- Banned
- #1
This is going to show the main weakness in why giving people money to spend does not directly lead to an increase in consumption which would lead to an increase in job creation. This is the main flaw in the republican idea of trickle down economics where we give the rich more spending money to create more jobs.
What is the difference between spending and consumption? Let us say you have a brand name coach handbag. For all the guys that is a purse that costs around 300 dollars. On the other side of the spectrum is a Walmart purse that costs about 10 dollars. No you have a person who needs a purse. Due to it's brand name the coach purse can be sold for 300 dollars and people still buy them. That is spending 300 dollars. Let us say you decided to spend your three hundred dollars on walmart purses. You would have to buy 30 of them. Buying 30 of them instead of 1 is consumption.
Now why does this matter? Well it takes about the same amount of resources to manufacture each purse. The walmart manufacturer may save a cent or two per purse in manufacturing costs, but it is not much. So to make a single purse takes a certain amount of man hours of labor. That is not a variable as both are machine made, both are designed, both require the use of the same amounts of resources.
Now here is the reason why trickle down economics does not actually boost the economy. Let us say i get a lot of money. I am going to start spending more because i will buy more expensive products. However i do not consume more. In my example above it would be stupid to have 30 purses for most people. If people who already have the money to consume the walmart purse they need get more money they simply look for a brand name purse to use the extra money on.
to bring it a little closer to reality. People who win the lottery or get really great success spend their extra money on names. They buy a porsche. they buy a mansion. They buy the coach handbag. They will consume a bit more than a person of lesser money, but they are only one person. There are diminishing returns on the value of multiple items. You can have 10 big screen TVs, but can you use ten big screen TVs? There is somewhat of an increase in demand, but since manufacturing costs remain a relative constant you simply are not buying in enough mass to make jobs. Unless you have a need to fill, you are not going to make a business just to make a business. Handing people a million dollars in hopes they would go the direction of making a business to employ people is aimless and that business is going to fail like the aimless dot.coms.
This is where the reverse actually becomes more true. trickle up economics has a much better potential for accomplishing the goals. Let us consider a poor person. this is a person who has to do without some needs and most wants. their consumption is reduced because they simply cannot consume. Let us say i give you 200 dollars for food (Those of you who are not poor) what are you going to do? You might save some of it, you might buy extra, but you would probably go out to eat or buy some higher quality foods. The amount of food you eat will probably not change too much if you are already above the poverty line where you do not have to deny yourself needs. Now if i give poor people money to buy food they are actually going to consume more food.
The lower echelons of society have more consumption power than the rich. They also have more of a need to consume. So when you give them extra money they actually purchase more for themselves rather than spending on brand names or savings. The profit from those purchases gives business the revenue to increase jobs and production to meet the need that exists.
This is why trickle down economics has it backwards and fails. If you put money into the rich one percent and hope they get guided into creating jobs with no present need to fill you are going to be really lucky if that does anything at all. Where do you create the jobs? What do the people do? there is no demand from that. On the other hand by giving money to the poor to consume more they create a demand while sales lead to the profit to fill that demand. because they are poor they have to spend, and that spending shows you where to create jobs. That is actually letting the market guide itself.
What is the difference between spending and consumption? Let us say you have a brand name coach handbag. For all the guys that is a purse that costs around 300 dollars. On the other side of the spectrum is a Walmart purse that costs about 10 dollars. No you have a person who needs a purse. Due to it's brand name the coach purse can be sold for 300 dollars and people still buy them. That is spending 300 dollars. Let us say you decided to spend your three hundred dollars on walmart purses. You would have to buy 30 of them. Buying 30 of them instead of 1 is consumption.
Now why does this matter? Well it takes about the same amount of resources to manufacture each purse. The walmart manufacturer may save a cent or two per purse in manufacturing costs, but it is not much. So to make a single purse takes a certain amount of man hours of labor. That is not a variable as both are machine made, both are designed, both require the use of the same amounts of resources.
Now here is the reason why trickle down economics does not actually boost the economy. Let us say i get a lot of money. I am going to start spending more because i will buy more expensive products. However i do not consume more. In my example above it would be stupid to have 30 purses for most people. If people who already have the money to consume the walmart purse they need get more money they simply look for a brand name purse to use the extra money on.
to bring it a little closer to reality. People who win the lottery or get really great success spend their extra money on names. They buy a porsche. they buy a mansion. They buy the coach handbag. They will consume a bit more than a person of lesser money, but they are only one person. There are diminishing returns on the value of multiple items. You can have 10 big screen TVs, but can you use ten big screen TVs? There is somewhat of an increase in demand, but since manufacturing costs remain a relative constant you simply are not buying in enough mass to make jobs. Unless you have a need to fill, you are not going to make a business just to make a business. Handing people a million dollars in hopes they would go the direction of making a business to employ people is aimless and that business is going to fail like the aimless dot.coms.
This is where the reverse actually becomes more true. trickle up economics has a much better potential for accomplishing the goals. Let us consider a poor person. this is a person who has to do without some needs and most wants. their consumption is reduced because they simply cannot consume. Let us say i give you 200 dollars for food (Those of you who are not poor) what are you going to do? You might save some of it, you might buy extra, but you would probably go out to eat or buy some higher quality foods. The amount of food you eat will probably not change too much if you are already above the poverty line where you do not have to deny yourself needs. Now if i give poor people money to buy food they are actually going to consume more food.
The lower echelons of society have more consumption power than the rich. They also have more of a need to consume. So when you give them extra money they actually purchase more for themselves rather than spending on brand names or savings. The profit from those purchases gives business the revenue to increase jobs and production to meet the need that exists.
This is why trickle down economics has it backwards and fails. If you put money into the rich one percent and hope they get guided into creating jobs with no present need to fill you are going to be really lucky if that does anything at all. Where do you create the jobs? What do the people do? there is no demand from that. On the other hand by giving money to the poor to consume more they create a demand while sales lead to the profit to fill that demand. because they are poor they have to spend, and that spending shows you where to create jobs. That is actually letting the market guide itself.
