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There’s no inherent right to hoard

April 21, 2011

Just two multinational corporations – Apple and Google – have recently announced they’re holding between them over $100 billion in cash and liquid securities.  Meanwhile, gold is over $1,500 an ounce and the food and oil markets are a frenzy of speculation.  We have massive hedge funds which do nothing each day but gamble hundreds of billions in the currency and interest rate markets.  And when money is finally spent, it’s inordinately devoted to mergers and acquisitions which do nothing for the greater population.

These are all symptoms of the same critical problem: the failure of wealth holders to spend on meaningful employment producing investment.  They’re rejecting their side of an implicit bargain that requires them to re-circulate their incomes.  Instead, they either bury it in non-productive cash, strategically target their competitors, or devote themselves to idle gambling in the global financial casino.

These mal-investors are now demanding that society reduce its living standards to match the meager circulation which still remains.  They’re claiming an inherent right to hoard – i.e. to destroy purchasing power – and political parties in Europe and the US are fully acquiescing.  The results are increasingly evident.

We can give in, serf-like, and see our living standards continue to erode or we can issue an ultimatum: spend on meaningful investment or we’ll assert our democratic sovereignty and spend for you.

From → Dynamics, Suppression

12 Comments
  1. Andrew Bell permalink

    From a technical standpoint this is easily fixed.

    1. Limit real dollars (cash money)
    2. Require all dollars held by banks to be associated with a SSN or suitable ID that shows ownership (that pretty much already happens).
    3. Tax dollars in accounts at a rate related to the number of dollars in all bank accounts of any entity on a daily/weekly basis – whatever. Make it expensive to hold dollars to encourage people to spend them.

    Of course, you run the risk that people end up consuming scarce real resources more quickly, but I’m not sure that the current system doesn’t already provide a lot of encouragement on that front.

  2. Andrew,

    I’d think resources could be protected with suitable regulation which would then redirect spending to sustainable activities.

    Your idea is down the lines of stamped money or a negative interest rate, supported by Keynes among others. Which raises a point about MMT / fiat currency. Krugman posted against MMT again today and his major objection is that printing money would lead to loss of control of interest rate policy – interest rates would be stuck at zero. If we had stamped money, per your idea, then if the Fed wanted to “raise” interest rates, it could offer a lower negative rate or a zero rate. That would drain reserves from the economy just as effectively as a positive rate does today. No risk free rate of return for wealth – borrowings would then be just like reserves. Maybe good post material for tomorrow!

    Jim

  3. Max permalink

    If you penalize people for holding cash, they will just flee to another currency – or worse, into commodities. Not good.

    The right approach is a tax cut for the working class (it will be spent and spur business investment), and/or direct government investment.

  4. Max,

    They’d still be taxed in the other currency. They could try to flee to Switzerland or offshore of course but we do have the IRS. They’d also be taxed on commodities since they’re not productive investments. Agree with your 2nd paragraph.

    Jim

  5. Andrew Bell permalink

    Dollars CAN’T flee to another currency. There is no machine that turns dollars into, say, euros. The only thing that happens is that people trade one currency for another. When people trade currency, it may change exchange rate, but the money doesn’t doesn’t vanish. If the only reason people want dollars is so that they can earn interest, then we are in trouble — obviously this isn’t the case, though, as dollars essentially pay 0 today and people are still hoarding.

    Dollars also can’t “go into commodities.” People may buy commodities with dollars, or they may buy or sell commodity contracts, but those dollars stay in banks (somebody’s bank), and can be taxed.

    In reality, taxes for the “working class” are pretty low, not that they can’t go lower, but there is an obvious limit of zero. Of course, some receive refundable credits, which could be extended, but the trend seems to be to lower these benefits instead of to expand them.

  6. dave permalink

    Jim, Just playing a bit of devil’s advocate here. Certainly we could use more velocity, but businesses need to have a capital base commensurate with their expenses, expected P & L , capital expenditures, etc. In addition, without Creative Destruction there is only stagnation. ( I think the crime is in what happens to those who are laid off and not that they were laid off to begin with) So, yeah, changing the incentives –including a wealth tax–is completely legit but some of the hoarding is understandable too.

