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The ideas from "Arguing with Zombies" can indeed be implemented in real-world scenarios of business investment and tax cuts. The book suggests that business decisions are less sensitive to tax rates than commonly believed, and are instead driven by market demand. Therefore, in a real-world scenario, instead of focusing on tax cuts as a means to stimulate business investment, it might be more effective to focus on strategies that increase market demand. However, it's important to note that the book also suggests that a substantial portion of corporate profits represents rewards to monopoly power, implying that tax cuts might be more of a giveaway than a reason to invest.
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Corporations primarily use tax cuts to buy back their stock instead of adding jobs and expanding capacity. This is because business decisions are a lot less sensitive to tax rates than what the proponents of the low tax theory claim. Business investment is instead driven by perception about the market demand. Not many potential business investments are worth doing at a 21% profit tax that was not worth doing at the previous 35% rate. A substantial portion of corporate profits represents rewards to monopoly power instead of returns on investment, making a tax cut more of a giveaway than a reason to invest.
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“Zombie ideas” simply refuse to die despite mountains of evidence to disprove them. How do you fight them? Paul Krugman, Nobel Prize winner in Economi...
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