Apparently this cannot continue because resources you know By M Tracy Hunter - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=34088253

Nick Hanauer is that American rich bloke who is preparing himself for a run at public office at some point. He undoubtedly sees himself as an heir to Trump, one who is able to use self-made billions to coopt a political party into putting him in charge of stuff. It looks like he’ll try from the populist left rather than right but that’s a mere detail.

One of Hanauer’s insistences is that businesses – and businesspeople – don’t invest on their own. They’ll only do so if the demand is there. Thus it is demand and only demand which grows the economy. We can raise the taxation of the rich as that won’t matter, when we redistribute the money to the poorer that will raise demand and the economy will grow. This doesn’t actually work on its own terms as anyone getting Hanauer to think like the businessman he is would be able to determine.

No one at all knows that there is demand for what they’re going to invest to make. His family company makes pillows for example and all along, from the first feathers stitched into cotton bags onwards investment has been done on the basis of thinking that there might be demand. Sure, we can do surveys, conduct market research, observe the world around us, and be more or less sure of the existence of that demand. But we’re never certain – New Coke proves that alone. Any investment is always an adventure, an essay into probabilities. Which is one good reason why it should, righteously, be taxed less than labour income. But for the point here to stand it is only necessary to agree that there is always uncertainty.

We never know there is demand we can only think there is at some level of certainty. Thus it’s not purely demand which drives investment. As Keynes pointed out with his comments about animal spirits. The point of his comment being that the cycles of the economy really are driven by sentiment, that being the sentiments, the levels of certainty about the existence or not of demand perhaps, among the businesspeople determining investment.

But leave theory aside. There’s now the idea that we had a mini-recession a couple of years back. Mebbe there was but it’s the mechanism if we did which is interesting:

Sometimes the most important economic events announce themselves with huge front-page headlines, stock market collapses and frantic intervention by government officials.

Other times, a hard-to-explain confluence of forces has enormous economic implications, yet comes and goes without most people even being aware of it.

In 2015 and 2016, the United States experienced the second type of event.

Hmm, OK.

There was a sharp slowdown in business investment, caused by an interrelated weakening in emerging markets, a drop in the price of oil and other commodities, and a run-up in the value of the dollar.

The pain was confined mostly to the energy and agricultural sectors and to the portions of the manufacturing economy that supply them with equipment. Overall economic growth slowed but remained in positive territory.

The national unemployment rate kept falling.

Consumer demand remained where it was, business investment fell, this slowed economic growth. Therefore economic growth doesn’t come just from consumer demand, does it? There’s at least a portion of it that comes from an independently determined business investment. Umm, you know, like Keynes said?

The end of the mini-recession in the spring of 2016 created a capital spending rebound that began in mid-2016, and it has contributed to speedier growth since. Oil prices have reached four-year highs, a major factor in a surge in business investment this year.

Oh, and more business investment grows the economy faster. So, there’s the end of Hanauer’s insistence then. Which leaves us with only two questions. Firstly, which office is he going to run for and secondly, under which party label?

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Investment is driven solely by anticipation of profit. Sure, the company has to have demand, also access to raw materials and ability to hire manufacturing. There was little demand for electronic music players, wearable telephones, and two-way wrist radios until Apple created it. Star Trek and Dick Tracy helped. The “sharp slowdown in business investment” was because Obama-care contains over a dozen new taxes, some having nothing to do with health care but only amount of investment income, and it became clear that Republicans would dither rather than block them from taking effect. A lot goes into being a CEO,… Read more »