The Neocon Economy

[unlawflcombatnt]

Bush supply-side pseudo-economic policies are destroying our economy. It would take all of about 20 minutes to explain to someone how his economic mismanagement is worsening the economy, in addition to the complete absence of logic to his economic policies. His policies are actively worsening life for the lower 98% at present. And they will make 100% of us poorer in the future.

Tax cuts for the affluent, and other "supply-side" giveaways make no economic sense. Many people aren't aware of this, because it does take a little time to explain. But not very much. So I'm going to try here.

Our country became the world's most powerful economy under administrations that practiced "Demand-Side" economic policies. In general, demand-side economics centers on consumer spending and demand. Profits are made when goods are sold, not when produced. Industrial production is driven by DEMAND for goods made from that production. Consumer spending creates the demand for that production. Without demand, there is no production. That's because there's no benefit to that production. No profits can be made from unsold production.

Consumer demand is the ONLY factor that increases job and wage growth. Demand for goods also creates demand for labor to produce goods. Increased demand for anything increases the price. Thus, increased demand for labor increases the price of that labor. In other words, it increases wages. It also increases hiring. Demand increases the number of people working, as well as the wages of those people working.

If more workers are working and average wages are higher, it increases the aggregate (or total) demand for goods in our country. Aggregate Demand, when measured in dollars, is the ultimate limiting factor of industrial production. Aggregate Demand in dollars is total spendable dollars available to consumers. (Republicans hate the concept of Aggregate Demand. It conflicts with their "alternate reality" economic theories.)

Again, aggregate demand for goods is the engine that drives our economy. It drives production, hiring, and wage increases. The demand cycle has a self-perpetuating effect. As labor/consumer income increases, so does the demand for goods. That's because consumers have more money to spend. This increased demand further increases labor demand. Which further increases wages and hiring.


Supply-side concepts have never been accepted by a large number of economists. What I mean here is that they are not even accepted as a valid economic theory. Many economists refuse to call supply-side policies a theory. Some refer to them as "voodoo economics." Supply-side policies are essentially economic mythology. They are a completely illogical set of ideas that were concocted to justify tax cuts for the rich. The major proponents were not even economists. Most were actually journalists, such as Robert Bartley, the late editor of the Wall Street Journal.

Let me try to show the error of some supply-side propaganda. A major point is about tax cuts for the rich. This is supposed to stimulate investment. That investment is supposed to go into building production facilities and increasing production (supply). There is an obvious problem here. What if consumer spending doesn't necessitate increased production? If consumer spending doesn't keep up with supply, that investment money is completely wasted. Profits are made by SELLING products, not producing them. Un-sold goods do not "grow" our economy. (Neither do increased CEO salaries.)

Another less important, but even more illogical assumption, is that if you tax people less, they will produce more. It may be true that high-end taxpayers would have more money to invest. However, that's where the truth ends, and the fantasy begins. Even acknowledging that smidgeon of truth, the benefit of that money is questionable. The extra investment money is supposed to lead to increased goods production(supply). Again, there is no benefit to producing more goods than consumers can pay for. This increased investment money is useless unless demand necessitates increased production.

There is also a definite negative to these supply-side fantasies. Increasing the deficit to fund these cuts increases inflation, as well as devaluing the dollar. That means consumer dollars are worth less. So consumers will buy less. And provide less demand for goods, causing less demand for labor. Which starts us on another self-perpetuating downward spiral.

The big picture is this. In order for production to increase, demand for production must increase. Consumers need to have enough spendable wealth to purchase increased production. Inreasing production without increasing consumer spending is putting the cart ahead of the horse. The cart isn't going to "push" the horse forward. And manufacturers aren't going to "push" consumer spending forward. Only consumers can drive our economy. They provide the demand that "pulls" production forward. Remember the old adage: "Necessity is the mother of invention." So it is that "Demand is the mother of production." Demand for goods leads to increased production of those goods. However, supply of goods does not increase demand. Unsold goods are worth absolutely $0.


Demand-Side Economics were almost universally accepted until the mid-1970's. However, sometime in the 70's, supply-side mythology was born. (Under a rock, in a dark cave.)

Today we're seeing the fruits of supply-side mythology.
Consumer income has decreased during Bush's "economic reign-of-terror." Tax cuts for the top 2% favor investment, not consumer spending. Though consumer income was obviously declining, Bush decided his rich friends needed more money to "grow" the economy. According to Bush, they would produce more goods and increase production capacity. Also, as Bush dishonestly claimed, they would hire more workers.

Does this make any sense? Will a company hire more workers just because they have more money? Do they hire more just because they can afford to? No, absolutely not. They only hire workers when they NEED them. No amount of corporate giveaways will increase hiring, unless demand for production increases, which increases demand for labor to provide that production.

Let me give an example. Let's say I'm a doctor who sees 6 patients per day. I need one nurse. What if my new friend, George Bush, gives me $1 million because he likes me. (for some unknown reason.) Will I hire more nurses? Of course not. I don't NEED more nurses. They won't increase my profits any, and they will cost me money. So I'm not going to hire them.

