socialism.jpg
thanks for proving my point. yes, that lifestyle is still attainable today, heck, i do it on my meager salary with three kids by using those "old school conservative" principals like, don't use credit, buy stuff with cash, save money, live on a budget according to your income....you know, all the stuff that blue and his generation seem to think is too old fashioned.
i'm sorry but "act your wage" is still a legitimate concept; the government, as it was intended, is not an entity designed to ensure that everyone is financially equal. dependence on the government for financial equality is the main reason why democracies rarely last beyond 200 years. when citizens become completely dependent on government assistance they quickly revert back to bondage.
http://www.battalionofdeborah.org/blog/_archives/2008/10/10/3925501.html
Absolutely right, a lazy majority can easily vote to take the fruits of the minority's hard labor.
I'd be curious to hear how "invested money" has "no impact" on the rest of the economy.
Is it invested on the moon?
How exactly are most of us being f-ed?
Is it happening while we sit on our butts glued to American Idol, instead of learning new (productive) skills in our spare time or (truly) helping our kids with their homework?
Are we asking our school teachers why they aren't giving our kids more difficult homework?
Are we doing all we can to improve ourselves?
Are we making sure all of the things we buy are made in America? Or are we complaining about jobs going overseas while 99% of what we choose to buy is made in China or India? (What a coincidence, that's where our jobs are going huh? How random.) Don't be a coward and blame it on Bush; each person CAN make a difference, and anyone not buying American-made products is part of the problem.
Manimal, does your wife work? If so how much?
I tend to agree with you somewhat especially the credit part and we get by on only my salary but I don't pretend it's easy or even desirable.
Um, expanding current businesses and creating new ones is exactly what happens. Money doesn't reproduce in a mattress; you gotta put it to work. The rich know this, that's how they made the money in the first place.
Not sure what to make of the above nonsense. How does "sticking profits into the system" = sucking capital out of the system?
Actually, I'd really like to hear your description as to how $100,000 "invested" in shorting the Hang Seng Index directly trickles down to you or I?
Easy, your example is based on some false premises however.
When selling short you actually borrow shares, sell them at a certain price, then buy the same stock later at a lower price to replace the shares you borrowed. In which case you're making money that you'll turn around and re-invest in companies which make things and employ people like you and me.
So you'll have to do something else with your $100,000. You don't need it to short. You just access to enough cash to cover the difference if you get "squeezed". And if you do, someone else just collected your money and now they can invest it back into the system, which makes things and employs people.
Money is like water or energy (generally speaking, of course governments can print more), there should always be about the same amount. It just changes form and hands.
yes, she works from home as a receptionist with a side business we help run, but her salary only covers our date night/family spending money. we used to live off of credit and had a nasty debt/income ratio until a friend turned me onto Dave Ramsey and his "back to the basics" financial planning. we still use envelopes in a drawer to separate our money. we have envelopes for everything: "manimal spending money", "mrs. manimal spending money", "clothing allowance", "school supplies", "car repairs", "taxes and fees"....pretty much an envelope for any foreseeable expense and we use our savings for "emergencies" instead of a credit card.
http://www.daveramsey.com/
Yes, that's the correct definition of short-selling. What you left out is how that specific investment (not anything gained or lost) trickled down to you or I.
And THIS is the reason why people still believe in the bull**** of trickle down. It is absolutely NOT a fixed amount. Using money wisely creates value (more money). If that weren't the case, there wouldn't be such thing as worldwide net economic growth. Look up the multiplier effect and STFU about things you don't understand.
ohio: are you saying that instead of trickle down, it's actually trickle within? does it pool and find only a local low-spot, only to descend when siphoned off? also, how does value & the strength of a particular currency factor in when there's a delta of foreign capital?
http://www.youtube.com/watch?v=<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/BT9BDItae94&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/BT9BDItae94&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>
http://www.youtube.com/watch?v=<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/tvzl1LYe6qs&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/tvzl1LYe6qs&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>
http://www.youtube.com/watch?v=<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/tvzl1LYe6qs&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/tvzl1LYe6qs&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>
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top 1% of earners possess more wealth than the bottom 50%, which includes both earners & teet-suckers
ed's:
"18% childhood poverty." but he won't tell you the vast majority of that 18% would be middle class in other developed countries. comparing sickles & hammers
why does he care what the uber-rich do w/ their money? isn't that a privacy issue?
seems to me when someone buys any high-dollar item, they're making another companies payroll, which - you're going to hate this - trickles down
ed's:
"18% childhood poverty." but he won't tell you the vast majority of that 18% would be middle class in other developed countries. comparing sickles & hammers
why does he care what the uber-rich do w/ their money? isn't that a privacy issue?
seems to me when someone buys any high-dollar item, they're making another companies payroll, which - you're going to hate this - trickles down
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Bernie Sanders, the country’s first self-described socialist to be elected to the U.S. Senate?
Please, he's an clueless idiot who has bought into all kinds of fraudulent "social engineering" programs. All his stuff sounds good on the surface, but isn't backed up by facts or reality.
Please, he's an clueless idiot who has bought into all kinds of fraudulent "social engineering" programs. All his stuff sounds good on the surface, but isn't backed up by facts or reality.
I'm saying neither trickle down nor trickle up is the golden ticket. You've got to wet the fields all over. However, I do think we have erred too far towards trickle down. If we're not careful, we could also err too far towards trickle up (but I think we've got a ways to go before we get there). We absolutely need investment capital and liquidity in the financial markets which is what trickle down creates; the current crisis is a demonstration of this necessity. We also need consumer spending, and that comes from the poor and middle classes; this is why the huge wealth gap is actually a bad thing for the rich and the wealth gap is an indicator not that we need to "redistribute the wealth" but that we're erring too far towards trickle down.
As for "pooling"... this DOES happen in the financial markets (e.g. dot-com followed by sub-prime), but i don't know how to interpret the analogy in the consumer markets.
On the delta, this comes largely from our savings ratios and we got ourselves into trouble (IMO) through a combination of things. The dot-com boom put us in the habit of rampant consumerism... a habit we were unable to break in harsher times (our own fault) AND was encouraged by easy credit (a habit is harder to break when your dealer lives next door and gives you discounts). I see the delta as a symptom not a cause and actually a good thing as devaluation is the natural result and will help restore balance. Unfortunately, our ****up has hurt the overseas markets even more than it hurt us, so don't expect that devaluation to hold. We've already seen our currency jump significantly in the last few weeks.
