One of the pressing concerns of our day is the current financial crises. Many want to know what went wrong and how to make it right. Unfortunately, many are misguided and ill-informed of both: See Mr. Petrzelka’s letter “Hasenmiller wrong on multiple points.” Mr. Hasenmiller was right on one point: Tax cuts for the rich stimulate the economy.

To refute Mr. Hasenmiller, Mr. Petrzelka appeals to a flowery economic term called ‘marginal propensity to save,’ given to us by John Maynard Keynes. One would think Keynes was rejected not by conservatives but by 1970s stagflation. Yet he is alive and well if you look around the economic talk dominating the media and the selection of recent Nobel Laureate, Paul Krugman.

So Mr. Petrzelka’s age-old economic logic is: Poor people are stellar at spending. Rich people have a bad habit of saving money. What is the logical point made here? It is that spending drives the economy; spending is what makes economic progress possible. But is this really logical? Only one question need be asked: How can something be bought that is not first saved?

Once this question is asked and determined to be illogical you will deduce how tax cuts for the rich stimulate the economy.

With more of their money properly returned, “rich people,” i.e., business owners, entrepreneurs, and all of the people who provide society what it wants, have more to invest back into their rich endeavors. This may be acquiring more tools of production, which spurs higher wages for workers, lower prices, and the hiring of more employees. They can also lend money to others so they, too, can begin a business and provide more goods and services.

Savings are the only way to economic progress. Mr. Petrzelka and our monetary masters, the Treasury Secretary and Fed Chairman, believe the way out of our economic debacle is to spend more. If spending solved our economic problems, we would never have any. It is as illogical as someone with massive credit card debt trying to pay his debt with more and more credit cards. Such a conclusion is absurd!

Instead, let me offer Mr. Petrzelka an economic term in return. It is one of substance that explains how the economic crisis began and lends insight into how it can end. It is Austrian business cycle theory.

Theodore Wolff

Alumnus