In order to ensure that this thread continues to meet TL standards and follows the proper guidelines, we will be enforcing the rules in the OP more strictly. Be sure to give them a re-read to refresh your memory! The vast majority of you are contributing in a healthy way, keep it up!
NOTE: When providing a source, explain why you feel it is relevant and what purpose it adds to the discussion if it's not obvious. Also take note that unsubstantiated tweets/posts meant only to rekindle old arguments can result in a mod action.
On December 01 2017 02:46 xDaunt wrote: This is an absurd statement. Just look at all of the technological development that has occurred in the US that has both enriched the creators and improved the quality of life of the consuming public. Wealth and income inequality -- and more specifically, the possibility thereof -- drives innovation.
My impression is that most of the dominant innovation that drove major shifts in society and personal quality of life were from the moderately well-off who became wealthy through their innovations. It's true that they were enriched by their work, but a large motivator is the aspirational component of the moderately well-off to become wealthy. The ultra-wealthy don't have the same drive to innovate because the marginal utility of becoming even wealthier is much smaller--they're much more interested in keeping what they have.
It would seem to me that if your goal is to drive innovation, the idea wealth distribution would be a large middle class with a high degree of upward social mobility--i.e. there are paths to become wealthy that encourage innovation and enterprise. "Large middle class" implies low income inequality because it implies more people near the median household income and less toward the extremes. This is always going to be at odds with the ultra-wealthy because "old money" aristocracy has always historically opposed the rise of "new money" even though "new money" is where the innovation and enterprise that you ascribe to wealth has come from.
I don't think anyone is arguing that the ultra-wealthy themselves are innovating. The ultra-wealthy merely want the best return on their investment. The innovation still comes from the middle class, but is brought to market with capital provided by the ultra-wealthy.
Redistribution limits this pipeline in two ways. First, due to how finance works in the human world, the ultra-wealthy are more likely to invest large amounts of capital into the most productive innovations (because you and I are too worried about an entrepreneur losing our retirement funds, while Bill Gates doesn't have that concern).
On the other side, redistribution affects the riskiest and most productive most negatively. If my returns are hypothetically capped at 1%, and there's a risk-free investment returning 1%, there's no incentive for my to invest in anything that would have produced a higher than 1% return (i.e. higher growth).
The fairest counterarguments I've seen so far that GDP isn't necessarily the best proxy for utility, as GDP favors the wealthy's utility (basically Kwark's argument), and that if inequality were to reach a point where potential innovators are being precluded from innovation (lack of education or useful industry experience) then that will negatively affect growth as well. The second point is mitigated (possibly dominated depending on the specifics?) by the fact that higher inequality leads to greater availability of capital though.
On December 01 2017 08:28 IgnE wrote:
On December 01 2017 07:43 TheYango wrote:
On December 01 2017 02:46 xDaunt wrote: This is an absurd statement. Just look at all of the technological development that has occurred in the US that has both enriched the creators and improved the quality of life of the consuming public. Wealth and income inequality -- and more specifically, the possibility thereof -- drives innovation.
My impression is that most of the dominant innovation that drove major shifts in society and personal quality of life were from the moderately well-off who became wealthy through their innovations. It's true that they were enriched by their work, but a large motivator is the aspirational component of the moderately well-off to become wealthy. The ultra-wealthy don't have the same drive to innovate because the marginal utility of becoming even wealthier is much smaller--they're much more interested in keeping what they have.
It would seem to me that if your goal is to drive innovation, the idea wealth distribution would be a large middle class with a high degree of upward social mobility--i.e. there are paths to become wealthy that encourage innovation and enterprise. "Large middle class" implies low income inequality because it implies more people near the median household income and less toward the extremes. This is always going to be at odds with the ultra-wealthy because "old money" aristocracy has always historically opposed the rise of "new money" even though "new money" is where the innovation and enterprise that you ascribe to wealth has come from.
well, calculations of marginal wealth utility are such an insignificant factor when it comes to what really motivates people to innovate that discussions like this are basically counterproductive. we should just stop entertaining this economic incentives story all together
While I don't agree this is true from the innovator's perspective, it's certainly not true from the investor's perspective. To them, the economic incentive is all that matters. See my point above.
You can't create wealth without capital. If you hamstring returns from the capital perspective, you simply won't have growth. Unless you can start magically creating utopian communist comrades to create your own country with that is.
Is it actually true that the rich invest more in 'riskier' assets? This came up before but I couldn't find anything on it after some mild poking around.
It's basic finance. Risk tolerance grows with excess. If you're rich enough to buy a yacht and not feel it, you can certainly afford to invest that yacht's worth of capital in an ultra-high risk investment and expect a higher return than you would investing the yacht's worth of capital into treasuries.
The same principle is why you have to be an accredited investor to invest in hedge funds. The government is trying to save people from their own financial stupidity.
I mean, this theory is great and all, but this sort of investment from the super rich either isn't happening or is being completely ineffective.
How do you figure that? Why do you think the economy grows at all? People aren't investing and innovating because they're good comrades. Where do you think startups and corporations obtain capital to hire new employees, build more factories, and improve existing production technology?
It's mostly coming from wealthy people's savings. Hence why they're entitled to either interest or dividends.
Undocumented Immigrant Acquitted in Kate Steinle Death
There has been a verdict in the 2015 shooting death of California woman Kate Steinle. Defendant Jose Ines Garcia Zarate (aka Juan Francisco Lopez-Sanchez) has been found not guilty. He faced a charge of second-degree murder. Jurors were also allowed to consider charges of first-degree murder and involuntry manslaughter. They found him guilty of felony possession of a weapon, however.
Zarate admitted to finding the gun (which was stolen from a federal official’s car), and claimed it accidentally went off. The bullet struck Steinle, who was at a pier with her father.
When she died on July 1, 2015, it touched off a fraught argument above how far local law enforcement can go in enforcing U.S. immigration policy. Zarate was an undocumented immigrant from Mexico who the United States deported five times for previous felony convictions. Her family did not want their daughter to be used as a political prop. Relatives actually supported sanctuary cities, but generally, they weren’t immigration hardliners one way or the other.
