stimulus
so anyway, how do you stimulate an economy?without going into great economic detail, the stronger measures you can do one of two things: encourage people to spend, so that more money enters circulation, and encourage businesses to invest, so that production increases, and there are more jobs for producers (you and me), which means more money passed out in income, thence more money in circulation.
so a good idea is to give money to people who don't have enough to meet their needs. they will definitely spend it.
a bad idea is to give money to people who already have enough. they will probably not spend it. even some of the middle class won't. some will pay down debt, for instance. which is nice, but it doesn't change their spending habits, unless they use the space on their credit card to spend it up again.
giving money to the wealthy is ridiculous, because they are likely to save it. this is bad. when an economy is in difficulties, you do not want people to squirrel money away. recessions happen because money is sequestered, not put into circulation.
a further problem is that increased spending may stave off the recession, but it does not fix the problems in the economy that caused the downturn in the first place.
i am working on an interesting book about the great Japanese recession of a few years back. the conventional wisdom is that it was the fault of the banks (which should ring a bell) but the author says that it was more likely caused by a fall in asset prices, which led to companies' paying debt down instead of borrowing money to invest. with no demand for money, banks could not lend it, so the usual monetary stimuli did not turn the economy round. companies will not borrow money, even at zero interest, if they are paying debt down.
it will be interesting to see whether company borrowing rises in the next year or so. if it doesn't, we're going to have a bumpy ride.
posted by Dr Zen @ 10:19 am
3 Comments:
Well, I know *I'll* spend it!
"so anyway, how do you stimulate an economy?"
Well, there's swapping. This is when two separate (and possibly jaded) countries try to spice up their flagging economies by getting together with each other and doing things they normally wouldn't do; such as America and Iraq.
And, of course, there's chemical assistance in the form of medication, (little blue pills). This is when a poor country, say Afghanistan, produces medicinal compounds from poppies for sale to the rest of the world and ends up with a wonderfully tumescent economy which will stay up until someone like the Taliban subjects it to a dose of good old-fashioned religious repression.
Finally, you could try using a French Tickler, but in this case it looks as though it might have not had the anticipated result. All economic sex toys ought to carry a warning to the effect that use of such devices could make your economy go down as well as up.
Have a nice day.
Anthony, you are a patriot. Spend for America!
Sopwith, you are a naughty boy. But I think you already know that.
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