7 ms·

In theory dividends and share buybacks will be reinvested by the stockholders. In practice I wonder how much just further inflates various asset bubbles.

by sbov 9y ago

TAForObvReasons 9y ago
That's the crux of the "trickle down" theory, that eventually money will make its way to normal Americans. Arguably, the rising inequality in the post-Reagan years is proof that the theory is flawed and that very few individuals and small businesses actually see any benefit. Taxation theories aside, parent proposed repatriation as a solution but past experience showed it to be less effective than the proponents claim.
- bmmayer1 9y ago
  It really doesn't matter where the money goes though. Even if an investor spends the money on golden bathtubs and private jets, the money is being spent in the economy. If they keep it in the bank it's getting leant out to small businesses.
  - KGIII 9y ago
    The sharp influx should even help with the velocity of money. I am not an economist but I've been trying to learn a bit about it and a bit about financial management/investing. I'm currently at the velocity of money stage of my learning. https://en.m.wikipedia.org/wiki/Velocity_of_money https://en.m.wikipedia.org/wiki/Velocity_of_money It's not really the same thing as the trickle down that the parent poster mentioned. From what I can tell, you hit the nail on the head. An influx of money will mean the money moves. Also, when money moves is when the government taxes it. So, the influx will increase the velocity of money and will have an effect on the economy. That's not the same as the parent post implied, where there's a reduction in taxes and that is supposed to result in the money trickling down. That's not the same as an influx of money. One is people keeping their money, the second is people getting more money. If I understand correctly, they are different things. Then again, I may not understand correctly. As I said, I am still learning.
  - Retric 9y ago
    That's a theory, but it does not hold up in practice. The issue seems to be money just pools in specific areas like money markets where only a percentage can be lent out. The other issue is velocity. If loans last 10 years but it takes 1 year to find someone to lend the money to. Then effectively only 90% of the money is loaned out on average.
    - roenxi 9y ago
      Hi, I turn up in these discussions to represent the hard money advocates. In practice you might well be right about velocity, but there is no "the money" of which 90% is lent out. America & most other countries use fractional reserve banking. A pretty reasonable interpretation of this is that making a loan is nearly equivalent to creating the money needed to make the loan. All the existing money that can be lent that exists is, in fact, currently lent out.
      - Retric 9y ago
        The average americans checking accounts has high fluctuations over a month so it can be used for overnight interbank loans but not directly turned into home loans. This means two banks need to cover their reserve requirements so ~(90% of 90%) of the money in checking accounts can be loaned out. Savings accounts are more stable so ~(90%) of the money of the money can be loaned. Also, banks may make loans, but they can also sell them to other groups without reserve requirements. Allowing for a near endless streams of new loans. Thus the total amount of loans is not fixed and depends on where in the economy the actual currency is.
  - mdorazio 9y ago
    But it does matter where it goes. What if it all goes into real estate (again), for example? Then you get another housing bubble and even more unaffordable housing for middle Americans. You're also assuming that cash being spent on things like luxury goods is flowing into the US economy as opposed to the global economy. Globalization has changed that dynamic significantly.
    - bmmayer1 9y ago
      The housing bubble wasn't because of rich people buying real estate. It was because of middle class and poor people over-leveraging.
      - mdorazio 9y ago
        Sorry, I don't see how that rebuts my statement. Also, that's a gross oversimplification of what actually happened. My point is that if the windfall from dollar repatriation goes into real estate and we get another bubble, how does that help middle Americans? We can't assume that everyone will go out and put their repatriated dollars into economically productive places. Also, I've said this before and no one has given me a good answer yet. Corporations already have record amounts of cash on hand [1], but they're largely not doing anything with it. What reason do we have to believe that getting cash back on shore would change this behavior at all? After all, taxes are on profits - companies could effectively repatriate their money tax free today by spending it on hiring more people, building factories, etc. [1] https://www.spglobal.com/our-insights/US-Corporate-Cash-Reaches-19-Trillion-But-Rising-Debt-and-Tax-Reform-Pose-Risk.html https://www.spglobal.com/our-insights/US-Corporate-Cash-Reac...
      - christocracy 9y ago
        “Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble” https://qz.com/1064061/house-flippers-triggered-the-us-housing-market-crash-not-poor-subprime-borrowers-a-new-study-shows/ https://qz.com/1064061/house-flippers-triggered-the-us-housi...
- closeparen 9y ago
  >rising inequality Rising inequality means that higher incomes are rising faster, not that lower incomes aren't rising. No one claims that trickle down effects will fall to the lower half of the income distribution as quickly as the upper half (i.e. flat inequality). It's right there in the name! They might argue that the bottom half of the distribution grows as quickly as it possibly can via "trickle down," because in a more regulated and redistributive world, the productivity gains that the left wants to to redistribute wouldn't be made. I don't think this is right either, but inequality isn't a signal you can use to assess that.
  - deepnotderp 9y ago
    But adjusted for inflation, wages haven't kept pace well either, so either way, it's worse for the lower classes in terms of quality of life.
    - chibg10 9y ago
      But it's nonsense to pretend that the only factor that's been driving inflation-adjusted wage stagnation is Reagan's economic policies. Globalization, automation, Baby Boomers retiring, healthcare costs, education costs, and a million other factors are influencing that too. Trying to parse the effect of Reaganomics economic policy by looking at one country in one 20-30 year period among all the other effects is an impossible task. In lack of any significant empirical evidence, I'd rather rely on reasonable economic theories than politicians trying to win the votes of an angry mob.
    - prostoalex 9y ago
      Wages excluding healthcare costs haven't, wages including healthcare costs have. https://www.bloomberg.com/view/articles/2016-09-28/health-care-costs-ate-your-pay-raises https://www.bloomberg.com/view/articles/2016-09-28/health-ca...

