ECONOMIC GROWTH, WEALTH DISTRIBUTION, & BALANCE

[unlawflcombatnt]

ECONOMIC GROWTH, WEALTH DISTRIBUTION, & BALANCE

The benefits of hard work are often stressed in our society. Most agree that hard work and productivity should be rewarded. Those that are more successful usually receive larger rewards than those who are less successful. Successful businesses rightfully expect to be compensated for their success.

At some point, however, these rewards may become excessive, as well as counterproductive. If businesses are rewarded excessively, at the expense of labor & consumers, it will decrease their own ability to sell their products. If workers aren't compensated well enough, their ability to buy production is reduced. This reduces business profits, and reduces economic growth.

I believe that LABOR, plus the production tools built by CAPITAL, are the factors that produce wealth. The combination of labor and capital combines to increase the value of raw materials. They do this by creating something more valuable than the original raw materials. You might call this a "labor value-added" effect, or a "capital-labor value added" effect. Though LABOR is absolutely essential, it's wealth-producing capacity is severly reduced without sufficient CAPITAL investment, because of the production enhancers capital provides. But capital, without labor, has NO value. Furthermore, without demand for production, neither capital or labor will be used to create wealth. Capital won't be invested, if there's no potential profit. Workers won't be hired, if the product of their labor cannot be sold. Low consumer income, with low consumer spending, reduces the ability of capital to create profits. It reduces the ability to SELL finished products. Profits are made by SALE of goods, not production of goods. As such, low consumer income not only hurts consumers, it hurts the businesses who sell to consumers. INCREASING CONSUMER INCOME HELPS BUSINESS, as well as consumers.

The major functions of capital are to provide raw materials and to increase industrial CAPACITY. This increases potential ability to produce goods and create wealth. But there's a catch here. The actual production of goods and wealth requires UTILIZATION of this industrial capacity. No wealth is produced by industrial capacity that remains idle. And there is no benefit to increasing industrial capacity size when it is currently under-utilized. In the case of under-utilization, wealth will only be created by increasing current utilization RATE. Economists refer to this as CAPACITY UTILIZATION RATE (or industrial capacity utilization rate.)

Our current industrial capacity is UNDER-utilized. The utilization rate has dropped from 85% during the Clinton years to 79% at present. Increased investment to increase the size of this capacity is not beneficial. In contrast, increasing the utilization RATE would be very beneficial. What would increase the rate? You guessed it. Increased DEMAND for production. Demand that would be rise from increased consumer spending, resulting from increased consumer income. I can state this concept in 2 equations:
Reduced Capacity Utilization = Reduced Consumer DEMAND.
Increased Capacity Utilization = Increased Consumer DEMAND

For maximum economic growth, there needs to be a balance between the "means of production" and the "means of consumption." (This equates to Supply equaling Demand) Shifting the balance in either direction reduces economic growth, wealth production, and GDP. Excess production, when measured in terms of potential dollar-value, cannot be sold. As such, no profits can be made from it. In contrast, insufficient production in terms of quantity can be profitable. Prices can be raised to maximize profit from that limited production. Raising prices reduces the quantity demanded. This allows the supply to meet the demand. The reverse is only true in terms of quantity demand. Demand can be increased by reducing price, but the dollar-value of that demand does NOT change. The dollar-value of demand is limited by spendable consumer wealth. This is where the concepts of Micro Economics end, and Macro Economics take over. This is where AGGREGATE DEMAND comes into play.

Aggregate demand is absolutely limited by aggregate consumer wealth. The best way to increase aggregate consumer wealth is to balance the "means of production" with the "means of consumption." The capital invested needs to be no greater than that needed to meet production demand. In turn, production demand is created by the "means of consumption." If resources are un-balanced in favor of the "means of production," there will be insufficient demand to drive production. As a result, there will be less production, and less wealth produced. In contrast, greater wealth would have been produced if some of the investment capital had been re-directed towards consumer income. It would have increased demand, and driven production. Both consumers and business would have prospered. Economic "growth" would have increased. GDP would have increased.

If investment and consumer income are out of balance, correcting the imbalance increases economic growth, and improves our economy. If investment capital is excessive, diverting that excess into consumer income increases the benefit of the remaining capital.

Taxing the affluent more to improve this balance is not "socialistic." It's "capitalistic." Balancing the "means of production" with the "means of consumption" is not a "share-the-wealth" concept. It's an "increase-the-wealth" concept. Such "wealth redistribution" would increase "wealth production." It would increase industrial production and GDP. Again, insufficient consumer spending REDUCES GDP. It reduces wealth creation by labor and capital, by reducing the demand for its creation.