  7. Dave,

    I think from a purely Keynesian perspective the current hoarding is understandable in that the expected profit margin on new investment is less than the going interest rate. Thus the hoarding, gambling in the financial markets, and focus on mergers and acquisitions is fully understandable. But for a reasonable level of prosperity to exist within a capitalist system of vast inequality, holders of wealth must continuously spend and a lack of profitable new investment opportunities cannot be a legitimate reason for holding back.

    Perhaps small exceptions could be made to cover the anticipated expenses, etc. that you mention. My major target is outlandish hoarding as is the case throughout corporate America, not just Apple and Google. We all know that corporations are currently holding on to $2 trillion of cash. Also we have a great percent of wealth doing nothing but gambling in the financial and commodity markets. I think, except for a few reasonable exceptions, hoarding should be exposed for what it is: extreme anti-social behavior.

    I never liked Schumpeter’s term Creative Destruction as it implies most of the destruction in capitalism is somehow positively creative and good. You comment on the “crime” of what happens to those laid off and I think it is a crime. Capitalism is destructive to personal lives and security. It’s creative to the extent it endlessly seeks the most profitable geographic location of production and the most ingenious way to corner and control markets. Historical capitalism has never meant free markets, in fact it’s anti-market as we can see by the extent of manipulation and oligopoly in every key industry. I think the best historical view of capitalism was written by Fernand Braudel in his “Civilization and Capitalism”. He sees capitalism as a distinct layer operating above the market layer, a parasitic force that manipulates prices and production through power.

    Jim

  8. dave permalink

    Interesting. “A lack of profitable investing opportunities cannot be a reason for holding back.” Disagree with that statement unless it is a banking institution who can get insurance from the Government to allow more funds into entrepreneurial hands. Established firms are not serving their clients, shareholders or employees by making poor investment decisions in the name of “keeping the flow.” That will typically lead to bad results for everyone, as we’ve recently seen.

    Also, who’s to say what is good “malinvestment” and what is bad “malinvestment.”

    I always liked “Creative Destruction” because it seems to take the metaphor for life and expand it into the system of human activity.

    Anyway, it seems to me that the hidden ingredient to all this is having the Government provide the strong (equity) capital base in relation to the private sectors’ debt creation. There should be a continual awareness of those ratios and yet no one even thinks about it.

    When those ratios are in good shape things function smoothly. When they are out of whack, like now, they don’t.

  9. Robert permalink

    If gambling in the financial and commodity markets is more rewarding than investing in the real economy, then such behavior needs to be discouraged. The same goes for economic rent seeking. This is not rocket science.

    Corruption has long been a ‘distinct layer’ of capitalism and its alternatives. Lack of democracy and transparency allow corruption and fraud to flourish. Systems and institutions that permit conflicts of interest are not in our best interests.

  10. Robert permalink

    Dave – established firms could choose to reward their clients, shareholders and employees with the funds they don’t know what else to do with.

  11. Dave,

    “Established firms are not serving their clients, shareholders or employees by making poor investment decisions in the name of “keeping the flow.””

    You’re certainly right there. But society cannot prosper under capitalism if funds don’t fully circulate in a productive manner. So what’s good for a particular firm is not necessarily good for the system as a whole. It seems to me that a tax / surcharge on idle cash or other non-circulative activities is a fairly market oriented option to the problem.

    “who’s to say what is good “malinvestment” and what is bad “malinvestment.” ”
    I call gambling in the financial markets and in commodities bad in the sense it’s not socially useful. Surely the purchasing power should be put to better use, not to mention the efforts of the many people who devote their lives to it. Same with most mergers and acquisitions – it’s not new investment, the purpose is usually to cement a company’s pricing power within its industry and to limit other entrants.

    The problem wouldn’t exist to anywhere near this degree if wealth were more equally distributed. The average worker would have no problem figuring out how to spend some extra money.

    Jim

  12. dave permalink

    No objection to your wealth tax or the idea of redistribution. It’s really sickeningly imbalanced. But if people want to gamble with their capital, let them gamble–it’s the idea that they can’t lose that bothers me. Whether thru fees or some firms R & D department those funds will eventually make it back to the real economy, even if it’s the worst and slowest method.

    @Robert: In my ideal world we are all rentiers?

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