Demand-Side Economics & the Perpetual Cash-Flow Machine
To: Daniel Gross
Re: Savings Glut
The special irony of Bush Co. blaming other countries for excessive saving is that, as supply-siders, they've insisted that saving and investment alone produce wealth, and that, therefore, tax cuts should be directed to those most likely to save and invest (i..e. corporations, the rich) rather than those more likely to spend (i.e. the middle class).
I'm sympathetic to demand-side economics, simply because it's less speculative, and speculation is the root of most economic catastrophe, but you need a proper mix, of course. I'm glad Bush Co. finally realizes this, but I don't expect to see it reflected in their policies. Also, this 'mix' is actually a separation-by-country, which means political tension could cause economic disaster, healthy demand or no.
To your followup on corporate savings, I'll add two things:
1) The situation could be described as an overcapacity of capital -- apparently, this is possible -- caused by above-mentioned tax cuts (also, spending via interest-group conservatism), and, therefore, we should wait until this overcapacity is spent down before embarking on further cut-and-spend policies, deficit aside.
2) Corporations aren't literally stowing their cash beneath the boardroom table: directly or indirectly, they're lending it to consumers -- in essence, financing purchases of their own products. No wonder the bankruptcy bill was so popular! There may be a gruesome whine as the perpetual cash-flow machine stops. Then we'll have a lesson in the tragedies of demand-side economics.
Re: Savings Glut
The special irony of Bush Co. blaming other countries for excessive saving is that, as supply-siders, they've insisted that saving and investment alone produce wealth, and that, therefore, tax cuts should be directed to those most likely to save and invest (i..e. corporations, the rich) rather than those more likely to spend (i.e. the middle class).
I'm sympathetic to demand-side economics, simply because it's less speculative, and speculation is the root of most economic catastrophe, but you need a proper mix, of course. I'm glad Bush Co. finally realizes this, but I don't expect to see it reflected in their policies. Also, this 'mix' is actually a separation-by-country, which means political tension could cause economic disaster, healthy demand or no.
To your followup on corporate savings, I'll add two things:
1) The situation could be described as an overcapacity of capital -- apparently, this is possible -- caused by above-mentioned tax cuts (also, spending via interest-group conservatism), and, therefore, we should wait until this overcapacity is spent down before embarking on further cut-and-spend policies, deficit aside.
2) Corporations aren't literally stowing their cash beneath the boardroom table: directly or indirectly, they're lending it to consumers -- in essence, financing purchases of their own products. No wonder the bankruptcy bill was so popular! There may be a gruesome whine as the perpetual cash-flow machine stops. Then we'll have a lesson in the tragedies of demand-side economics.
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