Spreaders of Conspiracy Theories: Unmasking the Motivations Behind the Lies

[mark45y]

If a Thai person sells one million dollars of flowers to Europe how much money is brought into the Thai economy?

I was listening to the news on TV today and a lady from London was talking about fresh flowers rotting in Africa. She said that Kenya sells 70 million dollars of flowers to Europe and that accounts for 2 billion dollars in the Kenyan economy.

How does that work? What was she talking about?

If Thailand exports a product totally grown or manufactured in Thailand for one million dollars why would that bring more than one million dollars into the Thai economy?

What multiplies export dollars? Or tourist dollars?

If a tourist spends a dollar isn’t that only one dollar brought into the Thai economy?

[Naam]

What was she talking about?

she was talking nonsense

[IMA_FARANG]

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Quote:

If Thailand exports a product totally grown or manufactured in Thailand for one million dollars why would that bring more than one million dollars into the Thai economy?

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Well, I don't know exactly what the amount would be, but consider the following:

Those that were employed by the industries that produced the equipment and chemicals for growing and cultivating the flowers.

Those that were employed in growing the flowers.

Those that were employed in packaging and preparing the flowers for shipment.

The clerical staff who processed the orders for the flowers.

Those who were involved in the transportation of the flowers.

and so on.

So if your saying that Thailnd exported one million dollars of flowers every year to Europe...the total in jobs generated by that 1 million dollars of export value export might well be beyond the 1 million dollar figure. It's a cascade effect of the jobs generated by the activity.

It's just economics.

[mark45y]

--------------------------------------------------

Quote:

If Thailand exports a product totally grown or manufactured in Thailand for one million dollars why would that bring more than one million dollars into the Thai economy?

-----------------------------------------------------

Well, I don't know exactly what the amount would be, but consider the following:

Those that were employed by the industries that produced the equipment and chemicals for growing and cultivating the flowers.

Those that were employed in growing the flowers.

Those that were employed in packaging and preparing the flowers for shipment.

The clerical staff who processed the orders for the flowers.

Those who were involved in the transportation of the flowers.

and so on.

So if your saying that Thailnd exported one million dollars of flowers every year to Europe...the total in jobs generated by that 1 million dollars of export value export might well be beyond the 1 million dollar figure. It's a cascade effect of the jobs generated by the activity.

It's just economics.

How would an economist predict how much?

[jamora]

--------------------------------------------------

Quote:

If Thailand exports a product totally grown or manufactured in Thailand for one million dollars why would that bring more than one million dollars into the Thai economy?

-----------------------------------------------------

Well, I don't know exactly what the amount would be, but consider the following:

Those that were employed by the industries that produced the equipment and chemicals for growing and cultivating the flowers.

Those that were employed in growing the flowers.

Those that were employed in packaging and preparing the flowers for shipment.

The clerical staff who processed the orders for the flowers.

Those who were involved in the transportation of the flowers.

and so on.

So if your saying that Thailnd exported one million dollars of flowers every year to Europe...the total in jobs generated by that 1 million dollars of export value export might well be beyond the 1 million dollar figure. It's a cascade effect of the jobs generated by the activity.

It's just economics.

How would an economist predict how much?

In economics it is called the money multiplier (m=1/R, where R is the reserve ratio in the given country). It goes a bit like this:

$1mn is put into the Thai economy from abroad. This money will eventually be stored in banks, one way or another. I do not know what the reserve requirement is for banks in Thailand, but lets say 10%. This $1mn is now in the banks. They are forced to keep 10% of it in reserves, but can lend out the rest for "spending". So they will release $900,000 into the economy. Then again the $900,000 is "spend" in the economy. Most of the $900.000 will yet again end up in the banks, where 10% will be put in reserves and $810,000 will be released for "spending". The cycle will go on and on following the same pattern. In this example when the reserve ratio is R=.1 m=10, so the initial $1mn released into the economy will add $1mn*10=$10mn to the economy.

The model is very reliable, but one of the flaws is that it does not take into account the money you store under your pillow, which tends to be higher in developing countries than in developed countries.

For the Kenya flower story to be true it would mean that the reserve ratio for banks in Kenya would be 2bn/70mn=1/R -> 28.57=1/R -> R=0.035 -> 3.5%, which could very well be true (some counties like Canada, UK, Sweden and Australia does not have any minimum requirements for the banks. South Africa requires 2.5%, so 3.5% for Kenya sounds right). So the reporter is not talking nonsense.

Hope it helps.

