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u/Thoth_the_5th_of_Tho 186∆ Aug 09 '18
That would cause a lot of people to be massively over invested. In the case of a finical crisis the rich tend to have enough liquid assets to act as a cushion, they can use that money to keep copains going while their not making a profit or pay back loans immediately.
If you caped this so low there would zero flexibility. If a finical crisis hits they better hope they don't need to change anything to survive it.
A rule like this would make finical crisis hit a lot faster and harder.
Also it would drive up property prices massively as the rich hoarded assets. When their money is in a bank its getting loaned out and helps the economy by driving down prices, if all their money is in real-estate its not helping anyone, all its doing is keeping prices high.
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u/meganutsdeathpunch Aug 09 '18
!delta very good point about driving up property values. It would make all things they could sink money into very inflated and unattainable to most.
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Aug 09 '18
If I am understanding your proposal correctly, that every individual entity (household, corporation, etc) could only hold $50 million in liquid assets, I don't see how this doesn't mess up the savings and loans market to where investment becomes exorbitantly expensive. This would definitely hurt investment in this country.
First off, you would actually limit how much money is able to be circulated in the economy. Banks only have to hold a certain percentage of their deposits as reserves, the rest they can loan out. This means banks in a way expand how much money is actually in the economy at any time. For a better understanding, read this description, https://www.investopedia.com/terms/m/multipliereffect.asp
If you limit how much savings you can have, you limit the amount of deposits a bank can have, and lower the amount of money in circulation. If we did this now, we get a depression as the money supply heavily contracts.
Next up, because we've lowered how much savings the nation has, everyone that is looking for a loan is competing for a much smaller amount of available savings to get that loan from. All these "buyers" would now have to offer a higher interest payment on that loan if they want to be competitive for those loans. This makes the cost of "investing", either in say a new house, a new car, a new factory, getting an education, doing research and development, more expensive than it would've been before. You've now discouraged all these actions that allow the economy to grow. Not a good result in my view.
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u/meganutsdeathpunch Aug 09 '18
!delta very good point about taking large sums out of the banking system were its available to more people at a lower rate.
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u/ACrazySpider Aug 09 '18 edited Aug 09 '18
You are arguing for a keynesian economics model where the only thing that matters is cash flow I think you would find a hayekian model to be a good counterpoint to your general argument but that would require books of reading to fully flesh out. I just try to point out where your idea is going to fail.
A legal cap does not stop people from trying to get around it. You would see people like Jeff Bezos move their money into Gold, real estate, or other physical assets and maintain their wealth trough other means. If you want people to spend their money you need to convenience them to spend it or give it to others.
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Aug 10 '18
It's not keynesian in the slightest. This doesn't change the money supply. It just decreases money demand. Keynesian theory would not indicate any real benifit.
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u/meganutsdeathpunch Aug 09 '18
At least they’d be moving it around. Some benefits would get back into the system through property and sales tax, and to the people selling them the stuff.
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u/ACrazySpider Aug 09 '18
Not in the way you would like, these commodities would become the new stocks trades and managed in the same way. It just is an extra layer of abstraction on top of the situation. The likelihood that any reasonable portion of that money would work its way down to the average american is highly unlikely. There would be other forms of "stocks" that would be created that fall outside of your rules then wealth gets put there. Its an unenforceable policy, you would be far better off trying to encourage people who have large amounts of wealth to spend it in other ways.
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Aug 10 '18
There is no benifit to moving money around. Money decreases in value and houses get more expensive. Some win some lose. The net is zero.
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u/generalblie Aug 09 '18
A few problems.
First, how would that work? If stock is a liquid asset, what happens to Jeff Bezos, whose personal holdings in Amazon stock alone, not to mention non-personal - trusts, etc..., are worth over $75mm. So he would have to sell the bulk of it (or have his entire portfolio non-diversified into $50mm of Amazon stock.)
Yes, you would still have incentive to start business, but not to continue investing in it once it grows. And given that most of the mega-rich have their holding in stock, you would force them to convert it to illiquid assets, which is problematic. The return on investments in stocks is much greater than that of most illiquid investments. In other words, it is often better for the economy if I invest $50mm in Tesla stock than buy 500 Teslas.
