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notices and features - Date published:
5:30 pm, October 7th, 2020 - 49 comments
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The current rise of populism challenges the way we think about people’s relationship to the economy.We seem to be entering an era of populism, in which leadership in a democracy is based on preferences of the population which do not seem entirely rational nor serving their longer interests. ...
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Unemployment is proof that the economy is not balanced and thus not working as it should. From The Deficit Myth by Kelton:
Profit is also a system that removes money from the economy.
Or profit is used for future business expansion and investment…but agree not every cent of profit would be used for this.
Business expansion results in higher profit and thus more money being taken out of the economy. The other problem is that the profit may not actually be used for expansion at all but just to increase ownership of existing assets (share buybacks come to mind) resulting in more profit going to less people with a corresponding increase in money taken out of the economy.
Of course, the business expansion may fail in which case there would be less profit for a time and thus less money taken out of the economy.
That's overly simplex of course but is accurate enough to give a general feel for how profit maximising brings about the collapse of an economy.
Profit is not taken out of the economy unless companies are owned overseas.
Perhaps I should have said out of circulation rather than out of the economy because money sitting in a bank account is not in circulation even if it is, technically, still in the economy.
This is the true message of the Paradox of Thrift.
What you mean, I think, is that money is removed from the business sector and handed over to consumers. But even wages do that.
I don't think profits sit in the bank. Rather they are either paid as dividends to shareholders or invested in further production. And, yes, companies sometimes buy back there own shares, but then money is paid to the original owners of those shares. This not to say of course that share buybacks are a good thing.
No, that's not what I mean. If that money was handed over to consumers the economy would be better off as the money would keep circulating.
Dividends paid to shareholders are still profits. What happens after is the issue. Sitting in the bank doing nothing, spent to increase productive capacity (this here can also be a misallocation) or spent consumptively.
The first is the problem and the second can add to the second.
Which is most likely to be used either to buy shares or sit in the bank. It's unlikely to be used to increase productive capacity or consumption.
Shares aren't a Good Thing as they induce bludging through the functionless investor.
If that money was handed over to consumers the economy would be better off as the money would keep circulating.
Shareholders are consumers. But you seem to be suggesting that dividends not needed for consumption should be kept under a mattress for safekeeping.
Dividends paid to shareholders are still profits. What happens after is the issue. Sitting in the bank doing nothing, spent to increase productive capacity (this here can also be a misallocation) or spent consumption.
What happens afterwards is of course the point. Dividends can be spent on consumption or saved. But there are limits to what one can consume.
Which is most likely to be used either to buy shares or sit in the bank. It's unlikely to be used to increase productive capacity or consumption.
This of course is true of any type of remuneration, including wages and salaries.
Shares aren't a Good Thing as they induce bludging through the functionless investor.
Letting someone else use one's savings or capital isn't a functionless activity.
Yes and so any remuneration above that is, effectively, a dead-weight loss as the money will no longer circulate in the economy.
Lending someone else your capital is not directly productive, but it enables productive investment. What is the difference, where the economy is concerned, between using your savings for productive purposes and letting someone else use them for the same purpose.
I agree that banks should not create money from nothing. But we were not discussing what banks do, but what people do with their savings. If savings are invested productively (and if people cannot do this themselves, in our economy they usually hand their savings over to an institution for investment) then they are not a dead weight on the economy.
That's the theory. The question is if that theory holds true in light of the fact that it is spending that drives the economy and not savings.
Part of the answer lies in the fact that the Gold Standard (or similar commodity currency) was in effect at the time that the above was postulated and there was a finite amount of money available and thus there actually was a need for savings to be loaned out for productive purposes. But even under the Gold Standard it is still spending that drives the economy. Without spending there is no income.
That's one problem but the other is that, because the gold accumulated in fewer and fewer hands through savings and then returns on investment of those savings, the amount of money in circulation decreases over time until there isn't enough to maintain sales resulting in a recession and then a depression. Its well known that under the Gold Standard recessions happened more often and lasted longer.
Now we have a full Fiat Currency where money can be made, as needed, at the press of a button. This removes the need for savings and even shares.
