6 ms·

Much of the money isn't going to other investments. It goes to savings. The top 1% save ~40% of their income. The bottom 90% save 4% of their income. The proble

Much of the money isn't going to other investments. It goes to savings. The top 1% save ~40% of their income. The bottom 90% save 4% of their income. The problem with giving money to the wealthy is that it doesn't go to startups, it leaves the economy and increases a number on someone's terminal. The best way to spur economic growth is to give money to people who will spend it quickly whether rich or poor. In general, it turns out most very wealthy people have little incentive to spend money quickly. Instead, they save to hedge against and profit from recessions. Your option 2) isn't some foolish strategy, it's literally what is happening. Some of the money goes to investments and the rest seeks to hedge against the risk of those investments. I really don't understand how people still push some version of trickle-down economics. Corporate buybacks are exactly this. Using taxpayer money to fund it only hurts the long term value of the economy.

TAForObvReasons 7y ago
There's a famous quote: > Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires. If you were aspiring to be the next Bezos or Gates, you too might be inclined to support tax policies that would benefit your future self.
- dumbfoundded 7y ago
  If you had a heart, you may care about the financial outcomes for other people. And if you had any sense, you would realize balancing economic inequality remains precarious and our current levels are closest to the period right before the depression. Socialism isn't an absolute, it's a spectrum. Most people don't seem to care about the lack of privatized fire fighting as it existed in ancient Rome.
  - TAForObvReasons 7y ago
    I'm in complete agreement with you, but we're on a forum with many people who have had great financial success and definitely benefit short-term from the tax policies. That's the reality of the community.
    - dumbfoundded 7y ago
      I would add that I'm one of the people who's benefited. There seems to be an unspoken belief that progressives are only those who have lost economically. I've gone from an ivy-league education to a 6-figure salary out of college to self-funding a profitable business making $4M/year. I'm also in my mid 20s. In my business, almost all of my employees are low-skill. I pay everyone at least a living wage and it's impossible to ignore the realities of their lives. When I make more money, it goes to our savings. When I give an employee a raise, they buy something they need immediately, like a new car or new clothes.
      - WalterBright 7y ago
        Your savings go into a bank, which loans it out to people who spend it.
        JCharante 7y ago
        people like his employees who get a loan to pay for their new car.
        WalterBright 7y ago
        Yes. Nobody borrows money and sits on the cash, they take loans to spend it. In fact, due to fractional reserve banking, a multiple of the amount put into a savings account is loaned out and spent!
        spiralx 7y ago
        Banks don't loan out deposits, their ability to make loans isn't dependent upon savings: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
      - sokoloff 7y ago
        In your mid-20s, putting excess savings in a bank is probably not the ideal asset allocation.
sokoloff 7y ago
If you buy shares from anyone, either they were comfortable with their previous asset allocation (and will therefore seek to re-invest that money in some other stock), they were selling shares to rebalance their portfolio, or they were selling shares as part of their planned selling to fund their retirement or meet the obligations of their pension payouts (in which case that money will be spent in the economy). It's only in the middle case (which I think is the most rare of the three) where the share buyback money ends up as savings. (And even there, it's likely in government bonds, lowering the cost of government borrowing when done in aggregate.)
basementcat 7y ago
I think it is a bit more complicated than that. The bottom 90% keep a big chunk of what little savings they have in cash or cash equivalents. The top 1% invest most of their savings in treasuries (investing in federal spending) or equities (businesses) or other investments (real estate, etc). This is why many believe it is sensible to reduce taxes for the wealthy; perhaps they will continue to invest the savings in private businesses.
- lonelappde 7y ago
  The counterpoint is that there are critical public infrastructure and welfare projects that could be funded by taxing the wealthy more (possibly in exchange for taxing the poorer less). Cutting taxes on wealthy seems to trigger recessions and depressions due to drying up aggregate demand for goods and services.
- Ericson2314 7y ago
  Non-rich spending stimulates the economy more than rich investing. The rich are out of ideas to invest. The non rich spending more would give the rich new ideas to better invest the money they already do. There are more complex analyses, but the above one gets the job done.
oeoeo92 7y ago