In theory dividends and share buybacks will be reinvested by the stockholders. In practice I wonder how much just further inflates various asset bubbles.

by sbov 9y ago

In theory dividends and share buybacks will be reinvested by the stockholders. In practice I wonder how much just further inflates various asset bubbles.

TAForObvReasons 9y ago

That's the crux of the "trickle down" theory, that eventually money will make its way to normal Americans. Arguably, the rising inequality in the post-Reagan years is proof that the theory is flawed and that very few individuals and small businesses actually see any benefit. Taxation theories aside, parent proposed repatriation as a solution but past experience showed it to be less effective than the proponents claim.

bmmayer1 9y ago
It really doesn't matter where the money goes though. Even if an investor spends the money on golden bathtubs and private jets, the money is being spent in the economy. If they keep it in the bank it's getting leant out to small businesses.
- KGIII 9y ago
  The sharp influx should even help with the velocity of money. I am not an economist but I've been trying to learn a bit about it and a bit about financial management/investing. I'm currently at the velocity of money stage of my learning. https://en.m.wikipedia.org/wiki/Velocity_of_money https://en.m.wikipedia.org/wiki/Velocity_of_money It's not really the same thing as the trickle down that the parent poster mentioned. From what I can tell, you hit the nail on the head. An influx of money will mean the money moves. Also, when money moves is when the government taxes it. So, the influx will increase the velocity of money and will have an effect on the economy. That's not the same as the parent post implied, where there's a reduction in taxes and that is supposed to result in the money trickling down. That's not the same as an influx of money. One is people keeping their money, the second is people getting more money. If I understand correctly, they are different things. Then again, I may not understand correctly. As I said, I am still learning.
- Retric 9y ago
  That's a theory, but it does not hold up in practice. The issue seems to be money just pools in specific areas like money markets where only a percentage can be lent out. The other issue is velocity. If loans last 10 years but it takes 1 year to find someone to lend the money to. Then effectively only 90% of the money is loaned out on average.
  - roenxi 9y ago
    Hi, I turn up in these discussions to represent the hard money advocates. In practice you might well be right about velocity, but there is no "the money" of which 90% is lent out. America & most other countries use fractional reserve banking. A pretty reasonable interpretation of this is that making a loan is nearly equivalent to creating the money needed to make the loan. All the existing money that can be lent that exists is, in fact, currently lent out.
    - Retric 9y ago
      The average americans checking accounts has high fluctuations over a month so it can be used for overnight interbank loans but not directly turned into home loans. This means two banks need to cover their reserve requirements so ~(90% of 90%) of the money in checking accounts can be loaned out. Savings accounts are more stable so ~(90%) of the money of the money can be loaned. Also, banks may make loans, but they can also sell them to other groups without reserve requirements. Allowing for a near endless streams of new loans. Thus the total amount of loans is not fixed and depends on where in the economy the actual currency is.
