To: Lee who wrote (674 ) 9/18/1998 11:28:00 AM From: Robert Douglas Read Replies (1) | Respond to
Lee,The last thing that Asia needs is more investment. What it needs instead is more demand for the products that past investments in capacity can produce. [AGREED] Hence, monetary stimulus - printing money, not just ramming interest rates down - is preferable to fiscal stimulus, which often is complicated either by passive measures such as tax cuts of by pork-barrel measures such as the ridiculous construction projects pursued by the Japanese government over the past seven to eight years. Printing money? What a nonsensical, meaningless, gobbledygook term! The use of this phrase is supposed to evoke the image of increased demand - more money, more demand, of course it's a truism. But it's not! All this ends up saying is "lets increase demand by increasing demand". The policy that monetarists usually want followed when they say; "let's print more money" is to flood the fractional-reserve banking system with reserves. Does this guarantee more demand? Of course not! Someone first has to borrow the money from the bank. Does this guarantee more demand? Not yet. First they have to spend it. Does this guarantee more demand? No, they have to spend it on the right thing, not just park it in some asset they think might appreciate or pay a higher return than the loan they are taking.Passive measures such as tax cuts? What?! The passive measures are what I just described increasing bank reserves to be. It's passive because it doesn't necessarily produce demand at all. The demand comes from some other incentive to consume that must be stimulated in the people of Japan and other countries. Tax cuts are a lot less passive than the "printing money" approach; at least the money is put in hands of those that are more likely to spend it.
