People Behave Irrationally

We used to think people believed rationally.

Then Richard Thaler, Nobel prize winner in Economics, helped demonstrate that people actually don’t have any self-control and behave irrationally.

This wildly interesting field (at least for some) is now known as Behavioral Economics.

I was listening to the newly proposed tax plan, which includes giving big corporations a huge tax cut. From 35% to 20%.

The argument is that with these tax cuts, big corporations will see an influx of savings, hire more workers and increase wages.

That sounds rational, though.

However, it seems like from many case studies – the expected outcome doesn’t play out.

I wonder why?

Many Economists and the Economic Policy Institute say there's little relationship between post-tax profit rates and business investment that boosts productivity. In fact, productivity and wages have grown faster in periods of higher taxes.

It’s hard to believe when companies are setting on more cash than ever before, that by giving them an additional $2 trillion will push these firms to take care of the middle class by creating more jobs and increasing wages.

I don’t know, maybe I’m being irrational.

Corp Tax Rates and Productivity.JPG