- mdorazio 9y ago
  But it does matter where it goes. What if it all goes into real estate (again), for example? Then you get another housing bubble and even more unaffordable housing for middle Americans. You're also assuming that cash being spent on things like luxury goods is flowing into the US economy as opposed to the global economy. Globalization has changed that dynamic significantly.
  - bmmayer1 9y ago
    The housing bubble wasn't because of rich people buying real estate. It was because of middle class and poor people over-leveraging.
    - mdorazio 9y ago
      Sorry, I don't see how that rebuts my statement. Also, that's a gross oversimplification of what actually happened. My point is that if the windfall from dollar repatriation goes into real estate and we get another bubble, how does that help middle Americans? We can't assume that everyone will go out and put their repatriated dollars into economically productive places. Also, I've said this before and no one has given me a good answer yet. Corporations already have record amounts of cash on hand [1], but they're largely not doing anything with it. What reason do we have to believe that getting cash back on shore would change this behavior at all? After all, taxes are on profits - companies could effectively repatriate their money tax free today by spending it on hiring more people, building factories, etc. [1] https://www.spglobal.com/our-insights/US-Corporate-Cash-Reaches-19-Trillion-But-Rising-Debt-and-Tax-Reform-Pose-Risk.html https://www.spglobal.com/our-insights/US-Corporate-Cash-Reac...
    - christocracy 9y ago
      “Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble” https://qz.com/1064061/house-flippers-triggered-the-us-housing-market-crash-not-poor-subprime-borrowers-a-new-study-shows/ https://qz.com/1064061/house-flippers-triggered-the-us-housi...
closeparen 9y ago
>rising inequality Rising inequality means that higher incomes are rising faster, not that lower incomes aren't rising. No one claims that trickle down effects will fall to the lower half of the income distribution as quickly as the upper half (i.e. flat inequality). It's right there in the name! They might argue that the bottom half of the distribution grows as quickly as it possibly can via "trickle down," because in a more regulated and redistributive world, the productivity gains that the left wants to to redistribute wouldn't be made. I don't think this is right either, but inequality isn't a signal you can use to assess that.
- deepnotderp 9y ago
  But adjusted for inflation, wages haven't kept pace well either, so either way, it's worse for the lower classes in terms of quality of life.
  - chibg10 9y ago
    But it's nonsense to pretend that the only factor that's been driving inflation-adjusted wage stagnation is Reagan's economic policies. Globalization, automation, Baby Boomers retiring, healthcare costs, education costs, and a million other factors are influencing that too. Trying to parse the effect of Reaganomics economic policy by looking at one country in one 20-30 year period among all the other effects is an impossible task. In lack of any significant empirical evidence, I'd rather rely on reasonable economic theories than politicians trying to win the votes of an angry mob.
  - prostoalex 9y ago
    Wages excluding healthcare costs haven't, wages including healthcare costs have. https://www.bloomberg.com/view/articles/2016-09-28/health-care-costs-ate-your-pay-raises https://www.bloomberg.com/view/articles/2016-09-28/health-ca...