Wednesday, October 5, 2016

OK, I've got nuthin'

Watching the Vice-Presidential debate last night I had an epiphany:  the Democrats and Republicans have both made jobs and the economy the number one issue this election year.  The Democrats want to do this by raising taxes on the wealthy, then using that additional revenue to hire new workers to build/repair new roads and bridges, subsidize a solar power initiative, etc, making our economy more competitive and efficient.

The Republicans want to cut taxes, mostly to the wealthy (who I'll call the "investor class") so they can then start new businesses and fund the expansion of existing ones.  They say these tax cuts would create millions of new workers who would then pay taxes themselves, more than making up for the tax cut that "primed the pump" to begin the process.  This is what is commonly known as "trickle down" economics.

Here's the problem:  Trump's running mate Mike Pence pointed out this tax cut theme worked well for JFK back in the 1960's, and for Ronald Reagan in the 1980's, and it will work for us now in 2016, too.  Call me a skeptic....

First of all, for this to work today you would have to assume there was a shortage of capital available to start/expand new businesses.  All of the worthy, cash-starved entrepreneurs desperate for funding would benefit from this "investor class" infusion of new capital due to a tax cut.

But that simply isn't the reality of today.  There is no shortage of investment capital.  With just a little research you can see for yourself there is approximately $1.7 TRILLION (one source: WSJ) of wealth in the hands of individuals and corporations available for investment....if they could find a safe, lucrative place to invest it.  A lack of money to invest is NOT our problem today!

Think about it....interest rates are still at/near record lows.  If there was ample loan demand, and a shortage of money to loan, interest rates would be HIGH.  It's the classic supply/demand conundrum:  too much supply, not enough (worthy) demand.  A tax cut won't change that at all.

The housing bubble that burst catastrophically back in '08 was the result of the investor class trying to create demand where there wasn't any.  They were desperately looking for a safe place to invest their wealth and they thought housing would be it.  They guessed wrong.

Wealthy individuals and companies today are actually flush with cash.  In fact they're using their excess $$$ to buy/merge with competitors, or just buy back their own stock.   Look at Delta/Northwest Airlines, United/Continental Airlines, the pharmaceutical giants buying up each other, the health insurance giants merging, and all the buying up of new innovative technology by Google, Apple, Microsoft, Facebook, Amazon, etc.  We're swimming in liquidity!

And it's likely to get worse, too.  For several decades the investor class was enamored with the BRICS (Brazil, Russia, India, China, South Africa) as places to put their money.  Get in on the ground floor as these countries began to rapidly develop, the theory went, and then ride the wave to HUGE profits.  Never mind they were helping to create new jobs there, not here.

Now the BRICS are stalled or at least slowing considerably, so the investor class is once again looking for a safe, lucrative place to invest their cash.  Giving them a tax cut today would just give them a larger pile of cash to park somewhere, and that might turn out to be somewhere outside the USAnd now those from many other parts of the world are depositing their money here, too, because we're seen as a safe, if not terribly lucrative, haven.  It seems we have an embarrassment of riches. 

In Ronald Reagan's time we were on the cusp of an incredible new (internet based) technological revolution, and a tax cut then probably helped to fund it.  We'll have another radical technology revolution some day, too, but it's not here now.  A tax cut to the well-to-do now will likely just exacerbate the current "income inequality", possibly leading to the wrong kind of "revolution".  *yikes*

So then the Democrats are right, right?  The government should raise taxes, and then wisely spend that money on new projects that will create jobs, and we'll all live happily ever after.  WRONG!  Modern history has shown us that you can't use "government" and "spend money wisely" in the same sentence.  It's the ultimate oxymoron.

Just something for you to think about.  Rebuttals welcome.



  1. Trickle down economics never works. At best you get a temporary bubble that inevitably bursts.

  2. Kansas is a good example of cutting taxes for corporations and the wealthy on the backs of the middle class.

  3. Pat and Bill's observations are correct. We've had decades of trying Reagan's trickle down theory. Doesn't work worth a crap. Who it does work for is the 1% of the population who controls the economy, ergo the government. Workin' just fine for them.

  4. I agree with you that "government" and "spend money wisely" is right next to impossible. But...and this is not an argument or a rebuttal, but a genuine question...what is different between the government now and the one that built the Hoover Dam, the interstate system, the rockets to the moon?

    1. Excellent question Betina. I suspect that our federal government back in the day was less corrupt than it is today. Then the number of lobbyists was just a fraction of what it is today, we didn't have "PAC's", etc. Government corruption is just expanding exponentially. Or maybe our instant news is just making us more aware of it. I dunno.