10 ms·

Why inequality matters (2014)

42 points by rgbrgb 6y ago

dgellow 6y ago
What are the reasons for the US to not already have a VAT? That’s one of those things that seems to be agreed upon by almost every country in the world but not the US.
- nine_k 6y ago
  Is there a reason why the US economy still grows while most of the rest of the world, and EU in particular, stagnates? Maybe not stymied demand plays some role in it.
  - dgellow 6y ago
    Check the map at https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/Value-added_tax. Where all those countries stagnant before the virus? Of course not.
deleted 6y ago
[deleted]
mrpopo 6y ago
Why should we believe that Bill Gates has a valuable opinion on wealth inequality and its causes? His point on 1780 rentiers just doesn't hold since most of the wealth in the world was created since the 1950s. Also, Bill Gates's favored solution, a tax on consumption, will not do anything to counter the problem of exceedingly wealthy people who have so much money that they can't spend it all, even with a "lavish lifestyle".
- babesh 6y ago
  Because the data he presents and his argument is a good one and your logic is shete. His argument is that dynastic wealth doesn’t persist in the United States. If it did, then wealth would STILL have accreted to renters even if most of the wealth was created since the 50s. Furthermore you didn’t bother reading or noticing that he is in favor of an estate tax.
  - fiblye 6y ago
    > His argument is that dynastic wealth doesn’t persist in the United States. America doesn't really have people who've been billionaires for 7 generations. But America does have people who were born into enough money to never have to worry about finances ever, had children with the same benefit, and had grandchildren in similar circumstances. Plenty of people in politics are the son or grandson of a line of rich politicians. Plenty of comfortable millionaires got their start from a lineage of inherited wealth. It's not enough money to rank on Forbes 400 and build private castles that'll last centuries, but it's definitely wealth and status being passed down. It's safe money. Many people who became billionaires aren't there through safe, steady, risk-free financial management.
    - chordalkeyboard 6y ago
      How are families preserving wealth for generations, if they aren’t engaging in safe, steady, low risk management of their wealth? Even if you ignored inflation, how much cash would someone have to accumulate in order to sustain a middle-class lifestyle for their family for multiple generations, if they weren’t investing and managing those investments?
      - babesh 6y ago
        - Investing in their kid’s education in a broad sense (attitude, career). - Marrying well i.e. marrying smart and successful people so that your progeny’s genes are the best they can be. The British aristocracy was famous for doing this. Marrying old blood to new blood. However, many cultures do the same. That is why marriage was so often a negotiated affair.
        chordalkeyboard 6y ago
        This is true. They invest in the education and socialization of their children so their children can go get good jobs and earn big paychecks in a well-paying, low-risk industry. However that is not the same as living on accumulated wealth for generations.
- chordalkeyboard 6y ago
  > the problem of exceedingly wealthy people who have so much money that they can't spend it all, even with a "lavish lifestyle". The problem is not that some people have all their needs and wants met with plenty left over. The problem is that some people do not, and there are systemic and often-insurmountable difficulties in moving people from the latter category to the former.
  - mrpopo 6y ago
    The problem is to move capital from where it's not useful (in the bank accounts and portfolios of ultra-wealthy) to where it's useful. A tax on consumption will have a bigger impact on less wealthy people whose income is spent towards basic needs, whereas more wealthy people hoard their capital (and profit out of it). I fail to see how a focus on consumption should be favored?
    - chordalkeyboard 6y ago
      > The problem is to move capital from where it's not useful (in the bank accounts and portfolios of ultra-wealthy) to where it's useful. Its quite useful in bank accounts because those banks make loans to businesses, which secure the loan with collateral and invest the loan in expanding their business, offering more goods and services at more competitive prices, Thereby generating more value. This is investment. > A tax on consumption will have a bigger impact on less wealthy people whose income is spent towards basic needs Perhaps so, but taxing investment also hurts less wealthy people to a greater extent, because they have less money to invest and so the investment tax makes it more difficult for them to catch up to more wealthy people by investing. > whereas more wealthy people hoard their capital (and profit out of it). This is why they are wealthy and this behavior should be emulated by the less wealthy if they wish to have more money available for consumption in the long run. > I fail to see how a focus on consumption should be favored? Because the aggregate effect of tax incentives shapes the market and investment increases the amount of value created by a given unit of labor, and the amount of value available in the market at all price levels. Incentivizing consumption (by taxing investment more than consumption) causes more people to consume more of their value. Incentivizing investment causes more people to invest more value, creating more aggregate value.
dang 6y ago
Discussed at the time: https://news.ycombinator.com/item?id=8464532 https://news.ycombinator.com/item?id=8464532
GoodJokes 6y ago
Its telling that Gates never seriously inspects the source of HIS wealth. Also, Pikkety's r > G is essentially the labor theory of value rebranded.