Finally, I'm an armchair economist... I've got no real expertise here.
Much of todays poverty is because of the breakdown of family structure. Sorry to be so judgemental.
The Rise of the Keynesian Multiplier Model: 1940-1960
The Keynes Multiplier Effect
In the 1940s and 1950s, economists explored the multiplier model, developing it in excruciating detail. It was expanded to include international effects, various types of government expenditure, and different types of individual spending. Terms such as the balanced budget multiplier became standard parts of economic terminology, and every economics student had to learn Keynes's model.
It is interesting to note that the model and the monetary and fiscal policies that were and are generally called Keynesian are not to be found in Keynes's book. There is not a single diagram in The General Theory, nor any discussion of the use of monetary and fiscal policy. How, then, did the multiplier model (done algebraically and geometrically) become the focal point of the macroeco*nomic debates of the 1950s? Part of the reason is that it seemed to provide a better description of current reality than did the alternatives. But other factors were also at work. The initial policy debates about the validity of Keynesian economics focused on fiscal policy (government deficits during the war had apparently pulled the Western world out of the Depression). Because the multiplier model nicely captured the effects of fiscal policy, it tended to become the Keynesian model. We suspect that sociological reasons also played a role in both the initial adoption and long-term acceptance of this model. The need for truth is often tempered by other needs of the professionspecifically, teaching requirements and the necessity of publishing journal articles. The multiplier model fit those needs beautifully.
It was in the United States that the multiplier analysis caught on. Paul Samuelson and Alvin Hansen (1887-1975) developed it into the primary Keynes*ian model. Samuelson's textbook introduced it into pedagogy, other books copied Samuelson's, and soon the multiplier model was Keynesian economics. The multiplier analysis had many pedagogical advantages, being easy to teach and learn. It allowed macroeconomics to develop as a separate field by providing a core analytical structure for the course, just as supply-and-demand analysis had for microeconomics.
The Depression of the 1930s had changed the context within which society and economists viewed the market. Prior to that time, the neoclassical arguments in favor of laissez faire had been based not only on economic theory but also on a set of philosophical and political judgments about government. The general political orientation of almost all individuals except radicals in the early 1900s was against major government involvement in the economy. Within that context, the concepts of many government programs that we now take for granted, such as Social Security and unemployment insurance, would have seemed extreme.
With the onset of the Depression, attitudes began to change. Many people felt that if the free market could lead to such economic distress as existed during the Depression, it was time to start considering alternatives. As economists began to analyze the aggregate economy in greater detail, many became less confident of their policy prescriptions and much more aware of the shortcomings of neoclas*sical theory. Consequently, economists began to advocate a variety of policy proposals to address unemployment that were inconsistent with their main*stream neoclassical views. In the early 1930s, for example, A. C. Pigou in England and several University of Chicago economists in the United States advocated public works programs and deficits as a means of fighting unemployment.
A second opinion from: http://easyopinions.blogspot.com/2008/08/econ-201-myth-of-economic-multiplier.html
Econ 201: The Myth of the Economic Multiplier
$1000 Business Sales x 4 Economic Multiplier = $4000 Economic Benefit. No.
PBO's (politicians and business owners) often want to develop businesses using taxpayer money. The politicians may subsidize loans, give tax breaks, sell public land cheaply, buy private land for the project, build utility services and roads, and provide subsidies. The PBO's need justification for the public expense.
I usually suspect the motivations of the PBO's. The politicians or their family members may own part of the business, be its suppliers, or sell the land used. The politicians may get contributions from the business owners and/or the unions that supply workers to the business. The business may receive contracts from the town at favored prices.
PBO's gain public support by giving an inflated "Economic Value" or "impact" for the project. This sounds good but has no meaning. Call the project X-Corp. The Economic Value of X-Corp is supposed to be its spending increased by an Economic Multiplier of about 4. If X-Corp spends $1 million per year, it is supposed to have an Economic Value of $4 Million to the people of its town and state.
The Economic Multiplier comes from counting transactions. X-Corp pays dollars to its employees and to other businesses. Then these people and businesses re-spend the dollars to more employees and businesses, and so on, in a spreading wave of re-spending that makes everyone happier. The Economic Multiplier is supposed to estimate how much additional value is generated from this re-spending.
The PBO's might say that a 5% sales tax on the $1 million in X-Corp's sales, plus a 5% income tax on the $4 million in increased Economic Value, produces $.25 million ($250,000) in additional tax revenue, each year.
This looks like a big win for the public. The tax revenue over 10 years is worth up to $1,755,000 in public expense up front to get X-Corp going, and produces that $4 million in economic benefit each year.
That would justify the public investment, if it were true.
Note that a single payment of $1,755,000 today is worth 10 yearly payments of $250,000, if similar investments earn 7% interest.
Two nagging thoughts.
When X-Corp sells $1 Million in goods, does it really produce $4 million in benefits to the community? X-Corp collects the first million; who is getting the other $3 million? (They aren't)
If Bob pays his neighbor's son Jim $10 to mow his lawn, does this send $40 in value into the community? (No) Is Bob's situation different from X-Corp? (It isn't)
Transactions Overcount Benefits
Economic Value and the Economic Multiplier count transactions, which overcounts value.
Passing dinner rolls around a table shows what is going on. Don't laugh. The first person accepts 6 rolls from the waiter. He takes one roll and passes five to the next person, who passes 4 to the next, and so on.
The appearance of 6 rolls at the table is new value appearing in the dinner table economy. The wave of spending and re-spending sends value around the table. The Economic Value approach sees 6 rolls of spending, followed by a wave of 5+4+3+2+1 of re-spending, for a total of 21 rolls of Economic Value, and a 3.5 Economic Multiplier (3.5 x 6 = 21). But there are only 6 rolls. The re-spending distributes the rolls; it doesn't create more rolls. The real value of 6 rolls is overcounted by looking at the roll-passing transactions.
In the same way, X-Corp pays its employees and suppliers for the value they provide to X-Corp. The X-Corp employees and suppliers pay others for goods and services. The others pay still others for the goods and services received from them. And so on. The money, like the dinner rolls, distributes the value created by X-Corp to all of the people who are directly or indirectly providing goods and services to X-Corp and its employees. Money moves away from X-Corp in exchange for the resources (value) moving to X-Corp and finally to X-Corp's customers.
