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

[imagep]

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.

Sure. And you would see an increase in food production, either as a result in a higher price for food, or even purely based upon more demand. Producers seek to satisfy demand, they don't seek to produce more than is demanded.

 

[JohnfrmClevelan]

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)

When the demand for labor is low (as it is today), increases in productivity work against labor. If the same production can be done with fewer workers, profit margins go up and/or prices go down, but fewer dollars flow to labor, and that ultimately results in less demand. There is no reason for companies to re-invest their profits if demand for their products doesn't warrant the extra production. This has been our problem for the past seven years or so. Our economy has been making fantastic profits lately, but American labor is still not in demand.

 

[imagep]

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.

#1 is absolutely correct, except for the fact that the demand for hats AND haircuts don't HAVE to be inversely correlated. Demand for both can increase. Demand for everything can increase simultaneously, when consumers have more money in their pockets. And yes, when demand increases, so will production.
#2 is also correct.

But you are ignoring other possibilities. Those aren't the only two.

You know how it's possible for a bank to lend money that it doesn't currently have, well to a degree, most everything is like that. Maybe I would like a blue Mustang. The Ford dealer doesn't have to have one in stock to sell me one. He can take my deposit or payment in full, and have the factory produce one or he can acquire one from another dealer. this happens frequently.

Likewise, NONE of the products that I produce are already in stock when my customers order them. I make custom to order products. The demand is realized once I take the order and I will not produce a thing until this demand has been realized.

 

[imagep]

By margin I meant profit.

I figured it was something like that, my OCD just gets in my way sometimes.

 

[imagep]

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

Exactly.

I think that what some people don't understand is that I can make more money just by increasing my production volume (which naturally requires selling more production), I don't have to increase my productivity any. That's why producers typically don't always have a need to increase prices, when demand rises - they can take advantage of the increase in demand just by producing more. Although increasing productivity is good also, it's not a requirement to make more money.

 

[Lakryte]

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?

Again, you are not properly understanding my argument, as what you say I am suggesting is not at all what I am suggesting. You once again have conflated the individual business with the aggregate. The supply of haircuts does not have to increase for the demand for haircuts to increase. Supply overall must increase in order for demand overall to increase in real terms. Not the supply of haircuits--the supply of everything in the economy overall.

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 (a) demand for something else decreased or (b) supply increased elsewhere prior to allow an overall increase in total demand.

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.

A shift in taxation or wealth distribution or spending preferences will cause merely a corresponding shift in demand. Demand will be redirected, not created. Additional demand can only be created by additional production. An overall increase in production comes before any possible overall increase in real demand.

 

[Peter Grimm]

When the demand for labor is low (as it is today), increases in productivity work against labor. If the same production can be done with fewer workers, profit margins go up and/or prices go down, but fewer dollars flow to labor, and that ultimately results in less demand. There is no reason for companies to re-invest their profits if demand for their products doesn't warrant the extra production. This has been our problem for the past seven years or so. Our economy has been making fantastic profits lately, but American labor is still not in demand.

Companies typically do re-invest their profits, thanks American tax laws that make it favorable to do so. Very few companies actually pay dividends to shareholders anymore, so, for the typical American corporation, the profits being made get reinvested in to the business.

I agree with what you're saying, for the most part. The comparatively low demand for American labor is a problem. The question we need to consider, though, is what is the root cause for this?

One can easily argue that companies, acting in a way that maximizes profits, are increasing the efficiency of the labor market. While the knee jerk reaction may be to say "companies should just pay their workers more," I find it difficult to imagine that our biggest problem is companies that are TOO EFFICIENT.

Rather, I think the solution to our labor problem needs to come from two things - by improving the quality and marketability of our labor force, and by incentivizing new business development so that there are more companies around to hire these people.

Entrepreneurship is a big part of the solution. We have grown too stagnant. We simply need more businesses, and businesses which are forward-thinking and innovative. For every Apple or Microsoft out there, there needs to be a dozen more companies out there nipping at their heels. We're missing that right now.

 

[Lakryte]

OR...

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

And I already addressed all three of those things. None of them result in an overall increase in real demand, and all of them result in a decrease in demand somewhere else, precisely in line with my statement. The first is merely changes a demand for money into a demand for other goods and services (or investment products or whatever the money is now being spent on). The others are examples of an increase in the supply of money. An increase in the supply of money does not increase real demand, and ultimatley transfers purchasing power to those who create and get the new money first and away from those who get it last.

Do you believe if every consumer were given $100,000 in newly created money that the economy would be more productive?

