> well, while chasing high yield junk bonds was arguably good for the companies at risk, its hard for me to immediately swallow that all of the activities of hedge funds, commodities speculation, nikkei, china, tech, whatever, is the best use for that cash. "
Of course there's bound to be errors of misallocation, in investment as well as in consumption. Do we want to get into how much consumer dollars should be allocated towards hamburgers and fries?? ;-)
> why, specifically, is stimulating investment more efficient than simulating consumption? i think we all can agree that the latter (1) gives a quicker and stronger short-term boost,
Not at all. "Investment" also means buying something. The difference between consumption and investment is akin to fish vs. the means to fish. Both the fishermen and the fishing rod maker (the suppliers who meet the consumption and investment demand respectively) will have to buy bread with their income. When banking gets into the picture, it becomes a more interesting scene: when borrowing against future income stream is utilized, investment incentive can be tremendously mutiplied whereas consumption incentive can not; furthermore, "consumption stimulation" usually means cash handout, which may or may not be spent.
> and (2) is probably the "nicer" thing to do
Why? Why is promoting demand "nicer" than promoting supply? Isn't standard of living fundamentally per capita supply?
> but (3) why is it better in the long run? it seems like it just brings about a permanent redistribution of wealth. which i suppose can be good in some eyes ...
Very green eyes of envy ;-) That is quite outside the realm of sound economics.
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