supernova87a 6y ago
I'm fairly moderate, maybe even becoming a bit conservative in my old (hah) age, but even I agree that inequality is causing problems. And all the economists with their Friedman-esque theories didn't properly anticipate how angry this issue can make people. I guess the 2nd order effects of the free market 50-75 years into a stable and wealthy evolved society were too far ahead to realize. We need to address it for our own self-preservation or it may become one of those issues that dooms what has been a good system. I have to see the problems of inequality manifesting in concrete ways, because otherwise the concept of it isn't a priori bad to me. As people create wealth (a good thing), just the fact that others haven't managed to isn't a problem to me. That is inevitable and happens with any system. But when it gets to this level, it is causing problems: -- Wealth accumulation allowing people to buy 2nd homes or more (esp. investment homes), in really expensive places partly with speculative goals, which makes it harder for not just the poor, but everyone in general, especially young people, to afford housing (and not even talking ownership, but rentals) -- the ability of people with wealth to choose to back symbolic causes with money, at little cost to them but with great cost to the targets of those causes. It cuts both ways mind you, so don't be so glad to embrace this point. I think of the (admittedly mundane) example of people donating $10k to random people on crowdfund sites to buy tents for the homeless because of the symbolism of it, that then litter the streets of other people's cities. -- Related to that, the political discourse becoming more mirroring of the economic situation, in that people's attention gets focused on (and distracted by) the growing extremes of society. It's hard to resist. They dominate the headlines and discussion. Political opinions of the ultrawealthy and their companies, rare but attention-getting exceptions to the norm. On the more silly end, people's dumb luxo-rich envy feeds on instagram making people upset and setting unrealistic expectations... -- And finally, vague but real: the new serfdom/perpetual servitude that people with bad education, or back luck early in life are condemned to because they can't do anything to dig out of a $15/hour job serving relatively rich people who are angry at the shoddy level of customer service these days... I actively see this in people I employ. It's a problem. Not to say we need to abandon capitalism, and not to say that any of the current solutions out there would fix it in ways without unintended consequences. But it is a problem needing attention and some smart solutions put forth that can get people to realize it's our own necks on the line if we don't.
- 6y ago
betocmn 6y ago
More recently, Bill and Melinda created a useful report on this - "Examining Inequality" [1]. The biggest take away: "Where you are born is more predictive of your future than any other factor", which has been discussed on HN too [2]. [1] https://www.gatesfoundation.org/goalkeepers/report/2019-report/#ExaminingInequality https://www.gatesfoundation.org/goalkeepers/report/2019-repo... [2] https://news.ycombinator.com/item?id=20993456 https://news.ycombinator.com/item?id=20993456
AtlasBarfed 6y ago
No mention of providing for the basics of existence. Of course it's an economic post by someone far removed from such concerns beyond advocating for policy from their extremely high tower built on inequality. The pitchforks wouldn't be sharpened nearly as often if the basic humanities in first world nations were minimally guaranteed: food, water, shelter, medical care. But the US isn't really a first world country. It seems to be straddling the boundary with the old second world, particularly the USSR: military power projection, effectively a single party with respect to the politically connected/rich, vast inequality, functional contempt for the common man despite propaganda. It does have food on the shelves, unless the paper thin warehousing of the modern supply chain is disrupted.
mjfl 6y ago
As time goes on, some people will continue the same way of life as before, think of the sentinelese islanders, while the richest people will experience continuously accelerating quality of life gains. Thus, inequality is guaranteed to increase as prosperity increases. Is this inherently evil? I don’t think so.
- chordalkeyboard 6y ago
  Some would say that the Sentinelese enjoy greater quality of life than the wealthiest among us because they live in the environment for which evolution has prepared them, while even the most prosperous of “civilized” people are subject to the alienation and anomie that are the result of our way of life. Others will observe that the problem with inequality is not that the wealthiest experience continually greater q.o.l., but that their influence is often seen to deprive the least wealthy of what they once had, and that the process tends to put more and more of us in circumstances of precarity.
  - deleted 6y ago
    [deleted]
- mrpopo 6y ago
  The sentinelese (as well as all farmers in low-income countries) are directly impacted by environment degradation caused by the richest people experiencing "accelerating quality of life". Thinking that our way of life is not impacting others is inherently evil, yes.
  - mjfl 6y ago
    advancement doesn't imply environmental degradation, in fact it means the opposite.
  - Nasrudith 6y ago
    Except it isn't a straightforward relationship between production and environmental degradation. The 'how' matters quite a bit namely in terms of efficiency. To pretend that producing a new genetic therapy is the same as grazing one million more goats is asinine. The awkward truth is that we have always had an impact on others even back in ancient times wrongly considered isolated arcadias in tune with their environment. Mega-fauna didn't become extinct from running out of food but from humans running out of them as food, and the Sahara fertilizes the Amazon rain forests.
