02
Nov
2017
Saving’s For Suckers
I was trying to find more recent data for the items I dug up in this post, and stumbled across the following fairly ominous FRED chart. There might be something going on with capital gains that arguably distorts things (which a Chicago School person would no doubt argue), but for what it’s worth here is the chart:
A big chunk of the savings decline is because of dis-saving by Uncle Sam i.e. the federal budget deficit.
https://fred.stlouisfed.org/graph/?g=fC2E
After actually reading Dr. Murphy’s earlier post I realize that my initial comment is in line for the captain obvious award. So, more to the point about where will investment money come from to increase the US capital stock in the wake of a corporate tax cut: John Cochrane agrees that there is no need to invoke more foreign investment dollars.
From his post http://johnhcochrane.blogspot.com/2017/10/corporate-tax-burden-again.html
he says the following:
“Any attempt to make people suffer a lower rate of return induces them to save less. Less savings means less investment and the capital stock falls. This keeps going until the before-tax marginal product of capital rises enough to pay the tax and give investors the original rate of return. The long-run after-tax return to investors is always the same. This argument is entirely domestic, and doesn’t rely on any international investors. (Many commentaries ignore this, more important, effect and just talk about whether the US is big or how open capital markets are.)”
Cochrane’s post is a long one and IMO gives a very nice wonkish rebuttal to the Krugman, DeLong, Summers arguments against corporate tax cuts.