Very interesting. I’m reading alot of JA Hobson at the moment, who had alot to say along similar lines.

I think there is an incoherence at the heart of this argument. It is basically the idea that you can move wealth from one set of people to another without losing its value in the process. Primarily, money is a signaling device, which demonstrates what sort of goods and services are on offer, and which are most in demand. When you move money from one group to another, you send out a signal that the money isn’t worth the same as it otherwise would be, since that money will once again be seized at another point in its circulation.

So while you may achieve a measure of redistribution, you will also destroy some value in the process. And if you engage in too much of it, you would destroy the value altogether. So redistributive measures are parasitic on an already functioning market. Which is not to say redistribution will never work, only that you need to be aware of those same old “common sense” notions in neo-liberal economics, or else you will undermine whatever it is you were trying to achieve.

OP: “…if we do not redistribute wealth to those on lower incomes, that wealth which is not distributed will simply end up as savings in the hands of the wealthy. That, in the context of the global imbalance between savings and spending, and consequently between national surpluses (e.g. China) and debt (e.g. the US)…”

The first sentence defines capitalism.

Wealth from trade imbalance is held by the Chinese as an economic weapon. The money does not trade, except for buying technical goods or essentials that support the regime, so the billions of dollars held by the Chinese government don’t affect markets. Unless the Chinese government drop an economic bomb by recalling debt, we don’t have much to worry about…

Remember also that the poor Chinese who are working to create this trade surplus are poorer than they need to be. If I was an ambitious Chinese politician in the high ranks of the “communist” party, I would be looking at that huge wodge of dosh whilst working out how to bribe enough army officers and government officials to make me King.

despite the fact that the fundamental assumption of a finite world money supply is flawed

How could you eun an economy if there was an infinite amount of money?

I am probably being stupid, but I have no idea at all what this post is actually suggesting.

In essence I think it is:

- Worrying about budget deficits is sooooo last century and Tory.

- Greater equality of incomes is a pre-requisite for a working economy (rather than being an outcome of a well run economy).

- So lets get with the redistribution of wealth.

I guess we are about to test some of this logic in the UK and US. Potentially to destruction.

“Further, I’ve written copiously about the ‘myth’ that raising taxes on the wealthy (personal or corporate) will drive investment down and away.”

That’s interesting.

“The same $10 million dollar salary spread over 100 people generates much more spending that it does if it’s all one person.”

So is that.

“Second, and conversely, if we do not redistribute wealth to those on lower incomes, that wealth which is not distributed will simply end up as savings in the hands of the wealthy.”

As is that.

So, taking the three together you’re saying that the poor spend more of their income than the rich do, for the rich save more of their income than the poor do.

Quite clearly true.

You then go on to say that taking the money from the rich to give to the poor will not reduce investment. Which leads to an interesting question.

Where do you think investment comes from?

The traditional (neo-liberal if you like) answer is that investment comes from savings. So if you reduce savings by taking money that would have been saved (if held by the rich) and make sure that is is spent on current consumption (by giving it to the poor who do not save) then give that there will be fewer savings then there will inevitably be less investment.

Just so you don’t reject this as being only the neo-liberal answer, I think you’ll find that the investment / savings link is the IS in the IS/LM model which is pretty much the basic elucidation of Keynesian thought.

I fear that you’re a little confused in your economics here.

Sorry, I’m late – didn’t know post went up yesterday.

Reuben @1: The only stuff I know by JA Hobson is his Underconsumption ‘discussion’ with another economist (at http://www.marxists.org/archive/hobson/1933/11/underconsum.htm for anyone interested). Like you, though, I am interested in the demand side explanation for the current crisis as it fiinds intself in opposition to the more trad Marxist production/diminishing returns etc. explanationn, though clearly there’s a link. That certainly where Graham Turner is coming from in ‘The Credit Crunch’ book I mention, though he talks of over investment rather thna underconsumption. I’d be interested in any recommendations for further relevant reading of Hobson, as I know he pumped out a hell of a lot.