A business needs money to expand? Then all they really should be doing is going down to the State Bank and applying. If their business plan meets the criteria then the money is created and handed over for the business to spend. Technically, this is what happens but the private banks are used as an intermediary between the State Bank and the people taking out the loan (banks creating money out of nothing) and under the wrong assumptions (that they need savings first and that they need to pay interest).
So, now we're back to the Paradox of Thrift but there's not even the aspect of savings being used for productive purposes that would bring those savings back into circulation. In other words, savings are simply removed from circulation and are thus a decrease in spending/income.
A large part of the problem is that economics is still thought of as if we're still using the Gold Standard which hasn't been true since the last Gold Standard currency became a fiat currency in 1971 and it did that so that it could spend as needed without crashing the economy.
Today, the only purpose of having an income is to spend it but that only applies to people and businesses. Governments which maintain a sovereign currency don't need an income to be able to spend.
Don't even need to save for retirement as the government pension should be enough to live comfortably on and even have an overseas holiday every year.
Actually, we are as we're talking about the movement of currency through the system and how money removed from circulation (savings) crashes the economy but can be balanced through the creation of more money to maintain spending.
A fiat currency, done well, can remove the so called Business Cycle as spending will be maintained even if businesses collapse and do it without excessive inflation. But to be done well it needs to be recognised that we no longer need savings to fund productive investment.
It is spending that drives the economy and not savings.
I can’t disagree with that, but spending can be on either consumption goods or investment goods . Savings are normally spent on the latter, usually with various institutions acting as go-betweens.
The problem with the gold standard was that if a country ran into balance of payments difficulties it would lose gold, which would necessitate shrinking its money supply, and bring about a depression. This would not necessarily be a bad thing were it not for the fact that those difficulties are often not due to the monetary system so much as the often preditory trade policies of other countries. Much the same applies to floating currencies except that they run up debt instead of losing gold.
Now we have a full Fiat Currency where money can be made, as needed, at the press of a button. This removes the need for savings and even shares.
Most businesses try to maintain a balance between equity capital and borrowed capital. Running a business entirely on borrowed money is considered dangerous since loans have to be repaid, with interest, even when times are tough and revenues down. Of course a state bank, in the interests of stability, doesn’t need to foreclose on business loans, but I don’t think a state can afford too much forbearance: it is better to have shareholders to shoulder some of any losses.
It has been suggested that productivity increases, with the money supply remaining static, should lead to a lowering of prices with incomes remaining the same. That would be nice, but deflation tends to lead to depression. Or does it?
Well, that's another problem with the Gold Standard. But even without international trade and predatory trade practices of foreign nations the accumulation of gold into fewer and fewer hands would curtail the spending needed to maintain the economy. Its a problem inherent to having a finite amount of money.
A state bank, with access to the ability to create money on demand, doesn't need to charge interest either. If you were a business would you pay interest when you can get a loan without?
Fiat currency eliminates the need for savings, shares and interest charges. Any savings will go down in value at the rate of inflation.
And no business should have an unlimited credit flow from government but we still don't need shareholders. If a business, after a reasonable time, can't support itself from sales then it should get closed down.
And even if a business collapses their are still gains made. Experience for the people directly involved, learning from what went wrong and what went right that can be spread throughout society and even new plant that could be utilised. There's no real loss.
The government maintains stability not through supporting business but through maintaining people's ability to spend. Unemployment benefits, UBI, guaranteed jobs or a combination of them. The ability of the people to spend is what maintains business.
Deflation leads to business income being less than outgoings especially if the deflation is very steep. The business buys/produces something to sell with costs of $100 but can only sell for $90 we have a paper loss of $10.
But if that $90 can cover the costs of the next item sold then its still a viable business.
I don't really believe that government, for reasons more to do with logistics than principle, can shoulder the burden of financing the entire economy. Some of the financing has to come from the private sector, either in the form of equity financing or borrowing.
Considering that the private surplus is provided by the government deficit then the only possible conclusion is that the government is already financing the entire economy.
The logistics are presently provided by private intermediaries such as banks. This could be achieved just as well through other means such as direct democracy. After all, why shouldn't the people have a say in how their resources are used?
No, it actually doesn't and I believe that it would be better for society if it didn't.