Oh but it is going in a wonderful investment: consolidation of elite power. When “gains every quarter” are the goal and the measure of “gains” is finance, if you own all the valuable assets up for trade in the finance market... But that’s ridiculous! Humans are not and never will be rational actors. They carry their childhood memes with them for life via their brains. Offer some science that refutes it if you got it, but the functional processes of literal reality trump our conscious gut and that’s a well debated fact of human behavior. The narrative has always been “protect inherited power.” We see Tonight show hosts, religious true believers, true believers in capitalism, etc stand up to protect the “torch” they’ve been handed. Symbolism above all else. Finance is another source of illusory power that we have a habit of blindly bestowing on others for emotional feels, before utilitarian value. Not saying that’s good or bad, it’s just what I find to be a reasonable summarization. What a shock! Tim Cook and the rest aren’t investing in r&d. But their era was corporate micromanagement. Business of financial economy. Not nation state building and rivalry, which flooded the economy with public investment dollars via high taxation.
dodobirdlord 7y ago
> Much of the money isn't going to other investments. It goes to savings. This is nonsense. Saving in a bank expands the bank's ability to lend. Saving in treasury bonds finances government operations. Saving in the stock market provides the incentive for VCs to invest in startups. Saving in municipal or corporate bonds finances the leveraged operations of those entities, contributing to better long-term planning. Saving in gold at least turns the money over to someone else who will probably spend it on something more useful than gold. For the most part, saving is investment. Only in niche scenarios does saved money leave the money supply.
- dumbfoundded 7y ago
  Investment doesn't increase the size of the economy if it doesn't result in increased spending. Spending money on a product or service is the only way to grow the economy. Investment often results in money effectively leaving the economy as its multiplier rates are much lower than giving the money to consumers who spend it quickly, usually to small businesses that spend the money quickly.
  - dodobirdlord 7y ago
    > Investment doesn't increase the size of the economy if it doesn't result in increased spending. Spending money on a product or service is the only way to grow the economy. Outside of niche scenarios, investment opportunities only exist when there is a desire to spend money on a product or service, but no money is available to spend. > Investment often results in money effectively leaving the economy as its multiplier rates are much lower than giving the money to consumers who spend it quickly, usually to small businesses that spend the money quickly. A lower velocity of money is not the same thing as a reduction in the money supply.
- skybrian 7y ago
  While investment and savings aren't opposites, they also aren't guaranteed to be linked, at least if by investment you mean "increase in productive capacity" rather than an accounting identity in some macroeconomic models. Increasing a bank's ability to lend doesn't mean they will necessarily do it; the reserve ratio is an upper bound. Also, even when they do make a loan, it also doesn't mean it will necessarily go towards building or improving productive assets. Sometimes loans go towards buying existing assets (such as houses) in a way that might just result in asset inflation. (As in, for example, stock buybacks.) The idea of a "global savings glut" is somewhat controversial but not obviously nonsense. We can't learn anything by defining it away.
Lazare 7y ago
> Much of the money isn't going to other investments. It goes to savings. Savings and investments are synonyms in this context. See, eg, the savings identity (https://en.wikipedia.org/wiki/Saving_identity https://en.wikipedia.org/wiki/Saving_identity). When Joe Millionaire "saves" some money, he does so by investing it. That's what the word means. > The problem with giving money to the wealthy is that it doesn't go to startups, it leaves the economy and increases a number on someone's terminal. That's not how money or investment works. > The best way to spur economic growth is to give money to people who will spend it quickly Very possibly, but we're discussing who will invest it, not spend it, and as you note, the rich invest more of their income.
- guelo 7y ago
  Supply and demand balance out. The wheel spins slower if the money flows so disproportionately to the supply side that it lowers demand.
- skybrian 7y ago
  Savings being equal to investment isn't a material fact, it's an assumption built into some macroeconomic models. In order for savings to turn into an asset that increases production capacity (which is what we hope it's for), someone has to spend the money on building a new asset (or improving an existing one). In particular, asset inflation (price of land or stock going up) doesn't increase productive capacity in any material sense. And, that's what's worrying. How do we measure increase in productive capacity without assuming savings = investment? Also, the consumer price index doesn't measure inflation of assets owned by businesses. Are we assuming the market is efficient at pricing investments when it's actually just inflating? It seems like this is something economists are likely to worry about. Is there a literature on this?
