From: mbb@cbnewsb.cb.att.com (martin.brilliant)
Newsgroups: alt.politics.clinton,alt.politics.democrats.d,alt.politics.elections,ba.politics,co.politics,ne.politics,nj.politics,or.politics,ny.politics,talk.politics.misc
Subject: Re: income vs. consumption (was Re: VOTE, BABY, VOTE!)
Date: 16 Nov 92 21:34:54 GMT
Distribution: usa
Organization: AT&T

From article <1992Nov11.005246.22589@ucsu.Colorado.EDU>, by fcrary@ucsu.Colorado.EDU (Frank Crary):
> In article <1992Nov10.181707.23485@cbfsb.cb.att.com> mbb@cbnewsb.cb.att.com (martin.brilliant) writes:
[ responding to Frank Crary who said ]
> 
>>> ...    The proposal
>>> posted was to tax all income which was not invested by the end of the
>>> year. That sounds to me like the current income tax system with
>>> all investments counting as deductions....
> 
>>You want to modify the current system so as to make all savings
>>deductible.
> 
> No, _I_ don't want any such thing. I'm not sure it is a good idea. It
> is not, however, inherently regressive (as someone claimed.) ....

Right.  I claimed a consumption tax without deductions was regressive.
An income tax with all its current deductions, plus a deduction for
savings, is less so.  I think it is still somewhat regressive because
it provides a deduction for those who can afford to save some of their
income.

>>But - what is the purpose of all this complication?  Do you really
>>believe that this economy is stagnating because people aren't saving
>>enough?  Look at the stock market and the interest rates!  Interest
>>rates are at a historic low, and price-earnings ratios are near a
>>historic high.  Would that be true if entrepreneurs were scrambling
>>for investment money?
> 
> Possibly: The Federal Reserve has a great deal of influence over
> interest rates, and low rates have been a goal of theirs for about
> a year and a half. It's quite possible that interest rates are 
> artificially low and don't say much at all about the availability
> of credit....

The purpose of lowering interest rates as public policy is to
encourage business borrowing.  Unfortunately, it is well known that
you can shut down borrowing, and thus cause a recession, by raising
interest rates (which was done to cut back inflation), but you can't
as easily bring it back by lowering interest rates.  That is what
economists mean when they say "you can't push on a string."

> .... Also, for several years now, banks have been very
> carefull of _who_ they lend money to (ever since the S&L crisis.)
> If interest rates are low, but very few people get their loans
> approved, that would still translate into tight credit and
> few investment dollars floating around.....

All that says is that, along with reduced "consumer confidence,"
we also have reduced "investor confidence."  Hardly anybody thinks 
you can make much money building up your business.  That's why Wall
Street (perversely) sends money into buying the stocks of companies
that are cutting back.

> .... All things considered, 
> I have no idea what connection exists between our economic
> problems and savings/investment. I also don't think "expert"
> economists have any idea either.

I have a few ideas, and am testing the waters with them.  Expert
economists have more ideas, but those ideas have not resulted in
general agreement on successful public policy.

>>If you encourage consumption, you put more money in at the retail
>>level.  That encourages retailers to hire help and buy more from
>>wholesalers.  The money flows up the chain, and the goods flow down,
>>and workers get hired and paid and buy more.  If you encourage
>>savings, the economy continues to wait for something to happen.
> 
> That presumes that low consumption is the problem. That _might_
> be the problem, but it also might not. (Also, it isn't clear how 
> you "encourage" consumption. Usually a "lack of confidince in the
> economy" is given as a reason, and I don't see how this can be
> altered by economic incentives.)

I don't presume that low consumption is the problem, I infer it from
the price of money.  And when I read "lack of consumer confidence," I
translate that as "lack of money to buy things."  Translated that way,
it usually makes sense.  If that's true, then giving money to the poor
and lower middle class will increase their confidence - that is, they
will go out and buy the things they wanted but couldn't afford.

Of course it's a little more complicated: some people have jobs and
money now, but aren't sure they will have jobs in the future, so they
don't take on large credit purchases or use up their savings.  But
that really isn't very different from not having money - they're
afraid they can't afford to buy what they want.

I say "trickle-down" economics is founded on the opposite presumption,
that is, that low investment is the problem, not low consumption.  Of
course we have both, but the question is: which is the cause, and
which the effect?  I look at the price of investment money, and I find
it going cheaply.  Therefore I say the demand for investment money
must be low, and the supply high, and therefore the problem is not
lack of money for investment, but lack of money for consumption.

> My personal opinion is that cause and effect (in terms of macro-
> not micro- economics) is not well understood at all. Since the
> side effects of a given economic policy aren't clear and
> might be just as bad as the current problem (e.g. for all we
> know, the supposed cure might be worse than the disease), I think
> the government should avoid manipulating the economy. There is
> no evidence it helps more than it hurts.

You can thank the Republicans for muddying the problem.  They are
supported by people with money who like having money and would like to
have more.  They agree with each other that the problem is that the
rich don't have enough money, and foist schemes on us for taking money
from the poor and giving it to the rich, under cover of "trickle-down"
economic theory.  In other words, they have good reasons to believe
that theory even if they have no proof of it - but you and I don't.

Meanwhile, there are things the government has to do - like defense,
roads, schools, and law enforcement - that require taxation.  Taxation
has side effects, whether you like them or not.  You have to think
about those side effects.  Just consider the source of any theories
you hear offered to you.

							Marty
marty@hoqaa.att.com		hoqaa!marty
Martin B. Brilliant		(Winnertech Corporation)	
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