Re: how to compare living standards

On Fri, 31 Mar 2006 15:30:50 -0600, "Jim Blair" <jeb@xxxxxxxx> wrote:

"William F Hummel" <wfhummel@xxxxxxxxxxx> wrote in message
news:u11r221splsdkkmbocqpal8ov8sntd9503@xxxxxxxxxx

On Fri, 31 Mar 2006 12:13:03 -0600, "Jim Blair" <jeb@xxxxxxxx> wrote:

Do you think poor and low income people save and invest more than rich
and
high income people?

Irrelevant. The issue is whether reducing taxes primarily on the
wealthy will increase capital formation for real investment. Don't
confuse financial investment with real investment. If you increase
after-tax income for the wealthy, most of it will end up spent on
financial assets and drive up asset prices.

Or do asset prices increase because the assets become more valuable?

Strange question. Obviously when the market bids up asset prices,
their _monetary_ value increases.

If the money chasing a given number of shares increases, share prices
will increase -- until that liquidity dries up -- and then you have
just witnessed a bubble. All of which has nothing whatsoever to do
with the real value of the assets behind those shares.

The large middle class savings in pension funds, mutual funds, life
insurance companies, etc. is far more important in supporting real
investment.

jeb:

Your statement above must stem from the idea that money in the stock
market, mutual funds, bonds, T-bills and bank CD's
does not correspond to money "invested", because you surely don't think
that
people with low incomes have more
money in these than people with high incomes.

There is no shortage of funds available for investment. But there is
a chronic shortage of funds available among the broad middle and lower
middle class. That shows up on the demand side and is what explains
the business cycle and the occasional shrinkage in the economy,
otherwise known as a recession or depression.

The notion that reducing taxes on the wealthy leads to greater output
is simply false.

Interesting theory. But how does it explain the fact that recessions in the
US have become less frequent and less severe since Reagan
pushed through his supply side tax cuts?

Recessions have been moderate since 1982 for two reasons: (1) the Fed
learned from past mistakes regarding monetary policy, (2) the enormous
Reagan/Bush budget deficits primed the pump quite effectively.
Borrowing at a record pace for SDI, a 600 ship navy, and all the other
goodies did a lot for aggregate demand. Reagan is the most Keynesian
of all our presidents, although he apparently never understood why.

http://www.kc.frb.org/publicat/econrev/PDF/4q98haim.pdf

What data supports your claim?

Another bad link.
.

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