“It was never meant to be a safe harbor for violent criminals,” Kate’s mother Liz Sullivan told The San Francisco Chronicle in 2015. “That’s the bottom line.”
Update – Nov. 30, 7:48 p.m.: Added supplementary information about the verdict.
I’m a Depression historian. The GOP tax bill is straight out of 1929.
“There are two ideas of government,” William Jennings Bryan declared in his 1896 “Cross of Gold” speech. “There are those who believe that if you will only legislate to make the well-to-do prosperous their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous their prosperity will find its way up through every class which rests upon them.”
That was more than three decades before the collapse of the economy in 1929. The crash followed a decade of Republican control of the federal government during which trickle-down policies, including massive tax cuts for the rich, produced the greatest concentration of income in the accounts of the richest 0.01 percent at any time between World War I and 2007 (when trickle-down economics, tax cuts for the hyper-rich, and deregulation again resulted in another economic collapse).
Yet the plain fact that the trickle-down approach has never worked leaves Republicans unfazed. The GOP has been singing from the Market-is-God hymnal for well over a century, telling us that deregulation, tax cuts for the rich, and the concentration of ever more wealth in the bloated accounts of the richest people will result in prosperity for the rest of us. The party is now trying to pass a scam that throws a few crumbs to the middle class (temporarily — millions of middle-class Americans will soon see a tax hike if the bill is enacted) while heaping benefits on the super-rich, multiplying the national debt and endangering the American economy.As a historian of the Great Depression, I can say: I’ve seen this show before.
In 1926, Calvin Coolidge’s treasury secretary, Andrew Mellon, one of the world’s richest men, pushed through a massive tax cut that would substantially contribute to the causes of the Great Depression. Republican Sen. George Norris of Nebraska said that Mellon himself would reap from the tax bill “a larger personal reduction [in taxes] than the aggregate of practically all the taxpayers in the state of Nebraska.” The same is true now of Donald Trump, the Koch Brothers, Sheldon Adelson and other fabulously rich people.
During the 1920s, Republicans almost literally worshiped business. “The business of America,” Coolidge proclaimed, “is business.” Coolidge also remarked that, “The man who builds a factory builds a temple,” and “the man who works there worships there.” That faith in the Market as God has been the Republican religion ever since. A few months after he became president in 1981, Ronald Reagan praised Coolidge for cutting “taxes four times” and said “we had probably the greatest growth in prosperity that we’ve ever known.” Reagan said nothing about what happened to “Coolidge Prosperity” a few months after he left office.
In 1932, in the depths of the Great Depression, Franklin D. Roosevelt called for “bold, persistent experimentation” and said: “It is common sense to take a method and try it; if it fails, admit it frankly and try another. But above all, try something.” The contrasting position of Republicans then and now is: Take the method and try it. If it fails, deny its failure and try it again. And again. And again.
When Bill Clinton proposed a modest increase in the top marginal tax rate in his 1993 budget, every Republican voted against it. Trickle-down economists proclaimed that it would lead to economic disaster. But the tax increase on the wealthy was followed by one of the greatest periods of prosperity in American history and resulted in a budget surplus. When the Republicans came back into power in 2001, the administration of George W. Bush pushed the opposite policies, which had invariably produced calamity in the past. Predictably, that happened again in 2008.
Just how disastrous would the proposed reincarnation of the failed Republican trickle-down policies of the past be for the American people and the future of the nation? A few ways:
Repealing the estate tax, or, as Republicans have dubbed it, the “death tax.” But the estate tax is not a tax on the dead; it is a tax on their heirs. Repeal would reverse an important aspect of the American Revolution and establish an American hereditary aristocracy. If your estate is not above $11 million, your benefits from this portion of the GOP’s tax cut will be a nice round number: zero. Eliminating deductions for state and local taxes. The GOP has called these deductions favoritism for people who live in high-tax states. In fact, ending deductibility of state and local taxes would tax income that has already been taxed away from a taxpayer. It is, quite simply, double taxation. Repealing the Alternative Minimum Tax, which assures that wealthy people who hire accountants to find all the obscure ways to avoid taxes cannot escape taxation altogether. Repealing it would save Trump millions. Extending the “pass-through” provision to noncorporate businesses, including some 500 entities Trump owns. It would allow the owners of these businesses to pay taxes at 25 percent, instead of 39.9 percent. This provision would allow Wall Street fund managers, among other very wealthy people, to pay a lower tax rate than many middle-class Americans pay. Ending the deductibility of large medical expenses. Taxing waived tuition for college students, ending deductibility for student loan payments, and even disallowing teachers from deducting what they spend on school supplies for their students. Ending the Affordable Care Act’s individual mandate, which would cause 13 million Americans to lose health insurance and result in much higher premiums for those who do get insurance through the exchanges. The Congressional Budget Office has indicated that, if enacted, the Republican tax bill may force deep cuts in Medicare through a generally unknown budget rule that its deficits would trigger. The analysis of the nonpartisan Congressional Budget Office found that people making less than $100,000 a year (approximately 80 percent of American households) will have their taxes increased while the millionaires and billionaires will make off like bandits.
In the 1920s, Republicans were in full control of the federal government and used that power to pursue their objective to “make the well-to-do prosperous.” It didn’t “leak through on those below.” In that decade, the mass-production American economy became dependent on mass consumption. For it to work, the masses need a sufficient share of the national income to be able to consume what is being produced.
Republican policies in the ’20s instead pushed to concentrate more of the income at the top. Nine decades later, Republicans are rushing to do it again — and they are sprinting toward an economic cliff. Another round of Government of the People, by the Republicans, for the super-rich will be catastrophic. The American people must call a halt before it’s too late.
We wrote earlier this week about how Comcast has changed its promises to uphold net neutrality by pulling back from previous statements that it won't charge websites or other online applications for fast lanes.
Comcast spokesperson Sena Fitzmaurice has been claiming that we got the story wrong. But a further examination of how Comcast's net neutrality promises have changed over time reveals another interesting tidbit—Comcast deleted a "no paid prioritization" pledge from its net neutrality webpage on the very same day that the Federal Communications Commission announced its initial plan to repeal net neutrality rules.