Many layers of suppliers do not increase the value created by X-Corp. That value is set by X-Corp's sales. That value does not increase as it is distributed among all of the people who somehow contribute to X-Corp's products. The Economic Multiplier is 1. In other words, there is no Economic Multiplier when we look at value rather than the many transactions that distribute value.
The True Value of X-Corp
Say X-Corp sells $1 million in goods each year. A 5% sales tax on the $1 million in sales, plus a 5% income tax on the $1 million in value that X-Corp distributes to its employees, suppliers, and owners (however indirectly) produces $.10 million ($100,000) in additional tax revenue, each year.
Note that $100,000 tax revenue per year for 10 years is worth $702,000 in public expense up front to get X-Corp going, and $1 million in benefit is distributed to X-Corp's workers and suppliers each year.
It sounds great when a PBO says: "Spending $1 million in public funds today to support X-Corp will generate $250,000 per year in increased tax revenues over the next 10 years (worth $1,755,000 today). There may be some continuing subsidies, which are well worth the $4 million in economic benefits generated each year by the $1 million yearly sales by X-Corp."
The reality is not so good: "Spending $1 million in public funds today will generate $100,000 per year in increased tax revenues over the next 10 years (worth $702,000 today). There may be some continuing public subsidies, which we hope are worth the $1 million in income produced each year by the $1 million yearly sales of X-Corp."
More bad news. Any spending by X-Corp for supplies and services produced out of town does not give income to people in the town and it is not taxed by the town government. Any sales by X-Corp out of town do not contribute sales taxes to the town. This reduces the benefits coming back to the town from starting X-Corp, and reduces the amount of investment by the town that makes sense.
The Government is a Bad Investor
It is probably not good for the community when a government spends taxes to start up and subsidize X-Corp, regardless of the amount.
The PBO's are happy to overstate the economic value by 4 or 5 times to get the deal done. The PBO's must expect benefits for themselves that don't depend on any widely distributed public ones. Why should the PBO's look too deeply into the math? Why trust PBO's who are willing to fool us?
The town usually invests more into X-Corp than the increased tax receipts are worth. It is not an investment in the usual sense; the town does not own any part of X-Corp, although the town is providing resources to start it up and maybe keep it going.
There is no guarantee that X-Corp will last 10 years, but the town provides its support up-front. The PBO's may receive enough value that they don't suffer if the business fails in a few years.
Businesses started or operated with a government subsidy are not likely to be the most efficient. So, they are more likely to be driven out of business by competition, making the return in taxes worth less than expected.
Worse, subsidized and favored X-Corp may compete successfully with other unsubsidized businesses. The inefficient, tax supported X-Corp can replace another efficient, completely private, tax-paying company. This makes everyone worse off, other than the X-Corp PBO's.
New businesses should pay for the infrastructure improvements they need. This assures that the business is beneficial to the town. It rewards businessmen who organize all costs into their business plan without draining resources from the government. Government only has the money contributed by its citizens. Tax revenue shouldn't be distributed to businesses in the hope of making "everyone" wealthier.
Not Priming the Pump
An economy that uses money is vast, complicated, and wonderful. It is easy to think of it as magical, as if we can "tweak" the system to get more stuff from somewhere. In fact, work produces things of value, and the economy is a system for organizing work and distributing those things, using money as a placeholder in transactions.
That is all. No magic and no multipliers. The rules of the system are simple. People exchange goods and services as they wish. The complexity comes from the number of people involved, and the detailed organization of work that they create.
People use analogies to understand complex systems. False analogies are "Priming the pump" and "Jump-starting the economy." The idea is to add some money to an economy to get the transactions flowing and increase wealth more than the amount of money added. These are both closely related to the false idea of the Economic Multiplier.
Some water pumps cannot pump air when starting up if their valves are dry. They need a wet internal seal to pull the air out of the supply hose. Pouring in some water to "prime the pump" solves the problem. The pump moves the air, then moves the water it was designed for. The priming water is a stimulus that helps the pump to start up when there is air in the line.
A car battery can be too weak to start a car, but the car can run and recharge the battery (using its electric generator) if the car can somehow be started. The power from a good second battery "jump-starts" the car for driving, and provides a power stimulus only needed briefly at the start.
These are weird and false analogies when applied to an economy. An economy is a group of people exchanging goods and organizing work. There is no central pump. People don't forget how to transact business or spend money. They do not get out of the habit of working or become sluggish. Money does not create wealth by "flowing around". Money is a placeholder in transactions for the exchange of goods and services between people. A transaction recognizes something of value but does not create that value.
Econ 201: The Myth of the Economic Multiplier
$1000 Business Sales x 4 Economic Multiplier = $4000 Economic Benefit. No.
PBO's (politicians and business owners) often want to develop businesses using taxpayer money. The politicians may subsidize loans, give tax breaks, sell public land cheaply, buy private land for the project, build utility services and roads, and provide subsidies. The PBO's need justification for the public expense.
I usually suspect the motivations of the PBO's. The politicians or their family members may own part of the business, be its suppliers, or sell the land used. The politicians may get contributions from the business owners and/or the unions that supply workers to the business. The business may receive contracts from the town at favored prices.
PBO's gain public support by giving an inflated "Economic Value" or "impact" for the project. This sounds good but has no meaning. Call the project X-Corp. The Economic Value of X-Corp is supposed to be its spending increased by an Economic Multiplier of about 4. If X-Corp spends $1 million per year, it is supposed to have an Economic Value of $4 Million to the people of its town and state.
The Economic Multiplier comes from counting transactions. X-Corp pays dollars to its employees and to other businesses. Then these people and businesses re-spend the dollars to more employees and businesses, and so on, in a spreading wave of re-spending that makes everyone happier. The Economic Multiplier is supposed to estimate how much additional value is generated from this re-spending.
The PBO's might say that a 5% sales tax on the $1 million in X-Corp's sales, plus a 5% income tax on the $4 million in increased Economic Value, produces $.25 million ($250,000) in additional tax revenue, each year.
This looks like a big win for the public. The tax revenue over 10 years is worth up to $1,755,000 in public expense up front to get X-Corp going, and produces that $4 million in economic benefit each year.