Nick @2 and @6: Thanks for summing up what I’m suggesting, which is indeed not too far from the mark, though I’d have gone for a bit less sardony. Yes, I hope we are going to test the logic. After all, the alternative prescription (ie. what you refer to as worrying about budget deficits) has been tried already, and it gave us a) The Great Depression b) The Asian crisis and what followed from that.

It’s not as though this is completely off the wall stuff – Krugman does it, Richard Kook does it etc.. What I’m saying reflects their thinking (I hope) and I’ve just tried to put the ‘equality is necessary’ in economic rather than the usual moral terms.

On your more substative point of ‘ When you move money from one group to another, you send out a signal that the money isn’t worth the same as it otherwise would be, since that money will once again be seized at another point in its circulation’, I have to admit I don’t get the argument as yet. Any more detailed expoosition (of yours or any other) that you want to refer me to? What I would say, though, is that I have, I think, been a bit sloppy in my use of ‘redistribution’, and that may have fed into your argument that circulation of money devalues it. While redistribution via taxation etc may be a shorter term ploy, the longer term has to be about increasing basic wages for those on lower incomes (via trade union action principally), and while that is redistribution of a sort, you could look at it in more straightforward exchange terms. Overall, as and when I do get your argument more clearlty (and I’m happy to accept it may be my ignorance here) I suspect my answer will resort back to the notion of money value diminshing as a social construction associated with the current status quo.

Charlieman @3: Yes, the first sentence does define capitalism, which has created the current mess. That’s why I wrote it. And yes I agree that the Chinese government is using the huge surplus as an economic weapon of sorts. The answer is the raising of Chinese worker wages, but not one – I accept – that is easy to bring about at the moment.

Cabalamat @4: The economy already runs with a potential infinite amount of money, and has donme at the very least since the gold standard was abandoned, and argualby since 1844 when the Bank of England took over control of banking practice then thought to be getting out of hand and legitimised the notion that ‘money’ could circulate in excess of the real money available. That’s where, in the end, we get trillions invested in shadow banking, derivativis etc.. Yet at domestic (country) level the myth of an overall finite money supply is kept up. In many way this links back to Nick’s argument above about money as ‘signifier’.

cjcjc@5: Nick has sardonically said what I’m suggesitng, though I’d add in the bit about real income rises only really being likely through either trade union resurgence and/or proper government intervention on promoting household income in lower income households as a way of kickstarting demand.

And no, i’ve seen enough of your comments to know you’re not stupid. What I contend though is that you may be a bit taken aback by what is being suggested because you’re a bit too used to accepted norms of neoliberal economics. I don’t expect you to accept my (and Krugman etc.s’) argument all in one go, as it does look counterintuitive for a society exposed to the neoliberal norm for so long, and indeed I do expect perhaps you, perhap others to take the piss out of me now for a while, but that is why I wrote the piece.

In that case, I think our differing views is somewhat accounted for by totally alternative readings of the Great Depression, how it became great and how it eventually ended.

#7 I never expected a supply-side argument from you!

Surely consumption is a form of investment. Equally, not all investment is socially useful, and the kind of investment that comes from savings can be either socially detrimental, inefficient, or both.

And of course, you ignore the investment potential an elected government can offer through central planning ;p

“#7 I never expected a supply-side argument from you!”

I’m a huge supply sider. Not in the sense that cuts in marginal tax rates always and everywhere pay for themselves: but in hte sense that we can and should reform the supply side of the economy to increase productivity and thus wealth.

“Surely consumption is a form of investment.”

Err, no. They are mutually exclusive terms.

” Equally, not all investment is socially useful,”

Sure: but “socially useful” is a horribly loaded term. I would regard an investment which increased the wealth of all while increasing inequality as socially useful. There are, I suspect, a number around here who would insist that the increase in inequality, whatever the increase in wealth, would make that same investment not socially useful.

” and the kind of investment that comes from savings can be either socially detrimental, inefficient, or both.”

Well, you gotta have savings to have investment but sure, not all investments are a good thing. This Green New Deal malarky for example. Going to make us all poorer than we otherwise would be.

“And of course, you ignore the investment potential an elected government can offer through central planning ;p”

I just wish a few more would ignore that.

@11″Well, you gotta have savings to have investment but sure, not all investments are a good thing. This Green New Deal malarky for example. Going to make us all poorer than we otherwise would be.”

Not true, Carbon isn’t correctly priced. Given the potentially huge negative externalities it will inflict current investment patterns aren’t going to make us the most well off.

Unless there is state intervention to –

a) either inflate the price of hydrocarbons so they include the cost of climate change (market driven)

b) or push out unclean investment with clean government investment (state driven)

c) or some combination of the two (the best answer)

– we are all definitely going to be “poorer than we otherwise would be.”

@7 Another point which needs to be raised is that a lot of the money which would be redistributed from the wealthy to the poor is not “investment” much of it would be “conspicuous consumption.”

While I don’t really like to argue from the position of “they’ve more money than they know what to do with, so lets tax it,” it is important to note that consumption by the less wealthy (food, housing, clothes, computers, furniture, insurance, cars) is far more economically stimulating than consumption by the very wealthy (foie gras, big houses, fast cars, yachts, jewellery, household staff).

So the point that investment would decrease in some proportion to the decrease in the income of the wealthy is not entirely true.

@7 Tim.

“You then go on to say that taking the money from the rich to give to the poor will not reduce investment. Which leads to an interesting question.”

I can’t see that I do, but no matter. I’m not arguing against (sustainable) investment, and I don’t think you can argue investment would be absent if there was greater equality of income. There used to be greater equality of income, and there was investment, some of it even from people with lower incomes.

@11 Tim Well at least you agree that not all investment is good. I’ll leave you to pick up the Green New Deal attack with Left Outside – he clearly knows more about its detail than me – and watch from the sidelines for a bit. Sorry anyway I’ve not been around too much today to pursue.

@9 Nick: Yes, I’m sure we have divergent views, and I think we both agree we can’t to those here. My piece anyway was really more aimed at Labour/Left folk who accept some of what I contend, and aimed to look at how to set out a more effective ‘narrative’. Silly me for bringing it to LibCon, I guess – the fundamentals were always more likely to be attacked. Thanks for engaging, though. I’m quite new to all this being commented at lark and at least everyone’s managed to remain failry polite.

“Consequently, there is an economically coherent case for redistribution, not on the grounds of ‘fairness’ , but in terms of increasing overall consumer demand, and consequently more sustainable growth.

Second, and conversely, if we do not redistribute wealth to those on lower incomes, that wealth which is not distributed will simply end up as savings in the hands of the wealthy. That, in the context of the global imbalance between savings and spending, and consequently between national surpluses (e.g. China) and debt (e.g. the US) is the opposite of what we need (see Graham Turner on this).”

This is flatly contradictory of reality, indeed, the second paragraph simply contradicts itself – we have been saving too little and consuming too much. If you want more saving than we would need to do the opposite of what you suggest, if your logic were correct.

Nick@2 “When you move money from one group to another, you send out a signal that the money isn’t worth the same as it otherwise would be” – isn’t that inflation? And when govt “prints” more money, we hear of the threat of inflation. But when we create it in the banking fraternity (the M4 story), we don’t seem to hear of inflation – but the money created by the bankers has been seen to be illusionary. Certainly I can see that the amount of money in the world isn’t fixed, but it seems that different routes to creating more have different consequences/risks. Can anyone help elucidate at this level?

“a) either inflate the price of hydrocarbons so they include the cost of climate change (market driven)”

Correct, internalise the externailty.

“b) or push out unclean investment with clean government investment (state driven)”

Nope, even the Govt admits that the Severn Barrage would make us poorer. But the fuckers are still going to do it, aren’t they?

@16 James: Your ‘we’s is the ‘we’ UK. My ‘we’ is low income people, including those in China. But you;re right that I should have been clearer about the need, ultimately, to internationalise sustainable growth (though that shouldn’t stop us starting domestically).