I don't claim that "demand" is everything. However, it is the biggest single factor affecting our economy. Consumer spending is the "dollar-value" measure of that demand. The consensus among economists is that 2/3 of economic activity is consumer spending. I've seen this statement at least 30 separate times. (I'm sure you've seen this statement as well.) So I'm going to assume this statement is true. From that I conclude that the most important factor in economic growth is consumer spending, or the "dollar-value" of consumer demand. Again, it's not the only factor, but it's the biggest factor.

I think the significance of DEMAND is under-emphasized in current economic commentary. That needs to change. This is not only about the subjective concept of "economic justice". It's also about "economic growth." It's my belief that some downward redistribution of wealth will help the economy. It will increase wealth production, because it will help balance the "means of production" with the "means of consumption." We would ALL benefit from a better balance of these factors, rich and poor alike.

The Bush Administration has done its level best to keep investment and consumption out of balance, thus TEMPORARILY allowing business to profit excessively from labor, despite the long term cost to ALL AMERICANS. Bush policies hurt ALL Americans in the long run.

The following is a link to a graph from "Briefing.com." It shows the relative levels of personal consumption expenditures and investment capital. See which way you think the "balance" is shifted at present.


unlawflcombatnt

EconomicPopulistCommentary

http://www.unlawflcombatnt.blogspot.com/

___________
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 production DOES create 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.

[Karenina]

1. Man-o-man, UC!

This is GREAT! :bounce: Thank you!!!

[unlawflcombatnt]

13. Posting of "GDP vs. Economic Growth"

Karenina,

Thanks for your compliments. I'm going to post a paraphrased version of one of my responses here, regarding GDP. It's called "GDP vs. Economic Growth." I agree with one reponder here that it is a poor indicator of our economic well being. There are a number of reasons why. The subject may not be interesting to everyone, but it's certainly necessary to explain the wrongness of the Bush corporatocracy's claim that we're experiencing strong economic "growth." The only "growth" we're experiencing is the "growth" in debt, and the growth of artificial wealth. Bush's economic "growth" pronouncements should be shown on the SciFi channel.

unlawflcombatnt

[oscar111]

2. a bit long. Could you put an ABSTRACT at the head of it? fifty lines max

thanks
oh, and also needs sub-heads for each para or two. Like you see in good newspapers for long stories.
People faint at the sight of huge blocks of text. " gee i have to read all that? " is the reaction usually.

subheads allow one to dip in with some guidance as to what is interesting. They also reorient the feeble human brain as to what is to come.

is there a name for your 4 part model? What are the dollar values in each of the 4 parts? 11 trillion would be the finished goods part. GDP.

[unlawflcombatnt]

9. GDP Model

Oscar,

What the dollar values are in each of the 4 categories is an outstanding question. Unfortunately, I can't answer it. I've combed through the stats from the Dept. of Commerce (more appropriately, the Dept. of Commercials.) I have been unable to find the answer to that question. The Dept. of Commercials likes to mix-and-match statistics so that no one can really tell what the information means. I've copied down 20-30 pages of their information/propaganda to no avail.

They use a different measure of inflation, "chained 2000 dollars," which decreases the measure of inflation compared to other sources. Also, for a lot of areas that I was trying to compare, they provided no information. They literally omitted to post the numbers. It simply read "-------" Kind of like Bush's military records. Certainly not surprising for his administration.

One thing that IS quite clear, however, is that profits have grown MUCH more that wages. Furthermore, they frequently include unsold inventories in the total measure for GDP. In other words, they're including items in the GDP that don't have ANY value at the time the statistics were posted.

If you can find a better source for this information, let me know. I would love to see it. What I've deduced from the Commercials' Dept. propaganda/information, is that profits and investment capital are FAR more abundant than consumer income. I still think we need to do more to bolster consumer buying power, and less to increase investment. I don't think there's any other conclusion you could draw from those statistics. I suspect, however, that the situation is even more unbalance than it looks from the Dept. of Commercials' statistics.

unlawflcombatnt

[unlawflcombatnt]

14. Length

Oscar,

Thanks for that suggestion. I do tend to get a little lengthy. I understand the feeling about long posts. I hate to read them myself. I usually start off with a very limited idea, and then get wrapped up in it, and start attaching other related ideas.

I will work on this, because if I put people off with the length, and they don't read it, I'm diminishing the effect of my post.

