How do you break a capital strike?

[Nuclear Unicorn]

When the rich feel taxes and regulations are too onerous they put their money in savings instruments. While that money gets invested, i.e. banks make home/business loans, it doesn't reach the economy as fast as payroll or direct investment or government programs. In capitalist speak it's called safe-harboring. The rich will tuck away their money until the economy rebounds or a more "favorable" political climate cycles into office. Naturally, the capitalists will tell you that as soon as you lower taxes/regulations the grip on the money will loosen.

Other economic theories call this a "capital strike." As a laborer might withihold his one asset, his labor, to strike against unfair conditions those who own the capital go on a capital strike to withhold their wealth from being used in "unfavorbale" conditions. But when captial strikes ensue wealth shrinks from the economy and it is those on the lowest runng of the ladder that suffer first as programs lose funding and menial jobs suffer layoffs. Captial strikes punish the politicians by hurting the broadest swathe of the electorate: the poor.What we call "Reaganomics" or "supply-side" is really an economic model that promotes and rewards capital strikes.

So how do we break capital strikes without giving into un reasonable demands?

The mechanism seems hard. You can't use income taxes because if the money is being "safe-harbored" it isn't being used to gain income. Ditto capital gains taxes. Taxing "wealth" i.e. assets/savings owned would be difficult, it seems, but I'm not 100% on all the details, so I'm asking:

How do we break the capital strike that threatens Obama's presidency because it is prolonging the Bush Recession?

[MineralMan]

1. I suggest a "hoarding tax." A very punitive one.

[badtoworse]

17. You mean let's just seize their assets

That would be unconstitutional. You could tax the interest, but with current rates, there's hardly anything to tax

[Harmony Blue]

2. Government jobs programs

Failure to learn from history is why we are in this mess in the first place.

[nadinbrzezinski]

3. The same exact way it was broken by FDR...

90% capital gain taxes.

[Harmony Blue]

4. Almost forgot about that

Good point to bring up as well.

[Nuclear Unicorn]

8. Capital gains only counts for returns on investments

Smacking people for 90% of their savings interest earnings from the local bank won't do anything.

[coalition_unwilling]

5. It is not a capital strike that threatens Obama's presidency, it is

a deflationary death spiral that Obama and his cohort are doing little to reverse and may, with their talk of "trimming entitlements," be accelerating. IOW, there's plenty of capital and indeed surplus productive capacity but not enough aggregate demand for said productive capacity.

That said, however, there's no universal law that says a duly elected government cannot enact a tax on savings and investment accounts. But that assumes that governments are composed of people with even a modicum of economic sense, not the case currently in the U.S.

[girl gone mad]

16. I would go even further than this.

When people talk about the piles of capital that corporations have been accumulating, what they're referring to is actually piles of debt. Corporations have been selling into the junk bond bubble. Their balance sheets are loaded up with debt. Sure, the interest on that debt is artificially low, but it's still money that needs to be paid back in time. Corporations aren't going to spend this money hiring or expanding while their customers are debt-deleveraging due to decades of wage declines and overconsumption during the financial debt bubble.

A tax on savings would only cause more problems.

[white_wolf]

6. The words capital strike got my hopes up.

I thought all the capitalist had decided to "Go Galt" and we would be rid of them.

[Nuclear Unicorn]

10. Yeas, but the way the system is configured now, they'd take our paychecks with them.

ya know

*sigh*

[The Magistrate]

7. Inflation, Ma'am, Makes Hoarding Money A Losing Proposition

It also reduces the burden of debt.

In combination with reinstatement of usury laws, and criminal prosecutions for frauds committed over the run of the recent 'bubble', this would clear the atmosphere considerably.

[Nuclear Unicorn]

9. Inflation hurts the poor faster than the rich.

A 10% jump in food and energy costs would hurt me and my husband; Warren Buffet? Not so much.

[nadinbrzezinski]

11. Alas Buffett wants TO BE TAXED

He gets it

[The Magistrate]

12. It Depends On How It is Handled, Ma'am

The question was how to break a capital strike, or in other words, how to make people with great sums of money stop hoarding it and put it instead to productive use. At this, to refrain from putting capital to work costs nothing, and may even bring profit on its own, as inflation is negligible, and it is even possible deflation exists. Inflation erodes the value of money, and makes sitting on a pile of it like sitting on an ice-floe in summertime; it will dwindle away. the only way to avoid this is to invest it, and in something that can pay a rate greater than the rate of inflation. Short of sending armed men to confiscate the stuff and put to use for the public good (not a course that would trouble me unduly in crisis, mind), inflation is about the only lever that can actually move the hoards.

If wages and pension rates and the like are properly indexed, rising prices need not hurt most people much.

[Blue Meany]

13. More inflation should do the trick...

Then the money will lose value if it just sits there.

[RaleighNCDUer]

14. Jobs programs, create an alternate banking system, form co-ops to

bypass the standard financial system.

'Trickle down' is an inversion of reality - capital flows upwards from the lowest segments of society. The people who contribute the most are those who spend every penny they make just to get by. Create new systems that impede the flow of capital toward the top, and you starve the beast.

[AndyTiedye]

15. +1000 on the Co-Ops