Re: Deficit - so what?

[William F Hummel <wfhummel@xxxxxxxxxxxx>]

Sean Reilly wrote:
>
>Why is it a bad thing to offer the tax cut for the so-called "rich", when it
>is they who will invest it, thereby producing jobs for the underemployed
>folks that the Dems just want to hand the cash to?

The only cash handout proposed by Congress is the Republican plan
to refund several years worth of taxes to large corporations.
That would please wealthy shareholders, but do little for the
economy.  The fact is there is no shortage of funds for available
for investment.  There is plenty of cash sloshing around in
mutual funds, pension funds, hedge funds, money market funds,
insurance companies, investment banks, etc.  The current problem
is on the demand side, not the supply side, as is almost always
the case.  With the manufacturing sector now faced with the
largest over-capacity since 1983, most producers have no
incentive to invest further.  Rather they are cutting employment
because of the lack of sales, thereby further reducing demand --
a classic case of positive feedback.

So how can we improve consumer demand?  Obviously by increasing
the disposable incomes of consumers, who make up about 70% of the
GDP.  The quickest way of doing that would be to sharply reduce
the payroll tax.  Even so it will take time to rebuild consumer
confidence with the daily drumbeat of "restructuring" workers out
of jobs.  We are not going to end the recession by simply
investing in more capacity to produce goods and services.

Any likely tax cut will benefit the upper income group more than
the middle and lower income groups.  That will have little effect
on consumer demand, though it will increase loanable funds.  The
only problem is that those additional funds will tend to increase
asset prices, not increase consumer spending.  The Republicans
need to get their economics straight, or perhaps more accurately
their priorities straight.

William F Hummel



>
>Politically, it makes the underemployed more dependant on the Gov't. and the
>Dems get to say that they fought the so-called "rich"  {insert industry of
>the week here), or that it is because of them being in office that Joe
>Average receives his Entitlement Check in the Mail from the Government.  So,
>the thought is that Joe Average is too stupid to think for himself and
>decides that Rob Politician is "on his side".  So, Joe Average goes to the
>polls and votes for Rob Politician.  In the final analysis, the Democrats
>are using their time in office as a welfare program in which they hand out
>the moneys that were stolen from tax paying citizens, like myself, to Joe
>Average, who refuses to go out and work for his money.  Most Republicans
>actually take a pay cut to work for the Government, which is rather telling
>if you think about it.