The Graph of the Week, and a rant

N

NoDrama

Well-Known Member
mame said:
Multipliers dont just take into account that a poor person spends every dollar they recieve/earn they also take into account that the rich will hold onto it.

If you are rich and you are taxed 10 dollars and the government turns around and gives that to a poor person and they spend it all; Now, if the government instead just lets you keep your 10 dollars via a tax cut, you are likely to save a few dollars(lets say 3 dollars) of that 10 and spend/invest the rest. So, the government takes the 10 dollars taxed, counts 10 because the poor person spent it all and then counts 3 more because you would've removed 3 dollars from circulation for an extended period of time by saving - leaving them with 13, or a multiplier of 1.3. Inversely, if they had gave you a 10 dollar tax cut than they most likely would have seen 7 dollars worth of economic activity, because you save.

Now, there are other effects, like crowding out. In normal times, excessive government investment crowds out private investment and of course that's bad, but in this situation - the liquidity trap - there is no crowding out; Now is that absolute best time for any government spending (TBH, I'm pretty sure I didn't tell you much of anything you dont already know but it doesn't hurt to make the thread a little easier to follow...).
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Your effect only happens to work with money that is a store of value, commodity money, Gold, Silver. Saving a depreciating piece of paper is not saving at all, it is not building up capital, it is an ever devaluing asset that must be spent as soon as it comes in for it to have any value. Now, you might save a few thousand bucks to cover expenses in the short term, but there aren't too many folks who save a decades worth of income in the form of cash. That would be stupid, you would lose at least half of your purchasing power. I don't know about you, but most of the wealthy people I know are only fond of increasing their purchasing power, none I know save large amounts of cash and none of them enjoy having their dollar devalued. Removing Currency from circulation does not have ANY POSITIVE effect on the economy WHATSOEVER, Only a store of wealth would have the effect of conserving capital, Currency does not preserve capital, it slowly erodes to something worth even less than the piece of paper would have been worth if they didn't devalue it with all that official government ink.
ALL government spending above and beyond infrastructure, military defense and the cost of justice and overhead is excessive and leads to mal-investment and unintended consequences.
 
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