  - js8 7y ago
    > Savings being equal to investment isn't a material fact, it's an assumption built into some macroeconomic models. In order for savings to turn into an asset that increases production capacity (which is what we hope it's for), someone has to spend the money on building a new asset (or improving an existing one). Correct. I think the definition of savings in economics is wrong. I would suggest that the distinction between savings and investment is in with how much difficulty you can reverse your decision (that is, liquidity of the underlying asset). The boundary is fuzzy, but it is important to consider. So for instance, if I buy a new production line for cars, I cannot easily sell it (for the same price). I am hoping that it was a good decision, because it's hard to reverse (if I see tomorrow, that people actually don't want cars, I cannot easily start to make tractors). That is a decision which is investment. On the other hand, if I buy shares in a car company, and tomorrow I see that people don't want cars, I can change my mind, sell the shares, and buy some other company. This is savings, not investment. The reason why the reversibility is important is because if you are an economic actor and make an irreversible decision (like purchasing/building a production line), then other actors in the economy, who have savings, gain a certain advantage - they can react to your decision. They can follow, or they can avoid your investment, depending on how it pans out. This follows it's not always wise to invest, to make an irreversible decision. Sometimes it's better to wait - and that is saving. Therefore the distinction between savings and investment is actually very important for even macroeconomics. If you have an economy where everybody is waiting for good opportunity (saving), then there is no economic growth. They still can "formally" be investing (buying shares or other financial instruments from each other), but the irreversible (i.e. real) decisions do not get made.
cbanek 7y ago
> The best way to spur economic growth is to give money to people who will spend it quickly whether rich or poor. In general, it turns out most very wealthy people have little incentive to spend money quickly. Instead, they save to hedge against and profit from recessions. Right, you're talking about the velocity of money (https://www.aier.org/article/what-money-velocity-and-why-does-it-matter https://www.aier.org/article/what-money-velocity-and-why-doe...) which I find a fascinating concept. It does feel like money is pooling, because as corporations buy back their stock, there is also less stock for others to buy. Since a lot of retirement vehicles in America rely on buying stock, specifically the S&P500, this can really be tricky. Many companies have resisted going public, get bought out by private equity, etc. Private companies are very hard to invest in, requiring a certain amount of wealth and connections. But I think this is why we're in a huge easy VC money startup economy. The money is looking for a place to be invested, and as some analysts say, TINA - there is no alternative, that is, they need to be invested, but the price of assets they can purchase is getting worryingly high. https://www.bloomberg.com/opinion/articles/2018-04-09/where-have-all-the-u-s-public-companies-gone https://www.bloomberg.com/opinion/articles/2018-04-09/where-...
- spiralx 7y ago
  > Right, you're talking about the velocity of money (https://www.aier.org/article/what-money-velocity-and-why-doe... https://www.aier.org/article/what-money-velocity-and-why-doe...) which I find a fascinating concept. Actually the relevant concept is the marginal utility of wealth: https://www.economicshelp.org/blog/12309/concepts/diminishing-marginal-utility-of-income-and-wealth/ https://www.economicshelp.org/blog/12309/concepts/diminishin...
RhysU 7y ago
> Instead, they save to hedge against and profit from recessions. You are arguing that non-governmental investment/stimulus in the depths of a recession is a bad thing?
jcfrei 7y ago
As other commentators pointed out: Savings and investments are two sides of the same coin here. The money which is used for saving will be invested somewhere - even if the person who owns it just keeps it in an account on the bank. The problem I see is that the money almost exclusively goes to startups. In the last 10 years the startup scene in the US has been doing very well - not in terms of profits but in terms of funding. This giant "pool of money" created by the FED however mostly benefits just a small part of the workforce: Notably the engineers, scientists, managers, lawyers, investment bankers, etc. in the startup hotspots: In cities like SF, NYC, Seattle, Houston, etc. This is a problem for society because while wages for some parts of the workforce keep growing other workers are left with stagnating wages.

