Economic Populist Commentary

Economic commentary by a pro-capitalist, economic populist. Demand-Side Economic theory. Consists of author's economic views. Questions & comments appreciated. Dissenting views are VERY welcome and encouraged. Main "agenda" is crafting and advocacy of a "populist" economic agenda. A secondary goal is prevention of an economic Armageddon. Encouraging open discussion of US economy.

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Location: Southern California, California, United States

The author is a physician by profession, and a "student economist" by necessity. The current status of our economy necessitates the latter. The intent of this blog is to explain and discuss economics in layman terms. It is designed to promote thought and discussion. It is written by a layman. Comments and critiques of these theories and letters are welcome and ENCOURAGED. Dissenting comments are also WELCOME! They form the basis for discussion.

Monday, March 21, 2005






LEFTWARD TO CAPITALISM

I am an adamant supporter of capitalism. I am an equally adamant opponent of socialism. I believe current administration policies are markedly anti-capitalistic. The current right-ward shift of our government is a move away from capitalism, and toward corporate plutocracy. The current administration is moving away from free enterprise. It is moving towards a government controlled by a small group of wealthy special interests. It is anti-free enterprise. As such, a progressive shift in current economic policy would be pro-capitalist, not anti-capitalist. A progressive shift would increase growth and prosperity. Current supply-side economic policies are not increasing economic growth. They're reducing it. Further economic growth will only be stimulated by growth in consumer income. The Bush corporatocracy ignores this. The importance of the American consumer market is ignored. And yet, this market is essential to our economy. Capitalism cannot exist without a consumer market. This market is created by consumer spending, which comes from consumer income. Spendable consumer wealth determines the size of this market. The market is actually reduced by savings and investment. Savings and investment divert money away from consumer spending. The theoretical, economic benefits of savings and investment are to increase supply. However, if supply exceeds demand, those benefits disappear. If supply exceeds demand, then demand needs to be increased. Increased investment, with non-increasing consumer demand, provides no economic growth. As such, there is little current benefit to increased overall investment. American industry is overinvested now. Our industrial capacity usage is at 79%, which is far below the 85% it was during the 90's. We don't need to increase the size of an under-utilized industrial capacity through increased investment. We need to increase the utilization rate. We need increased demand to increase the utilization rate. Current consumer demand is not sufficient for full utilization. Policy focused on increasing consumer demand would alleviate this problem. (Excess Industrial Capacity = Insufficient Demand. Increased Demand = Increased Utilization.)

Consumer demand is created by consumer spending. Consumer spending will increase if consumer income increases. Increased corporate profits and reduced corporate taxes will not increase consumer demand. Nor will deregulation or reduced "frivolous" litigation. None of these corporate concessions will stimulate economic growth with our current economy. Reducing corporate costs will do nothing except increase CEO salaries. Investment is plentiful at present. Consumer spending is not. Increased consumer income is needed. That will stimulate economic growth. It will help corporate America, as well as working America. These "left-leaning" , yet pro-capitalist concepts need to be emphasized.

We need to stop defining economic "growth" as increased corporate profits, increased CEO salaries. They don't necessarily indicate a healthy economy, or economic growth.

Some important points are worth discussion. Consumer spending drives a capitalistic economy, not capital investment. Demand from consumer spending is the engine that drives economic growth. Capital investment is only "permissive" for economic growth. In contrast, increased consumer demand "forces" economic growth. Increased consumer spending, and the increased profits that result, will provide necessary capital for further investment. In contrast, further investment cannot "create" more consumer spending, or consumer demand. It must be there to begin with. No amount of investment will create economic growth, unless demand necessitates it.

Demand creates economic growth by itself -- by increasing either prices, quantity of sales, or both. Investment can only increase production. Profits are only increased by increased dollar-value of sales, not production. Thus, the benefit of increased investment is limited by consumer demand.

HOME: http://www.unlawflcombatnt.blogspot.com/

11 Comments:

Blogger rightsideblogger said...

Mike,
I'm sorry you missed all the reports by the WSJ, Allen Greenspan, and many other econmic reports that the economy has grown at the highest rate in the last two years since the .com phenomenon (Which by the way was not a healthy growth rate the stock market back then). The current rate of growth is a sustainable growth rate. And by the way businesses do consume equipment and land. They buy products at Staples, Office Depot and other "supply" chain stores. They do put money back into the economy. Also those tax cuts did go to the workers as well. They may not have got a check from the U.S. Treasury, but they did get a paycheck from their employer. In other words they were not fired.

7:09 PM  
Blogger unlawflcombatnt said...

