On Sun, Jun 01, 2003 at 02:20:10AM -0400, Kevin Tarr wrote:
> already and I doubt you'd really stimulate the economy (more on this*). I
> *A lot of people engage in feel good economics and ignore reality. Of
> course it would be an instant good if the poor or middle class or
> parents had more money, but would it really do any good long term?
Yes, it would do good long term. Some people engage in ivory tower pet
theories to make them feel good intellectually but they ignore real
data. 2/3 of the American economy is based on the consumer. And rich
people tend to save a lot of their additional income, not consume. If
you want to see what a higher savings rate does to an economy, look
at Japan's 10+ year deflationary recession. Also, Dan started an
analysis and I followed up showing that for the last 70 years GDP grows
significantly more as a result of Democratic presidential policy compare
to Republican. All the data supports the view that putting money into
the hands of the middle- and low-income people will stimulate economic
growth.
> If just the economically dis-advantage got more money, all it would
> fuel is short term inflation.
Talk about people ignoring reality! There are two misunderstandings
here. First is that a little inflation now would be a bad
thing. Actually, inflation is below 2% now and is dangerously low. Debt
levels are high. We would be safer and better off with inflation around
3% or perhaps even 4% to start eating into the debt (this will be
particularly important for all the over-extended homeowners who bought
more house than they should have; historically inflation has brought
down the burden of the payments on those 30-year mortgages; now, it is
going to be painful for them if inflation stays this low).
Second misunderstanding is that increasing consumption now would
be inflationary. I guess you didn't know that industrial capacity
utilization is the lowest is has been in years? It fell to 74.4% in
April, which is 7 points below its average from 1972-2002. Consumption
will only tend to be inflationary if you are at or near full capacity
utilization. In this case, industry can easily increase production
without have a major effect on prices.
> Now the other side, like Bob Zim pointed out. Does Bob or his
> accountant having more money in his savings account or some other
> money storage vehicle..even stocks...really help? Even if it's just
> his savings account, he pays taxes on interest on that so some will
> go directly back to the government. Not the greatest return on
> investment to be sure, but it's a start.
This is ridiculous. You are suggesting that the government distributing
$350B to rich people's bank accounts, which pay, say, 2% interest at
best, and then of that 2% interest the government gets 35%, so of the
$350B, 0.7% of it comes back to the government as taxes, $2.5B, and this
is significant? And besides, the idea is to get it into the economy, not
into the governments hands. THE WHOLE POINT IS TO GET IT TO PEOPLE, NOT
THE GOVERNMENT.
> Banks have more liquidity with the extra money, maybe they make a few
> more loans. Maybe he does invest in some stocks and a company or two
> decides to hire a few more workers, or do more R&D, or add an extra
> product line. I'm grasping at straws here (where I am tired)
You sure are. Voodoo economics at its best. But voodoo economics has
been discredited, and the analysis that Dan and I posted on GDP growth
vs. Dem/Rep provided further evidence that Voodoo economics is baloney.
> We need to consume consume consume for our economy to stay strong
Yes, we do. Consumer spending accounts for 2/3 of the GDP. As
consumption grows, businesses invest in more capital to produce more
goods to be consumed, in the process growing the economy. During
1900-2001, real per capita GDP in America increased at an annualized
rate of 2.1% per year. In 1900, for every American citizen the 2001
equivalent of $4,468 worth of goods and services were produced. By 2001,
this had increased to $36,292 worth of goods and services produced for
every American.
Ask yourself what is responsible for this remarkable 101-year
exponential increase (2% per year) of real GDP per capita. The answer
I come up with is a little bit of productivity growth but primarily an
increase in the quantity and quality of productive capital. Right now,
about 25% of that capital is sitting idle, not producing anything. Why
would anyone invest in MORE capital, to maintain that 2% per year growth
rate, when they have some much capacity sitting idle right now? The
answer is that they wouldn't, and they haven't. If consumption went up,
then businesses could bring more of that capital online, and in time
they could start increasing capacity at the 2% rate again by investing
in more capital.
If we stop increasing consumption, then the real GDP per capita growth
will decrease from its historical level to near 0, a fall of about 2
points. This would be a recession equivalent to the Great Depression,
when from 1929 to 1939 there was near 0% annualized growth in real per
capita GDP. Incidentally, there was low inflation (actually deflation of
2%) during that time, and it did not help. In fact, it exacerbated the
recession. Inflation fighting is definitely not what the economy needs
now.
On a related topic, here is some data for historical yearly population
growth in America from 1900-2003.
__________________
| pop
period | growth
------------------
------------------
1900-2003 1.3%
------------------
1900-1920 1.7%
1920-1940 1.1%
1940-1960 1.6%
1960-1980 1.1%
1980-2000 1.1%
2000-2003 1.0%
------------------
Note that population growth is definitely NOT increasing recently. If
anything, it is decreasing. And yet we have a large, ageing population
of people born in the boom years of 1940-1960 period when population was
growing at 1.6% per year, and they will be wanting to retire over the
next 20 years.
Now, most of these people haven't been saving the ~10% of their salary
per year that they will probably need for their retirement, but let's
be optimistic and say that they all have enough stashed away in their
savings and brokerage accounts to support themselves during their
retirement, if we assume that the next 40 years of the economy and
stock market will resemble the last 40 years. The problem is that right
now there are 3 workers producing goods and services for each retiree.
Based on extrapolations of current demographics and life-expectancies,
in the year 2050 there will only be 1.5 workers supporting each retiree.
All those retirees are going to want to "sell" their bank accounts to
the workers in exchange for food and shelter and medical. But the bank
accounts are just fiction, the real stuff is the food, the medical
services, building materials and labor, etc. The retirees aren't going
to be able to convince all these people to work so hard for them for
their bank accounts. The retirees will have to drastically cut their
consumption.
So, unless we open the floodgates to a lot more immigration (which
probably wouldn't help so much with GDP growth anyway if the immigrants
are unskilled), the popluation isn't going to grow fast enough to
provide the necessary workers and demand to keep growing GDP. So, if
we don't increase consumption now then we are going to be in for a bad
decade or two of depression.
Perhaps it is inevitable that we will eventually transition from a
growing economy to a non-growing economy. Maybe increasing consumption
now may just postpone a depression another decade or two. But given
a choice between a depression for the next 10 years, and a possible
depression 20 years from now, I will take the latter choice every
time. And who knows, maybe some clever people will figure out a
way to avert a future depression and keep the real per capita GDP
growing despite the deteriorating demographics (I'm hoping for better
automation, robotics, and AI).
But it is clear that what we definitely do NOT need now to stimulate the
economy is tax cuts for the wealthy. The Bush administration's tax cut
is misguided and foolhardy. But that is what I have come to expect from
the Bush administration. That 2004 election cannot come too soon, as far
as I am concerned. Bush must go.
--
"Erik Reuter" <[EMAIL PROTECTED]> http://www.erikreuter.net/
_______________________________________________
http://www.mccmedia.com/mailman/listinfo/brin-l