 

[Peter Grimm]

Sure. And you would see an increase in food production, either as a result in a higher price for food, or even purely based upon more demand. Producers seek to satisfy demand, they don't seek to produce more than is demanded.

Correct. So the original post I responded to was a gentleman claiming that increased demand is the ONLY thing that can improve an economy. I was simply making the point that while that is one factor, other factors come in to play as well.... specifically those that have to do with costs, efficiency, and innovation.

 

[Lakryte]

#1 is absolutely correct, except for the fact that the demand for hats AND haircuts don't HAVE to be inversely correlated. Demand for both can increase. Demand for everything can increase simultaneously, when consumers have more money in their pockets. And yes, when demand increases, so will production.

Demand for both can only increase if demand for a third item decreases, or overall production has increased. Putting more money in consumers pockets does not increase real demand.

#2 is also correct.

But you are ignoring other possibilities. Those aren't the only two.

You know how it's possible for a bank to lend money that it doesn't currently have, well to a degree, most everything is like that. Maybe I would like a blue Mustang. The Ford dealer doesn't have to have one in stock to sell me one. He can take my deposit or payment in full, and have the factory produce one or he can acquire one from another dealer. this happens frequently.

Likewise, NONE of the products that I produce are already in stock when my customers order them. I make custom to order products. The demand is realized once I take the order and I will not produce a thing until this demand has been realized.

Sure. But in order for someone to increase their demand for your products by placing orders, they must either be decreasing their demand for other products, or total production must have increased prior to them placing the order. Your business model of not producing until orders are placed doesn't change the point. I am not saying that demand for your specific goods can only exist if you first produce those specific goods. Read that last line again, as I have a feeling you wrongly do think that is what I am saying. I am talking about the economy overall.

 

[imagep]

Again, you are not properly understanding my argument, as what you say I am suggesting is not at all what I am suggesting. You once again have conflated the individual business with the aggregate. The supply of haircuts does not have to increase for the demand for haircuts to increase. Supply overall must increase in order for demand overall to increase in real terms. Not the supply of haircuits--the supply of everything in the economy overall.

Why? I obviously don't understand your argument. Supply can often be produced at or near the time of sale, you just admitted that. This is true not for just haircuts, but for almost everything, at least to any realistic extent.

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 (a) demand for something else decreased or (b) supply increased elsewhere prior to allow an overall increase in total demand.

Neither of those conditions have to be true. There are more than two options.

And regardless, changes in demand is what triggers changes in supply. Producers seek to meet demand, and if that means that they need to increase supply or decrease supply, then that's what they are going to strive to do. If the barber sees an increase in business that is sustained long enough, and if the trend towards an increase in business is strong enough, then he will hire more barbers, or get a bigger shop, or work more shifts, or whatever it takes to meet the increase in demand. If he doesn't see this increase in demand, then he's not going to expand. It's that simple, and it pretty much works the same way in every industry. Any inability to meet demand due to a lack of production is just a temporary situation which free market capitalism will strive to correct.

A shift in taxation or wealth distribution or spending preferences will cause merely a corresponding shift in demand. Demand will be redirected, not created. Additional demand can only be created by additional production. An overall increase in production comes before any possible overall increase in real demand.

That's not the only possibility, if it was, then our economy would be no larger today than it was a hundred years ago, and we would be no wealthier in aggregate than we were a hundred years ago. Just because realized demand for cars is higher than it was 100 years ago doesn't mean that all the demand from other products has shifted to cars. Demand overall has increased for many products, much more than demand has decreased for outdated/obsoleted/unstylish products.

 

[Lakryte]

Why? I obviously don't understand your argument. Supply can often be produced at or near the time of sale, you just admitted that. This is true not for just haircuts, but for almost everything, at least to any realistic extent.

You are conflating overall supply and demand with the supply and demand for a particular good or service, as I keep trying to say. The argument has never been that in order for the demand for haircuts to increase, the supply of haircuts must first increase, yet you keep directing posts at that argument.

Neither of those conditions have to be true. There are more than two options.

And regardless, changes in demand is what triggers changes in supply. Producers seek to meet demand, and if that means that they need to increase supply or decrease supply, then that's what they are going to strive to do. If the barber sees an increase in business that is sustained long enough, and if the trend towards an increase in business is strong enough, then he will hire more barbers, or get a bigger shop, or work more shifts, or whatever it takes to meet the increase in demand. If he doesn't see this increase in demand, then he's not going to expand. It's that simple, and it pretty much works the same way in every industry. Any inability to meet demand due to a lack of production is just a temporary situation which free market capitalism will strive to correct.

