Home/BlogA 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.
Hi Dr. Spencer,
While this subject is far from climatology, it is near and dear to my heart and I thank you for your contribution. Your statement is quite right, of course. This isn’t a “chicken or egg” issue, either. Production always precedes consumption. Kill production and you kill the economy.
I haven’t read your book yet but will now. I hope you have written a bit about the danger of manipulating interest rates. Interest rates are the market’s signal to business telling it whether to expand, contract, start a new business or fold an old one. When interest rates are manipulated, false information is sent into the economy and we get bubbles and crashes.
Keep up the great work. I love reading your columns.
Dr. Spencer,
You are certainly entilted to your opinion, which I fully agree with. Be mindful, however, the more political one seems, the less that others find the scientific answers you offer as credible in climate science. I’m still having trouble deducing your explaination for the recent global warming as credible. Not critizing you here, but offering some honest feedback.
Drew, I hope you make the same criticism of the IPCC and just about every climate scientist who has become more political activist than scientist. At least Dr Spencer is not adding to the end of his spiel a demand for more funding from the public purse which usually accompanies the activist climate scientists’ pieces.
However all Dr Spencer has done is point out some obvious ‘common sense’. The more any country has moved towards a command economy, where the Government attempts to control production, the less efficient the economy becomes. The USSR, China, North Korea and others have found this to be so killing tens of millions of people along the way through starvation. As soon as they re-introduced personal incentives, economy wide productivity increased and hundreds of millions of people were raised from poverty. And more importantly, the Government was provided with further revenue streams to achieve other nation building and social projects.
Over the past three decades Dr Spencer’s country and my country (Australia), and to an even greater extent much of Europe, have gradually chipped away at the built-in incentives for free enterprise and risk takers. Sure it’s still OK for mega companies which will always get Government support and bailouts, but where are the small business owners who are growing the big businesses of tomorrow? Unless they are in the fortunate areas of resources or technology (which they can sell to larger companies), they are few and far between.
This chipping away has happened because Governments have misunderstood Keynes. Governments were only meant to step in and boost the economy for short periods and step back out again. But politicians became addicted to giving money away, so every subsidy, grant, benefit and scheme you could think of was dreamt up, and of course that meant a swelling army of public servants were needed to administer them. The private sector was crowded out and the costs of Governments just kept rising. And because our stupid Governments measure economic growth by GDP, which includes all Government spending, every public servant’s salary, whether they produce anything or not, whether they help or hinder business, adds to GDP. So the Government were able to beat their chests and say look how we grew GDP this year! And every cent the Government borrowed from China or elsewhere added to that GDP growth figure too!
Wouldn’t it be crazy if you went out and borrowed $500,000 from a bank, spent it at Vegas and went home to your family and said guess what, I grew our family economy by $500,000 today!
Dr Spencer speaks sense – I wish someone would talk to Australia’s treasurer who has had the good fortune to have Government revenues increase by 27% over the last 4 years since coming into office, but has managed to increase expenditure by 35% with no signs of it slowing down. He has taken the healthy budget surplus he inherited and turned it into a record and rapidly rising deficit which will take decades to pay off!
People forget how quickly economic fortunes can turn. President Obama was not long ago pointing to Spain as a paragon of the virtuous new green economy, now it is an economic basket case along with Portugal and not far from Italy and Greece. Ireland was the European Tiger a few years ago, now it is a stray cat looking for a home. We need to apply basic economic principles – that is all it has ever been about. You can get as many Nobel Prizes as you like for economics, if you can’t figure out that individuals need a decent incentive to take financial risk, and Governments can’t live indefinitely beyond their means, then you can’t run a country! Reagan understood that and he was a ‘B’ grade actor!
I hate to be blunt, but this one of the dumber pieces I’ve ever read.
1. Go analyze some data. Take any indicator you like that measures economic health, and go run it against U.S. marginal income tax rates. You remember the 1950’s, right? The golden age of the U.S.? When the top marginal tax bracket was over 90%? Similarly, did Bush II’s tax cuts usher in a period of strong economic growth?
2. Successful people aren’t in it just for the money. Why did Jobs work ’til his death? Why does Buffett still work? Would either work harder (have worked, in Job’s case) if tax rates were lower? Why are almost all the top VC firms in high-tax CA? Raising marginal income tax rates a couple points isn’t going to deter the true creators. It may deter those who are solely in it for the money. Which is, on net, probably a good thing.
