In a comment at Noahpinion, Andy Harless writes:
If reductions in taxes and regulation increase the incentive to invest, that's very much like reducing the cost of capital by cutting interest rates...
Yes. Yes. Very much like reducing cost by cutting interest rates. Let me broaden that: very much like reducing the factor cost of money by cutting the reliance on credit.
Not only the rate of interest, but also the reliance on credit (or the general level of indebtedness) contributes to the "cost of capital" and to costs in general in our economy -- to the cost of living, the cost of doing business, the cost of running a government. And it puts us at disadvantage in foreign markets.
I'm sure Andy Harless is not the first to say such a thing; but he says it clearly.
Since the late 1970s in the U.S. we've been fixing the economy by reducing taxes and reducing regulation and by lowering interest rates. After 35 years of lowering these costs, our success has been questionable at best. Why? Because all the while, policy has been increasing costs by increasing the reliance on credit.
5 comments:
If reductions in taxes and regulation increase the incentive to invest,
Except the "if" is inoperative.
Higher taxes (up to some relatively high level we'll never see) increase the incentive to invest.
Higher rates increase the value of the expense/amortization.
Plus Mike Kimel at Angry Bear has had many posts disproving the canard that tax cuts are good for the economy.
I ask, why has 30 years of almost continuous tax cutting led to the great stagnation and the great recession?
Not enough money in the hands of the po' folk.
Which might actually be why they've been induced to borrow so much.
Alas,
JzB
Speaking of Noah, check out Bruce Wilder's comment here
Cheers!
JzB
I don't know if you could convince Andy Harless that his premise is wrong. But I know I can get from his premise to my conclusion.
Not enough money in the hands of the po' folk. Exactly, who have not seen tax cutting, but gross overtaxation, above all by creating a irrational trillion dollar Social Security "trust fund". A plan to destroy SS under the guise of saving it. Also with contribution from state and local nickel-and-diming sales taxes etc, anything to get the burden off the rich and onto the poor.
"Not enough money in the hands of the po' folk.
Which might actually be why they've been induced to borrow so much."
Its DESIGNED this way.
I heard some republican congressman last summer suggest that unemployment payments be treated like LOANS.
The big boys think its all THEIR world and everyone else is allowed to play here...... for a fee.
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