You are absolutely right--that is how individual businesses tend to operate. But I am not talking about individual businesses. I am talking about the economy as a whole. If people are increasing their demand for haircuts, an increase in overall real demand can only be possible if there was an increase in production somewhere else first. I think the error in reasoning lies in thinking that an increase in the total money supply is equivalent to an increase in demand. It is not. It merely reduces how much a given dollar can demand, and in real terms demand has not increased, only shifted.

That's not the only possibility, if it was, then our economy would be no larger today than it was a hundred years ago, and we would be no wealthier in aggregate than we were a hundred years ago. Just because realized demand for cars is higher than it was 100 years ago doesn't mean that all the demand from other products has shifted to cars. Demand overall has increased for many products, much more than demand has decreased for outdated/obsoleted/unstylish products.

I think you missed the key sentence:

"A shift in taxation or wealth distribution or spending preferences will cause merely a corresponding shift in demand. Demand will be redirected, not created. Additional demand can only be created by additional production. An overall increase in production comes before any possible overall increase in real demand."

Economies grow when production (supply) increases, simple as that. Demand does not increase production, it merely directs it. Increased production allows people to demand more than before, not the other way around.

What increases production is not demand, but innovation. Entrepreneurs find more efficient means of producing things. They find ways to produce greater quantities at lower costs. And this applies not only to specific consumer goods industries, but capital goods industries at the very start of the structure of production. Oil producers, for example, find a way to extract more oil than ever before at a fraction of the cost. This allows them to sell oil at heavily reduced costs. Since oil in some form is vital for the production processes of nearly everything (transportation is involved in nearly every production process for example) that will allow multiple businesses to benefit.

You can give every single consumer $100,000 new dollars, but that will merely create more dollars, which are merely mediums of exchange for actual wealth. It would not allow the economy to produce any more value than before.

 

[imagep]

Companies typically do re-invest their profits, thanks American tax laws that make it favorable to do so. Very few companies actually pay dividends to shareholders anymore, so, for the typical American corporation, the profits being made get reinvested in to the business.

The comparatively low demand for American labor is a problem. The question we need to consider, though, is what is the root cause for this?

One can easily argue that companies, acting in a way that maximizes profits, are increasing the efficiency of the labor market. While the knee jerk reaction may be to say "companies should just pay their workers more," I find it difficult to imagine that our biggest problem is companies that are TOO EFFICIENT.

I totally agree with all of the above, as does I suspect almost everyone.

Rather, I think the solution to our labor problem needs to come from two things - by improving the quality and marketability of our labor force...

I'm all for improving the education/skill level of our workforce, but even if every citizen alive today got a doctorate in a field where we currently have a shortage of workers, our problems wouldn't be resolved. What we would end up with is too many worker applying for those jobs, and labor rates in high paying fields would drop like a rock, almost to the point that they aren't desirable jobs anymore. And at the same time, we would still have a need for burger flippers.

and by incentivizing new business development so that there are more companies around to hire these people.

Absolutely. The best incentive for new business development is ample demand. That means that there has to be lot's of customers with extra bucks in their pockets, beyond what they need for the basics, and for saving for retirement.

Entrepreneurship is a big part of the solution. We have grown too stagnant. We simply need more businesses, and businesses which are forward-thinking and innovative. For every Apple or Microsoft out there, there needs to be a dozen more companies out there nipping at their heels. We're missing that right now.

The best incentive for entrepreneurship is also higher demand.

The root cause for our economic issues boils down to less than ideal income distribution, with excessive income/wealth pooling in the hands of the few, who then don't invest the money productively, in the types of things that you are talking about.

The poor, and middle class Jacks and Jills of the US don't have any money to use to for entreprenteurial endevors, and most of his time and energy is consumed with just trying to get by. that's about 90% of our population who are effectively shut out from doing the types of things that you are suggesting, and thus 90% of the good business ideas that we collectively have, go unrealized.

The richest of us often don't have any economic motivator to do those things because they are already rich and seem to do just fine on the investments and rentier income that they already have.

Someone started a thread a week or so back about an article that claimed we are having more business closures than new startups. Yes, this is an issue, and there are reasons for that issue.