4. I work for a 1%er. He built a small business (40 people), took risks, worked hard, had some luck, and was successful. Good for him. I’ve been some part of his success, and chose to make the trade of stability (I get paid the same each month) for reward (I generate much more revenue for the firm than I cost). Fair trade.
If my boss’s income tax rates goes up, a) he won’t care much (he’s a liberal Democrat and doesn’t need yet another Porsche), and b) won’t hire less- we are a slowly growing business that hires to meet demand.
In sum (micro): Real producers don’t whine. They produce. Want to go Galt? Be my guest; those who make that threat aren’t the ones I care about keeping around.
I confess to not having read Dr Spencer’s book on economics, but I can say from other reading that this blog statement of his is a fair statement of what is sometimes called Say’s Law of economics: “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.” The point is that the entrepreneur has to guess what people will want in five years’ time, and make his investment five years in advance to manufacture and get that product to market for them to buy. Most often he will guess wrong and lose his money. The rest of us can help by putting savings in the bank so the enterpreneur can borrow to set up the manufacture.
Chistopher, I share your political views for the most part, but I am a scientist first and foremost. As a scientist, I know it’s important not to let politics cause predetermined biased scientific results. I’m just plainly pointing out that as a science blog, it becomes tough to claim impartiality when so publicly spouting political beliefs. Unfortunately, I think some have let their political views cloud the science of climate. Really, who can claim CO2 doesn’t cause warming of the planet? It’s basic physics
Roy Spencer grasp of economics leaves a lot to be desired.
It has been pointed out above by BCC that America in the 50s and 60s was much more innovative and productive than the recent past.
Yet rates of tax were much higher then.
The Scandinavian countries with very high rates of tax have much more successful economies than that of the USA in the last 10 years.
There has been a large shift of relative wealth in the last twenty years.
The wealthy top 1% share of national wealth has surged at the expense of the 99%.
Does Roy suggest that this process should continue indefinitely?
A nation of serfs and billionaires will result.
It has been pointed out that middle class and working class Americans have seen no increase in their wealth in the last 20 years despite the growth in the economy.
The occupy Wall Street movement is a healthy sign.
The youth of America and the world will not accept the economic system that is choking the life out of the world economy.
I disagree with most of the reasoning in this article. It is not based upon the reality we currently live in.
Corporations profits have been increasing rapidly but wages and job growth are stagnant. Roy Spencer, I think you totally lack what greed is and how it effects the soul. You actually do more harm than good to a person by making them super wealthy. Once greed sets in it is an addiction similar to heroin. The greedy can never be satisfied.
We have already tried large tax cuts on the wealthy and corporations. It did not stimulate the economy. Why? The corporations are no longer a force of good (providing goods and services at low cost for a consumer). They are out to maximize profit regardless of the social costs on people (lose of job, home, food). They will move the factories and jobs to were the labor is cheapest (most desperate of people). Currently China is a good place at a few dollars an hour wage. If this goes up they will move again. Corporations have no interest in my well being. They do not want to pay a good wage for an honest day of work. It is reverting to the days of Charles Dickens. Most are very poor and hungry, only a very few benefit from the system.
You are completely incorrect about your understanding of enconomics and prospertiy. Mexico could be as prosperous as any first world nation. It has abundant resources and hard working people. It is third world because of greed. A few rich families own all the wealth and the rest have no money to buy things. The US had such a vibrant economy for only one reason. People organized labor and demanded more for their labor, a bigger share of the profit (and they were entitled to some as they were as much responsible for this profit as the owners). Once the common working man had more disposable income, he could afford to buy more products. This generated a period of super economic growth, more jobs, better wages, higher tax revenue overall.
It is NOT the rich wealthy class that generate production. Warren Buffet has the wealth to build a factory but if only a handful have money to buy the goods manufactured, the factory closes down. It is consumer demand that determines production, and the average needs money to generate demand.
You are so wrong in your thinking that I do not know if reason can correct it. I think it is based upon some false assumptions held together by blind belief. But I will try. Germany is the strongest nation in the EU. Their workers average more money than US workers. The reason their nation is prosperous is because the citizens support their nation by buying German produced goods (even though more expensive than Chinese). In the US we have our citizens buying Chinese goods. The US consumer wants to have a nice paying job but will not support it in the market place. Because of the consumer choices guess which economy is now growing the fastest?