_________________________________________

Alberto,

I didn't miss the comments from Greenspan or the Wall Street Journal. I think the WSJ stretches the truth to the breaking point. Greenspan does the same, in a more subtle way. He went to the same school as Bush in how to make partially false, non-specific comments. (i.e., comments he could claim were misconstrued or misunderstood at a later date. For example, like the main reason for invading IRAQ was not WMDs, but to fight terrorism. Which is now validated since we CREATED a terrorist haven by our invasion.) I didn't miss Greenspan's "pearls" about a temporary "soft patch" or "some firming up of the soft patch." Did you miss the pearls about the growth rate leveling out? Did you miss the economist's consensus that this year's growth rate will be less than last year's? Was it obscured by statements like "the economy will continue to grow at a rapid rate, though the pace will be somewhat moderated in 2005." You see, I translate these "alternate reality" statements in to "actual reality" statements. That translates to "the growth rate will slow in 2005." I translate that to a slowdown in a growth rate that already wasn't producing enough jobs. I translate that to a growth rate that will produce even less jobs than the previous growth rate.

I would restate such statements as follows. We still aren't creating enough jobs. Since our growth rate is slowing down, our dismal rate of job production will also slow down even more.

My points are these. I not only think that Greenspan and the WSJ are exaggerating the positive, I don't think what I've heard was very encouraging in the first place. Statistics from the Economic Policy Institute (http://www.epinet.org/) show that our job production rate is much less that Bush predicted. It is also MUCH worse than it has been after any other previous recession. I hate to sound like a broken record, but someone has to BUY the products produced by American industry. I know you economists like to ignore this, but sale of products is required. You're not going to get rich from huge surplus inventories. You're not going to get rich from increasing industrial capacity, when the current capacity is underutilized. Huge unsold inventories in a warehouse are not beneficial. They do, however, reduce labor costs. Because you can start laying off workers. Which will further decrease consumer income. Let me know when you figure out how to sell MORE dollars' worth of products to consumers who have LESS money to spend. You might get a Nobel Prize for that one.

I'd like to draw a parallel with biochemistry. In biochemistry we speak of a "rate-limiting" step. The rate-limiting step is the only reaction out of a series of reactions that affects the rate of synthesis (production.) It controls the rate of the entire series of reactions. That's because it's the slowest reaction in the series. If you speed up any of the other reactions, the synthesis rate remains exactly the same. However, if you speed up the rate-limiting reaction 2-fold, you speed up the rate of synthesis 2-fold. Industrial production works the same way. One step usually limits the rate of production. The economy also works the same way. The rate of economic growth is determined by the rate-limiting step. The current rate-limiting step is consumer spending. This economic "reaction" will not be speeded up by increasing capital input. And this reaction will be slowed down by inflation-inducing tax cuts for the rich. Tax cuts not offset by spending cuts. This inflation causes a reduction in real wages. It devalues the dollar and reduces its buying power. It reduces the "rate-limiting" step of consumer spending. Republicans need to stop claiming tax breaks for the rich are beneficial. They're not. At minimum, this mistake is illogical. At worst it is dishonest. Businesses don't need more capital. Consumers need more spending money. Capital has 0 benefit if it increases supply above demand. It takes a 1-hour Economics lecture to understand this. It takes an Economics PhD to disprove it. And still be wrong.

In Medicine we try to discover the truth. We try to determine reality. Medicine is based on facts, and concepts drawn from those facts. When we describe something, we try to describe it as accurately as we can. We attempt to communicate an accurate, unbiased assesment of a problem or condition. Persuasion is NOT part of medicine. Accurate communication is. We change our concepts when they're proven wrong. If we incorrectly perceived medical reality previouly, we correct those misperceptions. We don't try to prove our previous misperceptions were right. This is how we differ from many economists.

Many economists START by trying to prove reality, not discover it. They try to prove the correctness of a theory that flies in the face of apparent reality. Often they seem to be creating reality, instead of finding it. Many seem to come up with theories that conflict with simple, logical thinking. Many seem to be trying to "prove" something is true, rather than "determining" what is true. They're not explaining reality. They're trying to prove that their preconceived ideas are reality. Not all economists do this. Probably most don't. But many do. Many are actively creating theories to justify illogical policy. All of those working in this Bush administration are in the "reality creation" category. The worst of these is the current head of the Ministry of Economic Propaganda, Greg Mankiw. For example, Mankiw states outsourcing is good for America. He states this with absolutely 0 facts to support it. He doesn't need facts. He has a "theory" that explains it. A theory that "creates" reality, instead of explaining it. He has a degree in economics, maybe even a PhD. So that must make his statements true. Has he discovered the truth? No, he created the truth. His alternate reality has replaced factual, documented reality.

