From: kbanaian@bernard.pitzer.claremont.edu (King Banaian)
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 16:53:55 GMT
Distribution: usa
Organization: Pitzer College

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.  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.

>> 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."

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.

>> 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.  We had to equip them with capital, or else our 
standard of living would have gone down by far more than it has.  That 
investment is encouraged by low real, after-tax interest rates.  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.

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

>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.

Why is the source so important?  Are only right-thinkers allowed to real the 
truth?  Government must do some things -- though I might argue about 
schools -- and you are quite right that the side effects matter.  The thing 
to bear in mind is that it's not the deficit that's the problem;  it's 
government spending.


King Banaian
unfortunately, an economist
Newsgroups: alt.politics.clinton