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Indeed, but unfortunately everything has been set up to provide a strong motive to hoard rather than spend cash. The thing is, when you hoard wealth as numbers

Indeed, but unfortunately everything has been set up to provide a strong motive to hoard rather than spend cash. The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth. Money which is not in motion is not money. I find it absolutely insane that we take the excess, the bounty, the benefit of the efforts of centuries of technological and industrial progress, and rather than enjoying those benefits, convert them into numbers in a ledger that one can look at and go "uh huh", which provide no benefit to man nor beast. It's the biggest scam ever pulled, and we all willingly engage in it. Marx pointed it out as "the accumulation and destruction of crystallised labour-time by the owners of the means of production" (I paraphrase) in Kapital - and absolutely bingo has changed since then. UBI is in my mind the way to go - tax the ever living hell out of cash reserves, which would promote re-investment and the use of cash - and use the proceeds from that tax to pay a UBI.

karmajunkie 11y ago
> Money which is not in motion is not money. Absolutely the most important thing that can be said. My response to moralizing and angst over how the economically disadvantaged spend welfare money, or judgment about "lazy" people who wouldn't continue to work in the face of basic income is "who gives a fuck? As long as they spend the money, its moving and the economy moves with it." Money has gravity. It will always move towards those concentrations of wealth that exist at the top and away from the bottom. Without a mechanism of some kind to remove it from the top and inject it into the bottom, it will never move in any way that provides benefit to the larger economy, and might as well be a closed system.
- Goladus 11y ago
  A bit of a tangent here, but: > "who gives a fuck? As long as they spend the money, its moving and the economy moves with it." What they spend it on matters. The economy and thus society is shaped by consumer demand. Not just how much people want(and can afford), but what people want (and can afford).
iofj 11y ago
This is true, and may be a market failure, but the basic problem is independant of that problem : Companies largely don't see opportunities for improvement of the economy anymore. The hoarding of cash is a symptom of this, not a cause. This is also a problem that can't be fixed by financial rearrangement, however creative. And we should keep in mind that improving things by meddling with financials is really hard, destroying entire economies with that same meddling is very, very easy. We should do more basic research. That might help. Might. When it comes to the problem you identified, I think the cause is QE and cheap loans. How do these profits work ? Well, easy : every bit of revenue coming in becomes profit and you use loans to finance everything. In some cases, they literally use loans to buy raw materials instead of revenue. In sadly more than a few cases, loans are being used directly to be paid out as profits, either directly or through share buybacks. This seems to me a stupid deal for shareholders : you're trading equivalent value for a senior position in the liquidity chain. But it has that "money now" ring to it, of course. This is not sustainable, and will blow wide open once interest rates rise again. And they will rise as sure as the sun will come up. Either because some central bank causes inflation, or because they simply stop pushing down interest rates.
- AnthonyMouse 11y ago
  It's worth pointing out that the hoarding of cash is caused in very large part by the tax code. If a corporation has cash they don't need then the natural thing is to give it to their investors and let them figure out what to do with it, but the tax code causes that to be a "realization event" that requires tax to be immediately paid. So hoarding cash (and collecting interest on the whole of it) is more profitable than transferring it to someone else who will only be able to collect interest on the after-tax portion of it.
- eli_gottlieb 11y ago
  >We should do more basic research. That might help. Might. Also infrastructure. Seriously. In much of the world outside of Europe and Japan, most people simply don't have access to very good infrastructure for basic needs like transportation, food, water, and health. Sure, it's a public good, but it's money being left on the table by the global economy since capitalism systematically under-invests in public goods.
oldmanjay 11y ago
I have a hard time with any rhetoric that requires me to accept a radical redefinition. Pray tell me, how is something that did not go away destroyed?
- sdenton4 11y ago
  Money now is more valuable than money in the future. The difference between the two, when the money is sitting still in some vault, is destroyed value.
- imgabe 11y ago
  As an extreme case, suppose 1 person has all the money in the world and won't spend any of it and everybody else has nothing. What use is that money?
- sp332 11y ago
  But it did go away - "away" meaning stuck where it will not be spent. We could theoretically get it back if it moves again, but if things keep going the way they are now, that money will never move.
- tangent128 11y ago
  "Destroyed" may be the wrong term, but the purpose of money is to facilitate transactions. One dollar that changes hands ten times in a year has contributed more to the economy, and created more effective wealth, than ten dollars that spend the whole year lying in a safe.
  - danharaj 11y ago
    Facilitated the creation of wealth is more accurate than created wealth.
Frozenlock 11y ago
> The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth. Money which is not in motion is not money. Completely wrong. It is insane to see this kind of basic communist rhetoric on Hackernews. If I hide a billion dollar under my mattress for decades, it means that there's that much less dollars chasing goods and services. The effect will be as if those dollars had been destroyed : the total wealth will remain constant, but the value of all the other dollars remaining in the circulation will increase. Let me repeat : the wealth remains constant, it is not destroyed. Cars in driveways are not going to explode. Crops will not spontaneously catch in fire. People will not forget the skills they have.
- AnthonyMouse 11y ago
