Engineer
^Bronze
Wow I've never seen someone miss a point so badly! Yes ecconomies require exports to put money in but to function money must circulate within that economy and this is generlly achieved by internal consumption. Your example above also discounts that many immigrants work in areas do directly bring in funding from around the globe, take higher education as one example. Your example of the 10 friends above - which I shudder at- misses that the joining five, let's say working in the service sector, provide Labour, creativity and technical support. All ten put ten pounds into a common pot at the start of the evening and hire a minibus to take every one home thus no one gets cold in a taxi que. The guy that lived in the opposite directiont to the rest and would be on his own had they not hired the minubus is less likely to be mugged and doesn't have a larger bill than the rest to pay to get home... there almost as daft as your last point!^
You are correct I understand the principal of the velocity of money however this is not the point I am making. Internal consumption does not make the country richer, it shuffles the existing money around. One of the many factors that affects the velocity of money is propensity to consume . The greater the tendency of the people to consume, other things remaining the same, higher will be the velocity of money. On the contrary, lower the propensity to consume, lesser will be the velocity of money. Saving, or not consuming, has an adverse effect on the velocity of money. The Chancellor will do all he can to make us feel good about the economy though some like me don't buy it. One of the reasons he has to maintain uncontrolled immigration is good for the economy is because he is unable to control immigration.
The point I am making is that unless the expansion of the population is not met by a commensurate expansion of the income of the country, the country gets poorer.
The illusion that we are not getting poorer is masked by borrowing and printing money (QE). Brown borrowed huge amounts of money to mask the problems and Osbourne is doing the same.
Of course the example of the 10 diners is simplistic but it illustrates what happens when people come to the party, without contributing their fair share. Something has to give.
Yes of course some native labour and immigrants do contribute to exports but not enough. If you look at the balance of payments for the UK, since 1998, the country has been running a consistent trade deficit (country getting poorer). During that time, according to Migration Watch, 85% of population growth is associated with immigration.
If the Government's stance that immigration is making the country richer, how come the country is still in a trade deficit while at the same time we have record levels of immigration? I don't doubt that immigrants contribute to the economy but the problem is they don't contribute enough to keep up the wealth per captia figure. If what the government is saying is the case, then I would have expected the increased immigration to have pulled the UK into a trade surplus by now, but it has not.
In my illustration, the friends you pick up represent the increase in the population.Using partial contribution to wealth by uncontrolled immigration, of the 5 friends you pick up on the way they each have £90 in their pocket. They make a contribution but not enough to keep you all with £100 to spend. So you now have 5 x £100 + 5 x £90 = £950 between you, £95 each. Still enough for great night out but maybe just trimming a bit on the meal. However, what you could also do is go the the bank and borrow £50 to make it up to £1000. So now you have £1000 between the 10 of you but now you owe the bank £50.
If you keep on expanding this model of picking more friends on the way who also keep adding to the pot but always slightly less than £100, you collectively end up poorer per head. Thus to keep up the £100 per head spending, you need to keep borrowing a bit more each time to keep up the appearance you still have £100 per head to spend. Of course you don't because you're building up a debt. So you either choose to keep borrowing to mask the shortfall (ala Gordon Brown) or you cut back try to spend less (austerity, does that ring a bell?). We are so badly off, that even with spending cuts, we're still borrowing more money.
The country is spending more on outgoings than income hence the deficit. And we're still not building enough homes. If the increase in population was generating a commensurate amount of exports, the said companies and their employees would be earning enough from imported money to pay for their own houses and be paying a lot more taxes to give to the Government to give them the means to build more schools and indeed enough to pay the doctors. But that isn't happening either.
Unless of course you can show me how it is happening.