Re: [A-List] A-List] US Markets: New Economy Bull

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

This is tiresome supply side argument that get repeated.  Supplysiders 
keep ignoring the one conditon that make supplyside valid: full 
employment.  Instead they use supplyside created demand to reach full 
employment which is the equivallent of runing full speed backwards.
More specifically below:


annewilliamson wrote:

>Panacea Du Jour
>
>The Daily Reckoning
>
>Paris, France
>
>Tuesday, 21 January 2003
>
>                 -------------------
>
>
>
>PANACEA DU JOUR
>by Kurt Richebächer
>
>Productivity growth is not the panacea for which American
>policymakers and most economists seem to take it. If there
>is insufficient demand, as today, increasing productivity
>can only result in increasing numbers of unemployed
>workers, declining capacity utilization and, ultimately,
>slower growth.
>
>What really induced generations of economists of all
>schools of thought to elevate saving to an indispensable,
>key condition for economic growth? The basic reason is that
>it is the limiting factor for capital investment. Short of
>nirvana, all resources are scarce. Due to this elementary
>wisdom, new capital investment can only come about to the
>extent that somebody makes the resources for the production
>of the capital goods available. That somebody happens to be
>mainly the consumer. By saving, that is, by spending less
>than he earns, he effectively releases the necessary
>productive resources for investment.
>
Human are also a resource, and why should it be excluded from the 
scarcity theory?
Increasing savings will nopt cure overcapaicity which can only be cured 
by higher wage income.  Overcapacity can be cured by increasing return 
on laboer and decreasing return on capital.  Even on a pure math level, 
more savings lowers return on caoptial because it make capital less 
scarce.  The only way savings can increase is to increase wage income.

>But this necessary release of productive resources is true
>only for saving from current income, coming implicitly from
>current production. The attendant release of resources is
>what makes this kind of saving indispensable for investment
>and economic growth.
>
>In essence, capital formation represents the surplus of
>production over consumption, and that has to be made
>possible by saving. To quote Friedrich Hayek on the
>subject: "Saving is not synonymous with the formation of
>capital, but merely the most important cause which normally
>leads to this result."
>
>A lot of energy has been devoted to whether there will be a
>double-dip into recession. This is the wrong question. What
>really matters, instead, is whether capital spending will
>rebound after its steepest decline in the whole postwar
>period. This is also a question that can be answered with
>reasonable foundation from the available data.
>
>If yes, the U.S. economy has a chance for a sustained
>recovery. If not, it will be Japanese-style near-stagnation
>and sub-par growth for years to come. We think the
>prevailing conditions speak overwhelmingly for the latter.
>
>  
>
Japan suffers from oversaving!

Henry C.K. Liu