[Clintonfatigued]

While I was skeptical of the author of this article, it turned out to have some merit. The end of the article was memorable:

“America needs more product entrepreneurship and less financial gamesmanship.”

[ridge]

-—> Robert Reich

-—> (snip)

“What’s the answer? At the very least, stop giving tax financial entrepreneurs huge tax advantages over product entrepreneurs. Treat their compensation as income, not capital gains. And tax their partnerships that go public at the same rate public corporations are taxed.”

(snip)

I have hard time believing that the statistical number of new organizations of the financial economy exceeds the number of new organizations of the real economy. The lists are full of new “product” organizations seeking capital.

They have lives of 2 to 4 years. And the US system works nicely to capitalize these companies with a varying terms of debt and equity. Mezzanine, angel investors, venture capital, banks and others.

In fact it is one of the best in the world. And Reich wants to lump the arbitrage of private equity in with all financial backers to tax them all.

[theBuckwheat]

Financial innovations contribute to our collective wealth just as much as product innovations do. A dollar of value is a dollar, whether it comes because innovation leads to lower fees for a stock trade, or lower cost in a product. Further, innovations in financial products make it easier for companies to raise capital, and thus to finance product innovation.

The entire venture capital community could not have existed 50 years ago, and today is responsible for a substantial number of new US jobs. Money market accounts did not exist until recently. The invention of the ‘sweep account’, an idea that was awarded a patent, greatly increased the amount of funds that institutions had available for lending or investing elsewhere. The fact that well over 50% of US households hold stocks is a direct consequence of financial innovation.

The creation of wealth is never a zero-sum game. If this was true, then from where did our prosperity come? No, in a free market with voluntary participants, a transaction takes place only where both parties expect to gain from it. To claim otherwise is just populist drivel.

[Nervous Tick]

I'm not a Robert Reich fan. But his explicit argument -- that we need more product entrepreneurs and fewer financial entrepreneurs -- is spot on. On the other hand, the real motivation for his article is hidden in this line:

"stop giving tax financial entrepreneurs huge tax advantages over product entrepreneurs. Treat their compensation as income, not capital gains."

In other words, he's carrying water for the House Democrats in their attempt to effect a tax increase on these so-called "financial entrepreneurs" (for example, hedge fund managers) by reclassifying as ordinary income some things they are now able to treat as capital gains.

I'm not sure I understand all the implications of this tax law change well enough to have an informed opinion. Just be aware that Reich wrote this article not because he gives a rat's patoota about American enterprise, but rather because his Democrat overlords want to raise taxes on someone!