Let me change the example. Let's say I'm the same doctor, and my ex-friend, George Bush, takes back the $1 million. He then gives it to the potential patients who live around my office. Now more people can afford medical care. Now I have 30 patients per day. Am I going to hire more nurses? Yes, indeed. Because now I NEED more nurses. The DEMAND for nurses has increased. Hiring more nurses will increase my profits.

In the above example I hired more nurses only when I NEEDED them. I hired none when I didn't need them, even though I could afford them. Being able to afford hiring of nurses had no effect on hiring. Demand for their services did. This increased demand was due to increased consumer income. Increased consumer income ALWAYS increases aggregate demand. (It may effect demand for individual products differently. But is still increases the sum total of demand for goods and services produced.)

In the above example, nurses spendable income increased because of demand increase. In turn, their income increased aggregate consumer income. This increases demand for the goods they buy, and the labor that produces those goods. It helped the entire economy as a result.

Again, increased consumer income increases demand for production. But how does consumer spending increase, if consumer income decreases? It increases through credit and borrowing. Current consumer spending has been maintained through increased borrowing and credit card spending. To phrase this differently, it has been maintained by consumer "deficit" spending. And this is becoming an increasingly larger portion of consumer spending. A lot of this deficit spending has been financed by the artificially increased value of homes, and the resulting increase in home equity loans. Interest rates have almost a direct effect on the market value of homes. The higher the fraction of buyer's cost going to financing, the less the market value of the home. This is because the seller receives a smaller fraction of the total payment. If interest rates are low, the seller receives a higher fraction of the buyer's payment.

Let me give a brief illustration. Let's say I want to buy a home. Let's say I am a perfect example of all potential buyers in my area. I'm willing to pay $300,000 total for a home. This includes all finance charges, as well as principal payment. Let's say the total financing costs $150, 000. That means the seller will get the other $150,000. That means the market value of his home is $150,000, because that's what he actually gets.

Let's change the finance charges. I'm still only willing to pay $300,000 total for the home, including all finance charges. But the finance charges are only $50,000 now, because of a lower interest rate. The seller now gets $250,000, instead of $150,000. The market value of his home is now $250,000. The market value of his home has increased $100,000 because of a reduced interest rate. The reduced interest rate accounts for 100% of the increase in market value. This increases the equity, and increases the amount he can borrow off this equity.

Lowered interest rates have greatly increased home equity values. They have also greatly increased the amount of money that can be borrowed off this equity. This money has made a significant contribution to consumer spending during the last 4 years. Current estimates are that it contributes $200-300 billion per year to our $12 trillion GDP. This is 1.5 to 2.5% of our GDP. Borrowed money has prevented consumer spending from sinking. As interest rates rise, home equity values will decrease. Money borrowed from this reduced home equity will also decrease. The contribution to consumer spending from this money will also decrease.

From this, it becomes obvious that consumer demand cannot be maintained by this consumer deficit spending. We are nearing the limit now. We are going to reach this limit in the near future. The home-refinancing loan bubble, and its contribution to consumer spending, is about to burst. When it does, consumer spending and demand will drop. And they will continue to drop, because this is also a self-perpetuating cycle. As consumer demand for production decreases, so will the demand for labor to provide that production. As a result, hiring will decrease and layoffs will increase. This will further decrease consumer income, and the spending that comes from that income.

We need to change our economic course. We can't let Republicans distract us from major issues. We can't let them waste our time with discussion right-wing planted distractions. Subjects such as steroids in baseball, the Robert Blake trial, Michael Jackson, and Terry Shiavo provide cover for what the Republicans are really up to. Corporatization of social security and extension of tax cuts for the rich affect all of us. Job loss to the cheap slave labor of foreign countries affects all of us. Let's not help provide cover for the Bush/Snow/Greenspan "economic axis-of-evil."

Clinton was right. It is "the economy stupid." Let's not let the Republicans convince us otherwise.


unlawflcombatnt

_________________
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for factory production creates jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

 

[Said1]

Nice plug for your blog.

 

[dilloduck]

Bush supply-side pseudo-economic policies are destroying our economy. It would take all of about 20 minutes to explain to someone how his economic mismanagement is worsening the economy, in addition to the complete absence of logic to his economic policies. His policies are actively worsening life for the lower 98% at present. And they will make 100% of us poorer in the future.

Tax cuts for the affluent, and other "supply-side" giveaways make no economic sense. Many people aren't aware of this, because it does take a little time to explain. But not very much. So I'm going to try here.

Our country became the world's most powerful economy under administrations that practiced "Demand-Side" economic policies. In general, demand-side economics centers on consumer spending and demand. Profits are made when goods are sold, not when produced. Industrial production is driven by DEMAND for goods made from that production. Consumer spending creates the demand for that production. Without demand, there is no production. That's because there's no benefit to that production. No profits can be made from unsold production.

Consumer demand is the ONLY factor that increases job and wage growth. Demand for goods also creates demand for labor to produce goods. Increased demand for anything increases the price. Thus, increased demand for labor increases the price of that labor. In other words, it increases wages. It also increases hiring. Demand increases the number of people working, as well as the wages of those people working.

If more workers are working and average wages are higher, it increases the aggregate (or total) demand for goods in our country. Aggregate Demand, when measured in dollars, is the ultimate limiting factor of industrial production. Aggregate Demand in dollars is total spendable dollars available to consumers. (Republicans hate the concept of Aggregate Demand. It conflicts with their "alternate reality" economic theories.)