Edited April 25, 2010 by jamora

[mark45y]

--------------------------------------------------

Quote:

If Thailand exports a product totally grown or manufactured in Thailand for one million dollars why would that bring more than one million dollars into the Thai economy?

-----------------------------------------------------

Well, I don't know exactly what the amount would be, but consider the following:

Those that were employed by the industries that produced the equipment and chemicals for growing and cultivating the flowers.

Those that were employed in growing the flowers.

Those that were employed in packaging and preparing the flowers for shipment.

The clerical staff who processed the orders for the flowers.

Those who were involved in the transportation of the flowers.

and so on.

So if your saying that Thailnd exported one million dollars of flowers every year to Europe...the total in jobs generated by that 1 million dollars of export value export might well be beyond the 1 million dollar figure. It's a cascade effect of the jobs generated by the activity.

It's just economics.

How would an economist predict how much?

In economics it is called the money multiplier (m=1/R, where R is the reserve ratio in the given country). It goes a bit like this:

$1mn is put into the Thai economy from abroad. This money will eventually be stored in banks, one way or another. I do not know what the reserve requirement is for banks in Thailand, but lets say 10%. This $1mn is now in the banks. They are forced to keep 10% of it in reserves, but can lend out the rest for "spending". So they will release $900,000 into the economy. Then again the $900,000 is "spend" in the economy. Most of the $900.000 will yet again end up in the banks, where 10% will be put in reserves and $810,000 will be released for "spending". The cycle will go on and on following the same pattern. In this example when the reserve ratio is R=.1 m=10, so the initial $1mn released into the economy will add $1mn*10=$10mn to the economy.

The model is very reliable, but one of the flaws is that it does not take into account the money you store under your pillow, which tends to be higher in developing countries than in developed countries.

For the Kenya flower story to be true it would mean that the reserve ratio for banks in Kenya would be 2bn/70mn=1/R -> 28.57=1/R -> R=0.035 -> 3.5%, which could very well be true (some counties like Canada, UK, Sweden and Australia does not have any minimum requirements for the banks. South Africa requires 2.5%, so 3.5% for Kenya sounds right). So the reporter is not talking nonsense.

Hope it helps.

I want to make sure I understand you. If a tourist comes into Thailand and buys a beer made in Thailand for 100 baht then the tourist has put 1000 baht into the Thai economy less the real cost (materials, labor, rent and so on) to provide the beer. Another way of looking at is the profit that the provider of the beer puts in the bank? Yes? Or is my focus on cost irrelevant because eventually all of the 100 baht will end up in a bank somewhere in Thailand and that 100 baht will produce 1000 baht?

[jamora]

--------------------------------------------------

Quote:

If Thailand exports a product totally grown or manufactured in Thailand for one million dollars why would that bring more than one million dollars into the Thai economy?

-----------------------------------------------------

Well, I don't know exactly what the amount would be, but consider the following:

Those that were employed by the industries that produced the equipment and chemicals for growing and cultivating the flowers.

Those that were employed in growing the flowers.

Those that were employed in packaging and preparing the flowers for shipment.

The clerical staff who processed the orders for the flowers.

Those who were involved in the transportation of the flowers.

and so on.

So if your saying that Thailnd exported one million dollars of flowers every year to Europe...the total in jobs generated by that 1 million dollars of export value export might well be beyond the 1 million dollar figure. It's a cascade effect of the jobs generated by the activity.

It's just economics.

How would an economist predict how much?

In economics it is called the money multiplier (m=1/R, where R is the reserve ratio in the given country). It goes a bit like this:

$1mn is put into the Thai economy from abroad. This money will eventually be stored in banks, one way or another. I do not know what the reserve requirement is for banks in Thailand, but lets say 10%. This $1mn is now in the banks. They are forced to keep 10% of it in reserves, but can lend out the rest for "spending". So they will release $900,000 into the economy. Then again the $900,000 is "spend" in the economy. Most of the $900.000 will yet again end up in the banks, where 10% will be put in reserves and $810,000 will be released for "spending". The cycle will go on and on following the same pattern. In this example when the reserve ratio is R=.1 m=10, so the initial $1mn released into the economy will add $1mn*10=$10mn to the economy.

The model is very reliable, but one of the flaws is that it does not take into account the money you store under your pillow, which tends to be higher in developing countries than in developed countries.

For the Kenya flower story to be true it would mean that the reserve ratio for banks in Kenya would be 2bn/70mn=1/R -> 28.57=1/R -> R=0.035 -> 3.5%, which could very well be true (some counties like Canada, UK, Sweden and Australia does not have any minimum requirements for the banks. South Africa requires 2.5%, so 3.5% for Kenya sounds right). So the reporter is not talking nonsense.

