More money in the hands of the consumer increases demand...

[Declan]

What csbrown28+ said, basically.

Cars get consumed. Even houses get consumed. The purchase of either one (new) is the direct result of production. That car only existed previously because it was produced for consumption, just like a loaf of bread.

And stocks are issued for consumption as well.

 

[Declan]

Bread, yes, bread get's used up. Gold, not really, most of the time gold doesn't get used up (obvious exceptions do apply). Have you ever used up a bar of gold and then tossed away the little sliver that is left (like a bar of soap)?

Yep. It is what I wipe my butt with. You can compress it real thin like pasta and get a lot more butt wipes than you would imagine out of it.

 

[Lakryte]

Of course. Everything that is quantifiable and distributable is a zero=sum game, but that doesn't mean that the sum can't vary in size over time.

Like poker is a zero sum game, correct? What one person gains another loses. Now that doesn't mean that more money can't be injected into the game. Production is the same way, when the quantity produced remains the same, if one person acquires more of the production, then someone else HAS to accept a lower amount of production. The amount produced can vary though. The fact that the size of the pool can vary, in no way eliminates the fact that all of the pieces add up to 100%.

That's right. And the sum of demand can increase only if supply increases.

You are making the incorrect assumption that all savings results in investment. It doesn't. JohnfrmClevelan already explained that. If I purchase some stocks, most likely I am purchasing them from some other fellow. This action doesn't result in any additional investment. You might want to argue that if the other guy then put's the proceeds into his savings account, that the money will be injected back into the economy in the form of loans, but since our banks aren't constricted by deposits, the amount of bank account deposits makes no difference at all.

No I am not, as the rest of my post went on to say. The portion you quoted was explicitly related to investment spending. I also addressed saving in the form of hoarding. Saving in the form of buying stocks or other assets doesn't change the overall point either. In that case, the shift in demand would go from assets to consumer goods, instead of capital goods to consumer goods.

 

[Declan]

I think the correct analogy would be...

Buying a new car off the lot, that has already been created, is consumption, but the original owner selling later does not create productivity, i.e. labor and therefore is simply swapping one thing of value for another.

It creates labor for the salesman, the DMV worker, the license plate stamper, the inspection sticker maker, the guy who makes the paper for the title and registration, the person at the tax office, etc.

 

[Peter Grimm]

Demand is the only thing that has ever or will ever grow an economy. If nobody can afford what you're selling, no amount of tax cuts for rich people are going to make a nation prosperous.

That's not even close to being correct. Demand is part of the equation, but the other side of it, increased productivity, cheap resources, and technical advances are even more important.

 

[JohnfrmClevelan]

And stocks are issued for consumption as well.

How does one consume a share of stock?

Stocks are issued, initially, as a means of investment in the company. After that, they only represent a bit of ownership, and maybe a right to some dividends.

You and I could trade the same share of stock between us 1000 times, and it would be no different than if we traded it once, or not at all. Nothing new is being produced.

 

[Econ4every1]

And stocks are issued for consumption as well.

Agreed IPO = New car (new consumption = increased productivity)

Buying that same stock later = Used car (swapping things of value = No new productivity).

Without being snarky, do you see the point being made?

 

[Econ4every1]

That's not even close to being correct. Demand is part of the equation, but the other side of it, increased productivity, cheap resources, and technical advances are even more important.

Am existing company wants to increase sales, but demand is, over the last year remained steady.

What is more likely?

1 - A company will increase productivity and increase it's inventory and pay workers with money that is still tied up in it's inventory and won't be realized until it sells, probably at a lower price because, all things being equal, there is no reason for demand to have increased....

Or

2 - A company increases productivity because it's inventories (it's buffer if you will) has been decreasing indicating an increase in sales. With the capital from increased sales from increased consumption it hires new workers or invests in technologies that allow it to become more efficient.

Or am I missing something?

 

[imagep]

Individual businesses, yes. But not overall, as I already explained. It seems you have a habit of conflating the two.

Let's say that actual realizable demand for most everything increased by 10%, then baring any barriers to more production (labor shortage, energy shortage, raw material shortage), production of most everything would also increase by about 10%. Yes, this would happen one business at a time, and the aggregate is the total of all those individual businesses.

Now why would a particular business, like mine, increase it's production? Maybe because it started selling more of it's goods and services?

 

[imagep]

And stocks are issued for consumption as well.

Not really. We don't keep purchasing stocks because we have "used up" our last batch.

 

[Peter Grimm]

Am existing company wants to increase sales, but demand is, over the last year remained steady.