Again, aggregate demand for goods is the engine that drives our economy. It drives production, hiring, and wage increases. The demand cycle has a self-perpetuating effect. As labor/consumer income increases, so does the demand for goods. That's because consumers have more money to spend. This increased demand further increases labor demand. Which further increases wages and hiring.


Supply-side concepts have never been accepted by a large number of economists. What I mean here is that they are not even accepted as a valid economic theory. Many economists refuse to call supply-side policies a theory. Some refer to them as "voodoo economics." Supply-side policies are essentially economic mythology. They are a completely illogical set of ideas that were concocted to justify tax cuts for the rich. The major proponents were not even economists. Most were actually journalists, such as Robert Bartley, the late editor of the Wall Street Journal.

Let me try to show the error of some supply-side propaganda. A major point is about tax cuts for the rich. This is supposed to stimulate investment. That investment is supposed to go into building production facilities and increasing production (supply). There is an obvious problem here. What if consumer spending doesn't necessitate increased production? If consumer spending doesn't keep up with supply, that investment money is completely wasted. Profits are made by SELLING products, not producing them. Un-sold goods do not "grow" our economy. (Neither do increased CEO salaries.)

Another less important, but even more illogical assumption, is that if you tax people less, they will produce more. It may be true that high-end taxpayers would have more money to invest. However, that's where the truth ends, and the fantasy begins. Even acknowledging that smidgeon of truth, the benefit of that money is questionable. The extra investment money is supposed to lead to increased goods production(supply). Again, there is no benefit to producing more goods than consumers can pay for. This increased investment money is useless unless demand necessitates increased production.

There is also a definite negative to these supply-side fantasies. Increasing the deficit to fund these cuts increases inflation, as well as devaluing the dollar. That means consumer dollars are worth less. So consumers will buy less. And provide less demand for goods, causing less demand for labor. Which starts us on another self-perpetuating downward spiral.

The big picture is this. In order for production to increase, demand for production must increase. Consumers need to have enough spendable wealth to purchase increased production. Inreasing production without increasing consumer spending is putting the cart ahead of the horse. The cart isn't going to "push" the horse forward. And manufacturers aren't going to "push" consumer spending forward. Only consumers can drive our economy. They provide the demand that "pulls" production forward. Remember the old adage: "Necessity is the mother of invention." So it is that "Demand is the mother of production." Demand for goods leads to increased production of those goods. However, supply of goods does not increase demand. Unsold goods are worth absolutely $0.


Demand-Side Economics were almost universally accepted until the mid-1970's. However, sometime in the 70's, supply-side mythology was born. (Under a rock, in a dark cave.)

Today we're seeing the fruits of supply-side mythology.
Consumer income has decreased during Bush's "economic reign-of-terror." Tax cuts for the top 2% favor investment, not consumer spending. Though consumer income was obviously declining, Bush decided his rich friends needed more money to "grow" the economy. According to Bush, they would produce more goods and increase production capacity. Also, as Bush dishonestly claimed, they would hire more workers.

Does this make any sense? Will a company hire more workers just because they have more money? Do they hire more just because they can afford to? No, absolutely not. They only hire workers when they NEED them. No amount of corporate giveaways will increase hiring, unless demand for production increases, which increases demand for labor to provide that production.

Let me give an example. Let's say I'm a doctor who sees 6 patients per day. I need one nurse. What if my new friend, George Bush, gives me $1 million because he likes me. (for some unknown reason.) Will I hire more nurses? Of course not. I don't NEED more nurses. They won't increase my profits any, and they will cost me money. So I'm not going to hire them.

Let me change the example. Let's say I'm the same doctor, and my ex-friend, George Bush, takes back the $1 million. He then gives it to the potential patients who live around my office. Now more people can afford medical care. Now I have 30 patients per day. Am I going to hire more nurses? Yes, indeed. Because now I NEED more nurses. The DEMAND for nurses has increased. Hiring more nurses will increase my profits.

In the above example I hired more nurses only when I NEEDED them. I hired none when I didn't need them, even though I could afford them. Being able to afford hiring of nurses had no effect on hiring. Demand for their services did. This increased demand was due to increased consumer income. Increased consumer income ALWAYS increases aggregate demand. (It may effect demand for individual products differently. But is still increases the sum total of demand for goods and services produced.)

In the above example, nurses spendable income increased because of demand increase. In turn, their income increased aggregate consumer income. This increases demand for the goods they buy, and the labor that produces those goods. It helped the entire economy as a result.

Again, increased consumer income increases demand for production. But how does consumer spending increase, if consumer income decreases? It increases through credit and borrowing. Current consumer spending has been maintained through increased borrowing and credit card spending. To phrase this differently, it has been maintained by consumer "deficit" spending. And this is becoming an increasingly larger portion of consumer spending. A lot of this deficit spending has been financed by the artificially increased value of homes, and the resulting increase in home equity loans. Interest rates have almost a direct effect on the market value of homes. The higher the fraction of buyer's cost going to financing, the less the market value of the home. This is because the seller receives a smaller fraction of the total payment. If interest rates are low, the seller receives a higher fraction of the buyer's payment.

