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On Economics...
Nov. 30th, 2013 12:55 pmThere's a great piece in Slate on why Rich People don't create jobs. Read the whole thing, it's excellent.
It's also true and led to my brother saying the following:
I used to believe that economies had to be sustainable based on this principle of consumers buying produce from business that paid consumers for their effort! However, I hadn't allowed for bankers lending money to people who could never pay it back and then repackaging the debt to sell it to each other to generate huge profits.
And this is really the crux. I have this vision that the usual suspects (Libertarian wantrapeneurs for the most part) have perhaps watched It's a Wonderful Life a few too many times and have this idea that rich people put their money in the bank and it gets spent on founding Facebook.
And while rich people do put Angel money into Facebook, or become Liquidity Partners in operations like Venture Capital, it's not as productive as people tend to think it is and wouldn't, for example, be better than say, a bank lending money to a business based on a decent business plan and their Accounts Receivable... oh? You thought that happened? Oh, you're precious!
Anyway, the thing with economics is that it's about the flow of money and nothing more. Rich people might spend more, but there's physical limits on what you can spend... well, that's not entirely true, you can waste money q.v. Brewster's Millions,(*) but for the most part, there's cars, yachts, planes and so on which involve spending LOTS but on the whole that's not necessarily doing you much good.
So if you're an American who has bought into this. Ask yourself the following question: would you rather have a single rich person buying 3 or 4 new $250,000 sports cars, probably from a European manufacturer and made in Germany or Italy every year, or 40 people spending the same money on a mid-ranged Ford or Toyota which is probably made on shore...
Likewise, if you life in a town would you rather have a rich person buying a $200 meal 3-4 times a week, or 10-15 people buying a $35 one twice a week? Of course, the interesting thing is even with much higher tax rates and lower corporate profits (l.e. higher pay) you can actually have both. However, the fact remains, more people eating out is going to generate more economic activity than a small number of people spending a lot less frequently.
Basically, your spending is somebodies income. Get too far away from that as a concept and things tend to fall apart quickly. Beware of anybody trying to tell you otherwise and if they come back with the 'bank deposits get invested' line, ask them what in?
(*) - thinking about this and how some of the 'usual suspects' like Rand Simberg are keen on talking about the Broken Window Fallacy, they're pretty oblivious to the fact that much 'rich' people's spending is an even less focused version of that fallacy. I'll also point out that the Broken Window Fallacy doesn't actually apply if the window was actually already broken, or in some other way not fit to be a window anymore, in which case it really does stop being a fallacy. In the context of Libertarian/Right thinking on stimulus spending, it often gets compared to the Broken Window Stuff, but really, when the transportation infrastructure of your country actually is broken and falling down it becomes something you ought to do.
It's also true and led to my brother saying the following:
I used to believe that economies had to be sustainable based on this principle of consumers buying produce from business that paid consumers for their effort! However, I hadn't allowed for bankers lending money to people who could never pay it back and then repackaging the debt to sell it to each other to generate huge profits.
And this is really the crux. I have this vision that the usual suspects (Libertarian wantrapeneurs for the most part) have perhaps watched It's a Wonderful Life a few too many times and have this idea that rich people put their money in the bank and it gets spent on founding Facebook.
And while rich people do put Angel money into Facebook, or become Liquidity Partners in operations like Venture Capital, it's not as productive as people tend to think it is and wouldn't, for example, be better than say, a bank lending money to a business based on a decent business plan and their Accounts Receivable... oh? You thought that happened? Oh, you're precious!
Anyway, the thing with economics is that it's about the flow of money and nothing more. Rich people might spend more, but there's physical limits on what you can spend... well, that's not entirely true, you can waste money q.v. Brewster's Millions,(*) but for the most part, there's cars, yachts, planes and so on which involve spending LOTS but on the whole that's not necessarily doing you much good.
So if you're an American who has bought into this. Ask yourself the following question: would you rather have a single rich person buying 3 or 4 new $250,000 sports cars, probably from a European manufacturer and made in Germany or Italy every year, or 40 people spending the same money on a mid-ranged Ford or Toyota which is probably made on shore...
Likewise, if you life in a town would you rather have a rich person buying a $200 meal 3-4 times a week, or 10-15 people buying a $35 one twice a week? Of course, the interesting thing is even with much higher tax rates and lower corporate profits (l.e. higher pay) you can actually have both. However, the fact remains, more people eating out is going to generate more economic activity than a small number of people spending a lot less frequently.
Basically, your spending is somebodies income. Get too far away from that as a concept and things tend to fall apart quickly. Beware of anybody trying to tell you otherwise and if they come back with the 'bank deposits get invested' line, ask them what in?
(*) - thinking about this and how some of the 'usual suspects' like Rand Simberg are keen on talking about the Broken Window Fallacy, they're pretty oblivious to the fact that much 'rich' people's spending is an even less focused version of that fallacy. I'll also point out that the Broken Window Fallacy doesn't actually apply if the window was actually already broken, or in some other way not fit to be a window anymore, in which case it really does stop being a fallacy. In the context of Libertarian/Right thinking on stimulus spending, it often gets compared to the Broken Window Stuff, but really, when the transportation infrastructure of your country actually is broken and falling down it becomes something you ought to do.