ikeboy 6y ago
It's interesting to read this nuanced and economically informed take with his more recent post saying we should raise taxes on capital. See https://www.gatesnotes.com/About-Bill-Gates/Year-in-Review-2019 https://www.gatesnotes.com/About-Bill-Gates/Year-in-Review-2... Reading them side by side, it really seems like his more recent opinion just wasn't thought out, which is surprising given that he clearly thought about the topic 5 years earlier. My guess is he decided to support what he felt was going to be supported by mainstream Democrats anyway, instead of the economically correct views he clearly understood in 2014.
- throwawaw 6y ago
  What differences did you see? They seem essentially similar. The exception being: > We should shift more of the tax burden onto capital, including by raising the capital gains tax, probably to the same level as taxes on labor. (2019) vs > I agree that taxation should shift away from taxing labor. It doesn’t make any sense that labor in the United States is taxed so heavily relative to capital. > But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. (2014) He does seem to have reconsidered the utility of a yacht sales tax.
  - ikeboy 6y ago
    Yes, the difference is he switched from being against higher capital taxes to in favor.
pydry 6y ago
>But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. Except consumption taxes are naturally regressive. If Bill really wanted a progressive tax I think he probably would have suggested more naturally progressive taxes (like property or capital gains) rather than the one tax that has to be massively hacked in order to not be extremely regressive.
- chordalkeyboard 6y ago
  The problem is that consumption represents value that is lost whereas savings and investment cause value to multiply. When you tax consumption you encourage investment in capital which makes more value available for everyone in the market. When you tax property or capital gains you siphon value from investment and encourage consumption, resulting in depletion of value.
  - rsj_hn 6y ago
    I disagree that savings causes value to multiply -- that's reversing causality. Investment creates savings, not the other way around, and the relationship between investment and consumption is complex. It could be the case that a decrease in consumption results in a decrease in investment -- firms don't invest more when their sales are flagging. It could also be that an increase in consumption leads to a decrease in investment, but the conditions for this are more limited. Overall, growth in consumption tends to go with growth in investment in modern free economies. In other economies, for example, export led economies that practice forced savings, there is a general policy to tax consumption and subsidize investment. That may or may not work out. It often works out in the short term but not the long term. It works better for small economies that can export a surplus than for large economies that have a hard time exporting the surplus. It can also destabilize the rest of the world. In the modern world, the most precious commodity is demand, not investment, and suppressing demand is generally foolish.
    - chordalkeyboard 6y ago
      > I disagree that savings causes value to multiply -- that's reversing causality. Investment creates savings, not the other way around, and the relationship between investment and consumption is complex. It could be the case that a decrease in consumption results in a decrease in investment -- firms don't invest more when their sales are flagging. Savings is deferred consumption, as a basic identity it merely represents value that is not consumed. This is what would happen if someone put cash under the mattress (discounting inflation/deflation). However most people put savings in a bank account (which traditionally pays interest and was long ago transformed into a form of low-risk investment) and the savings multiply at the interest rate because the bank loans their deposits out and those deposits are paid back with interest. I’m not sure what you mean by “investment creates savings.” What is being invested, if not value that has not been consumed (i.e. savings)? > It could also be that an increase in consumption leads to a decrease in investment, but the conditions for this are more limited. Consumption and investment/savings are mutually exclusive and collectively exhaustive. There is a scarce amount of resources and each unit can be either consumed (in which case it disappears) or saved/invested. > Overall, growth in consumption tends to go with growth in investment in modern free economies. It seems we are using different definitions for these words. I am using standard economic definitions. What definitions are you using? > In the modern world, the most precious commodity is demand, not investment, and suppressing demand is generally foolish. I’m not sure I understand what you mean. Demand without means of exchanging for the object of the demand is a bad thing. Demand is only good when the person demanding can pay for the thing demanded, otherwise their demand is not met or they are the recipient of a charity or welfare.
erentz 6y ago
Coincidentally just watched Capital on NetFlix. It’s not a great watch, but a decent way to absorb an abridged version of the book. Pairs well with The Social Dilemma for a documentary night. Mark Blyth is an economist with plenty of content on YouTube that touches on similar topics. For adjacent book recommendations I highly recommend Goliath by Matt Stoller on the subject of capital and monopoly power in the US over history.

