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June 26, 2003
Deep water

Thatís where I am when I'm trying to discuss the intricacies of the economy. Sometimes the opposition seems to start making sense and I have to actually think and then my head hurts.

David Hogberg over at Cornfield Commentary started making some sense today. (Warning. None of this will make sense if you don't read the original post and the comments.)

As David says, you can't consume your way out of a recession. Exactly. Except that you sort of can.

There are two key failures in his argument.

(1) He fails to justify the economic impact of tax cuts for the wealthy.
(2) His view of the economic impact of helping the poor is too limited.

First, he doesn't have anything intelligent to say in refutation of Sean's speculation (in David's comments) that WealthyHarry will shelter his tax windfall in the Cayman Islands, suggesting that he (David) couldn't think of any fallacies in this scenario. This means there's no economic benefit in giving WealthyHarry a tax break.

(One person in the comments tries, absurdly enough, to portray himself as the typical WealthyHarry with his $55k salary. I'm sorry to be the one to break this to him, but he's several orders of wealth magnitude beneath the "wealthy" who are actually benefiting most from the tax cuts, okay?)

Anyhow. WealthyHarry.

By the way, in David's response, I consider that fixating on a throw-away insult about WealthyHarry having a girlfriend on the side is really just one more example of how unhealthily obsessed Conservatives are with other people's sex lives. Seriously. What is it with Conservatives and sex? The slightest mention of it and they can't think of anything else.)

Anyhow, Sean suggests and David doesn't refute that the economy will fail to improve as a result of having given WealthyHarry a huge tax break because WealthyHarry won't invest it, he'll shelter it offshore.

Actually, to be fair, David does try to argue that millionaires don't all live lives of sinful luxury and lots of them are going to indulge in cunning investment strategies (right) that will jumpstart the economy and take us to nirvana, but he's misinterpreting reality.

With a paltry million or two like his "millionaire next door" has, you really can't get into the best places any more. Single-digit millionaires aren't the "wealthy" any more, and they're not the ones who are benefiting by this tax cut the most. (But they do benefit, don't get me wrong. Even $55k guy above, his family is getting about $1,500. He gets to buy shoes for his kid and dinner and make a contribution to his 401k with his share.)

On the other hand (that "consume your way out of a recession" thing), David makes more sense in saying that enabling even 10 million PoorJims to buy a new pair of shoes or eat at McDonald's isn't going to help the economy that much since the combined economic impact of a million PoorJims is small.


When you compare the two scenarios, the impact of the PoorJims of the country is significantly higher than that of even a million WealthyHarrys.

If WealthyHarry shelters his tax break, or (to broaden past the original example) buys one luxury item with it, the impace runs from nonexistent all the way up to incredibly insignificant. (The purchase of one luxury item helps one vendor and a small handful of support vendors. This is not mass production.)

The purchase of ten million pair of shoes helps, albeit in a small way, manufacturers and retailers all across the country.

The purchase of ten million extra McDonald's breakfast moves through the individual store and some of the money eventually lands in the pockets of farmers and ranchers.*

(*Look! It's trickle-down economics! Why don't the Republicans love it?)

Even our $55k guy is doing more to contribute to the economy than WealthyHarry. He's buying shoes, eating out, and investing (through his 401K).

Back to 10 million PoorJims, though. Other industries also benefit from additional purchases McDonald's will make of, for instance, paper cups and bags.

Employees at each McDonalds will find their jobs just a tiny bit more secure.

That's worth doing, even aside from the point that David and his cohorts consider beneath discussing, that feeding PoorJim is enough of a reason to give him a tax cut.

In the end, I also found myself unconvinced by David's argument that there's no proof that consumer spending is connected with a recession. In fact, the mind boggled.

Does he actually perceive that anyone is going to "help" the economy by investing in business unless they're assured that consumers are, in fact, going to consume and produce profit?

And if "consumer spending" and/or "consumer confidence" isn't relevant, why is that the one factor most often discussed in debating the stock market's ups and downs?

(I keep getting sidetracked today, but then that's not unusual for me.) Investment!

Yes, investment is down. I wonder why?

Could it be that major corporations and their investors are, in the wake of NAFTA, increasingly inclined to invest outside the USofA?

Could it be that investors, still suffering the painful burns from Enron's investor-singeing shenanigans, have no faith at all in this Administration's moves (such as they've been) to ferret out and eliminate corporate fraud?

Could it be that with the specter of a long stay in Iraq ahead of us and with no idea who these nuts are going to attack next, those with money to spend bought a few defense stocks and then salted away the rest of their money against potential lean times ahead?

There are a lot of reasons the market hasn't rebounded and not one of them is PoorJim's fault, okay? Give the man and his family a bigger tax cut, let the Fortunate 400 struggle along clipping coupons and watching their already obscene share of this country's wealth accumulate and stop whining.*

If the 400s' wealth accumulates .001 percent more slowly because PoorJim got a new pair of shoes or ate a couple more meals, well, they can just live with the pain.

In fact, it might be a little easier for them if they stop to remember that the odds of them being forced to choose between shoes or a meal are nonexistent.

Are we on the same page now? Also? We just had another rate cut, didn't we, folks? That's, what, the fifteenth in the last couple of years?

No one, not the Feds or the market or anyone else, believes the rhetoric and propaganda about how giving Bill Gates a huge tax cut (whether he wants it or not) is going to get the engine of prosperity humming again, so why do conservatives continue to argue about how great it's all going to be?

*In the interests of disclosure, let me say that I'm not being helped by the tax cut, nor did I expect to be. I'm not one of the poor and I have no problem at all with paying taxes.

Posted by AnneZook at 11:54 AM