TAForObvReasons 7y ago

There's a famous quote: > Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires. If you were aspiring to be the next Bezos or Gates, you too might be inclined to support tax policies that would benefit your future self.

dumbfoundded 7y ago
If you had a heart, you may care about the financial outcomes for other people. And if you had any sense, you would realize balancing economic inequality remains precarious and our current levels are closest to the period right before the depression. Socialism isn't an absolute, it's a spectrum. Most people don't seem to care about the lack of privatized fire fighting as it existed in ancient Rome.
- TAForObvReasons 7y ago
  I'm in complete agreement with you, but we're on a forum with many people who have had great financial success and definitely benefit short-term from the tax policies. That's the reality of the community.
  - dumbfoundded 7y ago
    I would add that I'm one of the people who's benefited. There seems to be an unspoken belief that progressives are only those who have lost economically. I've gone from an ivy-league education to a 6-figure salary out of college to self-funding a profitable business making $4M/year. I'm also in my mid 20s. In my business, almost all of my employees are low-skill. I pay everyone at least a living wage and it's impossible to ignore the realities of their lives. When I make more money, it goes to our savings. When I give an employee a raise, they buy something they need immediately, like a new car or new clothes.
    - WalterBright 7y ago
      Your savings go into a bank, which loans it out to people who spend it.
      - JCharante 7y ago
        people like his employees who get a loan to pay for their new car.
        WalterBright 7y ago
        Yes. Nobody borrows money and sits on the cash, they take loans to spend it. In fact, due to fractional reserve banking, a multiple of the amount put into a savings account is loaned out and spent!
      - spiralx 7y ago
        Banks don't loan out deposits, their ability to make loans isn't dependent upon savings: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
    - sokoloff 7y ago
      In your mid-20s, putting excess savings in a bank is probably not the ideal asset allocation.

sokoloff 7y ago

If you buy shares from anyone, either they were comfortable with their previous asset allocation (and will therefore seek to re-invest that money in some other stock), they were selling shares to rebalance their portfolio, or they were selling shares as part of their planned selling to fund their retirement or meet the obligations of their pension payouts (in which case that money will be spent in the economy). It's only in the middle case (which I think is the most rare of the three) where the share buyback money ends up as savings. (And even there, it's likely in government bonds, lowering the cost of government borrowing when done in aggregate.)

basementcat 7y ago

I think it is a bit more complicated than that. The bottom 90% keep a big chunk of what little savings they have in cash or cash equivalents. The top 1% invest most of their savings in treasuries (investing in federal spending) or equities (businesses) or other investments (real estate, etc). This is why many believe it is sensible to reduce taxes for the wealthy; perhaps they will continue to invest the savings in private businesses.

lonelappde 7y ago
The counterpoint is that there are critical public infrastructure and welfare projects that could be funded by taxing the wealthy more (possibly in exchange for taxing the poorer less). Cutting taxes on wealthy seems to trigger recessions and depressions due to drying up aggregate demand for goods and services.
Ericson2314 7y ago
Non-rich spending stimulates the economy more than rich investing. The rich are out of ideas to invest. The non rich spending more would give the rich new ideas to better invest the money they already do. There are more complex analyses, but the above one gets the job done.