42 points by rgbrgb 6y ago

What are the reasons for the US to not already have a VAT? That’s one of those things that seems to be agreed upon by almost every country in the world but not the US.

nine_k 6y ago
Is there a reason why the US economy still grows while most of the rest of the world, and EU in particular, stagnates? Maybe not stymied demand plays some role in it.
- dgellow 6y ago
  Check the map at https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/Value-added_tax. Where all those countries stagnant before the virus? Of course not.

deleted 6y ago

[deleted]

mrpopo 6y ago

Why should we believe that Bill Gates has a valuable opinion on wealth inequality and its causes? His point on 1780 rentiers just doesn't hold since most of the wealth in the world was created since the 1950s. Also, Bill Gates's favored solution, a tax on consumption, will not do anything to counter the problem of exceedingly wealthy people who have so much money that they can't spend it all, even with a "lavish lifestyle".

babesh 6y ago
Because the data he presents and his argument is a good one and your logic is shete. His argument is that dynastic wealth doesn’t persist in the United States. If it did, then wealth would STILL have accreted to renters even if most of the wealth was created since the 50s. Furthermore you didn’t bother reading or noticing that he is in favor of an estate tax.
- fiblye 6y ago
  > His argument is that dynastic wealth doesn’t persist in the United States. America doesn't really have people who've been billionaires for 7 generations. But America does have people who were born into enough money to never have to worry about finances ever, had children with the same benefit, and had grandchildren in similar circumstances. Plenty of people in politics are the son or grandson of a line of rich politicians. Plenty of comfortable millionaires got their start from a lineage of inherited wealth. It's not enough money to rank on Forbes 400 and build private castles that'll last centuries, but it's definitely wealth and status being passed down. It's safe money. Many people who became billionaires aren't there through safe, steady, risk-free financial management.
  - chordalkeyboard 6y ago
    How are families preserving wealth for generations, if they aren’t engaging in safe, steady, low risk management of their wealth? Even if you ignored inflation, how much cash would someone have to accumulate in order to sustain a middle-class lifestyle for their family for multiple generations, if they weren’t investing and managing those investments?
    - babesh 6y ago
      - Investing in their kid’s education in a broad sense (attitude, career). - Marrying well i.e. marrying smart and successful people so that your progeny’s genes are the best they can be. The British aristocracy was famous for doing this. Marrying old blood to new blood. However, many cultures do the same. That is why marriage was so often a negotiated affair.
      - chordalkeyboard 6y ago
        This is true. They invest in the education and socialization of their children so their children can go get good jobs and earn big paychecks in a well-paying, low-risk industry. However that is not the same as living on accumulated wealth for generations.
chordalkeyboard 6y ago
> the problem of exceedingly wealthy people who have so much money that they can't spend it all, even with a "lavish lifestyle". The problem is not that some people have all their needs and wants met with plenty left over. The problem is that some people do not, and there are systemic and often-insurmountable difficulties in moving people from the latter category to the former.
- mrpopo 6y ago
  The problem is to move capital from where it's not useful (in the bank accounts and portfolios of ultra-wealthy) to where it's useful. A tax on consumption will have a bigger impact on less wealthy people whose income is spent towards basic needs, whereas more wealthy people hoard their capital (and profit out of it). I fail to see how a focus on consumption should be favored?
  - chordalkeyboard 6y ago
