If we cut taxes for corporations, they'll use the money for jobs. Oh, wait

[Bowfinger]

It is worth repeating that corporations pay no taxes.

All corporate taxes are passed on to the consumer.

Any increase in taxes on corporations increases the prices of goods and services sold and reduces demand.

Have a nice day!

False.

While this is a pervasive talking point of the pro-business crowd, it betrays a fundamental misunderstanding of basic economics. First, corporate income taxes are levied against the profit earned, not total sales. It is levied after the products are sold and the bills are paid. It does not increase the cost of products. It reduces the profit available for owners or shareholders.

Second, a properly managed business will always set its prices to maximize profits. In other words, if it increases a product's price, the lost sales will be greater than the increased profit margin. If it lowers the product's price, the lost profit margin will cost more than the increased sales. Each product's price is set at that ideal point between higher margins and higher sales volumes.

So, what happens when we raise corporate income taxes? Does the company raise product prices? No, not if it wants maximum profits. It has already priced its products at the optimum price. Increasing prices only reduces sales and lower profits. If it can increase profits by raising prices its prices weren't set optimally in the first place.

What a company can do is accept a lower overall profit margin. If that's not acceptable to its owners or shareholders, it must become more efficient, cutting costs or improving production to push its margin back up (which it also would have done already if properly managed). If it can't, investors may seek more profitable homes for their money, or they may accept that their expectations are unrealistic.

And that is the real effect of increasing business income taxes. It does not meaningfully increase consumer prices. It does reduce the profit of owners and shareholders, who may then alter their investment strategies ... if they can find investments with better returns.

 

[Darwin333]

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/06/AR2010100606772.html?hpid=topnews

I've said one of the fallacies of the right is that money given to the rich is used without any qualification by the right as to 'partly', for creating jobs.

That in fact, when the wealthy get money, some goes for things like jobs; much goes for other things like acquisitions and driving up the prices of limited assets they have.

Here's an example, where the corporations, cash rich from the measures taken to prevent more economic crash, are using the money largely for stock buybacks, not expansion.

It may make financial sense for them - but it's a reminder how just throwing money at corporations does not always align with the public or middle class interest.

Unneeded expansion doesn't align with public or middle class interest either unless you think gaining a few jobs now only to lose ALL of them later when the company goes belly up from the unneeded expansion.

If hiring more people would make the company more money wouldn't you think those greedy rich bastards would be doing it? After all, making more money is their goal isn't it?

What if the company ends up in a better financial situation and is able to expand at some point in the future, instead of going broke from expanding too early/fast, would that be a positive thing in your book?

 

[Fern]

Yeah, S corps.

Anyway, you're right about all the trees, but are unwittingly supporting Craig's point about the forest. He was only using the stock buy back as an example of why trickle down economics does not work as advertised. With a different type of business, they still would not create jobs just because you cut their taxes, stock buyback or no. And the reason is exactly what you stated above - they won't create jobs until *demand* for their product increases. That is macroeconomic 1A. So how do you stimulate demand? By putting money in the pockets of people who will actually spend it on goods and services. Also econ 1a. None of this strikes me as being a problem for Craig's viewpoint.

- wolf

Putting money into thousands/millions of (smallish) businesses is far more pursausive than the larger Fortune 500 types. That large group can actually move demand in the right direction.

Now, combine that thought with my positions that small business need money and can't really get it through bank loans these days.

Another thing that I see overlooked here frequently is the fact that $250k profit =/= $250k cash in your pocket. An awful lot of small businesses show a profit far in excess of the cash they provide. Many small businesses were purchased, those principal payments for the loans are not deductible thus greatly overstating the amount of cash available. Also, there are many assets whose cost must be spread out much longer than the related loan is for, here again available cash may be significantly less than indicated.

So, you can show $250k or more of taxable income on your return and really need the money.

Fern

 

[Darwin333]

False.

While this is a pervasive talking point of the pro-business crowd, it betrays a fundamental misunderstanding of basic economics. First, corporate income taxes are levied against the profit earned, not total sales. It is levied after the products are sold and the bills are paid. It does not increase the cost of products. It reduces the profit available for owners or shareholders.