  > The effect will be as if those dollars had been destroyed : the total wealth will remain constant, but the value of all the other dollars remaining in the circulation will increase. Which causes deflation. Specifically in this case wage deflation. And then because people have less money, they can't use their cars and crops and skills because people don't have as much money to pay for gas or food or the services of others.
  - Frozenlock 11y ago
    >Specifically in this case wage deflation. How? How is this specifically wage deflation? That's a hell of a quantum leap. If anything, wages are much more resistant to downward pressure than goods. (People really don't like getting a paycut.) So even if the value of dollars increase, most people keep the same wage. In extreme cases, in can even end up in layoff, because people are now paid too much in comparison of everything else in the market. I would take deflation over inflation any day. Inflation eats away anything you try to keep for a rainy day, while at the same time reducing the value of your paycheck. This means that you must constantly negotiate (or beg, depending on your position) for a raise or you fall behind.
    - AnthonyMouse 11y ago
      > How is this specifically wage deflation? You're asking how hoarding cash instead of paying higher wages causes wage deflation? > If anything, wages are much more resistant to downward pressure than goods. Wage deflation relative to CPI. Wages remain stagnant or increase less than prices. We would have overall deflation if The Fed wasn't printing money to offset the corporate hoarding. Which is almost certainly better than overall deflation but is still quite bad for people who are paying more for things but not getting paid more. > I would take deflation over inflation any day. Deflation was a primary cause of the Great Depression. Deflation is very bad. > Inflation eats away anything you try to keep for a rainy day, while at the same time reducing the value of your paycheck. Inflation doesn't eat the value of stuff. If you own a home or stocks then inflation causes their value to increase proportionally. The problem is when there is price inflation without wage inflation. Which is caused by corporations hoarding cash instead of paying higher wages.
nostromo 11y ago
> when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth They aren't hiding it in their mattress, they're investing it. Invested dollars absolutely do circulate through the economy.
- AnthonyMouse 11y ago
  That isn't necessarily true. If they "invest" by buying stocks of other large companies, the money goes to the previous investors in those companies. Those investors may then use the money to buy stocks in other large companies and so on. There is no requirement that the money ever gets back into the real economy.
  - stickfigure 11y ago
    Nonsense. This conjures to mind a giant wheelbarrow of paper dollars being pushed around between various buildings on wall street. The money we're talking about is held in banks as deposits. Big purchases means one account number is debited and another is credited, but the money remains in banks. Those bank deposits are used for lending. Money still participates in the economy.
    - AnthonyMouse 11y ago
      > Those bank deposits are used for lending. Those bank deposits can be used for lending. That doesn't mean they are. And banks can currently borrow from The Fed at practically no interest, so the effect you're describing currently doesn't exist. It's also entirely independent of the original money. The money would also be deposited in a bank and used for lending if it was paid to employees as wages.
      - nerfhammer 11y ago
        Fed discount window loans are rarely used in practice, generally have a term of 12 hours except in rare circumstances and are fully collateralized. The idea that banks use the discount window routinely to get free government money is malarkey.
megous 11y ago
> The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth. Money which is not in motion is not money. People who withold their stash of money from the market cause deflation, meaning they just increased the value of money in other people's pockets (what others can buy for the same amount of cash). So there's no loss for other people in the economy. The only loser is the company doing the witholding and its employees. Other people had already benefited from the iPhone they bought or whatever. Absolute amount of money in the economy doesn't matter much.
- madaxe_again 11y ago
  They only cause deflation if you don't have a central reserve bank churning out currency to replace that which has been withdrawn. If this did cause deflation, you would be seeing deflation in the markets right now - but you are not, you are seeing inflation due to Q.E..
  - aserafini 11y ago
    Surely it still causes the same amount of deflation whether currency is printed or not? It's just in your case there is also inflation which offsets the deflation: meaning there is slightly less inflation than there would have been without any hoarding?
    - firethief 11y ago
      "When one person pushes on this wall it is stationary; so if two pushed it would move" The action of the Fed is not constant; it is a reaction to the level of inflation/deflation. When the Fed is succeeding in meeting their target, any variation in inflationary/deflationary forces is cancelled. Of course, Fed interventions are not perfect at accomplishing that goal; they don't always have the force to meet their targets, and all interventions have side effects. But to treat the Fed's actions as independent of economic conditions seems to mischaracterise its function entirely.
jldugger 11y ago
> The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth. Money which is not in motion is not money. This money is not simply sitting under a mattress. It's being reinvested, often in low risk treasury bonds, lowering the cost of borrowing for the government. A small fraction of it might be allocated to equity, and a smaller fraction of that might be allocated to startups, etc. Setting aside the UBI goal, even if they weren't returning the money to the investment cycle, your funding scheme is difficult to implement. The importance of cash reserves varies from company to company: 1. Some have pretty much no reserves, and when the overnight market collapsed in 2008, their ability to make payroll was suddenly in question. Otherwise productive companies had operations jeopardized by their financial arrangement. A tax on cash reserves would create additional incentive to produce more risky companies. 2. Banks have huge liabilites and cash reserves in the form of deposits. They're even required to keep certain amounts of money in liquid cash reserves. Do you propose offsetting cash on hand with liabilities owed? 3. Apple actually took out a huge loan against overseas money to fund a dividend. Overseas money is currently not taxable, do you wish to change that? Do you even need to tax reserves if you do? 4. Using the same company for another example: Apple is reputed to finance their supplier's manufacturing facilities. Do you want non-Apple companies to make investments in their company, their supply chain, etc. they currently aren't making? One has to assume boards don't approve capital investments aren't profitable. If the choices are pay a taxable dividend, hold as highly taxable cash, or invest it at a slightly negative, we may see more unproductive investments. Note that I'm not against UBI, but we have to think about how changes to tax law results in changes in behavior.
