Apparently it was assumed that the reduction in the deficit will induce the Federal Reserve Board

to lower interest rates, and that this will lead to an increase in investment activity. But it seems
unlikely that there is anything the FRB would or could do that would overcome over any
extended period the discouragement to investment inherent in the reduction of market demand
resulting from the reduction in government recycling of income. There is, indeed, a tendency to
overstate the long-run effect of interest rate changes on rates of investment as a result of
observing the short-to-medium-run responses of investment flows to changes in interest rates.
Once installed stocks of capital have reached a level corresponding to the lower interest rate,
further investment will fall to near its former rate. This is much as while the flow in the mill-race
can be increased for a time by lowering the top of the weir, the flow will fall back to its former
level as soon as the surface of the mill-pond has been lowered correspondingly. Action by the
Federal Reserve Board may be able to postpone, but not to overcome, the consequences of
inadequate government recycling of savings into income.