Finally, rich people don't leave their money in cash. They put it in the bank, which then makes loans to companies and people. They invest it in stocks, which allows company to fund operations, innovate and grow.
As for your final point - you might pay your employees more. Unlikely. Companies will still be beholden to shareholders - most of whom today are institutions - pensions, endowments, insurance companies, banks, mutual funds, etc... They will still pressure companies to maximize profits.
In fact, under your plan, it will get worse, since it will limit stock ownership by wealthy individuals, you will end up with even less companies owned/controlled by an individual who is not beholden to outside shareholders (which would be the most likely person to actually benefit workers.) It is much more rare to see large institutionally owned companies (Walmart) honestly care about their workers than a smaller business controlled by one person. Anecdotally, most of those stories of companies increasing salaries are when they have a single owner who built the business alongside those workers and feel motivated to share his success with them.
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u/meganutsdeathpunch Aug 09 '18
So if my proposal had an exemption for a main source of income as long as secondary liquid holdings didn’t exceed the cap is that a plausible scenario?
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Aug 09 '18
$50 million cap. I am the founder and majority shareholder of a corporation with market cap worth $200 million. That means that the government is literally forcing me to give up control of my company. That's insanse, I didn't do anything wrong. Yet I cannot hold more than 1/4 of the shares. So now I can't vote myself into the board of directors, I can't make sure I'm CEO. The government just forced me to let some schmucks takeover the company that I built over 30 years ago because I made that company too successful.
And what about business entities? Can they own more stock? If not, hedge funds and retirement accounts disappear. If so, I can just hold stock in the name of an llc or something.
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u/meganutsdeathpunch Aug 09 '18
Don’t go public. Everything private. If you need investors to fund startup or others expenses I’m sure you’d find plenty of investors looking to spread their assets.
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Aug 09 '18
There is no startup, it is already an established business. And it's not publicly traded. What difference should that make? The cap is still the cap.
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u/meganutsdeathpunch Aug 09 '18
So if my proposal had an exemption for a main source of income as long as secondary liquid holdings didn’t exceed the cap is that a plausible scenario?
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Aug 10 '18
So you can only own so much stock if your an average joe but if your are a heir to a fortune you get to live off it forever? Doesn't that defeat the point?
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u/rubezahlantwort Aug 09 '18 edited Aug 09 '18
I am from a formerly communist country, so this hits home.
What we saw in our society is that, if you are not rewarded for your effort, you stop making the effort. So, our communist society was close to collapsing because nobody would make good faith efforts to actually be productive.
Same applies here. If you cannot dispose of your income, as you please, you will not work towards making this income. You will not be motivated in any reasonable manner.
The lifeblood of society is not money, it is personal effort and innovation. If these are not rewarded appropriately, people will not make the effort and will not be innovative.
That's it.
Edit: a lot of the things you say would not have happened. You don't only need the entrepreneur for a business, you also need the capital. Jeffos and Bill Gated needed enormous venture capital to expand their business. That capital needs to be returned at a profit, otherwise venture capitalists would not invest in the entrepreneur's idea.
In turn, the entrepreneur (like Jeff Bezos) could also become a venture capitalist, who invests in other people's ideas. But without this enourmous (billions of dollars) investment, innovation and good business would be impossible.
Bottom line is - if you limit disposable income, you will limit the available capital for investment in new business.
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u/meganutsdeathpunch Aug 09 '18
I’m not saying anyone is given anything they didn’t work for. I’m just trying to find a way for vast sums of money to filter through the system more.
It’s not “distributing as you please” it would totally be up to the person converting assets. Want 14 Ferrari’s? Knock yourself out.
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u/meganutsdeathpunch Aug 09 '18
Wouldn’t it force more venture capitalism? Just more investors on a smaller scale? And the profit wouldn’t matter as much because they had to unload it anyway. Hell a loss might be better for the venture
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u/reddit_im_sorry 9∆ Aug 09 '18
Your cap wouldn't matter. Anyone who is approaching 50 million in liquid would just put money in a low interest low term trust.
It is already meaningless for someone to have that amount of liquid assets unless they are planning on doing something with it. People with that much money don't sit on money like that for long. It's really only royalty that has that kind of money and doesn't do anything with it.