Let me give a brief illustration. Let's say I want to buy a home. Let's say I am a perfect example of all potential buyers in my area. I'm willing to pay $300,000 total for a home. This includes all finance charges, as well as principal payment. Let's say the total financing costs $150, 000. That means the seller will get the other $150,000. That means the market value of his home is $150,000, because that's what he actually gets.

Let's change the finance charges. I'm still only willing to pay $300,000 total for the home, including all finance charges. But the finance charges are only $50,000 now, because of a lower interest rate. The seller now gets $250,000, instead of $150,000. The market value of his home is now $250,000. The market value of his home has increased $100,000 because of a reduced interest rate. The reduced interest rate accounts for 100% of the increase in market value. This increases the equity, and increases the amount he can borrow off this equity.

Lowered interest rates have greatly increased home equity values. They have also greatly increased the amount of money that can be borrowed off this equity. This money has made a significant contribution to consumer spending during the last 4 years. Current estimates are that it contributes $200-300 billion per year to our $12 trillion GDP. This is 1.5 to 2.5% of our GDP. Borrowed money has prevented consumer spending from sinking. As interest rates rise, home equity values will decrease. Money borrowed from this reduced home equity will also decrease. The contribution to consumer spending from this money will also decrease.

From this, it becomes obvious that consumer demand cannot be maintained by this consumer deficit spending. We are nearing the limit now. We are going to reach this limit in the near future. The home-refinancing loan bubble, and its contribution to consumer spending, is about to burst. When it does, consumer spending and demand will drop. And they will continue to drop, because this is also a self-perpetuating cycle. As consumer demand for production decreases, so will the demand for labor to provide that production. As a result, hiring will decrease and layoffs will increase. This will further decrease consumer income, and the spending that comes from that income.

We need to change our economic course. We can't let Republicans distract us from major issues. We can't let them waste our time with discussion right-wing planted distractions. Subjects such as steroids in baseball, the Robert Blake trial, Michael Jackson, and Terry Shiavo provide cover for what the Republicans are really up to. Corporatization of social security and extension of tax cuts for the rich affect all of us. Job loss to the cheap slave labor of foreign countries affects all of us. Let's not help provide cover for the Bush/Snow/Greenspan "economic axis-of-evil."

Clinton was right. It is "the economy stupid." Let's not let the Republicans convince us otherwise.



_________________
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for factory production creates jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

Isn't consumer demand totally dependent on what a consumer can afford to buy? If taxes are so high and production and labor costs are so high, the ability of the consumer to actually purchase and item diminishes--even if he is Willing to pay for something doesn't mean he can afford to.

 

[GotZoom]

icPopulistCommentary[/url]

Nice plug for your blog.

And not even sneaky about it.

You have cajones Mike.

 

[Avatar4321]

There are two problems with your analysis:

1)History has shown that tax cuts works. You allow people to keep more of their own money and they will spend more of it in ways they find productive. It worked when Reagan did it in the 80s. It worked in New York when Guiliani cut the city taxes. It worked in 2001 when the President cut taxes. Tax cuts stimulate the economy. And whats more by stimulating the economy they bring in more tax revenue. It's a simple analysis of the Laffer(sp?) curve

2)The fact is, the so called rich is essentially anyone who actually works for a living. If you have two pairs of shoes, a daily change of underwear, and can eat 6 straight meals if you chose to, you are rich.

Oh and welcome to the board. Hopefully you arent just a troll looking for hits to the website and will bother to actually discuss things with people.

 

[unlawflcombatnt]

Isn't consumer demand totally dependent on what a consumer can afford to buy?

You're 100% right. If that's the only point I got across, my post was very worthwhile. Unless assisted by credit or borrowing, consumers can purchase no more in dollars than they actually have. Which means that aggregate consumer income limits consumer spending, and the demand for production it creates. If aggregate consume income declines aggregate consumer spending and production demand will also decline. As production demand declines, so does demand for labor to provide that production. The result is further decline in wages, spending, production demand, and labor demand. (Again, this all assumes that consumer spending is not being propped up by borrowing, which of course it is at present.)

Job loss --> consumer income loss --> consumer spending decline --> consumer demand for production decline --> decline in demand for workers to provide production --> More job loss.

If taxes are so high and production and labor costs are so high, the ability of the consumer to actually purchase and item diminishes--even if he is Willing to pay for something doesn't mean he can afford to.

I'm not sure how you're relating high labor costs to diminished ability of consumers to purchase goods. The labor costs themselves are essentially the same as wages, which provides consumer income. Production costs limit how much business can lower prices, and still make a profit. But the price of the good is determined by what consumers are willing to pay, not how much it costs to make the product. A business will charge $100 for an item, if most consumers are willing to pay it. It doesn't matter whether their production costs were $1 or $60. They'll charge $100 if they can.

In contrast, if consumers are only willing to pay $70 for the item, the company will sell it for $70. If they try to sell it for more, consumers simply won't buy it. Again, it makes no difference whether it cost $1 to make, or $60. Consumers determine the price.

If it costs $120 to make, the company simply won't make the product. They cannot raise the price above what consumers are willing to pay.