 

[JohnfrmClevelan]

And I already addressed all three of those things. None of them result in an overall increase in real demand, and all of them result in a decrease in demand somewhere else, precisely in line with my statement. The first is merely changes a demand for money into a demand for other goods and services (or investment products or whatever the money is now being spent on). The others are examples of an increase in the supply of money. An increase in the supply of money does not increase real demand, and ultimatley transfers purchasing power to those who create and get the new money first and away from those who get it last.

That's only because you are including the "demand for money" in with real demand (for products and services). This is an inherent circularity in your arguments. That is the only reason you think that everything lines up with your ideas.

Do you believe if every consumer were given $100,000 in newly created money that the economy would be more productive?

Let's use a more realistic number. Remember when we all got $800 back from the government in 2001? Yes, most of that money was spent, and business enjoyed the increased demand. And the extra products had to be produced, so, yes, production went up.

Giving everybody $100,000 to spend would probably overload our economy's ability to meet the new demand, and ultimately result in inflation. But our economy certainly has the capacity to meet more demand than it presently does, in exactly the manner in which imagep has been proposing. So a reasonable increase of money in the hands of consumers would definitely result in increased production.

 

[Peter Grimm]

I totally agree with all of the above, as does I suspect almost everyone.



I'm all for improving the education/skill level of our workforce, but even if every citizen alive today got a doctorate in a field where we currently have a shortage of workers, our problems wouldn't be resolved. What we would end up with is too many worker applying for those jobs, and labor rates in high paying fields would drop like a rock, almost to the point that they aren't desirable jobs anymore. And at the same time, we would still have a need for burger flippers.



Absolutely. The best incentive for new business development is ample demand. That means that there has to be lot's of customers with extra bucks in their pockets, beyond what they need for the basics, and for saving for retirement.



The best incentive for entrepreneurship is also higher demand.

The root cause for our economic issues boils down to less than ideal income distribution, with excessive income/wealth pooling in the hands of the few, who then don't invest the money productively, in the types of things that you are talking about.

The poor, and middle class Jacks and Jills of the US don't have any money to use to for entreprenteurial endevors, and most of his time and energy is consumed with just trying to get by. that's about 90% of our population who are effectively shut out from doing the types of things that you are suggesting, and thus 90% of the good business ideas that we collectively have, go unrealized.

The richest of us often don't have any economic motivator to do those things because they are already rich and seem to do just fine on the investments and rentier income that they already have.

Someone started a thread a week or so back about an article that claimed we are having more business closures than new startups. Yes, this is an issue, and there are reasons for that issue.

90%? More like 95+%.

Starting up a business is expensive and risky. And while I agree with much of what you say, I don't believe that raising the minimum wage to, say, $15/hour is going to make a lick of difference when it comes to incentivizing entrepreneurship.

I'm not against redistribution of wealth, in fact, I think it's necessary in any capitalist system. That said, to spur new business development, what I had in mind was more along the lines of making it easier for startups to get funding, improving our patent laws and overhauling the patent office, simplifying the tax code, and simplifying labor laws.

Just take a practical approach and make it easier for the middle class joe who wants to start a donut shop on the corner to do so. He needs startup cash, and he needs to be able to navigate the paperwork quickly and easily.

 

[imagep]

You are conflating overall supply and demand with the supply and demand for a particular good or service, as I keep trying to say. The argument has never been that in order for the demand for haircuts to increase, the supply of haircuts must first increase, yet you keep directing posts at that argument.

You keep claiming that the haircuts must already exist before they are sold, then you claim that they don't have to exist first. make up your mind.

You are absolutely right--that is how individual businesses tend to operate. But I am not talking about individual businesses. I am talking about the economy as a whole.

The economy as a whole is based upon adding up all the behavior of all of the individuals.

If people are increasing their demand for haircuts, an increase in overall real demand can only be possible if there was an increase in production somewhere else first. I think the error in reasoning lies in thinking that an increase in the total money supply is equivalent to an increase in demand. It is not. It merely reduces how much a given dollar can demand, and in real terms demand has not increased, only shifted.

You keep saying that, and I keep explaining that there is more than one possibility here. Can you honestly deny that a tax cut on the worker/consumer class wouldn't boost demand, assuming that government spending doesn't decline as a result of that tax cut?

I think you missed the key sentence:

"A shift in taxation or wealth distribution or spending preferences will cause merely a corresponding shift in demand. Demand will be redirected, not created. Additional demand can only be created by additional production. An overall increase in production comes before any possible overall increase in real demand."

I haven't missed it yet. It's a gross oversimplification that doesn't necessarily hold true.

Economies grow when production (supply) increases, simple as that.

Absolutely, and demand is the factor that controls production. No one is going to produce more than they can sell.

