It’s Time for the 99% to Start Supporting the 1%

October 17th, 2012 by Roy W. Spencer, Ph. D.

A persistent misconception about our economy is that the same amount of stuff is going to be produced, no matter what government policies are implemented. If that was indeed true, then the political debate only becomes one over how all that stuff is divided up. And that is indeed what many people spend their time debating.

But economic productivity can vary tremendously between countries, and even within a country over time. In fact, there are many poor countries with much lower unemployment than the United States…yet they remain poor.

What really matters for a prosperous nation is what is produced for a given amount of labor. We could have near-zero percent unemployment tomorrow if the government mandated that half the people should dig holes in the ground and the other half fill them up again. But we would be a very poor country, with a very low standard of living.

A high standard of living requires efficiency of production of goods and services that the people want, which in turn requires large investments in facilities, machinery, raw materials, etc. In a competitive free market economy, those investments involve risk…risk that your investment will be lost if someone else figures out a more efficient way to build 10 million smartphones than you figured out.

Now, why would anyone choose to invest large sums of money? Only if they have some hope of receiving much more in return if they are successful. If that incentive provided by the hope for profit is lost, then they will not invest in new business enterprises. No business enterprise for them means no jobs for you.

Our number one priority should be to ensure that producers are allowed to produce, and that they are not penalized for their success. Jobs happen from the top-down (not from the middle-out) when businesses with the money to hire people are allowed the opportunity to succeed.

Yes, a few of them will become rich in the process…but their riches pale in comparison to the greater riches enjoyed by society as a whole through the higher standard of living the good ideas of the rich have enabled. And those profits aren’t kept under a mattress…they are reinvested in the economy, either through expanding the business, hiring more people, or even just buying more stuff which supports other businesses.

Demonizing the rich is demonizing the driving force which elevates the standard of living of the whole country. If you want prosperity, allow the producers to produce. Make it easier for them, not harder.

Not only does this raise our standard of living, it also increases tax revenue, because revenue is a percent of the action, and the more economic activity there is, the greater the tax revenue which is collected to support government services.

And this is how the budget “arithmetic” really works. Balancing the federal budget is not a matter of either (1) increasing tax rates or (2) decreasing spending. That erroneous view mistakenly equates tax rates with tax revenue. Tax revenue (the total number of dollars taken in by the government) is the tax rate multiplied by economic activity. Lowering tax rates, especially on businesses, stimulates economic activity, which then increases tax revenue.

You Don’t Really Want to Play by the Same Rules

For those who like the mantra “everyone should play by the same rules”, let me tell you: you don’t really want to play by the same rules as business. Business owners typically don’t take their share until all of their employees are paid and all of their other business bills are paid.

For every successful rich person, there were many more who tried to become rich but lost everything. Why is it that so many people want a greater share from those who have succeeded, but don’t want to share in the losses of those who failed to become rich?

What if the business you work for fails? How would you like to pay back all of the salary you earned? You got to keep the money, but the business owner or his/her investors lost that money. Do you really want to play by those rules?

And how would you like to work 12+ hours per day trying to abide by all of the regulations increasingly heaped upon businesses by the government?

It’s time for the 99% to start supporting the 1% a little better, because in the end it is the 1% who enables the 99% to maximize their standard of living.

You can learn more about basic economics from my book Fundanomics: The Free Market Simplified.

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