As Michael notes, this WSJ piece is arguing:
The Wall Street Journal suggests that the economy might not be affected by the credit crunch because it will mostly hit the poor. Since the poor don't spend that much, the economy can happily sail along. I was wondering how multipliers might differ by income class.
Exactly the right question. The usual rightwing argument for NIBOR DOOH economics (take from the poor and give to the rich) is that the poor have a high marginal propensity to consume, while the rich have a high marginal propensity to save. My own (maybe too much Ando-Modigliani lifecycle dominated) is that the marginal propensities to consume v. save don’t differ by income class. But if the WSJ wants to tell us that the poor save more – great. I’m all in favor of things that would increase long-term growth such as movements that would reduce income inequality!
13 comments:
From what I have gleaned - and please correct me if I'm wrong -is that it is a glut of 'savings' that has caused the global economic crisis we now face. This crisis is expressed as the current explosion of global debt, unjustifiably high asset prices, speculation and fraud in the global financial markets, lack of collateral to cover existing debt, unbalanced international trade, currency volatility, stepped-up exploitation of the natural environment (with massive loss of biodiversity, resource and environmental degradation/depletion).
We've seen decades of inflation related to high oil prices, an inappropriately high US dollar and higher interest rates during the 1970s and 1980s. The US has been sheltered from many of the effects of its policies due to the nation holding the world's reserve currency and thus oil (and other commodities?) being traded globally almost exclusively? using the US dollar.
What has resulted in the accumulation of 'savings' in the form of petrodollars, eurodollars. Massive amounts of liquidity looking for a place to invest. Resulting, for the most part, mal-investments and speculation of one form or another. Money used in such a way that impoverished many millions of people. (Land clearing, syndicated loans to third world countries, greater numbers of fishing vehicles, online casinos etc).
The dangers of derivatives
By Henry C K Liu. 2002
http://www.atimes.com/global-econ/DE23Dj01.html
Yes, the economy will be affected by the credit crunch. When many millions of people lose their homes and thus realise the dangers of holding high levels of debt. Those that manage to stay in their mortgaged dwellings will face higher interest rates when the banks try to pass on their higher costs of borrowing.
PS:
IMO the solution to our current dilemmas does not lie in increased consumption of goods and services by either the rich or the poor. So trickle-down and trickle-up - whatever works to this end - would have disastrous effects.
There needs to be placed clear limitations on wealth accumulation. Economic value needs to redefined to incorporate those elements that sustain and improve life. Modes of production remodelled so that natural resources are preserved and recycled and pollution prevented. Incentives designed to reward the satisfaction of needs DIRECTLY.
Is Scott Patterson trying to draw the argument away from the formulation of real solutions by denying there is a problem in the first instance?
My view is that there was a deficiency of investment. OK, either way - a liquity trap problem likely did not occur. But notice that the FED felt the need to raise interest rates so we are supposedly in a different era now.
The phrase, "redistributing income to the poor" already concedes too much to the right-wing mentality. The "poor" owe their poverty to the varying but always essential "full-unemployment policies" of the bourgeois state. Restore fundamental social-economic rights to all and there would be no poor to redistribute income to.
The more pervasive unemployment is, the more invisible it becomes, both statistically and subjectively.
Unenjoyment is unemployment. To the extent that anyone's enjoyment of their work is tempered by prospects of needing to look for work in the future, that person is also unemployed. To the extent that anyone stays at a job they dislike because they can't find another, that person, too, is unemployed.
Isn't the likelihood of the poor spending the money exactly why they should be given it, rather than giving it to the rich? The poor will tend to spend it close to home, because they can't go anywhere. The rich will, in all likelihood, invest it, but won't they invest it where it makes the most? If the economy is not good here (and that's why you supposedly want to give it a boost) they won't tend to invest it here, but elsewhere. Why would we assume that the rich would forego putting their new-found money overseas in some healthy economy rather than in a sickly one at home?
Well I just want to second Sandwichman. "Redistribution" builds in the idea that the original allocation was both fair and efficient, that there were no power distortions in the original slicing of the pie.
It is a mistake for liberalism to allow 'free' marketers to frame the issue as if gains from productivity are distributed by a magic Pie Slicer wielded by an Invisible Glove. Progressive taxation if from a liberal perspective a more or less systmatic way of righting the power scale in the face of a system with a bias towards the controllers of capital.
Progressive taxation sure beats revolution and social investments really can lead to rising real incomes. It is sometimes amazing to remember that none of that was particularly in question during the sixties and seventies.
nah,
progressive taxation does nothing to "right the power scale."
what it does is recognize that rich people have more money, so that's where the tax man should look for it. of course the rich also have more ways of hiding their money from the taxman, and a really regressive society might find it easier to just rob the poor.
but being as this is a democracy, and reasonably rational, in spite of the various crooks and schemers, a progressive taxation is simply rational, and doesn't have a lot to do with cosmic justice one way or the other.
on the other hand some people, not far from here, have the interesting idea that instead of "taxing" people to put money aside for their own retirement, that pool of money is available for "us" to redress the wrongs of society, either through government programs or through skilfull investment, depending which brand of greed you prefer.
and all of this is based on some pretty foolish ideas about money and how it works. you could limit taxes to a single tax at the fountainhead: a tax on corporate and business profits. the rest of the economy would adjust to that. the gummint would get its money and the workers would be paid the same "take home" wage... or pay more for goods and services in a way that exactly compensated for their lack of taxes.
this wouldn't be an especially good idea for mostly psychological reasons, but thinking about it should be a good exercise for those who think "social justice" is a matter of taking money from one source and devoting it to some better social purpose... welfare, or giving it to the rich to invest.
I'll throw my weight, for what it's worth, behind the comments of both Sand'man and Bruce. Certainly there is nothing sacrosanct in the current distribution of either income or wealth. In fact it seems more likely that the imbalance that has been growing has been by design, and that has nothing to do with an alternative to Darwin. There is no re-distribution that needs to be justified. There is a need to re-establish the concept of fair wages rather than free market. There is no relationship between free and fair markets. The globalization of labor as an asset has had disastrous effect on the wages US workers. That is were the redistribution needs to occur.
I would add that we need to stop describing fair taxation as progressive taxation, which has the ring of a liberal wealth redistribution scheme. Why should the wealthiest members of our society, who have benefited the most in financial terms from our system of government and its political economy, not bear the greater share of the cost of that system of government? Not so much a concept of from those who can to those who need, but instead, from those who can because that's why they have it.
PS: I think Brenda's first paragraph, above, says it all.
Brenda is a National Treasure. Unfortunately for America last I heard she lives and is a citizen of Tasmania State Australia.
Bruce Webb said: "Brenda is a National Treasure. Unfortunately for America last I heard she lives and is a citizen of Tasmania State Australia.."
My mind wanders around the globe though. I visit the US regularly ;-)
jack
just a note to say i agree.
hard as it may seem to believe.
coberly,
Not hard to believe, as I think that we probably agree on the basics of most of these issues. To my mind they all stem from a core imbalance which I address in another comment following the Rich and Poor Multipliers Again posting.
Brenda, If you make it to NYC look me up. It would be my pleasure to show you some of the place where the hoi poloi are less likely to be found.
"Brenda, If you make it to NYC look me up.."
Oh yeah! Just put 'Jack' in a search engine and go!
That might work, but jackstar@mindspring.com will work better.
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