That would justify the public investment, if it were true.
Note that a single payment of $1,755,000 today is worth 10 yearly payments of $250,000, if similar investments earn 7% interest.
Two nagging thoughts.
When X-Corp sells $1 Million in goods, does it really produce $4 million in benefits to the community? X-Corp collects the first million; who is getting the other $3 million? (They aren't)
If Bob pays his neighbor's son Jim $10 to mow his lawn, does this send $40 in value into the community? (No) Is Bob's situation different from X-Corp? (It isn't)
Transactions Overcount Benefits
Economic Value and the Economic Multiplier count transactions, which overcounts value.
Passing dinner rolls around a table shows what is going on. Don't laugh. The first person accepts 6 rolls from the waiter. He takes one roll and passes five to the next person, who passes 4 to the next, and so on.
The appearance of 6 rolls at the table is new value appearing in the dinner table economy. The wave of spending and re-spending sends value around the table. The Economic Value approach sees 6 rolls of spending, followed by a wave of 5+4+3+2+1 of re-spending, for a total of 21 rolls of Economic Value, and a 3.5 Economic Multiplier (3.5 x 6 = 21). But there are only 6 rolls. The re-spending distributes the rolls; it doesn't create more rolls. The real value of 6 rolls is overcounted by looking at the roll-passing transactions.
In the same way, X-Corp pays its employees and suppliers for the value they provide to X-Corp. The X-Corp employees and suppliers pay others for goods and services. The others pay still others for the goods and services received from them. And so on. The money, like the dinner rolls, distributes the value created by X-Corp to all of the people who are directly or indirectly providing goods and services to X-Corp and its employees. Money moves away from X-Corp in exchange for the resources (value) moving to X-Corp and finally to X-Corp's customers.
Many layers of suppliers do not increase the value created by X-Corp. That value is set by X-Corp's sales. That value does not increase as it is distributed among all of the people who somehow contribute to X-Corp's products. The Economic Multiplier is 1. In other words, there is no Economic Multiplier when we look at value rather than the many transactions that distribute value.
The True Value of X-Corp
Say X-Corp sells $1 million in goods each year. A 5% sales tax on the $1 million in sales, plus a 5% income tax on the $1 million in value that X-Corp distributes to its employees, suppliers, and owners (however indirectly) produces $.10 million ($100,000) in additional tax revenue, each year.
Note that $100,000 tax revenue per year for 10 years is worth $702,000 in public expense up front to get X-Corp going, and $1 million in benefit is distributed to X-Corp's workers and suppliers each year.
It sounds great when a PBO says: "Spending $1 million in public funds today to support X-Corp will generate $250,000 per year in increased tax revenues over the next 10 years (worth $1,755,000 today). There may be some continuing subsidies, which are well worth the $4 million in economic benefits generated each year by the $1 million yearly sales by X-Corp."
The reality is not so good: "Spending $1 million in public funds today will generate $100,000 per year in increased tax revenues over the next 10 years (worth $702,000 today). There may be some continuing public subsidies, which we hope are worth the $1 million in income produced each year by the $1 million yearly sales of X-Corp."
More bad news. Any spending by X-Corp for supplies and services produced out of town does not give income to people in the town and it is not taxed by the town government. Any sales by X-Corp out of town do not contribute sales taxes to the town. This reduces the benefits coming back to the town from starting X-Corp, and reduces the amount of investment by the town that makes sense.
The Government is a Bad Investor
It is probably not good for the community when a government spends taxes to start up and subsidize X-Corp, regardless of the amount.
The PBO's are happy to overstate the economic value by 4 or 5 times to get the deal done. The PBO's must expect benefits for themselves that don't depend on any widely distributed public ones. Why should the PBO's look too deeply into the math? Why trust PBO's who are willing to fool us?
The town usually invests more into X-Corp than the increased tax receipts are worth. It is not an investment in the usual sense; the town does not own any part of X-Corp, although the town is providing resources to start it up and maybe keep it going.
There is no guarantee that X-Corp will last 10 years, but the town provides its support up-front. The PBO's may receive enough value that they don't suffer if the business fails in a few years.
Businesses started or operated with a government subsidy are not likely to be the most efficient. So, they are more likely to be driven out of business by competition, making the return in taxes worth less than expected.
Worse, subsidized and favored X-Corp may compete successfully with other unsubsidized businesses. The inefficient, tax supported X-Corp can replace another efficient, completely private, tax-paying company. This makes everyone worse off, other than the X-Corp PBO's.
New businesses should pay for the infrastructure improvements they need. This assures that the business is beneficial to the town. It rewards businessmen who organize all costs into their business plan without draining resources from the government. Government only has the money contributed by its citizens. Tax revenue shouldn't be distributed to businesses in the hope of making "everyone" wealthier.
Not Priming the Pump
An economy that uses money is vast, complicated, and wonderful. It is easy to think of it as magical, as if we can "tweak" the system to get more stuff from somewhere. In fact, work produces things of value, and the economy is a system for organizing work and distributing those things, using money as a placeholder in transactions.
That is all. No magic and no multipliers. The rules of the system are simple. People exchange goods and services as they wish. The complexity comes from the number of people involved, and the detailed organization of work that they create.
People use analogies to understand complex systems. False analogies are "Priming the pump" and "Jump-starting the economy." The idea is to add some money to an economy to get the transactions flowing and increase wealth more than the amount of money added. These are both closely related to the false idea of the Economic Multiplier.
Some water pumps cannot pump air when starting up if their valves are dry. They need a wet internal seal to pull the air out of the supply hose. Pouring in some water to "prime the pump" solves the problem. The pump moves the air, then moves the water it was designed for. The priming water is a stimulus that helps the pump to start up when there is air in the line.
A car battery can be too weak to start a car, but the car can run and recharge the battery (using its electric generator) if the car can somehow be started. The power from a good second battery "jump-starts" the car for driving, and provides a power stimulus only needed briefly at the start.
These are weird and false analogies when applied to an economy. An economy is a group of people exchanging goods and organizing work. There is no central pump. People don't forget how to transact business or spend money. They do not get out of the habit of working or become sluggish. Money does not create wealth by "flowing around". Money is a placeholder in transactions for the exchange of goods and services between people. A transaction recognizes something of value but does not create that value.