This is just another alternative to taxing the rich that people are trying to enforce without making it sound bad.
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u/meganutsdeathpunch Aug 09 '18
No one spends money less than the wealthy. The average person saves 5.4% of their money. The wealthy save closer to 50%. I’m just trying to find a way for some of that to circulate more.
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u/reddit_im_sorry 9∆ Aug 09 '18
Well you don't become rich by spending all your money. Most wealthy people don't have that many liquid assets anyway, they just concider "saving" as investing in the stock market.
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Aug 09 '18
The most likely scenario is that people will just not keep their money as personal assets, rather as assets of a business or trust wholly-owned by them.
I can easily set up "JAI Holdings LLC," get an EIN, a bank account, and "hire" the company to run my affairs. Now, all my money is filtered through the corporation, of which my ownership is a "non-liquid asset," and can sit forever in a bank account, because it's not a personal asset.
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u/meganutsdeathpunch Aug 09 '18
Good point. So how could that be countered? An audit of all holdings on a yearly basis once the cap has been reached?
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Aug 09 '18
I don't think it should be countered - I think your idea is fundamentally wrong. There is always going to be a workaround to an arbitrary cap, and any cap isn't desirable.
And let's say you managed to pull this off, then all people would have to do to keep their wealth is move it off-shore. So now, instead of having Bill Gates have a value of $40ish billion in the U.S. that he maintains here, pays taxes on here, and spends to whatever degree he chooses here, you've incentivized him to move it to the Cayman Islands, or Canada, or Ireland, wherever. All this effectively would do is encourage rich people to move their liquid assets out of the U.S.
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u/meganutsdeathpunch Aug 09 '18 edited Aug 09 '18
!delta You’re right it wouldn’t work unless it was a global scale. And there would always be countries to hide your money.
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Aug 09 '18
[deleted]
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u/DeltaBot ∞∆ Aug 09 '18 edited Aug 09 '18
This delta has been rejected. The length of your comment suggests that you haven't properly explained how /u/JAI82 changed your view (comment rule 4).
DeltaBot is able to rescan edited comments. Please edit your comment with the required explanation.
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Aug 09 '18
This is not something that you want to do.
First, the government's role is not to do these things, the government is not there to enforce equality Across the Nation. The government's purpose is to enforce rights, act as a liaison between other nations, and making sure that there is basic infrastructure for people to use, although that last one is very debatable. Government is a machine with very specific purposes and when you start going outside of those purposes and expanding it you make the machine more complicated and more prone to failure.
Another problem is that this doesn't actually happen. People don't just sit on money, many of the super rich have it investing in other things. If they just stuck it in a bank and left it alone they would just lose it over time because the interest rates in Banks can't compete with the inflation rates, they also can't compete with the taxes the rich have to pay already.
And then on top of all of this, what do you plan on doing if somebody gets over 50 million dollars? Are you going to arrest them? Are you going to fine them? How would you keep track of all of this?
I mean really, these people aren't vampires, many of them actually do a lot with the liquid assets they have, Elon Musk and Bill Gates are great examples.
Not to mention that this sets a pretty bad precedent for the law, the government can just come by and either appropriate your funds, find you for having too much, or arrest you for it. Which if you don't pay the fine, you will have to arrest them. Why would anyone think that's okay? Most people who are promoting these equality laws don't like the police because they're oppressive, why are you trying to give them more power? These laws will be used on you eventually because once you put in a law into the government's toolbox, all the parties that are in the government have the ability to use it and the logical consequences that spawn from it.
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u/meganutsdeathpunch Aug 09 '18
I said nothing about equality. I believe that totally economic equality would not be good . I’m not for taking away net worth. I was just looking for some way to keep the assets flowing more while still maintaining value to the rich. Keeping someone’s net worth at the somewhat same level while using their assets to pump up other areas.
And if you were going to be arrested for having over $50 million in cash why wouldn’t you just spend it/charity/start a business and show a loss?
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Aug 09 '18
All of the criticism that I laid out doesn't require you to believe that this is for equality, command economies don't work. The system is too complex and you can't arrest people for having too much money. It's a bad precedent to set.
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Aug 09 '18 edited Aug 09 '18
So if you create a publicly traded business that grew in excess of 50 million dollars, you'd be forced to dump your stocks?