The US consumer is his own worst enemy. They want to get the best deal and lowest cost goods so they no longer want to support a system that generates good wages and benefits and our economy will collapse.
Only those who cannot see would blindly believe cutting taxes and regulation will make the US prosperous again. The only way is for the consumer to support high wage jobs by buying from companies that do this. Any other consumer decision will adversely effect the US.
If you wanted to help the US Roy Spencer, you would not be a mouthpiece for the greedy few (Scrooge mentality types). You would tell the Public, the consumer, that the only way to make the US prosperous again is to buy US and support high wage good benefit jobs with your most powerful VOTE, the vote at the Market place that is the only vote that really matters.
Drew, thank you for your condescending advice. Yes, it’s basic physics that CO2 must to some degree contribute to increasing the temperatures of the planet. But that is not all there is to it. To take very costly actions, one needs more. First, (I hear you already sighing at my wrong thinking!), it is not for sure that man-made CO2 emissions are the main cause of recent CO2 increases. Second, (again I expect you will sigh), supposing given CO2 increase, the amount of increase of temperature is not known with enough precision because the compensatory (possibly real, through effects on clouds but I suppose not regarded as likely by you) or anti-compensatory (beloved of the IPCC and I suppose of you) effects to the primary CO2 radiative heat-retaining effect are not understood, not even by the cleverest. Third, the rate of effects matters and the costs need to be weighed up; there may be more urgent priorities. In your words, as “a scientist first and foremost”, you say that “it’s basic physics”, but you don’t show that you are a real scientist, in your over-simplification, expecting the basic physics to cover the whole picture. Perhaps you are referring to my former belief that the compensatory effects would be complete; well I no longer believe that, you will be glad to know. But it seems you don’t even consider the possibility of compensatory or anti-compensatory effects, because the possible compensatory and anti-compensatory effects are very very far from being basic physics. And should I hide my views on economics, which you regard as political, because you might accuse me of impartiality?
>>>>”…through the higher standard of living the good ideas of the rich have enabled”.
Roy…I hope this fuzzy logic does not carry over into your science.
Over a century ago, we in Canada had to form unions to drag basic humans rights away from the rich. We were beaten for it, and we were killed, but we prevailed. We now have pensions, better working conditions and wages, unemployment insurance, workers compensation, womens’ rights and medicare. Not one rich person stepped forward on our behalf.
All of this was done under a democracy using the tactics advised by your Ben Franklin who claimed it was a citizen’s duty to be civilly disobedient. It is called socialism. The communists stole the term (according to Chomsky) to give credence to their despotic regimes. They wanted to associate their abominations with the working class who had fought so valiantly for basic workers’ rights.
I am not a supporter of Obama mainly due to his myopic views on climate science. However, he did try to introduce universal medicare to the US and he was opposed every inch of the way by the wealthy. They used outright lies and scare mongering to oppose it.
You are measuring progress purely in dollar value while ignoring the plight of the poor and under-privileged. You are a Christian, shame on you. The message of Jesus was compassion but yours seems to be the worship of wealth.
//We now have pensions,
–ponzi scheme fail you know
// better working conditions and wages,
–determinde by market
// unemployment insurance,
–whgere do you think the money for that coming from?
// workers compensation,
–more benefits means less cash on hands
// womens’ rights
–what does that have to do with workers rights?
// and medicare.
–expensive as hell for those who do not want to opt in
// Not one rich person stepped forward on our behalf.
–well, that is true. Class interents are class interests.
Quiz: What socialist radical said the following?
“I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind… Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.”
That’s right: Thomas Jefferson, 1785
How about this Alinskyist radical?
“The disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition is the great and most universal cause of the corruption of our moral sentiments.”
You got it: Adam Smith (THE Adam Smith), The Theory of Moral Sentiments, 1759
Thanks Dr. Spencer, well said. Of course socialists will not like it, but they still can not prove their politics can make people happier.
They destroy instead of building, enslave instead of liberating.
Free markets and science have proven capitalism does help the cause for liberty.
BCC,
why do you leftards ALWAYS give only a small portion of what is being discussed with no CONTEXT or mention of the fact that this was the BEGINNINGS of Jefferson’s thoughts on this issue!!! He and the others learned and changed their ideas over the years.
