I was having this discussion at work the other day and was unable to resolve a differing of opinions (i.e. I couldn’t convince anyone I was right)
I know the people on modified are a pretty intelligent bunch so maybe someone can help me win this argument.
Basically we were discussing what it is that makes a country wealthier.
I said a country would become wealthy or poor just the same way that I would. That is if I spend less money than I make my wealth increases and if I spend more money than I make my wealth decreases, if you replace the words ‘spend’ with consume and ‘make’ with produce it will have the same meaning.
I was trying to make the point that the fact I am very tight-fisted was a benefit to the country.
The opposing opinion was that the wealth of a country was completely different and that saving money does not increase a country’s wealth at all, they argued that increased consumption caused an increase in a country’s wealth, based on governments encouraging consumer spending.
Any economics professors, your opinion would be highly regarded.
Wealth
Wealth
Scott Kirchner
http://www.ausfootbag.org
http://www.ausfootbag.org
Re: Wealth
Would you say the United States is wealthy? This country is horribly in debt of billions of dollars that will probably never get paid off. I think a countries GDP (I think thats the right one) is a big factor.Scott wrote:
I said a country would become wealthy or poor just the same way that I would. That is if I spend less money than I make my wealth increases and if I spend more money than I make my wealth decreases, if you replace the words ‘spend’ with consume and ‘make’ with produce it will have the same meaning.
LOL. Ok to the OP, since we're already off-topic:
Actually, I think you are both wrong, but your friend has a better idea. If a country makes more money than it spends, the potential money that it saves goes nowhere. However, in the case that a country spends more money than it makes, it is more wealthy because that money was invested into something that will allow the country to reap benefit from in some future. The best way is to balance out the spending and the production. If that happens, the country is wealthier than it was before, having put more money into tangible use, and without a deficit/debt as the second example had.
The idea of investment is why in Microeconomics they teach you that a healthy company is constantly in debt. If it has moeny left over, that means that it is not putting that money to a better use and reaching the maximal efficiency.
This is really really oversimplified though. In real world terms, there would be far more variables than just production and consumption.
Actually, I think you are both wrong, but your friend has a better idea. If a country makes more money than it spends, the potential money that it saves goes nowhere. However, in the case that a country spends more money than it makes, it is more wealthy because that money was invested into something that will allow the country to reap benefit from in some future. The best way is to balance out the spending and the production. If that happens, the country is wealthier than it was before, having put more money into tangible use, and without a deficit/debt as the second example had.
The idea of investment is why in Microeconomics they teach you that a healthy company is constantly in debt. If it has moeny left over, that means that it is not putting that money to a better use and reaching the maximal efficiency.
This is really really oversimplified though. In real world terms, there would be far more variables than just production and consumption.
Mikhail Bukhonko
Thanks for the replies.
I think i've realised our difference of opinions was more to do with a misunderstanding of my overly simplistic analogy.
Ben you were right with the GDP, a countries wealth is judged by it's GDP per person. Is America wealthy? Yes, but is it getting wealthier, maybe not.
So to increase wealth you would have to increase GDP per capita.
Mikhail, the confusion was that my use of the word spend was meant to represent consumption only and not investment. Not spending would be the equivalent of investment because when i save money although I might not invest it, i would most likely put it in a bank which will then invest it or lend it to someone who will invest it. So indirectly my saving leads to investment and if used well, an increase in GDP.
I think i've realised our difference of opinions was more to do with a misunderstanding of my overly simplistic analogy.
Ben you were right with the GDP, a countries wealth is judged by it's GDP per person. Is America wealthy? Yes, but is it getting wealthier, maybe not.
So to increase wealth you would have to increase GDP per capita.
Mikhail, the confusion was that my use of the word spend was meant to represent consumption only and not investment. Not spending would be the equivalent of investment because when i save money although I might not invest it, i would most likely put it in a bank which will then invest it or lend it to someone who will invest it. So indirectly my saving leads to investment and if used well, an increase in GDP.
