4 ms·

You don't hang out with many American middle class people do you? Most have 2 weeks of savings or less. If you give somebody money who is already a saver and

You don't hang out with many American middle class people do you? Most have 2 weeks of savings or less. If you give somebody money who is already a saver and who already appreciates the virtues of saving -- like myself or probably you -- yes, I'd save it. But that's because I spend a fixed amount, have no debt, and save excess income. If you give a small windfall (I dunno, $100 to $5,000) to most american families, that money will be spent. Probably a good chunk towards paying down household debt, and the rest to fixing things that have long been neglected. That could be the family car, a leaky roof, etc.

CWuestefeld 15y ago
The OP and the discussions here keep referring to people or companies getting money, and then spending it, or perhaps saving it, as if that were the end of that money. That's not how the economy works. Savings should be the most obvious. You're not going to save your money by hiding it under your mattress. You're going to at least put it into a bank, of not invest in equity or debt instruments. In all of these cases, the money is going right back into the economy to be used productively. If you put it into a bank, they'll loan it back out to someone in a mortgage or such. Equity investment directly fund businesses. And so on. So when you're saving, you're really redirecting the money to someone who believes he has a use for it -- and who believes strongly enough that they're willing to pay for the right to try it. And this is actually what the OP wanted in the first place, but the current system has better controls for ensuring that the money is used productively. If I spend the money -- say, on a leaky roof, as you suggest -- then that money is going to the roofing contractor, and thence to his employees and the producers of the shingles and other materials. Again, it's being used productively. Less obvious is if I spend the money on a TV, for example. Some of that money goes to the retailer. But much of it is going to, say, a Chinese company that makes it. This gets into more economic theory like "comparative advantage", which I'm not going to explain here, but simply state that in the bottom line it still makes us better off. People will protest that this contributes to the so-called "trade deficit". In the case of this discussion (at the very least), that trade deficit is a good thing. If we (collectively, somehow, for the sake of simplicity) owe a Chinese company some money, that is precisely the same thing as them pumping stimulus money into our economy! Perhaps you buy a Japanese car; that "trade deficit" is actually executed by, say, Toyota using the "owed" money to build a factory in America, and that again is exactly what we want.
- jamieb 15y ago
  If you put it into a bank, they'll loan it back out to someone in a mortgage or such. Except that they aren't. http://research.stlouisfed.org/fred2/series/EXCRESNS http://research.stlouisfed.org/fred2/series/EXCRESNS The banks just stuff them into a safe haven. Hence the phrase "Pushing on a string". Your roofing contractor might pay his employees, or he might try to do more with less people and pay off some debt. Or they might pay of some debt. As soon as that money enters the bank, its gone, as far as the economy is concerned. It used to be that money was passed along in a long chain of transactions. Now there is a non-zero probability that at any point in the chain, the money goes into a bank to pay off debt, and at that point, its gone for good. How do we change the bank's behavior? We have to create an economy where loaning out money is the only way to preserve value, instead of the opposite.
jamieb 15y ago
Paying off debt is not spending. In an older time, the bank would then be able to lend out that money to someone else, but at this time, they aren't. They are just sticking it in the Fed where its safe. Fixing things doesn't help with deflation either.

CWuestefeld 15y ago

The OP and the discussions here keep referring to people or companies getting money, and then spending it, or perhaps saving it, as if that were the end of that money. That's not how the economy works. Savings should be the most obvious. You're not going to save your money by hiding it under your mattress. You're going to at least put it into a bank, of not invest in equity or debt instruments. In all of these cases, the money is going right back into the economy to be used productively. If you put it into a bank, they'll loan it back out to someone in a mortgage or such. Equity investment directly fund businesses. And so on. So when you're saving, you're really redirecting the money to someone who believes he has a use for it -- and who believes strongly enough that they're willing to pay for the right to try it. And this is actually what the OP wanted in the first place, but the current system has better controls for ensuring that the money is used productively. If I spend the money -- say, on a leaky roof, as you suggest -- then that money is going to the roofing contractor, and thence to his employees and the producers of the shingles and other materials. Again, it's being used productively. Less obvious is if I spend the money on a TV, for example. Some of that money goes to the retailer. But much of it is going to, say, a Chinese company that makes it. This gets into more economic theory like "comparative advantage", which I'm not going to explain here, but simply state that in the bottom line it still makes us better off. People will protest that this contributes to the so-called "trade deficit". In the case of this discussion (at the very least), that trade deficit is a good thing. If we (collectively, somehow, for the sake of simplicity) owe a Chinese company some money, that is precisely the same thing as them pumping stimulus money into our economy! Perhaps you buy a Japanese car; that "trade deficit" is actually executed by, say, Toyota using the "owed" money to build a factory in America, and that again is exactly what we want.

jamieb 15y ago
If you put it into a bank, they'll loan it back out to someone in a mortgage or such. Except that they aren't. http://research.stlouisfed.org/fred2/series/EXCRESNS http://research.stlouisfed.org/fred2/series/EXCRESNS The banks just stuff them into a safe haven. Hence the phrase "Pushing on a string". Your roofing contractor might pay his employees, or he might try to do more with less people and pay off some debt. Or they might pay of some debt. As soon as that money enters the bank, its gone, as far as the economy is concerned. It used to be that money was passed along in a long chain of transactions. Now there is a non-zero probability that at any point in the chain, the money goes into a bank to pay off debt, and at that point, its gone for good. How do we change the bank's behavior? We have to create an economy where loaning out money is the only way to preserve value, instead of the opposite.

jamieb 15y ago

Paying off debt is not spending. In an older time, the bank would then be able to lend out that money to someone else, but at this time, they aren't. They are just sticking it in the Fed where its safe. Fixing things doesn't help with deflation either.