- notaharvardmba 11y ago
  These are all good points. It should also be pointed out that the Fed is now paying interest on excess reserves, and has been since 2008. This is basically free money to banks who retain extra reserves on their balance sheets. This was put in place to incentivize excess reserves to hopefully counteract the losses on mortgage backed securities until the housing market and wage inflation could catch up with all the money that was printed with mortgages and derivative securities between 2001 and 2007. Unfortunately everyone was caught somewhat unaware, because while it seemed like inflation was low, it actually was too high. At lot of it went into the oil markets as well. What the Fed is doing now is simulating low inflation by having a sort of reverse black hole of interest on excess reserves. They are going to track that up as they raise interest rates and that will give them a new tool to control the money supply. Lower that rate, and the banks will have to invest it elsewhere, stimulating investment. All of this is only necessary because Congress won't increase government spending, which has been the traditional way we've gotten out of these things.. We needed more like a 10T stimulus to really fix stuff..
cgosnell 11y ago
Wouldn't the forced reinvestment of cash back into the economy drive up inflation? Also, aren't the Corp's hoarding cash because interest rates are artificially low? Is the 'cash' really paper money or something like hard currency (gold coins, etc...). In that case 'hoarding the hard currency is not really destroying it, and when the investment options include tying up the money for some time with only a small return on investment, maybe hoarding is the best answer.
- tw04 11y ago
  Corporations are hoarding cash because last time they did so the government caved and gave them a "tax holiday". They're doing it again because they believe the government is unwilling to take any actions to get at the money, and will eventually give them another "tax holiday".
LordKano 11y ago
This "Tax all the things!" mentality is what got us into the current situation. If a company is going to incur an enormous tax liability by earning the money under one taxing authority, it will make sense for them to push that revenue to a subsidiary incorporated under a different taxing authority. One with a lower burden. If, for example, the effective tax rate in the US is about 40% and the effective tax rate in Elbonia is 25%, for a sufficiently large corporation, it makes financial sense to incorporate a subsidiary in Elbonia to handle European and Asian business transactions. If the disparity is large enough, it not only makes sense to do so, it starts to border on insanity not to do it. As other have pointed out, these reserves aren't mountains of cash sitting in vaults. It's money that's being lent for interest and invested elsewhere.
AnimalMuppet 11y ago
> Money which is not in motion is not money. You're re-defining money in order to make your statement true. That doesn't make your statement true, it merely makes your definition wrong. Money is (at least) two things: It is a facilitator of transactions, and it is also a store of value. You're saying that, if any particular chunk of money is (for a time) no longer being used for the first purpose, it ceases to be money. But it's perfectly serving the second function. You have to completely ignore that in order to reach your conclusion. I suspect that your presuppositions are preventing you from looking at this objectively.
dnautics 11y ago
>tax the ever living hell out of cash reserves The wealthy will simply move money amongst themselves, cronyism will run rampant. By disoncentivising savings, in favor of investment, you'll absolutely destroy upward mobility and moreover push middle and lower income folks into directly or indirectly paying for the investment capital of the wealthy (or politically connected) class, socializing the risk and privatizing the gains. Even if you make the taxable reserves progressively scaled, the inflation brought about by your ubi scheme will creep brackets higher than legislators can respond. Any attempt to automate bracket movement with measured cpi rates will suffer from cpi fudging Your proposal is a recipe for social stratification and class warfare hell. It's effectively what we are doing now, except taken to 11.
panarky 11y ago
Exactly right. The right public policy decision is probably to drive interest rates more negative. As a saver with cash in the bank that's not in my personal best interest, but it's probably the right macroeconomic strategy.
micahbright 11y ago
"The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth." Money != Wealth, for one. If you hold money on a balance sheet, you are not destroying anything. In fact, you are reducing inflation since inflation is more money chasing less goods.
- scotty79 11y ago
  > you are reducing inflation Except that FED will counter that effect because they are keeping stable inflation. People who don't save like you do will still be in exactly the same situation as they were before you decided to save. If all of the rich people one time decided to spend their money on something that touches real economy (not just stock gambling) it would drive up inflation, possibly too fast for FED to counter it.
  - micahbright 11y ago
    "FED will counter that effect" Of course not. Since the original statement was about holding gobs of money on a balance sheet, it is clear that regardless of what the FED does, you would increase inflation by spending that money rather than keeping it on the balance sheet. Therefore, holding that money reduces inflation(since the other option was to spend that money and increase inflation).

