Those billionaires, doing their hoarding, do grow the economy

It’s not necessary to go far to find people insisting that the billionaires - sitting on their hoards of money - shrink the economy. If we took it off them and then spread it around then there would be more growth. For the poorer spend all their cash, so if we give it to them then there will be more demand, demand is what grows the economy. Thus tax the rich!

This is not so:

AI-related capital expenditure contributed nearly half of all US real GDP growth in the first quarter of this year, and is expected to add a full two percentage points to the size of the American economy for the year as a whole.

Now yes, it’s wholly possible to wonder whether that’s all entirely wise, to ponder on whether we might be in the middle of one of those frothy stages of an investment boom. Which, you know, have happened in the past of free market capitalism - canals, railways, telecoms cables and dotcom and so on. So whether this is entirely what should be invested in is open to question. On the other hand the money does belong to those doing the investing and so it’s theirs to do as they wish with.

Our point though is that investment does indeed grow the economy. Spending on increasing supply grows the economy, it isn’t true that all depends upon demand. Leaving the rich to invest their money boosts the economy so don’t tax the rich perhaps….

Tim Worstall