A PBO relies on the Multiplier when he talks about "stimulus" or such. He says that taxpayers will benefit when the government gives people public money, because the long term improvement in the economy will repay any expense. As usual, this is very convenient for the PBO, and wrong. The economy is not like a pump, engine, or thick syrup that needs to start flowing. There is no long-term improvement in the economy from the "priming", only a one time increase in work to create the goods in exchange for the new money.
Taxing Peter to Pay Paul
Government is supposed to collect and spend taxes for public goods, such as roads, police, education, and parks, that have some relation to benefiting the general public. PBO's use the Multiplier and glib analogies to ask for government subsidies as a public good. We would all now be rich from government spending if this were true.
Government "investments" and subsidies are actually transfers of money from taxpayers to PBO's. It makes taxpayers poorer to the same extent that it transfers goods to the PBO's and the public. This does not create wealth overall, and usually destroys wealth as bad deals and failed projects eat the real value of collected taxes or government borrowing.
Personal Experience Of Transactions
People like receiving money, and they usually like spending money. Transactions produce pleasure on both sides. These feelings make it seem like the Economic Multiplier should be true. It is hard to argue against feelings, and it may take more than the above analysis to convince you that the Economic Multiplier is hot air.
Jim is an employee. He keeps almost all of his pay for his benefit. This supports Jim's feeling that transactions create value. Transactions deliver opportunities to him when he is paid, and he receives value personally when he pays others.
Jim has some expenses that support his job and cannot be avoided, such as for commuting, more expensive lunches, and office clothing. He enjoys these, except for the small expense of commuting.
Bob sells office supplies to X-Corp. He buys the supplies from manufacturers, then packages and delivers them. When X-Corp pays Bob $1000, he keeps about $80 as his pay (8% profit), and transfers $920 to others. Bob divides the money among the people who produced $1000 of value: he, his employees, and his suppliers. Almost all of the money and goods that Bob receives and spends is distributed to others.
Bob pays income tax on the $80 that he earns, and the others pay income tax on the portion of the $920 that each one earns. So, the total tax paid to the government is based on $1000, once.
Economic Benefit/Impact and the Multiplier counts transactions as being value. This is almost correct for Jim, who collects almost all of the value of his transactions. It is wildly incorrect for Bob, who organizes the work of others. Most people are like Jim, so they tend to believe the Multiplier without thinking much about it.
Looking For The Multiplier
The presentation above gives a direct explanation. But, you might think that I missed something or used bad logic. We can examine the Multiplier in other ways.
The Spending Goes On And On
PBO's claim that when X-Corp spends $1000 it produces $4000 of Economic Benefit/Impact. If true, then this good effect is not limited to X-Corp. There is nothing that distinguishes between corporate and personal spending. Every amount spent would have the Multiplier effect.
So, when Bob's employer gives him $1000 it goes on to create $4000 in Economic Benefit. When Bob spends the $1000 for rent, it creates $4000 in Economic Benefit. Also, when his landlord re-spends the $1000 on mortgage and heat. You would have to believe that every dollar in circulation is going to produce $4 in Economic Benefit, every time it is spent. This is a dreamworld.
In the real world, Bob receives money in exchange for his work (the value he creates), and he spends that money to acquire goods (value that others create). Once. No Multiplier. There are no additional Economic Benefits lying around.
Trading Vegetables
Some examples at a small scale show the details of what happens in transactions, the use and effect of money, and how value is created and distributed. The complexity of an economy is produced by linking together millions of such chains of transactions.
1. Barter
Bob grows beans in his spare time. Tom grows tomatoes. They tire of eating just their own produce, so they meet to exchange 5 pounds of beans for 5 pounds of tomatoes. The Multiplier cannot apply here. The magic of money is not involved. Only Bob and Tom are affected by this trade. They are happier because of the trade, but no one else is happier. Bob and Tom get the benefit of this trade once, not 4 times.
2. Olive Oil
Bob's beans are not ready; he brings a bottle of olive oil. Tom gives tomatoes to Bob and takes the oil. Bob will come back in a few days with the beans in exchange for the oil. Tom can keep the oil if Bob doesn't deliver the beans. Bob brings the beans two days later and takes back the oil. The oil gave Tom some value to hold so that the exchange could be done in two parts. The value of the oil assured Tom that he wouldn't lose value on the trade.
3. Money
Bob's beans are not ready; he brings $10 instead of olive oil. We can say that Tom sells tomatoes to Bob for $10. Later, Bob sells beans to Tom for $10. Money is changing hands. Still, there is no Multiplier.
4. Three People
Pam joins the group, selling peppers.
Tom Bob Pam
Bob buys tomatoes $ 10 $-10 $
Tom buys peppers - 5 5
Tom buys beans - 5 5
Pam buys beans 5 - 5
---- ---- ----
$ 0 $ 0 $ 0
Three people exchange vegetables. Money provides value for trades that are separated by time and divided into smaller amounts. It is confusing to describe these exchanges entirely in words. The table shows where the money went in exchange for the vegetables traded.
For example, Bob buys tomatoes from Tom for $10. The table shows that Bob spent $10 and Tom received $10.
The money balances each trade, so the people are even in value at each moment. Olive oil might be used instead of money, but it is less convenient, and not everyone would agree to holding olive oil in exchange.
Three people sell their vegetables, buy what they want, and end with the same cash they started with. This would be impractical without money as a way of completing individual transactions. They have a more interesting dinner as a result.
These exchanges traded $25 worth of vegetables. That value was created by growing the vegetables. The money revealed value, and helped to exchange value, but it did not create value. There is clearly no multiplier in this closed system.
5. Economy
Mike appears and buys vegetables for sale in town. He buys $60 of vegetables and sells them in town for $100.
Mike produces $100 of value for his customers, the value of his sales. The vegetables were worth $60 in the country; Mike added $40 in value by transporting them to willing customers.
Customers provided $100 in value (money) to Mike. Here is where the value went or is going to go:
1 Mike 34 Mike's profit (his pay)
2 ABC Gas 5 Mike's Delayed expense
for gas, 25 mile trip
3 ABC Garage 1 Mike's Delayed expense
for tune-ups
4 Tom 20 Tomatoes
5 Bob 20 Beans
6 Pam 20 Peppers
---
$100 Mike's sales to customers
The $100 in sales to customers is the total value available. The other transactions distribute it to all of the people who support Mike's efforts. Mike receives $40 and Tom, Bob, and Pam receive $60. Soon, Mike pays $5 for gas used on his trip. Later, this trip costs another $1 in related car maintenance.
