Hacker News new | ask | show | jobs
by esrauch 2696 days ago
There's no reason the government wants to promote long-term investment over income-producing labor, is there?
2 comments

There is. Basic level of labor is almost always there - people have to work to earn the living (even if you go into crime, you still have to work - maybe you pay taxes to different people and do different things, but you still have to do stuff to earn your money).

However, once you earned enough money, beyond subsistence level, you have a choice - you can spend it all on consumption, or you can defer some of the consumption, or give up a part of it, as an investment, in hope that this would increase your consumption abilities in the future, or you ability to retire, etc. Modern economy would not work without investment - you need massive upfront spending to lift off something like Netflix of the ground, before it starts being profitable.

This investment is, ultimately, financed by people who chose investment over consumption (might be one very rich person, or tens of thousands of not so rich people giving their money to the bank, which in turn loans it to the entrepreneurs, or likely a mix of both). Ensuring this choice remains a viable and attractive one is something that the government would definitely have an incentive to support.

This is predicted on the unstated assumption that everyone starts out from about the same place and subsequently people make a variety of different choices. It ignores the effect of inheritance or the costs of increasingly binomial wealth distribution.
At least in the US, old money effects are not as huge as one would think. Of course, everybody knows about Donald Trump, and maybe other people with inherited wealth, but there's also the survivorship effect - if somebody had rich parents and spent all the wealth how likely you to read about him in the national press? Nobody cares about those.

Moving onto more statistical approach, this one: https://www.fa-mag.com/news/most-millionaires-self-made--stu... says only 8% of millionaires inherited their wealth. For billionaires, according to this: https://www.entrepreneur.com/article/269593 18% got a jump-start (maybe parents were mere millionaires, but the child became a billionaire), and 62% are self-made. So inheritance effects exist, but maybe they are not that huge? At least, clearly, not a majority.

Of course, not everybody starts in the same place. But human behavior and motivations are similar, and thus you can reason about them despite the differences.

Labor doesn't necessarily generate income. Factory workers are an up-front cost converting one set of resources into another. No income is realized until that second set of resources (i.e. products) are actually sold.

Also, realize that the government does promote both labor and investments, just through different means. Lowering taxes isn't going to affect how a fully employed individual produces labor; they are trading their time for money. Lowering taxes on investment will promote more investments, since the money for those investments have already been taxed, and since the trade of investments is money-now for money-later, taxes have a much more significant influence over the extent to which someone will invest in a business. Someone fully invested in other things (non-stock commodities, etc) might move some of their investments into businesses instead.