Policy Implications of the Jim/Stephen Debate
For public policy, I think that Jimâ€™s most interesting comparison was of investment to business finance/profits.
If one accepts Stephenâ€™s interpretation, then falling capital prices have allowed firms to make adequate or appropriate additions to the capital stock without greatly increasing nominal investment spending. In that case, the huge increase in profits is an unneeded windfall that should be taxed away and used for public purposes, as Andrew suggests.
If one accepts Jimâ€™s interpretation, then capital prices have not fallen in any meaningful sense and business investment has been sluggish. In that case, governments should seek to ensure that the huge increase in profits is reinvested.
Either way, it seems that an appropriate policy would be toÂ raise corporate tax rates (say, up to American levels) and provide a corporate tax credit for new investment. To the extent that firms do not invest more, they would pay more tax. The tax credit would be justified if one believes that investment has social benefits above and beyond its private benefit to the firm.