Here is the letter where your quotes originates:
http://www.klamathbucketbrigade.org/KBB_JeffersonLettertoMadisonOnProperty112105.htm
InHe was speaking specifically about FRANCE and the issues with a Royalty and Nobles who owned most of the country with no productive use of it!!! I would point out that the environmental movement has been creating a similar problem here in the US. As over half of the country is now off limits to development or use for economic benefit, the inequality seen in the European Royalty days is again becoming the norm!! When the land is limited what man of little means can own enough to make productive use of it, especially when the laws and regulations PREVENT productive uses???
Here is the letter in full:
Dear Sir,
Seven o’clock, and retired to my fireside, I have determined to enter into conversation with you…
As soon as I had got clear of the town I fell in with a poor woman walking at the same rate with myself and going the same course. Wishing to know the condition of the laboring poor I entered into conversation with her, which I began by enquiries for the path which would lead me into the mountain: and thence proceeded to enquiries into her vocation, condition and circumstances. She told me she was a day laborer at 8 sous or 4d. sterling the day: that she had two children to maintain, and to pay a rent of 30 livres for her house (which would consume the hire of 75 days), that often she could get no employment and of course was without bread. As we had walked together near a mile and she had so far served me as a guide, I gave her, on parting, 24 sous. She burst into tears of gratitude which I could perceive was unfeigned because she was unable to utter a word. She had probably never before received so great an aid. This little attendrissement, with the solitude of my walk, led me into a train of reflections on that unequal division of property which occasions the numberless instances of wretchedness which I had observed in this country and is to be observed all over Europe.
The property of this country is absolutely concentrated in a very few hands, having revenues of from half a million of guineas a year downwards. These employ the flower of the country as servants, some of them having as many as 200 domestics, not laboring. They employ also a great number of manufacturers and tradesmen, and lastly the class of laboring husbandmen. But after all there comes the most numerous of all classes, that is, the poor who cannot find work. I asked myself what could be the reason so many should be permitted to beg who are willing to work, in a country where there is a very considerable proportion of uncultivated lands? These lands are undisturbed only for the sake of game. I should seem then that it must be because of the enormous wealth of the proprietors which places them above attention to the increase of their revenues by permitting these lands to be labored. I am conscious that an equal division of property is impracticable, but the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivision go hand in hand with the natural affections of the human mind. The descent of property of every kind therefore to all the children, or to all the brothers and sisters, or other relations in equal degree, is a politic measure and a practicable one. Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions or property in geometrical progression as they rise. Whenever there are in any country uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labor and live on. If for the encouragement of industry we allow it to be appropriated, we must take care that other employment be provided to those excluded from the appropriation. If we do not, the fundamental right to labor the earth returns to the unemployed. It is too soon yet in our country to say that every man who cannot find employment, but who can find uncultivated land, shall be at liberty to cultivate it, paying a moderate rent. But it is not too soon to provide by every possible means that as few as possible shall be without a little portion of land. The small landholders are the most precious part of the state.
Oh, and BCC,
your first post up there is meaningless. You posted a couple of numbers wtih, again, no context to tell us what was happening or why or even how we are supposed to understand them in the context of what you are selling!!
Please try and pick up your game.
Andres Valencia “Thanks Dr. Spencer, well said. Of course socialists will not like it, but they still can not prove their politics can make people happier”.
Canada is a socialism and we are happier with it. Of course, we have a right wing fringe who want to return us to a 19th century mentality but the majority of Canadians oppose such radicals.
It is a mystery to me how Yanks got so right wing. Must have been a load of right-wing malcontents on the Mayflower. 🙂
The difference between socialism and communism is that democratic socialism coexists with capitalistic entrepreneurship. When we malcontent socialists in Canada rebelled by forming unions, we did not try to overthrow capitalists or our capitalist government. All we wanted was fair play in the work place, which translated to fair play for all Canadians.
Please don’t confuse socialism with communism, especially the communist abominations of Russia and China. They stole the name socialism, other than that, they have nothing to do with the democratic version.
//It is a mystery to me how Yanks got so right wing. Must have been a load of right-wing malcontents on the Mayflower.
–they tried implementing communism and failed miserably, u know whut i mean. Every year the feast celebrating failure of socialism is celebrated, it is called “thanksgiving”.
