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From: orb@whuxl.UUCP (SEVENER)
Newsgroups: net.politics
Subject: Supply-side Economics: the  Savings Rate
Message-ID: <756@whuxl.UUCP>
Date: Wed, 30-Oct-85 09:25:15 EST
Article-I.D.: whuxl.756
Posted: Wed Oct 30 09:25:15 1985
Date-Received: Thu, 31-Oct-85 19:10:01 EST
References: <1475@teddy.UUCP> <7800591@inmet.UUCP>
Organization: AT&T Bell Laboratories, Whippany
Lines: 33

One of the key arguments for Reagan's enormous tax giveaway to
the rich and corporations in 1981 was based on "Supply-side
economics"- namely that giving the rich tax bonanzas would lead
them to save and invest in productive enterprises that would
"increase supply" and therefore trickle down to the poor.
 
After 4 years one could probably say this policy should have had
enough time to have some effect.  What has been the effect on
the savings rate? Has it been the upsurge postulated by 
Laugher and his silly curve?  Just last week the government
issued a report that the savings rates was less than 2% -the
lowest rate it has been in 40 years.  Moreover the proportion
of consumer debt has skyrocketed.  It has been consumer spending
which has fueled the economic recovery - not investments.
While consumer debt is at record high levels, the government itself
is of course saddled with a doubling of its debt in the last 5 years
(to pay for Reagan's spending spree on new nukes and such) to the
point where all of Reagan's touted cuts in domestic spending for
people's needs has been overshadowed by simply the increase in
the amount of interest owed on the national debt.
Moreover, an earlier report projected that increases in workers
take-home pay would continue to drop as it has been dropping for
a couple years.
 
How can supply-side economics work if its major premise (that
tax giveaways would lead to an increase in the savings rate)
does not prove to be valid?  
To the extent it has worked at all it would seem to be more
explicable in terms of Classical Keynesian theory of the effects of
deficits rather than any increase in savings rate or consequent
investment and improved supply.
 
                 tim sevener  whuxn!orb