In a perfect game system you'd probably make labor income taxes less than capital gains on investment. Yes you want to encourage investment but you also want to feed the economy with monetary velocity or cash money.
The fact is lower/middle class labor income workers put more directly back into the economy than the wealthy "job creators", so who are the real job creators? Demand is the job creator!
Demand comes from people that spend having cash. Capital locked up in hoarding does not help the economy as much especially in downturns. Lower/middle class spend almost all their incremental income dollar while the rich typically spend less than 5% of each incremental dollar. If the lower/middle class has cash then you have demand, demand leads to investment, and jobs/growth.
> In a perfect game system you'd probably make labor income taxes less than capital gains on investment
Indeed you would [1]. According to some legal scholars, wages earned from labor were/are not supposed to be taxed at all in America. The tax code was designed to tax investment gains only. Just imagine if that were upheld
> The fact is lower/middle class labor income workers put more directly back into the economy than the wealthy "job creators"
By doing what? Consuming consumables marketed to them by Corporations? The same Corporations that would just as soon replace most of their menial labor with robots.
Also, I'd curb your exuberance towards believing the lower/middle class "puts more back into the economy", because to the extent the lower/middle class is increasingly replaced by robots or cheap foreign labor, if this is your true belief then we should institute a universal income. Because that's going to "put more back into the economy".
> Demand comes from people that spend
But for example, planned obsolescence encourages spending. But is planned obsolescence really a tangible benefit for the "people that spend"?
Also, imagine if "cash" was of fixed supply (Bitcoin) rather than inflationary. In which case, you could make paper gains over time by not spending it or investing it. Wouldn't this provide more people with financial security given the risks and complexity of investing money in general?
> Also, imagine if "cash" was of fixed supply (Bitcoin) rather than inflationary. In which case, you could make paper gains over time by not spending it or investing it. Wouldn't this provide more people with financial security given the risks and complexity of investing money in general?
New currencies are needed but bitcoin and old school gold for that matter encourage hoarding, gold is worse because the control of gold is owned by physical mining. At least bitcoin doesn't leave monetary value up to physical mining, but still it does encourage hoarding. If a currency gains value over time doing nothing then investment will be lower.
Fiat currencies encourage investment because the value of your money goes down if it sits and is hoarded. Even though control of the currency is by the Fed and shadowy banking cabals, at least it spawns investment by wealth as they like to increase their money not see it slowly fade away to inflation.
Investment is key to growth/innovation but there has to be some demand there. Demand creation is always overlooked, when wages aren't raised, when companies move out of the US etc. These things directly impact demand and purchasing power of consumers at all levels eventually.
What will the robots build, sell or manage if noone has any money to buy anything? I don't necessarily buy that robots will remove all work. Computers were supposed to do the same, it has just enabled productivity gains to do more with less. There will always be more work to do, we haven't even explored very far off this rock. We need robots at every level but it won't mean less work, we'll have robot armies and it will enable entrepreneurs to do more with less.
Consumers don't buy 2% more chicken at the grocery store just because "inflation is 2%". That's total nonsense with no basis in reality. And investors will still make traditional investments in a deflationary environment, BTC denominated loan markets and "IPOs" are the case in point to that end.
Granted, in a deflationary environment, investments will be less profitable if the projects being invested in are dependent on consumers spending money frivolously.
> Investment is key to growth/innovation but there has to be some demand there. Demand creation is always overlooked, when wages aren't raised, when companies move out of the US etc. These things directly impact demand and purchasing power of consumers at all levels eventually.
Society gains purchasing power at large in a deflationary environment.
And note that, if the American economy grows 10% in a year, the Fed will still strive for inflation. If economic growth is 10% and inflation is 1%, the upper echelons of society will have skimmed 10% off the top, robbing society of that growth. Conversely, in a Bitcoin world, the 10% economic growth is returned to the savers in the form of more purchasing power.
>What will the robots build, sell or manage if noone has any money to buy anything? I don't necessarily buy that robots will remove all work.
I believe we will witness the rise of the leisure economy. Most people who still hold jobs will perform them in fields related to tourism and leisure activities, such as yoga teachers, tour guides, climbing, diving, boxing, golf instructors, etc. Basically robots/computers will eventually perform all tasks which do not necessarily require a human. Or in other words: The leisure industry will always require humans because it's catering for human experiences and not human needs.
