Alan Greenspan, the former chair of the Federal Reserve Board, believed that the key to increasing a nation’s wealth is investment. Every dollar that was collected in taxes on rich people and corporations and spent on unemployment compensation, food stamps and free health care was, in his view, one less dollar available for investment. So he favored lower taxes on the rich and less spending on the poor. We now know how this worked out.
American corporations are stuffed with cash, and the Federal Reserve System has pumped trillions more in cash into the big banks through its “quantitative easing” program. But the U.S. economy, and to some extent the world economy is stalled, because of the lack of buying power of the American middle class. That buying power was sustained in earlier eras by rising earnings, and then by rising participation in the work force and rising debt. But all of these have run their course. No rational business will increase production unless there is a good market for the product.
Click on Alan Greenspan’s ‘The Map and the Territory’ review by Robert Solow for a more in-depth discussion of this issue.
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