Re: Refuting supply-side economics

From: The Trucker (mikcob_at_verizon.net)
Date: 09/21/04 

Date: Tue, 21 Sep 2004 11:01:56 -0700

William F Hummel wrote:

> On Tue, 21 Sep 2004 16:05:48 GMT, trexo@encompass.net wrote:
>
>>In sci.econ Some Guy <bc76@midmaine.com> wrote:
>>
>>> A middle class tax cut funded by borrowing shifts resources from
>>> producers to consumers. The middle class gets the money which it
>>> spends on resources. Government borrowing to make up the difference
>>> crowds out capital investment in production. The same government
>>> spending takes place that would have otherwise.
>>
>>Crowding out only occurs when the governemt deficits are high enough
>>in relation to the total output that treasury bonds compete wtih
>>investments in the private sector. There isn't any set number to where
>>this is as it depends on the economic structure at any given point in
>>time.
>
> Crowding out in financial terms is a myth. Treasury bond sales don't
> compete with investment in the private sector. The proceeds from the
> sales are immediately deposited in the Treasury's accounts in
> commercial bank where they count as reserves of the banking system,
> and available to back loans.
>
> Furthermore, the only reason the Treasury sells bonds is to recapture
> its deficit spending. This reciprocal flow of funds has no net effect
> on the aggregate bank deposits of the private sector.
>
> Crowding out only occurs in real terms, if the government preempts
> labor and materials in demand by the private sector. The last time
> there was any significant crowding out was in World War II when
> rationing was imposed on a number of strategic materials, and the
> civilian labor force was strained to the limit due to the needs of the
> military.

"crowding out" is an inappropriate term. Hummel has uttered no falsehood
in his presentation. But the real characteristic that prevents this
"crowing out" is that money can be created at will by the government and
the Fed (the two can be looked at somewhat synonymously). But Mr.
Hummel does not do justice to the "if government preempts labor and
material". As the Fed raises interest rates the attraction of bonds
will increase and money will move from capital investment/speculation
into bonds. One might call this a "crowding out", but it seems a
misnomer. 

-- 
"I know no safe depository of the ultimate powers of society but
the people themselves; and if we think them not enlightened enough
to exercise their control with a wholesome discretion, the remedy
is not to take it from them, but to inform their discretion by
education." - Thomas Jefferson.  http://GreaterVoice.org

Relevant Pages

  • Re: OT Cheney - Cutting Gas Tax Stupid
    ... There certainly are SS funds. ... Yes they are invested in government ... Do you mean to imply that the government bonds are not secure? ... definition of risk-free investments. ...
    (alt.autos.toyota)
  • Jacob Coxey: The Cause and the Cure!
    ... Statement by Mr. Jacob S. Coxey, of Massillon, Ohio on the Currency Question. ... (Official Report of Mr. Coxey's verbal statement, taken for the Government ... Territory, county, township, municipality, or incorporated town or village ... and to deposit those bonds with the Secretary of the Treasury at Washington ...
    (sci.econ)
  • U.S drug officials smash huge steroid ring
    ... Government of defaulted Chinese bonds. ... citizens' claims for payment by Chinese Government of defaulted Chinese bonds. ... Whereas China issued full faith and credit long term ... Company to United States citizens; Whereas on April 20, 1921, the New York Times ...
    (soc.culture.malaysia)
  • Re: questions on Fed actrivity
    ... And the Federal Government DOES NOT BORROW a single penny from the Fed. ... it issues new debt to cover the deficit. ... the form of new issues of government bonds which are sold on the open ... The money created in this process not only ...
    (sci.econ)
  • Re: FUCK CANADA
    ... I have been...I own ROYs which are pretty much pure production plays. ... next bubble will be in long bonds. ... monetizing government debt. ... need to sell bonds which create only more inflation. ...
    (rec.martial-arts)
Loading