Second, a properly managed business will always set its prices to maximize profits. In other words, if it increases a product's price, the lost sales will be greater than the increased profit margin. If it lowers the product's price, the lost profit margin will cost more than the increased sales. Each product's price is set at that ideal point between higher margins and higher sales volumes.

So, what happens when we raise corporate income taxes? Does the company raise product prices? No, not if it wants maximum profits. It has already priced its products at the optimum price. Increasing prices only reduces sales and lower profits. If it can increase profits by raising prices its prices weren't set optimally in the first place.

What a company can do is accept a lower overall profit margin. If that's not acceptable to its owners or shareholders, it must become more efficient, cutting costs or improving production to push its margin back up (which it also would have done already if properly managed). If it can't, investors may seek more profitable homes for their money, or they may accept that their expectations are unrealistic.

And that is the real effect of increasing business income taxes. It does not meaningfully increase consumer prices. It does reduce the profit of owners and shareholders, who may then alter their investment strategies ... if they can find investments with better returns.

I don't believe that holds true when the increase in costs (or taxes) is levied to ALL companies producing said product. When the cost of raw materials go up the cost of products that use those raw materials generally go up as well because everyone who makes that product has realized an increase cost (or decreased profit).

BTW, here lately companies have learned quite well how to become more efficient.... laying off a portion of their workforce and getting the rest to work harder\better for less.


We haven't even started talking about the whole "global economy" thing either.

It really doesn't matter anyway, we can argue about corporate taxes and other bullshit all we want but until we start talking about tariffs then the jobs are going to continue to leave this country while few are created. But we want our $20 DVD players so I doubt that will happen in any meaningful way.

 

[theeedude]

Supply side economics is an unmitigated disaster.

 

[Darwin333]

No, they ARE unwilling to lend. But it doesn't really matter because companies also have little desire to borrow at the current time.

Banks are more than willing to lend money to anyone or any entity that they deem credit worthy.

The problem with small businesses that want loans is they usually have very few assets and a relatively short history. If the give you a loan that isn't backed by collateral that is relatively close to the loan amount the bank stands a very real risk of losing all of the money they loaned the small business. I personally had to put my own house and a substantial amount of cash up in order to secure a loan to start my small business. A lot of people either don't have the assets to do that or aren't willing to put their nuts on the table like I did. Then you must add in the economic situation to the risk factor the bank is taking. In our current economic situation is it more or less likely that a small business will fail? Obviously that depends on the companies market but from a macro we have near 10% unemployment and consumers have less money/credit to spend.

Do you know what the average profit is for a small businesses first year of business? How about the number of small businesses that actually make it compared to those who fail? How much money are you willing to lend me? If you can show that you are willing and able to provide my company with a decent loan with favorable terms I would be more than happy to send the same docs (financial statements, business plan, etc...) that I sent to the banks. Tell ya what, if you have any equity in your house refi it and take out all the cash you can and loan it to my company. Assuming you have decent credit and qualify for the uberlow rates being offered for home loans right now, I will pay you 2-3% more than the current mortgage rate. The only catch is I am ass out of collateral right now so it will have to be an unsecured loan. I do have a solid year worth of track record and so far my business plan and estimated earnings/growth have been spot on. Deal?

Blaming banks for not taking on risky loans after the shit we just went through is plain retarded imo. However, I do agree with Fern that instead of throwing a shitpile of money at the big boys the .gov could be guaranteeing more small business loans which, imo, would net better results. The small businessman WANTS to hire and expand (or simply start the business) while large businesses are trying to become leaner and more efficient.

Bottom line: Banks will currently extend credit to any person or entity that can prove they are credit worthy or otherwise offset the risk. If they won't loan you money it is because they think the risk is greater than the potential reward. That is kind of how lending is supposed to work.

 

[shira]

So did Bush's tax breaks for the wealthy and business cause the economies to fail in Europe/Asia as well? I didn't realize he had that power.. or was it Cheney?

Taxes haven't gone up in Europe, nor are there proposals to do so. Yet the job market and economic outlook in Europe are WORSE than in the U.S. How do you reconcile that fact with the claim that it's the "uncertain tax outlook" that's responsible for the continued horrible job market?

The answer is: you can't. You're just a religious fanatic whose religion is "let the rich and corporations do anything they want, with no taxes at all, and everything will be wonderful."