Starting in 2014, the webpage, corporate.comcast.com/openinternet/open-net-neutrality, contained this statement: "Comcast doesn't prioritize Internet traffic or create paid fast lanes."
But on April 27, the paid prioritization pledge was nowhere to be found on that page and remains absent now.
What changed? It was on April 26 that FCC Chairman Ajit Pai announced the first version of his plan to eliminate net neutrality rules. Since then, Pai has finalized his repeal plan, and the FCC will vote to drop the rules on December 14.
In case you were wondering if ISP's were really gonna fuck you over if the repeal goes through, wonder no longer. If they vote yes on the 14th, you'll be paying more for less before you know it.
I’m a Depression historian. The GOP tax bill is straight out of 1929.
“There are two ideas of government,” William Jennings Bryan declared in his 1896 “Cross of Gold” speech. “There are those who believe that if you will only legislate to make the well-to-do prosperous their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous their prosperity will find its way up through every class which rests upon them.”
That was more than three decades before the collapse of the economy in 1929. The crash followed a decade of Republican control of the federal government during which trickle-down policies, including massive tax cuts for the rich, produced the greatest concentration of income in the accounts of the richest 0.01 percent at any time between World War I and 2007 (when trickle-down economics, tax cuts for the hyper-rich, and deregulation again resulted in another economic collapse).
Yet the plain fact that the trickle-down approach has never worked leaves Republicans unfazed. The GOP has been singing from the Market-is-God hymnal for well over a century, telling us that deregulation, tax cuts for the rich, and the concentration of ever more wealth in the bloated accounts of the richest people will result in prosperity for the rest of us. The party is now trying to pass a scam that throws a few crumbs to the middle class (temporarily — millions of middle-class Americans will soon see a tax hike if the bill is enacted) while heaping benefits on the super-rich, multiplying the national debt and endangering the American economy.As a historian of the Great Depression, I can say: I’ve seen this show before.
In 1926, Calvin Coolidge’s treasury secretary, Andrew Mellon, one of the world’s richest men, pushed through a massive tax cut that would substantially contribute to the causes of the Great Depression. Republican Sen. George Norris of Nebraska said that Mellon himself would reap from the tax bill “a larger personal reduction [in taxes] than the aggregate of practically all the taxpayers in the state of Nebraska.” The same is true now of Donald Trump, the Koch Brothers, Sheldon Adelson and other fabulously rich people.
During the 1920s, Republicans almost literally worshiped business. “The business of America,” Coolidge proclaimed, “is business.” Coolidge also remarked that, “The man who builds a factory builds a temple,” and “the man who works there worships there.” That faith in the Market as God has been the Republican religion ever since. A few months after he became president in 1981, Ronald Reagan praised Coolidge for cutting “taxes four times” and said “we had probably the greatest growth in prosperity that we’ve ever known.” Reagan said nothing about what happened to “Coolidge Prosperity” a few months after he left office.
In 1932, in the depths of the Great Depression, Franklin D. Roosevelt called for “bold, persistent experimentation” and said: “It is common sense to take a method and try it; if it fails, admit it frankly and try another. But above all, try something.” The contrasting position of Republicans then and now is: Take the method and try it. If it fails, deny its failure and try it again. And again. And again.
When Bill Clinton proposed a modest increase in the top marginal tax rate in his 1993 budget, every Republican voted against it. Trickle-down economists proclaimed that it would lead to economic disaster. But the tax increase on the wealthy was followed by one of the greatest periods of prosperity in American history and resulted in a budget surplus. When the Republicans came back into power in 2001, the administration of George W. Bush pushed the opposite policies, which had invariably produced calamity in the past. Predictably, that happened again in 2008.
Just how disastrous would the proposed reincarnation of the failed Republican trickle-down policies of the past be for the American people and the future of the nation? A few ways:
Repealing the estate tax, or, as Republicans have dubbed it, the “death tax.” But the estate tax is not a tax on the dead; it is a tax on their heirs. Repeal would reverse an important aspect of the American Revolution and establish an American hereditary aristocracy. If your estate is not above $11 million, your benefits from this portion of the GOP’s tax cut will be a nice round number: zero. Eliminating deductions for state and local taxes. The GOP has called these deductions favoritism for people who live in high-tax states. In fact, ending deductibility of state and local taxes would tax income that has already been taxed away from a taxpayer. It is, quite simply, double taxation. Repealing the Alternative Minimum Tax, which assures that wealthy people who hire accountants to find all the obscure ways to avoid taxes cannot escape taxation altogether. Repealing it would save Trump millions. Extending the “pass-through” provision to noncorporate businesses, including some 500 entities Trump owns. It would allow the owners of these businesses to pay taxes at 25 percent, instead of 39.9 percent. This provision would allow Wall Street fund managers, among other very wealthy people, to pay a lower tax rate than many middle-class Americans pay. Ending the deductibility of large medical expenses. Taxing waived tuition for college students, ending deductibility for student loan payments, and even disallowing teachers from deducting what they spend on school supplies for their students. Ending the Affordable Care Act’s individual mandate, which would cause 13 million Americans to lose health insurance and result in much higher premiums for those who do get insurance through the exchanges. The Congressional Budget Office has indicated that, if enacted, the Republican tax bill may force deep cuts in Medicare through a generally unknown budget rule that its deficits would trigger. The analysis of the nonpartisan Congressional Budget Office found that people making less than $100,000 a year (approximately 80 percent of American households) will have their taxes increased while the millionaires and billionaires will make off like bandits.
In the 1920s, Republicans were in full control of the federal government and used that power to pursue their objective to “make the well-to-do prosperous.” It didn’t “leak through on those below.” In that decade, the mass-production American economy became dependent on mass consumption. For it to work, the masses need a sufficient share of the national income to be able to consume what is being produced.
Republican policies in the ’20s instead pushed to concentrate more of the income at the top. Nine decades later, Republicans are rushing to do it again — and they are sprinting toward an economic cliff. Another round of Government of the People, by the Republicans, for the super-rich will be catastrophic. The American people must call a halt before it’s too late.
