4 ms·

The problem is that consumption represents value that is lost whereas savings and investment cause value to multiply. When you tax consumption you encourage inv

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.
  - rsj_hn 6y ago
    > "and the savings multiply at the interest rate because the bank loans their deposits out and those deposits are paid back with interest." No, this is false. Banks do not "loan out deposits". A deposit is an IOU from the bank. It is a liability of the bank. Like all IOUs, they are created out of "thin air". The only difference between a bank creating an IOU and you creating one is that the bank must meet strict regulatory requirements to do so. Those requirements are primarily that the asset on the other side of the deposit (your IOU) meets the lending criteria of the bank. Usually this involves some collateral and an ability to pay, together with some portion of risk capital held by the bank, which is usually a government bond equal to a percentage of the value of the loan not otherwise pledged for some other loan. Alternately capital can constitute a long term loan borrowed by the bank -- exactly what is considered capital and how much capital must be pledged by the bank is controlled by regulation. See, for example, Basel 2 regulations. So if you wanted to create a bank, all you would need is some capital, say a million bucks, and you are good to go to start making loans. That million bucks could support 100 million in real estate loans, for example. You don't need to wait for anyone to deposit anything, and the amount people deposit does not go into the decision of whether you as the bank can make a loan. This doesn't mean the bank has no lending standards, but checking on how many deposits are in the bank simply is not done as part of the decision tree to make a loan or not, because it is irrelevant. As long as the bank believes the the risk adjusted return on your stream of payments will exceed the obligation of their IOU, and as long as they have a sufficient amount of capital pledge to cover a percentage of the loan (usually a few percent, again depending on the riskiness of the loan. A non-collateralized business loans requires more of a capital pledge than a collateralized loan) they will go ahead and issue the IOU and create a deposit in your name at the bank for the amount of the loan. Then you can use that deposit at the same bank to pay for the investment you want. Banks create money out of thin air (but not willy-nilly). The amount of money banks create is not constrained by how many deposits they have -- rather the lending of money creates deposits. Fun Fact: Government borrowing also creates deposits -- enough deposits to buy the bonds the government sells when it borrows. This is why governments can (operationally) always borrow (although it may not be a wise policy for them to do so). So again, you are reversing causality. Loans create deposits, not the other way around. Deposits, in and of themselves, create no loans. Money deposited in a bank is "dead money" if not spent by you, and does not fund any investment and thus does not create any aggregate savings. You are merely depriving someone else in the economy of income. The investment happens elsewhere, and hopefully the amount invested is enough to cover everyone's savings demands (see below). > "I’m not sure what you mean by “investment creates savings.”" The sum total that an economy spends on investment is equal to the sum total that ends up being saved, regardless of how much people in the economy wanted to save. You, as an individual, can of course choose to put a portion of your income in the bank instead of buying some good, but that decision deprives the seller of the good of their income. So while individuals can choose how much of their income to save, their individual decisions in aggregate also determine how much income they earn. If too many people try to save at the same time, total income is reduced and they fail to save. So whether or not the individuals in an economy succeed in reaching their savings targets depends on whether a sufficient amount of investment occurs or not. So you better hope that there is enough investment happening in the economy to meet everyone's savings goals otherwise some people will fail to meet their targets. (Laid off people tend not to achieve their savings targets.) Thus it is investment that determines savings, not the other way around. This is what I mean by "Investment creates savings." > "I am using standard economic definitions. What definitions are you using?" I am using standard economic definitions. I don't think you are using standard definitions (see below). > "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" Demand is defined as the willingness and the ability to pay. Just wanting something in a store window you can't afford is not demand. That is a wish. The ability to pay is determined by your income, which falls if everyone tries to save at the same time. Therefore the spending of money, whether by directly making investments in the sense of purchasing real capital goods, or directly purchasing newly produced consumption, is a key part of determining income and thus setting demand. Merely abstaining from spending money and letting your financial savings sit idle in a bank deposit does not cause anyone to purchase an investment good, because banks don't lend deposits and deposits don't create loans (see above).
refurb 6y ago
consumption represents value that is lost Value lost how? If I spend $50k in cash on a car, I give up the $50k in cash in return for a $50k car. And that $50k payment go to the car company to pay employees and invest in future R&D.
- chordalkeyboard 6y ago
  Lost as in it is consumed. Seeds that are eaten are turned into calories/protein/fat. If these bioresources are not used to produce more resources (thats investment) then they are consumed and they go back into nature as heat loss or decomposed organic matter. Seeds that are planted result in another seed-producing-plant. > If I spend $50k in cash on a car, I give up the $50k in cash in return for a $50k car. And that $50k payment go to the car company to pay employees and invest in future R&D. If you use that car to make money (e.g. commute to a job) then it was an investment and it contributes to your income (return on investment). If you drive the car on the track exclusively as recreation, you enjoy the experience (consumption) but the car experiences mechanical wear and eventually breaks down into components. These are economic identities, if you get a return on your investment then it was a wise investment, if you do not then it was consumption. From the perspective of the car manufacturer the factory/raw material/etc. was an investment and the $50k you spent on the car is their return. They wouldn’t get that return if they had not invested in a factory because they preferred to consume those resources.
  - pydry 6y ago
    >Lost as in it is consumed. Seeds that are eaten are turned into calories/protein/fat. So, transformed. A bit like how capital is transformed into capital investments.
    - chordalkeyboard 6y ago
      > So, transformed. Yes, it is consumed when it is transformed into waste heat or other things that are not of value. It is invested when it is transformed into the means of production. > A bit like how capital is transformed into capital investments. if a thing of value is transformed into capital investment, then that is investment and therefore not consumption. If it is not transformed into the means of producing more things of value, then it can be saved (not consumed) or consumed (consumption).
nine_k 6y ago
Central banks around the world jump out of their pants to increase consumption, the speed with which money moves along the economy pipelines and helps produce value. Deflation and increased rates of saving (opposed to consumption) is the hobgoblin of the mainstream economy. It makes the money lie dormant, doing nothing. Read about the multiplication effect if you forgot the idea. Money must circulate as fast as possible to help produce most value. This absolutely needs constant consumption.
pydry 6y ago
>The problem is that consumption represents value that is lost No it isn't. Almost by definition consumption means value has been exchanged not lost. >savings and investment cause value to multiply. Equally fallacious. There's no way payday loans are multiplying value, for instancr. They're simply extracting it.
- chordalkeyboard 6y ago
  > Almost by definition consumption means value has been exchanged not lost. Consumption is value that is lost by definition, there is no “almost” about it. Value is either consumed or not. If it is not consumed, it can be saved or invested in capital. Investment in capital (when successful) multiplies value because the capital makes labor more productive, meaning more value is created. > Equally fallacious. There's no way payday loans are multiplying value, for instancr. They're simply extracting it. Payday loans are extractive and this does not contradict anything I have said.

