Re: Refuting supply-side economics

From: Larry Innes (larryinnes_at_yahoo.com)
Date: 09/26/04 

Date: 26 Sep 2004 11:43:58 -0700

It's extremely unwise for any financial entity to assume that it has
unlimited power to expand its credit. Financial credit is supported by
the ability to reduce the debt. Unlimited expansion of the credit
invariably leads to bankruptcy of the credit. Do you have any example
to back up the notion that a nation can indefinitely run up its debt?
Even the dumbest economist no longer believes this fantasy. Only the
brainless one continues to do so.

As I said, deficit spending only makes sense when the spending is
aiming at either increasing the productivity or reducing the wealth
disparity (The New Deal). Both help a nation to increase its
productivity in the long run. Otherwise, it is a suicide.

   You said: "one cannot gauge the health of the economy just by
looking at trade deficits." In your own words, because "Deficits can
be good or bad depending on how the money is spent." If US government
does not show that a deficit spending is to increase productivity,
then the Senate must prohibit this particular additional deficit
spending.

   You said: "Foreign investments in the US are a strength of the US
economy. The US benefit greatly from the British investments in the US
during the 19th century." Investment is truly constructive only when a
nation is in a production expansion stage such as 19th century US and
21th century emerging nations (in particular China). But there is no
proof that US is in the production expansion stage. As a matter of
fact, many indications (outsourcing, expensive labor) show that these
emerging nations are taking the productivity from US. Most economists
agreed that US is becoming a "finance economy" rather than a
"production economy." US is playing the same role England was playing
in the 19th century. These emerging nations of cheaper labor are
taking over as the "world factory" and will benefit more effectively
from the foreign investments. The US (one that lost these production
jobs) will not benefit as effectively from additional investments,
especially when these investments are mainly used to support the debt,
not invested in production.

   The difference between the period after World War II and the
present time is that US's productivity is going downhill (at least
temporarily) due to the rise of China and Japan. Thus deficit spending
can be suicidal since there is little indication that US can generate
more to compensate the additional money it needs to roll over its debt
year after year.

   There is still hope that US can turn the tide. US needs to face the
unavoidable reality that cheaper (and sometimes better) labor forces
present tremendous power to challenge the US economy. Educating its
labor force and temporarily lowering its people's living standard is a
compromise its people must endure for a period of time (nobody likes
to hear this, but medicine is normally bitter). Once the other
emerging nations' living standard slowly catch up (just like US caught
up to the living standard in the 19th century) and the labor force
slowly regains its competitive position, then its time to slowly come
back with its better positioned economical force. In the mean time, US
needs to continue to focus on high-tech and robot-intensive industries
that require highly skilled professionals and labors. I heard that
Alabama has successfully attracted many auto and high-tech industries
with its tax incentives and initial investments. All of these efforts
are the right kind of "deficit spendings" that US as a whole must
engage. And in the mean time, many other non-productive deficit
spendings must be tightly controlled.

   William F Hummel < wrote in message
news:<...

>It's absurd to compare loan shark with government..

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