Thanks again for your suggestion.

unlawflcombatnt

[unlawflcombatnt]

18. Job Openings

Oscar,

Thanks for the reference on "job openings" from the BLS site. There are 900,000 fewer job openings since Bush took office. In addition, there are 24,000 less people working on private jobs as of May, than there were in January 2001. So my estimate is that Bush has cost us about 924,000 jobs since January 2001. Our labor force has grown by by over 8 million. So we have almost a 9 million-job deficit.

Bush is doing a great job, isn't he?:dunce:

unlawflcombatnt

EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
_________________________
As Corporate America reduces labor costs, it reduces America's ability to purchase its own production.

[FreedomToons]

3. The carrot and the stick

Read more at http://www.freedomtoons.org/show_toon.php?id=000049

[newyawker99]

7. Hi FreedomToons!!

Welcome to DU!! :toast:

[stevebreeze]

4. people don't "invest" when they have money, then invest when they

can see the opportunity for profit.

The decision as to the distribution of profits, that is what portion goes to capital and what portion goes to labor, is one of the oldest in American history. This is a fight labor has been loosing for 3 decades.

It matter who is in charge of politics as to who gets how much.
It's long and a little wonky but here is a good paper on that.
http://www.princeton.edu/~bartels/income.pdf

It's called "partisan politics and the distribution of income".
The long and the short of it is the rich get almost all the gains when the GOP is in power, and a much more modest share when a Dem is in the whitehouse.

[unlawflcombatnt]

10. Thanks for the Link

Steve,

Thanks for the link. I read some of it. The most interesting part so far was that the average GDP was 30% higher when Democrats were in office. That goes along with my post. The Democrats have redistributed wealth downward, improving the balance between the "means of consumption" and the "means of production." Though Democrats may lean more toward "share-the-wealth" policies, those policies actually became "increase-the-wealth" policies. That's exactly what I have been trying to say in my posts. It's nice to see there is come historical proof of it.

Republicans just don't get it. Someone has to BUY the goods produced. That requires consumer demand. All of the capital investment in the world won't increase demand. It will just "allow" industry to meet demand. If demand is low, it's very easy to meet that demand (and requires very little capital.) And if it is 0, it requires 0 capital. We don't need to produce goods people can't buy.

unlawflcombatnt

[sadiesworld]

5. Nice work.

:thumbsup:

[Coexist]

6. I agree - nominated

[unblock]

8. gdp itself can be misleading in the context of wealth concentration:

what does it mean if gdp is going up but more and more, wealth is being accumulated by fewer and fewer people in the country?

eventually, gdp ceases to be a measure of economic performance of the country as a whole and becomes a measure of the economic performance of a handful of ultra-rich families who just happen to chose to live in the country.

[unlawflcombatnt]

11. GDP as a measure of Growth.

Unblock,

You are so right about GDP being an inaccurate measure of economic growth. I actually wrote about that in my post, "The Free-Traders' Blind Spot." I think you've hit on a VERY important issue. The sum of the GDP equation can be raised by increasing "investment." Just a moment's thought should tell anyone this is not always true, and that this contribution has definite limits.

Investment, and investment capital, only have value if they increase the amount of goods SOLD. (It's SALE of goods that create profits, not production.) If consumer spending is low, obviously less investment capital is needed. In spite of this, the equation allows for investment capital to actually make-up for decreased consumer spending. This is simply illogical. If consumers are NOT spending their money and buying more goods, what benefit is there to building more factories? How can anyone call that economic "growth?" Basically, this allows the government to falsely state the economy is "growing," while the sale of goods is declining.

Also included in the "investment" category is unsold inventory. So by this equation, the economy can "grow" by building more unused production facilities, and producing more un-sold goods. So if someone produces goods nobody can afford to purchase, the "assumed" value is simply added to the total.

In addition to all of the above, the 2/3 that is consumer spending can be supplemented with BORROWED money. So the consumer spending addition includes the sale of goods bought with money that doesn't even exist. Much of consumer spending is financed with money from home equity loans. Is this really economic "growth" or is it economic "fantasy"? Does increased debt really indicate economic "growth"? Don't we have to pay that back some day? Does the overvaluation of assets in the real estate market and stock market really indicate economic growth. When money borrowed off of these overvalued assets is used to prop up consumer spending, does that really contribute to economic growth?

The truth is, the GDP equation becomes a less accurate predictor when workers are compensated more poorly.

I'd like to elaborate more on the shortcomings of using GDP to measure economic "growth." I have paraphrased an earlier letter about GDP. It was in reference to global GDP, but it still applies here.