You're a clueless troll.

 

[PJABBER]

False.

Quite the compedium of "progressive" excuses for redistribution schemes, otherwise known as excessive taxation and regulation.

While this is a pervasive talking point of the pro-business crowd, it betrays a fundamental misunderstanding of basic economics.

Does government have any interest in limiting profit? Is it in the interest of government to eliminate profit entirely in a capitalist economy?

First, corporate income taxes are levied against the profit earned, not total sales. It is levied after the products are sold and the bills are paid. It does not increase the cost of products. It reduces the profit available for owners or shareholders.

Shareholders/owners are looking for a certain return on capital that recognizes the risk that capital is exposed to. Part of the process includes a recognition of tax/regulatory impacts at various stages of R&D, manufacture/delivery, after sale service, in fact a good understanding of taxation/regulation on the entire supply chain is essential.

Properly run businesses adjust pricing immediately to external, non-market events like a tax hike so as to not be penalized in delivering the expected margins. Those that don't, go bankrupt or are shut down as capital flees.

Second, a properly managed business will always set its prices to maximize profits. In other words, if it increases a product's price, the lost sales will be greater than the increased profit margin. If it lowers the product's price, the lost profit margin will cost more than the increased sales. Each product's price is set at that ideal point between higher margins and higher sales volumes.

Exactly, if the market were the sole determinant.

Non-market events like regulatory burden, taxation along the supply chain, confiscatory taxation for the leveling of preferred classes, however, distort markets and add significant pressure and volatility to pricing models.

There is no doubt that great uncertainty, especially in periods like now where government is increasingly supplanting private industry, acting as a direct competitor, and moving to add significant, even confiscatory taxation while at the same time increasing the regulatory burden retards business activity.

The imposition of huge game changers like a mandatory health insurance mandate derived from multi-thousand page laws spawning multi-thousands of pages of regulatory burden and compliance costs adds such great uncertainty in the modeling that it is a brake on the entire economy even before it is fully implemented.

So, what happens when we raise corporate income taxes? Does the company raise product prices? No, not if it wants maximum profits. It has already priced its products at the optimum price. Increasing prices only reduces sales and lower profits. If it can increase profits by raising prices its prices weren't set optimally in the first place.

Here constraints come in and exercises in linear programming come into play. Optimums take into account as many variables as possible. Including tax impacts on the supply chain. The end consumer, be it industry, government or individual also have to make a decision based on their constraints, and they may choose not to buy at all. Which is the current situation for all intents and purposes.

What a company can do is accept a lower overall profit margin. If that's not acceptable to its owners or shareholders, it must become more efficient, cutting costs or improving production to push its margin back up (which it also would have done already if properly managed). If it can't, investors may seek more profitable homes for their money, or they may accept that their expectations are unrealistic.

Exactly, and here is where the price is paid. Less capital is invested locally as capital migrates to where it gains the best return or it is parked in low volatility instruments like the money markets to avoid certain or likely loss, which doesn't contribute much toward a vibrant economy.

And that is the real effect of increasing business income taxes. It does not meaningfully increase consumer prices. It does reduce the profit of owners and shareholders, who may then alter their investment strategies ... if they can find investments with better returns.

It most certainly does increase consumer (business and personal) prices as gross margins are not infinitely flexible, and there is little tolerance for little or no return on investment. Prices either increase to allow expected returns or capital withdraws. You can bet on that.

Certain goods and services have a point where demand cannot be reduced too much. You have to eat, right? Need utilities, right? What happens when your "regulated" pricing does not cover the cost of goods and services sold? How long can that be sustained?

Unless you are in a centrally controlled economy like Cuba, costs do most certainly adjust and if the increase is derived from non-market factors you can doubly expect there will be all kinds of disruptive, unintended consequences and ripple effects leading to a sub-optimal economy. And if you are a utopian and like central planning, you must be one of the few people who haven't heard that communism doesn't work!

High taxation is really only tolerable in times of war, where the survival of the nation is recognizably at stake and government needs funds to prosecute a national defense, even at the cost of incurring huge debt and the imposition of lower rates of return on capital simply in the cause of survival. In other times it acts to retard business investment and may become so onerous as to shut down not only companies but industries, lead to off shoring to a more predictable and profitable environment and cause not only recessions but depressions.

