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"Spending $5" is the gas and "Holding $5" are bases of economic flow. Real world needs both. "Spending $5 on coffee ... lets that business ... re-invest ..." m

"Spending $5" is the gas and "Holding $5" are bases of economic flow. Real world needs both. "Spending $5 on coffee ... lets that business ... re-invest ..." means I'm giving them $5 and they are choosing to hold or they reached their tipping point of saving and can initiate a re-investment. That $5 could be used as simple as replacing a broken electrical outlet cover or fund constructing a drive-though. Could also go to funding the employee pizza party to invest in employee satisfaction. Just like cars, some business investments are fully paid off and are now just there for utility. Only need operations and maintenance costs. Investment does not mean you need to by another car or build another location. Is that a more clear? Everyone stepping on the brakes means no one is going any where. Just like everyone stepping on the gas means no one is going any where. Wouldn't the 2007-2008 financial crisis be a good example of both? Didn't too many people overspending, which originally looked good on paper, turned out to become a head on collision causing too many stepping on the brakes because they could not afford the gas?

creer 3y ago
Sorry @yndoendo, I have a hard time making sense of this follow-up. Your previous post contrasted spending $5 on coffee as letting that business operate, versus holding the $5 as not allowing that. I pointed out that there is no such thing as merely withholding the $5. That is, in the real economy, the $5 that is not spent in day to day operation is instead invested. The choice is not between buying the coffee and doing nothing. The choice is between buying the coffee and leaving the $5 either for you or for someone else to invest (through your bank). Either way it's getting invested. THAT $5 is what created a coffee house in the first place. I was pointing out the fallacy of these $5 being somehow idle and out of the game. Sure a little money is out of the game (perhaps under a mattress) but not much. I agree with gas vs brakes analogies in the economy. Even if I have a hard time with yours. Economic policy and overall mood can push people to spend more or save more (which gets invested). That investment activity can be very productive or not very. In extreme cases it's really but really not productive - just the best that people can think of. In some cases it's a bubble which seems like a good, productive idea at the time - and then isn't. Sure. And all economies need both spending and at least long term investing. You introduce something new in this response (I think) "some business investments are fully paid off and are now just there for utility." I don't think that's correct. Money / capital has an opportunity cost. Either that business produces now (dividends or value increases) or it's held in the hope that soon it will, or it's sold to someone who thinks they can do better and the money redeployed somewhere else. More so if it's actively losing money. Holding the business is an active management decision for that capital at each moment. Even when that decision is "no change, carry on". "Paid off" would be about what happened 20 years ago and usually never even gets looked at. It's rarely relevant. See also "sunk cost fallacy".

creer 3y ago

Sorry @yndoendo, I have a hard time making sense of this follow-up. Your previous post contrasted spending $5 on coffee as letting that business operate, versus holding the $5 as not allowing that. I pointed out that there is no such thing as merely withholding the $5. That is, in the real economy, the $5 that is not spent in day to day operation is instead invested. The choice is not between buying the coffee and doing nothing. The choice is between buying the coffee and leaving the $5 either for you or for someone else to invest (through your bank). Either way it's getting invested. THAT $5 is what created a coffee house in the first place. I was pointing out the fallacy of these $5 being somehow idle and out of the game. Sure a little money is out of the game (perhaps under a mattress) but not much. I agree with gas vs brakes analogies in the economy. Even if I have a hard time with yours. Economic policy and overall mood can push people to spend more or save more (which gets invested). That investment activity can be very productive or not very. In extreme cases it's really but really not productive - just the best that people can think of. In some cases it's a bubble which seems like a good, productive idea at the time - and then isn't. Sure. And all economies need both spending and at least long term investing. You introduce something new in this response (I think) "some business investments are fully paid off and are now just there for utility." I don't think that's correct. Money / capital has an opportunity cost. Either that business produces now (dividends or value increases) or it's held in the hope that soon it will, or it's sold to someone who thinks they can do better and the money redeployed somewhere else. More so if it's actively losing money. Holding the business is an active management decision for that capital at each moment. Even when that decision is "no change, carry on". "Paid off" would be about what happened 20 years ago and usually never even gets looked at. It's rarely relevant. See also "sunk cost fallacy".