Originally Posted by
sickboy
http:///forum/post/3278181
I have this cut out of the wsj and on my cubicle wall. The next day Bob Dole had an article saying it was the prime time for equities. I thought that was ironic.
I think this a completely politcal argument and not based on economics for two reasons, one of which he addressed in the article. A) He said only people who can shift their income will do so. That's not a very large portion of population. Granted its a large portion of money, but in a consumer based economy I highly doubt it causes a double dip. Those fortunate enough to chose when to realize income are not going to spend it anyway, they are saving it for retirement. This retirement is invested in stocks, bond, etc., which are not "investments" by GDP standards. B) I believe he assumes the tax elasticity to spending is higher than it is. In this age of over leverage (yes, still) people will still spend to prop up their standard of living. Considering the median income is in the $40Ks, the largest consumer base will see no difference in tax rates (directly anyway). If people view lower tax rates in the future (aka GOP relected) they will decrease their savings rates for a couple years to maintain household budgets. I view the US as still being on the "bottom" side of the laffer curve in which there is still room for a slight tax hike (see 90s) which would dramatically improve our debt/deficit outlook and improve economic outlook, not hinder it. If the top tax rate was going back to 60%+ as it was only a few decades ago, then I would concur with Mr. Laffer, but not in this instance.
Personally I think your argument undermines your point. All these are reactions studied in economics when discussing supply and demand. And perceived changes in prices. There is every reason to include government intervention as a factor when studying these things...
Do I think we are going to see his prediction, I don't know. Personally I think it is logical, however as with trying to predict peoples reaction to economic stimulus, it is difficult since there are so many variables in real life...I do think it will exert downward pressure on the economy.
You're also not taking into account other shorter term investors. Such as retailers who play all sorts of games when it comes to the cash they have sitting in their banks for a few weeks before it come times to pay there bills at the end of the month. You're talking some REAL $$ money there... That just doesn't sit in the bank collecting dust...
