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HoltesThoughts Thoughts on politics, economics, life and creative works from the author including poetry Sunday, October 11, 2015 Disambiguating Capital from Simple Wealth The Verbal Sleight of hand of the Supply Side movement James Galbraith starts the Third chapter of his book "The Predator State" by repeating a truism of the Supply Side Movement: "Americans do not save enough! That is an unchallenged principle, conservative in origin..." Then he notes: "Those who do save occupy a special place in the pantheon of market heroes"...implying that; "savings should not be taxed." This assertion was the basis of "supply side economics", and he does an excellent job of tracing it to the writings of Art Laffer, Jude Wanniski and Paul Craig Robert - and the Wall Street Journal. He notes that their purpose was: "to eliminate taxes on savings that is on capital income." Galbraith goes on to point out some well known errors in Supply Side Thinking in that chapter, focusing on the question of whether savings is a matter of "rational choice" or simply a function of surplus and budgets, i.e. the poor can barely afford to eat and thus the wealthy, by definition, are the only ones who can afford to save. The Sleight of Hand of confusing Wealth and Capital But even there this is a place where definitions matter. If we had a stricter definition of capital, we'd note that capital, is really "wealth reused for production" (1), and so not all wealth should be called capital. Deliberately confusing mere wealth from speculation, rents on properties and interest on those rents -- with capital deliberately confuses the issue. Progressives understood the principle that people shouldn't pay taxes on capital on the very simple metaphor that while money is on the table and being put to use, no one should be taking it off the table. If we don't want to be bamboozled by con artists, we have to get our definitions strait which is how so many unsound supporters of various political/economy theories get rooked. I'm not sure anyone, even the folks who argued with the Supply Siders, caught on to the sleight of hand substitution of "general wealth" for actual "capital. Yes, don't tax capital investment -- at all -- in actual capital, meaning plant, equipment, raw materials, tools, work vehicles, etc.... But do tax wealth so that folks will have an incentive to invest in capital. The Supply siders talked about "incentive to work, save and invest" as invest, but by deliberately conflating capital with general wealth it was a sleight of hand. Effective Savings IS Capital If the supply siders had truly wanted more savings they'd have not taxed labor compensation at all. Most labor effectively spends all of it's gross income in the costs of living and the energy expended to produce goods and services. If they truly wanted more effective savings the tax system they would have gone even further and enabled capital formation for laborers, skilled workers, artisans and other productive people, let them mix their own capital with labor (Lincoln) and put a portion of their wealth back into production. That is real savings too. Effective savings is capital. Improved home, shelter, tools for transport and production; those are the kind of wealth that make life better for folks. Enabling people to invest in actual capital is indeed the supply side of the ledger because letting people invest in actual capital is effective savings. Supply Side was An Authoritarian Con Galbraith notes, legitimately, that the Supply Side Arguments were "myths"(actually they are hierarchy enhancing myths). His father would have called them"innocent frauds." Since the folks who argued these ideas were deliberately shilling for wealth and not for actual capital I think of them as just frauds. But he's more diplomatic. To me they are just cons shilling for hierarchy, a bullying society, and dominance. One can also draw that narrative if one reads the rest of his argument in Chapter 3 where he talks about market failure versus the claims for public benefit from not taxing "savings." But the real problem came from their verbal sleight of hand. They were like the fellows who spun the invisible cloth the Emperor wore - they were cons. To Reiterate from Lincoln: "Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration."[Lincoln the Marxist!!!] Supply siders might have actually benefited people if they had got their definitions right (or intended to). As it was... well it's embarrassing. https://briankoberlein.com/2014/12/06/emperors-new-clothes/ Sources and Further Reading The Emperor's New Clothes http://andersen.sdu.dk/vaerk/hersholt/TheEmperorsNewClothes_e.html References to Predator State by James Galbraith See:http://holtesthoughts.blogspot.com/2015/10/the-predator-state-review-of-james.html Not so Innocent Fraud http://holtesthoughts.blogspot.com/2015/10/not-so-innocent-frauds.html Georgist Definitions Used here! http://holtesthoughts.blogspot.com/2015/09/georgist-definitions-of-labor-capital.html And Lincoln's definitions! Lincoln the Marxist!!! (tongue in cheek) Lincoln the Marxist!!! :http://holtesthoughts.blogspot.com/2013/11/lincoln-marxist.html Social Dominance Theory http://holtesthoughts.blogspot.com/2015/01/understanding-social-dominance-theory.html Chris Holte at 3:06 AM Share No comments: Post a Comment Links to this post Create a Link › Home View web version About Me Chris Holte View my complete profile Powered by Blogger.
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