A PBO talking about Economic Benefit would count $100 paid to Mike, plus $60 paid to the growers as $160 in economic benefit. This counts the $60 transfer payment twice. In a typical Economic Benefit analysis, transfer payments are counted many times to get the Multiplier of 4. This overcounts value and gives an inflated result.
This shows some of the complexity in an economy. The ABC Garage contributes a little value to Mike's business without knowing it. The growers know that Mike is selling their vegetables, but don't know or care much about the details. Mike saw that he could make some money when he compared the price for vegetables in the country to the sale price he expected in the city.
Discounted Value (optional reading)
Discounted Value is the value today of payments to be received in the future. I said above that 10 yearly payments of $100,000 is worth $702,000 today, at a 7% interest rate. The exact math is complicated, but the idea is easier.
What amount would you loan X-Corp in order to get back 10 payments of $100,000 over 10 years? $1 Million is too much. You would just get back your money over time, without earning anything from the loan.
This is like calculating a home loan, except we want to know the loan amount that produces a payment of $100,000, rather than starting with a loan amount and calculating the payment.
We will start by being generous and then correct ourselves. Say we loan the full $1 Million, and want to earn 7% interest. X-Corp has roughly one-half of the money on average during the 10 years of the loan. X-Corp starts with $1 Million during the first year. In the last year, after making 9 payments, X-Corp has about $100,000 in loan outstanding. We can estimate the total interest at 7% x 10 years x $500,000 (half the loan) = $350,000. Our rough estimate of principal plus interest is $1,350,000, so the rough payment is $135,000 for 10 years.
The detailed calculation (not shown) gives a payment of $142,400. So, a $1 million loan at 7% yearly interest is paid back by $142,400 per year for 10 years.
We need to loan less money if the repayment is only $100,000 per year. $100,000 is 70.2% of $142,400. A loan of (70.2% x $1 million) = $702,000 is repaid by $100,000 per year.
So, the government can spend up to $702,000 to get X-Corp started, if it wants at least a 7% return on this investment, and if it expects $100,000 per year in increased taxes in repayment.
Taxing Peter to Pay Paul
Government is supposed to collect and spend taxes for public goods, such as roads, police, education, and parks, that have some relation to benefiting the general public. PBO's use the Multiplier and glib analogies to ask for government subsidies as a public good. We would all now be rich from government spending if this were true.
Government "investments" and subsidies are actually transfers of money from taxpayers to PBO's. It makes taxpayers poorer to the same extent that it transfers goods to the PBO's and the public. This does not create wealth overall, and usually destroys wealth as bad deals and failed projects eat the real value of collected taxes or government borrowing.
Personal Experience Of Transactions
People like receiving money, and they usually like spending money. Transactions produce pleasure on both sides. These feelings make it seem like the Economic Multiplier should be true. It is hard to argue against feelings, and it may take more than the above analysis to convince you that the Economic Multiplier is hot air.
Jim is an employee. He keeps almost all of his pay for his benefit. This supports Jim's feeling that transactions create value. Transactions deliver opportunities to him when he is paid, and he receives value personally when he pays others.
Jim has some expenses that support his job and cannot be avoided, such as for commuting, more expensive lunches, and office clothing. He enjoys these, except for the small expense of commuting.
Bob sells office supplies to X-Corp. He buys the supplies from manufacturers, then packages and delivers them. When X-Corp pays Bob $1000, he keeps about $80 as his pay (8% profit), and transfers $920 to others. Bob divides the money among the people who produced $1000 of value: he, his employees, and his suppliers. Almost all of the money and goods that Bob receives and spends is distributed to others.
Bob pays income tax on the $80 that he earns, and the others pay income tax on the portion of the $920 that each one earns. So, the total tax paid to the government is based on $1000, once.
Economic Benefit/Impact and the Multiplier counts transactions as being value. This is almost correct for Jim, who collects almost all of the value of his transactions. It is wildly incorrect for Bob, who organizes the work of others. Most people are like Jim, so they tend to believe the Multiplier without thinking much about it.
Looking For The Multiplier
The presentation above gives a direct explanation. But, you might think that I missed something or used bad logic. We can examine the Multiplier in other ways.
The Spending Goes On And On
PBO's claim that when X-Corp spends $1000 it produces $4000 of Economic Benefit/Impact. If true, then this good effect is not limited to X-Corp. There is nothing that distinguishes between corporate and personal spending. Every amount spent would have the Multiplier effect.
So, when Bob's employer gives him $1000 it goes on to create $4000 in Economic Benefit. When Bob spends the $1000 for rent, it creates $4000 in Economic Benefit. Also, when his landlord re-spends the $1000 on mortgage and heat. You would have to believe that every dollar in circulation is going to produce $4 in Economic Benefit, every time it is spent. This is a dreamworld.
In the real world, Bob receives money in exchange for his work (the value he creates), and he spends that money to acquire goods (value that others create). Once. No Multiplier. There are no additional Economic Benefits lying around.
Trading Vegetables
Some examples at a small scale show the details of what happens in transactions, the use and effect of money, and how value is created and distributed. The complexity of an economy is produced by linking together millions of such chains of transactions.
1. Barter
Bob grows beans in his spare time. Tom grows tomatoes. They tire of eating just their own produce, so they meet to exchange 5 pounds of beans for 5 pounds of tomatoes. The Multiplier cannot apply here. The magic of money is not involved. Only Bob and Tom are affected by this trade. They are happier because of the trade, but no one else is happier. Bob and Tom get the benefit of this trade once, not 4 times.
2. Olive Oil
Bob's beans are not ready; he brings a bottle of olive oil. Tom gives tomatoes to Bob and takes the oil. Bob will come back in a few days with the beans in exchange for the oil. Tom can keep the oil if Bob doesn't deliver the beans. Bob brings the beans two days later and takes back the oil. The oil gave Tom some value to hold so that the exchange could be done in two parts. The value of the oil assured Tom that he wouldn't lose value on the trade.
