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dcrednek (79.95)

Stiglitz Comments Are Too Broad

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June 11, 2012 – Comments (3)

 

 Nobel Prize winner, Professor Joseph Stiglitz, provided the following commentary in an interview this morning:

“It’s absolutely essential that we have a fair tax system and one that directs our economic activity to production not to speculation,” Stiglitz, a Columbia University professor, said today in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene. Stiglitz appeared to discuss his new book, “The Price of Inequality: How Today’s Divided Society Endangers Our Future.”

I think that he's on-target with regard to the specific issue of speculation but he goes too far in the title of his latest publication, inferring that a "dividend society" presents a danger to the future of our economic system.  I think it's wisest to separate short-term investment speculators from long-term investors in the context of taxation.  I generally support the view of Buffett and others who've stated that any investment not carried for more than one year should be subjected to signicantly higher capital gains tax rates than those that are.  I'll go a step further and add that carried interest - the share of capital gains kept by hedge fund, private equity, and venture capital managers-- should be considered ordinary income and not classified as a long-term capital gain. 

Stiglitz's "Dividend Society" isn't the problem.  Patient capital, the long-term equity invested in companies for growth, expansion, and product advancement, has and always will be a vital component of the economic system.  Dividends are but a sliver of compensation relative to the capital at risk in most instances.  Speculators on the other hand - those who hop in and out of the market - provide far less liquidity benefit than they claim and in a very real sense add much more volatility and uncertainty to the market than is necessary. 

That industry which has turned the financial markets into a video game like environment should bear a much higher tax burden than that of patient investment capital.  Forcing market speculators to do so would not hurt liquidity and would compensate for the government intervention that is necessary when there is real crisis.  

 

 

3 Comments – Post Your Own

#1) On June 12, 2012 at 3:05 AM, thecherryz (90.72) wrote:

You keep saying  "Dividend Society" referring to him but it reads as "divided socieity".  Did you misread the title or did he refer to dividends in this interview and i just missed it?  I can't be the only one who reads divided society and keeps seeing you quote it as dividend.

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#2) On June 12, 2012 at 10:22 AM, TMFAleph1 (95.13) wrote:

We give Nobel Prize winners too much credibility. Here is Stiglitz embarassing himself in 2010 by saying that there is no problem with regard to Greece meeting its interest payments -- and then promptly being skewered by Hugh Hendry:

 

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#3) On June 12, 2012 at 10:33 AM, ryanalexanderson (< 20) wrote:

"The Nobel Prize confers on an individual an authority which in economics no man ought to possess. This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence. But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally."

 - Nobel Laureate Friedrich August von Hayek's acceptance speech at the Nobel Banquet, December 10, 1974 

"I'm looking in your general direction as I'm saying this, Krugman."

- Hayek's fictitious post-humous addendum, 2012

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