Isn’t economics supposed to be about the unseen?

There are only three possible outcomes from this tax reform.

The first is companies will have more retained profit.

The second is that they don’t invest it, but do share buy-backs instead.

And the third is that the wealthiest in the US will get wealthier at cost to everyone else as a result.

What happens then? What’s the next effect?

The wealthy either spend the money, increasing demand, or the wealthy invest the money, increasing both the productive capacity of the society and demand.

Sure, we can argue about how effective this is but to ignore it means you’re not doing economics.

29 comments on “Isn’t economics supposed to be about the unseen?

  1. “The wealthy either spend the money, increasing demand, or the wealthy invest the money…”

    Didn’t you know that, like Smaug, the wealthy just pile up their gold in cellars and use it as a bed, never spending or investing a penny?

  2. ‘but to ignore it means you’re not doing economics’

    When has Murphy, other than inadvertently like some kind of stopped clock showing the right time twice per day, done economics?? The man’s ignorance is surpassed only by his arrogance

  3. “Didn’t you know that, like Smaug, the wealthy just pile up their gold in cellars and use it as a bed, never spending or investing a penny?”

    I blame Scrooge McDuck myself, as that image seems to be the driving force behind most of the economic analysis from the Left these days. I think they imagine that the wealthy consume money in a destructive manner – they use it up in their own decadent ways that leave nothing for the rest of society.

  4. “…the wealthy invest the money, increasing both the productive capacity of the society and demand.”

    It would be lovely if it happened, as opposed to it all being used to further inflate asset prices, in the process pricing everyone else out of nonessential fripperies like a roof over their heads or a pension fund, and then requiring an even bigger bailout and even more negative interest rates when it finally comes crashing down.

  5. Higher asset prices incentivise the investment in the production of more assets which can be sold for those higher prices……

    You’ve noted that investment slumps in a period of low asset prices?

  6. BiG

    I think Tim has always said the way to incentivise the production of housing is to liberalise the planning system. However, I agree there is huge asset price inflation across a range of assets, not all of which (happily) are essentials…..

  7. And the third is that the wealthiest in the US will get wealthier at cost to everyone else as a result.

    Had a liberal friend throw that one at me this weekend. My response was as follows:

    Your retirement will be funded by your brokerage account, your IRAs, and your 401(k). All three are populated by the shares of publicly held corporations and very little else. The more money used to increase shareholder value, the better your retirement years are likely to be. When you are 75, do you want to be launching a second career as a Walmart greeter, or are you just going to start eating dog food three times a week?

    He then noted that I “sounded annoyed”. To which I responded…

    Stupid always annoys me.

    I suspect we’ll never have another conversation about corporate taxation again, which suits me just fine.

  8. “The second is that they don’t invest it, but do share buy-backs instead.

    And the third is that the wealthiest in the US will get wealthier at cost to everyone else as a result.”

    I presume Spud is implying that only the wealthy hold the shares that will get bought-back.

    Although it’s another classic example of him saying that one thing is two things.

    “The second….is that shares will be bought
    And The third…. is that shares will be sold.”

    The guy’s a moron.

  9. And the third is that the wealthiest in the US will get wealthier at cost to everyone else as a result.

    Zero sum game, anyone?

  10. I think the real concern is that the money will be spent as the recipients largely see fit and not as others would have it.

  11. I suspect we’ll never have another conversation about corporate taxation again, which suits me just fine.

    Once in a lifetime is enough.

  12. Tim, you’ve said on here more than once that increasing government deficits to promote economic growth may be justified when growth is cyclically weak. But that alas legislators can’t be trusted to run the corresponding surpluses when growth is strong.

    So you’re dead against this expansion of the US government deficit at a time of relatively healthy growth, right?

  13. @SJW

    So, you want seals to die? and babies? and baby seals?

    The rest of your arguments are ridiculous.

    (c) Richard Murphy.