karmajunkie 11y ago

> Money which is not in motion is not money. Absolutely the most important thing that can be said. My response to moralizing and angst over how the economically disadvantaged spend welfare money, or judgment about "lazy" people who wouldn't continue to work in the face of basic income is "who gives a fuck? As long as they spend the money, its moving and the economy moves with it." Money has gravity. It will always move towards those concentrations of wealth that exist at the top and away from the bottom. Without a mechanism of some kind to remove it from the top and inject it into the bottom, it will never move in any way that provides benefit to the larger economy, and might as well be a closed system.

Goladus 11y ago
A bit of a tangent here, but: > "who gives a fuck? As long as they spend the money, its moving and the economy moves with it." What they spend it on matters. The economy and thus society is shaped by consumer demand. Not just how much people want(and can afford), but what people want (and can afford).

iofj 11y ago

This is true, and may be a market failure, but the basic problem is independant of that problem : Companies largely don't see opportunities for improvement of the economy anymore. The hoarding of cash is a symptom of this, not a cause. This is also a problem that can't be fixed by financial rearrangement, however creative. And we should keep in mind that improving things by meddling with financials is really hard, destroying entire economies with that same meddling is very, very easy. We should do more basic research. That might help. Might. When it comes to the problem you identified, I think the cause is QE and cheap loans. How do these profits work ? Well, easy : every bit of revenue coming in becomes profit and you use loans to finance everything. In some cases, they literally use loans to buy raw materials instead of revenue. In sadly more than a few cases, loans are being used directly to be paid out as profits, either directly or through share buybacks. This seems to me a stupid deal for shareholders : you're trading equivalent value for a senior position in the liquidity chain. But it has that "money now" ring to it, of course. This is not sustainable, and will blow wide open once interest rates rise again. And they will rise as sure as the sun will come up. Either because some central bank causes inflation, or because they simply stop pushing down interest rates.