Hope it helps.

I want to make sure I understand you. If a tourist comes into Thailand and buys a beer made in Thailand for 100 baht then the tourist has put 1000 baht into the Thai economy less the real cost (materials, labor, rent and so on) to provide the beer. Another way of looking at is the profit that the provider of the beer puts in the bank? Yes? Or is my focus on cost irrelevant because eventually all of the 100 baht will end up in a bank somewhere in Thailand and that 100 baht will produce 1000 baht?

Well, you have not put 1000 THB into the economy, but your 100 THB will create values/spending worth 1000 THB.

So your focus on costs is relatively irrelevant, since the bar owner will pay his staff who probably will spend their money within Thailand. His rent and utility costs will be paid to Thai companies. The only cost you have to consider as lost, is if you buy an imported beer, then you have to minus the money that gets paid to the foreign company. But if you buy a Thai produced beer, almost the entire 100 THB will stay in Thailand, and over time create spending/values worth 1000 THB.

[mark45y]

I really hate to sound stupid but what is the difference between values/spending and money.

If a Thai buys a product made in Thailand with money then the values/spending does not change because the money came from Thailand and stays in Thailand but if a Farang buys a product since the money came from outside Thailand then the values/spending increases ten fold?

So looking at the economy as a whole every dollar I spend in Thailand if it came from outside Thailand is worth 10 times what a Thai spends if his income came from inside Thailand?

[Naam]

In economics it is called the money multiplier (m=1/R, where R is the reserve ratio in the given country). It goes a bit like this:

$1mn is put into the Thai economy from abroad. This money will eventually be stored in banks, one way or another. I do not know what the reserve requirement is for banks in Thailand, but lets say 10%. This $1mn is now in the banks. They are forced to keep 10% of it in reserves, but can lend out the rest for "spending". So they will release $900,000 into the economy. Then again the $900,000 is "spend" in the economy. Most of the $900.000 will yet again end up in the banks, where 10% will be put in reserves and $810,000 will be released for "spending". The cycle will go on and on following the same pattern. In this example when the reserve ratio is R=.1 m=10, so the initial $1mn released into the economy will add $1mn*10=$10mn to the economy.

Hope it helps.

it did help! my dogs and my [not so] humble self were roaring with laughter when i read your macroeconomic mini-dissertation aloud. thanks mate, you made our day... these boring sundays when most markets are closed are killers.

[mark45y]

In economics it is called the money multiplier (m=1/R, where R is the reserve ratio in the given country). It goes a bit like this:

$1mn is put into the Thai economy from abroad. This money will eventually be stored in banks, one way or another. I do not know what the reserve requirement is for banks in Thailand, but lets say 10%. This $1mn is now in the banks. They are forced to keep 10% of it in reserves, but can lend out the rest for "spending". So they will release $900,000 into the economy. Then again the $900,000 is "spend" in the economy. Most of the $900.000 will yet again end up in the banks, where 10% will be put in reserves and $810,000 will be released for "spending". The cycle will go on and on following the same pattern. In this example when the reserve ratio is R=.1 m=10, so the initial $1mn released into the economy will add $1mn*10=$10mn to the economy.

Hope it helps.

it did help! my dogs and my [not so] humble self were roaring with laughter when i read your macroeconomic mini-dissertation aloud. thanks mate, you made our day... these boring sundays when most markets are closed are killers.

I’m sure you know more about it than I. I looked up a number of sites on the net that deal with money supply and they seem to confirm the money multiplier analysis.

I don’t know how GDP in Thailand is computed but if the money multiplier is correct then foreign investment and tourist dollars are more important than the base dollar amount being publicized.

A lot of things change. For example the amount of money spent by American soldiers stationed in Thailand from 1965 to 1975 becomes much more of an economic force. The amount of Japanese investment during the same period of time becomes far more important than I had assumed.

It would explain Thailand’s economic jump in the 70’s and early 80’s when everyone was predicting Thailand would become Asia’s super economic power. But then Thailand kicked out the Americans and the inflow of foreign currency dropped and Thailand didn’t become Asia’s economic super power.

Now with the impact of the political instability somewhat of the same scenario is on the horizon.

If you take tourist dollars lost and multiply them by 10 it becomes more of a crisis than I had thought.

Normally I enjoy sarcasm but in this case I would have preferred an explanation why the money multiplier doesn’t work. And of course the Kenyans would all breath a sigh of relief knowing they are only losing a tenth of what the lady economist from London told them.