Not to worry too much though. Change is coming as it now looks like the Congress will be solidly Republican and they, under the kick ass Tea Party threat, have promised not to do what they have done before in becoming mini-Dems.

I've lived in economies that had to go through severe retrenchment. It take a long time and it is not much fun. Better to accept now that all those costly "freebies" are going to go away, as will about 20-30% of the government. If it doesn't happen soon, there will be an even steeper price to pay later. Just consider the Icelandic, Greek and Irish models.

 

[sandorski]

Were you planning on adding something to this thread?

Sadly, I added far more to this thread with 1 word than you did with a paragraph.

 

[woolfe9999]

Putting money into thousands/millions of (smallish) businesses is far more pursausive than the larger Fortune 500 types. That large group can actually move demand in the right direction.

Now, combine that thought with my positions that small business need money and can't really get it through bank loans these days.

Another thing that I see overlooked here frequently is the fact that $250k profit =/= $250k cash in your pocket. An awful lot of small businesses show a profit far in excess of the cash they provide. Many small businesses were purchased, those principal payments for the loans are not deductible thus greatly overstating the amount of cash available. Also, there are many assets whose cost must be spread out much longer than the related loan is for, here again available cash may be significantly less than indicated.

So, you can show $250k or more of taxable income on your return and really need the money.

Fern

I don't doubt that infusing cash into small businesses is better than cutting taxes for Fortune 500 companies. But that doesn't change macroeconomics 1A. That is, a business will not hire, will not expand, will not sell, without there first being demand. You can cut their taxes to zero, give them zero interest loans, and it doesn't matter if no one is buying what they are selling.

The issue you raise about small businesses needing loans and having a tighter cashflow than it appears is a valid issue that needs to be addressed on the supply side, but none of this matters without a strong demand side approach to stimulating the economy.

- wolf

 

[jackace]

That's incorrect. The 'rich' as defined by Dems and Obama apparently seem to be everyone making $250k+. I guarantee you that a family bringing in $650k is paying a LOT in total taxes and a much higher percentage than Buffet's secretary.

You would be more correct had you said the top 0.01 pct idle rich / investor class that earns 82% of its $182 million+ annual income from investments pays a lower percentage (16.7% average) of taxes due to capital gains being taxed at 15% and exemptions for muni investments, etc.

But to lump the 0.01 pct crowd in with the NY metro area "middle class" $250k crowd is unacceptable.

The family making 650k a year should be paying a higher percentage of their income in taxes. That is the only way to make the tax burden equal. So should the people like Warren Buffet. I don't care if you increase the tax on the rich or lower it for the middle class, but right now the tax burden in this country is not fair or equal.

 

[Fern]

I don't doubt that infusing cash into small businesses is better than cutting taxes for Fortune 500 companies. But that doesn't change macroeconomics 1A. That is, a business will not hire, will not expand, will not sell, without there first being demand. You can cut their taxes to zero, give them zero interest loans, and it doesn't matter if no one is buying what they are selling.

The issue you raise about small businesses needing loans and having a tighter cashflow than it appears is a valid issue that needs to be addressed on the supply side, but none of this matters without a strong demand side approach to stimulating the economy.

- wolf

We're dancing around each other. I'm suggesting that thousands/millions of these businesses themselves generate demand. They are all customers, purchasing office equip, PC's, phones/faxes, advertising, biz cards, biz lunches/travel, software upgrades etc. I suppose the Repubs would also say that the owners, keeping more of their money, would generate more demand as (individual) consumers too.

I'm not necessarily saying a tax cut is the best way. I am saying that to conflate these 2 different categories of corporations/businesses as Craig has done is wrong.

Fern

 

[Craig234]

Craig234 is right about his 'detail', but wrong on the big picture, or how he spins this news of stock buybacks.

I think it's very important to understand that stock buybacks involve only a very small percentage of businesses. 98% of business don't even have stock to buyback, that's only for the largest of corporations that sell their stock publicly on the NYSE or NASDAQ.

So, to take some news about a few of the largest companies and exptrapolate that to all businesses is misguided at best.