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.
- rsj_hn 6y ago
  > "and the savings multiply at the interest rate because the bank loans their deposits out and those deposits are paid back with interest." No, this is false. Banks do not "loan out deposits". A deposit is an IOU from the bank. It is a liability of the bank. Like all IOUs, they are created out of "thin air". The only difference between a bank creating an IOU and you creating one is that the bank must meet strict regulatory requirements to do so. Those requirements are primarily that the asset on the other side of the deposit (your IOU) meets the lending criteria of the bank. Usually this involves some collateral and an ability to pay, together with some portion of risk capital held by the bank, which is usually a government bond equal to a percentage of the value of the loan not otherwise pledged for some other loan. Alternately capital can constitute a long term loan borrowed by the bank -- exactly what is considered capital and how much capital must be pledged by the bank is controlled by regulation. See, for example, Basel 2 regulations. So if you wanted to create a bank, all you would need is some capital, say a million bucks, and you are good to go to start making loans. That million bucks could support 100 million in real estate loans, for example. You don't need to wait for anyone to deposit anything, and the amount people deposit does not go into the decision of whether you as the bank can make a loan. This doesn't mean the bank has no lending standards, but checking on how many deposits are in the bank simply is not done as part of the decision tree to make a loan or not, because it is irrelevant. As long as the bank believes the the risk adjusted return on your stream of payments will exceed the obligation of their IOU, and as long as they have a sufficient amount of capital pledge to cover a percentage of the loan (usually a few percent, again depending on the riskiness of the loan. A non-collateralized business loans requires more of a capital pledge than a collateralized loan) they will go ahead and issue the IOU and create a deposit in your name at the bank for the amount of the loan. Then you can use that deposit at the same bank to pay for the investment you want. Banks create money out of thin air (but not willy-nilly). The amount of money banks create is not constrained by how many deposits they have -- rather the lending of money creates deposits. Fun Fact: Government borrowing also creates deposits -- enough deposits to buy the bonds the government sells when it borrows. This is why governments can (operationally) always borrow (although it may not be a wise policy for them to do so). So again, you are reversing causality. Loans create deposits, not the other way around. Deposits, in and of themselves, create no loans. Money deposited in a bank is "dead money" if not spent by you, and does not fund any investment and thus does not create any aggregate savings. You are merely depriving someone else in the economy of income. The investment happens elsewhere, and hopefully the amount invested is enough to cover everyone's savings demands (see below). > "I’m not sure what you mean by “investment creates savings.”" The sum total that an economy spends on investment is equal to the sum total that ends up being saved, regardless of how much people in the economy wanted to save. You, as an individual, can of course choose to put a portion of your income in the bank instead of buying some good, but that decision deprives the seller of the good of their income. So while individuals can choose how much of their income to save, their individual decisions in aggregate also determine how much income they earn. If too many people try to save at the same time, total income is reduced and they fail to save. So whether or not the individuals in an economy succeed in reaching their savings targets depends on whether a sufficient amount of investment occurs or not. So you better hope that there is enough investment happening in the economy to meet everyone's savings goals otherwise some people will fail to meet their targets. (Laid off people tend not to achieve their savings targets.) Thus it is investment that determines savings, not the other way around. This is what I mean by "Investment creates savings." > "I am using standard economic definitions. What definitions are you using?" I am using standard economic definitions. I don't think you are using standard definitions (see below). > "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" Demand is defined as the willingness and the ability to pay. Just wanting something in a store window you can't afford is not demand. That is a wish. The ability to pay is determined by your income, which falls if everyone tries to save at the same time. Therefore the spending of money, whether by directly making investments in the sense of purchasing real capital goods, or directly purchasing newly produced consumption, is a key part of determining income and thus setting demand. Merely abstaining from spending money and letting your financial savings sit idle in a bank deposit does not cause anyone to purchase an investment good, because banks don't lend deposits and deposits don't create loans (see above).