GDP & IT'S INACCURACIES

Here's the GDP equation:

GDP=ConsumerSpending+Investmnt+GovtSpending+TradeBalance

Economists state that consumer spending, or consumption, is 2/3 of all economic activity. It's the generally accepted consensus that consumer income is the biggest determinant of consumer spending. Logically, it is essentially the only long-term determinant of consumption. (Consumption financed by borrowing cannot last indefinitely) Thus, consumer income is the biggest determinant of GDP.

How does income reduction affect the remaining factors? Let's start with investment. Investment will not make any real contribution to GDP if consumer spending declines. Increased investment is supposed to increase production. If income falls, so does demand for production. If demand falls, there is NO benefit to increased investment. There is no need to build more production facilities or provide more services, if there is no demand for them. Excess "investment" would simply go into corporate coffers, in the form of CEO salaries, stock holder dividends, "cash-on-hand" and bank accounts. In actual reality, as opposed to economists' "pseudo-reality," this investment would add absolutely NOTHING to GDP in the long-term. (It's mis-allocated money that would have contributed to GDP, if it had it gone toward consumer spending.)

How about government spending? Government spending is financed exclusively from taxes. Taxes subtract directly from private wealth. Thus, government spending reduces private wealth, dollar-per-dollar. However, the "marginal propensity to consume" concept needs to be considered here. ( Which basically states that the more affluent devote a smaller percentage of their wealth towards consumption. The more affluent they are, the smaller the percentage.) Taxes on lower income individuals reduce consumption more than those on higher income individuals. Taxes directed mainly at consumers, such as sales tax, reduce consumption spending dollar-for-dollar. In contrast, taxes on corporations primarily reduce investment spending. Thus, the type of taxation affects how much it subtracts from consumer spending. But it is clear that government spending subtracts significantly from consumer spending. In addition, reduced consumer income reduces the money availabe for taxation. Government spending cannot make up for consumer spending reduction. Not only does it depend on consumer income, it subtracts from consumer spending directly.

In summary, the GDP equation is almost overwhelmingly dependent on consumer income. Labor cost reductions reduce income, and GDP. When $90/day workers are replaced with $2/day foreign workers, consumer income drops. Consumer spending then drops as well, further reducing demand for goods and services. The increased profits made from the labor cost reduction do NOT help the economy. The increased investment capital that results has NO benefit when consumption drops. It merely provides a short-term gain in profits, at the expense of a long-term loss in GDP. Unfortunately, many "experts" have a blindspot to this simple mathematical reality.

unlawflcombatnt

[Karenina]

12. Kick!

:kick:

[PsycheCC]

17. A Formula that Reflects the Importance of Consumer Spending?

Unlawflcombatnt said, "The truth is, the GDP equation becomes a less accurate predictor when workers are compensated more poorly."

And he said, "In summary, the GDP equation is almost overwhelmingly dependent on consumer income. Labor cost reductions reduce income, and GDP. When $90/day workers are replaced with $2/day foreign workers, consumer income drops. Consumer spending then drops as well, further reducing demand for goods and services. The increased profits made from the labor cost reduction do NOT help the economy. The increased investment capital that results has NO benefit when consumption drops. It merely provides a short-term gain in profits, at the expense of a long-term loss in GDP. Unfortunately, many "experts" have a blindspot to this simple mathematical reality."

This begs the question, why can't they find a more accurate formula for GDP that weights Consumer Spending more heavily?

[PsycheCC]

16. Unblock, sounds just like Mexico...

a few powerful families and everyone else in poverty. We do seem to be heading in that direction. CAFTA (like NAFTA before it) will just depress wages further in the U.S. and exploit poor Central Americans.

[unlawflcombatnt]

33. Artificial Wealth

The top 2% tax cuts and the reduced interest rates have created a large amount of artificial wealth. I have devised some quasi-mathematical formulas for the housing bubble and its effects.

Top 2% Tax Cuts + Low Interest Rates = Housing Bubble

I'd also like to take a stab at showing how this artificial wealth is added to the GDP equation. Here's the GDP equation:

GDP=ConsumerSpending+Investment+GovSpend+TradeBal

Here are the additions to the formula from the new, artificially created wealth:

Normal Home Value + Artificial Increase in Home Equity = Current Home Equity Value

Artificial Increase in Home Value = Combined Effect of Lowered Interest Rate + Top 2% Tax Cuts

Consumer Spending = Spent Income + Spent Excess Home Equity + Other Credit Spending + Spent Tax Cuts

Investment = Normal Investment Spending + Invested top 2% tax cuts + Invested Home Equity

Thus, when calculating the GDP, much of the numerical increase is the result of borrowing off the artificially increased value of real estate. A portion of that artificial value supplements consumer spending. The "investment" portion is also supplemented by the top 2% tax cuts and loans off artificially increased home equities.

