where do you think the money for business investments and commercial loans comes from? And do you think that either of these has anything to do with economic growth?
      - owebmaster 9y ago
        They ALL comes from governmental mechanism and spending.
  - _joel 9y ago
    I'd lookup Hayek, who has a different take on it compared to Keynes
    - deleted 9y ago
      [deleted]
    - wavefunction 9y ago
      Hayek, Friedman and Keynes provide a good starting point for three main strains of modern economic thought. While Friedman is often portrayed as a 'synthesis' or mid-point between the philosophies of Keynes or Hayek on a linear plot, I found him to be closer to Hayek philosophically.
  - didgeoridoo 9y ago
    Google "Austrian business cycle theory" for lots of material on the idea that boom & bust is caused by over/under-investment as a result of monetary policy distorting the "price of money" by manipulating interest rates. I haven't looked too deeply into whether it's a useful or explanatory theory, but that is what they believe.
  - splintercell 9y ago
    I couldn't find a video that well done, but there are videos explaining this stuff. One of this is Austrian Business Cycle Theory where you can look it up. https://www.youtube.com/watch?v=te-xwqKApAE https://www.youtube.com/watch?v=te-xwqKApAE But as I said, everybody has an opinion on "savings vs spending" (just look at the responses to my original comment), and it's such a clear classification that at that end of the day you can divide every individual on one or the other side of this debate. Savings vs Spending is actually more accurately defined under "Say's Law". Whether you believe Say's law to be true or not. Keep in mind, pro-spending side defines Say's law different than pro-savings side (it's like pro-choice vs pro-life). The economic ideas which fall under "Savings drives the economic growth" are: Free Market policies, deregulation, privatization, reduced govt spending, (most) Republican/Conservative economic policies, anti-war, lower taxation, global trade, anti-protectionism, "Work and jobs will always exist". The economic ideas which fall under "Spending drives the economic growth" are: Increased govt spending (includes war spending), regulated markets, nationalized industries, UBI, Welfare, "machines will do everything one day", higher taxation, (most) Democratic/Liberal economic policies, higher spending on education, universal healthcare, infrastructure spending. Funniest part about economics is that if you try to look at "evidence" then you'd find both the side being able to present the same events as an evidence of their theory being right. New Deal is simultaneously an example of how govt spending got us out of recession and how it dragged the recession to 10+ years.
- kspaans 9y ago
  If savings are put into banks or investments, is there even a significant difference between saving and spending (for the whole economy)?
  - stinkytaco 9y ago
    In my opinion "spending vs. savings" is not the best way to put it. It would be better phrased as "debt vs. savings", or maybe even "growth vs. stability". I don't think even an Austrian School economist would argue that spending doesn't drive an economy -- that's what an economy is -- but rather that spending driven by debt is problematic. The argument is that more debt in an economy creates inflation by definition and destabilizes the market. They will cite countries that have less debt (among businesses and individuals) tend to have more stable economies and higher exports. Of course, this is partially because they are selling to countries with higher debt, so I don't think it's as simple as either. EDIT: Also important to point out that Austrian school economics are against manipulation of monetary policy. They argue that interest rates, credit and savings ought to be driven by market factors rather than the government. It's not so much "debt is bad", but rather "artificially driving up debt by manipulating monetary policy is bad".
    - padobson 9y ago
      It's more like investment vs. consumption. Keynesians would say the government should employ policies to increase overall consumption in the economy (aggregate demand). Austians would say government shouldn't do either, but rather allow the free market to find the correct balance between consumption and investment. They are particularly against monetary policy because it increases overall investment in an economy (aggregate supply). The problem is that artificially high rates of investment inevitably lead to businesses offering goods and services that cannot be sold profitably (malinvestment). That's why Austrians believe that artificially low interest rates cause business cycles.
  - RobertoG 9y ago
    The idea that banks lend savings is wrong. A bank is not constrained by savings to lean. When a bank lean money is creating that money as a liability for the borrower and a asset for itself.
- warrenm 9y ago
  The savings vs spending views were demonstrated beautifully in the 80s and 90s with the Asian crash: east Asian nations, as a whole, are savers, whereas western nations, as a whole, are spenders. But due to international demand - especially on Japanese production) - in the 80s and early 90s, those nations didn't spend on infrastructural improvements (factories running at 95-100% capacity (sometimes bursting even higher), so when they inevitably had to spend on capital improvement (expansion, new tooling, etc), they had to take production lines offline, which led to production drops, which led to their economy crashing. "Spend" and "save" (where "save" is a mix of capital investment and so-call "rainy day funds", and "spend" is consumerism) are far too often viewed as independent factors, when they rely on each other being in balance to keep the economy working well. When an economy spends everything it has (or more - which happens with credit that is too easy to come by), and forgets to plan ahead, it crashes in predictable cycles. When an economy saves "too much", it never grows (or crashes due to having too much capital investment and not enough demand). The US' coming out of the Great Depression - largely due to WWII production - was a giant case study on this: factories, production lines, and employable people were massively under utilized, so when demand was created (by gearing up for war), all those people and production factors were "available" to be used. In other words, they had been "saved" (from the economy's point of view) for a decade instead of "spent" (again, from the economy's point of view). This is part of why there is a "healthy unemployment" value that economists toss around ... generally in the range of 4-6%. Those "saved" resources (human capital, in this case) are available to be "spent" when needed. If you run at an unemployment level (regardless of whether that "employment" is production capacity, personnel, funding, etc), that is too low OR too high, you run into boom-bust cycles. That's what central banks try to regulate (albeit not very well, when viewed in the long term).
  - pjc50 9y ago
    > This is part of why there is a "healthy unemployment" value that economists toss around ... generally in the range of 4-6%. Those "saved" resources (human capital, in this case) are available to be "spent" when needed. > If you run at an unemployment level (regardless of whether that "employment" is production capacity, personnel, funding, etc), that is too low OR too high, you run into boom-bust cycles. I don't think this is a good summary of the theory - it's recognised that reaching the limits of capacity causes inflation, but no mainstream economist would refer to unemployment as a form of saving. Labour is a "wasting" good; you either spend a day or waste a day, you can't save up time while unemployed and spend it later. Economists prefer a minimum level of unemployment because it effectively prevents labour organisation being used to drive up wages.