refurb 6y ago

consumption represents value that is lost Value lost how? If I spend $50k in cash on a car, I give up the $50k in cash in return for a $50k car. And that $50k payment go to the car company to pay employees and invest in future R&D.

chordalkeyboard 6y ago
Lost as in it is consumed. Seeds that are eaten are turned into calories/protein/fat. If these bioresources are not used to produce more resources (thats investment) then they are consumed and they go back into nature as heat loss or decomposed organic matter. Seeds that are planted result in another seed-producing-plant. > If I spend $50k in cash on a car, I give up the $50k in cash in return for a $50k car. And that $50k payment go to the car company to pay employees and invest in future R&D. If you use that car to make money (e.g. commute to a job) then it was an investment and it contributes to your income (return on investment). If you drive the car on the track exclusively as recreation, you enjoy the experience (consumption) but the car experiences mechanical wear and eventually breaks down into components. These are economic identities, if you get a return on your investment then it was a wise investment, if you do not then it was consumption. From the perspective of the car manufacturer the factory/raw material/etc. was an investment and the $50k you spent on the car is their return. They wouldn’t get that return if they had not invested in a factory because they preferred to consume those resources.
- pydry 6y ago
  >Lost as in it is consumed. Seeds that are eaten are turned into calories/protein/fat. So, transformed. A bit like how capital is transformed into capital investments.
  - chordalkeyboard 6y ago
    > So, transformed. Yes, it is consumed when it is transformed into waste heat or other things that are not of value. It is invested when it is transformed into the means of production. > A bit like how capital is transformed into capital investments. if a thing of value is transformed into capital investment, then that is investment and therefore not consumption. If it is not transformed into the means of producing more things of value, then it can be saved (not consumed) or consumed (consumption).

nine_k 6y ago

Central banks around the world jump out of their pants to increase consumption, the speed with which money moves along the economy pipelines and helps produce value. Deflation and increased rates of saving (opposed to consumption) is the hobgoblin of the mainstream economy. It makes the money lie dormant, doing nothing. Read about the multiplication effect if you forgot the idea. Money must circulate as fast as possible to help produce most value. This absolutely needs constant consumption.

pydry 6y ago

>The problem is that consumption represents value that is lost No it isn't. Almost by definition consumption means value has been exchanged not lost. >savings and investment cause value to multiply. Equally fallacious. There's no way payday loans are multiplying value, for instancr. They're simply extracting it.

chordalkeyboard 6y ago
> Almost by definition consumption means value has been exchanged not lost. Consumption is value that is lost by definition, there is no “almost” about it. Value is either consumed or not. If it is not consumed, it can be saved or invested in capital. Investment in capital (when successful) multiplies value because the capital makes labor more productive, meaning more value is created. > Equally fallacious. There's no way payday loans are multiplying value, for instancr. They're simply extracting it. Payday loans are extractive and this does not contradict anything I have said.