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: 18 Nov 92 20:19:56 GMT
Distribution: usa
Organization: AT&T

From article <kbanaian.22.0@bernard.pitzer.claremont.edu>, by kbanaian@bernard.pitzer.claremont.edu (King Banaian):
> In article <1992Nov17.222644.6184@cbfsb.cb.att.com> mbb@cbnewsb.cb.att.com (martin.brilliant) writes:
>>
>>....  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.
>>
> We have a credit crunch, not a liquidity trap.  In a liquidity trap, no one 
> wants to borrow.  In a credit crunch no one wants to lend.  Do you think you 
> could borrow money to finance a new widget factory right now?

Yes, I think I could borrow money to finance a new widget factory,
if I were willing to pay the appropriate interest rate for the risk.
I'm sure I could borrow money for a new hamburger franchise.  Have I
got that wrong?

> The spread between the cost of funds and the prime rate is fairly high now:  
> look at how banks have profited recently.  Banks are sinking their money 
> into T-bills because then they don't have to hold loan losses required by 
> the government.  The problem is not with the firms:  they'd love to invest 
> if they could get the loans.  They're not.  Don't look at the rates so 
> much:  It matters little if I can't get a loan.

You're saying the trouble is not so much consumer confidence as banker
confidence.  Why is banker confidence low?  Are you saying that
government regulations inhibit lending?  Maybe that's the
explanation.  When interest rates were high, banks made risky loans to
meet investor expectations for gain, and lost.  Now that interest
rates are low, the government regulations intended to prevent what
happened then are the wrong thing now.  There's neither a shortage
nor a surplus of savings, it's all due to the Reagan-Bush government
being on our backs.

You're also saying that the banks are putting our savings into loans
to the government instead of into loans to people or firms.  But you
also said that government borrowing (i.e., the deficit) is not the
problem.  But if the government didn't borrow, the banks would have
to lend to people.  So government borrowing is at least part of the
problem - certainly not part of the solution.

> Real Capital Stock, in 1982 dollars, was 3.138 trillion in 1980 and 3.960 in 
> 1989.  I can't lay my hands on 1990 data.  I don't know where it went in the 
> terms you asked.  That's still more than enough to handle the increase in 
> the labor force.

But the recession started around 1989, or maybe a few years earlier.
We're trying to deal with a recession and you have no data on it.  And
you called yourself an economist, unfortunately.

>>You 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).
> 
> Your theory is that all investment is driven ex post by increases in 
> consumption expenditures.  Do I have that right?  Do you wish to tell me 
> that nobody invests to improve productivity?  To produce new types of 
> products?

Look, nobody said "ex post."  People invest in the anticipation that
someone will buy.  Given the present view that a manager has to show
quarterly profits, no, I don't think many people will invest to
create new products if the demand isn't predictable.  I didn't say no
one would.  But not as many as in an apparent boom.

Actually, firms are investing in improved productivity.  But the
purpose and net result is to employ fewer people to produce the same
goods, not to produce more.  That kind of investment doesn't promote
growth.

> My point was that the savings effects are not terribly important here;  the 
> investment effects are critical.

The savings effects are the topic of this thread.  It started with the
idea that people should be taxed on consumption rather than income,
and that turned out to mean they should get a deduction for savings.
Presumably more savings was supposed to be good for the economy.

Do you think more savings, and less consumption, would be good for
the economy?  I don't.  I think it would be bad.  That's my point.

>>> ....  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?
> 
> Not so, my friend.  From the days of Ricardo we know that taxes and deficits 
> get you approximately the same result in the market place.  The thing that 
> drives it all is government spending.  If the government spends more, I know 
> I have to save to pay the bill someday (unless I wish to fob it off on your 
> children).....

I'm not sure what Ricardo had in mind, but if taxes and taxes can have
different effects on the economy, depending on who or what is taxed,
then surely taxes and deficits can have different effects.  I am
really getting impatient with "macro" economists who don't want to
look at the details.

> ....  Take away all the spending and the argument of how to tax is 
> moot.

All the spending?  Sorry, I won't accept that hypothesis.

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