No. It has to be a registered 501(c)(3) chraity. If you gave more than $250 to any single chraity, they must give you a receipt. Receipts required for all cash donations no matter how small. Retain receipts for your records for 6 years in case you get audited.References :
Gordon Robertson, you do know there was a vote in your country last year right? What is the corporate tax rate in Canada?
What’s that you say? Canada has the lowest overall corporate tax rate of the G-7 countries? It was lowered Why that is rabid right wing lunacy!
The U.S. is at 39%, the highest.
Some people are brain dead; there’s just no nice way to put it.
KuhnKat, October 17, 2012 at 9:14 PM,
Thanks for that illustration of the unequal distribution of benefits that existed in Jefferson’s day. The “Industrial Revolution” was under way at that time with the result that the wealth was already spreading well beyond the landed gentry. Even so, from the perspective of the working poor nothing much changed.
My family was “Middle Class” as my grandfather owned a clothing store in south Wales (UK). At the start of WW2 our household included two “live in” servants. When the war was over the family business was intact but employing servants was no longer possible for us. The war had completed the process of industrialization so that most of the population had jobs in factories and they liked the earnings from such employment.
Jefferson’s observation that the rich “employ the flower of the country as servants” was turned on its head as the only people who were available for hire as servants were those who had failed to secure a job in industry, banking or commerce. In my opinion this was a wonderful development for the UK and several other countries that were considered “First World” at that time.
Very soon I will need to move to a country that has yet to make the transition to full industrialization because I cannot afford to pay for “Assisted Living” here in the USA. It will be a case of “deja vu all over again”. Right now my preference is Llano Grande close to the airport in Medellin, Colombia.
Gordon Robertson, October 17, 2012 at 9:36 PM,
If you Canadians are “Socialists” can you explain why the Heritage Foundation loves you?
http://www.heritage.org/index/
According to Heritage there is a strong correlation between economic freedom and personal freedom. They rank only five nations as “FREE” but Canada is really close at #6 compared to the fast falling USA at #10.
It seems that you are less socialist than the USA!
slimething “Canada has the lowest overall corporate tax rate of the G-7 countries?”
Canada is a socialism by definition because it uses a centralized government to implement universal social programs. However, it is a democratic socialism, meaning right-wing governments can be voted into power, like the present government.
No government in Canada, no matter how right wing would dare to abolish those centralized social programs. They would be turfed. The government before them, the Liberals, have run a form of socialistic capitalism in which they helped entrench our social programs. However, they have appeased corporations with the idiotic belief that they need welfare, a term David Lewis coined as “corporate welfare bums”.
There is no difference between a poor person taking welfare from a state and a corporation taking it in the form of tax relief, tax deferrals, and outright handouts. The difference is that the latter does not need it. It is simply a case of the rich profiting from socialism. That’s right, when a state favours the rich over the poor and working class by allowing corporations to pay a third of the income tax of working people, they are using the population as a whole to subsidize them, which is socialism.
I think a corporate tax rate of 16% is absurd and immoral. The corporate welfare bums should be ashamed to pick the pockets of the working class as they do. However, the mandate of a corporation in either side of the border is to make a profit for its shareholders. It doesn’t matter that the profit comes at the expense of others, they don’t ask questions.
If Roy is serious about the 99% supporting the 1% then perhaps the 99% can get serious and pay their fair share of taxes first, and to stop treating workers so shoddily.
//Canada is a socialism by definition because it uses a centralized government to implement universal social programs.
–by that definition, every single government on earth, maybe excpet some ‘failed’ states like somalia, is completely socialistic. Well, there is something to it, unfortunately.
But that definition is wrong, what you call ‘socialism’ is more properly called ‘social democracy’. IT IS NOT SOCIALISM! Socialism is when no private property on capital exists, and despite huge amount of government-chartered monopolies (yuc!) canada is far from it.
//However, it is a democratic socialism, meaning right-wing governments can be voted into power, like the present government.
Democracy is better than totalitarianism, but it is still BAD. Think of it: 51% can dictate to 49% all it wants. Democracy? yes. But is it good?
//There is no difference between a poor person taking welfare from a state and a corporation taking it in the form of tax relief, tax deferrals, and outright handouts. The difference is that the latter does not need it
Most ‘poor’ people do not need it either. I believe by congolesian standard there ain’t no poor people in canada.
//I think a corporate tax rate of 16% is absurd and immoral.