oeoeo92 7y ago

Oh but it is going in a wonderful investment: consolidation of elite power. When “gains every quarter” are the goal and the measure of “gains” is finance, if you own all the valuable assets up for trade in the finance market... But that’s ridiculous! Humans are not and never will be rational actors. They carry their childhood memes with them for life via their brains. Offer some science that refutes it if you got it, but the functional processes of literal reality trump our conscious gut and that’s a well debated fact of human behavior. The narrative has always been “protect inherited power.” We see Tonight show hosts, religious true believers, true believers in capitalism, etc stand up to protect the “torch” they’ve been handed. Symbolism above all else. Finance is another source of illusory power that we have a habit of blindly bestowing on others for emotional feels, before utilitarian value. Not saying that’s good or bad, it’s just what I find to be a reasonable summarization. What a shock! Tim Cook and the rest aren’t investing in r&d. But their era was corporate micromanagement. Business of financial economy. Not nation state building and rivalry, which flooded the economy with public investment dollars via high taxation.

dodobirdlord 7y ago

> Much of the money isn't going to other investments. It goes to savings. This is nonsense. Saving in a bank expands the bank's ability to lend. Saving in treasury bonds finances government operations. Saving in the stock market provides the incentive for VCs to invest in startups. Saving in municipal or corporate bonds finances the leveraged operations of those entities, contributing to better long-term planning. Saving in gold at least turns the money over to someone else who will probably spend it on something more useful than gold. For the most part, saving is investment. Only in niche scenarios does saved money leave the money supply.

dumbfoundded 7y ago
Investment doesn't increase the size of the economy if it doesn't result in increased spending. Spending money on a product or service is the only way to grow the economy. Investment often results in money effectively leaving the economy as its multiplier rates are much lower than giving the money to consumers who spend it quickly, usually to small businesses that spend the money quickly.
- dodobirdlord 7y ago
  > Investment doesn't increase the size of the economy if it doesn't result in increased spending. Spending money on a product or service is the only way to grow the economy. Outside of niche scenarios, investment opportunities only exist when there is a desire to spend money on a product or service, but no money is available to spend. > Investment often results in money effectively leaving the economy as its multiplier rates are much lower than giving the money to consumers who spend it quickly, usually to small businesses that spend the money quickly. A lower velocity of money is not the same thing as a reduction in the money supply.
skybrian 7y ago
While investment and savings aren't opposites, they also aren't guaranteed to be linked, at least if by investment you mean "increase in productive capacity" rather than an accounting identity in some macroeconomic models. Increasing a bank's ability to lend doesn't mean they will necessarily do it; the reserve ratio is an upper bound. Also, even when they do make a loan, it also doesn't mean it will necessarily go towards building or improving productive assets. Sometimes loans go towards buying existing assets (such as houses) in a way that might just result in asset inflation. (As in, for example, stock buybacks.) The idea of a "global savings glut" is somewhat controversial but not obviously nonsense. We can't learn anything by defining it away.

Lazare 7y ago

> Much of the money isn't going to other investments. It goes to savings. Savings and investments are synonyms in this context. See, eg, the savings identity (https://en.wikipedia.org/wiki/Saving_identity https://en.wikipedia.org/wiki/Saving_identity). When Joe Millionaire "saves" some money, he does so by investing it. That's what the word means. > The problem with giving money to the wealthy is that it doesn't go to startups, it leaves the economy and increases a number on someone's terminal. That's not how money or investment works. > The best way to spur economic growth is to give money to people who will spend it quickly Very possibly, but we're discussing who will invest it, not spend it, and as you note, the rich invest more of their income.