I think "every cent" of profit should be paid to shareholders as dividends. If a company wishes to retain earnings then all or part of its dividends should consist of new shares.
One of the problems with the way companies are structured at present is that companies retain earnings. This means that the (book) values of companies increase without a corresponding increase in the number of shares on issue. This means that share values must increase. This may well be why we have stock market bubbles.
mikesh Your reckons might be good but DTB has been putting in the hard yards looking at the economy and politics for decades. How long have you been looking hard at it?
New ideas let’s have them but refer to something will you.Economic textbook?
I hope that is sarcasm, because Mikesh is clearly correct. Company profits are not a drain on income. They do tend to go to people who save more of their income (and saving is a drain), but saving can also occur from salary payments.
Yeah, and I've also said that we're paid too much although, at the time, that was more to do with how much waste well off countries tend to generate through simply throwing good stuff away. Excessive income results in people having less respect for the resources used. Individually, overpaid people can afford the waste but the country can't hence why we needed shower-head and light bulb regulation.
Back to profits and the same thing applies to high wages/salary with excess going into savings that results in less money in circulation and thus a slowing down of the economy. Throw in interest on those savings and the slow down is exponential.
Continuing reading the book and she gives this example:
Profits, themselves, are a fiscal surplus which can only be negated if those profits are fully spent.
There's a graph around (that I linked to years ago) showing government deficits mirroring private surpluses. In other words, to have a private profit requires that there be a government deficit.
There's a graph around (that I linked to years ago) showing government deficits mirroring private surpluses. In other words, to have a private profit requires that there be a government deficit.
Private savings require a government deficit. Any income may be saved, not just profits.
Company profits are not a drain on income. They can be. I don't know if your statement is an economic rule, but it isn't verity. If a company is a monopoly or part of a cartel it can manipulate the market, and make a 'killing' from consumers having to pay excessive prices beyond the actual cost of production etc.
Housing at present is dominated by a cartel isn't it?
According to research carried out by Steve Keen monopolies work the same as competitive companies. Other research shows that competitive companies manipulate the market using tools such as advertising.
And, of course, the whole point of having competitive companies is to decrease profit.
Or to promote the production of quality products.
Profits are a form of income, so how can they be a drain on income.
Lovely points looking at textbook explanations.
There is a different approach which comes from the felt affects on particular financial classes of whatever economic precepts you are quoting. And that is what matters in the final analysis.
Nothing to do with textbooks. Just logical thinking.
Decades.
Election 2020: Should have gone to Specsavers – Judith Collins turned away from Auckland optometrist [HT to Observer]
35%!
The Leader made another leader call on the hoof and forgot to ‘consult’ the Party Caucus.
Benedict Collins, political reporter on 1News, called the National Party fake walkabout in Ponsonby "dumb, dumb, dumb".
Come on, Ponsonby road is always full of pedestrians. Anyone noticed it being deserted due to recession?
Surely it wasn't a "clever plan" set up by Brownlee? He is so clever at fixing things.
This is not satire, or sarcasm. It's a genuine tweet from National's candidate.
Emma Mellow thinks she had a good day in Ponsonby … until she reads the replies.
https://twitter.com/emmamellow/status/1313689426636095494
So with that in mind this clever unbiased group are attacking child centred learning. And then get a secondary Principal to comment. Idiots. Children who are involved in setting parameters of study learn all those self control, goal setting, credibility judgements, and self evaluative skills that are transferable across life. and the depth in that learning can be outstanding.
The interference from this lot is the sort of thing that lead to National Standards!
Yip, my daughter absolutely thrived with child-centred learning. Secondary school is just an obstacle for her to navigate before university.
So, given that child-centred learning is far better for both the children and society in general than the old rote learning we have to ask what they actually want to achieve.
Well that's not going to larn em to do as they're bloody well told and be grateful they're not charged a fee to work now is it.
Here we go…. the great cannabis question.. link for live stream below
https://www.threenow.co.nz/live-tv-guide/three
Edit.. fascinating line up, Aunty H Affirmative v’s paula b negative
Edit… I LOVE YOU AUNTY H 🥰
To be perfectly honest, only a total prude would support the current situation.
It's all about drug use being a 'sin' and in the traditional Calvinist spirit, 'sinners' need to be punished with the full force of the law, and made to pay penance.