3. Money
Bob's beans are not ready; he brings $10 instead of olive oil. We can say that Tom sells tomatoes to Bob for $10. Later, Bob sells beans to Tom for $10. Money is changing hands. Still, there is no Multiplier.
4. Three People
Pam joins the group, selling peppers.
Tom Bob Pam
Bob buys tomatoes $ 10 $-10 $
Tom buys peppers - 5 5
Tom buys beans - 5 5
Pam buys beans 5 - 5
---- ---- ----
$ 0 $ 0 $ 0
Three people exchange vegetables. Money provides value for trades that are separated by time and divided into smaller amounts. It is confusing to describe these exchanges entirely in words. The table shows where the money went in exchange for the vegetables traded.
For example, Bob buys tomatoes from Tom for $10. The table shows that Bob spent $10 and Tom received $10.
The money balances each trade, so the people are even in value at each moment. Olive oil might be used instead of money, but it is less convenient, and not everyone would agree to holding olive oil in exchange.
Three people sell their vegetables, buy what they want, and end with the same cash they started with. This would be impractical without money as a way of completing individual transactions. They have a more interesting dinner as a result.
These exchanges traded $25 worth of vegetables. That value was created by growing the vegetables. The money revealed value, and helped to exchange value, but it did not create value. There is clearly no multiplier in this closed system.
5. Economy
Mike appears and buys vegetables for sale in town. He buys $60 of vegetables and sells them in town for $100.
Mike produces $100 of value for his customers, the value of his sales. The vegetables were worth $60 in the country; Mike added $40 in value by transporting them to willing customers.
Customers provided $100 in value (money) to Mike. Here is where the value went or is going to go:
1 Mike 34 Mike's profit (his pay)
2 ABC Gas 5 Mike's Delayed expense
for gas, 25 mile trip
3 ABC Garage 1 Mike's Delayed expense
for tune-ups
4 Tom 20 Tomatoes
5 Bob 20 Beans
6 Pam 20 Peppers
---
$100 Mike's sales to customers
The $100 in sales to customers is the total value available. The other transactions distribute it to all of the people who support Mike's efforts. Mike receives $40 and Tom, Bob, and Pam receive $60. Soon, Mike pays $5 for gas used on his trip. Later, this trip costs another $1 in related car maintenance.
A PBO talking about Economic Benefit would count $100 paid to Mike, plus $60 paid to the growers as $160 in economic benefit. This counts the $60 transfer payment twice. In a typical Economic Benefit analysis, transfer payments are counted many times to get the Multiplier of 4. This overcounts value and gives an inflated result.
This shows some of the complexity in an economy. The ABC Garage contributes a little value to Mike's business without knowing it. The growers know that Mike is selling their vegetables, but don't know or care much about the details. Mike saw that he could make some money when he compared the price for vegetables in the country to the sale price he expected in the city.
Discounted Value (optional reading)
Discounted Value is the value today of payments to be received in the future. I said above that 10 yearly payments of $100,000 is worth $702,000 today, at a 7% interest rate. The exact math is complicated, but the idea is easier.
What amount would you loan X-Corp in order to get back 10 payments of $100,000 over 10 years? $1 Million is too much. You would just get back your money over time, without earning anything from the loan.
This is like calculating a home loan, except we want to know the loan amount that produces a payment of $100,000, rather than starting with a loan amount and calculating the payment.
We will start by being generous and then correct ourselves. Say we loan the full $1 Million, and want to earn 7% interest. X-Corp has roughly one-half of the money on average during the 10 years of the loan. X-Corp starts with $1 Million during the first year. In the last year, after making 9 payments, X-Corp has about $100,000 in loan outstanding. We can estimate the total interest at 7% x 10 years x $500,000 (half the loan) = $350,000. Our rough estimate of principal plus interest is $1,350,000, so the rough payment is $135,000 for 10 years.
The detailed calculation (not shown) gives a payment of $142,400. So, a $1 million loan at 7% yearly interest is paid back by $142,400 per year for 10 years.
We need to loan less money if the repayment is only $100,000 per year. $100,000 is 70.2% of $142,400. A loan of (70.2% x $1 million) = $702,000 is repaid by $100,000 per year.
So, the government can spend up to $702,000 to get X-Corp started, if it wants at least a 7% return on this investment, and if it expects $100,000 per year in increased taxes in repayment.
Links
The Multiplier from The Concise Guide To Economics, by Jim Cox, 1997.
He sees the Multiplier as "theory run amok" and notes other mistakes in analyzing an economy. The description is direct and somewhat technical, but you can get the idea without understanding the mathematics.
With multiplier, poultry has $8-billion economic impact
from BNet, from The Mississippi Business Journal, by Becky Gillette, July 2, 2007,
It never hurts to puff up the importance of a business by using the Multiplier. Notice the word "impact" because no one is quite sure what the effect really is.
The farm gate value of poultry in Mississippi in round numbers is $2 billion," said Mississippi Farm Bureau president David Waide. "That is huge." Waide said the multiplier impact of the industry as dollars get turned over in the economy is approximately four times the farm gate value. That would give poultry an $8-billion impact on the state's economy.
Economic Multipliers and Local Economic Impact Analysis
by David Kay, Cornell Local Government Program, December 2002
This talks about the Multiplier with a scholarly tone. It says that the "direct effects" should be estimated carefully. Then, just Multiply to get the overall economic impact. That is it for explaining the Multiplier. Notice the use of "impact" again, because people don't know what the effect really is.
Headlines like these recent real-life examples are prized by project promoters and business boosters. They often appear when advocates for private sector projects are seeking public support. The dollar figures featured in the stories are large, even "huge". They signal to readers both economic importance and political significance.
An economic multiplier lies behind nearly all [dramatic development] headlines. Multipliers are typically used to turn large dollar impacts into even larger ones. They do this because they translate project-specific effects into economy-wide impacts.
The local spending impacts associated directly with a specific project or economic activity are the starting point of any impact analysis. Known or planned facility construction and operating expenditures are a typical example. Called "direct effects", they are nearly always the most important data to estimate well in any impact analysis. To estimate economy-wide impacts, numbers known as multipliers are literally multiplied by the direct effects.
The Tax Rebate Was a Flop. Obama's Stimulus Plan Won't Work Either
August 6, 2008 - By Martin Feldstein, chairman of the Council of Economic Advisers under President Reagan, a professor at Harvard, and contributor to The Wall Street Journal.
