> In these terms, the Bush program is an extremely inefficient investment project. The money isn't going for investment projects. It's mostly going to give money to the rich, which does not have as big an impact on demand. Or its going to the military, which doesn't help the supply side of the economy.
Of course the rich could theoretically invest in expanding production, but then they would need a motivation to do so. What would motivate them to invest in cumulative production growth, in an economy running at 75 percent of installed productive capacity and relatively stagnant ordinary consumer demand ? No doubt defence contractors would argue that they do stimulate the economy, both through orders of materials/equipment and through employing additional labour. I think it is important in this sense to get quantitative data, but it is very difficult to trace the flow of funds from the US government and enterprises producing military equipment to other enterprises so that you might be able to estimate some kind of multiplier. All you really have is the total value of defence contracts by contractor. It looks to me like military production is not sufficiently large-scale to increase economic growth significantly overall, except for some sectors. As a Phd student, I really got the impression that really neoclassical economic models boil down to a zero-sum trade-off between saving and consumption, where saving is tacitly treated as automatically implying investment. This is suggested by Keynes's formulas as well. Thus, what is not consumed, is saved, and what is saved, is invested. In Marxian theory, of course, a sharp distinction is made between saving, investment, and type of investment. In addition, the zero-sum game of neoclassical economics does not exist, since within consumption, there is a distinction between ordinary consumer spending, luxury consumption and arms spending. Thus, an increase in savings would not automatically translate into an increase in productive investment, since the investment might be non-productive investment, or the savings might be spent on luxury consumption or arms spending. To my knowledge, Russian Marxist economist Nikolai Bukharin was the first to expound this viewpoint clearly. A similar interpretation is suggested in "A Critique of Neoclassical Macroeconomics" by John Weeks. A big problem with Keynesian economics, as Michael Kalecki implies, is really that it does not differentiate between distinct classes of income-earners, and their differential propensities to save, invest and consume. Interestingly, we could conclude from the economic policy of the US government, not only that increasing social and income inequality is counterproductive to economic growth, it is also counterproductive to paying off the US foreign debt. Ordinary workers pay taxes but do not engage in significant foreign borrowing of their own. Conversely, the more capital they have, the more private owners of capital will borrow, and if demand is sluggish due to stagnant demand among ordinary consumers, the investments will concentrate on luxury spending and arms production, or else capital will go offshore in search of a higher return. The other day I was looking at international data on investment in domestic and foreign securities (all types) as a proportion of GDP, because investment in domestic and foreign securities and derivatives is much larger than direct domestic and foreign investment. Countries like Holland and the USA seem to invest in securities to an amount at least twice the total value of GDP - in Luxemburg, the value of securities investments absolutely dwarfs GDP. J.
