General Discussion

Here's the problem.

The idea behind lowering interest rates is to boost spending by making borrowing money less expensive. What Republican economists will tell you: if you lower interest rate businesses will borrow money for capital investment, which creates jobs, and the new workers will borrow money for large purchases like homes, cars, boats and Margaritaville machines. The interest payments will return to the banks who can loan out even more money for more capital investments, homes, cars, boats and Margaritaville machines, and the economy will take off like a rocket!

The reality is if half the country already doesn't have a pot to piss in (1) the banks get extremely fussy about who they'll loan money to when interest rates fall - after all, if they're making less money on interest they want to be extra sure they're going to get the principal back - and (2) both capital investment and job creation are trailing economic indicators. A business owner isn't going to buy new machines or open new facilities unless the ones he already has are insufficient to the task. He isn't going to hire new workers until he has enough work for them to do. If the consumer can't afford to buy then the business community isn't going to make; making stuff no one's buying leads to a glut which is always bad.

In 1803 a French economist named Jean-Baptiste Say wrote, "a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." Many people translate this to mean "supply creates its own demand" and call this Say's Law. The theory is that if Company A makes a frammis (what's the difference between a frammis and a widget?) and sells it, they will pay their employees who will buy a frammis from Company B. A window screen has fewer holes in it than Say's Law does. If no one can afford Company A's frammises or the frammises aren't as good as Company B's (or they aren't any good at all), no one will buy them. If the frammises are good Company A's employees might buy them rather than Company B's, so no money flows to Company B. The reality is demand creates its own supply. Acme Ladies Shirt Manufactory isn't going to make purple shirts unless people want to buy them. They're not going to sit there listening to their market researcher telling them "all the ladies are buying cream and pale green shirts this year, those are the colors we should make the most of" and respond with "no, we're going to flood the market with deep purple shirts because people will buy whatever we make regardless of whether they want it." WAY too many companies have made things no one wanted - think Edsels and IBM PCjrs - and learned very quickly that demand is king.