No, I'm not. I didn't 'take some news about a few of the largest companies and extrapolate that to all businesses'. You just made that up and dishonestly claimed I did.

As a conservative I generally favor low taxes (excepting fund managers for sure), but even I don't think, or propose, that cutting taxes on a few big companies like Microsoft etc is gonna pull us out of this economic problem.

That's not the question. The question is, is it a net good generally that these big corporations use money when their taxes are cut reliably enough for 'the public good' like good employment that it's a better use of the money than other choices, like putting it in the hands of citizens who will spend it and fuel the economy?

If you get that wrong and answer 'yes', it doesn't matter whether it's 'enough to pull us out of the economic problem', it's still a good policy to you.

These companies will start hiring etc when demand for their products picks up. Cutting taxes for big companies does nothing for that problem. Would a broader tax cut? possibly. But it needs to be for individuals. And I still think gov backed SBA loans is the superior method to help the economy. You know, when your business isn't making much money, and revenues continue to fall, top income tax brackets are about the least of your problems; you just don't have the profit/taxable income.

That's more on the right track.

Craig234 doesn't say so, but I bet his post is mostly motivated by all the recent tax talk which revolves around individuals making $250K or more. So, using an article about corporations to attack the idea that more money to the "rich" results in more jobs is disingenuous at best.

Why don't you not speculate what I didn't say when you do it so badly as to just lie about my position. It has nothing to do with "individuals making $250K or more."

It has nothing to do with "using an article about corporations to attack the idea that more money to the "rich" results in more jobs".

You making up what you think my position is so wrongly is what's "disingenuous at best."

Fern didn't say it, but what motivated his post is his desire to torture puppies.

Discussions of large publicly traded corporation is irrelevent to the discussion, by law they cannot be flow-through type corporations.

Fern

The post is to address so many on the right who still have the fallacy and post it that 'our policies should always prioritize the best use of whose taxes to cut as giving the tax cuts to corporations, because they are the ones who create the jobs. If you cut the taxes of people, they don't create jobs.'

This is a big fallacy, as some of our posters better informed than to think that's the case have indicated mentioning issues like 'demand' which is fueled by the consumers for two thirds of our economy. But that two thirds isn't written in stone; it could go down as the middle class is weakened. It's just to illustrate one of the ways in which business can use money for less productive things - including others I listed like acquisitions - that these less informed people on the right who think it's just a big jobs fund don't appreciate.

You can say I am generalizing the larger issue - that in general, these people overestimate the public employment benefits of tax cuts or other prioritization of money to big business compared to other uses of the money like tax cuts for the bottom 98% or other uses - but the 'stock acquisition' is just one example, not generalized to 'all business', and that's all I said it is.

The problem is the simplistic, wrong ideological views of some posts who are always for steering the money to the top - who still agree with 'trickle-down economics'.

I constantly see any programs that send the money elsewhere, like to consumers, attacked on the basis of 'that doesn't help unemployment, business helps unemployment'.

Of course business does - but this 'demand' everyone is agreeing is needed comes from customers of these businesses spending more.

You may understand that, when you aren't misrepresenting my positions, but many don't, and support bad policies - namely, Republican policies for the corporatocracy.

(And yes, some Democrats too).

 

[Craig234]

We're dancing around each other. I'm suggesting that thousands/millions of these businesses themselves generate demand. They are all customers, purchasing office equip, PC's, phones/faxes, advertising, biz cards, biz lunches/travel, software upgrades etc. I suppose the Repubs would also say that the owners, keeping more of their money, would generate more demand as (individual) consumers too.

I'm not necessarily saying a tax cut is the best way. I am saying that to conflate these 2 different categories of corporations/businesses as Craig has done is wrong.

Fern

Just stop saying what I have said. You do it very badly.

There is *some* benefit of 'business as consumer', of 'owners spend too'.

I never said otherwise, as you pretend to say something new or that you are disagreeing. I said some people have an exaggerated notion of those benefits and want top-down.

If you give a tax cut to a wealthier person, the wealthier he is the less of it goes to consumption - and far from all of it goes to 'creating jobs' on average.

Give it to consumers, the less they make the more they spend, up to over 100% (yes, our poor can spend more than they make, increasing debt). That fuels business demand.

