Andrew wrote:
>If a monetary policy won't work, will a fiscal policy cut it? The Bush tax
>cut, a fiscal stimulus plan, is unlikely to have much effect
>because it will go in large measure to those taxpayers who already have
>relatively high incomes, and thus relatively high discretionary incomes.
>They will be free to invest [i.e, save] the money rather than spend it.
I think that a Bush cut could have the effect of cancelling out the effect
of the stock-market collapse on rich folks' spending. When the markets were
rising, it encouraged them to spend, because they interpreted its rise as a
real increase in their wealth. Now that's reversed, so that the "wealth
effect" (falling net worth in 2000) leads to falling luxury spending. The
Bush cuts -- if implemented -- would promise a steady diet of tax cuts for
several years, which would be akin to an increase in the rich folks'
wealth. This could cancel out the fall in luxury spending due to the
markets' collapse.
However, if this worked, it would simply delay the solving of the US
economy's problems (excessive consumer indebtedness, for example) and thus
make it worse in the long run.
>They will also use some of it to buy imports that will not help economic
>growth immediately.
working-class consumption involves lots of imports, too. Where do you think
all those products at Target or Wal-Mart are made?
>Investments can result in economic growth eventually, but only with time.
financial investments don't do this (one of the major points of Doug
Henwood's WALL STREET). It's real investment in factories, machinery, etc.,
that encourage economic growth, both on the supply-side and the
demand-side. But the Bush cuts don't encourage that, as far as I can tell.
>Taxpayers with lower incomes and lower discretionary incomes would spend
>the money they receive much faster, resulting in a boost to consumption
>spending, and directly translating to an increase in GDP.
that's true.
>If any tax reduction package is passed, it will have to be weighted
>heavily in the favor of the rich to win the President's signature, however.
that too.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
