Mc Cain Clings to the Solutions That Even Greenspan Says were Wrong

Today, in Florida, John McCain once again proved that he has no understanding of economics. He stated that the nation’s economic problems would pass. This is the same argument that classical economists made back during the depression. They said that markets are self correcting and that unemployment and recession are self correcting. This is the same as the specious argument that market discipline would prevent economic excesses. Keynes, much maligned by the Greenspan school of economists, proved that recession was not self correcting.

McCain has also hung his economic hat on the argument that giving businesses breaks to reduce the cost of investing will stimulate the economy. This is saying that supply creates its own demand. This was known, by economists, as “Say’s Law.” The problem is that the biggest boost to investment is demand for the product. If there is no demand, and/or there is excess capacity businesses are not going to invest in equipment, buildings, or inventory.

Another element of McCain’s economic program calls for the reduction of taxes at upper income levels. This will supposedly accomplish two things. Firstly, the rich will save thereby increasing funds available for investment lending. Secondly, these funds will thereby reduce interest rates. For this to work, there have to be banks that are willing to lend and businesses willing to borrow for investment purposes. In the absence of demand, we have already established that businesses are not willing to borrow for investment. In addition, this approach will work only if banks are willing to lend. Observation of current banking behavior indicates that they are not willing to lend. Even with bailout money from the government banks are too risk averse to lend.

Recently, Alan Greenspan has stated that he was mistaken in the belief that actors on the financial stage would act appropriately. What makes McCain thing that this will change?