I think any corporate tax other than 0% is immoral, fraudulent and malicious. Taxing corporations is called double taxation. Corporation is not a person, it does not consume like people do, and any tax is a consumption tax. Therefore, you can not tax corporation, only its employees and customers (the poor people), and shareholders (the rich people). Aren’t they already taxed?
But while taxing corporation doesn’t tax corporation because it can’t consume, it does hurt corporation because it can’t produce as much. It also confuses the masses into thinking that corporation can somehow be taxed and no consequences be felt.
Dear commandante, if you want to go after the rich guys, go after the RICH GUYS, tax incomes (oh wait, you already do it at 60% in canada), tax consumption (13% there), but PLEASE, lay off the coporations!!!!!!!!!! But is it still not enough for you, is it? Greedy you, commandante!
//The corporate welfare bums should be ashamed to pick the pockets of the working class as they do.
–Well, what did you expect, rich people are always closer to power.
//However, the mandate of a corporation in either side of the border is to make a profit for its shareholders. It doesn’t matter that the profit comes at the expense of others, they don’t ask questions.
–well, profits can only come from satisfying consumer demand, e.g. making poor people richer… which is a good thing, unless the corporation is government-connected.
BCC, October 17, 2012 at 11:59 AM,
Unlike most leftists you appear to have read “Atlas Shrugged” so you have my respect for that. For my part I have not read “Das Kapital” but I consider the “Communist Manifesto” (Marx & Engels, 1848) comparable with the US “Bill of Rights”.
These documents are written so that ordinary people can understand them and that is a large part of their power. Here they are:
http://www.ushistory.org/documents/amendments.htm#amend01
http://morcombe.net/KarlMarx.htm
The issue is “Etatism” versus personal freedom. Does the individual exist to serve the state? Or do you subscribe to Lincoln’s quaint notion that the state exists to serve the people?
“….government of the people, by the people, for the people, shall not perish from the earth.”
To appreciate the contrast between “Etatism” and freedom just look at Korea. The south has a vibrant economy while it is “Lights Out” in the north.
http://www.gallopingcamel.info/Freedom.htm
KuhnKat,
You will note that I referenced actual data. For reference, Dr. Spencer references none, relying instead on his cartoonish understanding of economics.
I was writing a response to a blog post, not writing my dissertation. Sure, in the 1950’s, many things were different- half the world was rebuilding from WWII, and we didn’t have e.g. a lot of competition from German and Japanese automakers.
But, since I have your attention (with the added bonus of not feeling the need to call you names- does doing so make you feel strong?), here’s a scatter of top marginal tax rate vs. per capita GDP growth for the US. In honor of Dr. Spencer, I did a lag-1 chart as well, in case marginal tax rates had a delayed effect or something.
Chart:
http://docs.google.com/spreadsheet/oimg?key=0ArxD0wbilNOqdGlvNFZxZVYzY3hGS1FhVlpqMmFjbEE&oid=2&zx=jytj5u63jciq
Data:
http://docs.google.com/spreadsheet/ccc?key=0ArxD0wbilNOqdGlvNFZxZVYzY3hGS1FhVlpqMmFjbEE#gid=2
Observation: No obvious correlation. If top marginal rates were so damn important, you’d expect to see some pattern where the high growth years occurred when the top marginal rate was low.
No such luck.
Theory: Marginal tax rates do not have a strong influence on “job creator” behavior.
One possible mechanism: Job creators create jobs mainly before they hit the top marginal tier.
Finally, thanks for presenting the TJ letter in its entirety. I’d certainly encourage you to read more Adam Smith. He’s got a lot to say that I wish free-market proponents better understood.
Cheers.
gallopingcamel…re Marx
Most people I have read who criticize Marx are taking him completely out of context. He lived in a time of total right-wing anarchy where workers were treated like vermin. Your comparison of his manifesto to the US Bill of Rights is apt…when taken in the context of the times.
The original Bill protected only whites, excluding Indians and Blacks. The US hero, George Washington was a slave owner.
With hindsight, it is easy to see the flaws in the Marx manifesto. We have seen them abused. It bothers me that much of the abuse had nothing to do with Marx or his theories. Even the term Marxist represents a splinter group who corrupted his theories.
We need to get off this division between socialist and capitalist and address the needs of both. Humanism should be our first priority.
gallopingcamel “It seems that you are less socialist than the USA!”
