Tuesday, July 31, 2012

Maybe Mr. Buchheit does not understand why capital markets exist...

One of my friends posted this article on Facebook. The author's first big lie that he attempts to debunk is :

1. Higher taxes on the rich will hurt small businesses and discourage job creator.

Mr. Buchheit goes on to say " As for job creation, it's not coming from the people with money.  Over 90% of the assets owned by millionaires are held in a combination of low-risk investments (bonds and cash), the stock market, real estate, and  personal business accounts ." His point is that investing in these assets is not as good as being an angel investor for start ups.

My response to Mr. Buchheit is this (originally wrote as a comment on Facebook):

What kind of bonds? Municipal bonds? Which are sold so that communities can build schools, repair roads and sewer systems, engage in economic development etc. Or maybe corporate bonds, which allow companies to build new factories, modernize equipment, engage in research and development, or hire a new shift of workers. Or perhaps they are buying federal bonds to support the massive deficits the federal govt keeps running.

What kind of real estate are they buying? Apartment buildings that supply people with shelter? Office buildings that give start ups a place to work? Retail space for a new Starbucks or Subway?

Since when do jobs created by recipients of angel investing count more than a job created by Starbucks, GM, JP Morgan, or Wal-Mart? Or a municipality who hires workers to build a new school or fix an old sewer system?

I never thought this before but perhaps the problem with people like Mr. Buchheit is a fundamental misunderstanding of the purpose of the bond market, the stock market, and the real estate market. Anyone who downplays their importance compared to venture capital or angel investing is either blatantly misleading people or is ignorant as to why they exist.

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