What is more likely?

1 - A company will increase productivity and increase it's inventory and pay workers with money that is still tied up in it's inventory and won't be realized until it sells, probably at a lower price because, all things being equal, there is no reason for demand to have increased....

Or

2 - A company increases productivity because it's inventories (it's buffer if you will) has been decreasing indicating an increase in sales. With the capital from increased sales from increased consumption it hires new workers or invests in technologies that allow it to become more efficient.

Or am I missing something?

A company wants to increase margins.

That can be done either by increasing revenues, or by decreasing costs.

A lot of the productivity increases and technical advancement I was talking about serve to lower the cost of production, and at the end of the day, that means better profit margins and a better economy.

Consider this as well.... we are better off today than we were 50 years ago because technology has given us better products, and low production costs have made things that used to be expensive much more affordable. Take a stroll through Walmart, they're practically giving stuff away.

 

[imagep]

Yep. It is what I wipe my butt with. You can compress it real thin like pasta and get a lot more butt wipes than you would imagine out of it.

And you flush it, instead of melting it back into a bar? that doesn't clog up your toilet?

 

[imagep]

That's right. And the sum of demand can increase only if supply increases...

Supply is often created at or near the point of purchase (in terms of time). Do you really think that a barber has to increase his supply of haircuts before he can sell any more?

Why would incentivize a barber to produce more haircuts? Maybe more people coming into his shop for one? Or would he just randomly cut hair, even when no one's sitting in his chair?

 

[imagep]

That's not even close to being correct. Demand is part of the equation, but the other side of it, increased productivity, cheap resources, and technical advances are even more important.

None of that stuff is important if there is no demand.

As a producer, I could care less how fast, or efficiently or inexpensively I can produce something that no one desires to purchase. If people ain't buying it, I ain't gonna produce it, not for very long anyhow.

 

[imagep]

Am existing company wants to increase sales, but demand is, over the last year remained steady.

What is more likely?

1 - A company will increase productivity and increase it's inventory and pay workers with money that is still tied up in it's inventory and won't be realized until it sells, probably at a lower price because, all things being equal, there is no reason for demand to have increased....

Or

2 - A company increases productivity because it's inventories (it's buffer if you will) has been decreasing indicating an increase in sales. With the capital from increased sales from increased consumption it hires new workers or invests in technologies that allow it to become more efficient.

Or am I missing something?

Your not missing a thing.

 

[Lakryte]

Let's say that actual realizable demand for most everything increased by 10%, then production of most everything would also increase by about 10%. Yes, this would happen one business at a time, and the aggregate is the total of all those individual businesses.

In order for total real demand to increase by 10%, there must have been an increase in supply (aka increased production).

Now why would a particular business, like mine, increase it's production? Maybe because it started selling more of it's goods and services?

Sure, but if there has been no preceding increase in production in the economy overall or elsewhere, then the result will merely be an increase in demand for your goods, and a decrease in demand somewhere else.

 

[JohnfrmClevelan]

That's not even close to being correct. Demand is part of the equation, but the other side of it, increased productivity, cheap resources, and technical advances are even more important.

It is completely possible to grow an economy without increased productivity, cheap resources, and/or technical advances. You can simply produce and consume more. If I eat four meals a day instead of three (and increase my own production to pay for that extra meal), all it takes is more effort. And, of course, an increase in demand for whatever it is that I produce.

 

[imagep]

A company wants to increase margins.

That can be done either by increasing revenues, or by decreasing costs.

A lot of the productivity increases and technical advancement I was talking about serve to lower the cost of production, and at the end of the day, that means better profit margins and a better economy.

Consider this as well.... we are better off today than we were 50 years ago because technology has given us better products, and low production costs have made things that used to be expensive much more affordable. Take a stroll through Walmart, they're practically giving stuff away.

I pretty much agree that technological advances are good, but just to be anal for a second, increasing margins can be done by either increasing prices (not necessarily revenues, unless the increase in revenue is from increases in prices), and/or by decreasing costs.

 

[Peter Grimm]

It is completely possible to grow an economy without increased productivity, cheap resources, and/or technical advances. You can simply produce and consume more. If I eat four meals a day instead of three (and increase my own production to pay for that extra meal), all it takes is more effort. And, of course, an increase in demand for whatever it is that I produce.

You need a concurrent increase in productivity to offset your increased demand. Let's say everyone decided to eat four meals a day instead of three. What will happen, and this is basic supply and demand economics, is that the price of food is going to rise without a rise in the quality of the product.... unless you can offset the higher demand with increased food production.

