Getting the economy all wrong

The Wall Street Journal and the Seattle Times editorial page as well as democrats and republicans alike all argue that the problem with the economy is a lack of incentives to invest. That's why we need to lower taxes (and why they opposed an income tax on the wealthy), cut workers compensation benefits and cut budgets.

But on the economics page of the journal today, their economist argue the opposite and warn that the problem isn't supply it's demand.

In an article entitled, "The Economy Needs a Borrower of Last Resort", Kelly Evans argues that "The U.S. economy needs a borrower, not a lender, of last resort.The federal government, through its stimulus program and other measures, took on that role. Yet it, too, is now backing away. That will make it increasingly difficult for the U.S. economy to continue to grow"

So where is the money going if investors aren't lending it or investing it? According to another article on the same page, at least some of it is going to purchases of luxury goods. In an article entitled "May Retail Sales Favor High-End" the journal points out that while consumer spending is barely growing in most sectors, that is hardly the case in the luxury goods end of retail trade.

The author Karen Talley quotes Saks Fifth Avenue, ""What you have right now is a bifurcation in the market," said Steve Sadove, chief executive of Saks, in an interview. "The higher-end customer has been feeling better about overall the markets, their own personal situation. ...But at the lower end, you've still got a lot of concern in the housing markets, you've got a lot of concern with gas prices. So you're seeing the higher end performing better than at the lower end."

Lower taxes on the rich aren't leading to more investments and cutting government spending is not going to lead to growth. Most of our policy makers just don't get it.