Saturday, August 28, 2010

On Economics

The Wall Street Journal editorial page today had a great little paragraph that pithily summed up a key economic and political concept:

"O*ama and their economic coterie really believe that government spending can stimulate growth by triggering private "demand", that tax rates are irrelevant to investment decisions, that waves of new regulation can be absorbed by business with little impact on costs or hiring, and that politicians can assail capitalists without having any effect on the movement of capital."

Then the article goes on to compare this 'recovery' with the one after 1982-3 when the Gipper was in charge.

"Now taxes are poised to rise sharply... and Federal agencies are hassling business at every turn... now companies are sitting on something like $2 trillion, reluctant to take risks when they don't know what new costs government might next impose on them."

It actually is a bit worse than even the article portrays.  Companies don't just choose when to invest in the US (to use that $2 trillion in cash), they choose WHETHER to invest in the US at ALL.  Nowadays the US has the least favorable tax climate of the developed world, and there are many other opportunities overseas where you can actually get plants built and have governments happy to work with you and welcome your investments with open arms.  Multinationals can do anything from anywhere and they are not stupid.  It is one thing to determine whether or not it is time to "pull out" of the US due to an onerous regulatory and tax regime (that is a tough call) - but it is a much easier call just to decide to invest much less incremental capital in the US and ride operations here as a "cash cow" instead, for the indefinite future.  That is what is happening en-masse today.

Cross posted at Chicago Boyz

1 comment:

Dan from Madison said...

I just read about a guy who worked out of his house, albeit at a high level job. He just said "f1ck it" and moved to Hong Kong where his taxes are super low. It is a big world out there.