Obviously I'm not an economist, nor do I play one on TV.
One would indeed expect removing currency from the economy to be deflationary, but in GPs example we didn't just remove currency, we removed demand too. If less people have money to buy a car, less cars are produced. When you are making 1k instead of 1m cars, you no longer benefit as much from scale and must raise your prices, which only the rich can afford.
Now why might this happen instead of prices dropping to the point the now-poorer people can afford them? Maybe the cost of inputs can't go much lower, or maybe other less-stratified markets are picking up the slack, so demand shifts there. Or maybe the rich have enough money they don't care about the higher prices. Or some combination of all of the above.
Economies are complicated beasts, it's rarely as simple as X leads to Y. Instead you have the whole alphabet pulling in different directions and the forces that win out may be quite unintuitive.
> Doesn't the lack of liquidity in an economy cause deflationary behavior?
Which seems to accept the given premise.
But ok, let's look at yours:
> the issue is that the GP's premise ("When super-rich people receive money, it goes mostly to tax havens, removing it from circulation.") is invalid.
Is it? I thought it was well understood at this point that the best place to stimulate the economy was from the bottom, because every dollar put in goes directly back into circulation, creating demand, while the wealthy and middle class will save some portion of it. Certainly I don't think the money in my savings account is doing much to create the kind of demand that would stimulate job growth, and while one might argue that the stocks in my 401k are doing something the idea that it's driving more growth than buying a car is... Dubious.
> > the issue is that the GP's premise ("When super-rich people receive money, it goes mostly to tax havens, removing it from circulation.") is invalid.
> Is it?
Yes, it is an inaccurate belief. The super-rich don't take most of the money (did the person mean money or did they mean wealth?) they receive, remove it from the economic system, and stash it unproductively in a tax haven.
I mean, apart from the open question of whether the majority of money gets moved into tax havens, if the money is out of the economic system entirely, won't it just inflate away? I presume rich people want to put their money in instruments that return interest, which means that it has to be used /somehow/. I mean, potentially just speculative assets like gold or art, but those are high risk.
Ok, what do they do with it, and how does effect the economy compared to the way lower wealth people behave when they receive money?
FWIW I do agree that if we give Jeff Bezos or Elon Musk more money, it's not headed straight for an account in the Caymans, but I also don't think the exact destination of said money is core to the point.
> what do they do with it, and how does effect the economy compared to the way lower wealth people behave when they receive money?
Most of the wealth of the top 1% (to pick an arbitrary "small group of people") is not sitting as cash in the bank; it is concentrated in financial and business assets: equities & mutual funds, private businesses, real estate, bonds and other fixed-income investments, alternative assets.
In the US, over half of all publicly traded stocks and mutual fund shared are held by the top 1%, meaning their wealth is overwhelmingly tied to ownership of productive assets rather than wages or savings accounts (and is therefore illiquid).
One would indeed expect removing currency from the economy to be deflationary, but in GPs example we didn't just remove currency, we removed demand too. If less people have money to buy a car, less cars are produced. When you are making 1k instead of 1m cars, you no longer benefit as much from scale and must raise your prices, which only the rich can afford.
Now why might this happen instead of prices dropping to the point the now-poorer people can afford them? Maybe the cost of inputs can't go much lower, or maybe other less-stratified markets are picking up the slack, so demand shifts there. Or maybe the rich have enough money they don't care about the higher prices. Or some combination of all of the above.
Economies are complicated beasts, it's rarely as simple as X leads to Y. Instead you have the whole alphabet pulling in different directions and the forces that win out may be quite unintuitive.