Author
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Topic: How The Rich Help Us
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Michael Hardner
rabble-rouser
Babbler # 2595
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posted 20 November 2002 12:47 PM
The rich. The upper crust. The toffs. The ruling classes. The oppressors. Our betters. The family compact.They're always with us - zooming by in their Italian sports cars, sipping champagne at glitzy charity dinners, or just shutting down factories in our small towns then blasting off in their high-powered private jets. Yes, the glamorous and beloved rich folk, objects of perpetual fascination... always hanging around us like a glittering carrot at the end of a stick, reminding us that we are just one lottery win away from joining them in their deservedly plush lifestyle. Sigh. Seriously, though, how do the financial outlays of the super-rich affect our economy ? Obviously their money gets into the economy through taxes and through various forms of direct investment, but how does it work ? I figure that there are a lot of smart people on Babble who can explain this to us. This quote from Dr. C is a good starting point: quote: Because bond purchases and bank account savings are more intimately connected to investment than the stock market, these have the beneficial effect of connecting savings more closely to investment, which is one of the key drivers of economic growth. Yes, I know the Keynesians place a priority on investment rather than savings, but you can't ignore savings altogether since they complement and reinforce each other.
So, let's say I'm super-rich. I have $100 million lying around. If I put it into the bank or buy government bonds, does the money go into the economy more quickly than if I just start a new company with that money ? Or does it leveradge more economic activity ?
From: Toronto | Registered: May 2002
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DrConway
rabble-rouser
Babbler # 490
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posted 20 November 2002 01:17 PM
Starting a new company qualifies as investment as well. It is more efficient than you putting the money into a bank account or new bond purchases and letting the dough sort of percolate through instead of zooming it in with a laser beam, as it were.The reason I spoke of bank accounts and bonds is that if you're a rich guy and you don't want to take a lot of risks, what do you do? You go for the guaranteed return. Boom. So someone still uses your money to eventually stimulate real production, but it takes longer. On the other hand, ploinking the money into a bank account could have deleterious side effects if the money so loaned is borrowed for speculation, or for the stock market (is there a difference? ), so that the direct-startup pathway is even more economically efficient from the viewpoint of stimulating real production of goods and services. On a scale from least efficient to most efficient in terms of real jobs making real things or doing real services, the stock market and speculative land flips get a zero. Direct business startups or venture capital into new businesses get a 10, while upgrades of plant and equipment to improve production probably get an 8. Bank accounts and new bond purchases (which recirculate your money) get around a 5 due to lag times and so on and so forth. You can readily see that at the high end of the scale the real economy is favored, while at the low end of the scale the paper economy is favored. [ November 20, 2002: Message edited by: DrConway ]
From: You shall not side with the great against the powerless. | Registered: May 2001
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