Friday, February 3, 2012

(untitled)


In a comment on Krugman's The History Of Capital Gains Taxes, AlanDownunder said:

There is an argument for taxing capital gains at a lower rate when capital formation is a problem but not when capital formation is THE problem (all that surplus cash looking for debtors - any old debtors)

I thought the comment was a nice way of pointing out that "all that surplus cash looking for debtors" is the problem.

Surplus cash, looking for debtors, is not spending-money. It is money in savings, or in hoards perhaps, lurking, seeking a reason to come out of hiding. Concentrations of cash held by people who have more than they need, while others have obviously less than they need to get by.

If this analysis is correct, then why does policy still encourage and reward saving? Why does it punish spending with "consumption taxes"? Why does it not encourage spending?

People still think credit use is good for growth. Even now, when debt is crushing the economy.

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7 comments:

  1. JazzbumpaFebruary 3, 2012 at 4:49 PM

    Well, there's this accounting identity, I = S, that tells us investment equals savings. I've come to believe it's utter bullshit.

    For one thing, it doesn't go to investment, it goes to the derivatives market that is some multiple of global GDP in the range of 10 to 25x.

    Policy rewards what the top 0.1% want is to reward because they own the god damned government.

    JzB

    ReplyDelete
  2. GregFebruary 4, 2012 at 5:00 PM

    Jazz,

    You might like this entire discussion here;

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/01/why-saving-should-be-banned.html


    here;

    http://traderscrucible.com/2012/01/18/again-i-does-not-equal-s/

    and here

    http://traderscrucible.com/2011/08/26/i-does-not-equal-s/

    ReplyDelete
  3. GregFebruary 4, 2012 at 5:03 PM

    More important to the identity is not that they are equal
    (in a sense) but the direction of causation.

    Investment is necessary for savings to emerge. If there is no investment there will be nothing to save. Investment comes first.

    ReplyDelete
  4. JazzbumpaFebruary 4, 2012 at 9:38 PM

    Greg -

    Thanks for the links. I'll have a look.

    Cheers!
    JzB

    ReplyDelete
  5. JazzbumpaFebruary 5, 2012 at 11:51 AM

    Greg -

    I read the links last night, including many of the comments. Good stuff.

    What I've gleaned is that S is determined as a residual, so in the accounting, the ex post identity must hold.

    Which reduces it to a tautology.

    What that has to do with real savings by real people in the real world is not so clear.

    Cheers!
    JzB

    ReplyDelete
  6. GregFebruary 5, 2012 at 3:26 PM

    What do you mean by real saving Jazz?

    Ive heard many describe it different ways but I'm curious how you describe it.

    Heres more that I found today

    http://www.asymptosis.com/how-accounting-constrains-economics.html

    Especially this comment

    http://www.asymptosis.com/how-accounting-constrains-economics.html#comment-3736

    ReplyDelete
  7. parkerFebruary 28, 2012 at 8:57 AM

    What an informative post thaxs for sharing such a nice blog.
    accounting

    ReplyDelete

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