>Not GP but: much less credit would be extended because many stores wouldn't be able to do much with bookings.
Isn't that a good thing? In lots of places, e.g. Germany for one, people almost never buy with credit.
Isn't that a good thing? In lots of places, e.g. Germany for one, people almost never buy with credit.
You're assuming the alternative to lending at interest is nothing rather than something.
A loan really does three things.
First, it creates new money. When you borrow money from a creditor, notice that they generally don't mail you a bundle of dollar bills. What really happens is that they credit your account with the loan amount, and at the same time create a loan account with a negative balance which is what you owe them. These cancel out, which causes their books to balance even though it is simultaneously the case that the amount of cash in their vault hasn't changed and the amount of money in your bank account has. This is why increased lending causes price inflation.
Second, it causes there to be more money in the hands of borrowers. This is where you get economic growth; people have more money to spend.
And third, it causes the borrower to owe the lender interest.
Notice that the first two are the only ones that are actually good for anything. Even the inflation is generally a cost, but in moderate amounts it's beneficial because it counteracts the natural deflationary tendencies of a growing economy. All you really want is for people to have money to spend.
But you don't actually need any lenders for that. If all you want is to create new money and give it to people, the government can create money by fiat and just hand it out to all citizens, or pay for government with it in lieu of taxing people. It's the same thing, there is just no interest.
No, I'm arguing with what you proposed, which is this:
> > People would still lend money to their friends and family. Stores would extend credit to customers because they want to make sales.
which is not in anyway a meaningful alternative to the actual credit market.
> Notice that the first two are the only ones that are actually good for anything.
Except that the first two only exist because of the third.
> But you don't actually need any lenders for that. If all you want is to create new money and give it to people, the government can create money by fiat and just hand it out to all citizens, or pay for government with it in lieu of taxing people. It's the same thing, there is just no interest.
It's the same thing, there is just no incentive whatsoever for the behavior to happen, so it reality it's not at all the same thing. This would cause massive devaluation of currency.
What do you mean? The government creates money all the time. They love it -- they get to spend money without raising taxes. The only downside at all is that in the extreme it causes too much inflation.
If we made it harder for banks to make loans but then created correspondingly more money and used it to lower taxes on people so they would have more money and not need to borrow as much, what economic difference do you see other than interest not being paid to banks?
It may be easier to imagine if you think of the government as a bank that makes interest-only loans at 0% interest.
> This would cause massive devaluation of currency.
Bank lending already does that. Look at housing and education prices (where the inflationary effect of lending is strongest), or even the general value of the dollar over time. The dollar has lost more than 90% of its value since 1950 and far more of the increase in the money supply has been due to banks than the government.
$1 in new loans and $1 in government-created money cause the same amount of inflation. If you replaced one with the other the only difference would be that no interest would be paid to the bank.
The vast majority of new money is not created by the government, and that fact seems to be missing from your argument. If we no longer had credit we would be shrinking the available money supply by about 90%. This would be completely catastrophic for not only the US but the entire global economy.
Maybe you could be more specific about what you're proposing because I feel like I am not really understanding it.
Cause less money to be created by banks and more by the government, and have correspondingly lower taxes (or even negative taxes) on middle income people.
Oh boy. You might want to take an economics class there bud, what you're talking about would just create the same situation Zimbabwe is in. More fiat without anything backing it leads to inflation.
And why would "more economic growth" be a good thing?
I don't want endlessly slaving to make the pie bigger (while ignoring second order effects, from quality of life, to environmental issues, to debt etc).
How about we learn to enjoy a moderate rate of economic growth, or even a steady economy, and focus on improving other aspects of life besides bank accounts?
>But too little lending is really bad for everyone too, and there are pretty fair reasons to think it might impact the lower class the most.
Under the current model though. Whereas e.g. better distribution of wealth might help them more than more lending.
Because billions of people still live in poverty worldwide.
> I don't want endlessly slaving to make the pie bigger (while ignoring second order effects, from quality of life, to environmental issues, to debt etc).
No one does. Economic growth, although not by itself, helps alleviate a lot of these issues. There are other factors that also impact this, and I'd argue a lot of the economic issues we face aren't from too much growth but from these other factors (taxation etc.) not being handled properly. So in general more growth is advantageous, but we have to other things going right as well.
> How about we learn to enjoy a moderate rate of economic growth, or even a steady economy, and focus on improving other aspects of life besides bank accounts?
Well a lot of people disagree about what things like quality of life and adequate environmental care are. One of the beauties of capitalism is that it allows people with wide disagreements about what's important in life to coexist and even benefit each other.
Edit: sorry I didn't see this before:
> Under the current model though. Whereas e.g. better distribution of wealth might help them more than more lending.
Maybe, but if that better distribution of wealth comes at the cost of shrinking the overall system (which there is a real reason to think would happen: this is why people and corporations bank outside of the US frequently already) then I think it's hard to conclusively argue either way.
Again this is not to say I don't see problems with our current economy, I just think "it's growing too much" is not one of them.
In their view it's better to be a big fish in a small pond than a small fish in a larger pond. Of course this isn't a foolproof strategy (dictators and kings sometimes come to ignominious ends) but holding onto as much wealth and power as possible while keeping the majority of people disenfranchised is a much safer strategy than spreading the benefits as widely as possible and hoping that everyone will love you enough to assure your future security.
Well a lot of people disagree about what things like quality of life and adequate environmental care are. One of the beauties of capitalism is that it allows people with wide disagreements about what's important in life to coexist and even benefit each other.
Yes, but it doesn't assure that, and that's where it gets ugly. If too much of capital is controlled by someone who doesn't care about the environment and is fine with cutting corners or actively polluting, then the less well-off people suffer and die, sometimes horribly. If that problem gets bad enough, then everyone could suffer as the whole environment is wrecked - like the population of a country whose leader foolishly enters a war and gets bombed, or a world where reckless fossil fuel production/use continues past the point of long-term sustainability.
You'll recall that Keynes said 'in the long run, we are all dead.' Capitalism would be great if everyone lived long enough to have their day at the top of the pile, just as it is enjoyable to play Monopoly as a board game because while you might lose one game today you might have the pleasure of winning tomorrow. But people are not economic abstractions; if you're poor and you can't compete effectively in a capitalistic economy then there's a good chance that your life will be terrible, and then you'll die.
> Economic growth, although not by itself, helps alleviate a lot of these issues. There are other factors that also impact this, and I'd argue a lot of the economic issues we face aren't from too much growth but from these other factors (taxation etc.) not being handled properly. So in general more growth is advantageous, but we have to other things going right as well.
That depends on available resources and distribution -- not economic growth.
Besides, what's really bad about poverty is not access to lack of access to West-level consumption but lack of basics -- from health care to housing.