rememberlenny 9y ago

This is a great presentation. I was going to link this.

zeep 9y ago

He says that interests rates can't be lowered when they are at 0%, but they technically could go negative... looks like Denmark has a negative interest rate, I wonder how it's working out for them. (https://en.wikipedia.org/wiki/List_of_countries_by_central_bank_interest_rates https://en.wikipedia.org/wiki/List_of_countries_by_central_b...)

scarlac 9y ago
> I wonder how it's working out for them Dane here. We're fine. It's not affecting consumers directly. The negative rates are locking at zero or close to zero. Government has talked about intervening if it would go negative, which I would tend to believe. I honestly don't know the exact consequences of what would happen in any case. I feel motivated to buy a new apartment because of the low rates, so I'm guessing it's working as it should. But that's all just anecdotal.
- googletazer 9y ago
  >I feel motivated to buy a new apartment because of the low rates, so I'm guessing it's working as it should. But that's all just anecdotal. Would that be your first apartment? It seems to me that the programs of low interest rates are motivating the wrong people - people who already have significant assets and can borrow against them to buy another/several properties.
yellowstuff 9y ago
The argument against negative interest rates was that people could simply store cash in a vault and get a 0% return, rather than lend it for a negative return. In practice very slightly negative rates seem to work out because storing large amounts of cash in a vault is hard. However, it's probably still right to assume that if interest rates are meaningfully negative for a while everyone will switch to storing cash.
- mikhailfranco 9y ago
  ... hence the War on Cash. They can also convert bank deposits into 'yellowstuff' and put that in a vault, or safe at home. However, the mining inflation rate in 'yellowstuff', plus fees for storage, come to a depreciation of about 1.5%. So if the WoC is successful, and NIRP policies demand less than about -1.5% interest rate, then there has to be a War on Yellowstuff too.