The most counter-intuitive idea in economics

Many things about economics are counter-intuitive. People see industries break down in their own country only to sprout up overseas, leaving native workers unemployed. It's very counter-intuitive for anyone to believe "supporting" these industries harms the country.

Another counter-intuitive idea in economics is that failure is essential to a prosperous economy. When an enterprise fails, there is pain, uncertainty, and dislocation. Sometimes failure happens in bunches, magnifying the downside.

So we have the entire economics establishment trying to avoid failure at all cost.

  • "If the big banks hadn't been bailed out, we'd have had 30% unemployment. Those bailouts and quantitative easing and ZIRP saved us from a depression."
  • "A gold standard would nullify monetary policy, thereby allowing no tools to aid employment."
  • "The gold standard resulted in frequent recessions."

All of these arguments imply failure is almost always something to avoid. I'm not sure economics has ever shown that the alternatives to these examples of failure are preferable over the long term.

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Failure is Good but

But massive synchronized failure is not so good.

Our overleveraged economy does not allow for graceful failure. Think of the buggy-whip industry. It still exists. There is still a market for vacuum tubes. These and many other industries needed to downsize, yes, but not go away entirely.

With debt based financing, a company has to maintain a gross profit level or go bankrupt. With profits extracted as dividends instead of interest, companies can gracefully downsize as their market shrinks.

Until the Bush tax cuts, dividends were greatly penalized WRT bond interest payments. There is still some penalty, but it is significantly reduced.

A more progressive approach would be to treat dividends and capital gains on the sale of stock as ordinary income, while cutting the corporate rate down to around 20%. This way Grandma pays a lower tax rate than Bill Gates. And if Grandma can get more dividends, maybe we can sell the idea of scrapping Social Security.

We can be a bit more aggressive by cutting the corporate tax even further but reducing the deductibility of interest payments.

The shrinking of the middle class is intential

Our owners are tired of listening to middle class whining. They know that people living in poverty don't have time to complain.

Holiday in Cambodia

That and the Prussianized obedience cult mentality of public school survivors leads to folks letting themselves get robbed, while nodding approvingly as they watch the other crabs get their legs broke for taking the effort to try and climb out.

Dividends

Why not simply let companies expense dividends, like they do the wages and interest they pay, and then make dividend income just like ordinary income to the recipient--i.e., no tax advantage?