As mentioned in my previous posting I’ve been hearing some clamoring about taxes of late. In terms of tax policy there seems to be one golden rule: lower taxes will lead to greater prosperity. That is the conventional wisdom and is usually the end of the conversation.
Back to convention one, taxes. The business cycle when run by the widely accepted model runs in booms and busts. This is the reality (expected state) and outcomes of unregulated capitalism.
Greed is good was the motto in the bad old eighties; this is no longer said, but the outcomes are the same. Low taxes on businesses and the rich increase the reward of hoarding.
Hoarding leads to a bubble as money floods the market to bet on performance of projections rather than actual increases in productivity or products.
One example would be "company A" who makes letter 'A' stamps. Rich guy 1 believes that he could see good returns since Barack Obama will soon be president. "Company A" stock gets purchased at a higher price from current investors. Rich guy 2 sees this bet on "Company A" and decides to get in on the ground floor. This could be repeated many times over.
We are now up to Rich Guy 20. Rich Guy 1 sees that the stock is at a point that his huge number of shares will post a big return and cashes out. He has nothing to deter him as his capital gains are negligible. His bet has paid off with no proof of business model (staff, supply, quality) by company 'A'. Rich guy 1’s profits are potentially divorced from actual performance of the company.
After one quarter Obama is impeached and Joe Biden is president, the need for the letter a sees a dramatic drop. Everyone (Rich guy 2 -20 as well as Mr 401k) who is still invested has lost their money.
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