Demand does not increase production, it merely directs it. Increased production allows people to demand more than before, not the other way around.

While increases in production do allow people to demand more than before, that's not the only factor that can increase demand, and the amount demanded is the factor that controls how much is produced. If you became King today, what would you do to incentivize companies to start producing more goods and services than they currently had demand for? Would you order the barber to cut imaginary hair? Would you tell the toaster oven company to start producing more toaster ovens than they can sell?

What increases production is not demand, but innovation. Entrepreneurs find more efficient means of producing things. They find ways to produce greater quantities at lower costs. And this applies not only to specific consumer goods industries, but capital goods industries at the very start of the structure of production. Oil producers, for example, find a way to extract more oil than ever before at a fraction of the cost. This allows them to sell oil at heavily reduced costs. Since oil in some form is vital for the production processes of nearly everything (transportation is involved in nearly every production process for example) that will allow multiple businesses to benefit.

You are describing an increase in productivity, not production. Increased productivity is certainly good, but it's a requirement of increased production. In my shop, I can increase production without even increasing productivity, it's just a matter of working longer, or having more employees - but I won't/can't do that, unless I have an increase in orders first.

You can give every single consumer $100,000 new dollars, but that will merely create more dollars, which are merely mediums of exchange for actual wealth. It would not allow the economy to produce any more value than before.

Exactly. That's why I never suggested doing that. Has anyone in this tread made such a suggestion?

I didn't miss anything. In that bolded sentence, you should reword that to say "Additional demand can only be realized by additional production" Note that I changed the world "created" to "realized". Additional production will only be created, due to demand increasing. If we buy/sell more goods and services, the production of those goods and services is pretty much automatic. How to create the demand is the issue, and that usually requires someone having a few extra bucks in their pocket, and there are more than the two ways that you keep pointing out for that money to get in their pockets.

 

[JohnfrmClevelan]

Companies typically do re-invest their profits, thanks American tax laws that make it favorable to do so. Very few companies actually pay dividends to shareholders anymore, so, for the typical American corporation, the profits being made get reinvested in to the business.

I agree with what you're saying, for the most part. The comparatively low demand for American labor is a problem. The question we need to consider, though, is what is the root cause for this?

One can easily argue that companies, acting in a way that maximizes profits, are increasing the efficiency of the labor market. While the knee jerk reaction may be to say "companies should just pay their workers more," I find it difficult to imagine that our biggest problem is companies that are TOO EFFICIENT.

Rather, I think the solution to our labor problem needs to come from two things - by improving the quality and marketability of our labor force, and by incentivizing new business development so that there are more companies around to hire these people.

Entrepreneurship is a big part of the solution. We have grown too stagnant. We simply need more businesses, and businesses which are forward-thinking and innovative. For every Apple or Microsoft out there, there needs to be a dozen more companies out there nipping at their heels. We're missing that right now.

I don't agree that the solution is more businesses. Our problem sure isn't that we have too little available to buy. What good would more businesses do? People already spend almost everything they earn.

I think the idea that the private sector will provide everybody with a job (under the right circumstances) completely disregards how and why capitalism actually works. Jobs are merely a by-product of capitalism; if it is more profitable to produce with less labor, then that is what will happen.

 

[Econ4every1]

A company wants to increase margins.

Usually, not always. My company has increased it's market share by discounting, this has given us a competitive advantage, without actually increasing margins, but I'll concede that that is the ultimate goal.

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.

Agreed, but you're leaving a lot out.

For any business that is run reasonably efficiently, decreasing costs requires investment. It's worth noting that changes in efficiency come at a rate of diminishing return. Without increased sales to fund increases in efficiency, a company can do some form of borrowing (bonds loans ect) which is just borrowing against future productivity. Ironically, increases in efficiency often mean less people doing more work, so while our per capita productivity rises, it is not without consequence, that is more people fighting for fewer jobs. add to that the roughly 400K net new workers that enter the workforce each year....

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.

You say "we", some are and some are not, it depends on how you measure such things.

 

[Declan]

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?

I buy a share of stock-a broker gets paid to sell it it and a broker gets paid by me to buy it. Do you not consider services part of the economy?

 

[imagep]

90%? More like 95+%.

Starting up a business is expensive and risky. And while I agree with much of what you say, I don't believe that raising the minimum wage to, say, $15/hour is going to make a lick of difference when it comes to incentivizing entrepreneurship.

