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The problem with the economy is the velocity of money or in our case the lack of velocity.
Velocity is speaking of the average frequency with which a unit of money is spent. To give you a very rough understanding, let’s assume a very small economy of just you and me, which has a money supply of $100. I have the $100 and spend it to buy $100 of flowers from you. You in turn spend $100 to buy books from me. We have created $200 of our "gross domestic product" from a money supply of just $100. If we do that transaction every month, we will have $2400 of annual "GDP" from our $100 monetary base
If velocity, as you call it, helped the economy you could just make a law that everyone must spend every dime they make in a given period of time.
But velocity doesn't create wealth or help the economy. Only way to create wealth is by saving and producing. I mean, when I spend money I become less wealthy. Not richer.
You do have one thing right though. Hoarding money has kept inflation down. We should be grateful for people that hoard money. If the President had his way we would have runaway inflation right now. Inflation hurts the poor more than anyone else.
President Obama and the Democrats are for hurting the poor.
The problem with the economy is the velocity of money or in our case the lack of velocity.
Velocity is speaking of the average frequency with which a unit of money is spent. To give you a very rough understanding, let’s assume a very small economy of just you and me, which has a money supply of $100. I have the $100 and spend it to buy $100 of flowers from you. You in turn spend $100 to buy books from me. We have created $200 of our "gross domestic product" from a money supply of just $100. If we do that transaction every month, we will have $2400 of annual "GDP" from our $100 monetary base
P=MV, where P is the nominal gross domestic product (not inflation-adjusted here), M is the money supply, and V is the velocity of money. You can solve for V by dividing P by M. By the way, this is known as an identity equation. It is true at all times and all places.
The Fed is trying a grand experiment that is not working. The tarp stimulus was supposed to put a lot of money into the economy thereby creating velocity. Two problems. The banks are holding on to the money. Corporations are holding on to the money and the very wealthy are holding on to the money. The tarp and stimulus money has not been put into circulation. It has not "trickled down". The second problem is that if it is put into circulation all at once it could lead to massive inflation.
Simple solution. Tax the rich use the money to pay for infrastructure repairs which will increase transactions thereby increaseing velocity. Reducing social programs actually decreases velocity as that money is usually spent very quickly thereby increasing velocity.
Quote:
Originally Posted by hotair2
There is no flaw. The fact is that banks and businesses are hoarding cash. Go to any reputable economic publication and you will see that this is true. The amount of money banks are holding as it relates to their required reserves has increased tremendously.
The government is not a black hole for money. It goes in and certainly comes back out at at a very fast pace.
I am advocating creating a disincentive for those that have money to hoard. The best disincentive is taxes.
Increase taxes would force individuals and corps to reduce income by investing in the business, which increases transactions which increases velocity or pay higher taxes, which is then the govt. could put into circulation thereby creating transactions and velocity.
Quote:
Originally Posted by hotair2
Sure you can. Raise tax rates for the wealthy and give people and business the choice of investing in their business or paying higher taxes. Either way they are spending money on investing or paying higher taxes. Both of which create velocity if the govt. does something different than give to the banks.
theses posts are part of the class called rubbish 101.
the problem with your supposition is that the economy is NOT static, which is why static models for the economy are always wrong. the economy is dynamic, and when you do things like raise taxes, you actually reduce economic activity, not increase it.
as i have pointed out many times, the government cannot and will never be able to tax and spend itself to prosperity, it just wont happen. for instance, take warren buffet. he is a billionaire, and to avoid paying taxes on the money his company makes every year, he pays himself an annual salary of $100,000, the rest comes in the form of capital gains income, on which he pays capital gains taxes of 15%. and even then much of what he and his company earns goes into a tax exempt trust where the government cannot touch the money, as long as buffet follows the rules of the trust.
if you raise mr buffets taxes, he is going to do what it takes to protect his wealth. for instance he might put more money into the trust, pay himself a bit less, move his capital gains around so that it becomes a capital loss, etc. there are a lot of bookkeeping tricks that are completely legal that can be used to protect his assets and income. and if you raise his taxes enough, he will lay off workers, and put more work on himself and the employees he keeps.
raising taxes in not the way to encourage growth in the economy. to do that we need less taxes, and far less regulation on business, as much of the regulations on business do nothing but cost the business money.
Simple solution. Tax the rich use the money to pay for infrastructure repairs which will increase transactions thereby increaseing velocity. Reducing social programs actually decreases velocity as that money is usually spent very quickly thereby increasing velocity.