 

[Lakryte]

Supply is often created at or near the point of purchase (in terms of time). Do you really think that a barber has to increase his supply of haircuts before he can sell any more?

Why would incentivize a barber to produce more haircuts? Maybe more people coming into his shop for one? Or would he just randomly cut hair, even when no one's sitting in his chair?

The supply of haircuts does not have to increase for the demand for haircuts to increase. I have already addressed this misconception. Supply overall must increase in order for demand overall to increase in real terms. Again, you are focusing on individual businesses when the point I am making applies to the economy overall. For the demand for haircuts to increase, either one of two things must have happened:

1) Demand for something else has decreased. i.e. people are no longer demanding hats, and are now instead demanding haircuts. People now have more haircuts and less hats.
2) Production has increased. I.e. new technologies have made it possible to produce more hats at half the price, freeing up more money to be spent on haircuts. People now have both the same or more amount of hats, and more haircuts.

Another way of saying this is that purchasing power grows out of production, not the other way around.

 

[Peter Grimm]

I pretty much agree that technological advances are good, but just to be anal for a second, increasing margins can be done by either increasing prices (not necessarily revenues, unless the increase in revenue is from increases in prices), and/or by decreasing costs.

By margin I meant profit.

 

[JohnfrmClevelan]

You need a concurrent increase in productivity to offset your increased demand. Let's say everyone decided to eat four meals a day instead of three. What will happen, and this is basic supply and demand economics, is that the price of food is going to rise without a rise in the quality of the product.... unless you can offset the higher demand with increased food production.

Then what you meant to say was that we need an increase in production, not productivity. Productivity is just the efficiency of our labor.

 

[Peter Grimm]

Then what you meant to say was that we need an increase in production, not productivity. Productivity is just the efficiency of our labor.

I was just speaking to the idea that with increased efficiency, be that via increased labor productivity, technical advancement, restructuring, etc., companies strive to build more and better stuff at a lower cost.

This improves the economy holistically because we get more stuff, better stuff, and at a lower price. The more profitable these companies are, the more they are able to re-invest, which also helps the economy (by increasing business-to-business purchases, by hiring additional staff, by furthering technical development, by increasing shareholder value, etc)

 

[imagep]

In order for total real demand to increase by 10%, there must have been an increase in supply (aka increased production).

Sure, and that can happen at the point of sale, or near the point of sale.

So yesterday the barber cut 50 heads, today he realizes a 10% increase in business and cuts 55 heads. He didn't have to increase his stock of hair cuts in advance of the sale.

The toaster oven company produced 100,000 units last year, and now that it's the middle of February his sales are up 10% and he suspects that his sales for the remainder of the year will be up around 10%, so he increases his production. Since he already had a small inventory of toaster ovens, as did his customers (retailers), the manufacturer and the retailer were both able to determine this trend in advanced of running out of supply. Regardless, after the fact, he increases his production to meet demand.


Now look at what you are suggesting. You are suggesting that the barber would have to cut head that aren't sitting in his barber chair in order to produce more haircuts. Does that even make any sense?

You are suggesting that the toaster oven company would have to produce 10,000 more toaster ovens prior to having any reason to expect that the sales of toaster ovens is going to increase. Now why in the heck would they do that?

Sure, but if there has been no preceding increase in production in the economy overall or elsewhere, then the result will merely be an increase in demand for your goods, and a decrease in demand somewhere else.

A shift in taxation, or in income/wealth distribution, or in consumer consumption/spending preferences can directly cause an increase in realized demand, and it's this increase, or at least the expectation of an increase, that incentivizes producers to expand production.

 

[JohnfrmClevelan]

The supply of haircuts does not have to increase for the demand for haircuts to increase. I have already addressed this misconception. Supply overall must increase in order for demand overall to increase in real terms. Again, you are focusing on individual businesses when the point I am making applies to the economy overall. For the demand for haircuts to increase, either one of two things must have happened:

1) Demand for something else has decreased. i.e. people are no longer demanding hats, and are now instead demanding haircuts. People now have more haircuts and less hats.
2) Production has increased. I.e. new technologies have made it possible to produce more hats at half the price, freeing up more money to be spent on haircuts. People now have both the same or more amount of hats, and more haircuts.

OR...

People spend some of their savings. OR people spend on credit. OR the government deficit spends.

Dollars themselves are not a limiting factor. The supply is elastic. For the economy as a whole, dollars do not need to be "freed up" in order for more spending and/or investment to occur.