guelo 7y ago
Supply and demand balance out. The wheel spins slower if the money flows so disproportionately to the supply side that it lowers demand.
skybrian 7y ago
Savings being equal to investment isn't a material fact, it's an assumption built into some macroeconomic models. In order for savings to turn into an asset that increases production capacity (which is what we hope it's for), someone has to spend the money on building a new asset (or improving an existing one). In particular, asset inflation (price of land or stock going up) doesn't increase productive capacity in any material sense. And, that's what's worrying. How do we measure increase in productive capacity without assuming savings = investment? Also, the consumer price index doesn't measure inflation of assets owned by businesses. Are we assuming the market is efficient at pricing investments when it's actually just inflating? It seems like this is something economists are likely to worry about. Is there a literature on this?
- js8 7y ago
  > Savings being equal to investment isn't a material fact, it's an assumption built into some macroeconomic models. In order for savings to turn into an asset that increases production capacity (which is what we hope it's for), someone has to spend the money on building a new asset (or improving an existing one). Correct. I think the definition of savings in economics is wrong. I would suggest that the distinction between savings and investment is in with how much difficulty you can reverse your decision (that is, liquidity of the underlying asset). The boundary is fuzzy, but it is important to consider. So for instance, if I buy a new production line for cars, I cannot easily sell it (for the same price). I am hoping that it was a good decision, because it's hard to reverse (if I see tomorrow, that people actually don't want cars, I cannot easily start to make tractors). That is a decision which is investment. On the other hand, if I buy shares in a car company, and tomorrow I see that people don't want cars, I can change my mind, sell the shares, and buy some other company. This is savings, not investment. The reason why the reversibility is important is because if you are an economic actor and make an irreversible decision (like purchasing/building a production line), then other actors in the economy, who have savings, gain a certain advantage - they can react to your decision. They can follow, or they can avoid your investment, depending on how it pans out. This follows it's not always wise to invest, to make an irreversible decision. Sometimes it's better to wait - and that is saving. Therefore the distinction between savings and investment is actually very important for even macroeconomics. If you have an economy where everybody is waiting for good opportunity (saving), then there is no economic growth. They still can "formally" be investing (buying shares or other financial instruments from each other), but the irreversible (i.e. real) decisions do not get made.

cbanek 7y ago

> The best way to spur economic growth is to give money to people who will spend it quickly whether rich or poor. In general, it turns out most very wealthy people have little incentive to spend money quickly. Instead, they save to hedge against and profit from recessions. Right, you're talking about the velocity of money (https://www.aier.org/article/what-money-velocity-and-why-does-it-matter https://www.aier.org/article/what-money-velocity-and-why-doe...) which I find a fascinating concept. It does feel like money is pooling, because as corporations buy back their stock, there is also less stock for others to buy. Since a lot of retirement vehicles in America rely on buying stock, specifically the S&P500, this can really be tricky. Many companies have resisted going public, get bought out by private equity, etc. Private companies are very hard to invest in, requiring a certain amount of wealth and connections. But I think this is why we're in a huge easy VC money startup economy. The money is looking for a place to be invested, and as some analysts say, TINA - there is no alternative, that is, they need to be invested, but the price of assets they can purchase is getting worryingly high. https://www.bloomberg.com/opinion/articles/2018-04-09/where-have-all-the-u-s-public-companies-gone https://www.bloomberg.com/opinion/articles/2018-04-09/where-...

spiralx 7y ago
> Right, you're talking about the velocity of money (https://www.aier.org/article/what-money-velocity-and-why-doe... https://www.aier.org/article/what-money-velocity-and-why-doe...) which I find a fascinating concept. Actually the relevant concept is the marginal utility of wealth: https://www.economicshelp.org/blog/12309/concepts/diminishing-marginal-utility-of-income-and-wealth/ https://www.economicshelp.org/blog/12309/concepts/diminishin...

RhysU 7y ago

> Instead, they save to hedge against and profit from recessions. You are arguing that non-governmental investment/stimulus in the depths of a recession is a bad thing?

jcfrei 7y ago

As other commentators pointed out: Savings and investments are two sides of the same coin here. The money which is used for saving will be invested somewhere - even if the person who owns it just keeps it in an account on the bank. The problem I see is that the money almost exclusively goes to startups. In the last 10 years the startup scene in the US has been doing very well - not in terms of profits but in terms of funding. This giant "pool of money" created by the FED however mostly benefits just a small part of the workforce: Notably the engineers, scientists, managers, lawyers, investment bankers, etc. in the startup hotspots: In cities like SF, NYC, Seattle, Houston, etc. This is a problem for society because while wages for some parts of the workforce keep growing other workers are left with stagnating wages.