    > The problem is to move capital from where it's not useful (in the bank accounts and portfolios of ultra-wealthy) to where it's useful. Its quite useful in bank accounts because those banks make loans to businesses, which secure the loan with collateral and invest the loan in expanding their business, offering more goods and services at more competitive prices, Thereby generating more value. This is investment. > A tax on consumption will have a bigger impact on less wealthy people whose income is spent towards basic needs Perhaps so, but taxing investment also hurts less wealthy people to a greater extent, because they have less money to invest and so the investment tax makes it more difficult for them to catch up to more wealthy people by investing. > whereas more wealthy people hoard their capital (and profit out of it). This is why they are wealthy and this behavior should be emulated by the less wealthy if they wish to have more money available for consumption in the long run. > I fail to see how a focus on consumption should be favored? Because the aggregate effect of tax incentives shapes the market and investment increases the amount of value created by a given unit of labor, and the amount of value available in the market at all price levels. Incentivizing consumption (by taxing investment more than consumption) causes more people to consume more of their value. Incentivizing investment causes more people to invest more value, creating more aggregate value.

dang 6y ago

Discussed at the time: https://news.ycombinator.com/item?id=8464532 https://news.ycombinator.com/item?id=8464532

GoodJokes 6y ago

Its telling that Gates never seriously inspects the source of HIS wealth. Also, Pikkety's r > G is essentially the labor theory of value rebranded.

supernova87a 6y ago

I'm fairly moderate, maybe even becoming a bit conservative in my old (hah) age, but even I agree that inequality is causing problems. And all the economists with their Friedman-esque theories didn't properly anticipate how angry this issue can make people. I guess the 2nd order effects of the free market 50-75 years into a stable and wealthy evolved society were too far ahead to realize. We need to address it for our own self-preservation or it may become one of those issues that dooms what has been a good system. I have to see the problems of inequality manifesting in concrete ways, because otherwise the concept of it isn't a priori bad to me. As people create wealth (a good thing), just the fact that others haven't managed to isn't a problem to me. That is inevitable and happens with any system. But when it gets to this level, it is causing problems: -- Wealth accumulation allowing people to buy 2nd homes or more (esp. investment homes), in really expensive places partly with speculative goals, which makes it harder for not just the poor, but everyone in general, especially young people, to afford housing (and not even talking ownership, but rentals) -- the ability of people with wealth to choose to back symbolic causes with money, at little cost to them but with great cost to the targets of those causes. It cuts both ways mind you, so don't be so glad to embrace this point. I think of the (admittedly mundane) example of people donating $10k to random people on crowdfund sites to buy tents for the homeless because of the symbolism of it, that then litter the streets of other people's cities. -- Related to that, the political discourse becoming more mirroring of the economic situation, in that people's attention gets focused on (and distracted by) the growing extremes of society. It's hard to resist. They dominate the headlines and discussion. Political opinions of the ultrawealthy and their companies, rare but attention-getting exceptions to the norm. On the more silly end, people's dumb luxo-rich envy feeds on instagram making people upset and setting unrealistic expectations... -- And finally, vague but real: the new serfdom/perpetual servitude that people with bad education, or back luck early in life are condemned to because they can't do anything to dig out of a $15/hour job serving relatively rich people who are angry at the shoddy level of customer service these days... I actively see this in people I employ. It's a problem. Not to say we need to abandon capitalism, and not to say that any of the current solutions out there would fix it in ways without unintended consequences. But it is a problem needing attention and some smart solutions put forth that can get people to realize it's our own necks on the line if we don't.