Scott Kirchner
http://www.ausfootbag.org
http://www.ausfootbag.org
I'm sorry I didn't clarify my thoughts. When you save money, you don't put it in a bank. That's most likely investment. If it's a checking type of account then the value stays the same, and most likely decreases over time. If it isn't then it's definitely investment. When you save, conservatively, you are doing the former.
If we keep this simple, we don't have to mess with GDP and stuff because there's plenty of factors that you aren't including in the argument. If you want this to be simple, consumption would mean that some direct utility or happiness has resulted because of the act of consuming. If you want to get more complex, the ideal would be to consume up to the point that the marginal utility becomes zero and save the rest of the money. If you want to delve further in the realm of Macroeconomics, keep me out of it. I prefer Micro.
My reasoning is that of what a company would do. It doesn't matter if it's a nation we're talking about because you didn't give enough info, like trade and currency exchanges.
This is where we have to define wealth. It's either going to be the potential happiness/utility you can buy, or the amount you ALREADY HAVE. My logic states that money/currency tends to inflate unless we already have infinite supplies, etc. If you consume and gain happiness, it's better than saving and getting slightly less happiness at another time.
Wording is KEY.
If we keep this simple, we don't have to mess with GDP and stuff because there's plenty of factors that you aren't including in the argument. If you want this to be simple, consumption would mean that some direct utility or happiness has resulted because of the act of consuming. If you want to get more complex, the ideal would be to consume up to the point that the marginal utility becomes zero and save the rest of the money. If you want to delve further in the realm of Macroeconomics, keep me out of it. I prefer Micro.
My reasoning is that of what a company would do. It doesn't matter if it's a nation we're talking about because you didn't give enough info, like trade and currency exchanges.
This is where we have to define wealth. It's either going to be the potential happiness/utility you can buy, or the amount you ALREADY HAVE. My logic states that money/currency tends to inflate unless we already have infinite supplies, etc. If you consume and gain happiness, it's better than saving and getting slightly less happiness at another time.
Wording is KEY.
Mikhail Bukhonko
-
HighDemonslayer
- Egyptian Footgod
- Posts: 1070
- Joined: 17 Jun 2003 19:34
- Location: Arizona
-
sniper4life
- Multidex Master
- Posts: 207
- Joined: 07 Mar 2006 18:40
so america= poor, and russia= wealthy?
im pretty sure america is a wealthy country. look at how fat people are. poor people arent fat, since they cant afford food. thats why im thin..
anyways, yeah, a countries wealth depends on the governments deep pockets and how full they really are. not how much people like the govt. i dont know about others countries debt, but i dont count that as a part of wealth.
look at people. people usually have loans (or mortgages). america has 3 tril in debt. same thing.\
that debt is because of americas spending deficit is more than america brings in.
ill shut up now.
im pretty sure america is a wealthy country. look at how fat people are. poor people arent fat, since they cant afford food. thats why im thin..
anyways, yeah, a countries wealth depends on the governments deep pockets and how full they really are. not how much people like the govt. i dont know about others countries debt, but i dont count that as a part of wealth.
look at people. people usually have loans (or mortgages). america has 3 tril in debt. same thing.\
that debt is because of americas spending deficit is more than america brings in.
ill shut up now.
Debt is not necessarily a bad thing, it depends how it's used. For investment will be good provided the return was better than the interest rate. For consumption is bad.
3 trillion in debt would not be that much for America, with an annual income of 12 trillion. Think if you were earning $120,000 per year and had a $30,000 home loan you wouldn't be too worried. But if it was credit card debt and was contunually increasing you should be concerned.
I think America debt is more like 6 or 7 trillion though.
How come Japan runs big trade surplus but has more debt than America ( as a percentage)?
3 trillion in debt would not be that much for America, with an annual income of 12 trillion. Think if you were earning $120,000 per year and had a $30,000 home loan you wouldn't be too worried. But if it was credit card debt and was contunually increasing you should be concerned.
I think America debt is more like 6 or 7 trillion though.
How come Japan runs big trade surplus but has more debt than America ( as a percentage)?
Scott Kirchner
http://www.ausfootbag.org
http://www.ausfootbag.org
-
BainbridgeShred
- Post Master General
- Posts: 2352
- Joined: 10 Nov 2004 23:22
- Contact: