harry writes:

On Feb 19, 12:28=A0pm, (Windmill)
wrote:
Fredxx writes:
make a net contribution of some =A340bn per annum to the economy.

Can you cite any source for that?

Shouldn't be hard to work out what is paid out in pensions and benefit=
s.

The bulk of that is spent in the economy somehow.
Then could you be kind enough to make that calculation?

I'm very unhappy about what I see and hear about 'the economy'.
Repeatedly, people talk about it as though it were a relatively
simple matter like a household budget.

People with an axe to grind talk about it in those terms, and only a
few point out that it's not a simple matter.

The first thing to say is that money flows. Obvious, but repeatedly
ignored.

Better perhaps to compare the economy with the human circulatory
system, as a very much over-simplified analogy.

Blood flows from large arteries, branches to ever smaller arteries, and
they in turn branch to little arterioles.
Tiny veins collect the returning blood, and they join a network of
ever-larger veins, eventually ending up back at the heart.
For a variety of reasons, a part of the body may be routinely,
occasionally, or permanently deprived of blood or of adequate flow.

To avoid spending money in the economy, a pensioner could get his/her
pension as banknotes and put it under the mattress. I doubt if many do
that nowadays.

Buying from outside the country takes money out of the economy, but so
long as we have a proper balance of trade, people in that other country
buy goods or services from us, so we and they both benefit.
If we don't have a balance of trade, our politicians will cover the
shortfall by borrowing, and that is where we can get into very deep
trouble.
The lenders, often foreign, can keep bumping up the interest rates, and
will do, especially if we keep borrowing more and more. Forcing us to
borrow still more; pay-day lending on an international scale.

Almost anything else returns the money to the economy.

Putting it in a bank in fact multiplies the amount of cash in the
economy, because banks then lend it out again in order to make a
profit.
The loan is spent somewhere, somehow.
(Some of the loan may of course leave the country or be put under
mattresses.)
So the person who deposited the money 'owns' that cash, and the
person(s) receiving the loans, or the people they buy from, also 'own'
a similar amount of cash.

Most of the money the banks lend returns to the banks (not necessarily
to the same bank, but ultimately it will be distributed among all the
banks), or returns as tax to the government (who will then spend it,
returning it to the economy).
In theory the government could just keep the tax, so that there would
be a continuous steady decline in the amount of money around, but as a
long-term goal a continuous decline in the money supply is obviously a
bad idea.

Banks need and have a mechanism for limiting the amount loaned (money
can't be allowed to increase without limit; that causes price
inflation).
Fractional Reserve banking is one such mechanism.

The DIY aspect of this is that one has to struggle to understand, almost
from first principles, what's going on, because nothing is taught,
nothing is explained, and what little is said by politicians is untrue
or half-true at best.


I think the main trouble is that only work creates wealth.
There's a lot of people out there forgotten this.

Obviously if no one worked in any way, there would be an immediate
disaster.
But for some people, in fact many, work doesn't create wealth. They
work hard but never earn very much. For them, work just maintains them
in poverty (though that's better than total starvation).

I have trouble understanding how an economy gets going in the first
place. It must be some kind of a bootstrap process, but it isn't clear
to me how it works.
If you imagine an isolated, primitive country where at first there is
no such thing as money, how does it all start up?
Wealth, understood to mean goods and services, could exist almost from
the start, but its translation into tokens - money - must take some
time.
Social decisions have to be taken in some way to establish whether
people who dig coal are 'worth' less or more than the people who
organise the tokens.

Pensioners may not be able to contribute as much to society as they did
when they were still able to work, but they look after grandchildren,
spend the money they saved and/or the pensions to which past work
entitled them in ways which provide employment for others, and can
sometimes provide useful advice based on experience.

I'm pretty certain though that lack of work, in the form of millions
unemployed and billions of potential man-hours lost forever, must
reduce the overall standard of living.
And that building submarines, aircraft carriers, and atom bombs, which
governments won't want to sell to others until they're obsolete, is
likely to be less helpful to society than building railways and
airports.
(Unless, of course, there's a danger of invasion and a chance of
avoiding that by the use of weapons.)

--
Windmill, Use t m i l l
J.R.R. Tolkien:- @ O n e t e l . c o m
All that is gold does not glister / Not all who wander are lost