We wrote earlier this week about how Comcast has changed its promises to uphold net neutrality by pulling back from previous statements that it won't charge websites or other online applications for fast lanes.
Comcast spokesperson Sena Fitzmaurice has been claiming that we got the story wrong. But a further examination of how Comcast's net neutrality promises have changed over time reveals another interesting tidbit—Comcast deleted a "no paid prioritization" pledge from its net neutrality webpage on the very same day that the Federal Communications Commission announced its initial plan to repeal net neutrality rules.
Starting in 2014, the webpage, corporate.comcast.com/openinternet/open-net-neutrality, contained this statement: "Comcast doesn't prioritize Internet traffic or create paid fast lanes."
But on April 27, the paid prioritization pledge was nowhere to be found on that page and remains absent now.
What changed? It was on April 26 that FCC Chairman Ajit Pai announced the first version of his plan to eliminate net neutrality rules. Since then, Pai has finalized his repeal plan, and the FCC will vote to drop the rules on December 14.
In case you were wondering if ISP's were really gonna fuck you over if the repeal goes through, wonder no longer. If they vote yes on the 14th, you'll be paying more for less before you know it.
I mean, it's not wrong. They don't create fast lanes. Just slow ones you have to pay to get out of. smh
On December 01 2017 02:46 xDaunt wrote: This is an absurd statement. Just look at all of the technological development that has occurred in the US that has both enriched the creators and improved the quality of life of the consuming public. Wealth and income inequality -- and more specifically, the possibility thereof -- drives innovation.
My impression is that most of the dominant innovation that drove major shifts in society and personal quality of life were from the moderately well-off who became wealthy through their innovations. It's true that they were enriched by their work, but a large motivator is the aspirational component of the moderately well-off to become wealthy. The ultra-wealthy don't have the same drive to innovate because the marginal utility of becoming even wealthier is much smaller--they're much more interested in keeping what they have.
It would seem to me that if your goal is to drive innovation, the idea wealth distribution would be a large middle class with a high degree of upward social mobility--i.e. there are paths to become wealthy that encourage innovation and enterprise. "Large middle class" implies low income inequality because it implies more people near the median household income and less toward the extremes. This is always going to be at odds with the ultra-wealthy because "old money" aristocracy has always historically opposed the rise of "new money" even though "new money" is where the innovation and enterprise that you ascribe to wealth has come from.
I don't think anyone is arguing that the ultra-wealthy themselves are innovating. The ultra-wealthy merely want the best return on their investment. The innovation still comes from the middle class, but is brought to market with capital provided by the ultra-wealthy.
Redistribution limits this pipeline in two ways. First, due to how finance works in the human world, the ultra-wealthy are more likely to invest large amounts of capital into the most productive innovations (because you and I are too worried about an entrepreneur losing our retirement funds, while Bill Gates doesn't have that concern).
On the other side, redistribution affects the riskiest and most productive most negatively. If my returns are hypothetically capped at 1%, and there's a risk-free investment returning 1%, there's no incentive for my to invest in anything that would have produced a higher than 1% return (i.e. higher growth).
The fairest counterarguments I've seen so far that GDP isn't necessarily the best proxy for utility, as GDP favors the wealthy's utility (basically Kwark's argument), and that if inequality were to reach a point where potential innovators are being precluded from innovation (lack of education or useful industry experience) then that will negatively affect growth as well. The second point is mitigated (possibly dominated depending on the specifics?) by the fact that higher inequality leads to greater availability of capital though.
On December 01 2017 08:28 IgnE wrote:
On December 01 2017 07:43 TheYango wrote:
On December 01 2017 02:46 xDaunt wrote: This is an absurd statement. Just look at all of the technological development that has occurred in the US that has both enriched the creators and improved the quality of life of the consuming public. Wealth and income inequality -- and more specifically, the possibility thereof -- drives innovation.
My impression is that most of the dominant innovation that drove major shifts in society and personal quality of life were from the moderately well-off who became wealthy through their innovations. It's true that they were enriched by their work, but a large motivator is the aspirational component of the moderately well-off to become wealthy. The ultra-wealthy don't have the same drive to innovate because the marginal utility of becoming even wealthier is much smaller--they're much more interested in keeping what they have.
It would seem to me that if your goal is to drive innovation, the idea wealth distribution would be a large middle class with a high degree of upward social mobility--i.e. there are paths to become wealthy that encourage innovation and enterprise. "Large middle class" implies low income inequality because it implies more people near the median household income and less toward the extremes. This is always going to be at odds with the ultra-wealthy because "old money" aristocracy has always historically opposed the rise of "new money" even though "new money" is where the innovation and enterprise that you ascribe to wealth has come from.
well, calculations of marginal wealth utility are such an insignificant factor when it comes to what really motivates people to innovate that discussions like this are basically counterproductive. we should just stop entertaining this economic incentives story all together
While I don't agree this is true from the innovator's perspective, it's certainly not true from the investor's perspective. To them, the economic incentive is all that matters. See my point above.
You can't create wealth without capital. If you hamstring returns from the capital perspective, you simply won't have growth. Unless you can start magically creating utopian communist comrades to create your own country with that is.
Is it actually true that the rich invest more in 'riskier' assets? This came up before but I couldn't find anything on it after some mild poking around.
It's basic finance. Risk tolerance grows with excess. If you're rich enough to buy a yacht and not feel it, you can certainly afford to invest that yacht's worth of capital in an ultra-high risk investment and expect a higher return than you would investing the yacht's worth of capital into treasuries.
The same principle is why you have to be an accredited investor to invest in hedge funds. The government is trying to save people from their own financial stupidity.
A rental property purchased with 100% equity would be low risk (zero chance of default). A rental property purchased with 1% equity would be high risk (much higher chance of default).
The increase in leverage would yield a higher (expected) return to the equity holder. That would be irrelevant to economic growth, as the asset would be preforming the same in either case. Actually, the high debt scenario could be a drag on economic growth due to a debt overhang scenario. Defaults can also cause net harm.