So what limits the amount consumers are willing to pay? The limits of what they are willing to pay is limited by how much they actually can pay. In other words, it's limited by how much money they have. That money is largely the result of labor/consumer wages. Thus, aggregate consumer income places an absolute top limit on aggregate dollar value of sales. Consumer income limits the dollar value of the entire consumer market. Decreased consumer income decreases the size of that market.

Aggregate consumer income, and the aggregate spending it finances, provides the absolute limit to our economic growth. Profits are made by SALE of goods, not production. Without sale of product, there is no profit. Without profit, or at least anticipated profit, there is no demand for investment. As such, consumer spending is the limiting factor of economic growth, as well as the limiting factor of investment.

 

[archangel]

Both parties are guilty of the above...Trilateral Commission" ring a bell...shadow government...of which the Bushes,Cheney,Condi,Clintons etc etc all belong to! Heck even Colin Powell belongs! :shocked:

 

[unlawflcombatnt]

"There are two problems with your analysis:

1)History has shown that tax cuts works. You allow people to keep more of their own money and they will spend more of it in ways they find productive. It worked when Reagan did it in the 80s. It worked in New York when Guiliani cut the city taxes. It worked in 2001 when the President cut taxes. Tax cuts stimulate the economy. And whats more by stimulating the economy they bring in more tax revenue. It's a simple analysis of the Laffer(sp?) curve"

The first problem with your "analysis" of my analysis is that high-end tax cuts did not work. Reagan's tax cuts created huge deficits and increased the national debt tremendously. Economic growth was not overwhelming during the Reagan years, or Bush 1 years. Economic growth was much greater under Clinton, and the debt created during the Reagan-Bush "voodoo economics" years was greatly reduced during the Clinton years. Furthermore, both Reagan and Bush 1 had to give in a raise taxes. Supply-Side economics was a complete failure, and the problems created were lessened under Clinton.

If you compare GDP, or national debt, it's overwhelmingly clear that the economy was better under Clinton. The preponderance of historical evidence shows that Clinton's policies worked much better than those of his 2 predecessors.

I would agree with you that tax cuts could stimulate the economy, but only if they were aimed at the lower income earners. Such tax cuts would have stimulated consumer spending and demand, and provided the driving force to increase production and "grow" our economy.

We are extremely over-invested at present. Even the Wall Street Journal has stated that "the markets are glutted with capital." Others have stated that business is "awash in cash." We don't need more high-end tax cuts to stimulate investment. We need more low-end tax cuts to simulate spending and consumer production demand. We don't need more "investment." We need more investment "opportunities." Consumer spending, and the demand for production it creates, creates those opportunities.

It is the "consumer" end of the economy we need to stimulate, not the "investment" end. If we stimulate the consumer end, we will increase the investment opportunities necessary to utilize the current excessive supply of investment capital.

--------------------

Thanks for the welcome. If you visit my blog, you might want to read the part titled "How I Became an ex-Conservative." I supported Reagan at the time. I even shook hands with him once. My support was based on a mistaken understanding of economics at the time. I've since corrected that "mistake."

 

[Hobbit]

Demand side economics is only truly useful in a failing economy, where there is no money in the hands of consumers. Supply side, and cutting taxes across the board, stimulate a stable economy and actually raise tax revenue over time. Basically, an economy is stimulated by the introduction of more financial capital into the market. Demand side economics is best when the end-users of products can no longer afford them. The government then starts welfare and work programs to give consumers the money they need to purchase goods. Right now, the economy is doing well. However, as demand increases, the price of goods goes up, stagnating the economy. Introducing tax cuts around the board (with, believe it or not, the smallest percentage went to the rich, but since they pay more, they got a bigger break in raw numbers) puts money in the hands of both consumers and producers. When the producers get the money, they can make more goods, increasing the supply and lowering the price. They can also hire more employees and give their current ones raises, and they can increase stock dividends. This all puts money in the hands of the consumers. In an already good economy, this is the best approach.

 

[theim]

"There are two problems with your analysis:

1)History has shown that tax cuts works. You allow people to keep more of their own money and they will spend more of it in ways they find productive. It worked when Reagan did it in the 80s. It worked in New York when Guiliani cut the city taxes. It worked in 2001 when the President cut taxes. Tax cuts stimulate the economy. And whats more by stimulating the economy they bring in more tax revenue. It's a simple analysis of the Laffer(sp?) curve"

The first problem with your "analysis" of my analysis is that high-end tax cuts did not work. Reagan's tax cuts created huge deficits and increased the national debt tremendously. Economic growth was not overwhelming during the Reagan years, or Bush 1 years. Economic growth was much greater under Clinton, and the debt created during the Reagan-Bush "voodoo economics" years was greatly reduced during the Clinton years. Furthermore, both Reagan and Bush 1 had to give in a raise taxes. Supply-Side economics was a complete failure, and the problems created were lessened under Clinton.

If you compare GDP, or national debt, it's overwhelmingly clear that the economy was better under Clinton. The preponderance of historical evidence shows that Clinton's policies worked much better than those of his 2 predecessors.

I would agree with you that tax cuts could stimulate the economy, but only if they were aimed at the lower income earners. Such tax cuts would have stimulated consumer spending and demand, and provided the driving force to increase production and "grow" our economy.

