Live like a Republican; vote like a Democrat

CSGnet Archive CSG2000
1

[From Rick Marken (2000.08.18.1450)]

My recent explorations of economics have convinced me that
nobody (other than T. C. Powers) understands much about the
economy. Yet Republicans have the reputation of being the party
that understands how the economy really works, so they are good
for business. The Democrats let the Republicans get away with
having this reputation. Democrats seem to concede that cutting
taxes and reducing the size of government might be best for business
but that doing this is not fair to ordinary folk. So the Republicans
get the reputation of being heartless business experts while
Democrats get the reputation of being bleeding heart business
bunglers.

Since neither party knows anything about economics, it's hard
to imagine that either party would really has an edge as a
friend of business. But one party actually does have an edge!
If business friendliness is measured by growth in the stock
market during the term of the party in power (presidency only)
then the business friendly party is clearly the Democrats!!

The data I present comes from an August 17 story in the Business
section of the LA Times. The report says that, since the 1888
election of Republican Benjamin Harrison, the Standard & Poors
500 stock index has increased, on the average, 9.3% during
Republican adminstrations and 10.9% during Democratic administrations.
That's only a 1.3% difference but then I read that the data
for Republicans doesn't include the 20.4% drop in the index that
occurred during the Hoover administration. I recalculated the
average (by counting the number of Republican Presidents since
1888) for Republicans with Hoover included and it comes out to
be 6.8%. So the growth in business (as measured by growth in
stock value) during Republican adminstrations is about _half_
what it is during Democratic adminstrations. _That's significant_!
These data are based on 20 adminstrations, by the way.

I think what this shows is that, although neither party knows
how the economy works, Democratic policies happen to work better
for businesses. So the Democrats no longer have to jusify their
policies on moral grounds; they can justify them on economic
grounds. Democratic policies are not only morally superior to
Republican policies, they are _economically_ superior too.

Off course, the Democrats and Republicans don't understand _why_
Democratic policies (which redistribute wealth) tend to be so much
better for business. And they won't understand it until they
understand control theory economics. But the data show that Truman
was right: if you want to live like a Republican, vote like a Democrat.

Best

Rick

···

--
Richard S. Marken Phone or Fax: 310 474-0313
MindReadings.com mailto: marken@mindreadings.com
www.mindreadings.com

2

[From Bruce Gregory (2000.0818.2012)]

Rick Marken (2000.08.18.1450)

Off course, the Democrats and Republicans don't understand _why_
Democratic policies (which redistribute wealth) tend to be so much
better for business. And they won't understand it until they
understand control theory economics. But the data show that Truman
was right: if you want to live like a Republican, vote like a Democrat.

I'm not sure how much they need to understand of control theory economics.
What they need to understand is that the wealthy do not buy that many goods
and services. Instead, they prefer to own pieces of paper that they sell to
and buy from each other (and the Treasury).

BG

3

[From Bruce Gregory (2000.0819.1338)]

Rick Marken (2000.08.19.0950)

How many is "that many"? What do I understand when I understand
that the wealthy do not buy "that many" goods and service?

If you buy stocks and bonds, eo ipso, you do not buy goods and services.
Since the stock and bond markets are overwhelming secondary markets, buying
and selling stocks and bonds does not contribute anything to the "real"
economy (except the commissions paid to broker).

Why
would understanding this explain why Demoscratic policies tend
to be better for business?

I didn't say it would. Or rather, I didn't mean to if I did.

> Instead, they prefer to own pieces of paper that they sell to
> and buy from each other (and the Treasury).

But isn't the current thinking that this is precisely what
is best for business? I think that Republican _and_ Democratic
economists agree (mistakenly, according to my control theory
model) that putting more money in the hands of the wealthy (by
cutting the capital gains tax, for example) would be good for
business because it would make more money available for capital
investment (those "pieces of paper" that the wealthy sell and
buy from each other).

Capital investing is _not_ buying and selling stocks on the secondary
market. Buying and selling on the primary market (which is much, much
smaller) does constitute real capital investment (unless the companies are
borrowing to buy back their stocks--which all too often is what they are
doing despite the fact that stocks are greatly over-valued). I'm simply
pointing out that you don't _need_ a control model to understand this. The
author of _Wall Street Capitalism_, which I read at your recommendation (I
too recommend it highly), knew this without knowing a thing about your
control model.

The fact that wealthy people purchase

stocks rather than consumer goods is considered a _good thing_
by conventional economists, Republican or Democrat.

Yes, but so what? It just means that economics is as "scientific" as S-R
psychology.

So the Democrats

have had to make the argument for "taxing the wealthy" and "giving
to the needy" on moral rather than economic grounds (ergo the
"bleeding heart" and "class warfare" labels that will now surely
be attached to Gore).

