4 ms·

I think you're forgetting that wealth trickles down. Extreme extra-strong emphasis on the "trickles".

SketchySeaBeast 7y ago
I just don't know if that trickle rate increases as there's more to trickle. If you're already having all your desires fulfilled, why spend more?
- knightofmars 7y ago
  My comment was tongue and cheek. I agree with you. Even if the trickle rate were to increase it's a joke. It's horse and sparrow theory, "If you feed the horse enough oats, some will pass through to the road for the sparrows."
  - SketchySeaBeast 7y ago
    Ah, ok - sorry. I seem to have said something unpopular, so I wasn't sure if people were actually defending trickle down or not.
- nybble41 7y ago
  Spending to satisfy your own desires directly benefits the buyer and the seller—that's the part people tend to focus on when discussing the "trickle down" effect—but what doesn't get spent on consumption ends up invested instead. That improves the productivity of labor, allows more goods to be produced at lower cost, and ultimately benefits everyone. Trade is good, but the greatest external benefit to society comes when one consumes less than one earns, thus leaving more for others. Even just stuffing the money in a mattress would benefit others by reducing the competition for goods and services; it's not as good as a profitable investment, but it's better than wasting resources on malinvestment.
  - SketchySeaBeast 7y ago
    Wouldn't that suggest that the interest rate should be something astronomical?
    - nybble41 7y ago
      I'm not sure where you're getting a connection to high interest rates. I would expect just the opposite; if people have their desires satisfied and are looking to invest what's left over then their time preference will be lower (more willing to wait) and money should be easier to get (lower interest rates on loans).
      - SketchySeaBeast 7y ago
        I was thinking the real-world version of keeping it under the mattress would be in a savings account, which would be encouraged by high interest rates. I'm confused as to why investing (I assume in the stock market) "improves the productivity of labor, allows more goods to be produced at lower cost, and ultimately benefits everyone" - that money we invest in buying stocks, after the stock is initially bought from the business, is just shuffling chips around a table, it doesn't seem to be doing anything for anyone. Am I off base? How does a company see a direct benefit from already sold stocks?
        nybble41 7y ago
        Putting money in a savings account is still investing, which is why you're earning interest. What I meant by "stuffing the money in a mattress" was actually taking it out of circulation. I didn't meant to imply that this would be more profitable than investing, just that it would still be a net benefit to others since you're not using that money to bid up prices on things they might want to buy. Same amount produced plus less money in circulation equals lower average prices. > How does a company see a direct benefit from already sold stocks? Normally when you buy shares in the stock market, other than from an IPO or secondary public offering, the company doesn't directly benefit from that trade. The company received its benefit up front when it sold the shares. Of course no one would have bought the shares if they didn't expect to be able to profit from them, either by selling to another investor or through dividends, so the fact that a market will exist is critical to any company looking to raise capital by issuing shares to the public. A high stock price is also beneficial to any company looking to raise funds through a secondary public offering, and may translate into actual revenue for capital investment if the company holds some of its equity in reserve. What I really had in mind, however, was not buying existing shares from other investors in the stock market but rather venture capital, IPOs, private equity, and the purchase of corporate bonds. In each of these cases the investment directly injects money into the company where it can be put to work enhancing productivity.

I just don't know if that trickle rate increases as there's more to trickle. If you're already having all your desires fulfilled, why spend more?

knightofmars 7y ago
My comment was tongue and cheek. I agree with you. Even if the trickle rate were to increase it's a joke. It's horse and sparrow theory, "If you feed the horse enough oats, some will pass through to the road for the sparrows."
- SketchySeaBeast 7y ago
  Ah, ok - sorry. I seem to have said something unpopular, so I wasn't sure if people were actually defending trickle down or not.
nybble41 7y ago
Spending to satisfy your own desires directly benefits the buyer and the seller—that's the part people tend to focus on when discussing the "trickle down" effect—but what doesn't get spent on consumption ends up invested instead. That improves the productivity of labor, allows more goods to be produced at lower cost, and ultimately benefits everyone. Trade is good, but the greatest external benefit to society comes when one consumes less than one earns, thus leaving more for others. Even just stuffing the money in a mattress would benefit others by reducing the competition for goods and services; it's not as good as a profitable investment, but it's better than wasting resources on malinvestment.
- SketchySeaBeast 7y ago
  Wouldn't that suggest that the interest rate should be something astronomical?
  - nybble41 7y ago
    I'm not sure where you're getting a connection to high interest rates. I would expect just the opposite; if people have their desires satisfied and are looking to invest what's left over then their time preference will be lower (more willing to wait) and money should be easier to get (lower interest rates on loans).
    - SketchySeaBeast 7y ago
      I was thinking the real-world version of keeping it under the mattress would be in a savings account, which would be encouraged by high interest rates. I'm confused as to why investing (I assume in the stock market) "improves the productivity of labor, allows more goods to be produced at lower cost, and ultimately benefits everyone" - that money we invest in buying stocks, after the stock is initially bought from the business, is just shuffling chips around a table, it doesn't seem to be doing anything for anyone. Am I off base? How does a company see a direct benefit from already sold stocks?
      - nybble41 7y ago
        Putting money in a savings account is still investing, which is why you're earning interest. What I meant by "stuffing the money in a mattress" was actually taking it out of circulation. I didn't meant to imply that this would be more profitable than investing, just that it would still be a net benefit to others since you're not using that money to bid up prices on things they might want to buy. Same amount produced plus less money in circulation equals lower average prices. > How does a company see a direct benefit from already sold stocks? Normally when you buy shares in the stock market, other than from an IPO or secondary public offering, the company doesn't directly benefit from that trade. The company received its benefit up front when it sold the shares. Of course no one would have bought the shares if they didn't expect to be able to profit from them, either by selling to another investor or through dividends, so the fact that a market will exist is critical to any company looking to raise capital by issuing shares to the public. A high stock price is also beneficial to any company looking to raise funds through a secondary public offering, and may translate into actual revenue for capital investment if the company holds some of its equity in reserve. What I really had in mind, however, was not buying existing shares from other investors in the stock market but rather venture capital, IPOs, private equity, and the purchase of corporate bonds. In each of these cases the investment directly injects money into the company where it can be put to work enhancing productivity.