[Washington Examiner] The first and greatest lesson of economics is that incentives matter ‐ thus, it is useful and important that the stock markets are set to end the year at or near all-time highs. Of course, our indices like the Dow Jones and S&P 500 don't account for inflation, so they need to end every year a little bit higher just to stand still. But the stock market hitting record highs is useful evidence that we're getting something about the economy correct.The basic insight is that if an investment is more valuable now than it used to be, then more people are going to invest more money in things, which is exactly what we want them to be doing.
We're not exactly short of people insisting that not enough investment is going on. All the shouting about companies paying out to stockholders is just that: an insistence that more investment would be better than sending money to already rich people. Thus, we see proposals banning stock buybacks ‐ more investment is held to be a good thing. While banning stock buybacks isn't good, it is true that more investment is a good thing.
Investment is, after all, what builds our future, and the more we put aside now to build, the richer that future will be.
We have three ways of investing and encouraging more of it. We could get the government to take more money in taxes and spend it wisely ‐ so wisely that $80 billion is wasted to build a high-speed rail line from Bakersfield, California to Merced, California.
Okay, so maybe that isn't the best way to encourage investment then.
We could lower the cost of investing and allow people to do more things that are less expensive. The Trump administration is certainly trying to cut red tape, the bureaucracy that stops investment. We've also cut the tax on successful investments, which lowers costs again (or increases returns, whichever way you want to look at it). We can also make investing more profitable: People do more of what brings them greater rewards. Cutting taxation is again part of that, but so is a higher stock market.