The Right Coast

Editor: Thomas A. Smith
University of San Diego
School of Law

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Monday, November 26, 2012

Maybe Warren Buffet doesn't know much economics
Tom Smith

If anybody ever needed a giant mug of STFU it has to be Warren Buffet. He doesn't seem to understand the basic point that if you tax returns on investment, you will get less investment. This is a result of that fundamental of economic thinking, that decisions are made on the margin. This includes investment decisions. So there is some set of profitable investments out there that have a positive risk-adjusted rate of return at current tax rates on returns to capital that would not have said positive rate of return if you increased those tax rates. And the more you increase those tax rates, the more you will bite into that set of profitable investment opportunities. Thought experiment wise, try increasing taxes on returns to capital investment to 100 percent. Now you have no profitable investment opportunities.  See how it works, Warren? Or are you too rich, old and stupid to bother thinking something like this through? 

Of course, maybe reducing the deficit is worth reducing the set of profitable private investment opportunities. Oh, except that we all know increasing tax revenues by increasing taxes on capital will not decrease spending.  This revenue will be used, metaphorically speaking, to power the firehose that sprays benefits on all and sundry but especially those who will vote for continuing the fun, like that festival in China where everybody throws water on everybody else. And don't worry about the water ever running out, a la Greece, because, as Professor Krugman has explained, the Fed can just print more, and the world will just have to go along, because it is the dollar after all.  What could go wrong?

So what we are actually doing is taking money away from people who have proven they know who to invest money to make money (not that easy) and give it to people who have proven they know how to waste money on the most unimaginably epic scale.  I mean, high speed rail in the California central valley -- seriously. Just one example out of millions of possibilities. That's going to be hundreds of billions of dollars wasted before we finally decide it's cheaper just to stop digging that hole deeper. Maybe Buffet could spare a few billion just to pay all the parasites off on the condition that they stop pushing high speed rail. Now that would be a public service. Or if you want to bring up entitlements, fine. Let's increase the retirement age for Social Security. Means test everything already. Taxing the richest, laziest, luckiest and most obnoxious guy in the world just so you can take his money and waste it, is always wrong.

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