Post by jeffolie on Jul 29, 2011 16:06:26 GMT -6
"...trickle down consumerism..."
I am calling this jeffolie's 'paradox of investment'
I am putting forward here a corollary to the 'paradox of thrift'. I am calling this jeffolie's 'paradox of investment'
I am calling this 'the paradox of investment'. Money tied up in investments is money that is not available, nor likely, to be spent by consumers in America's '70% consumer spending driven economy'. Buying gold creates few jobs resulting in less consumer spending and gold does not circulate nor create other productive products, other consumer products, other investment products that would increase the circulation of money or drive the economy. Much the same can be observed about buying most investments such as stock certificates and bonds (most of which are merely notations in computer databases).
Buying investments '... represents a prisoner's dilemma as saving is beneficial to each individual but deleterious to the general population. ...' as quoted from the below piece on paradox of thrift (or paradox of saving). Some initial investments provide money, capital to the originating corporation that might be used to increase jobs or might be used to redistribute to investors, might be used to pay down debt, etc. Driving up or down shares, investment values after the initial money that might go to the originating corporation does little or nothing for most consumers. Higher stocks, investment values mostly go to the top 20% of wage earners that are more likely to have money beyond their necessities to invest in stocks, bonds, metals, etc. This trickle down consumerism is so narrow that America's "70% consumer spending driven economy" can not grow even as the rich get richer.
==============================================
[from Wikipedia]
The paradox of thrift (or paradox of saving) is a paradox of economics, popularized by John Maynard Keynes, though it had been stated as early as 1714 in The Fable of the Bees, and similar sentiments date to antiquity. The paradox states that if everyone tries to save more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth. The paradox is, narrowly speaking, that total savings may fall even when individual savings attempt to rise, and, broadly speaking, that increases in savings may be harmful to an economy. Both the narrow and broad claims are paradoxical within the assumption underlying the fallacy of composition, namely that what is true of the parts must be true of the whole. The narrow claim transparently contradicts this assumption, and the broad one does so by implication, because while individual thrift is generally averred to be good for the economy, the paradox of thrift holds that collective thrift may be bad for the economy.
The paradox of thrift is a central component of Keynesian economics, and has formed part of mainstream economics since the late 1940s, though it is criticized on a number of grounds.
The argument is that, in equilibrium, total income (and thus demand) must equal total output, and that total investment must equal total saving. Assuming that saving rises faster as a function of income than the relationship between investment and output, then an increase in the marginal propensity to save, ceteris paribus, will move the equilibrium point at which income equals output and investment equals savings to lower values.
In this form it represents a prisoner's dilemma as saving is beneficial to each individual but deleterious to the general population. This is a "paradox" because it runs contrary to intuition. One who does not know about the paradox of thrift would fall into a fallacy of composition wherein one generalizes what is perceived to be true for an individual within the economy to the overall population. Although exercising thrift may be good for an individual by enabling that individual to save for a "rainy day", it may not be good for the economy as a whole.
This paradox can be explained by analyzing the place, and impact, of increased savings in an economy. If a population saves more money (that is the marginal propensity to save increases across all income levels), then total revenues for companies will decline. This decrease in economic growth means fewer salary increases and perhaps downsizing. Eventually the population's total savings will have remained the same or even declined because of lower incomes and a weaker economy. This paradox is based on the proposition, put forth in Keynesian economics, that many economic downturns are demand based.
en.wikipedia.org/wiki/Paradox_of_thrift
I am calling this jeffolie's 'paradox of investment'
I am putting forward here a corollary to the 'paradox of thrift'. I am calling this jeffolie's 'paradox of investment'
I am calling this 'the paradox of investment'. Money tied up in investments is money that is not available, nor likely, to be spent by consumers in America's '70% consumer spending driven economy'. Buying gold creates few jobs resulting in less consumer spending and gold does not circulate nor create other productive products, other consumer products, other investment products that would increase the circulation of money or drive the economy. Much the same can be observed about buying most investments such as stock certificates and bonds (most of which are merely notations in computer databases).
Buying investments '... represents a prisoner's dilemma as saving is beneficial to each individual but deleterious to the general population. ...' as quoted from the below piece on paradox of thrift (or paradox of saving). Some initial investments provide money, capital to the originating corporation that might be used to increase jobs or might be used to redistribute to investors, might be used to pay down debt, etc. Driving up or down shares, investment values after the initial money that might go to the originating corporation does little or nothing for most consumers. Higher stocks, investment values mostly go to the top 20% of wage earners that are more likely to have money beyond their necessities to invest in stocks, bonds, metals, etc. This trickle down consumerism is so narrow that America's "70% consumer spending driven economy" can not grow even as the rich get richer.
==============================================
[from Wikipedia]
The paradox of thrift (or paradox of saving) is a paradox of economics, popularized by John Maynard Keynes, though it had been stated as early as 1714 in The Fable of the Bees, and similar sentiments date to antiquity. The paradox states that if everyone tries to save more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth. The paradox is, narrowly speaking, that total savings may fall even when individual savings attempt to rise, and, broadly speaking, that increases in savings may be harmful to an economy. Both the narrow and broad claims are paradoxical within the assumption underlying the fallacy of composition, namely that what is true of the parts must be true of the whole. The narrow claim transparently contradicts this assumption, and the broad one does so by implication, because while individual thrift is generally averred to be good for the economy, the paradox of thrift holds that collective thrift may be bad for the economy.
The paradox of thrift is a central component of Keynesian economics, and has formed part of mainstream economics since the late 1940s, though it is criticized on a number of grounds.
The argument is that, in equilibrium, total income (and thus demand) must equal total output, and that total investment must equal total saving. Assuming that saving rises faster as a function of income than the relationship between investment and output, then an increase in the marginal propensity to save, ceteris paribus, will move the equilibrium point at which income equals output and investment equals savings to lower values.
In this form it represents a prisoner's dilemma as saving is beneficial to each individual but deleterious to the general population. This is a "paradox" because it runs contrary to intuition. One who does not know about the paradox of thrift would fall into a fallacy of composition wherein one generalizes what is perceived to be true for an individual within the economy to the overall population. Although exercising thrift may be good for an individual by enabling that individual to save for a "rainy day", it may not be good for the economy as a whole.
This paradox can be explained by analyzing the place, and impact, of increased savings in an economy. If a population saves more money (that is the marginal propensity to save increases across all income levels), then total revenues for companies will decline. This decrease in economic growth means fewer salary increases and perhaps downsizing. Eventually the population's total savings will have remained the same or even declined because of lower incomes and a weaker economy. This paradox is based on the proposition, put forth in Keynesian economics, that many economic downturns are demand based.
en.wikipedia.org/wiki/Paradox_of_thrift