AnthonyMouse 11y ago
It's worth pointing out that the hoarding of cash is caused in very large part by the tax code. If a corporation has cash they don't need then the natural thing is to give it to their investors and let them figure out what to do with it, but the tax code causes that to be a "realization event" that requires tax to be immediately paid. So hoarding cash (and collecting interest on the whole of it) is more profitable than transferring it to someone else who will only be able to collect interest on the after-tax portion of it.
eli_gottlieb 11y ago
>We should do more basic research. That might help. Might. Also infrastructure. Seriously. In much of the world outside of Europe and Japan, most people simply don't have access to very good infrastructure for basic needs like transportation, food, water, and health. Sure, it's a public good, but it's money being left on the table by the global economy since capitalism systematically under-invests in public goods.

oldmanjay 11y ago

I have a hard time with any rhetoric that requires me to accept a radical redefinition. Pray tell me, how is something that did not go away destroyed?

sdenton4 11y ago
Money now is more valuable than money in the future. The difference between the two, when the money is sitting still in some vault, is destroyed value.
imgabe 11y ago
As an extreme case, suppose 1 person has all the money in the world and won't spend any of it and everybody else has nothing. What use is that money?
sp332 11y ago
But it did go away - "away" meaning stuck where it will not be spent. We could theoretically get it back if it moves again, but if things keep going the way they are now, that money will never move.
tangent128 11y ago
"Destroyed" may be the wrong term, but the purpose of money is to facilitate transactions. One dollar that changes hands ten times in a year has contributed more to the economy, and created more effective wealth, than ten dollars that spend the whole year lying in a safe.
- danharaj 11y ago
  Facilitated the creation of wealth is more accurate than created wealth.

Frozenlock 11y ago

> The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth. Money which is not in motion is not money. Completely wrong. It is insane to see this kind of basic communist rhetoric on Hackernews. If I hide a billion dollar under my mattress for decades, it means that there's that much less dollars chasing goods and services. The effect will be as if those dollars had been destroyed : the total wealth will remain constant, but the value of all the other dollars remaining in the circulation will increase. Let me repeat : the wealth remains constant, it is not destroyed. Cars in driveways are not going to explode. Crops will not spontaneously catch in fire. People will not forget the skills they have.

AnthonyMouse 11y ago
> The effect will be as if those dollars had been destroyed : the total wealth will remain constant, but the value of all the other dollars remaining in the circulation will increase. Which causes deflation. Specifically in this case wage deflation. And then because people have less money, they can't use their cars and crops and skills because people don't have as much money to pay for gas or food or the services of others.
- Frozenlock 11y ago
  >Specifically in this case wage deflation. How? How is this specifically wage deflation? That's a hell of a quantum leap. If anything, wages are much more resistant to downward pressure than goods. (People really don't like getting a paycut.) So even if the value of dollars increase, most people keep the same wage. In extreme cases, in can even end up in layoff, because people are now paid too much in comparison of everything else in the market. I would take deflation over inflation any day. Inflation eats away anything you try to keep for a rainy day, while at the same time reducing the value of your paycheck. This means that you must constantly negotiate (or beg, depending on your position) for a raise or you fall behind.
  - AnthonyMouse 11y ago
    > How is this specifically wage deflation? You're asking how hoarding cash instead of paying higher wages causes wage deflation? > If anything, wages are much more resistant to downward pressure than goods. Wage deflation relative to CPI. Wages remain stagnant or increase less than prices. We would have overall deflation if The Fed wasn't printing money to offset the corporate hoarding. Which is almost certainly better than overall deflation but is still quite bad for people who are paying more for things but not getting paid more. > I would take deflation over inflation any day. Deflation was a primary cause of the Great Depression. Deflation is very bad. > Inflation eats away anything you try to keep for a rainy day, while at the same time reducing the value of your paycheck. Inflation doesn't eat the value of stuff. If you own a home or stocks then inflation causes their value to increase proportionally. The problem is when there is price inflation without wage inflation. Which is caused by corporations hoarding cash instead of paying higher wages.

nostromo 11y ago

> when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth They aren't hiding it in their mattress, they're investing it. Invested dollars absolutely do circulate through the economy.

