From: jwh@citi.umich.edu (Jim Howe)
Subject: Re: Why Do Soak the Rich Schemes Always End Up Picking Everyone's Pocket?
Date: Thu, 15 Oct 92 16:50:28 EDT
Organization: IFS Project, University of Michigan
Distribution: usa
Reply-To: jwh@citi.umich.edu

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
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.

|> >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.

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


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