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: 17 Nov 92 22:26:44 GMT
Distribution: usa
Organization: AT&T

From article <kbanaian.16.0@bernard.pitzer.claremont.edu>, by kbanaian@bernard.pitzer.claremont.edu (King Banaian):
> In article <1992Nov16.213454.6500@cbfsb.cb.att.com> mbb@cbnewsb.cb.att.com (martin.brilliant) writes:
>> In article <1992Nov10.181707.23485@cbfsb.cb.att.com> mbb@cbnewsb.cb.att.
> com (martin.brilliant) writes:>[ responding to Frank Crary who said ]
>>>>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?
> 
> You commit a fundamental flaw here in believing that all entrepreneurs can 
> reach funds in the stock market....

I believe what?  I believe that those entrepreneurs who reach funds in
the stock market are not screaming for it.  I believe that those who
depend on the banks are not grabbing for it even at low interest
rates.  I believe those publicly visible indicators are consistent
with the parts of the investment market that are less visible.

But I don't believe all entrepreneurs get their money in the stock
market.  In fact, I believe that none of them do - the stock exchange
is a secondary market.  But what goes on in the stock market not only
facilitates the primary market for securities traded there, but serves
as an indicator of what goes on in the larger market.

> ....  Only a small fraction can.  For those who 
> must rely on the banks, we have a real problem.  It's not at all clear, 
> however, that banks aren't lending because they have too little savings.

I think you agree with me there.  I suggested that banks aren't
lending because nobody they think is a good risk wants to borrow.  So
they aren't eager to pay high interest rates to encourage savings.

>>> Possibly: The Federal Reserve has a great deal of influence over
>>> interest rates ...  It's quite possible that interest rates are 
>>> artificially low ....
>>
>>The purpose of lowering interest rates as public policy is to
>>encourage business borrowing.  ... [ you can't ]...  That is what
>>economists mean when they say "you can't push on a string."
> 
> I can't tell you how refreshing it is to an economist to hear *that* phrase 
> again!  The problem here is that the Fed really can't control all interest 
> rates, just one.  If the market thinks monetary policy is inflationary, they 
> adjust all the other interest rates to compensate, and you get no reduction 
> for your troubles.  The pushing on a string argument is that firms don't 
> want to borrow regardless of the interest rate.  I don't see that as the 
> problem:  what you say about the stock market is my evidence.

Could we clarify that?  What I said about the stock market is that it
points to a surplus of savings with respect to investment.  What I said
about interest rates points to the same thing.  Where is the evidence,
if any, that points in the other direction?

The only interest rates that are high are consumer interest rates.
All that says is that consumers are short of money, and they want
more, but they're not very good risks.  All other rates are low.

>>> 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.
>>
> Look, guys, 17 million new workers entered the workforce since 1980, even 
> after the recession.....

That was since 1980.  We had a boom of sorts in the 80's.  But is the
workforce larger now than it was two years ago?

> ....  We had to equip them with capital ....

Do you know how much?  I heard that most of them went into service
industries, which are less capital-intensive than the industries that
are going down the tubes.  I wouldn't be surprised if we had net
disinvestment since 1980.

> ....  That 
> investment is encouraged by low real, after-tax interest rates....

My kids, just out of college, can't find work.  Is that the result of
the investment you're talking about?  The investment is encouraged,
all right, but with all that encouragement, it's not happening.  What
you really need to encourage investment is demand for end products.

> ....  As to the 
> savings, I'm not so worried.  The Saudis and the Japanese still seem to have 
> savings looking for a home.  Their dollars are green, too.  The evidence is 
> in.

That's what I'm talking about.  There is plenty of money being saved,
ready and waiting to be invested, but there is no corresponding demand
for that money.

>>....  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.
>>
> I obviously disagree, given my remarks above.

I read your remarks, and I don't understand them.  See my comments
above.  You just said the Japanese and the Saudis have plenty of
dollars saved, and then in the next paragraph you disagree with the
statement that there is a surplus of savings (actually, what I
consider to be the same thing, a deficit of investment demand due to a
deficit of consumer demand).

>>....  Just consider the source of any theories
>>you hear offered to you.
> 
> Why is the source so important?  Are only right-thinkers allowed to real the 
> truth?  ....

No - only left-thinkers (just kidding).  As I said above, and you
didn't quote, the trickle-down theory comes from people who stand to
benefit personally by its implementation.  I don't want to suggest
that they don't believe it themselves, but rather that they do believe
it, because they like it for personal reasons.  It looks real good to
them.

> ....  The thing 
> to bear in mind is that it's not the deficit that's the problem;  it's 
> government spending.

That's another topic.  We were not talking about either the deficit or
government spending.  We were talking about whether taxes should be
levied in such a way as to encourage saving in preference to spending
on the part of individual taxpayers.  Can we stay on track?

> King Banaian
> unfortunately, an economist

Why unfortunately?  We need good economists.  Are you a good one?  Or
is economics, by its very nature, dismal science?

							Marty
marty@hoqaa.att.com		hoqaa!marty
Martin B. Brilliant		(Winnertech Corporation)	
Newsgroups: alt.politics.clinton,talk.politics.misc