From: drevik@utkvx3.utk.edu (Drevik, Steve)
Subject: Re: Why Do Soak the Rich Schemes Always End Up Picking Everyone's Pocket?
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Organization: University of Tennessee Computing Center
Distribution: usa
Date: Fri, 16 Oct 1992 04:35:00 GMT

In article <347-K6_@engin.umich.edu>, jwh@citi.umich.edu writes...
>In article <15OCT199216101187@utkvx1.utk.edu>, drevik@utkvx1.utk.edu (Drevik, Steve) writes:
>|> In article <JASON.92Oct15144542@ab20.larc.nasa.gov>, Jason C. Austin <j.c.austin@larc.nasa.gov> writes...
>|> > 
>|> >	Think about what you're saying.  People, especially people
>|> >that are going to keep it, don't hold wealth; they spend it in order
>|> >to build on it.  When they spend money to expand their companies, they
>|> >hire more people and buy more products from other companies.  If you
>|> 
>|> 
>|> I popular fallacy of trickle-down economics.  In reality, personal
>|> SAVINGS of the top 10% increased roughly 17% (indexed for inflation)
>|> over 1980 - 1990.
>|> 
>|> IN short, they got more money, and they saved it all.  They put it
>|> all into CDs, bonds, stocks, etc.  Some bit of this may have trickled
>|> down throug the companies they invested in, but for the most part they
>|> did not re-invest it to its true potential.
>|> 
> 
>Horrors!  The rich saved their money!!  This means money for lending,
>capital improvements etc.  What do you suppose happens to the money

Correct.  Increased savings is good for the money supply.

>invested in CD's?  What do you suppose happens to money invested
>in bonds?  This creates a pool of wealth which can be used by people
>to build houses, factories, etc.  Substantial economic gains can
>only come when money is saved.

In SOME forms.  Just because I give IBM $400,000 to buy new issues
of stock doesn't mean that they do anything useful with it.  I don't
believe that CDs benefit business as much as purchasing stock or
funding venture capital.  The benefit to the money supply of a CD
savings is far outgunned by the massive borrowing of the federal gov't.

> 
>|> >tax these ``rich'' and take away a big chuck of that money, they are
>|> >not going to spend as much.  Less spending means less expansion and
>|> >less jobs.
> 
>Saving creates spending.  A business needs a loan to expand their
>business.  If capital is available because someone has saved it,
>the capital can be used by the business to expand, hire more people,
>who earn wages who buy products etc.  When a business buys new
>equipment, the equipment was made by some worker somewhere.  Without
>the infusion of funds, business can expand, can't purchase capital
>goods, the producers of capital goods can't afford to hire or keep
>employees, people lose their jobs, etc.   You are right that less
>spending means less expansion, however you need to remember that
>capital spending is still spending and it yields far greater results
>than consumer spending.


My company had two great years in the past six years.  The first big
profit we squandered.  Didn't create a single new job, didn't buy
mcuh capital equipment, etc.  This year, we have hired four more people,
are looking for two more, bought a $10,000 logic analyzer, etc.  

WHY?   Environmental regulation.  Our jobs were CREATED by the 
Clean Air Act that Danny Quayle's COC is trying so hard to gut.
(Another classic fallicy: environmental regulation always costs
jobs.  Not true, it more often than not creates new jobs, like
ANY kind of regulation!)


> 
>|> 
>|> Reverse logic.  If you threaten to tax HOLDINGS instead of income, 
>|> they will be given a powerful incentice to spend the money, and thus
>|> expand.
>|> 
>You will give a great incentive to waste money, not use it wisely.

I agree... because people will have to decide what to spend
it on in ONE year.

>Hyperinflation is a great disincentive to saving, however I don't
>think many people think that it is good for the economy.
> 
>|> Of course, one of the major factors in this recession is the massive
>|> federal debt.  It strangles the money markets, holds up long-term 
>|> interest rates, and nobody invests.  Why invest in a factory that
>|> may make 8-10% when the government has driven the cost of bonds so
>|> low they can make you 14%???
>|> 
> 
>Show me where I can get 14% on bonds.

OK, they;re junk bonds...an not TODAY.  I was referring to late 80;s.
You could get up to 17% pon junk bonds.

>  The deficit has not shown
>itself to be particularly restrictive on the money markets.  Interest
>rates, both long and short term, are dropping, not rising.  Demand

Er,um.  What's the overnight lending rate down to?  3% ? 2.75%?
Why are home mortgages and 30 year bonds still at 8%?  There has
not been such a vast spread between long-term and short term 
interest rates in at least 40 to 50 years (I forget the exact yearage).

Short term is dropping, but as Mr. Perot said, only an idiot finances
his business completely on 30-day and 90-day notes.

>is still there, but overzealous government has made banks reluctant
>to lend to 'risky' ventures.  Of course most job creation comes from
>smaller business which also happen to be 'risky'.  When you choke
>off small businesses, you choke off the economy.  We're doing a 

Agreed.

>good job of that right now and it certainly won't get any better
>if Clinton is elected.

Why?  Clinton's health car and family leave plans have exemptions
for small businesses.  How else could he hurt small business.  I
know he is going to help our small business and thousands of other
people in our industry/market.  The Clean Air Act created thousands
of jobs, and they're all on the line.

And as far as the defense workers go, half of them half to go
anyway.  The Cold War is over, and it's a fact of life.  At least
Clinton is offering them something substantial (retraining) rather
than continued funding for 4 more years for military toys we don't
need, like the Seawolf.

And, by the way, isn't the government funding jobs to build things
we don't need (Seawolf) basically amounting to the same communism
we've been fighting for 45+ years?  We have met the enemy, and it is us!


>James W. Howe                  internet: jwh@citi.umich.edu
>University of Michigan             uucp: uunet!mailrus!citi.umich.edu!jwh
>Ann Arbor, MI   48103-4943