6y ago

betocmn 6y ago

More recently, Bill and Melinda created a useful report on this - "Examining Inequality" [1]. The biggest take away: "Where you are born is more predictive of your future than any other factor", which has been discussed on HN too [2]. [1] https://www.gatesfoundation.org/goalkeepers/report/2019-report/#ExaminingInequality https://www.gatesfoundation.org/goalkeepers/report/2019-repo... [2] https://news.ycombinator.com/item?id=20993456 https://news.ycombinator.com/item?id=20993456

AtlasBarfed 6y ago

No mention of providing for the basics of existence. Of course it's an economic post by someone far removed from such concerns beyond advocating for policy from their extremely high tower built on inequality. The pitchforks wouldn't be sharpened nearly as often if the basic humanities in first world nations were minimally guaranteed: food, water, shelter, medical care. But the US isn't really a first world country. It seems to be straddling the boundary with the old second world, particularly the USSR: military power projection, effectively a single party with respect to the politically connected/rich, vast inequality, functional contempt for the common man despite propaganda. It does have food on the shelves, unless the paper thin warehousing of the modern supply chain is disrupted.

mjfl 6y ago

As time goes on, some people will continue the same way of life as before, think of the sentinelese islanders, while the richest people will experience continuously accelerating quality of life gains. Thus, inequality is guaranteed to increase as prosperity increases. Is this inherently evil? I don’t think so.

chordalkeyboard 6y ago
Some would say that the Sentinelese enjoy greater quality of life than the wealthiest among us because they live in the environment for which evolution has prepared them, while even the most prosperous of “civilized” people are subject to the alienation and anomie that are the result of our way of life. Others will observe that the problem with inequality is not that the wealthiest experience continually greater q.o.l., but that their influence is often seen to deprive the least wealthy of what they once had, and that the process tends to put more and more of us in circumstances of precarity.
- deleted 6y ago
  [deleted]
mrpopo 6y ago
The sentinelese (as well as all farmers in low-income countries) are directly impacted by environment degradation caused by the richest people experiencing "accelerating quality of life". Thinking that our way of life is not impacting others is inherently evil, yes.
- mjfl 6y ago
  advancement doesn't imply environmental degradation, in fact it means the opposite.
- Nasrudith 6y ago
  Except it isn't a straightforward relationship between production and environmental degradation. The 'how' matters quite a bit namely in terms of efficiency. To pretend that producing a new genetic therapy is the same as grazing one million more goats is asinine. The awkward truth is that we have always had an impact on others even back in ancient times wrongly considered isolated arcadias in tune with their environment. Mega-fauna didn't become extinct from running out of food but from humans running out of them as food, and the Sahara fertilizes the Amazon rain forests.

ikeboy 6y ago

It's interesting to read this nuanced and economically informed take with his more recent post saying we should raise taxes on capital. See https://www.gatesnotes.com/About-Bill-Gates/Year-in-Review-2019 https://www.gatesnotes.com/About-Bill-Gates/Year-in-Review-2... Reading them side by side, it really seems like his more recent opinion just wasn't thought out, which is surprising given that he clearly thought about the topic 5 years earlier. My guess is he decided to support what he felt was going to be supported by mainstream Democrats anyway, instead of the economically correct views he clearly understood in 2014.