You can't rely on taxing the rich because most of the rich have their wealth tied up in investments which are affected by recessions and because there are only so many rich people to tax. You're gonna need some pro growth policies.
You can't rely on taxing the rich because most of the rich have their wealth tied up in investments which are affected by recessions and because there are only so many rich people to tax. You're gonna need some pro growth policies.
There is a difference between wealth and high income. Over half of income earned by those over $200,000 a year is earned by wage or self employment earners.
The wealthy earn most of their income by investments.
The problem with the economy is the velocity of money or in our case the lack of velocity.
Simple solution. Tax the rich use the money to pay for infrastructure repairs which will increase transactions thereby increaseing velocity. Reducing social programs actually decreases velocity as that money is usually spent very quickly thereby increasing velocity.
The rich are the employers and as it is most pay between 50-55% of their income to the government.
The Corporations do pay the same way, they pay dividends and payroll. This also is all taxable and they do pay a heck of a lot of tax if you look at what happens to the money they spend. As soon as they make payroll the tax man comes.
As far as wanting to increase their 55% to a higher number, remember at some point you get diminishing returns.
When this recession started we lost half the rich people. It was reported that if you confiscated all their wealth you wouldn't even balance a budget for one year, so the money is mostly elsewhere.
Do you pay a good percentage of your paycheck to Uncle Sam?
Do you work or are you on the social program or government rolls refusing to pay your own taxes?
Before you tell everyone else what you expect of them, tell us your plan for you in paying taxes?
You are forgetting a lot of these people who are wealthy employ people and are responsible for lots of mortgage payments around the country. F them over too much and at some point they retire, move away or just stop being productive (removing lots of taxable revenue).
Has happened in New York and California, so try this on a national scale and they will take their ball and go home.
The wealthy don't mind paying their fair share, you should expect others to pay tax as well.
We also need to severely restrict politician spending. You increase taxes 1000% and politicians will increase spending 3000%. That is the base issue of the whole problem.
theses posts are part of the class called rubbish 101.
the problem with your supposition is that the economy is NOT static, which is why static models for the economy are always wrong. the economy is dynamic, and when you do things like raise taxes, you actually reduce economic activity, not increase it.
I never used a static model. If your basing your opinion on some type of article please post the article. The result of economic activity depends on what type of tax you are using. Some spur economic activity others do not.
as i have pointed out many times, the government cannot and will never be able to tax and spend itself to prosperity, it just wont happen. for instance, take warren buffet. he is a billionaire, and to avoid paying taxes on the money his company makes every year, he pays himself an annual salary of $100,000, the rest comes in the form of capital gains income, on which he pays capital gains taxes of 15%. and even then much of what he and his company earns goes into a tax exempt trust where the government cannot touch the money, as long as buffet follows the rules of the trust.
Good points about income. I never said put an income tax on the wealthy. That would not work because the reason that you pointed out. I said tax the wealthy, which would have to include restoring the capital gains tax to where it used to be...around 45%. As far as putting money into a trust, you are referring to an irrevocable trust, which buffet cannot touch himself. Nothing wrong with that; however, the trust would have to be taxed upon distribution so as not to avoid estate taxes, which also should be restored to levels that they once were.
if you raise mr buffets taxes, he is going to do what it takes to protect his wealth. for instance he might put more money into the trust, pay himself a bit less, move his capital gains around so that it becomes a capital loss, etc. there are a lot of bookkeeping tricks that are completely legal that can be used to protect his assets and income. and if you raise his taxes enough, he will lay off workers, and put more work on himself and the employees he keeps.
Actually laying employees off would not help him with tax. THe other points have been covered.
raising taxes in not the way to encourage growth in the economy. to do that we need less taxes, and far less regulation on business, as much of the regulations on business do nothing but cost the business money.
This is just dogma. You have said nothing to dispute my original supposition. What you have to have is velocity, which does not require taxes; however, it does require transacting of money. There has to be something that gets the people off of their money. If you have alternatives....that does not simply have dogma conclusions without any real details I would like to hear it.
I never said income tax. You popped up an income tax chart. What you have to compare is capital gain taxes. Most very wealthy don't pay any or very little in income tax. They receive most of their money from capital gains which is taxed at 15%. Now compare that to the income taxes of the countries on your little chart and then put that in your pipe and smoke it.
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