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The difference is, distributing $100 million to the already-wealthy does not incur increases in aggregate demand (it might, in fact, decrease it), as the wealth
by warfangle 13y ago
The difference is, distributing $100 million to the already-wealthy does not incur increases in aggregate demand (it might, in fact, decrease it), as the wealthy tend to lock up their funds in financial instruments (from bonds to stocks). And invest in a company (stocks) all you want, if there's no demand for what it's selling.... why are you investing?
- tedsanders 13y agoI think your answer is a bit self-contradictory. The only way for the $100 million not to enter the money supply is for the wealthy to hold $100 million more in cash. If they invest it in bonds and stocks, then now the previous holders of those bonds and stocks hold the cash. The point of distributing the money is so that money is worth less and prices become effectively lower, causing people to buy more stuff and businesses to make more stuff (i.e., monetary stimulus of aggregate demand). Here is a blog post on the hot potato effect: http://www.themoneyillusion.com/?p=23314 http://www.themoneyillusion.com/?p=23314
- warfangle 13y agoYet the previous owners of those bonds and stocks who now hold the cash are likely members of the same elite investment class, and immediately ... reinvest it in bonds and stocks, instead of spending it on goods and services. (unless they are the recipients of, say, social security -- the biggest single investor in government bonds) edit: replied without reading the HPE post. My point, I guess, is that this helicopter drop of cash, if evenly distributed (e.g., every US citizen received 3.19488818e-9 of it), would disproportionally be distributed to those who would spend it immediately, increasing aggregate demand - compared to those few percent who would just add it to their investment portfolio.