AnthonyMouse 11y ago
That isn't necessarily true. If they "invest" by buying stocks of other large companies, the money goes to the previous investors in those companies. Those investors may then use the money to buy stocks in other large companies and so on. There is no requirement that the money ever gets back into the real economy.
- stickfigure 11y ago
  Nonsense. This conjures to mind a giant wheelbarrow of paper dollars being pushed around between various buildings on wall street. The money we're talking about is held in banks as deposits. Big purchases means one account number is debited and another is credited, but the money remains in banks. Those bank deposits are used for lending. Money still participates in the economy.
  - AnthonyMouse 11y ago
    > Those bank deposits are used for lending. Those bank deposits can be used for lending. That doesn't mean they are. And banks can currently borrow from The Fed at practically no interest, so the effect you're describing currently doesn't exist. It's also entirely independent of the original money. The money would also be deposited in a bank and used for lending if it was paid to employees as wages.
    - nerfhammer 11y ago
      Fed discount window loans are rarely used in practice, generally have a term of 12 hours except in rare circumstances and are fully collateralized. The idea that banks use the discount window routinely to get free government money is malarkey.

megous 11y ago

> The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth. Money which is not in motion is not money. People who withold their stash of money from the market cause deflation, meaning they just increased the value of money in other people's pockets (what others can buy for the same amount of cash). So there's no loss for other people in the economy. The only loser is the company doing the witholding and its employees. Other people had already benefited from the iPhone they bought or whatever. Absolute amount of money in the economy doesn't matter much.

madaxe_again 11y ago
They only cause deflation if you don't have a central reserve bank churning out currency to replace that which has been withdrawn. If this did cause deflation, you would be seeing deflation in the markets right now - but you are not, you are seeing inflation due to Q.E..
- aserafini 11y ago
  Surely it still causes the same amount of deflation whether currency is printed or not? It's just in your case there is also inflation which offsets the deflation: meaning there is slightly less inflation than there would have been without any hoarding?
  - firethief 11y ago
    "When one person pushes on this wall it is stationary; so if two pushed it would move" The action of the Fed is not constant; it is a reaction to the level of inflation/deflation. When the Fed is succeeding in meeting their target, any variation in inflationary/deflationary forces is cancelled. Of course, Fed interventions are not perfect at accomplishing that goal; they don't always have the force to meet their targets, and all interventions have side effects. But to treat the Fed's actions as independent of economic conditions seems to mischaracterise its function entirely.

jldugger 11y ago

> The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth. Money which is not in motion is not money. This money is not simply sitting under a mattress. It's being reinvested, often in low risk treasury bonds, lowering the cost of borrowing for the government. A small fraction of it might be allocated to equity, and a smaller fraction of that might be allocated to startups, etc. Setting aside the UBI goal, even if they weren't returning the money to the investment cycle, your funding scheme is difficult to implement. The importance of cash reserves varies from company to company: 1. Some have pretty much no reserves, and when the overnight market collapsed in 2008, their ability to make payroll was suddenly in question. Otherwise productive companies had operations jeopardized by their financial arrangement. A tax on cash reserves would create additional incentive to produce more risky companies. 2. Banks have huge liabilites and cash reserves in the form of deposits. They're even required to keep certain amounts of money in liquid cash reserves. Do you propose offsetting cash on hand with liabilities owed? 3. Apple actually took out a huge loan against overseas money to fund a dividend. Overseas money is currently not taxable, do you wish to change that? Do you even need to tax reserves if you do? 4. Using the same company for another example: Apple is reputed to finance their supplier's manufacturing facilities. Do you want non-Apple companies to make investments in their company, their supply chain, etc. they currently aren't making? One has to assume boards don't approve capital investments aren't profitable. If the choices are pay a taxable dividend, hold as highly taxable cash, or invest it at a slightly negative, we may see more unproductive investments. Note that I'm not against UBI, but we have to think about how changes to tax law results in changes in behavior.

