We got to watch the first hour of the second debate, although we were watching on BBC World, which went down every minute or so and prevented us from actually hearing some of the comments. We believe that Georgie did much better this time than the time before. He just has a way of connecting with the people that John Kerry doesn’t have. That being said, we both think that Kerry did do better than we expected. We liked his taking the offensive on issues.
One thing that I would like to clear up (this is tp talking now). When we talk about tax cuts as a demand stimulus, it’s important to think about how we make these tax cuts work. I take the principle of decreasing marginal utility of money as a given: rich people value a dollar far less than poor people because a dollar makes more of a difference for a poor person. It follows that poor people will change spending patterns more readily, and drastically, when given money than will wealthy people. The probability of tax break money being actually spent is higher for them. Increase consumption means increased demand, which leads to higher production, which strengthens the economy, which is the goal of the tax breaks. The increase in money in the economy does lead to inflation, but in aggregate, real earnings still increase for those people. Tax breaks for wealthy people are more difficult to understand. Increasing the supply of money for rich people may lead to increased investments in productive capacity, but it is less likely to do so because it has less influence on their spending patterns, and does nothing for the ability of regular folks to consume the things produced. If anything, it reduces the real value of their wages, since the supply of money in the economy is greater. This is, yes, stagflation. If Bush is committed to jumpstarting the economy through tax breaks, he should be directing them towards the people who are more likely to consume. Oh yeah, and he shouldn’t increase non-defense discretionary spending.
You will notice that nothing that I said here is “democratic” or “republican.” That is all.
(JM) Whew, I’ll say. Don’t worry if you didn’t understand parts (or all) of that. I get running commentary and have a personal tutor and I still get confused sometimes! That being said, this stuff really is interesting if you take a moment to try and work it out. More on our real life adventures tomorrow….
Tom Pepinsky 