throwawaw 6y ago
What differences did you see? They seem essentially similar. The exception being: > We should shift more of the tax burden onto capital, including by raising the capital gains tax, probably to the same level as taxes on labor. (2019) vs > I agree that taxation should shift away from taxing labor. It doesn’t make any sense that labor in the United States is taxed so heavily relative to capital. > But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. (2014) He does seem to have reconsidered the utility of a yacht sales tax.
- ikeboy 6y ago
  Yes, the difference is he switched from being against higher capital taxes to in favor.

pydry 6y ago

>But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. Except consumption taxes are naturally regressive. If Bill really wanted a progressive tax I think he probably would have suggested more naturally progressive taxes (like property or capital gains) rather than the one tax that has to be massively hacked in order to not be extremely regressive.

chordalkeyboard 6y ago
The problem is that consumption represents value that is lost whereas savings and investment cause value to multiply. When you tax consumption you encourage investment in capital which makes more value available for everyone in the market. When you tax property or capital gains you siphon value from investment and encourage consumption, resulting in depletion of value.
- rsj_hn 6y ago
  I disagree that savings causes value to multiply -- that's reversing causality. Investment creates savings, not the other way around, and the relationship between investment and consumption is complex. It could be the case that a decrease in consumption results in a decrease in investment -- firms don't invest more when their sales are flagging. It could also be that an increase in consumption leads to a decrease in investment, but the conditions for this are more limited. Overall, growth in consumption tends to go with growth in investment in modern free economies. In other economies, for example, export led economies that practice forced savings, there is a general policy to tax consumption and subsidize investment. That may or may not work out. It often works out in the short term but not the long term. It works better for small economies that can export a surplus than for large economies that have a hard time exporting the surplus. It can also destabilize the rest of the world. In the modern world, the most precious commodity is demand, not investment, and suppressing demand is generally foolish.
  - chordalkeyboard 6y ago
    > I disagree that savings causes value to multiply -- that's reversing causality. Investment creates savings, not the other way around, and the relationship between investment and consumption is complex. It could be the case that a decrease in consumption results in a decrease in investment -- firms don't invest more when their sales are flagging. Savings is deferred consumption, as a basic identity it merely represents value that is not consumed. This is what would happen if someone put cash under the mattress (discounting inflation/deflation). However most people put savings in a bank account (which traditionally pays interest and was long ago transformed into a form of low-risk investment) and the savings multiply at the interest rate because the bank loans their deposits out and those deposits are paid back with interest. I’m not sure what you mean by “investment creates savings.” What is being invested, if not value that has not been consumed (i.e. savings)? > It could also be that an increase in consumption leads to a decrease in investment, but the conditions for this are more limited. Consumption and investment/savings are mutually exclusive and collectively exhaustive. There is a scarce amount of resources and each unit can be either consumed (in which case it disappears) or saved/invested. > Overall, growth in consumption tends to go with growth in investment in modern free economies. It seems we are using different definitions for these words. I am using standard economic definitions. What definitions are you using? > In the modern world, the most precious commodity is demand, not investment, and suppressing demand is generally foolish. I’m not sure I understand what you mean. Demand without means of exchanging for the object of the demand is a bad thing. Demand is only good when the person demanding can pay for the thing demanded, otherwise their demand is not met or they are the recipient of a charity or welfare.

erentz 6y ago

Coincidentally just watched Capital on NetFlix. It’s not a great watch, but a decent way to absorb an abridged version of the book. Pairs well with The Social Dilemma for a documentary night. Mark Blyth is an economist with plenty of content on YouTube that touches on similar topics. For adjacent book recommendations I highly recommend Goliath by Matt Stoller on the subject of capital and monopoly power in the US over history.