Broad Oak: your emotional support animal

Thursday, January 01, 2009

Am I the idiot, or are they?

For years, at least since the Reagan era, we in the US have heard the Republican Party mantra that the answer to growing the economy is to cut taxes for the richest, since they will 'invest in business'.

It never made sense to me, especially as I saw such a transfer of wealth to those same rich people, who spent their money on luxury imported goods. Incomes for the middle and lower class barely kept pace with inflation, even as industry became ever more efficient.

Today, thanks to posts here and elsewhere, I finally realized what is wrong with the claim above: buying stocks does not 'invest in a company', unless you are buying stock directly from that same company. All it does is put money in the pockets of the stockbrokers, while you have a piece of paper that must rise in value by profit plus fees, and find another sucker to buy it. The real estate market is no different.

Nonetheless, all of the experts that I have talked with over the years insisted that I simply didn't understand, implying that I was an idiot. Am I?

12 comments:

Steven_L said...

I agree on stocks and property to an extent, however asset booms do increase the volatility of money surely with money shifting to brokerages, related services, estate agents, solicitors, home improvement firms etc.

There are also plenty of wealthy people that chuck money at venture capital.

AntiCitizenOne said...

Yes.

Paddington said...

On a related note, we kept hearing that out-sourcing was good for us, as it decreased our costs (neglecting social costs, of course).

However, once I read about it, I discovered that the bulk of the decreased cost was not passed on to the consumer, but was often taken on paper in places like the Caymans. This increased the profits for the companies importing from Asia, which made their stock prices rise even faster than profits, given the speculative atmosphere on Wall Street.

Once again, more money for the traders and related wealthy. I still see no way out of this mess.

Anonymous said...

No you're not stupid, perhaps just a little gullible for taking these suited crooks at face value.

Anonymous said...

You are not the idiot. Neither are they.

jonathan said...

Thats the classic definition of insanity isn't it. You think you are sane & everyone else is mad...

sobers said...

Have you ever considered that the 'rich' pay a larger proportion of their income in taxes than is fair?

We pay taxes as a % of our incomes. If income tax was 10% across the board the millionare income would pay 100K, the 10K income 1K. Thats fair. Each pay the same in proportion to their income.

But we dont have that system. We have 'higher rate' taxpayers too, who have to pay an even larger % of their income above certain incomes. I suspect the reason people don't cotton on to this fact is that many don't actually understand percentages, and think that because the higher rate is (say) 40%, when they pay 20%, that's 'fair' as the wealthy should pay more. Not realising that if they both paid 20% the wealthy would still pay more.

So if one cuts taxes, yes the rich will benefit more. Because they are taxed more to start with. And if you haven't worked out that lower taxes are better for ALL income distributions, along with a smaller sized govt sector, yes, in answer to your question, you are stupid.

AntiCitizenOne said...

Paying any %age of your income isn't fair! In 99% of cases The government did nothing to help you earn that so they deserve none of the money.
Such forms of state slavery are immoral and should stop!

However the government does need to raise some money. The answer is a Land Value Tax, i.e. charging land owners for the right to exclude others from their property.

Paddington said...

Sobers - I cannot agree totally with the Libertarian views that you and Anticitizen espouse, althought I do have sympathy for those views. The rather weird thing in the US was that, as the newly-rich (or so they thought) in the suburbs demanded lower taxes, they also expected more government services. You can't have it both ways. The extreme end is, of course, the recent $2 trillion bailout of the wealthy.

I also believe that a narrower disparity between rich and poor serves as a social stabilizer. I don't want to live in Brazil, for example, where the wealthier live in walled communities and drive armored cars to work.

As for government, there are some things that it does very well, and are mostly not done by the provate sector at all, including support for basic science research, without which we are all in trouble. Education is another example. Very few private universities excel in the sciences. Most seem to have become pre-business, pre-law and pre-medicine trade schools.

Anonymous said...

"... are mostly not done by the provate sector at all, including support for basic science research, without which we are all in trouble. Education is another example. Very few private universities excel in the sciences. Most seem to have become pre-business, pre-law and pre-medicine trade schools."

1. Government support for basic science leads to government direction of science research. Smothering real research leading to drivel like the AGW hysteria.

2. Private universities have been squeezed out by the subsidized government universities.

2 leads back to 1. and thus to further declines in science and education standards.

Sackerson said...

@ACO: if you've bought something, I'd think you have already paid for the exclusive use of it.

Mind you, I understand that the whole issue of land ownership is vexed. Ultimately the sovereign power can grab it whenever it wants, e.g. by complusory purchase order.

Paddington said...

"1. Government support for basic science leads to government direction of science research. Smothering real research leading to drivel like the AGW hysteria.

2. Private universities have been squeezed out by the subsidized government universities.

2 leads back to 1. and thus to further declines in science and education standards."

Companies stopped doing basic research by the late 1970's, as the outcomes were uncertain, and the timelines more so. It didn't fit the 'next quarter' model. It doesn't help that our business, education and government leaders don't know squat about science and technology. While some of the research is indeed driven by where the money is, the NSF does quite a good job of aportioning (spelling?) some of their meagre budget to abstract and basic research.

As for private universities being 'squeezed out', I can tell you that their faculty are much better paid than in the public ones, and their per-student cost (including public subsidy) is about double. The problem is that the spoilt rich(er) students going to the private schools often find science and related subject 'too hard'. It doesn't help that private schools are in a position where they cannot fail students.

Government-subsidized research is responsible for the beginnings of antibiotics, semiconductors, computers, the internet, atomic power, alternative energies (including shale oil), high-yield crops and much more. If it were not for that research, more of us would be starving or dead. It doesn't help that a lot of basic research is very expensive, and could not be justified by any company.