I) Re Patrick's [6114]: a) Thanks for correcting me on my (mistaken) comment that every taxpayer was sent a tax rebate check. b) Your claim that the real motivation for the tax cut was the 'libertarian desire to reduce the size of government', rather than primarily to stimulate investment, profitability and the growth of aggregate supply (i.e. the supply-side argument), is difficult to determine. One thing that you might want to consider more is how ideology comes to be embraced and _believed in_ by advocates of policy rather they merely being a rationalization for a 'desire to redistribute income to the wealthy'. c) On whether cuts in interest rates can help the working class. Some workers may re-finance their homes. However, not many workers under the current [recessionary] conditions are going to purchase [new or used] homes. Indeed, I think that this will also be the case with all major consumer durables. Perhaps some workers will take out bank loans to pay-off credit card debt (something to consider so long as there is a major difference between interest rates offered to consumers and rates charged by credit card companies as 'penalties' and 'finance charges'). Yet, what you have not noted is how interest rate reductions affect working-class *savings* (especially important for the elderly): i.e. it lowers their savings and total income (yet, this may have been one of the reasons for the interest-rate decreases by the Fed since it _forces_ working-class households to take their money out of 'safe' savings accounts and use the money to buy stocks and bonds). II) Re Allin's [6115]: > I would credit the Fed with being smarter than that. Surely the rate > cuts are designed to increase aggregate _demand_. Of course, if the > general macroeconomic conditions are depressed enough the cuts may not > be very effective (Keynes and "pushing on a piece of string".) I think you are giving the Fed _too much_ credit. The Fed wanted to increase investment -- particularly *stock market* investment. Yet, the stock market consistently didn't react in the manner anticipated by the Fed -- indeed, each time there was a cut in short-term rates Wall Street expected it in advance and didn't react favorably to the news. Yet, they continued the same policy even though it was evident that it was not working. So, they (unlike the Fed in the early 1980's when they reversed course away from monetarist monetary policies intended to lower inflation) don't even have the advantage of being pragmatic and haven't yet admitted that lowering interest rates *under current circumstances* is futile. As for whether this policy was intended to increase AS and/or AD, I believe that the concentration on the stock markets showed that they were focused on the former. Certainly, they didn't have a coherent plan for how this would increase consumption spending or disposable income (_unless_ it was through the assumption of Say's Law: i.e. first investment is increased which increases corporate profitability which -- it is assumed -- will lead to increases in aggregate supply which will -- it is assumed -- lead to increases in employment, income, consumption spending and AD). To the extent that the Fed's policy could be said to affect demand it had more to do with the *composition* of demand than the level of AD. You say 'if the general macroeconomic conditions are depressed enough' ... well, surely they _were_ (and are) depressed enough otherwise the Fed Chairman wouldn't have supported Bush's tax cut plan. As for Keynes, it is quite evident that Fed policy has not been guided by Keynesianism for many years. Perhaps we should call the failure of Fed policy "The Curse of Lord Keynes"? In solidarity, Jerry
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