I'm not against redistribution of wealth, in fact, I think it's necessary in any capitalist system. That said, to spur new business development, what I had in mind was more along the lines of making it easier for startups to get funding, improving our patent laws and overhauling the patent office, simplifying the tax code, and simplifying labor laws.

Just take a practical approach and make it easier for the middle class joe who wants to start a donut shop on the corner to do so. He needs startup cash, and he needs to be able to navigate the paperwork quickly and easily.

I'm all for that stuff, but we start getting into some sticky issues.

Like who is going to take the risk for those risky loans? Should the government provide more small business loan guarantees, to potential business owners who haven't been able to prove to their bank that their idea has merit or that they are a good risk? Wouldn't higher wages (even if through forced income redistribution, such as a more progressive tax system and/or higher minimum wage) more or less serve the same purpose by making it easier for a middle class Joe to save?

I dunno anything about patents, but is it really all that hard? What could we do to improve the patent system?

I'm all for simplifying the tax code, but it's not really so difficult that it prevents people of normal intelligence from starting a business. After all, I started mine at age 24, and I ain't no genius, nor did I have any prior experience. I just did it. I outsource my payroll to an online automatic payroll company, and I use software to keep up with my accounting, and I use software to do my taxes (personal and for my S-Corp). Of course it helped that I took a few accounting courses in college, so maybe it's an education issue, more so than a regulation issue.

Forming a business as a legal entity can be done virtually instantly over the internet these days. I can get a business license online (often not even required), I can file corporate papers online, I can get a federal EIN number online, and I can get a sales tax ID number online. Were talking maybe a hundred bucks in fees. Getting a certificate of occupancy, assuming that my building is up to code, is as easy as filling out a one page form and waiting a few days for an inspection. None of it is really that big of a deal. I suspect the problem is more with education - people simply don't know where to start, unless they have already started a business, but all this stuff can be looked up on the internet in a matter of minutes.

 

[imagep]

I buy a share of stock-a broker gets paid to sell it it and a broker gets paid by me to buy it. Do you not consider services part of the economy?

Sure, but nothing was really consumed, other than the brokers time. The stocks certainly weren't consumed, they still exist, and can still be sold for value.

When I "consume" a tv, the tv factory makes a new one to replace inventory. When I purchase a stock, most likely no new stock is issued to replace it. It really doesn't need to be replaced, as it never get's used up.

 

[Declan]

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

Stocks are the title to the car; they are the consumption of capital, be that oil reserves, labor, livestock, or other

 

[Declan]

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

No, of course not. that would be wasteful. That which I do not use for gold leafing in my house, I put on food and sell it at a premium. Gold is a very trendy spice.

 

[JohnfrmClevelan]

I buy a share of stock-a broker gets paid to sell it it and a broker gets paid by me to buy it. Do you not consider services part of the economy?

When you buy a pedicure, you are paying for a service. That doesn't make your growing toenails "production."

These aren't bright-line distinctions, of course. But generally, the sale of a used item can be separated from the production of the item itself. The sale of a used car, or a share of stock, will result in some salesman being paid for their labor, and that counts. But no new car has been produced, and no new investment has taken place.

 

[Lakryte]

That's only because you are including the "demand for money" in with real demand (for products and services). This is an inherent circularity in your arguments. That is the only reason you think that everything lines up with your ideas.

So you reject that money is demanded? You believe there is no such thing as a demand for money? Really?

Let's use a more realistic number. Remember when we all got $800 back from the government in 2001? Yes, most of that money was spent, and business enjoyed the increased demand. And the extra products had to be produced, so, yes, production went up.

Giving everybody $100,000 to spend would probably overload our economy's ability to meet the new demand, and ultimately result in inflation. But our economy certainly has the capacity to meet more demand than it presently does, in exactly the manner in which imagep has been proposing. So a reasonable increase of money in the hands of consumers would definitely result in increased production.

If the government created enough additional money to give everybody $800 new dollars instead of $100,000 the effect would differ only in degree, not kind. In either case, prices will be higher than they otherwise would have been. Say everyone used that extra $800 to buy gas. Stations would raise prices seeing this extra spending--they would not just keep prices low and miss an opportunity to profit. Aggregate demand is aggregate supply--of goods and services, not money. Perhaps it makes sense to distinguish between supply and demand at the microeconomic level, because all indirect exchanges are exchanges of units of goods against units of money. But it does not make sense to do so at the macro level, where indirect exchanges are complete — meaning that those who received units of money either exchanged them against the units of the goods they desired or added them to their cash balances, thus modifying the purchasing power of money and the monetary value of all goods.