Part of this is just a social agenda - do you want the average or the poor American to get any decent standard of living? And part is the kind of economy you want. Is that two thirds figure for consumer spending ok - or do you prefer a half or a third instead, because people are poorer and spend less as a percent of our economy? But the thing to understand some ideologues don't is how money 'to the people' fuels business - and fuels it more efficiently for employment than money given directly to the top.

$10 million spent at a business can need more operations, warehouses, salespeople - employment - for handling the demand. $10 million in a tax cut for the owners can go to all kinds of things that do not help employment, from just increasing 'cash reserves' or other investments of the money outside the business, to stock repurchase (increasing the wealth of the stock owners but not employment) to acquisitions (driving up the cost of companies to own them but not employment - indeed usually hurting employment) etc.

The point, yet again, is simply to point out how some people exaggerate the benefits of top-down money to things like employment, and wrongly see no employment value in 'money to consumers'. This news story was to give them one example of how money to the top doesn't always mean 'creating employment'.

Make your points, but you are so bad about misrepresenting my position, just make your own points and give misrepresenting my positions a rest.

 

[ElFenix]

It is worth repeating that corporations pay no taxes.

this is true.

All corporate taxes are passed on to the consumer.

Any increase in taxes on corporations increases the prices of goods and services sold and reduces demand.

Have a nice day!

this is not. consumers are the last people that will bear that burden.

 

[MooseNSquirrel]

Capital allocated to government is not used for business development.

Huh?

One word: the Internet.

Its a funny world you live in where capitalism thrives despite the government, not because of it.

Unfettered capitalism always leads to hording of wealth. The only entity that exists to redistribute that capital or prevent monopoly is the Government.

Yes huge bureaucracies are bad, but how on earth are huge monopolies any better?

You need more Galbraith in your reading, and less idealist free marketeers who obviously don't know much history.

 

[PJABBER]

Huh?

One word: the Internet.

Whut? I thought the word was: Plastics?

Its a funny world you live in where capitalism thrives despite the government, not because of it.

You are from the government and you are here to help?

I knew I should have sewn my pockets shut this morning.

Unfettered capitalism always leads to hording of wealth.

By hoarding, do you mean I want to keep my money for myself?

The only entity that exists to redistribute that capital or prevent monopoly is the Government.

Spread the wealth around, mmmm, mmmm, mmmm.

Yes huge bureaucracies are bad, but how on earth are huge monopolies any better?

The freer the trade environment, the fewer the monopolies. Remove preferring mechanisms like tariffs and you won't see monopolies. You need more Friedman in your reading.

BTW, here is a trivia question: There has only been one successful global monopoly. D: What is it?

Answer at the end of my next post.

You need more Galbraith in your reading, and less idealist free marketeers who obviously don't know much history.

You need more of the Austrian School in yours.

 

[PJABBER]

I ran across another little article by Robert Higgs this morning and thought it captured a key element of the discussion thus far quite well.

Why ‘Stimulus’ Doesn’t Stimulate

by Robert Higgs
October 8, 2010

President Obama has asked Congress for an additional $50 billion in “stimulus” money to finance infrastructure projects. The theory is that the additional spending will cause businesses to boost production to meet this demand. Producers will add jobs, triggering increases in consumer spending that will ripple through the economy and fuel a stronger overall recovery.

Unfortunately, however, such government pump-priming hasn’t worked in the past, and there’s no reason to believe it will work now.

Sure, consumer spending accounts for approximately 70 percent of America’s gross domestic product, and increases in consumer spending would provide the economy with an immediate boost. But a drop in consumer spending is not what ails the economy. In fact, as a percentage of GDP, consumer spending actually increased during the downturn, the Commerce Department’s Bureau of Economic Analysis reports—from approximately 69.2 percent of GDP in the fourth quarter (October-December) of 2007 to approximately 71 percent of GDP in the April-June quarter of 2009.

So the conventional wisdom—that a sharp decline in consumer spending caused the economy’s downturn—is wrong.

What did cause the downturn? The answer is: a sharp decline in private investment.

In fact, the ups and downs of the business cycle are always driven by investment spending, not by consumption spending.