A more normal example, say a business with 20% debt to equity financing vs 25% debt to equity... we're really just shifting the risk around. If the wealthier were 'more willing' to buy equity in the marginally-higher leverage business we're not really doing anything beyond shifting risk.
Housing is a weird because a house isn't a means of production in the traditional sense, but the investor in the second example is behaving irrationally in a competitive market in a risk-averse world.
Let's assume the expected return for the two businesses is the same. In a risk-averse world (like ours obviously is), investors would expect a premium to invest in the riskier business as opposed to the less risky business. So instead of the return m, investors would expect return m + e. Investors with a smaller risk appetite might investment in the less risky business, but there's no financial incentive to choose the riskier business. Suppose there is a third business that returns m + e (i.e. more productive than a business than returns m), but is riskier. The smaller investor may not invest in it because it's riskier. The investor with a larger risk appetite would choose the third business over the riskier of the two businesses that return m. Consequently, the wealthy investor's risk tolerance has add an expected an additional e in value.
Assuming competitive and efficient markets with perfect information, the riskier business that returns m would never receive investment and the only factor that affects returns among rational investment opportunities is risk. Thus, higher risk investment means higher return which means higher growth.
It's basically a restatement of the CAPM, which you may be familiar with if you've studied finance.
OK, so we have a higher risk 3rd option that no one individual small investor is willing to buy into. Is this really insurmountable?
Can we deleverage the project to reduce risk?
Well then it's an entirely separate investment and has to be analyzed separately. If there's a more efficient way to do your project, a competitive market will have already forced you to do it that way. This is a bit like "just be smarter!"
Can we offer a larger risk premium to entice investment?
In a competitive market you can't because your margins are already zero.
Can each small investor make a small investment (their overall portfolios are still not very risky)?
Sort of, but the marginal increase in risk appetite is higher per dollar of wealth for a wealthy person than a poor person.
I gave a scenario like this last time. Suppose everyone wants to have $10M in wealth at a minimum. You can have one person with $100M in wealth, or four people with $25M in wealth. The guy can invest $90M, the group can invest 4 * $15M = $60M. Concentration of wealth created $30M in capital.
In reality, people don't have don't have dichotomous risk management strategies like that, but you can probably imagine how that the same principle is at play for a continuous risk spectrum.
Can an intermediary (bank, pension fund, insurance co, etc) make the investment?
Yes, but where do they get their funding from? It's turtles all the way down. At the macro level, the risk appetite of financial institutions is a function of the risk appetite of their sources of capital.
For a more concrete example, consider this. Banks have to be pretty risk-averse relative to VC funds, PE funds, or hedge funds due to regulations. Consequently, they do relatively boring (low-return) lending compared to VC funds, etc. If total macro risk appetite decreases, more people will store capital at banks, resulting in lower growth.
Here's another way to think about it. A risk-neutral world grows at the fastest rate because all anyone pays attention to is expected return. The larger the macro risk appetite is, the more we approximate a risk neutral world.
I gotta admit, however reprehensible it is, My schadenfreude is being satiated by O'Reilly being admonishment and reprimanded on national media as punishment for his unethical behavior.
Bill just stuttering his words and squirming around in his chair XD
On December 01 2017 02:46 xDaunt wrote: This is an absurd statement. Just look at all of the technological development that has occurred in the US that has both enriched the creators and improved the quality of life of the consuming public. Wealth and income inequality -- and more specifically, the possibility thereof -- drives innovation.
My impression is that most of the dominant innovation that drove major shifts in society and personal quality of life were from the moderately well-off who became wealthy through their innovations. It's true that they were enriched by their work, but a large motivator is the aspirational component of the moderately well-off to become wealthy. The ultra-wealthy don't have the same drive to innovate because the marginal utility of becoming even wealthier is much smaller--they're much more interested in keeping what they have.
It would seem to me that if your goal is to drive innovation, the idea wealth distribution would be a large middle class with a high degree of upward social mobility--i.e. there are paths to become wealthy that encourage innovation and enterprise. "Large middle class" implies low income inequality because it implies more people near the median household income and less toward the extremes. This is always going to be at odds with the ultra-wealthy because "old money" aristocracy has always historically opposed the rise of "new money" even though "new money" is where the innovation and enterprise that you ascribe to wealth has come from.
I don't think anyone is arguing that the ultra-wealthy themselves are innovating. The ultra-wealthy merely want the best return on their investment. The innovation still comes from the middle class, but is brought to market with capital provided by the ultra-wealthy.
Redistribution limits this pipeline in two ways. First, due to how finance works in the human world, the ultra-wealthy are more likely to invest large amounts of capital into the most productive innovations (because you and I are too worried about an entrepreneur losing our retirement funds, while Bill Gates doesn't have that concern).
On the other side, redistribution affects the riskiest and most productive most negatively. If my returns are hypothetically capped at 1%, and there's a risk-free investment returning 1%, there's no incentive for my to invest in anything that would have produced a higher than 1% return (i.e. higher growth).
The fairest counterarguments I've seen so far that GDP isn't necessarily the best proxy for utility, as GDP favors the wealthy's utility (basically Kwark's argument), and that if inequality were to reach a point where potential innovators are being precluded from innovation (lack of education or useful industry experience) then that will negatively affect growth as well. The second point is mitigated (possibly dominated depending on the specifics?) by the fact that higher inequality leads to greater availability of capital though.
On December 01 2017 08:28 IgnE wrote:
On December 01 2017 07:43 TheYango wrote:
On December 01 2017 02:46 xDaunt wrote: This is an absurd statement. Just look at all of the technological development that has occurred in the US that has both enriched the creators and improved the quality of life of the consuming public. Wealth and income inequality -- and more specifically, the possibility thereof -- drives innovation.
My impression is that most of the dominant innovation that drove major shifts in society and personal quality of life were from the moderately well-off who became wealthy through their innovations. It's true that they were enriched by their work, but a large motivator is the aspirational component of the moderately well-off to become wealthy. The ultra-wealthy don't have the same drive to innovate because the marginal utility of becoming even wealthier is much smaller--they're much more interested in keeping what they have.
