alt.politics.economics

professorchaos wrote:

> Here is where you get it wrong. Liberals support tax cuts to get the
> economy moving. Economist know this will only work if they are
> permenant. Liberals want temporary tax cuts.

For the economy to work, there need to be demand for the goods and services.

If the tax cuts, increase the share going to the rich and cut social
programs for the poor and middle class, then the demand for what rich buy
increase and the demand for what poor and middle class buy decrease.

Rich spend a big deal of money into stocks, poor and middle class buy
products of the companies traded on Wall Street. As a result, tax cuts
generate a growth in stock prices while the demand for the products will
decline (unless delayed by a cheap credit bubble).

When the bubble burst, the sales decline will be obvious. As a result, the
rich investing in stocks will be "disappointed" by the low return of
investment, and a massive dump begin. The stock market crash and a consumer
disposable income recession is guaranteed to happen.

Into a normal (exuberance only) recession, companies layoff few workers to
cut costs and make the ROI attractive again, based on the fact that even
unemployed keep buying from their savings. When earnings are attractive
again, investors put money back in, companies start to hire and the
recession ends.

Into a consumer disposable income inducted recession, the workers out of job
have no savings (today US have a NEGATIVE SAVING RATE !!!) therefore no
power to buy stuff. As companies layoff workers, they stop spending and
companies revenue decline even more. To try to cut costs even more,
companies will layoff more workers. The sales drop even more, the recession
degenerate into a DEPRESSION !!! This is what long duration tax cuts do.

If somebody claiming to be an economist advocate long term tax cuts (
especially for the wealthy) shred his useless diploma and send him back to
kindergarten.

Quick example:
==============

For the economy to work, there need to be demand for the goods and services.
Demand means both need for the product and the ability to pay for it.
If you cut wages for Microsoft janitors with let say 10% and give that extra
money to Bill Gates then:

1) ABILITY TO PAY: The janitors will buy less shirts because they can not
pay for as much as before

2) NEED: Bill Gates will not buy more shirts because he already have all the
shirts he need, he buy with them shares in shirt company

1) + 2) = The shirt company revenue decline, they will pay less dividends,
the shares drop. Also, facing a decline in sales, they put on hold the
plans to upgrade to Vista until the sales pick up again. As a result,
Microsoft sales decline too.

In the end, in long run everybody is hurt by moving money from poor to the
rich. Tax cuts for the wealthy at the expense of social programs for the
poor work EXACTLY the same way.