My point was that the control model of the economy shows why the
observations you describe (low relative consumption, high savings
and investment by the wealthy) are, in fact, _not_ good for business
(or the economy) as all conventional economists (Republican and
Democrat) currently assume.

Great. Send it to Paul Krugman, maybe we will give you an audience via his
New York Times column.

BG

4

[From Rick Marken (2000.08.19.0950)]

Me:

Off course, the Democrats and Republicans don't understand _why_
Democratic policies (which redistribute wealth) tend to be so much
better for business. And they won't understand it until they
understand control theory economics.

Bruce Gregory (2000.0818.2012)

I'm not sure how much they need to understand of control theory
economics. What they need to understand is that the wealthy do
not buy that many goods and services.

How many is "that many"? What do I understand when I understand
that the wealthy do not buy "that many" goods and services? Why
would understanding this explain why Demoscratic policies tend
to be better for business?

Instead, they prefer to own pieces of paper that they sell to
and buy from each other (and the Treasury).

But isn't the current thinking that this is precisely what
is best for business? I think that Republican _and_ Democratic
economists agree (mistakenly, according to my control theory
model) that putting more money in the hands of the wealthy (by
cutting the capital gains tax, for example) would be good for
business because it would make more money available for capital
investment (those "pieces of paper" that the wealthy sell and
buy from each other). The fact that wealthy people purchase
stocks rather than consumer goods is considered a _good thing_
by conventional economists, Republican or Democrat. So the Democrats
have had to make the argument for "taxing the wealthy" and "giving
to the needy" on moral rather than economic grounds (ergo the
"bleeding heart" and "class warfare" labels that will now surely
be attached to Gore).

My point was that the control model of the economy shows why the
observations you describe (low relative consumption, high savings
and investment by the wealthy) are, in fact, _not_ good for business
(or the economy) as all conventional economists (Republican and
Democrat) currently assume.

Best

Rick

PS. Thanks Shannon!

···

--

Richard S. Marken Phone or Fax: 310 474-0313
Life Learning Associates e-mail: marken@mindreadings.com
mindreadings.com

5

[From Rick Marken (2000.08.19.1630)]

Bruce Gregory (2000.0819.1338) --

If you buy stocks and bonds, eo ipso, you do not buy goods and
services.

This is somewhat Greek (eo?) to me and it is not altogether clear
to me that when you buy stocks and bonds you don't buy goods and
services, at least indirectly. The people who receive the money
for their stocks and bonds could be using it to buy goods and
services, especially if these people are retirees.

Since the stock and bond markets are overwhelming secondary
markets, buying and selling stocks and bonds does not contribute
anything to the "real" economy (except the commissions paid to
broker).

I don't believe this. Money in stocks is just like money in a
_risky_ savings account. There could be as many people drawing
down as are contributing to their stock/bond investments. It's
not clear, eo ipso, to me that stocks and bonds keep all (or
any) money out of the circular flow of money used to produce and
consumer goods and services.

Me:

Capital investing is _not_ buying and selling stocks on the
secondary market. Buying and selling on the primary market...
does constitute real capital investment...I'm simply pointing
out that you don't _need_ a control model to understand this.

Right. But I didn't say you _did_ need a control model to
understand this. What I said was:

Off course, the Democrats and Republicans don't understand _why_
Democratic policies (which redistribute wealth) tend to be so much
better for business. And they won't understand it until they
understand control theory economics.

And you said:

I'm not sure how much they need to understand of control theory
economics.

This is the statement to which I took exception. I am still
quite sure that a control theory economics must be developed and
and understood before anyone will be able to understand why
Democratic policies have worked better for business than Republican
policies. Observations alone don't produce understanding; it also
takes models, as I'm sure you would be the first to point out.

The author of _Wall Street Capitalism_, which I read at your
recommendation (I too recommend it highly), knew this without
knowing a thing about your control model.

He knows how the stock and bond markets work. But I don't think
he knows why Democratic policies have worked best for business
because he has no model. Ha has read _Leakage_ so he has some
sense of the possible effect of leakage on the economy. But he
really doesn't have a model.

What I liked about _Wall Street Capitalism_ was the author's
willingness to confront economists with important data (such as
the discount rate/inflation rate data) that is typically ignored
or explained away. The book is a lot of fun but it really needs
a theoretical base -- ie. a working model. That's what I liked
best about the book. I saw immediately that control theory could
provide thge author with the theoretical base needed to support
his conclusions.

Great. Send it to Paul Krugman, maybe we will give you an
audience via his New York Times column.

Do you have his e-mail address?

Best

Rick

···

--

Richard S. Marken Phone or Fax: 310 474-0313
Life Learning Associates e-mail: marken@mindreadings.com
mindreadings.com