It would seem to me that if your goal is to drive innovation, the idea wealth distribution would be a large middle class with a high degree of upward social mobility--i.e. there are paths to become wealthy that encourage innovation and enterprise. "Large middle class" implies low income inequality because it implies more people near the median household income and less toward the extremes. This is always going to be at odds with the ultra-wealthy because "old money" aristocracy has always historically opposed the rise of "new money" even though "new money" is where the innovation and enterprise that you ascribe to wealth has come from.
well, calculations of marginal wealth utility are such an insignificant factor when it comes to what really motivates people to innovate that discussions like this are basically counterproductive. we should just stop entertaining this economic incentives story all together
While I don't agree this is true from the innovator's perspective, it's certainly not true from the investor's perspective. To them, the economic incentive is all that matters. See my point above.
You can't create wealth without capital. If you hamstring returns from the capital perspective, you simply won't have growth. Unless you can start magically creating utopian communist comrades to create your own country with that is.
Is it actually true that the rich invest more in 'riskier' assets? This came up before but I couldn't find anything on it after some mild poking around.
It's basic finance. Risk tolerance grows with excess. If you're rich enough to buy a yacht and not feel it, you can certainly afford to invest that yacht's worth of capital in an ultra-high risk investment and expect a higher return than you would investing the yacht's worth of capital into treasuries.
The same principle is why you have to be an accredited investor to invest in hedge funds. The government is trying to save people from their own financial stupidity.
I mean, this theory is great and all, but this sort of investment from the super rich either isn't happening or is being completely ineffective.
How do you figure that? Why do you think the economy grows at all? People aren't investing and innovating because they're good comrades. Where do you think startups and corporations obtain capital to hire new employees, build more factories, and improve existing production technology?
It's mostly coming from wealthy people's savings. Hence why they're entitled to either interest or dividends.
Well, Nevuk literally posted this an hour before you posted. http://www.teamliquid.net/forum/viewpost.php?post_id=26843395 There's also how Bush's tax plan made didn't do great things for the country, while the New Deal led to a really prosperous era with top marginal tax rates above 60%. It was above 80% for a while, and even in the 90s from around 1945 to 1965. It didn't drop below 70% until after Reagan was elected in 1980. I'd argue that the period from the New Deal to Reagan's election was a pretty good period for the US economy.
Also, Kansas, which should really speak for itself. I'm appalled that they brought Brownback in to talk about how his tax cuts in Kansas were a success, and therefore this bill would be good. At least he was correct that we can look at Kansas to see what this tax bill will do to the country as a whole.
So yeah, that's how I figure. The economy grew just fine without funneling money to the rich so that they can be entitled to part of other people's profits by virtue of already being extremely wealthy. Trickle down economics doesn't work.
There's good reason to believe this. This is a report that goes over the entire post war history and looks at growth and tax relationships. The tl;dr is that there's no relationship between econ growth and taxes at all. Tax cuts or increases seem to affect equality and who gets what share of the pie strongly, but have no impact on how large the pie is at all.
The constant tax cuts are largely just a gift to the upper / upper-middle classes.
One of the problems is that corporations are already ultra-flush with cash and profit as it is sitting right around full employment.
The economic conditions that would make the fantasy of trickle down a "reasonable" explanation aren't even in place. So it's not just Trump who's blatantly lying about what this is, it's the entire republican party (save a couple half-assed objections).
The Republican party is literally trying to con their supporters into supporting something that will be detrimental to their own lives to spite "the left" and they can't (with any competence) deny it.
Then their supporters are out here shilling against their own interests. It's an impressive con.
EDIT: Seems obvious we need to put more money in the pockets of those most likely to spend it to drive up demand.
On December 01 2017 14:08 urmomdresslikafloozy wrote: I gotta admit, however reprehensible it is, My schadenfreude is being satiated by O'Reilly being admonishment and reprimanded on national media as punishment for his unethical behavior. https://www.youtube.com/watch?v=8XlhRL3D3Sw Bill just stuttering his words and squirming around in his chair XD
But no comment on Matt Lauer? This is just a crazy video.
On December 01 2017 02:46 xDaunt wrote: This is an absurd statement. Just look at all of the technological development that has occurred in the US that has both enriched the creators and improved the quality of life of the consuming public. Wealth and income inequality -- and more specifically, the possibility thereof -- drives innovation.
My impression is that most of the dominant innovation that drove major shifts in society and personal quality of life were from the moderately well-off who became wealthy through their innovations. It's true that they were enriched by their work, but a large motivator is the aspirational component of the moderately well-off to become wealthy. The ultra-wealthy don't have the same drive to innovate because the marginal utility of becoming even wealthier is much smaller--they're much more interested in keeping what they have.
It would seem to me that if your goal is to drive innovation, the idea wealth distribution would be a large middle class with a high degree of upward social mobility--i.e. there are paths to become wealthy that encourage innovation and enterprise. "Large middle class" implies low income inequality because it implies more people near the median household income and less toward the extremes. This is always going to be at odds with the ultra-wealthy because "old money" aristocracy has always historically opposed the rise of "new money" even though "new money" is where the innovation and enterprise that you ascribe to wealth has come from.
I don't think anyone is arguing that the ultra-wealthy themselves are innovating. The ultra-wealthy merely want the best return on their investment. The innovation still comes from the middle class, but is brought to market with capital provided by the ultra-wealthy.
Redistribution limits this pipeline in two ways. First, due to how finance works in the human world, the ultra-wealthy are more likely to invest large amounts of capital into the most productive innovations (because you and I are too worried about an entrepreneur losing our retirement funds, while Bill Gates doesn't have that concern).
On the other side, redistribution affects the riskiest and most productive most negatively. If my returns are hypothetically capped at 1%, and there's a risk-free investment returning 1%, there's no incentive for my to invest in anything that would have produced a higher than 1% return (i.e. higher growth).
The fairest counterarguments I've seen so far that GDP isn't necessarily the best proxy for utility, as GDP favors the wealthy's utility (basically Kwark's argument), and that if inequality were to reach a point where potential innovators are being precluded from innovation (lack of education or useful industry experience) then that will negatively affect growth as well. The second point is mitigated (possibly dominated depending on the specifics?) by the fact that higher inequality leads to greater availability of capital though.