You’d have to live here to understand the difference. Recently I had the misfortune of being taken to the ER by ambulance. I paid nothing. I had blood tests, a doctor and several nurses, an EEG, medication…nothing to pay.
A few years back I had a gallbladder removed. No cost. Same thing for an appendectomy a decade before. I have had broken bones set and cuts stitched…no cost.
In comparison, an old guy in the US a while back had his wife succumb to Alzheimers. It cost him his life’s savings, and his home, and when they had finished with him, they went after his family.
Recently, we had a Canadian guy traveling in the US who needed urgent care for a heart episode. He incurred a bill of several hundred thousand dollars. If it had happened in Canada it would have cost him nothing.
Under the Medicare Act, we are not supposed to pay any premiums. However, certain right wing provinces have been allowed to get away with charging premiums. They charge us about $60/month for a single working person but it is entirely no fault. As a unionist, my medical, dental, and extras were paid for on top of my wages. You can’t get any more socialist than that.
No one can ever come after you for extra money no matter how many times you need medical attention.
In 1973, we had a socialist government take over our province (BC), They introduced government auto insurance and did away with the private insurers. My rates were cut in half, and to this day, it has been so popular that successive right-wing governments have steered away from dissolving it.
Anyone who writes about our freedoms in Canada had better check to be sure they have the context right. I cannot think of one country in this world that has more overall freedom for all its citizens.
BCC,
If by some magic I became the next US President I could transform the US economy and create millions of jobs by following the strategy I proposed for North Carolina ten years ago:
http://morcombe.net/Senate/Jobs.htm
In common with most countries, the basic industrial strategy of the USA depends on “Targeted Incentives” even though it creates one scandal after another.
Industrial incentives are bribes designed to attract a “targeted” company to locate in a given jurisdiction. The bribe has to be provided “Up Front” and when the money has been spent the company has little motivation to remain. Yes, you can bribe companies using taxpayer dollars but will they stay bribed when the money runs out?
Back in the 1970s the Republic of Ireland took a different path by using the tax code to attract businesses to Ireland. By giving a 15 year “Tax Holiday” companies were bribed with their own money. The only up front costs were for “infrastructure” such as roads, schools and buildings that benefited the population at large.
Did it work? You bet it did. A tiny country with zero natural resources became known as the “Celtic Tiger”.
Would this strategy work elsewhere? There are a bunch of ex-Comecon countries that believe it does. Some of them have set corporate tax rates as low as 10%.
My recommendation given the appalling rate of unemployment in the USA is to apply a tax rate of 9% as advocated by Herman Cain. This would trigger a massive influx of manufacturing jobs to the USA driving unemployment down to 4% or below.
Gordon Robinson,
I can’t argue with you when cite government actions that reduce costs. I wish that the things you describe were happening here. Government intervention that actually reduces what the public has to pay for goods or services? Incredible!
Come to think of it I should have realized that Canada is doing something right. My wife and I routinely purchase drugs from Canadian pharmacies. In contrast, the US FDA is a wholly owned subsidiary of the drug companies dedicated to preventing the impoverished and infirm from accessing cheap drugs.
I guess we are homing in on what makes Canada #6 in the “Economic Freedom” rankings and the USA #10.
Well … whats the lesson to learn from Sweden?
Sweden was the only ocuntry in Europe after WW2 who had its industry intact. Euorop was bombed in to peaces and the demand for swedisch goods to rebuild Europe was enormous.
So the clients where there demand was there and the production to meet it was there and the competition was very weak. It was a selfplaying piano. The socialdemocrat gouvernment taxed the companys its owners and the workers to a level where there was no difference in netincome if you where unemployed och was working. Social benefits took away the incetive to work and to start och own new buissiness.
The effect is that ALL the biggest swedish companies is very old and there are no new ones rising. If you had an buissiness idea you invested abroad instead where the chanses to keep any possible profit was a great deal higher and companies and company owners left sweden in big numbers during the late sevnties and eighties because of the high taxation.
People stopped working and we had the highest level of people longterm “sick” on the earth even though statistics at the same tame told s that we wherer the most healthiest.
Allmost all of our few billioneres sweden had lika Kamprad (IKEA) and Rausings (tetra pack)left sweden in a row. The high tax economi kollapsed in the beginning of the nighties and it took allmost a decade to get things back in balance. We killed our economy and the development of sweden during the high income margin taxes!!
