Did you say "tax cut"? Off with your head!

61 posts / 0 new
Last post

Comments

Art
Art's picture
Quote:The money just

Quote:
The money just "circulated" from you to the former owner of the stock . . .
. . . and did nothing to promote the circulation of money throughout the real economy.  It went directly into the purchase of an investment with a higher return. It did not get passed on to the butcher, the baker or the candlestick maker.

Azog
Azog's picture
Art wrote: Quote:The money

Art wrote:

Quote:
The money just "circulated" from you to the former owner of the stock . . .
. . . and did nothing to promote the circulation of money throughout the real economy.  It went directly into the purchase of an investment with a higher return. It did not get passed on to the butcher, the baker or the candlestick maker.

You claimed that "putting money into the stock market" takes it out of circulation.  This is incorrect.

The money is now in the hands of the person from whom you bought the stock.  It is still in circulation, just in different hands.  The money is not "In the stock market".  It is now in someone's pocket, and it will either be spent or invested.  It has not been taken out of circulation, as you claimed.

Art
Art's picture
Quote:This is pointless.

Quote:
This is pointless. Never mind.
I agree. You just don't seem to be willing or able to demonstrate how a dollar gets from your pocket (as a retail investor) into the capital reserves of the Walmart Corporation. If you can't do that, then there is no point in pursuing this.

You seem to believe that, since its IPO in 1970, Walmart has continued to issue stocks to sell to retail investors. Do you have any idea how illegal that would be? Or how existing shareholders would respond to such a dilution of the value of their shares? Duh.

Art
Art's picture
Quote:The money is not "In

Quote:
The money is not "In the stock market".  It is now in someone's pocket, and it will either be spent or invested.
If that someone is the retail investor that we have been talking about, it will go directly into the purchase of an investment with a higher return. It will not get passed on to the butcher, the baker or the candlestick maker. Anything he redeems for personal consumer use will constitute .000000X% of his total wealth and contribute next to nothing to the real economy.

Azog
Azog's picture
Art wrote: Quote:The money is

Art wrote:

Quote:
The money is not "In the stock market".  It is now in someone's pocket, and it will either be spent or invested.
If that someone is the retail investor that we have been talking about, it will go directly into the purchase of an investment with a higher return. It will not get passed on to the butcher, the baker or the candlestick maker. Anything he redeems for personal consumer use will constitute .000000X% of his total wealth and contribute next to nothing to the real economy.

How do you know that after selling his stock he won't use the money to buy meat, bread, or candles?  Perhaps you're right and he will buy stock from someone else, passing the money along to that seller.  More circulation.  That money just keeps moving and moving.

Art
Art's picture
Quote:How do you know that

Quote:
How do you know that after selling his stock he won't use the money to buy meat, bread, or candles?  Perhaps you're right and he will buy stock from someone else, passing the money along to that seller.  More circulation.  That money just keeps moving and moving.
The investor that we have been discussing in this thread belongs to the richer-than-anybody-else class. He already owns all the big ticket items he can consume. He can consume only a certain amount of meat, bread and candles. What he buys is negligible compared to the total amount of assets available to him that could be circulated through the real economy. Money that is moving and moving from one retail investor to the next retail investor to the next retail investor does nothing for the real economy. 

 

 

chilidog
Art wrote: You just don't

Art wrote:

You just don't seem to be willing or able to demonstrate how a dollar gets from your pocket (as a retail investor) into the capital reserves of the Walmart Corporation. If you can't do that, then there is no point in pursuing this.

First, allow me to correct myself:  it is called an Initial PUBLIC Offering, not an initial purchase offering.  Second, you are absolutely correct when you say that when I buy a share of Walmart from my broker, and whether Walmart's stock price goes up or down, Walmart does not have any more cash on hand, nothing changes on its financial statements (and that might even be true with its Treasury Stock, I learned these rules once upon a time, the rules have probably changed.)

But you are focused on capital ON HAND, and I think the rest of us are talking about the COST of capital DESIRED.  If investors are buying Walmart stock in greater proportion than other substitutes, and the stock price is going up, the COST of capital that Walmart desires (for any reason - building a new plant, buying a competitor, paying off high-interest debt,) goes DOWN. Walmart can sell additional stock and get MORE money for it.  Alternatively, if Walmart doesn't want to issue additional stock, if it doesn't desire more capital, it can lower the dividends it pays on its stock (again, lower cost of capital.) And as a corrollary, even if an investor doesn't buy a share of Walmart stock, but instead buys a long-term bond issued by Ford Motor Company, than interest rates on all long-term debt fall, and it is cheaper for Walmart to borrow money (lower cost of capital.)

