Many commenters on the taxation neb repeat the worry that companies volition only exercise taxation savings to pay dividends or purchase dorsum shares rather than brand novel investments.
Savannah Guthrie, interviewing Paul Ryan on the Today Show, idea she had a existent gotcha amongst
Peggy Noonan, in an otherwise thoughtful column, echoed the same worry:
So, having established that this is a bipartisan worry, let's set the fallacy to bed. It is the fallacy of composition, that actions of i fellowship mirror actions of the economic scheme every bit a whole. It is the fallacy of "paper investments" vs. "real investments." That distinction tin apply to a company, but non to the whole economy.
Savannah Guthrie, interviewing Paul Ryan on the Today Show, idea she had a existent gotcha amongst
"What they [CEOS] are planning to practice is stock buybacks, to business the pockets of shareholders."(She together with thus moved on to a query almost guaranteed to attain retweets of partisan admirers, together with to the lowest degree probable to attain an interesting answer,
"I'll enquire y'all plainly, are y'all living inward a fantasy world?"NBC together with thus wonders that it is charged amongst partisan bias.)
Peggy Noonan, in an otherwise thoughtful column, echoed the same worry:
"Big corporations tin cause got the gift of the taxation cutting ... together with practice superficial, pleasing world relations form of things, spell actually focusing on buying dorsum stock together with upping shareholder profits."(Just how taking less of your coin is a "gift" is a query for some other day.)
So, having established that this is a bipartisan worry, let's set the fallacy to bed. It is the fallacy of composition, that actions of i fellowship mirror actions of the economic scheme every bit a whole. It is the fallacy of "paper investments" vs. "real investments." That distinction tin apply to a company, but non to the whole economy.
| an before post, non to facial expression "repatriation" of corporate profits to brand much divergence to investment. Apple Republic of Ireland could already set coin inward a banking concern that lends to a USA banking concern that lends to Apple US, if that money's best exercise was inward the US. The marginal profitability of investment is all that matters. Now, allow me likewise apace grant that in that place are second-order effects together with frictions. Perhaps due to "agency costs," internally generated cash is a cheaper rootage of investment funds than cash obtained yesteryear issuing stock or borrowing. In that case, financing decisions practice matter. Tracking downward this form of thing is what makes economic science fun. But proficient economical analysis ever starts amongst the relevant budget constraint or neutrality theorem, together with and thus adds the frictions. Neither Ms. Guthrie nor Ms. Noonan had such a minute club financing friction inward mind. Do non cause got this post service every bit criticism of either author. They only happened to repeat the charge, which is floating some every bit exercise of the larger talking-point battle surrounding the taxation cuts. Ms. Guthrie is an anchor trying to lob nasty questions, together with Speaker Ryan could cause got answered this way. He chose a improve reply inward fact, recognizing that similar "fantasy world" it was non a serious question. Ms. Noonan is a political commentator, together with this nestling fallacy does non detract from her interesting, larger, political point: Forget that returning cash to investors who quietly set it inward improve companies is economically efficient. If large companies are seen to only manus out presents to investors rather than to invest the funds internally, the political optics of the taxation cutting volition endure bad for its defenders. Sometimes paying attending to fallacies tin endure proficient P. R. It is, however, the chore of economists every bit world intellectuals (subject of an upcoming post) to patiently indicate out this form of thing, thus possibly someday voters volition non confuse P. R. stunts amongst progress. SUBSCRIBE to Our Newsletter Sign up here with your email address to receive updates from this blog in your inbox.
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