In addition, the accounting system the government uses for GDP (unlike the Keynesian GDP method) allows them to add UNSOLD business inventories to the investment part of the equation, further increasing the total GDP. (This allows them to include excess, completely worthless business investment to the formula as well.)

Most, if not all, of our economic "growth" is due to artificially created wealth from the tax cuts and real estate overvaluation.

The only "growth" we're experiencing is "growth" in debt. Again, let's not underestimate Boy George. He's as good at creating debt as he is at creating facts.

unlawflcombatnt

EconomicPopulistCommentary

http://www.unlawflcombatnt.blogspot.com/

______________________
Capitalism cannot function without consumer income. The benefits of capital investment are limited by consumers' ability to buy the products of capital investment.

There must be balance between the "means of consumption" and the "means of production."

[unlawflcombatnt]

15. Thanks for Your Interest

I want to thank everyone who had posted for your interest in this subject. I'm going to post a short letter on the "Recession Alert." This is a concept invented by financial analysts, to determine if our economy is declining or not. Unfortunately, every time the criteria are met, they either change the criteria, or claim that their own interpretation of the criteria is wrong. Basically, they refuse to acknowlege that the economy is doing poorly, even when their OWN criteria tells them so.

Corporate America's integrity has fallen in the gutter. They simply will spin any and all economic data to give the public an overly optimistic view of the economy. Unfortunately, many believe their spin, and invest money accordingly. When the decline comes, Corporate America has already insulated itself from the damage caused by their own distortion of reality. As a consequence, Middle America pays the brunt of the cost for their malfeasance. Middle America pays because they followed the advice of the "experts."

The lies told in the American economic realm rival those told about Iraq. They may even exceed them. Few people are aware of how often the government goes back and changes previously posted statistics. I have posted several times on specific cases. One of these was on the "New Home Sales" number posted for March. Initially, the number given was a 1.431 million sales/year annual rate through March. It was stated that this was "the highest ever." This number was widely publicized. The housing industry is doing quite well, we were told. The following month they stated that new home sales had increased again to approximately 1.316 million sales/year. Hmmm. Increased???? From 1.431 million to 1.316 million???? Is that an "increase"? Is 1.316 greater than 1.431? Is this just some more Republican fuzzy math?

No.They had downwardly revised the previous month's 1.431 million figure to 1.313 million. They overestimated the previous month's rate by 118,000 homes. Just an honest mistake? I doubt many people were aware of this. What many DID know however, was that after a month of new home sales being "the highest ever," sales continued to increase even more. In reality, we didn't have "the highest ever" new home sales in the previous month. Oooops. Did Bush, Snow, or any of their fellow economic terrorists come out and correct their mistake? Of course not. All that anyone heard was a brief mention of a slight "revision" to the previous month's statistics. I'd call it a "huge" revision to the previous month's prevarications.

Some may not fully accept all of this. But I hope I can get them to at least check the references I post. Unlike the current administration, I don't subscribe to "creative" fact reporting, or the "alternate reality" it creates. If my facts are incorrect, I'll gladly change them. It they are correct, however, I will aggressively defend them.

unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
________________________________
Investment does NOT create jobs. It only "allows" for their creation. Only DEMAND for goods creates jobs, because it requires workers to produce goods. Investment may "permit" job growth, but only DEMAND necessitates it.

[julianer]

19. The internal contradictions of capital

have been well described by Marx. Employers need to reduce labour costs in order to increase profit, preferably by replacing humans with machines. However, as you so rightly point out, a capitalist makes no profit until the goods or services are sold. If you don't pay workers enough to buy the goods the capitalist suffers from falling profits and is motivated to cut labour costs.

And so it goes on.

Edit: misplaced, comma!

[unlawflcombatnt]

20. Absolutely Right

John Maynard Keynes also pointed this out. He emphasized the importance of consumer spending and aggregate demand. When I read Keynes' writing, it all makes perfect sense. I actually arrived at most of my ideas with little formal background in economics. I simply used supply & demand concepts, and drew most of my conclusions from that. Added to this, I applied simple logic, and used government statistics. I independently arrived at the concepts of "Aggregate Demand" and "Marginal Propensity to Consume." It wasn't until later that I realized I had "re-discovered" some basic Keynesian principles. This certainly seemed to validate my thinking. It also seemed to underscore the correctness of Keynesian economics.

After posting my current letter, regarding the limits of using GDP to measure economic growth, I noted that Keynes had many of the same reservations as well.

I think a lot of current economic theory is based on wishful thinking, and the use of only a few selected facts. Right-wingers continue to debate me about the necessity of consumer spending and demand. What is there really to debate? Someone has to buy the goods, or no one will make any money. Money is not made by producing unsellable goods, or by building facilities to produce them. Money is not made by production. It's made by SALE of production.

Capitalism certainly DOES require capital, and it takes some unevenness of wealth distribution to create capital. But the benefit of capital is limited by the dollar-value of goods sold. To put it differently, capital's benefit is limited by the sale of goods it causes to be produced. Obviously the value of capital has limits.

The right-wingers live in an alternate reality world where more investment means more wealth. And that there is no limit to the benefit of further capital investment. Apparently they believe un-sold goods will create profits, and result in larger paychecks for the producers. Not only is this idea wrong, it's idiotic. It completely defies logic. The right-wing's solution to this inconvenient little truth is to continue propagandizing against it, until people believe it is true. (Sounds a lot like a German leader in the 30's and early 40's.)

Back to the subject of Keynes. Keynes was not a communist, or even a socialist. He was an unmitigated Capitalist. Many people think he saved capitalism. By attenuating its excesses, he managed to make capitalism thrive again. It wasn't easy. The unbridled greed of the corporate giants was turned against him. But he accomplished his mission. He saved them from their own greed and prevented their self-destruction.

In the early 70's, Keynesian economics fell out of favor, and we have been suffering the consequences ever since. Though Keynes may have never stated this, I'm sure he would have ageed that there needs to be a balance between "the means of consumption" and "the means of production." Someone always needs to buy production. Keynes understood that. Many do not.

unlawflcombatnt

EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
_________________________
As Corporate America reduces labor costs, it reduces America's ability to purchase its own production.

[julianer]

23. I think economics is deliberately mystified

in order to keep us oiks away.

Keynes is only right up to a point. The problem in the 1970's wasn't so much that Keynes fell out of fashion but that Keynsianism failed to work.

Capitalism periodically suffers from crises of over-production, where a capitalist with his pockets stuffed full looks around but doesn't see any great investment opportunities (there's too much of most stuff alreaady). So the money he has made from his last investments doesn't get realised by spending it on new raw materials or new machines or new labour. This leads to lack of demand and a downward spiral.

Traditionally, Keynesianism would have governments step in at this point try to alleviate the resulting downturn by public investment, acting as a moderating influence by creating demand.

However capitalism's crises can sometimes be very deep, enduring and complicated. The 70's slump was complicated by the oil price hike and Keynes' recipe was hopelessly inadeqate to deal with the fiasco.

Coincidentally, and for reasons other than concern for economic stability, monetarism was gaining ideological strength on the right, and the left had just had its main economic weapon go phut in its hands. It was a pushover. The IMF went monetarist and everywhere else was whipped into line.

Of course the right is still ideologically committed to monetarism even after its evident disasters - even when they actually practice Keynsianism, like Blair - they still spout their ridiculous free market nostrums.

That's my (mostly) self-educated take on the situation, anyway.

[unlawflcombatnt]

27. Keynesianism

Julianer,

I agree with most of what you said. I don't think Keynesianism caused the stagflation of the 70's, but it was certainly blamed for it. Keynesian policy is not only about government intevention. It's also about the reality that consumer spending is 2/3 of economic activity, and that Aggregate Demand is what drives our economy, and that the benefits of investment are limited by consumers' ability to buy production. Keynesianism is about common sense application of supply-and-demand laws, in contrast to the current economic mythology practiced by the Bush administration.

Keynesianism was never popular with Corporate America. Right-Wing ideologues had tried for years to discredit Keynes. The stagflation of the 70's provided the golden opportunity they had been searching for. And they jumped on it with both feet. Keynes was falsely discredited, and we started back down the road to nonsensical economic policies. Policies appearing to assume that consumer spending and demand are unnecessary, or at least over-rated. We have such policies today. And we're suffering the consequences.

unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/

______________________
Capitalism cannot function without consumer income. The benefits of capital investment are limited by consumers' ability to buy the products of capital investment. There must be balance between the "means of consumption" and the "means of production."

[julianer]

28. Agreed

I'm not saying that Keynesianism caused the economic trouble of the '70's but that it was not sufficient to deal with it.

We have a hidden Keynesianism in the UK at the moment. Blair is redistributing massive amounts of money to the poor in the form of tax credits, and it is the speedy spending of this money that has maintained the whole economy.

However the economic effect of this redistribution is denied - it is claimed that the economy is 'strong' because of supply side reforms.

Third way nonsense.

[ismnotwasm]

21. Thank you for posting this

Even though it's a little over my head, (meaning I have to read it more than once) It helps support certain arguments I have with the one republican I'm still speaking to. He is a tax consultant, smart guy, but says the STUPIDEST shit, IE. cooperations need big tax cuts so they can hire more people, so people spend more yada yada He and I argue on approximately the same level, so I try and educate myself to a higher standard.

[unlawflcombatnt]

22. Tax Cuts & Hiring

Thanks for your response. I hope you're explaining to your tax guy why corporate tax cuts have nothing to do with hiring. On the other hand, tax cuts for the people buying their goods might help. Corporations don't hire people because they can afford to. They hire them when they need them to produce more goods to make more money. They hire more workers when demand for production increases, and only when demand for production increases. Giving them more money to hire people is ludicrous. If someone gave me $1 million, I wouldn't go out and hire people, unless hiring those people would make me more money.

The whole idea about tax cuts for corporations to promote hiring is self-serving mythology. It simply doesn't happen, and never has. It's right-wing propaganda.

unlawflcombatnt

[cleveramerican]

25. the auto industry and trickle down

All through the eighties the big three had record profits. Did they invest in new plants and products? Only a little bit, the bulk was spent on lavish business expenses and questionable investment to further increase profits, pleasing wall street but not solidifying market share. When the inevitable downturn came (89-90), They were left vulnerable and overexposed ,behind the 8-ball with regard to new products. It took them nearly ten years to get back. They mostly did this by throwing out the money guys and putting the car guys back in charge of these companies. Now they are thrilled with merely maintaining market share. Expanding market share seems like an impossible dream to them.

[PsycheCC]

24. No Kidding!

I'm so sick of hearing about how many jobs are created by huge corporate tax cuts! If I'm not mistaken, Bush 2 is STILL presiding over an administration with a NET JOB LOSS!!! Why don't they at least give us enough credit to admit their agenda? I hate getting screwed, but I hate it even worse when I'm being told I'm oh so lucky to be getting screwed because after all they're creating an "ownership society" and various other Bush lies. :rant:

[unlawflcombatnt]

26. Job Loss

The latest Bureau of Labor Statistics (BLS) figures for private employment showed 24,000 less people are working on private jobs than in January of 2001. Another poster also lead me to another part of the BLS site, which showed that the number of job openings is 900,000 less than it was in January 2001. I'd say that computes to about a -924,000 change in private jobs since Bush took office.

Is this Bush's idea of economic "growth"?

[Coexist]

29. a little OT, unlawfulcombatant, but...

I was sent this email from a Republican friend of mine. He is very reasonable and a good debater. I don't know how to answer this one:

<"Oh My Gosh! Guess Who Pays NO Taxes?

Fully 32.4 percent of Americans paid no taxes at all for tax year 2004, up from 25.2 percent in 2000, according to a new report from the Tax Foundation. Before you start screaming about the rich shirking their fair share of the federal tax burden, know this: The people who don't pay taxes are primarily low-income, young, female-headed households who work part-time and are beneficiaries of the $1,000 per-child tax credit or the Earned Income Credit.

Tax Foundation economists say that the 32.4 percent who pay no taxes after they took advantage of perfectly legal tax credits and deductions translates into a record 42.5 million Americans. But it doesn't end there. Approximately 15 million individuals and families earned some income in 2004, but it was so little they didn't have to file a tax return. That brings the total to 57.5 million who pay nothing. And we're not done yet. One tax return often represents several people so when the dependents are included in this no-tax sum, it amounts to roughly 120 million Americans or 40 percent of the U.S. population. And that doesn't count the millions who paid just a very small amount in taxes.

The tax-friendliest states in the U.S.A. are...

Here's the rub, according to the Tax Foundation: We have become a nation divided. There is an ever-growing class of people who pay no taxes and a shrinking class of people who do.

What are America's fastest-rising taxes? It's a good news-bad news scenario.

Who are the non-payers? Fully 91 percent of them earned less than $30,000 annually and 96 percent earned less than $40,000. They are young with more than a third under 25 and 54 percent younger than 35. More than half are single women or families where the primary wage earner is a woman. Fully 79 percent are white, 16 percent are African American and 3.2 percent are Asian Americans. (Hispanic Americans are not included in the racial category since Hispanic individuals can be of any race. When they are included as such, 15 percent of those who paid no taxes are Hispanic.)

What does this mean? The Tax Foundation says the findings raise serious questions about the future of the U.S. income tax system.

END OF ARTICLE.

Now I am not saying people in the income brackets don’t need help. I know raising a family with that type of income is VERY hard. What I am saying is that if they are not paying taxes then who is? So you can’t say the rich do not pay taxes. I think this shows the rich are paying the taxes.">

I SENT HIM SOME INFO - BUT HE COUNTERED SAYING THAT THE WEALTHY PAY MOST OF THE TAXES IN THIS COUNTRY AND DESERVE A TAX BREAK. HELP!!!

[unlawflcombatnt]

30. Taxes and the Rich

FLDem5,

There are several comments I would like to make about this. I want to abstain on some of them, however, until I can get more exact numbers.

In general, the top 2% are paying a smaller portion of the total tax burden than they have in the past. I'll post some more precise information later. It's generally stated that 2/3 of the tax cuts went to the top 2%.

The so-called "non-payers" of taxes ARE paying payroll taxes (social security taxes). These are NOT progressive, and actually paid on a straight percentage of income. Those whose taxable income is $30,000 are paying 6.5% payroll tax, or $1,950 per year. They certainly ARE paying taxes on their income, but they may not be paying FEDERAL INCOME TAX.

They may be receiving some money back on Earned Income Credit. I'm not a tax expert, so I don't know exactly how much that is. But again, the overall tax burden has been shifted off the top 2% and on to the lower 98%.

In fact, the tax cuts for the top 2% have been a major contribution to our growing national debt.

Furthermore, as per the economic principle of "marginal propensity to consume," the rich spend a smaller proportion of their income on consumption, and a higher portion on investment. In contrast, the less affluent devote a higher portion to consumer spending.

Accordingly there is a difference in the effects of rich-vs-poor tax cuts. Tax cuts on the rich should stimulate more investment. Tax cuts for the less affluent should stimulate more consumer spending. Which should be favored to benefit our economy the most? That depends on what is in shorter supply -- spendable consumer income or investment capital. Most agree that investment capital is plentiful at present. In contrast, spendable consumer income had been falling. It has been supplemented with increasing levels of borrowed money. This is NOT a sustainable situation. Consumer spending and the demand for production it creates are tenuous at present. Investment capital is abundant.

For the benefit of our economy, tax cuts for the rich are not helping. In fact, they are increasing inflation, and decreasing the spending power of the non-affluent.

Your tax person is suggesting that the affluent are paying more taxes than the less affluent. This is certainly true. He may be making a statement about the "fairness" of the taxation. The "fairness" is a purely a subjective issue. What's best for our economy, and best for economic growth is the real issue. My opinion, which I believe is supported by facts and logic, is that tax cuts for the affluent are hurting our economy. This view is also shared by most mainstream economists, including Nobel Prize winning economist Joseph Stiglitz.

I realize I didn't completely answer your question, but I'd like to come back to this a little later.

unlawflcombatnt

[unlawflcombatnt]

31. Fascinating Article

I ran into a fascinating article from the Federal Reserve regarding global banking reserves and our national debt. It's titled "Reserve Accumulation: Implications for Glogal Capital Flows and Financial Markets." (It's in the Research Publications under 'Current Issues in Economics and ... The year of publication was 2004)

The article covers U.S. and World monetary policy. For those who are not banking experts, such as myself, it's extremely informative. It covers the amount of U.S. dollars that foreign countries are holding as reserves, among other things. It explains how this affects the dollar as well. It's a little complicated (at least for me.) When I understand it well enough to paraphrase it, I'll post my summary here. But that's going to take some time. For now, here are the links.
I'm giving several, since you may not be able to link directly to it. Start with the 1st one, because it's the most direct link.

http://www.newyorkfed.org/research/current_issues/ci10-10/ci10-10.html

or http://www.newyorkfed.org/research/current_issues/ci10-10.html

If neither of these links take you there directly, then go to

http://www.newyorkfed.org/research/current_issues/2004.html

[PsycheCC]

32. Anxiously Awaiting Summary : )

Thanks for the link. I started the article because this is a subject of interest to me and one I don't understand well. "Started" is the key word here. I have an MA in American Literature, but surprisingly :sarcasm: , that wasn't too helpful with this article.

Seriously, I appreciate the link and will try the article again. I hate to sound lazy, but I really do hope you get a chance to post a summary, and YOU ARE UNDERSTANDABLE!

Thanks for the education! :applause: