Economic investments---Economic investments are investments of money that actually end up improving the economic welfare of a population. Examples: purchases of capital goods or other economic resources by firms to either increase efficiency or expand productive capacity.  This happens whenever firms purchase machinery/equipment or when they spend money on the construction of new stores or factories or on the salaries of new employees.  (IMPORTANT: not all firm expenditures are economic investments; e.g., money spent by firms on advertising that either (a) misleads consumers or (b) does nothing to help them with their purchasing decisions.)

Financial investments---are purchases or commitments of money that provide a financial 'investor' with an income stream.  Saving money is a financial investment because it provides interest income.  Purchases of assets (stocks/real estate) can be financial investments if they eventually provide a capital gain.  Economic investments made by firms are usually also financial investments because they generate income that exceeds their cost.  But not all economic investments are financial investments.  The economic investments made by governments that improve infrastructure or human capital are not financial investments because they do not provide the government with an income stream.

It is important to understand that some financial investments are also economic investments, but many of them are not.  The purchase of a piece of land, for example, is a financial investment if it appreciates in value over time, but it is not an economic investment if it just sits there, undeveloped.  Purchases of stocks in secondary markets (e.g., NYSE, NASDAQ) are clearly financial investments if the stocks appreciate in value, but they are not economic investments because they involve nothing more than exchanges of titles of ownership of already existing assets.  They do not normally put any money into the hands of firm managers that could be used for economic investments.  That normally happens only when stocks are first sold to underwriters, prior to an initial public offering.

Republican Economic Mythologists have taken advantage of the multiple meanings of the word "investment" to craft tax policy proposals that sound as though they are beneficial to the economy, but actually are not.  They do this by simply conflating the two different meanings of the word Investment in order to convince Congress that giving more money to rich people will provide an economic benefit to all.  The famous Capital Gains Tax Cut, for example, is frequently promoted as an incentive that would stimulate "investment."  Unfortunately, the only 'investment' that such a tax cut is likely to stimulate is increased financial investment in stocks and other real assets.

Just follow the money.  Where does it go?  One financial investor hands money over to another financial investor for a piece of paper.  Very little if any of the money involved in these transactions ends up being spent on capital goods that would increase output or the productive capacity of the economy.  The seller of the shares takes the money she receives and uses it to buy other paper assets from another rich person.

The claims that Republicans like to make about capital gains tax cuts are almost 100% false.  Purchases of residential houses do not improve either our productive capacity or our economic efficiency.  They have value to us, but they are not economic investments that help to improve our economic future.  The only time purchases of real assets like land can be considered economic investments is when they are made by firms that intend to use those assets to produce something of value for the marketplace.

It is no secret, of course, why the Republicans are so fond of capital gains tax cuts.  Their rich supporters on Wall St. want the cuts so that extra billions of taxpayer dollars can be used to drive up share prices and make them all feel richer, on paper.  Unfortunately, they do extraordinarily little to help the supply side of the economy in real terms.  The bad news is that that the combination of de-regulation and big cuts in the capital gains tax created the financial monster that is now threatening to shut down our economy.  Leveraging on hedge bets became easier as banks sought to make some profits off of all those extra dollars.

Lesson learned.  John McCain?  He wants to put MORE taxpayer money into the hands of the rich people who ruined our economy.  Will Democrats be ready to answer their false claims?