  14. If high asset prices encouraged the production of new assets then asset prices wouldn’t be so high. Instead. high asset prices obviously encourage “investment” in overpriced assets* by people with money who will insist (yet again) that the rest of us, who are paying more than we otherwise would be for access to said assets, to also eat their losses when it all goes wrong (interest rates rise, or whatever) .

    *Look at return on shares right now. Where is the new GM, the new Ford, and so on? Come on, who is desperate for capital to create the great rivals to the existing corporate behemoths at the top of the FTSE? They are nowhere. The new great rivals start on someone’s laptop on their kitchen table, and never sell out until the owner wants to be a billionaire. Value creation simply doesn’t need anyone else’s capital any more.

  15. BiG

    Where is the new GM? Tesla and imitators.

    By the time Google listed, the founders owned 14% of the shares (they ended up with greater control rights). Meaning they needed funding even prior to listing and the upside since listing has rewarded their investors. And value has been created for society as well.

  16. Tim, you’ve said on here more than once that increasing government deficits to promote economic growth may be justified when growth is cyclically weak. But that alas legislators can’t be trusted to run the corresponding surpluses when growth is strong.

    Nothing like a bit of selective concern over deficits. How very stale of you…

    Intellectual dishonesty, thy name is SJW.

  17. “And the third is that the wealthiest in the US will get wealthier at cost to everyone else as a result.”

    People work for society, so that society will later do work for them, and money is how we measure the good we have done for everyone else that has not yet been repaid.

    People earning money and not spending it means they’re doing stuff for us and not getting anything in return. Accumulated wealth is a sign of generosity.

    The problem is that people are thinking of the money as the object of desire, rather than the things you can buy with it, or more importantly, the things you sold to get it. It’s the exact same fallacy as thinking people want jobs, when what they want is the goods and services they do a job to obtain. It entirely reverses the costs and benefits.

    Anyway, the big issue is not that the money will be spent or invested – it would be whoever got it. The big issues are tax incidence, where the costs fall on those with the fewest alternatives, and that the money goes to those most successful at using it to create more wealth. We don’t want money to go to the poor just because they’re poor; we want money to go to the poor because they’ve switched to creating more wealth for everyone else. You have to give in order to receive, but you will always end up receiving more than you give.

  18. DtP: I’ll try to explain this for you using short words.

    1) A modest deficit is ok in a growing economy. (There’s a formula)

    2) Larger deficits are a good idea when growth goes negative as a result of short term difficulties.

    3) Larger deficits are a bad idea when growth is quite healthy.

    Therefore, the 2009 stimulus was a sensible response to the financial crisis. But increasing the US deficit to stimulate its economy now is stupid.

  19. “Therefore, the 2009 stimulus was a sensible response to the financial crisis.”

    There was no crisis. It was made up.

    SJW, your Keynesian economics are sicko.

  20. And if Hillary had been elected and passed a new stimulus package creating the exact increase in the deficit, you’d be dismissing all concerns with a wave of the hand.

    The fact that you’re a tribal whore isn’t what grates, it’s that you think you’re slick enough to come across as thoughtful and an independent thinker, that’s what grates.

  21. Yes, your attack on me is based on making up things you claim I would have said in some alternative universe.

    I suggest you give it a rest until you don’t need to invent stuff. Which will be forever.

  22. That politicians don;t follow their own script is one critique of mine. I’m not wholly sure that the deficit should blow out in slumps either. Sometimes, depends on the day, I am more Austrian. But that’s all macro. The micro effects of this tax change I approve of. And it’s entirely possible to say that the *structure* of the tax system is a move in the right direction, even while pondering, possibly even disagreeing, with the level of taxation/spending. Which could just be what I’m doing.

  23. Some money back to people is good.

    Biggie is right that the wealthy will use it to buy accumulating assets that poor folk can’t afford or have not the wit to recognise as a good idea to get into. Even had they the wherewithal.

    John Lennon and his stash of fur coats springs to mind.

    But that is what happens as a result of state-created misallocation of resources and malinvestment. It is a politically caused set of circs that can’t be cured by politics save those politics be the mass reduction of the state’s power and thieving.

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