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Yeah, that's not how economics works... If I pay $100 to a landscaping company, the company pays it's workers (even if we have a company with one person). The

by jrock08 12y ago

Yeah, that's not how economics works... If I pay $100 to a landscaping company, the company pays it's workers (even if we have a company with one person). The company keeps some portion of the money and invests in improvements for the company, e.g. better equipment or advertising. The employees use the money to pay other companies for services which, similar to the landscaping company, reinvest a portion. These companies grow to be bigger companies, thus employing more people who can afford yards which need landscaping. Growing the economy. Not the zero sum game you imply. You assert that investment in companies is a better use of money, but in reality if I or someone else buys a share of any large and widely traded company, I'm pretty likely buying that share from a shareholder who, after selling the stock, has no vested interest in the company. How is that exchange producing value for the economy? I likely bought the stock from someone who after selling the share, invested it in a different company, by buying a share from someone else in the market. The money doesn't enter the economy, it doesn't pay someone a salary, it just stays locked up in the stock market betting that the valuation of a company will go up. In the very unlikely scenario that I do buy a share from a company directly, and assuming that the company does not have significant cash reserves, the money from the share would be used to pay someones salary or reinvested in the company thus creating a net positive for the economy, but then we are back in the landscaping example, not the engineer or science example.

javert 12y ago
> Growing the economy. Not the zero sum game you imply. It's not growing net economic output for a landscaping company to expand their business. It's just diverting money from other uses. To get increased economic output, you have to spend the money you are getting on something that expands production. In other words, landscaping is a consumptive activity, not a productive one (and that's fine). So as far as I can see, your analysis falls prey to the same fallacy I was trying to guard against. The fallacy is that it doesn't matter if money is miss-spent (e.g. by government) because it all gets consumed, anyway; it doesn't go anywhere. If there was only purely consumption (or, rather, exactly enough production to support existing consumption), in the net, it would be a zero sum game. Someone who holds this fallacy doesn't understand production or appreciate its significance. When production exceeds consumption, then consumption can and does expand to equal it out, but the expansion of production has to come first. Re: The stock market. When you buy a share of stock from one of the original founders, you are locking up your money, but freeing up his money to go be invested in something he thinks will be more productive (otherwise he wouldn't want to sell the stock). He may also invest in a publicly traded company, but eventually, on down the line, the money gets invested in expanding productivity, such as venture capital. That's why the venture capitalist profession exists. By the way, the reason those companies are so valuable is because regular investors are willing to pay X (which turns out to be huge) for a certain % of the company's earning potential. (Even if that potential is getting reinvested in the company instead of paying dividends, it's the same principle.)
- jrock08 12y ago
  I'm so confused as to why some spending in your economy are "good" and why some spending is "bad". How are you discounting the net economic gain from service jobs, but not discounting the net economic gain of a reinvested dividend? I'm perfectly happy to cede that money spent on submarine projects that might line the pockets of a small number of people is suboptimal to some other spending. And I'm not really arguing that. I'm arguing against your insistance that service jobs are zero-sum which is patently false. Service jobs are not zero sum due to the cost of time. For instance, if I clean your home, landscape your yard, or do your laundry, it frees up your time to do something else more productive.
  - javert 12y ago
    > I'm so confused as to why some spending in your economy are "good" and why some spending is "bad". Your terms, not mine. There would be no point in producing and in expanding production, if we weren't going to consume. > How are you discounting the net economic gain from service jobs, but not discounting the net economic gain of a reinvested dividend? One expands the level of production and the other doesn't. I'm not discounting them in a moral sense, though. > I'm arguing against your insistance that service jobs are zero-sum which is patently false. I said that if there were only enough production to equal consumption, it would be zero sum in the net. In other words, the economy would not grow. > For instance, if I clean your home, landscape your yard, or do your laundry, it frees up your time to do something else more productive. Yep, agreed. But if instead of doing something productive with my extra time, I work on a government boondoggle project like digging a ditch that isn't needed, there would be no net growth in the economy from that, because what is happening (within the confines of the scenario) is purely consumption. Anyway, hope I don't sound too terse, this is a fun and interesting discussion and you are raising good points.

by jrock08 12y ago

javert 12y ago

> Growing the economy. Not the zero sum game you imply. It's not growing net economic output for a landscaping company to expand their business. It's just diverting money from other uses. To get increased economic output, you have to spend the money you are getting on something that expands production. In other words, landscaping is a consumptive activity, not a productive one (and that's fine). So as far as I can see, your analysis falls prey to the same fallacy I was trying to guard against. The fallacy is that it doesn't matter if money is miss-spent (e.g. by government) because it all gets consumed, anyway; it doesn't go anywhere. If there was only purely consumption (or, rather, exactly enough production to support existing consumption), in the net, it would be a zero sum game. Someone who holds this fallacy doesn't understand production or appreciate its significance. When production exceeds consumption, then consumption can and does expand to equal it out, but the expansion of production has to come first. Re: The stock market. When you buy a share of stock from one of the original founders, you are locking up your money, but freeing up his money to go be invested in something he thinks will be more productive (otherwise he wouldn't want to sell the stock). He may also invest in a publicly traded company, but eventually, on down the line, the money gets invested in expanding productivity, such as venture capital. That's why the venture capitalist profession exists. By the way, the reason those companies are so valuable is because regular investors are willing to pay X (which turns out to be huge) for a certain % of the company's earning potential. (Even if that potential is getting reinvested in the company instead of paying dividends, it's the same principle.)

jrock08 12y ago
I'm so confused as to why some spending in your economy are "good" and why some spending is "bad". How are you discounting the net economic gain from service jobs, but not discounting the net economic gain of a reinvested dividend? I'm perfectly happy to cede that money spent on submarine projects that might line the pockets of a small number of people is suboptimal to some other spending. And I'm not really arguing that. I'm arguing against your insistance that service jobs are zero-sum which is patently false. Service jobs are not zero sum due to the cost of time. For instance, if I clean your home, landscape your yard, or do your laundry, it frees up your time to do something else more productive.
- javert 12y ago
  > I'm so confused as to why some spending in your economy are "good" and why some spending is "bad". Your terms, not mine. There would be no point in producing and in expanding production, if we weren't going to consume. > How are you discounting the net economic gain from service jobs, but not discounting the net economic gain of a reinvested dividend? One expands the level of production and the other doesn't. I'm not discounting them in a moral sense, though. > I'm arguing against your insistance that service jobs are zero-sum which is patently false. I said that if there were only enough production to equal consumption, it would be zero sum in the net. In other words, the economy would not grow. > For instance, if I clean your home, landscape your yard, or do your laundry, it frees up your time to do something else more productive. Yep, agreed. But if instead of doing something productive with my extra time, I work on a government boondoggle project like digging a ditch that isn't needed, there would be no net growth in the economy from that, because what is happening (within the confines of the scenario) is purely consumption. Anyway, hope I don't sound too terse, this is a fun and interesting discussion and you are raising good points.