notaharvardmba 11y ago
These are all good points. It should also be pointed out that the Fed is now paying interest on excess reserves, and has been since 2008. This is basically free money to banks who retain extra reserves on their balance sheets. This was put in place to incentivize excess reserves to hopefully counteract the losses on mortgage backed securities until the housing market and wage inflation could catch up with all the money that was printed with mortgages and derivative securities between 2001 and 2007. Unfortunately everyone was caught somewhat unaware, because while it seemed like inflation was low, it actually was too high. At lot of it went into the oil markets as well. What the Fed is doing now is simulating low inflation by having a sort of reverse black hole of interest on excess reserves. They are going to track that up as they raise interest rates and that will give them a new tool to control the money supply. Lower that rate, and the banks will have to invest it elsewhere, stimulating investment. All of this is only necessary because Congress won't increase government spending, which has been the traditional way we've gotten out of these things.. We needed more like a 10T stimulus to really fix stuff..

cgosnell 11y ago

Wouldn't the forced reinvestment of cash back into the economy drive up inflation? Also, aren't the Corp's hoarding cash because interest rates are artificially low? Is the 'cash' really paper money or something like hard currency (gold coins, etc...). In that case 'hoarding the hard currency is not really destroying it, and when the investment options include tying up the money for some time with only a small return on investment, maybe hoarding is the best answer.

tw04 11y ago
Corporations are hoarding cash because last time they did so the government caved and gave them a "tax holiday". They're doing it again because they believe the government is unwilling to take any actions to get at the money, and will eventually give them another "tax holiday".

LordKano 11y ago

This "Tax all the things!" mentality is what got us into the current situation. If a company is going to incur an enormous tax liability by earning the money under one taxing authority, it will make sense for them to push that revenue to a subsidiary incorporated under a different taxing authority. One with a lower burden. If, for example, the effective tax rate in the US is about 40% and the effective tax rate in Elbonia is 25%, for a sufficiently large corporation, it makes financial sense to incorporate a subsidiary in Elbonia to handle European and Asian business transactions. If the disparity is large enough, it not only makes sense to do so, it starts to border on insanity not to do it. As other have pointed out, these reserves aren't mountains of cash sitting in vaults. It's money that's being lent for interest and invested elsewhere.

AnimalMuppet 11y ago

> Money which is not in motion is not money. You're re-defining money in order to make your statement true. That doesn't make your statement true, it merely makes your definition wrong. Money is (at least) two things: It is a facilitator of transactions, and it is also a store of value. You're saying that, if any particular chunk of money is (for a time) no longer being used for the first purpose, it ceases to be money. But it's perfectly serving the second function. You have to completely ignore that in order to reach your conclusion. I suspect that your presuppositions are preventing you from looking at this objectively.

dnautics 11y ago

>tax the ever living hell out of cash reserves The wealthy will simply move money amongst themselves, cronyism will run rampant. By disoncentivising savings, in favor of investment, you'll absolutely destroy upward mobility and moreover push middle and lower income folks into directly or indirectly paying for the investment capital of the wealthy (or politically connected) class, socializing the risk and privatizing the gains. Even if you make the taxable reserves progressively scaled, the inflation brought about by your ubi scheme will creep brackets higher than legislators can respond. Any attempt to automate bracket movement with measured cpi rates will suffer from cpi fudging Your proposal is a recipe for social stratification and class warfare hell. It's effectively what we are doing now, except taken to 11.

panarky 11y ago

Exactly right. The right public policy decision is probably to drive interest rates more negative. As a saver with cash in the bank that's not in my personal best interest, but it's probably the right macroeconomic strategy.

micahbright 11y ago

"The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth." Money != Wealth, for one. If you hold money on a balance sheet, you are not destroying anything. In fact, you are reducing inflation since inflation is more money chasing less goods.

scotty79 11y ago
> you are reducing inflation Except that FED will counter that effect because they are keeping stable inflation. People who don't save like you do will still be in exactly the same situation as they were before you decided to save. If all of the rich people one time decided to spend their money on something that touches real economy (not just stock gambling) it would drive up inflation, possibly too fast for FED to counter it.
- micahbright 11y ago
  "FED will counter that effect" Of course not. Since the original statement was about holding gobs of money on a balance sheet, it is clear that regardless of what the FED does, you would increase inflation by spending that money rather than keeping it on the balance sheet. Therefore, holding that money reduces inflation(since the other option was to spend that money and increase inflation).