We're currently practicing depression-type economics. We're going to experience a demand failure if the current course is maintained. Demand-side failure started the Great Depression, according to many economists. Europe's demand for American exports fell. That drop in demand brought the American economy down with it. Don't any economists read history? Or are they too busy trying to create it. Do today's economists hate Keynes so much that they ignore ALL of his ideas, like AGGREGATE DEMAND? Do they believe the "demand" part of of supply & demand law doesn't apply if it's inconvenient? Can we suspend that law, or re-interpret it, like we did with laws against torture? Do they think demand-failure is impossible due to their hatred of Keynes. Shouldn't Republican economists worry more about seeking reality, rather than refuting it?

There is a saying I always keep in mind, which I heard as child. "You can get ideas even from the dumbest." I would change this slightly for economists. "You can get ideas even from those you hate the most." I would also add another statement to that, for the benefit of Republican economists. Spend more effort discovering reality, less effort creating it.

You commented that your statements were "falling on deaf ears." NOT true. I always listen. Especially when someone has more background than I do. I don't always agree. But sometimes I do. (I sometimes I even agree with you, Alberto.)

As a matter of fact, I would be considered a CONSERVATIVE in California state politics. (Ronald Reagan was an EXCELLENT governor.) My positions on state issues differ from those on federal issues. I'm adamantly against raising California state income taxes on the wealthy or raising taxes on California corporations. The rich CAN move to another state. Many have done so. Corporations CAN set up in other states. Many have also done so. They've taken tax revenue and jobs with them. I've seen the numbers. We've lost nearly half of our millionaires in the last 5 years. And billions in state income tax revenue. This DOES destroy jobs and reduce California state consumer income.

However, my positions on Federal policy are much different. We're not losing many jobs at the national level from excessive regulation, high federal taxes, or "frivolous" litigation, as der Fuhrer has dishonestly claimed. We're losing jobs due to demand limitations. Limitations caused by reduced wages and insufficient number of workers receiving wages. Reduced wages due to labor competion with poorly-skilled, but more poorly-paid foreign labor. We're losing jobs because our highly skilled labor can't survive on the wages of their less-skilled foreign counterparts. We're losing jobs because corporations and the affluent aren't paying enough taxes. Those unfunded tax cuts amount to corporate welfare. Real income drops from the ensuing inflation and dollar devaluation. It drops from the expansion of the money supply. Every dollar is worth less. If the dollar devalues from high-end tax cuts, consumer spending drops more than investment spending. How much more capital investment can we use, when we're on the brink of a demand-side slump? Can we make more money in sales if consumers have LESS money to spend? Will consumers start selling non-liquid assets to maintain spending? Will they sell their homes to buy stereos and DVD players. Greenspan's statement about average consumer asset value certainly suggest this. He states the average American's assets are 5 times annual income. Is he serious? Or is he deliberately deceiving us? The implication made is so wrong that it would take hours to cover.

I have a better measure of consumer economic health. How much are the average American's LIQUID assets? How much are the average liquid assets of the lower 98%? Does Greenspan even know? Does he even care? It's possible to state something that's technically true, and still deceive people. That's what Greenspan is doing here. He hopes that a Republican economist can justify his implication with a convoluted explanation that no one can understand. I'm sure plenty of Republican economists could help him. Help him explain our "faith-based" economy. Fact-based reality won't help him. But faith-based, "alternate reality" might.

Mike

http://www.unlawflcombatnt.blogspot.com/

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6:25 PM  
Blogger lib-slayer said...

"I didn't miss the comments from Greenspan or the Wall Street Journal. I think the WSJ stretches the truth to the breaking point. Greenspan does the same, in a more subtle way."


Ahhh, the cry of the liberal, if the reported facts don't fit my imaginary world, then they are lies.


"For example, like the main reason for invading IRAQ was not WMDs, but to fight terrorism"


No, the reason was to prevent terrorists from getting WMD from Iraq, that was stated in Bush's 2003 State of the Union Address.

2003 State of the Union Address


Before September the 11th, many in the world believed that Saddam Hussein could be contained. But chemical agents, lethal viruses and shadowy terrorist networks are not easily contained. Imagine those 19 hijackers with other weapons and other plans -- this time armed by Saddam Hussein. It would take one vial, one canister, one crate slipped into this country to bring a day of horror like none we have ever known. We will do everything in our power to make sure that that day never comes. (Applause.)

