🚀 go-pugleaf

In article <183265@pyramid.pyramid.com>, pcollac@pyrnova.mis.pyramid.com (Paul Collacchi) writes:
|> In article <1992Aug27.043330.11723@pony.Ingres.COM>, garrett@Ingres.COM
|> (QUOTE OF THE YEAR) writes:
|> |>
|> |> 
|> |> 	All these theories, and yet not a single person saw a 
|> |> correlation between the tax cuts and the following recessions. Amazing.
|> |> Well, I'm going to advance a theory that I am sure everyone will 
|> |> disagree with, on both sides. Here goes...
|> |> 
|> |> 	The government cuts taxes, therefore allowing more money
|> |> to circulate in the economy. Hence, economic growth.
|> 
|> The reduction of taxes WILL impact the amount of circulatable money,
|> but it doesn't necessitate economic growth.  Why?  Not all people
|> spend their money.  Some save it.  Why else?  People may be in debt
|> and are paying down the debt.  Interest is not really a produced good
|> in the same sense as a car or bike.  Paying off interest doesn't
|> necessitate growth.  Why else?  Foreign competition.  Who is to say
|> that the extra cash will go to domestic production?
|> 

There are several false statements in the above paragraph that I would
like to address.  First, a reduction of taxes *WILL NOT* impact the
amount of circulatable money.  It will only change *who* is spending
the money.  Second, you seem to imply (correct me if I'm wrong) that
spending money will generate economic growth whereas saving won't.
This is completely false.  Saving (investment) creates a pool of
capital which allows new businesses to be created, allows businesses
to buy capital which allows them to be more productive, which allows
them to hire more employees, etc., etc.  Saving is a crucial element
in generating economic growth.  What about people who are 'spending'
money on interest payments.  The payment doesn't generate growth
but who gets the money?  What do they spend the money on?  Follow
the money fully to see its impact on the economy.  A payment from
A to B is not the end of the story.  Finally what about foreign
purchases.  One obvious benefit is the creation of jobs related
to the importation of goods.  Transportation workers, for example.
Also, money spent on foreign goods gets returned to this country
when foreigners purchase our domestic goods, services, and 
investments.



James W. Howe                  internet: jwh@citi.umich.edu
University of Michigan             uucp: uunet!mailrus!citi.umich.edu!jwh
Ann Arbor, MI   48103-4943