Is It Bad To Have Too Much Money?

Peter Franklin is Associate Editor of UnHerd. Atomic number 2 was antecedently a policy advisor and speechwriter along state of affairs and social issues.

June 24, 2022

Filed below:

Roughly people have much money that they fight off to find things to spend it on. But these people are paupers compared to those who run off of opportunities to invest the money they Don't spend.

Yes, I know the heart bleeds – but there actually is a global shortage of places for the seriously rich to put up their Earthly wealth. Thither barely aren't adequate alternatives to the bog standard option of the bank account.

So, interest rates wouldn't cost at criminal record lows round the populace if there weren't a global glut of cash.

Composition for Axios, Dion Rabouin notes that US companies have "record cash holdings of close to $3 jillio". Wealthy individuals aren't doing too bad either:

"The top 1% of U.S. households are holding a immortalis $303.9 billion of Cash, a quantum bound from the under $15 billion they held just before the financial crisis."

Of row, most of America would honey to take over this 'job'. And, in a fashio, we do. Though the non-rich have little OR no share in the global money glut, our lives are affected by what happens thereto.

Those charged with managing extreme point riches are channeling the cash into places where it can act up more harm than good – for instance, the property market where it inflates house prices and rental values. Then there's the practice of share redemption – in which cash-rich companies steal up their own stock:

"Companies successful a record $1.1 trillion available buybacks in 2022 and are on track to pass by that number this twelvemonth."

Buybacks increase postulate and reduce supply, thus pushful dormie share prices – already inflated by the effects of quantitative relief. The executives can say they've 'added value' and are rewarded accordingly – not least in the form of 'tax efficient' blood options.

Admittedly, the company wouldn't have the cash for the buybacks if it wasn't profitable in the first base – merely that's non unruly when you can take up money at rock bottom rates (QE again), buy rising the competition and work a monopoly set up. The company's soaring grocery store capitalisation means that the banks are happy to keep lending it money… etc. and on IT goes, generating further surpluses of immediate payment for the fortunate some.

Obviously, no of this is good for the long-term wellness of the economy – and, for most of us, IT's of no short-term benefit either. What, then, can we do approximately IT? Taxation is an obvious weapon, but the thing about enormous piles of Cash under professional management in a borderless world is that they don't sit lul ready and waiting to be punitively taxed.

A slightly different approach is to use assess to disincentivise some of the less desirable uses of the money glut. Property-settled assets are an obvious aim, because IT's non like we'll end up with less nation if we scare away the speculators. Targeting share buybacks is trickier. While we might want to discourage this and other forms of 'financial engineering', we likewise want to encourage equity investiture in productive enterprisingness – and the finance diligence is overladen of people who can disguise the former as the last mentioned.

Ideally, we'd own much an enterprising, innovative economy that in that respect'd be ample opportunities to vest in growth-generating industries. Established companies would be so threatened away new competitors that they'd invest their net income in business exploitation instead of the self-complacency of share buybacks. It would also be beneficial to have much rich the great unwashe with the brains, balls and heart to invest their money imaginatively, bravely and philanthropically. That'd finish off the money glut.

Needless to enunciat, these happy scenarios depend on culture change – which, if IT happens at all, is a long-term process. Thusly, in the meanwhile, is in that location anything that the state can manage to attract excess Das Kapital into socially-useful investments?

Visionary public funding programmes of the kind that gave the internet its start are great – but, again, information technology's a long-run procedure. Fortunately, there are some faster wins to be had – areas where strategic express-led investment posterior unlock avenues for productive private investment.

Reckon the decades of under-investment in the social science infrastructure of our cities beyond London. Addressing key weaknesses – like-minded the state of our non-Londoncentric public raptus system – does not compel futuristic technologies, but tried-and-tested upgrades that more productive local anesthetic economies already have.

The gainsay for government – including local government – is to get along a credible enabler of private sector investment opportunities. That agency an end to the imprudence of politically-driven mega-projects like HS2 and Hinkley point, and a swivel to smaller, little complicated, productivity improvements.

The fact that so much potential has been left locked-up for bye is an bill of indictment of our over-centralised political system and our lopsided national economic system. But that lavatory be changed – indeed, it is being denatured as local anesthetic communities are re-empowered and the foundations of a modern industrial policy are put away in place.

A freshly prime parson has an opportunity to shift this work into a higher gear.