In a country where there is a very burdensome government, can small improvement in freedom or in tax cuts worsen the economy?
The reason I think this might happen is that a small increase in freedom or a reducton in taxation might incentivize the rich to liquidate assets while they still can and then transfer the wealth to a more free country where the wealth can be more productive.
Is there a name for this effect? It is kind of the opposite of hormesis, a controversial effect in medicine where toxic substances can have a positive effect when taken in tiny doses (e.g. a small amount of alcohol can be good for the heart). The case here is that small improvements in freedom could actually harm an economy.
Maybe in the short term, but not in the short/medium-medium-long term. Wouldn’t the greater effects be seen in small-medium sized businesses even if larger corporations do what you say they would?
I don’t think it’s possible to “transfer” wealth to another country unless you actually physically move your stuff.
I mean, you live in Mexico and decide to move to the US, you sell all your properties and get 1.000.000 pesos for it. You can’t move to the US with pesos in your pockets, you will have to exchange it for dollars and whoever gets these pesos will have to spend it back in Mexico.
If the economic climate is so terrible that people are all too happy to liquidate their assets then there are worse problems afoot than worrying about what a tiny tax cut might encourage. When people are taking their capital and fleeing, how dare someone berate them for “hurting” an economy that is clearly nothing but pain for them.
I don’t think it’s possible to “transfer” wealth to another country unless you actually physically move your stuff.
It’s possible to do with cars and I’m guessing boats and airplanes. I believe you can physically move gold with you through most borders, as they are considered rocks and not monetary instruments. Plus, when you exchange local currency for a foreign currency, surely it has a small effect in increasing the objective exchange value of the foreign money - you can transfer real wealth if not fiat-denominated wealth.
how dare someone berate them for “hurting” an economy that is clearly nothing but pain for them.
The reason I asked my original question was because I keep hearing anecdotes about how tax cuts for the rich aren’t helping to create jobs in USA. I don’t know if it’s true or not, and one must be careful of the post hoc ergo propter hoc fallacy, but I’m wondering if these anecdotes could be partly true due to the effect I suggested.
I’m not berating any one. I always advocating improving freedom, even if it only helps the rich people leave while everyone else trapped in a cesspool of their own making.
A tax cut need not be justified upon utilitarian premises, such as “job creation”.
And as I stated, if people believe it’s more worthwhile to send their capital away from where they are located this tells us a lot about how likely they view the prospect of any enterprise yielding a profit and, thus, actually ultimately benefiting any people it employs.
Tax cuts if not being accompanied by deficit spending cuts are meaningless, that’s why there will hardly be any noticeable positive economic effects if instead of taxing the government just prints money.
A tax cut need not be justified upon utilitarian premises, such as “job creation”.
Agreed. But if a tax cut really does temporarily hurt parts of the economy, then that should be understood as an expected consequence and not some kind of unexpected failure or empirical rebuttal of the wisdom of cutting taxes.
Tax cuts if not being accompanied by deficit spending cuts are meaningless
I disagree. When there are high taxes, a person is strongly coerced, basically forced, to pay a big chunk of their wealth. If on the other hand, the government is greatly indebted and is expected to default or print, then a person can do their best to avoid fiat currency and bonds and use other means to preserve their wealth. A person who expects an inflation of the money supply can also fight back by increasing their borrowing which makes it even harder for the government to sell bonds on the market.
It seems to me that tax cuts without an offsetting decrease in spending can be damaging to an economy, since the government makes up the difference by debasing the currency.