We are extremely over-invested at present. Even the Wall Street Journal has stated that "the markets are glutted with capital." Others have stated that business is "awash in cash." We don't need more high-end tax cuts to stimulate investment. We need more low-end tax cuts to simulate spending and consumer production demand. We don't need more "investment." We need more investment "opportunities." Consumer spending, and the demand for production it creates, creates those opportunities.

It is the "consumer" end of the economy we need to stimulate, not the "investment" end. If we stimulate the consumer end, we will increase the investment opportunities necessary to utilize the current excessive supply of investment capital.

--------------------

Thanks for the welcome. If you visit my blog, you might want to read the part titled "How I Became an ex-Conservative." I supported Reagan at the time. I even shook hands with him once. My support was based on a mistaken understanding of economics at the time. I've since corrected that "mistake."

I suppose the allure of "free" goodies that socialism offers will always appeal to lazy asses.

 

[unlawflcombatnt]

I suppose the allure of "free" goodies that socialism offers will always appeal to lazy asses.

Though that's certainly true, it's even more true that corporatists will try to justify any big government legislation that helps increase their bottom line, and reduces competition. Meanwhile, they'll keep regurgitating their "free market" mantra, while they do everything possible to eliminate the free market.

It is the Right-Wing Corporatists that are the major advocates of big government. They just dishonestly claim otherwise. The "free market" is only good when it helps their profits. If that "freedom" reduces profits from competition, they are always against it.

 

[KarlMarx]

Bush supply-side pseudo-economic policies are destroying our economy. It would take all of about 20 minutes to explain to someone how his economic mismanagement is worsening the economy, in addition to the complete absence of logic to his economic policies. His policies are actively worsening life for the lower 98% at present. And they will make 100% of us poorer in the future.

The economy is being destroyed? Wow, if Bush is destroying the economy, he’s doing a superb job of keeping it a secret!!!!! How do you explain an unemployment rate below 5% and the latest DJIA closing at over 10,500, which is near historical highs? How also do you explain low interest rates, and in spite of a hurricane that flattened New Orleans, few shortages?

Tax cuts for the affluent, and other "supply-side" giveaways make no economic sense. Many people aren't aware of this, because it does take a little time to explain. But not very much. So I'm going to try here.

Yes, any across the board tax cut will benefit the affluent because they pay most of the taxes under the present form of taxation.

Our country became the world's most powerful economy under administrations that practiced "Demand-Side" economic policies. In general, demand-side economics centers on consumer spending and demand. Profits are made when goods are sold, not when produced. Industrial production is driven by DEMAND for goods made from that production. Consumer spending creates the demand for that production. Without demand, there is no production. That's because there's no benefit to that production. No profits can be made from unsold production.

Our country became the most powerful economy on the planet during a period of limited government, laizzes faire capitalism and low taxation during the 19th century…. It also occurred during a period of westward expansion of our country…. The government had little to do with it, except to pass laws busting up trusts, regulating monopolies etc.

Consumer demand is the ONLY factor that increases job and wage growth. Demand for goods also creates demand for labor to produce goods. Increased demand for anything increases the price. Thus, increased demand for labor increases the price of that labor. In other words, it increases wages. It also increases hiring. Demand increases the number of people working, as well as the wages of those people working.

If more workers are working and average wages are higher, it increases the aggregate (or total) demand for goods in our country. Aggregate Demand, when measured in dollars, is the ultimate limiting factor of industrial production. Aggregate Demand in dollars is total spendable dollars available to consumers. (Republicans hate the concept of Aggregate Demand. It conflicts with their "alternate reality" economic theories.)

Again, aggregate demand for goods is the engine that drives our economy. It drives production, hiring, and wage increases. The demand cycle has a self-perpetuating effect. As labor/consumer income increases, so does the demand for goods. That's because consumers have more money to spend. This increased demand further increases labor demand. Which further increases wages and hiring.

So, what you seem to be saying is that increasing the amount of money available to consumers in the economy increases demand and fuels growth…. So that is an argument for cutting taxation, not against it.

Let me try to show the error of some supply-side propaganda. A major point is about tax cuts for the rich. This is supposed to stimulate investment. That investment is supposed to go into building production facilities and increasing production (supply). There is an obvious problem here. What if consumer spending doesn't necessitate increased production? If consumer spending doesn't keep up with supply, that investment money is completely wasted. Profits are made by SELLING products, not producing them. Un-sold goods do not "grow" our economy. (Neither do increased CEO salaries.)

Decreasing taxes increases the amount of money available to consumers (which the rich happen to be part of). By spending money, consumers are investing in the economy …. As you said before increased spending increases jobs and therefore the economy. What if consumer spending doesn't necessitate increased production? That would mean that companies have large inventories to draw on, they wouldn’t start hiring until the demand for goods causes companies to deplete their inventories, which would then force them to start producing goods and therefore hiring people. Once the companies get consumer dollars, they in turn invest them in new equipment, marketing etc. They don’t put all those consumer dollars in a mattress! Your error is that you look at economics as a zero sum process which it isn’t.

Another less important, but even more illogical assumption, is that if you tax people less, they will produce more. It may be true that high-end taxpayers would have more money to invest. However, that's where the truth ends, and the fantasy begins. Even acknowledging that smidgeon of truth, the benefit of that money is questionable. The extra investment money is supposed to lead to increased goods production(supply). Again, there is no benefit to producing more goods than consumers can pay for. This increased investment money is useless unless demand necessitates increased production.

If you tax people less they will SPEND more, no supply side economist believes what you claim. It has been shown that the savings rate in this country is about 5%, which means that Americans spend 95% of what they earn. If that is so, then a $300B tax cut actually pumps $270B dollars back into the economy. Increased consumer spending increases production, which increases jobs, isn’t that what you said a couple of paragraphs ago?

There is also a definite negative to these supply-side fantasies. Increasing the deficit to fund these cuts increases inflation, as well as devaluing the dollar. That means consumer dollars are worth less. So consumers will buy less. And provide less demand for goods, causing less demand for labor. Which starts us on another self-perpetuating downward spiral.

Again, you look at economics as a zero sum process, it isn’t. A tax cut does not necessarily mean a reduction in government revenue! You don’t cut the number of dollars that the government collects when you cut taxes, you cut the RATE at which economic activity is taxed. A tax cut is analogous to a sale at a department store. When department stores have sales, their revenue increases, that’s why they have them! The same is true when you lower the tax rate on economic activity. By decreasing the price of economic activity (i.e. you cut the tax on it), you INCREASE the demand for that activity. By INCREASING the demand for something, you increase the supply of dollars!!!

The big picture is this. In order for production to increase, demand for production must increase. Consumers need to have enough spendable wealth to purchase increased production. Inreasing production without increasing consumer spending is putting the cart ahead of the horse. The cart isn't going to "push" the horse forward. And manufacturers aren't going to "push" consumer spending forward. Only consumers can drive our economy. They provide the demand that "pulls" production forward. Remember the old adage: "Necessity is the mother of invention." So it is that "Demand is the mother of production." Demand for goods leads to increased production of those goods. However, supply of goods does not increase demand. Unsold goods are worth absolutely $0.

Money drives the economy, not demand, not supply. If you increase the money supply, you increase spending….. because peoples’ wants and desires are practically infinite …..

And if you tax people so that they have little or no income to spend, they can’t buy any goods, so nothing gets produced and no one has a job then everyone except the government is poor. End of story!

Demand-Side Economics were almost universally accepted until the mid-1970's. However, sometime in the 70's, supply-side mythology was born. (Under a rock, in a dark cave.)

Today we're seeing the fruits of supply-side mythology.
Consumer income has decreased during Bush's "economic reign-of-terror." Tax cuts for the top 2% favor investment, not consumer spending. Though consumer income was obviously declining, Bush decided his rich friends needed more money to "grow" the economy. According to Bush, they would produce more goods and increase production capacity. Also, as Bush dishonestly claimed, they would hire more workers.

Does this make any sense? Will a company hire more workers just because they have more money? Do they hire more just because they can afford to? No, absolutely not. They only hire workers when they NEED them. No amount of corporate giveaways will increase hiring, unless demand for production increases, which increases demand for labor to provide that production

.

Actually, none of this is making sense……. Bush’s “economic reign of terror”????? Man, where have you been these past several years? People’s standard of living has gone up, interest rates reached historical lows, we are almost at full employment (anything near 4% unemployment is considered “full employment”), the stock market is up. Perhaps things are tough in Long Beach California… but not in most of the country!

Let me give an example. Let's say I'm a doctor who sees 6 patients per day. I need one nurse. What if my new friend, George Bush, gives me $1 million because he likes me. (for some unknown reason.) Will I hire more nurses? Of course not. I don't NEED more nurses. They won't increase my profits any, and they will cost me money. So I'm not going to hire them.

OK, so you go out and buy a new car instead or spend that money on a vacation or just put it in the bank. What happens to it? If you buy a car, you’ve increased consumer demand and spending…. Which increase jobs (you said it yourself), if you go on vacation , you’ve increased consumer demand for hotels, restaurant services, food, and therefore increased demand and therefore increased consumer spending and therefore created jobs. If you put the money in the bank, the bank will lend the money to people who want to buy homes, open businesses, which in turn increases demand for goods (because home buyers hired carpenters, plumbers, go to Home Depot and buy things) which increases spending which increases jobs (you said so yourself)….. business owners buy lots of things (cash registers, computers, and whatever stuff they need to run their businesses)…. Which in turn increases demand, increases spending which increases the number of jobs ….. do I really need to go on here?

Let me change the example. Let's say I'm the same doctor, and my ex-friend, George Bush, takes back the $1 million. He then gives it to the potential patients who live around my office. Now more people can afford medical care. Now I have 30 patients per day. Am I going to hire more nurses? Yes, indeed. Because now I NEED more nurses. The DEMAND for nurses has increased. Hiring more nurses will increase my profits.

Huh? What if your ex friend George Bush gave half a million to you and a half million to your patients? You’ll go on vacation or buy a car, and the patients will probably go out and spend their money, too…. So, in all cases a tax cut is good…….