When private domestic investment last peaked, in the first quarter (January-March) of 2006, it was nearly $2.3 trillion (in dollars of 2005 purchasing power), or 17.5 percent of GDP. When it hit bottom in the second quarter of 2009, it had fallen by 36 percent to $1.45 trillion, or 11.3 percent of GDP. It is still far below the 2006 peak.

By contrast, in the second quarter of this year, personal consumption was actually at an all-time high, at nearly $9.3 trillion (in 2005 inflation-adjusted dollars). If stimulating consumption were the key to an economic recovery, we would have achieved one already.

The media’s focus on consumption unfortunately tempts politicians to approve “stimulus” measures aimed at pumping up this part of total spending—measures such as long extensions of unemployment insurance, aid to state and local governments to help them avoid personnel reductions, and increases in federal employee salaries.

Some economists in fact single out such measures for special praise on the grounds that such payments, because they are most likely to stimulate near-term consumption spending, have the greatest “multiplier effect.”

Such arguments fail to grasp the true nature of boom-bust cycles, however, especially the central role of investment spending in driving them—and, more important, in driving long-term economic growth.

If politicians truly wish to promote genuine, sustainable recovery and long-term economic growth, they should focus on actions that will contribute to a revival of private investment, not on pumping up consumption. In the most recent quarter, gross private domestic investment was still running at an annual rate more than 20 percent below its previous peak. Net private investment was fully two-thirds below the previous peak.

To bring about this essential revival of investment, the government needs to put an end to actions that threaten investors’ returns or create uncertainty that paralyzes the undertaking of new long-term projects.

Gigantic government measures such as the recently enacted health-care legislation and the financial-reform law, which entail hundreds of new regulations whose specific content, enforcement and costs are impossible to forecast with confidence, contribute to such uncertainty and encourage investors to sit on the sidelines with large cash balances, or to park their funds in safe, short-term, low-yield securities. Such tepid investments cannot support genuine recovery and sustained long-run growth.

What entrepreneurs, investors and executives await is policy stability and predictability, not more government spending, borrowing, sweeping new regulations, and heightened uncertainty.

Our crying need at present is for a robust revival of private long-term investment. Consumption-oriented government “stimulus” programs, threats of tax increases for entrepreneurs and business owners, and costly regulatory onslaughts breed fear and uncertainty and thus ensure a protracted period of economic stagnation.

Looking for the trivia question answer?

Spoiler

De Beers, a Girl's Best Friend.

 

[MooseNSquirrel]

Whut? I thought the word was: Plastics?

Do you need an explanation or do you disagree?

You are from the government and you are here to help?

I knew I should have sewn my pockets shut this morning.

If there is no government you'll be wanting to more than just sew your pockets shut silly person.

By hoarding, do you mean I want to keep my money for myself?

Yes, like Standard Oil kept its money for itself.

Spread the wealth around, mmmm, mmmm, mmmm.

The 19th century called, it wants to say hello.

See, I can be flippant too when I don't want to be intellectually honest or engage in real discussion.

The freer the trade environment, the fewer the monopolies. Remove preferring mechanisms like tariffs and you won't see monopolies. You need more Friedman in your reading.

Huh? There is more to a capitalist economy than just trade.

You need more of the Austrian School in yours.

Ha, were living that already, and nothing beats real practical knowledge eh?

BTW, here is a trivia question: There has only been one successful global monopoly. D: What is it?

Answer at the end of my next post.

Come on, you can name a few others if you try real hard.


This idea that the Government serves no purpose in a free market economy is pretty silly.

Whats that saying? Communism is great...in theory.

 

[lothar]

I believe that their corporate charter (granted by the state) could be revoked.

In fact, I believe that applications for corporate charter used to have a "how will this benefit the public" type of section on there. You used to have to work for the privilege of doing business in the form of a corporation. Not so much anymore, as they are handed out like candy to anyone who applies.

Majority of corporate charters are granted in Delaware.
Can you prove that Delaware has such law on their books?...Didn't think so.
If they did, then they would have revoked corporate charters for businesses building plants and buildings in any foreign country centuries ago.

If a corporate charter is revoked in one state, it can easily be re-opened in one of the other 49 states.

 

[Lanyap]

 

[Acanthus]

LMAO that's a new one.

"Free trade prevents monopolies."