Now I said before there are times when the economy needs less capital, and there are times when the economy needs more capital.  That is probably not the most accurate way of expressing this idea.  An idle piece of equipment doesn't get hungry, it doesn't get sick, it doesn't rise up and destroy property and injure and kill other people.  An idle laborer may do those things, and those outcomes should be avoided.  So perhaps I should say there are times when a society needs labor to be more costly (higher wages) and there are times when a society needs labor to be less costly (lower wages.) Which I think is what Thom has remarked about regarding Germany, where the government (taxpayers) pays money to companies to keep workers working.  And of course the risk is that in a democracy the people will vote to distribute the Treasury to themselves and ultimately make endeavor by the entrepenuer fruitless.  It's a balancing act that requires wise leadership.

And there may be (well, there probably IS at this moment in time) a situation where market forces are so distorted that they are so unpredictable as to be totally chaotic, because so much capital is controlled by so few "entities." Which I think is your real concern. Thom has a special word for it, I don't recall offhand, it's something like "olimocracy" or "monocracy" but its neither of these words.  But that's a different subject altogether, it shouldn't interfere with our understanding of how efficient capital markets function.

D_NATURED
D_NATURED's picture
"DRC" wrote:I am willing to

"DRC" wrote:
I am willing to have the tax rate set at whatever level a healthy economy requires.  If the rich will voluntarily give back what is needed and give it where it is needed, we can have lower tax rates.  But we have to get the money flowing in the economy.  It is not about rich people being bad.  It is somewhat about the fact of greed and how hard it is for the rich to see the practicality of generosity and sharing.  It is structural, not personal, although people do get caught up and twisted by the structural.  Still, the point behind all this is that economies seek stability, and if the rich threaten that, society needs to correct for them.  I think we have seen the need for this correction.

I have long thought that we could better use the tax system to "encourage" the rich to keep their money flowing in the economy. We could have the top marginal tax rate vary according to the unemployment rate, for instance. Or, better yet, have it vary according to the average American's standard of living.

Whatever metric we use, it should be designed to clearly demonstrate the causes and effects of our economic policy with a focus not on creating billionaires but creating a middle class. What we shouldn't allow is for our policy to be constructed on a foundation of myths- ie., cutting taxes for the rich makes the lives of the poor better- because we can, obviously, waste years and trillions of dollars and that will never work. 

 

Azog
Azog's picture
Art wrote: Quote:How do you

Art wrote:

Quote:
How do you know that after selling his stock he won't use the money to buy meat, bread, or candles?  Perhaps you're right and he will buy stock from someone else, passing the money along to that seller.  More circulation.  That money just keeps moving and moving.
The investor that we have been discussing in this thread belongs to the richer-than-anybody-else class. He already owns all the big ticket items he can consume. He can consume only a certain amount of meat, bread and candles. What he buys is negligible compared to the total amount of assets available to him that could be circulated through the real economy. Money that is moving and moving from one retail investor to the next retail investor to the next retail investor does nothing for the real economy. 

Okay, as long as each seller of stock takes the proceeds of his sale and immediately turns around and uses it to buy stock from another seller, and nobody ever takes the money and puts it in the bank, then yes, the money does nothing for the real economy. 

At some point, perhaps after two, three, four, or five sales, one of those sellers is going to take his proceeds and put it in the bank (or otherwise loan it out.)

 

DRC
DRC's picture
Been there and done that for

Been there and done that for the whole Reaganomics Regnum.  Results are clear.  Failure.  

Ironically, the issue is not economic efficiency or the increasing pie of overheated abundant growth.  It is about "keeping my money."  Individualized, divided and conquered, the "my money meme" makes their money their money, not "ours" in the collective sense of sharing an economy.  It leaves us with no "right" to do anything about the "economic reality" they get to enforce on us in the name of power.

But, as Hedges tells us, change never has come through the Constitutional processes of government.  They have always come from outside the system until the system has had to yield to them.  There is no reality to the power economics of Supply Side other than Robber Baron values.  Identifying with the rich is the seduction offered in the American Dream bait and switch.