Deficit Owls | The Economy Is Like A Bathtub @deficitowls5296 | Uploaded September 2016 | Updated October 2024, 11 hours ago.
Professor Stephanie Kelton (of UMKC, and economic adviser to Bernie Sanders) explaining the faucet/drain model of the economy. Inside the bathtub is consumption spending, the amount of money that people spend on consumption goods and services, like food, and fuel. Then there are faucets which add to the total spending, and drains which subtract from it.
The faucets (or injections) are government spending, private investment spending, and exports. Government spending obviously is a faucet because there's just more spending in the economy when the government spends more, all else equal. Though the colloquial definition of investment includes stock purchases and financial engineering, this economics version does not. Investment refers to purchasing of long-term assets that aren't consumed immediately, like factor equipment and new homes. Exports are a faucet because foreigners add money to our economy when they buy goods from us.
Drains (or leakages) include Taxes, Saving, and Imports. Taxes clearly decrease the amount of spending in the economy, because increased taxes means the private sector now has less money, all else equal. Saving is a leakage because money that is sitting idle in people's bank accounts or portfolios is not being used to purchase goods and services. And imports are a drain because the money leaves the local economy as it flows into the hands of foreigners when we buy stuff from them.
If the amount of spending in the economy, the total water in the bathtub, is too low then there will be unemployment, because there won't be enough sales happening to cause firms to need workers to make stuff. If the spending is too high, so that we're buying more than we can produce in a given amount of time, then prices will rise. So the trick to managing the economy is managing these drains and faucets to keep the amount of spending at the level where there won't be unemployment and won't be inflation. If the amount entering the tub is greater than the amount leaving the tub, then the water level will rise. If the amount leaving the tub is greater than the amount entering the tub, then the water level will fall.
See the whole lecture here: youtube.com/watch?v=Q1SMjeuyF-Y
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Professor Stephanie Kelton (of UMKC, and economic adviser to Bernie Sanders) explaining the faucet/drain model of the economy. Inside the bathtub is consumption spending, the amount of money that people spend on consumption goods and services, like food, and fuel. Then there are faucets which add to the total spending, and drains which subtract from it.
The faucets (or injections) are government spending, private investment spending, and exports. Government spending obviously is a faucet because there's just more spending in the economy when the government spends more, all else equal. Though the colloquial definition of investment includes stock purchases and financial engineering, this economics version does not. Investment refers to purchasing of long-term assets that aren't consumed immediately, like factor equipment and new homes. Exports are a faucet because foreigners add money to our economy when they buy goods from us.
Drains (or leakages) include Taxes, Saving, and Imports. Taxes clearly decrease the amount of spending in the economy, because increased taxes means the private sector now has less money, all else equal. Saving is a leakage because money that is sitting idle in people's bank accounts or portfolios is not being used to purchase goods and services. And imports are a drain because the money leaves the local economy as it flows into the hands of foreigners when we buy stuff from them.
If the amount of spending in the economy, the total water in the bathtub, is too low then there will be unemployment, because there won't be enough sales happening to cause firms to need workers to make stuff. If the spending is too high, so that we're buying more than we can produce in a given amount of time, then prices will rise. So the trick to managing the economy is managing these drains and faucets to keep the amount of spending at the level where there won't be unemployment and won't be inflation. If the amount entering the tub is greater than the amount leaving the tub, then the water level will rise. If the amount leaving the tub is greater than the amount entering the tub, then the water level will fall.
See the whole lecture here: youtube.com/watch?v=Q1SMjeuyF-Y
Follow Deficit Owls on Facebook and Twitter:
facebook.com/DeficitOwls
twitter.com/DeficitOwls