On December 01 2017 08:28 IgnE wrote:
On December 01 2017 07:43 TheYango wrote:
On December 01 2017 02:46 xDaunt wrote: This is an absurd statement. Just look at all of the technological development that has occurred in the US that has both enriched the creators and improved the quality of life of the consuming public. Wealth and income inequality -- and more specifically, the possibility thereof -- drives innovation.
My impression is that most of the dominant innovation that drove major shifts in society and personal quality of life were from the moderately well-off who became wealthy through their innovations. It's true that they were enriched by their work, but a large motivator is the aspirational component of the moderately well-off to become wealthy. The ultra-wealthy don't have the same drive to innovate because the marginal utility of becoming even wealthier is much smaller--they're much more interested in keeping what they have.
It would seem to me that if your goal is to drive innovation, the idea wealth distribution would be a large middle class with a high degree of upward social mobility--i.e. there are paths to become wealthy that encourage innovation and enterprise. "Large middle class" implies low income inequality because it implies more people near the median household income and less toward the extremes. This is always going to be at odds with the ultra-wealthy because "old money" aristocracy has always historically opposed the rise of "new money" even though "new money" is where the innovation and enterprise that you ascribe to wealth has come from.
well, calculations of marginal wealth utility are such an insignificant factor when it comes to what really motivates people to innovate that discussions like this are basically counterproductive. we should just stop entertaining this economic incentives story all together
While I don't agree this is true from the innovator's perspective, it's certainly not true from the investor's perspective. To them, the economic incentive is all that matters. See my point above.
You can't create wealth without capital. If you hamstring returns from the capital perspective, you simply won't have growth. Unless you can start magically creating utopian communist comrades to create your own country with that is.
Is it actually true that the rich invest more in 'riskier' assets? This came up before but I couldn't find anything on it after some mild poking around.
It's basic finance. Risk tolerance grows with excess. If you're rich enough to buy a yacht and not feel it, you can certainly afford to invest that yacht's worth of capital in an ultra-high risk investment and expect a higher return than you would investing the yacht's worth of capital into treasuries.
The same principle is why you have to be an accredited investor to invest in hedge funds. The government is trying to save people from their own financial stupidity.
I mean, this theory is great and all, but this sort of investment from the super rich either isn't happening or is being completely ineffective.
How do you figure that? Why do you think the economy grows at all? People aren't investing and innovating because they're good comrades. Where do you think startups and corporations obtain capital to hire new employees, build more factories, and improve existing production technology?
It's mostly coming from wealthy people's savings. Hence why they're entitled to either interest or dividends.
Well, Nevuk literally posted this an hour before you posted. http://www.teamliquid.net/forum/viewpost.php?post_id=26843395 There's also how Bush's tax plan made didn't do great things for the country, while the New Deal led to a really prosperous era with top marginal tax rates above 60%. It was above 80% for a while, and even in the 90s from around 1945 to 1965. It didn't drop below 70% until after Reagan was elected in 1980. I'd argue that the period from the New Deal to Reagan's election was a pretty good period for the US economy.
Also, Kansas, which should really speak for itself. I'm appalled that they brought Brownback in to talk about how his tax cuts in Kansas were a success, and therefore this bill would be good. At least he was correct that we can look at Kansas to see what this tax bill will do to the country as a whole.
So yeah, that's how I figure. The economy grew just fine without funneling money to the rich so that they can be entitled to part of other people's profits by virtue of already being extremely wealthy. Trickle down economics doesn't work.
This, Nevuk's post, and Nyxisto's paper speaks more to statistical ignorance than it does to any substantive economic argument.
The proposed changes to the tax code are relatively small, and the effect of tax policy within the range America has historically varied tax policy is relatively small compared to factors outside of the government's control. Nobody is saying that small shifts in the tax burden is going to double GDP growth. The estimated effect of the tax plan that I've seen is somewhere around ~0.5% As I noted before, that's probably ~10% of the variance in quarterly GDP growth.
Contrary to what you guys apparently believe, 20th century tax policy didn't occur in a vacuum. To start, the word "inequality" isn't even mentioned in the (long) Wikipedia article about "Causes of the Great Depression." That's how widely accepted your explanation of the Great Depression is. Next, it's a widely held view that stimulus (i.e. WW2 and the New Deal) is an effective way to manage a crisis of consumer confidence. Notice that has nothing to do with your post-hoc correlations of one country's tax policy and its economic history. We'll come back to that later.
Let's go past WW2 now. Weird that that "historian" seemed to have forgotten that America was literally the only major industrial economy that came out of WW2 with it's infrastructure intact. What else happened? Oh yeah, a baby boom. And the size of the labor force roughly doubled due to entry of women.
When circumstances line up like that, how do you expect it affects economic growth? I can assure you, the universal view of anyone reasonably informed about economics is that they'd trade a pro-growth tax code for those circumstances 10/10 times.
Going forward some more, we have the post-Reagan economic boom, which you conveniently left out. However, I'm statistically literate enough to know that there's no argument to be made about an effect as small ~10% of the variance of the response based on observational data in a sample size of one. Which is the crux of any reasonable discussion on tax policy.
The ignoramuses in Nyxisto's paper are frankly just sort of stupid. They're bright enough to realize that structural economic shifts distort any analysis of tax policy, then somehow try to fix that issue by looking three ~7 year time periods and looking at growth vs marginal tax rate. The approach makes no sense, and marginal tax rate is a questionable way to assess tax policy, but let's ignore that for a moment. We're talking about a sample size of 3. Not only that, but nobody argues moderate changes in tax policy causes recessions, but the two low-tax eras they included both contain a recession in a 4 year period, and the high tax era is a 9 year stretch of fucking growth. Whaddaya know guys!? Growth is higher outside of recessions!
There really isn't a statistical argument to be made on tax policy, at least based on US history alone. It's possible somebody could do something worldwide, but I'm not knowledgeable enough on non-US economic history to confirm it so it's a moot point to be regardless of which way it points.