For the aspect that you're referring to, see the question for "The income tax cannot apply to wages, because that would be a “direct tax” that must be apportioned in accordance with the Constitution":
> The income tax that was challenged in the Pollock decision was similar, and the majority opinion first struck down the tax on incomes from property (i.e., rents, interests, and dividends), but then went on to state that, if only the tax on interest, rents, dividends, and other income from property were ruled unconstitutional, “this would leave the burden of the tax to be borne by professions, trades, employments, or vocations; and in that way a tax on capital would remain in substance a tax on occupations and labor.” Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601, 637 (1895). The majority opinion therefore held that the entire tax act was unconstitutional, believing that Congress would invalidate the entire tax act rather than tax only “occupations and labor.” (The minority opinion in Pollock believed that the entire tax was constitutional, and so did not need to distinguish between income from property and income from employment.)
> That a tax on wages and other compensation for labor would have been constitutional even before the adoption of the 16th Amendment was confirmed by the unanimous decision of the Supreme Court in Brushaber, in which the court stated:
>> “Nothing could serve to make this clearer than to recall that in the Pollock Case, in so far as the law taxed incomes from other classes of property than real estate and invested personal property, that is, income from ‘professions, trades, employments, or vocations,’ (158 U.S. 637), its validity was recognized; indeed it was expressly declared that no dispute was made upon that subject, and attention was called to the fact that taxes on such income had been sustained as excise taxes in the past. Id. p. 635.”
It's interesting because, as a layman, this sounds a lot like what Keynes said: aggregate demand is the most relevant factor. Hell, using those ideas pulled us out of the great depression.
Then there's the Friedman supply-side argument that only aggregate supply matters. The demand curve is effectively vertical. Arguably, this seemed to have heaved Britain out of stagflation thanks to Thatcher. We now see raging inequality that these policies seem to promote.
Between these two theories of macroeconomics, it seems to mW that we swing between either extreme without considering a middle ground - both are important. Either extreme seems to have a long-term negative effect. When aggregate demand falls sharply in a recession, measures to rectify seems appropriate. This keeps people spending in a time where they typically wouldn't. When businesses struggle, due to a shock in supply, measures to ease this on that end too seem appropriate.
In a way, it seems a lot of economics is used with political bias. Certain all-or-nothing theories tend to be used as the means to an ideologue's ends within a democratic system.
What if the middle ground just gives you the worst of the both worlds. What if the idea of measuring the success of an economy via an aggregate quantity is flawed?
It seems to me that optimizing for aggregate demand or aggregate supply will merely result in redistributing to politically connected individuals who are able to convince the authorities that their programme will improve that metric.
In fairness, if economics is the study of allocation of scarce resources, which is implicitly a study of human behaviour wrt a limited resource in individuals, slightly larger functional groups (families and firms) and then large populations as a whole, then surely we are within the realm of psychology and sociology.
The thing is that psychology gives us ideas that shows how humans can be influenced individually (think foot in the door or an incredible offer that ain't really an incredible offer). Sociology gives us ideas of how humans can be influenced in groups that, in literal terms, will give away their freedom and rights with tears of happiness in their eyes to a charismatic speaker who says the right things in hard times.
How does supply and demand fit in all of that when the assumption in the model is that we behave rationally? How does the work on habit formation fit into that? How does peer pressure?
I smoke cigs. I pay for take out food and chocolate. Before I got a car, I'd get a cab to work even though I had a bus pass. Now I'm not holding myself up as a model of the actual man but that's the point: the homo economicus is like the description of someone's ideal of homo sapiens. Ideally, that's how we should make decisions about resources. In actuality, I think it's just far off the mark to cause what would be sound decisions to work out not so well.
Economics to me is like a social science trying to be used as a hard science and in a position to be quite dangerous.
The fact is lower/middle class labor income workers put more directly back into the economy than the wealthy "job creators", so who are the real job creators? Demand is the job creator!
Demand comes from people that spend having cash. Capital locked up in hoarding does not help the economy as much especially in downturns. Lower/middle class spend almost all their incremental income dollar while the rich typically spend less than 5% of each incremental dollar. If the lower/middle class has cash then you have demand, demand leads to investment, and jobs/growth.