Economics / Business

WSJ’s Amity Shlaes argues for further capital gains tax reductions, in her article ‘Three Policies That Gave Us the Jobs Economy;’ “Capital gains tax cuts, deregulation to allow easier investment in growth companies, and the protection of intellectual property created a boom.”

“Many wealthy people did indeed make more money as a result, including some of those less-lovable billionaires on Wall Street. But they then invested in companies like Apple.”

But Apple was an exception. Most venture capital went into small start-up companies who were designed to be bought later. The payoff for VCs wasn’t the continued growth of that particular company – it was that company being bought out by a larger fish. Most VCs pocketed their profits and walked away to find the next startup. They were nowhere to be found when companies like Lucent, Sun Microsystems, Hewlett-Packard and Dell started going south.

“A second policy change came in pension law. In 1974, the Employee Retirement Income Security Act, known as Erisa, codified the common law prudent-man principle by warning pension investors that they might be neglecting their fiduciary responsibilities if they invested in risky projects like Apple. The pension funds and portfolio investors duly stayed away. That changed when the definitions were relaxed later in the 1970s, as Josh Lerner and Paul Alan Gompers have noted in “The Money of Invention.” Pension funds could again tell themselves and their clients that they were acting responsibly when they invested in start-ups. The funds began to put more cash into venture capital.”

But not just venture capital – that’s a bit disingenuous. The funds began to put more cash into hedge funds. Pension funds rarely invested in single companies – their brokers traditionally mixed mutual funds with bonds and treasuries, but they got home run fever just like everyone else. How are G.E.’s pension obligations doing these days? Or Weyerhauser’s? Were the warnings about pensions investing heavily in derivatives overstated?

Otherwise, I think this is a pretty good article – pro-corporate without being condescending. And she manages to point out regulations that turned out to be onerous without drinking the absolutist kool-aid, i.e. All Regulations Are Bad, Fully Unfettered Is Good. Despite making lawyers happy (which the GOP is generally loath to do), and the gluttony of companies like Monsanto and ADM, she’s right about intellectual property rights overall.

“When it comes to taxes, the 1970s takeaway is that taxes on capital should always be lowered, and dramatically. Cutting a rich man’s tax can serve the lowliest citizens.”

A good prescription in the seventies. What she’s missing now is that corporations are no longer interested in allocating that money to either R&D or their American labor force. It didn’t make a lot of sense to ship labor overseas in the seventies. Now companies just hoard cash and buy back stock; conditions didn’t favor that in the seventies. Then came Reagan. Then came Gingrich. Then came Gramm-Leach-Bliley.


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