The argument in favor of pro-growth tax policy, rather, is that's it's based on rather fundamental principles of economics, finance, and human nature that have been shown to be true in every successful economy ever known to man. Whereas the competing theory, redistribution, has literally no theoretical foundation--despite the incredible academic demand for it. Unless you want to count Marxism.... Which is a redistribution based economic theory that you actually can defeat with a statistical argument.
I’m a Depression historian. The GOP tax bill is straight out of 1929.
“There are two ideas of government,” William Jennings Bryan declared in his 1896 “Cross of Gold” speech. “There are those who believe that if you will only legislate to make the well-to-do prosperous their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous their prosperity will find its way up through every class which rests upon them.”
That was more than three decades before the collapse of the economy in 1929. The crash followed a decade of Republican control of the federal government during which trickle-down policies, including massive tax cuts for the rich, produced the greatest concentration of income in the accounts of the richest 0.01 percent at any time between World War I and 2007 (when trickle-down economics, tax cuts for the hyper-rich, and deregulation again resulted in another economic collapse).
Yet the plain fact that the trickle-down approach has never worked leaves Republicans unfazed. The GOP has been singing from the Market-is-God hymnal for well over a century, telling us that deregulation, tax cuts for the rich, and the concentration of ever more wealth in the bloated accounts of the richest people will result in prosperity for the rest of us. The party is now trying to pass a scam that throws a few crumbs to the middle class (temporarily — millions of middle-class Americans will soon see a tax hike if the bill is enacted) while heaping benefits on the super-rich, multiplying the national debt and endangering the American economy.As a historian of the Great Depression, I can say: I’ve seen this show before.
In 1926, Calvin Coolidge’s treasury secretary, Andrew Mellon, one of the world’s richest men, pushed through a massive tax cut that would substantially contribute to the causes of the Great Depression. Republican Sen. George Norris of Nebraska said that Mellon himself would reap from the tax bill “a larger personal reduction [in taxes] than the aggregate of practically all the taxpayers in the state of Nebraska.” The same is true now of Donald Trump, the Koch Brothers, Sheldon Adelson and other fabulously rich people.
During the 1920s, Republicans almost literally worshiped business. “The business of America,” Coolidge proclaimed, “is business.” Coolidge also remarked that, “The man who builds a factory builds a temple,” and “the man who works there worships there.” That faith in the Market as God has been the Republican religion ever since. A few months after he became president in 1981, Ronald Reagan praised Coolidge for cutting “taxes four times” and said “we had probably the greatest growth in prosperity that we’ve ever known.” Reagan said nothing about what happened to “Coolidge Prosperity” a few months after he left office.
In 1932, in the depths of the Great Depression, Franklin D. Roosevelt called for “bold, persistent experimentation” and said: “It is common sense to take a method and try it; if it fails, admit it frankly and try another. But above all, try something.” The contrasting position of Republicans then and now is: Take the method and try it. If it fails, deny its failure and try it again. And again. And again.
When Bill Clinton proposed a modest increase in the top marginal tax rate in his 1993 budget, every Republican voted against it. Trickle-down economists proclaimed that it would lead to economic disaster. But the tax increase on the wealthy was followed by one of the greatest periods of prosperity in American history and resulted in a budget surplus. When the Republicans came back into power in 2001, the administration of George W. Bush pushed the opposite policies, which had invariably produced calamity in the past. Predictably, that happened again in 2008.
Just how disastrous would the proposed reincarnation of the failed Republican trickle-down policies of the past be for the American people and the future of the nation? A few ways:
Repealing the estate tax, or, as Republicans have dubbed it, the “death tax.” But the estate tax is not a tax on the dead; it is a tax on their heirs. Repeal would reverse an important aspect of the American Revolution and establish an American hereditary aristocracy. If your estate is not above $11 million, your benefits from this portion of the GOP’s tax cut will be a nice round number: zero. Eliminating deductions for state and local taxes. The GOP has called these deductions favoritism for people who live in high-tax states. In fact, ending deductibility of state and local taxes would tax income that has already been taxed away from a taxpayer. It is, quite simply, double taxation. Repealing the Alternative Minimum Tax, which assures that wealthy people who hire accountants to find all the obscure ways to avoid taxes cannot escape taxation altogether. Repealing it would save Trump millions. Extending the “pass-through” provision to noncorporate businesses, including some 500 entities Trump owns. It would allow the owners of these businesses to pay taxes at 25 percent, instead of 39.9 percent. This provision would allow Wall Street fund managers, among other very wealthy people, to pay a lower tax rate than many middle-class Americans pay. Ending the deductibility of large medical expenses. Taxing waived tuition for college students, ending deductibility for student loan payments, and even disallowing teachers from deducting what they spend on school supplies for their students. Ending the Affordable Care Act’s individual mandate, which would cause 13 million Americans to lose health insurance and result in much higher premiums for those who do get insurance through the exchanges. The Congressional Budget Office has indicated that, if enacted, the Republican tax bill may force deep cuts in Medicare through a generally unknown budget rule that its deficits would trigger. The analysis of the nonpartisan Congressional Budget Office found that people making less than $100,000 a year (approximately 80 percent of American households) will have their taxes increased while the millionaires and billionaires will make off like bandits.
In the 1920s, Republicans were in full control of the federal government and used that power to pursue their objective to “make the well-to-do prosperous.” It didn’t “leak through on those below.” In that decade, the mass-production American economy became dependent on mass consumption. For it to work, the masses need a sufficient share of the national income to be able to consume what is being produced.
Republican policies in the ’20s instead pushed to concentrate more of the income at the top. Nine decades later, Republicans are rushing to do it again — and they are sprinting toward an economic cliff. Another round of Government of the People, by the Republicans, for the super-rich will be catastrophic. The American people must call a halt before it’s too late.
But really, let's try trickle-down economics just one more time. We don't have conclusive evidence that it doesn't work yet!
I struggle to think that anyone honestly believes that the trickle down economics work. It's one of those beliefs that I think either come from ignorance or from dishonesty.
EPT
