In addition to those effects, there is more spending, which indirectly boosts the economy.
At first glance one might think, the recipient now has more to spend, but that amount is taken from others, so it's a break-even. But in fact, the "others" are higher income people, and would spend the money differently.
The poor people relying on the assured income boost total demand for things like food and clothes, while the richer taxpayer would have more likely spent it on either luxuries or investments. A transfer of spending from luxuries to basic items corrects a social balance, and increase of aggregate demand has better outcomes than feeding the supply side.
Now... Why do you say that spending boosts the economy?
Yeah, I know I'm questioning something quite basic. Do you (not just you, ds9, but anybody) have any justification for that that isn't a direct quote of Keynes? Because investing boosts the economy (by increasing productivity - Keynes never modeled that, go figure), and spending reduces the potential for investiments, so the picture is at least more complex than that.
> Why do you say that spending boosts the economy?
Because the economy is the whole set of exchanges of goods and services, and spending is economic activity.
> investing boosts the economy (by increasing productivity - Keynes never modeled that, go figure),
Actually Keynes directly considered not only that investment produced future gains in output, but how those gains changed with additional investement in the same area. [1]
> and spending reduces the potential for investiments
How? If spending by A to acquire a good from B decreases A's funds available for potential investment, it does so only by increasing B's funds available for potential investment by the same amount.
[1] See, particularly Book IV (commencing with Chapter 11) of The General Theory of Employment, Interest and Money (1936).
Because, demonstrably, it does. A lot of folks hate the very idea of social spending, but one thing that my dad noticed over time is that when he talked to a fast food restaurant owner in Orange, SC (fairly poor area) they said that their business would not survive without the social assistance provided to the area.
It’s fair to question whether Orange, SC should be kept alive as a going concern, but this franchise owner was able to employ ~20 people because of the social assistance funds provided to the community. His employees would be able to spend their paycheques, too.
Investments in infrastructure provide much the same value (as in the TVA, which did more for pulling Tennessee out of its deep poverty than anything else). Investments without spending associated with those investments are dead money. While savings should be encouraged so as to reduce individuals’ emergency needs for money, they don't keep an economy going as much as spending does.
(And yes, that pains me to say as someone who doesn’t like our consumer culture even as I participate in it because it’s what we have. I don't have a rightful solution to that dichotomy.)
The terms here are muddled, but what the hell, I'll go ahead and try and answer. For what it's worth, the parent comment isn't particularly well defined either.
First, if we define "the economy" as GDP [1] (a generally poor approximation, but still better defined than a vague "the economy" entity), spending tautologically boosts "the economy". It either falls under the "private consumption" or "gross investment" part of the equation.
Now, I'll try and respond to your analysis point by point.
> Because investing boosts the economy
Again, we're on solid ground here if we're considering "the economy" to mean "GDP"
> and spending reduces the potential for investiments
Woah, hold on there. This assertion doesn't make sense from several perspectives. First, the economy isn't some zero-sum game where players must choose between spending and "investiments". Spending by one party can be converted into productive investments by another. e.g. if people start buying a ton of G.I. Joe action figures, the maker of G.I. Joe Figurines can convert that capital inflow into a factory.
In addition, many forms of consumer spending are investments from their perspective. A new washing machine frees productive time that can then be spent e.g. learning a trade. A new car might enable them to find new jobs or reduce their maintenance expenses on their current car.
> so the picture is at least more complex than that.
Right, but generally when parties are producing things other people want to spend money on, the economy is "working". The corollary is that when nobody is willing or able to spend money on new goods, the economy is probably not healthy.
A transfer from luxuries might correct a social imbalance, but a transfer from investments to basic goods and services might have a negative impact on the overall health of the economy.
Also, many 'luxuries' are things that eventually become things we need (Tesla Motors?).
Having said that, I Am Not An Economist, so it's possible I Know Nothing.
Increased demand for basic goods and services increases the expected yield of investments in areas related to producing and selling those goods, and therefore would be expected to increase investment in that area.
One concern I've always had with the idea that the rich "re-invest" in the economy is how much they actually invest in American businesses vs sit on the money or invest abroad. A minimum basic income will assuredly increase spending on basic necessities in American businesses.
At first glance one might think, the recipient now has more to spend, but that amount is taken from others, so it's a break-even. But in fact, the "others" are higher income people, and would spend the money differently.
The poor people relying on the assured income boost total demand for things like food and clothes, while the richer taxpayer would have more likely spent it on either luxuries or investments. A transfer of spending from luxuries to basic items corrects a social balance, and increase of aggregate demand has better outcomes than feeding the supply side.