Some have said we must not act until the threat is imminent. Since when have terrorists and tyrants announced their intentions, politely putting us on notice before they strike? If this threat is permitted to fully and suddenly emerge, all actions, all words, and all recriminations would come too late. Trusting in the sanity and restraint of Saddam Hussein is not a strategy, and it is not an option.


http://www.whitehouse.gov/news/releases/2003/01/20030128-19.html



This was validated:

David Kay - testimony to Congress
Jan 28, 2004


"It was a country that had the capability in weapons of mass destruction areas and in which terrorists, like ants to honey, were going after it.
"

http://thomas.loc.gov/cgi-bin/query/z?r108:S28JA4-0018:




"As such, a progressive shift in current economic policy would be pro-capitalist, not anti-capitalist
"


Progressive is ANTI-capitalist, minimum wage is anti-capitalist.

As for your ridiculous claim that this is becoming a corporate plutocracy where we are being ruled by a small group of elite, it is clear you simply do not understand what corporations are, that corporations are a way for the common man to share in the fruits of production.

6:25 AM  
Blogger lib-slayer said...

"And this reaction will be slowed down by inflation-inducing tax cuts for the rich. Tax cuts not offset by spending cuts. This inflation causes a reduction in real wages. It devalues the dollar and reduces its buying power. It reduces the "rate-limiting" step of consumer spending. Republicans need to stop claiming tax breaks for the rich are beneficial. They're not. At minimum, this mistake is illogical. At worst it is dishonest. "


First off, lets get something clear, there weren't tax cuts for the "rich" there were tax cuts for the top 1% of INCOME earners. Few rich have jobs where they earn incomes to have their income taxes cut. To be in the top 1% of income earners the household only needs to have a combined income of around $330,000. I would hardly call that rich.


Second, when you cut their income tax, there is only 3 things that they can do with it,
1. Save,
2. Spend,
3. Invest.

All three of which provide economic stimulation, creating jobs.

The top tax rate cuts were put into affect June 2003, just 3 months later the economy started CREATING jobs. Prior to the tax cuts the economy was LOSING jobs.

in Thousands:
2001 jan -13
2001 feb 80
2001 mar -47
2001 apr -295
2001 may -32
2001 jun -130
2001 jul -117
2001 aug -154
2001 sep -255
2001 oct -330
2001 nov -308
2001 dec -162
2002 jan -113
2002 feb -122
2002 mar -45
2002 apr -105
2002 may -6
2002 jun 33
2002 jul -105
2002 aug 0
2002 sep -47
2002 oct 112
2002 nov -16
2002 dec -121
2003 jan 82
2003 feb -149
2003 mar -199
2003 apr -68
2003 may -18
2003 jun 7........tax rate cut
2003 jul -19
2003 aug -25
2003 sep 98
2003 oct 202
2003 nov 79
2003 dec 122
2004 jan 122
2004 feb 55
2004 mar 346
2004 apr 252
2004 may 267
2004 jun 78
2004 jul 38
2004 aug 131
2004 sep 177
2004 oct 338
2004 nov 133
2004 dec 160

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CES0000000001&output_view=net_1mth


But there is an even more fundamental reason for cutting the top income tax rate. This country was founded upon CLASSICAL liberal principles, the belief that individual rights exists BEFORE the state and it is the states responsibility to protect those rights. One of the most fundamental principles of classical liberalism is equality, equality BEFORE THE LAW, not equality of outcome, not equality of living standards, not equality of wealth, equality before the law. To tax one man a high rate and another nothing goes against the very principles this country was founded upon.


Thomas Jefferson

To take from one because it is thought that his own industry and that of his father's has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association--the guarantee to every one of a free exercise of his industry and the fruits acquired by it."

http://etext.virginia.edu/jefferson/quotations/jeff1550.htm

"he guarantee to every one of a free exercise of his industry and the fruits acquired by it." That is EXATLY what progressive liberalism seeks to achieve, take from the rich and give to the poor. This is a childish Robin Hood mentality that violates the rights of those you take from.




"Businesses don't need more capital. Consumers need more spending money. Capital has 0 benefit if it increases supply above demand. It takes a 1-hour Economics lecture to understand this. It takes an Economics PhD to disprove it. And still be wrong.""


Cutting the top tax rates helps NEW business CREATION which creates NEW products, NEW services, NEW jobs.

6:51 AM  
Blogger lib-slayer said...

Correction: (Wrong quote)


"To take from one because it is thought that his own industry and that of his father's has acquired too much, in order to spare to others"

That is EXATLY what progressive liberalism seeks to achieve, take from the rich and give to the poor. This is a childish Robin Hood mentality that violates the rights of those you take from.

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