Re: LVT dustup over at AngryBear

On 8 Aug 2005 10:07:31 -0700, "Negloid" <negloid@xxxxxxxxxxx> wrote:
>
>William F Hummel wrote:
>> On 5 Aug 2005 09:41:19 -0700, "Negloid" <negloid@xxxxxxxxxxx> wrote:
>> >
>> >William F Hummel wrote:
>> >> On Sun, 31 Jul 2005 19:27:16 GMT, Folsom Inmate <nomail@xxxxxxxx>
>> >> wrote:
>
>> >> I thoroughly agree. Supply side theory is based on the false belief
>> >> that economic growth is dependent on the investments of the wealthy.
>> >> Accordingly, taxes should not bear too heavily on those in high income
>> >> group. In truth there is an enormous pool of funds comprising the
>> >> savings of the broad middle class -- pension funds, mutual funds,
>> >> insurance companies, finance companies, and so forth. They are all
>> >> seeking good investment opportunities. Furthermore, banks can issue
>> >> credit money limited only by a multiple of their own capital. No
>> >> recessions since WW2 can be traced to a shortage of investment funds.
>> >
>> >How did you arrive at this conclusion?
>>
>> Which conclusion? There are several statements in the paragraph.
>
>In the last sentence.

I think you are conflating a lack of funds to invest on the one hand
with not investing on the other. I don't think anyone can show that
the cause of recessions during the post WW2 period was _caused_ by a
drying up of savings representing investable funds.
>
>> >Wouldn't the stagflation of the 70's indicate that there was plenty on
>> >the demand side and not enough on the supply side?
>>
>> In a word, no. The US wage/price spiral of the 70's had its roots in
>> the pricing power of OPEC (remember the two embargoes?), and the
>> pricing power of large corporations coupled with strong labor unions
>> able to extract ever higher wages well ahead of productivity growth.
>> That's not a supply-side problem. For more details see
>> http://wfhummel.net/deathinflation.html.
>
>But you are ignoring the cause of the recessions in the '70s and
>instead looking at the causes of the inflation in the '70s. During an
>inflationay period, you would be hard pressed to prove that a recession
>was caused by a lack of demand, no? So if it wasn't a lack of capital
>investment that caused the economic slowdown, what did cause the
>economic slowdowns?

I think I just answered your question. A lack of capital investment
does not automatically imply the lack of investable funds. The best
explanation for most recessions is what causes the business cycle.
See http://www.econlib.org/library/Enc/BusinessCycles.html
>
>In addition, I know from first-hand experience that during 2000,
>capital dried up extremely fast. Companies that were just getting
>started, looking for investors so that they could hire more people and
>develop their products, instead went out of business or had to tighten
>down quite a bit to survive. This was the beginning of the 2001
>recession, not a drop in demand--a drop in capital investment. Demand
>never really dropped, (for any appreciable legth of time), through the
>recession and recovery. Oh there were exceptions--airlines for
>example. But they were just that--exceptions.
>
>Capital was drying up as early as Q1, 2000. Unemployment would
>continue to drop for months and months after investors began pulling
>their money out, the markets began dropping, and companies began having
>difficulties. Would you argue that dropping *demand* caused that
>recession? That makes zero sense.