Bennett, Garner, Collins and all the rest are nothing more than prudes, which want to use the law to impose their puritan agenda, and turn us all into pure modest church goers.
Next along the line it will be who you can and can't date/sleep with, and what you can and cannot wear.
They should have learnt back years ago when they were defeated on prohibition.
Disclaimer: I have never used pot, and dont intend of using it in the future, legal or not. I just dont think anyone has a moral right to stop others from (responsibly) using pot.
I'm not a prude nor feel I need a recreational toke. On one hand I want weed decriminalised on the other hand I am bloody sick of living with a dope smoker.
If you don't want to live with a pot smoker then don't. Can't see what that has to do with the law.
I’ll make him homeless tomorrow. Well that solved that then.
That’s what potty-training is for.
Send him to the garage?
Agreed Millsy.
Interesting that the police position seems to be that everything should be black or white, rule defined, and avoid anything that may be grey. Funny how the Noes are ignoring the wild west running now. (And I never have smoked it nor intend to. But the National and ACT who are freedom of choice and the rights of the individual ,surely they would vote YES?)
I've never used the stuff either. Can't see it as stuff to take a moral stand over either.
I do know that we have spent lots of dollars over the years on the negative outcomes of police, corrections etc. etc and with no other result. If it's seriously bad for us I'm sure the Health department will nag us into submission pronto.
So I voted to legalise.
When you work frequently with different individuals who are not just "a few times a week mellowing out" and who in the main are living in relationships or in family circumstances, there are impacts on a significant number of others. The affects of habitual use like any addictions causes harm in varying ways and to different degrees in families.
There are not simple answers for these families like kick them out, potty training or go to the garage. Nor is age and stating a potency max as words in law particularly harm reducing or laws that are going to be abided by let alone enforced.
What has not been addressed in law changing is the leading factors that may underpin use and dependency other than medicinal for health or making an illicit buck. Or simplifying that it's better than something else as a sufficient reason to mitigate harm.
At the other end, are there adequate social harm resources as responses, mental health workers for one as support for users who have greater propensity for depression and or ideation of suicide, or adequate resources addressing the suffering of trauma underlying use. Literature also points to more $$ resourcing iyoung person's health education regardless of legislating.
Unanswered responses in new law- With adults free choice, is it okay for an unborn child to have cannabis when pregnant? What's the long term consequence for cognitive ability as one perspective? How is parental responsible use guaranteed with children not being momentarily safeguarded while mellowed out? For one child just a few months back they hung to death in their cot after a horrible struggle went unheard while parent was zoned out. Right now, another 12 year old needing a new home because grandparent can't be fucked. As soon as the child was in a relative's home for the holidays, the grandparent declared 'don't want them back' , on going to the home to collect child's gear, well fuck me, the kid's sunny bedroom was already filled with pot plants !!!
Put at least as many agencies for picking up pieces for kids or places for rehab as there will be number of shops to buy weed ? It's the same product legal or not.
Legalising yes, as stated have a law. But address what already exists instead of pretending a law change makes all things well in the world. Put more bucks on the table and resources in place for the already undesirable consequences in communities. Yes there is evidence that legislation does not increase uptake of number of individuals. However, it's ludicrous to believe that we are all just responsible, careful, a few times a week users and weed is just a benign harmless, recreational substance.
Doco on Netflix, Murder Mountain, regarding a whole bunch of illegal growers going legit … & wishing it was illegal again, coz they just can't make any money!
The way I see it, people are going to take weed regardless. I'd rather there be measures in place than a blind eye being turned.
Also by voting yes, which I will, WE get the opportunity to create the law surrounding it, via committee's etc etc. I think that is really important. You will be able to have your say on your concerns and ideas ie putting money into resources etc. By voting no, nothing will change and ignorance will remain.
I'm sorry to hear you are living with an addict, that's hard work, I've lived with alcoholics, junkies and stoners before, in my experience the stoners were the easiest of the lot. At least they don't beat you up or steal everything like a junkie or an alcoholic does.
If the person you live with is a dab hand at gardening, a horticulture course could be the answer, they would probably get top marks. Just try to look for the positive.