first of all, investment may be insensitive to interest rate cuts. but rate
cuts are not a good way to address this sour economy, since overcapacity means
we don't need more plant and equipment, and record household indebtedness means
we don't need consumer spending that is debt-financed. in other words, not only
might the rate cuts not work, but it would be undesirable in many ways even if
they did. it is true that Bush's tax cut is skewed to the rich and is too little
too slow. But this is partly because it is very hard to get the knd of stimulus
necessary out of income taxes. To get the stimulus we need from an income tax
cut that would not be skewed toward the rich, we would have to eliminate income
taxes for the bottom 75-98% of income tax payers (unless we get into negative
income taxes for the poor, which I would support). The payroll tax is much more
burdensome for the lower and middle income households. A one year elimination of
it would be a good shot in the arm, but even a $1-2 hundred billion would be
good, if coupled with a $1-2 hundred billion increase in the EITC, and some
income tax cuts as well. Of course, increased government spending on things like
education, poverty reduction, training, etc. would not only support the economy
in terms of spending, but would have important longer term impacts of increasing
the knowledge and skills and productivity of our labor force and future labor
force. Tech companies having slow sales? Let's buy a computer (or more than one)
for every household and classroom without.
Soemone on another list recently reminded me of ch. 25 of the _Grapes of Wrath_.
Food spoiling while people are hungry, the incredible unreasonableness of this
sick economic system.
-----Original Message-----
From: Louis Proyect [mailto:[EMAIL PROTECTED]]
Sent: Wednesday, March 21, 2001 4:04 PM
To: [EMAIL PROTECTED]
Subject: [PEN-L:9258] Re: Re: Japan
>that is the question: is unused capacity in Japan due to inadequate demand
>for the product -- or is it due to excessive investment in the past? in the
>former case, simple Keynesian policies (like those I suggested) might work,
>while in the latter case, they wouldn't.
Speaking of overcapacity, I urge PEN-L'ers to look at today's Wall Street
Journal which is very upfront about the problem of overcapacity facing the
USA, particularly in the high tech arena. The reason that the Fed is
anxious not to go too far with interest rate cuts is that it does not want
credit to become too freely available. This would cut across the need to
liquidate inventories, since loans usually serve only one purpose: to
expand production. One front-page article deals with the issue of the Fed
and rate cuts. The other deals with high technology infrastructure
spending, an area that I am intimately familiar with. Trust me, the WSJ
article is right on the money. Columbia spent a huge amount of money in the
1990s to set up a campus network that would make client-server computing a
reality. The next big development effort will revolve around making
web-based clients available. For that, no new hardware investment is
necessary. Furthermore, the language used to develop applications--java--is
virtually free.
Louis Proyect
Marxism mailing list: http://www.marxmail.org/