"Investors began pulling their money out" is a typical of the business
cycle psychology. But it doesn't square with your apparent belief
that a lack of investable funds was the cause.
>
>> >> We've known that demand is the key since at least the days of
>> >> J.M.Keynes. Economic activity and growth is greatest when purchasing
>> >> power is broadly spread, as it was in the 20 years following WW2.
>> >> That means the broad middle class should be taxed at the lowest
>> >> possible rate. The downside to high tax rates on upper incomes is
>> >> that it spawns an army of lawyers and accountants working
>> >> (unproductively) to create tax shelters and to work Congress for
>> >> special deals in the tax code.
>> >>
>> >> The maximum rate should never again be set as high as it once was, but
>> >> I think the tax burden should be shifted towards the upper income end.
>> >> For the past couple of decades, there has been little or no growth in
>> >> real purchasing power in the lower 4 quintiles
>> >
>> >How do you arrive at this conclusion?
>> >
>> >2003 real incomes (latest figure I found on Census.gov):
>> >Bottom Q.: $17,984
>> >Second Q.: $34,000
>> >Third Q.: $54,453
>> >Fourth Q.:$86,867
>> >
>> >...versus 1983 incomes (2 decades previous):
>> >Bottom Q.: $15,769
>> >Second Q.: $29,388
>> >Third Q.: $45,061
>> >Fourth Q.: $68,154
>> >
>> >That's a 14% increase over 2 decades in real incomes for the bottom
>> >quintile. For the third quintile, (the ever important middle class?),
>> >the increase was 20%.
>> >
>> >http://www.census.gov/hhes/income/histinc/h01ar.html
>>
>> It depends on whose figures you want to believe. Here is what Prof.
>> Robert H Frank of Cornell presents at
>> http://www.inequality.org/franknov2.html
>>
>> Quintile 1978 1988 1998
>> Bottom 20 percent $13,103 $12,256 $12,526
>> Second 20 percent 28,415 28,541 29,482
>> Middle 20 percent 42,667 44,414 46,662
>> Fourth 20 percent 58,786 63,785 68,430
>> Top 20 percent 99,754 117,035 140,846
>>
>> I think these numbers are pretty consistent with my statement about
>> little or no growth in real purchasing power, at least for the lowest
>> three quintiles.
>
>I got mine from the Census--he claims he did as well. You can go look
>mine up if you want though, that's the difference. He just links
>census.gov and I cannot find the data he presented anywhere in there.
>Here is the exact page I got mine from:
>
>http://www.census.gov/hhes/income/histinc/h01ar.html
>
>Even if you take his date periods, using these data, you will still
>note that incomes in the bottom quintiles increased over the time
>period. If he is supposedly adjusting for inflation understatment by
>the CPI, that would be quite interesting since your other source
>indicates that inflation, if anything, is overstated.

The real income of the lowest quintile actually decreased over that
20-year period. The annualized growth rate in real income for the
five quintiles, according to the data by Prof. Frank were:

Lowest quintile -0.22%
Second lowest +0.18%
Middle quintile +0.45%
Second highest +0.76%
Highest quintile +1.74%

I think that is pretty well substantiates my original statement, so
I'll leave it at that.
.

Relevant Pages

  • Re: LVT dustup over at AngryBear
    ... >>instead looking at the causes of the inflation in the '70s. ... >>investment that caused the economic slowdown, ... it appears to me that real income for the lowest ... quintile has done just fine in the past few decades. ...
    (sci.econ)
  • Re: LVT dustup over at AngryBear
    ... >>>instead looking at the causes of the inflation in the '70s. ... >>>investment that caused the economic slowdown, ... it appears to me that real income for the lowest ... > quintile has done just fine in the past few decades. ...
    (sci.econ)
  • Re: LVT dustup over at AngryBear
    ... or have they been exacerbated by a shortage of investment? ... > income on the broad middle income sector. ... >>> does not automatically imply the lack of investable funds. ... >>quintile has done just fine in the past few decades. ...
    (sci.econ)
  • Re: LVT dustup over at AngryBear
    ... > income on the broad middle income sector. ... >>> does not automatically imply the lack of investable funds. ... >>So recessions can be traced to dropping capital investment, ... >>quintile has done just fine in the past few decades. ...
    (sci.econ)
  • Re: LVT dustup over at AngryBear
    ... >>> recessions since WW2 can be traced to a shortage of investment funds. ... >>the demand side and not enough on the supply side? ... recession, not a drop in demand--a drop in capital investment. ... >>> real purchasing power in the lower 4 quintiles ...
    (sci.econ)