perishablility changes it only slightly. a retailer has a shipment of dresses. they are not perishable but fashions change quickly. really, you dont understand these concepts are you just joshing with me?
I know, but I'm trying to point out it's not as simple as giving the drunk more money and expecting him to now be responsible on how he spends it. Creating demand is tricky business.
There is a significant flaw in the analogy that pretty much destroys the entire argument. The analogy is based on the premise that "savers" who do not have an immediate consumption motive effectively remove wealth/money from the system. It even goes so far as to suggest that the person might "bury it in the backyard". When a person makes an argument with such language, she is usually attempting to be pithy without recognizing that this is a pivotal statement in the argument. This is the breakdown for the person who doesn't understand economic reality as it relates to any type of monetary exchange including consumption and taxation. The main point is that almost nobody in this country removes money from the system. Almost no one hoards any appreciable amount of cash in a literal sense, under the mattress, in a mason jar, or even in a home safe. The portion of the money supply held outside of the system is realistically a small fraction of a percent. So in a more realistic version of the analogy, Aya does not bury her money in the backyard, but instead either deposits it in a bank account, or in an investment account, depending on whether she has an immediate profit motive. Either way the money actually remains in the system. Once at the bank, the institution must lend it out as a condition of survival. In lending it out, they are choosing which borrowers they presume might have an acceptably efficient/profitable use for it. Although the author argues that taxation creates demand whereas savings do not, that is fundamentally incorrect. This should be obvious to anyone who has either studied economics or has committed any decent amount of critical though to the situation. Interestingly, according to the multiplier effect resulting from fractional reserve lending, demand is much more easily created by allowing the person to save the money rather than by a tax transfer of wealth. That is, when Aya is taxed and that money is given to Kofi, there is no demand multiplier. If we assume that Aya would've hoarded the money, then there is an increase in demand at a ratio of 1:1. Kofi cannot spend more than the amount of the tax transfer. OTOH, even in a relatively conservative fractional reserve system which requires 20%, Aya's deposits result in a 3.5X multiplier. In our system it is actually a 9X multiplier. So if Aya is allowed to "save" the money that would've been taxed, there will now be a 9X greater increase in demand than if that money were transferred via taxation. My personal opinion is that in the real world it is all a moot point because we've built our entire system around bank deposits. Even if Aya is taxed and that money is given to Kofi, it will soon end up back on deposit at the bank and the greater multiplier will be realized soon enough. But as it pertains to this thread, the premise of the authors argument is fundamentally flawed.
you picked another perishable item in your typical dishonest way. Medical care is not perishable and doesn't fit the simple model, neither does financial services, or coding... the economics is different. A massage therapist can simply do something else until demand comes back for that particular service.
I have worked on a farm, and if it comes down to losing the crop or at least getting it harvested for the chance you can dump it for some small price, one will always take the latter. You didn't answer the problem that if you give Kofi money then Robert still has no income to pay for harvesting... huge gap there. Farming, thinking, economics. Stay away from these.
at least you have admitted that the massage therapist has no need to hire employees with out demand. are we making progress?
In keeping with the scenario, what if businesses aren't borrowing because there is no demand for their wares because potential consumers don't have the money to buy product? However full the tank may be, the motor only works upon ignition. I think you missed the point of the analogy.
The carrots cost too much because they've inflated (excessively), or because wages have stagnated (or worse)? What do the historical data, on inflation per productivity and growth vs. wages per productivity and growth, say?
really? i grew up on a farm and owned one until about 5 years ago so i more than "worked" on a farm. harvesting is not free. it costs a lot of money to harvest,ship and store the crop. why would he invest that kind of money on the off chance that he migh be able to sell them for a "small price" that doesnt come close to the harvesting costs??
Nope, not always. There is a cost to harvest, so you have to look at that by the acre against expected yield/acre * sale price. We're examining that very scenario right now on my farm, which crop has significant, but not total, hail loss. Edit: FT beat me to it.