Seriously though, I’d like to know what you mean by “underconsumption”. The term implies less consumption than would be appropriate. By who’s standard? It feels like you’re applying an implicit standard here.
Underconsumption simply means you are consuming less than you produce. You earn $40,000 a year and you only spend $30,000. You underconsumed by $10,000.
we should be more concerned with the gap between the poor and baseline. Is our worst case better than the best case of wandering naked through the forest scavenging? We’re doing great!
It’s the why I’m disagreeing with. You seem to be suggesting that income polarization is the cause of greater saving. What I’m saying is that a change in polarization is just a side-effect. A subsidy of yachts would shift resources from saving to consuming, but increase polarization. And if everybody was equally rich there would be no polarization, but we would all be saving a lot. What I’m saying is that polarization and saving are not related. Income redistribution leads to a shift to consumption because it takes money that would have been invested and uses it for consumption, a change in polarization is incidental.
Geared towards whose future consumption? If income is polarized people aren’t going to have any money for future consumption either. For productive projects to be profitable someone has to buy their stuff. A project that can expect to sell fewer units is less likely to be profitable. Cheaper credit (more savings) makes more projects profitable, but fewer potential customers makes fewer projects profitable. So just more savings isn’t the only enabler of capital investment.
Precisely. But people think the opposite. That money on banks is lost to the economy, because it can’t be used for productive purposes. And if we spend that money on consumption, we put it back into the economy, which will lead to economic growth. I would guess that more than half of the public thinks that.
I was noting that the benefits of income redistribution are not as great as it may appear. The additional production is necessarily very inefficient. There is a reason those resources were used to produce capital goods, that’s their most efficient use. Putting more money in the hands of the poor mostly just bids up the price of existing consumer goods. Standards of living are not raised by a lot, but economic growth is reduced by a lot.
Most wealthy people inherited it. Buffoons like entertainers and politicians take up a larger share by the day. The rate of bankruptcy among millionaires is comical.
Your argument is logically solid. I read a point being made somewhere recently that the high-tax-rate Scandinavian countries (especially Sweden) are still successful (as much as they could be under such high tax burdens) possibly because their taxes are equally high across the whole income spectrum (including the middle-class) instead of being top-heavy (extremely re-distributive). This still leaves a large enough portion of capital available for private investments as opposed to it being redistributed downstream and gobbled up by consumption.