My analysis of the Multiplier conflicts with the belief of Mr. Feldstein. The US Government recently distributed $100 Billion dollars to stimulate the economy by increasing spending (transactions). It failed miserably. Partly because people were not inclined to spend it all. Partly because there is no Multiplier. The Government believes that "confidence", and "impact" are somehow the same as value. I added the emphasis below, where they rely on a Multiplier to create more benefit than the dollars spent.
"Those of us who supported this fiscal package reasoned that the program would boost consumer confidence as well as available cash. We hoped the combination would cause households to spend a substantial fraction of the rebate dollars, leading to more production and employment. An optimistic and influential study by economists at the Brookings Institution projected that each dollar of revenue loss would increase real GDP by more than a dollar if households spent at least 50 cents of every rebate dollar."
The Multiplier from The Concise Guide To Economics, by Jim Cox, 1997.
He sees the Multiplier as "theory run amok" and notes other mistakes in analyzing an economy. The description is direct and somewhat technical, but you can get the idea without understanding the mathematics.
With multiplier, poultry has $8-billion economic impact
from BNet, from The Mississippi Business Journal, by Becky Gillette, July 2, 2007,
It never hurts to puff up the importance of a business by using the Multiplier. Notice the word "impact" because no one is quite sure what the effect really is.
The farm gate value of poultry in Mississippi in round numbers is $2 billion," said Mississippi Farm Bureau president David Waide. "That is huge." Waide said the multiplier impact of the industry as dollars get turned over in the economy is approximately four times the farm gate value. That would give poultry an $8-billion impact on the state's economy.
Economic Multipliers and Local Economic Impact Analysis
by David Kay, Cornell Local Government Program, December 2002
This talks about the Multiplier with a scholarly tone. It says that the "direct effects" should be estimated carefully. Then, just Multiply to get the overall economic impact. That is it for explaining the Multiplier. Notice the use of "impact" again, because people don't know what the effect really is.
Headlines like these recent real-life examples are prized by project promoters and business boosters. They often appear when advocates for private sector projects are seeking public support. The dollar figures featured in the stories are large, even "huge". They signal to readers both economic importance and political significance.
An economic multiplier lies behind nearly all [dramatic development] headlines. Multipliers are typically used to turn large dollar impacts into even larger ones. They do this because they translate project-specific effects into economy-wide impacts.
The local spending impacts associated directly with a specific project or economic activity are the starting point of any impact analysis. Known or planned facility construction and operating expenditures are a typical example. Called "direct effects", they are nearly always the most important data to estimate well in any impact analysis. To estimate economy-wide impacts, numbers known as multipliers are literally multiplied by the direct effects.
The Tax Rebate Was a Flop. Obama's Stimulus Plan Won't Work Either
August 6, 2008 - By Martin Feldstein, chairman of the Council of Economic Advisers under President Reagan, a professor at Harvard, and contributor to The Wall Street Journal.
My analysis of the Multiplier conflicts with the belief of Mr. Feldstein. The US Government recently distributed $100 Billion dollars to stimulate the economy by increasing spending (transactions). It failed miserably. Partly because people were not inclined to spend it all. Partly because there is no Multiplier. The Government believes that "confidence", and "impact" are somehow the same as value. I added the emphasis below, where they rely on a Multiplier to create more benefit than the dollars spent.
"Those of us who supported this fiscal package reasoned that the program would boost consumer confidence as well as available cash. We hoped the combination would cause households to spend a substantial fraction of the rebate dollars, leading to more production and employment. An optimistic and influential study by economists at the Brookings Institution projected that each dollar of revenue loss would increase real GDP by more than a dollar if households spent at least 50 cents of every rebate dollar."
Wrote all that yerself didja?
it's a fair observation
Sourced at the top of the article.
using all of that quoted text you still can't answer how "investing" by short-selling or purchasing overseas securities "trickles down" to you or I, can you? I'd also ask the loaded question about how purchasing equities on the open market isn't exactly investing in the company itself, but like I said, that's a bit of a trick question (hint, you're not actually investing in, or giving money to, the company in question but rather the person who you're buying the stock from...).
I'll re-post my response and highlight portions to help you grasp the answer:
When selling short you actually borrow shares, sell them at a certain price, then buy the same stock later at a lower price to replace the shares you borrowed. In which case you're making money that you'll turn around and spend or re-invest in companies which make things and employ people like you and me.
So you'll have to do something else with your $100,000. You don't need it to short. You just access to enough cash to cover the difference if you get "squeezed". And if you do, someone else just collected your money and now they can spend or invest it back into the system, which makes things and employs people.
Money is like water or energy (generally speaking, of course governments can print more), there should always be about the same amount. It just changes form and hands.
Dude, thanks for backing me up.
That was an awful lot of effort, when you could have saved yourself the trouble by reading the first 3/4 of my response.
Hope you had a productive morning...
edit: also, if you really are trying to educate yourself, you may want to look beyond just Keynesian economics. That ****'s a hundred years old.
Last edited:
Never mind. If you thought that was a coherent response to my question, there's really not much left to discuss...
socialism.gif right there
My wife was working part time but it cost me more than she made. She and I decided she should go to school now while the job market is in the suck.
I make ok money, more than most of my friends, but as a sole earner, it isn't too much. Manimal gave me some good pointers a while back that we use. I have some pre-tax savings and we do ok on what I make, but not a lot.
One thing I don't have is credit debt. That's nice.
The envelopes....the f*cken envelopes. My wife does exactly the same thing including the "VB allowance" which is by far the smallest envelope. Seems a bit daft but it works. We too are free from credit card debt but the bastard is going to get ridden hard when I go to Australia now that the yen is so strong.
Anyone else notice some of the most vocal detractors of a socialist system are those employed by the government?
who better to warn you of the system?
haha...well said n8
who else on here can say that they work specifically with epitome of complete government reliance for living and who has observed the generational dependence and victimization that said system causes.
the dependence on this type of system creates phrases like this that i've heard on more than one occasion from a 17 yr old female who grew up under government reliance: "I need to have my baby soon so I can get MY house when I turn 18."
i guess i just haven't acquired the taste for government titty milk and the addiction to it that follows.