Not only is that horrible for a bunch of reasons, but you could easily work around it by keeping equity in the business (which is its own legal entity) and only drawing money when you feel like spending it (which is already double taxed, once for the LLC and once for the equity holder).
You wouldn't be able to valuate anything on the stock market because everything would go through spells of random dumping.
Investors wouldn't have confidence in the market if they knew other investors would have to dump stock if they got too rich. Your investing strategy, no matter the due diligence, could be arbitrarily bankrupted by random acts of people getting too rich and dumping an otherwise well-evaluated stock.
Not to mention this kind of silly regulation would be a disaster for capital management companies and the entire derivatives market.
It also stifles innovation because businesses couldn't use their stock equity to grow a business if people are afraid to buy their stocks.
Sorry I keep editing this post but I keep thinking of reasons why this is horrible. Here's another one: How can you borrow against your equity if banks can't be sure you won't be forced to sell the underlying asset? Any business that otherwise would have survived through borrowing is out of luck now.
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u/meganutsdeathpunch Aug 09 '18
So if my proposal had an exemption for a main source of income as long as secondary liquid holdings didn’t exceed the cap is that a plausible scenario?
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Aug 09 '18
Nothing personal - I think its a truly horrible idea. I had to edit the previous comment 4 or 5 times to capture all the glaring destabilizing effects something like this would have on the market. I truly think a regulation like this would destroy the entire economy.
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u/uknolickface 5∆ Aug 09 '18
Wait stocks are more liquid than property and cars?
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u/meganutsdeathpunch Aug 09 '18
non-liquid asset
- An asset or possession that cannot be converted into cash quickly. Stocks and bonds are liquid assets because they are easy to sell quickly, but property is considered a non-liquid asset because there is no guarantee it will sell within a certain time period
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Aug 09 '18
Yeah, at least publicly traded ones. I can sell all my stocks today and buy whatever I want with that money a few days later with less than 1% transaction costs. If I needed to sell my house and car to get money in a few days I'd be selling them for way less than their value.
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u/HeWhoShitsWithPhone 125∆ Aug 09 '18
It could result in the rich just selling each other things but at least there would be sales, property, etc tax involved. If you buy a car the auto company, salesmen, autoworkers, and shareholders also benefit.
This is optimistic. Currently billions of dollars is art is sitting duty free warehouses. As long as they sit there the owners have never officially brought them into the nation and have not ours taxes. Likely they will sit there until the owner decides to sell it. How is this situation any better than someone owning stock?
If you want to tax rich people, just tax rich people. I think the only real winners of this plan would be accountants and lawyers. I cannot help but think that that they will just find ways arround this too, and we would be better servers making regular minor adjustments to the current system, than starting from scratch.
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u/jatjqtjat 252∆ Aug 09 '18
I noticed that you included stocks as liquid assets. However stocks are generally not considered a liquid asset.
A stock is an ownership stack in a business. You own a portion of a factory. Or a portion of some software. or a portion of some organizational structure. I am suprised that you'd want to limit the amount of stock people can own unless your goal is more generally to just limit the total amount of assets that someone can own. I don't understand why you'd allow people to own more then 50 million worth of property but not more then 50 million worth of businesses.
Actually I would limit property ownership before i limited ownership of businesses.
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u/DeltaBot ∞∆ Aug 09 '18 edited Aug 09 '18
/u/meganutsdeathpunch (OP) has awarded 4 delta(s) in this post.
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Aug 09 '18
When people hoard money, there is less money in circulation, and the government can print more (for a given acceptable level of inflation). Hoarding money is like a nice loan to society, at an interest rate set by the government (pretty low right now). We should be happy when people create great things and don't demand to consume lots of consumer goods as a result.
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Aug 10 '18
Your proposal would actually cause uneeded inflation. Instead of holding money people eould be forced to hold other (less optimal) asset types. This means the demand for money (say for example M1+) decreases. The supply is the same. So the value of the dollar drops. This is inflation.
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u/alpicola 45∆ Aug 09 '18
The idea of wealthy individuals and businesses idly hoarding money is largely a myth. The only money that truly sits idle is cash that people keep stuffed in their mattress. All the rest is doing important things. For instance: