Re: Refuting supply-side economics

From: Larry Innes (larryinnes_at_yahoo.com)
Date: 09/14/04 

Date: 13 Sep 2004 17:17:34 -0700

mmbtupr@aol.com (Lewis L. Smith) wrote in message news:<f29d0e56.0409130417.1c1cd130@posting.google.com>...
> The fundamental assumption of supply-side economics is flawed. There
> has in fact, seldom been a shortage of capital in the USA [contrary to
> some other times and places] . There is usually a shortage of good
> projects.

   My take on this issue is that this nation has been leaning towards
"easy money" policy. When ample money is combined with the wealth
disparity effect, the result is large amount of money possessed by the
rich chasing limited amount of good projects as you described. The
"easy money" policy is the supply-side economics. It could very well
be wrong if it is used when there is high national debt. When there is
high deficit, a central bank should use "hard money" policy to reduce
consumption and facilitate export (by lowering exchange rate with
foreign currency).
 
> The fundamental policy instrument of supply-side economics reflects a
> crass ignorance of how most new ventures are financed. Lower taxes for
> the rich accomplishes very little for new ventures. Most rich are not
> willing to take that much risk.

   One example might support your view here. When Reagan passed away
two months ago, the TV reported that most of his asssets are in US
treasury bonds. I had the impression that the US bond does provide a
safe harbor for the rich.
     
> To help new ventures, keep interest rates low [as did Clinton], do
> something about the credit-card rate spread, eliminate the corporate
> tax deductibility of interest and lower the corporate tax rate
> correspondingly. For the long run, tax dividends at ordinary rates,
> except for new-venture dividends paid from seven-year old retained
> earnings, which should be tax free.

   Keeping the interest rate low is the easy money policy. It is the
right policy for Clinton since he did manage a balance budget; thus
more money stimulates consumption and provides easy capital without
increase the deficit. How high the discount rate should be set is a
fine line to walk on.

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