The Next Big Crash - Are You Prepared?

[freedom]

May I ask a question? How could investment not turn into consumption?

Does the investment not provide job and income for the people? Does the investment not produce tax for the government?

To me, every investment eventually turns into consumption somewhere. Of course, some stimulate more consumption and some stimulate less. But no investment curbs consumption.

You are talking supply side economics: When there is supply, there will be demand.

Just look at China. Or try supplying the wrong widgets. For sure "no investment curbs consumption" but neither does it grow consumption per se. And it could also be "consuming in savings". It's not a simple GDP= (X-M) +C+I+G thingy.

Yes. The Chinese has more savings than consumption. But I don't see a problem here. The saving turns into investment by the financial institutions and creates job opportunity and consumption. You can say the efficiency in China is low to be a problem. But I don't see the problem of saving. Japan also has a high saving rate, which did not prevent it from becoming the second biggest economy many many years ago.

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I think more along utilitarian lines. The rich sometimes seem to forget that the poor are still potential customers at the very least. There is no way an economy can prosper if a larger proportion of wealth is in the hands of a smaller proportion of people. The rich can have the resources to invest and help that way, but too much investment and too little consumption leads typically to asset bubbles and bridge to nowhere situations.

May I ask a question? How could investment not turn into consumption?

Does the investment not provide job and income for the people? Does the investment not produce tax for the government?

To me, every investment eventually turns into consumption somewhere. Of course, some stimulate more consumption and some stimulate less. But no investment curbs consumption.

Sorry for being unclear, i mean a lower income person would have a large propensity to consume and therefore putting money in his pocket tends to lead to more consumption. A poor person might spend up to 80% of his annual income on essentials and other lifestyle needs driving up aggregate demand, while i doubt a billionaire consumes even 10% of his annual income (except maybe Roman Abramovich and Larry Ellison). Therefore the feedback mechanism is stronger when wealth is put in the hands of the poor, within reason of course.

Please elaborate more on this.

So Warren Buffet putting his money into business investment is worse than he just distributing his money to the poors in the world?

My understanding is simple. Business investment is much more efficient than distributing wealth. It creates income, which creates and stimulates more consumption, not merely creating consumption.

Just imagine a world without business investment, everyone is given some money and they spend. The money is recycled and given to everyone again. How is the economy going to grow in such scenario?