In the above example I hired more nurses only when I NEEDED them. I hired none when I didn't need them, even though I could afford them. Being able to afford hiring of nurses had no effect on hiring. Demand for their services did. This increased demand was due to increased consumer income. Increased consumer income ALWAYS increases aggregate demand. (It may effect demand for individual products differently. But is still increases the sum total of demand for goods and services produced.)

In the above example, nurses spendable income increased because of demand increase. In turn, their income increased aggregate consumer income. This increases demand for the goods they buy, and the labor that produces those goods. It helped the entire economy as a result.

Again, increased consumer income increases demand for production. But how does consumer spending increase, if consumer income decreases? It increases through credit and borrowing. Current consumer spending has been maintained through increased borrowing and credit card spending. To phrase this differently, it has been maintained by consumer "deficit" spending. And this is becoming an increasingly larger portion of consumer spending. A lot of this deficit spending has been financed by the artificially increased value of homes, and the resulting increase in home equity loans. Interest rates have almost a direct effect on the market value of homes. The higher the fraction of buyer's cost going to financing, the less the market value of the home. This is because the seller receives a smaller fraction of the total payment. If interest rates are low, the seller receives a higher fraction of the buyer's payment.

Let me give a brief illustration. Let's say I want to buy a home. Let's say I am a perfect example of all potential buyers in my area. I'm willing to pay $300,000 total for a home. This includes all finance charges, as well as principal payment. Let's say the total financing costs $150, 000. That means the seller will get the other $150,000. That means the market value of his home is $150,000, because that's what he actually gets.

Let's change the finance charges. I'm still only willing to pay $300,000 total for the home, including all finance charges. But the finance charges are only $50,000 now, because of a lower interest rate. The seller now gets $250,000, instead of $150,000. The market value of his home is now $250,000. The market value of his home has increased $100,000 because of a reduced interest rate. The reduced interest rate accounts for 100% of the increase in market value. This increases the equity, and increases the amount he can borrow off this equity.

Lowered interest rates have greatly increased home equity values. They have also greatly increased the amount of money that can be borrowed off this equity. This money has made a significant contribution to consumer spending during the last 4 years. Current estimates are that it contributes $200-300 billion per year to our $12 trillion GDP. This is 1.5 to 2.5% of our GDP. Borrowed money has prevented consumer spending from sinking. As interest rates rise, home equity values will decrease. Money borrowed from this reduced home equity will also decrease. The contribution to consumer spending from this money will also decrease.

Increasing consumer spending increases jobs…… it doesn’t matter whether you get your spending money from credit, a paycheck, George Bush or your rich uncle…. The market doesn’t care, just like you said….

OK…. I’m getting writer’s cramp, my tennis elbow is acting up ……

 

[rtwngAvngr]

It is the Right-Wing Corporatists that are the major advocates of big government. They just dishonestly claim otherwise. The "free market" is only good when it helps their profits. If that "freedom" reduces profits from competition, they are always against it.

We must be vigilant against monopolies and cartels; this is true. The lefty solution to "nationalize" industries, however, only puts everything under the most monolithic, corrupt and ineffective hierarchy known, government.

 

[rtwngAvngr]

Then all the "planned economy" eggheads get in their with their price fixing schemes and completely destroy the advantages of a free market, one of them being efficient resource allocation.

 

[rtwngAvngr]

Supply side is not voodoo. It's an attitude. it's increasing supply to drive prices down and effectively bring the item to new markets, increasing overall market saturation of the product. More more more. Socialists say it's too "RISKY". Ooooh risky. I'm so skeered.

Unlawfulcombatants theories of demand side limit growth merely to WORKER consumption. It's a closed system. Life ain't like that.

 

[KarlMarx]

Supply side is not voodoo. It's an attitude. it's increasing supply to drive prices down and effectively bring the item to new markets, increasing overall market saturation of the product. More more more. Socialists say it's too "RISKY". Ooooh risky. I'm so skeered.

Unlawfulcombatants theories of demand side limit growth merely to WORKER consumption. It's a closed system. Life ain't like that.

Price = elasticity x demand

Price = elasticity/supply

where elasticity is the rate of change of price for a change in supply or a change in demand....

 

[Wry Catcher]

A little board history on the economy. Did the OP have it correct?

 

[LibocalypseNow]

The "Neocon Economy" is no different than the current Socialist Economy. Neocons and Socialists have a lot more in common then they would ever like to admit. This current President has followed the same exact economic policies as the last President. In fact he's actually expanded those same policies and has made things much worse. People really are just kidding themselves if they think there has been any "Change." Time for this nation to give the boot to the Neocons and Socialists.

 

[Wry Catcher]

The "Neocon Economy" is no different than the current Socialist Economy. Neocons and Socialists have a lot more in common then they would ever like to admit. This current President has followed the same exact economic policies as the last President. In fact he's actually expanded those same policies and has made things much worse. People really are just kidding themselves if they think there has been any "Change." Time for this nation to give the boot to the Neocons and Socialists.

If you had read the entire OP, it might help you understand the economic problem and not so easily explained it as ain't if awful. Neither pejorative explains why we are in such economic trouble today, however, the OP gives a pretty good lesson on why.

 

[LibocalypseNow]

This current President actually looks like your average Neocon to me. I just don't see any real differences between Neocons and Socialists. They are both big government globalists in the end.