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I am trying to understand the logic behind higher taxes for growth, is it because the domestic consumption is so low, that government decided to tax and spend "

I am trying to understand the logic behind higher taxes for growth, is it because the domestic consumption is so low, that government decided to tax and spend "Bigly"? If they are spending bigly, what are they spending on?

jakelazaroff 8y ago
Seems like it: > Past tax cuts did little for growth or the wealth gap, Mr. Yoon said. Instead, Mr. Moon aims to improve the incomes of average Korean families so they will consume more, thus reducing the economy’s reliance on exports and, with them, the ups and downs of the global economy. (Exports accounted for 43 percent of South Korea’s gross domestic product in 2017, compared with 20 percent for China.)
SketchySeaBeast 8y ago
That's what I'm curious about - ok, you got this extra cash, whatcha doing with it? Is the money going into tech advancement, education? Is this a long term play towards expanding markets or capabilities or is it a neat way to get closer to/further into the black?
nostrademons 8y ago
There's a big marginal-propensity-to-consume argument. Poor people spend a much larger proportion of their income than rich people, so if you redirect money from rich people to poor people, you redirect it from hoarding & speculation toward economic activity. It's unclear at which threshold this actually occurs, as it implies that rich people are either sitting with their money in the bank or playing speculative games with it rather than investing it in productive enterprises that will spend it on innovation. South Korea's experience indicates that may not be the case, at least in South Korea, or it could indicate that government expenditures aren't actually reaching poor people, or it could indicate poor people blew it all on Bitcoin rather than spending it on useful things. Anyway, that's the theory, whether it applies to reality is still an open question.
- stale2002 8y ago
  Well, that's only if you believe that "consumption" is a good thing that is supposed to be encouraged. In reality, it is the opposite. Consumption, is by definition the destruction of resources. I am not sure why people believe that the destruction of resources is something that we should be promoting. Instead, we should be promoting savings, and the preservation of resources, as well as the creation of capital.
  - nybble41 8y ago
    > Instead, we should be promoting savings, and the preservation of resources, as well as the creation of capital. Production and consumption are both necessary. If you don't save and invest then production capacity will decline and there will be less available to consume in the future; but on the other hand if you don't consume then all that production capacity goes to waste and you derive no benefit from saving and investing. The balance is the critical aspect. Both policies which promote over-consumption at the expense of saving and policies which encourage over-investment at the expense of consumption miss the mark and destroy value by moving the economy away from the optimum balance.
    - vijayr02 8y ago
      Funnily enough I happened to read an O Henry story today that is exactly about this: http://www.bibliomania.com/0/5/221/714/17033/1/frameset.html http://www.bibliomania.com/0/5/221/714/17033/1/frameset.html As is usual with O Henry the sting is in the tail :)
  - cryptonector 8y ago
    You cannot consume more than you produce, but there is no point to producing more than you consume -- not for long anyways. It's not that consumption is bad -- consumption is merely the flip side of production. It's what is being consumed that matters. But even frivolous-looking consumption isn't entirely bad, else we'd never consumed arts, would we? But you'll find that humans want some entertainment, down time, etc. Of course, there is such a thing as bad consumption, demand for wasteful goods and services, and malinvestment. But consumption is no more inherently bad than is production.
vijayr02 8y ago
Check out Michael Pettis’s writings re China and its growth model. There’s a long and glorious tradition in SE Asia of squeezing domestic consumption to the benefit of investment and mercantilist policies. While this boosts growth, and has contributed to S Korea becoming a first world country, it also creates significant imbalances, notably growth in inequality and a larger corporate/production sector. Rebalancing is painful (China has been desperately trying to avoid this, including all the activity it is trying to import through OBOR) and the change S Korea is seeing is actually predictable - the corporate sector has to shrink while the consumption market expands.

jakelazaroff 8y ago

Seems like it: > Past tax cuts did little for growth or the wealth gap, Mr. Yoon said. Instead, Mr. Moon aims to improve the incomes of average Korean families so they will consume more, thus reducing the economy’s reliance on exports and, with them, the ups and downs of the global economy. (Exports accounted for 43 percent of South Korea’s gross domestic product in 2017, compared with 20 percent for China.)

SketchySeaBeast 8y ago

That's what I'm curious about - ok, you got this extra cash, whatcha doing with it? Is the money going into tech advancement, education? Is this a long term play towards expanding markets or capabilities or is it a neat way to get closer to/further into the black?

nostrademons 8y ago

There's a big marginal-propensity-to-consume argument. Poor people spend a much larger proportion of their income than rich people, so if you redirect money from rich people to poor people, you redirect it from hoarding & speculation toward economic activity. It's unclear at which threshold this actually occurs, as it implies that rich people are either sitting with their money in the bank or playing speculative games with it rather than investing it in productive enterprises that will spend it on innovation. South Korea's experience indicates that may not be the case, at least in South Korea, or it could indicate that government expenditures aren't actually reaching poor people, or it could indicate poor people blew it all on Bitcoin rather than spending it on useful things. Anyway, that's the theory, whether it applies to reality is still an open question.

stale2002 8y ago
Well, that's only if you believe that "consumption" is a good thing that is supposed to be encouraged. In reality, it is the opposite. Consumption, is by definition the destruction of resources. I am not sure why people believe that the destruction of resources is something that we should be promoting. Instead, we should be promoting savings, and the preservation of resources, as well as the creation of capital.
- nybble41 8y ago
  > Instead, we should be promoting savings, and the preservation of resources, as well as the creation of capital. Production and consumption are both necessary. If you don't save and invest then production capacity will decline and there will be less available to consume in the future; but on the other hand if you don't consume then all that production capacity goes to waste and you derive no benefit from saving and investing. The balance is the critical aspect. Both policies which promote over-consumption at the expense of saving and policies which encourage over-investment at the expense of consumption miss the mark and destroy value by moving the economy away from the optimum balance.
  - vijayr02 8y ago
    Funnily enough I happened to read an O Henry story today that is exactly about this: http://www.bibliomania.com/0/5/221/714/17033/1/frameset.html http://www.bibliomania.com/0/5/221/714/17033/1/frameset.html As is usual with O Henry the sting is in the tail :)
- cryptonector 8y ago
  You cannot consume more than you produce, but there is no point to producing more than you consume -- not for long anyways. It's not that consumption is bad -- consumption is merely the flip side of production. It's what is being consumed that matters. But even frivolous-looking consumption isn't entirely bad, else we'd never consumed arts, would we? But you'll find that humans want some entertainment, down time, etc. Of course, there is such a thing as bad consumption, demand for wasteful goods and services, and malinvestment. But consumption is no more inherently bad than is production.

vijayr02 8y ago

Check out Michael Pettis’s writings re China and its growth model. There’s a long and glorious tradition in SE Asia of squeezing domestic consumption to the benefit of investment and mercantilist policies. While this boosts growth, and has contributed to S Korea becoming a first world country, it also creates significant imbalances, notably growth in inequality and a larger corporate/production sector. Rebalancing is painful (China has been desperately trying to avoid this, including all the activity it is trying to import through OBOR) and the change S Korea is seeing is actually predictable - the corporate sector has to shrink while the consumption market expands.