When it comes to spurring innovation in state economies, it’s spend, baby, spend.
For the past half-century, two maxims about wealth creation have taken on gospel-like qualities.
One, affecting companies, comes from Wall Street. It holds that businesses must show discipline, control costs, increase margins, and return value to shareholders through dividend hikes and stock buybacks.
The other, affecting governments, is pretty much the philosophy behind the Republican tax bill. It holds that low taxes and light regulation incentivize industry and grow the middle class.
Both are true in certain circumstances. Even so, in an era of innovation and disruption, they are both a lot more wrong than right.
Take the business maxim. Nothing better represents success than the so-called FAANG stocks — Facebook, Amazon, Apple, Netflix and Google — which have created a staggering $2.8 trillion in wealth in the past two decades. They did this by spending big, indulging their employees, and taking every chance they could to thumb their nose at Wall Street.
Apple is the only one to pay a dividend, a practice it reluctantly announced in 2012 when it ran out of places to store its profits.
Google has careened from one business to another like a drunken sailor — Internet search to cellphone operating systems to self-driving cars. It also has jet packs, space balloons and contact lenses that monitor glucose levels, among other ideas.
Amazon has shown its lack of concern for profit margins by eschewing profits altogether. It has expanded with reckless abandon. And when it achieves savings through technology or scale, it passes them on to consumers to gain market share.
If the FAANG stocks had a ad jingle it might be this: When EF Hutton speaks, they can’t be bothered.
Voters would be wise to take a similar attitude when harangued about how tax cuts stimulate growth that trickles down to all. America today is full of flourishing and profitable companies — operating largely in high-tax states that routinely vote Democratic.
Forbes magazine ranks the world’s most innovative companies. Of the top 20 headquartered in the USA, 17 are located in blue states, two in fairly high-tax swing states and one — Global Payments…