Tuesday, February 03, 2009

Answering the Cato Institute's NYTimes Ad

I'd rather have the government hire someone as a last resort for 40K per year than give a $100,000 tax cut to someone else and have the person who needs that 40K go begging for a job. Kind of rough, but if you look at the proposal that Bush put out in the 2000 election, giving a 500 Billion Dollar Tax Cut in order to "create 5 million jobs", that's what he was saying. If I need capital to start a business, I don't go to a rich friend, I go to a bank. (I don't have any rich friends, and don't really want any.) If my business idea has merit and if I can sell the idea that I would be able to earn money from it, the bank gives me a loan that I have to pay back. But even more important than that, I don't need financial capital to start a business, I just need demand for my product or service. Without that demand, I'll stay working for someone else.

If it were true that giving tax breaks and more financial capital to people at the top of the income ladder created more jobs, then wouldn't it also follow that giving ALL of our financial capital to THE richest person in the world would create the MOST jobs? That's what I call failed logic.

It IS true that by giving more money to people who will spend most of their income increases demand for products and services. It does NOT follow that giving all of our financial capital to everyone equally would create paradise. But at least people would be able to eat, live in a house, go to a doctor and send their kids to good schools.

The Brookings Institute is here: http://www.brookings.edu/

The Cato Institute is here: http://www.cato.org/

Conservative Economics, also called "Supply Side" economics, has failed. It failed in the 1920's and created the Great Depression. It failed in 1981 and created the Recession of the early '80's, but Congress didn't have the guts to reverse the tax cuts. Those policies started being reversed in 1993, but the 1994 election (thanks to the broadcasts and illusions cast by people from the CATO Institute and other groups like them) stopped it. Now we might have another chance to fix the mess, put regulation back to work trying to protect our country against fraud and abuse. But I would expect that Congress still won't have the guts to restore the top marginal tax rates to what they should be. If we don't do that, then the fraud and abuse will be coming from the people with the most finanical capital, able to buy and sell elected offices.

If "supply side" were true, then retailers would want to maximize inventory so they have whatever their customers want to buy. Retailers instead try to keep inventory to a minimum, because inventory is a cost, and unsold inventory is a loss. Would you rather have a few people who can afford multi-million dollar homes, or a LOT of people who can afford homes that they can be proud of?

The role of government is to establish and maintain a foundation for the private sector to build on. Without that foundation, everything falls apart. Physical, financial, social and legal foundations are what make our country as great as it is. Selling off that infrastructure in bits and pieces so that private corporations can make money off selling services for higher prices than should be charged for basic needs like water, electricity and other elements of the commons is the best way to destroy that foundation. That's what we've seen happen over the last 8 years, and for the 20 years before that.


TreeSkier said...

You could not be more wrong. First of all, it is other people's savings that winds up in the bank from which you would take out a loan to start your business. No savings equals no loans and no new business for you. You might not need "financial capital" to start your particular business, but a lot of companies, which create a lot of jobs, do.

Who decides how to give "more money to people who will spend most of their income..."? Who gets the money and how much? What should they spend it on? Where does the money come from? Can that source run out? What happens by using some sources, you weaken others? Is a group of elected officials really smart enough to get that all right? History suggests that they are not, nor can ever be.

"Supply side" economics models the real world, where you must supply something first before you have the right to demand something back. We supply so that we can demand. For example, you supply your labor to earn money to pay for the items you wish to buy. Your thoughts are exactly backwards.

Entrepreneurs risk their savings on unknown demands. Who demanded an iPod, or a personal computer, or a handheld GPS? They were SUPPLIED first, and then demand exploded. Read up on Say's Law.

In 1981, the economy was in shambles from bad policies of the '70s. Reducing government and tax cuts brought the economy back to life. Tax revenue surged, but spending surged even more, thus resulting in the deficits that people remember. Sorry, those are the facts.

The role of government is extremely limited. It's when people like yourself are convinced that you can figure it all out and get it exactly right, on every issue, that we run into all the problems. People left to their own devices, with government doing little more than protecting people's property rights (starting with their lives) and the basic rule of law have every incentive to improve the lives of others. In truly free trade, two parties only trade if they make each other better off -- they don't need some master orchestrator to interfere.

Your vision has been tried in socialist Europe and the various communist states around the world. The results are clear.

Chad Lupkes said...

I agree, the results are clear. Most of the people living in those countries in Europe would not move to the United States. Because they like their lives and their government the way it is. And they are healthier and happier than we are.

Where in my post did I say that the government should "be" the banks? Show me where I put that language.

The iPod and the other things were developed by companies with a history of great ideas.

Tax revenue collapsed in the 1980's, and the only way that Reagan could pay for his programs was by trading the money in Social Security with IOU's. At least that's what I have read. I guess you can see it both ways.

Elections have consequences.

TreeSkier said...

You're not up on your recent history. Within the last few months, many of the socialist parties and platforms in Europe have suffered large losses at the polls. And the US has no shortage of people wanting to live here, including a large number people of people who die each year trying.

On the government "being" the banks, we perhaps completely agree: There could be no simpler, and most importantly, most effective "government plan" for our current economic situation than to let failure work its magic and transfer wealth and capital from those who are incompetent managers of it to those who can grow it. The government has absolutely no role here. None. Nada. Empty set.
Zilch. Anything more than that opens the doors wide to corruption and a complete breakdown in civil society as we all fight each other for our share of the government pie.

Apple and others are great companies. This does not invalidate my point.

As for "collapsing tax revenues", you are NOT entitled to "see it both ways". Spend some time with Google: Here's a simple chart for starters:


There are dozens of similar looking charts and stories, from all sorts of sources.

Elections DO indeed have consequences. I fear the consequences of the 2008 elections very much. In short order, our country may not be recognizable for what it was founded on, and succeeded upon.

Chad Lupkes said...

I'm watching the other countries and I think it's primarily the economic troubles that are making people question what the majority parties have been doing. Which is fine, I suppose. I'd rather not see another far right-wing party take power somewhere in Europe though. We've dealt with that before.

The primary reason people try to come to the US is because they think there is money here. They're wrong. And I fully support enforcing our existing immigration laws. If someone hires an undocumented worker, they don't need their business license anymore.

I think we may agree much more than you would expect. But I support the FDIC, because I don't think foolish decisions at the top of the economic food chain should spell disaster for all of the people who put their savings in that particular bank. And the government sets the rules.

I was saying that Apple had developed enough of an understanding of what their customers wanted, that it made the development of the iPod that much easier. Of course it took off when it was introduced. They knew what their customers wanted. That supply meeting a natural demand. It's where supply and demand meet that counts. You can supply all the widgets you want, but unless they actually meet a need or want, they won't sell.

I think we may disagree on what this country was founded on. But that's ok.