That high taxation of rich or high income people is beneicial for workers or the country is an ILLUSION! There is a fundamental lack in understanding how important “possibilties” is for economic growth. How easy or hard it is to make money decides the activity in the economy and when taxes becomes a to big burden on the possibilities the econmy shrinks. Its simple as that!
Few really understands the underlying key on what our long change of value trading is all about. The key is to create a value that someone else is voluntarely prepered to buy from you in competetion with others and still make enogh money to pay bills tax and wages. That goes for everything in the big value excgange we all participate in. This basic function cowers both wages profits and prices on everything. With higher taxes less people get the opportynity to earn thier living.
“Greed” is delibritly an ideological missunderstanding of whats driving individuals. Its only a confirmation of that you are good on what you are producing and the missconception that its “unfair” or that the rightful owner of the result is the workers or the state is a comfortable lie. As long as no one is forced to buy work or sell whats produced you have proof of that the value chain is fair and corrct. We simply choose whats availeble best for us and ther is NO abuse of anyone in the valuechain. On behalf of whos cost or powerty is anyone getting rich today? Whos didi Bill gates steal his money from? Who did he make poorer? No one ofcouse we all benefitet from microsoft everyone enjoyed the benefits of Microsoft “Big Oil” McDonalds in our one way. Our right to make free choises
is the base of it all and what values we choose between.
You have too keep your eyes on the ball att all times and focus on the possabilities for everyone to participate and contribute in our big valuechain. That people can make money is not the problem. That to many dont is the problem! and to high taxes will “with Sweden as a proof of) kill their options. Sweden got out of its problem by lowering its taxes not rising them. The opposit was how big problems where created. The natural rules of the function of the valuchain and its exchanges was disrupted and with unemployment and lack of initiatives as a result. Just dont go there!. Dont think it will solve anything. Its an ILLUSION! It doesent mak poor people richer it just makr more people poor.
Keep the state in tight chackles or it will eat you and the ones you care most for be suffocated under the treatment of the state. Ask any Swede we been there done that and have eiht t- shirts. Dont go there!
So anyone using Sweden as an good example on high taxes …they are idiots and have learned NOTHING!!
There are two kinds of business. “production” business led by normal people who provide services and jobs and make money, and government business led by governments to provide services no one wants to pay for (but which are often necessary) which is always lossy (that’s why governments need taxes to pay for it and keep it running).
Only the first one is the one discussed in this article. The problem starts when people start mistaking the two or thinking they are equal.
Another problem is in keeping the right proportion of the two. Because sticking just to the second one means we’re doing exactly the mentioned digging and filling of holes in the ground.
Profits are great! However, even Andrew Carnegie realized that his enormous profits were made on backs of workers who toiled for low pay on his behalf. Capitalism is fine, so long as the lying, cheating, stealing, and abuse stops. Fair and benefits pay for honest work. If the boss gets healthcare and vacations so should the workers–who are the ones making the owner rich. Without the labor, the “ideas” for commerce are pipe dreams. At least until the robot factories get up and running.
“Lowering tax rates, especially on businesses, stimulates economic activity, which then increases tax revenue.”
There were a lot on things in the blog that are merely folklore, so I will pick just the above as an example.
Lowering taxes has never correlated to higher tax revenue. Taxes have been lowered and revenue has gone up. Taxes have been raised and revenue has gone up. Taxes have been cut and revenue has gone down. When Reagan cut tax rates, he also raised government spending hugely. His intent on taxes was to be revenue neutral. Government spending, among other things, goes to contractors who pay taxes and pay salaries which are then taxed. No trick to increase government tax revenue while expanding government; even government employees pay income tax. Net revenue,income minus spending, went down. But all that deficit spending came at the cost of doubling the national debt. Government growth explosions during Republican administions has added at least $10 trillion to the national debt, much of that when a dollar was worth something.
The government, after a certain point in size, is a drag on the economy, but cutting taxes while expanding the government leads to nervousness among businesses. Uncertainty about fiscal and monetary stability slows economic growth. Can we stand more from the huge-government-but-tax-only-through-inflation party?
A Cato Institute study suggested that lowering taxes while increasing government spending, as Republicans do, actually increases demand for government services because the electorate has false sense of the cost of government. They fail to recognize the government taking value from them as inflation. This flies in the face of the “starve the beast” philosophy of some Republicans.
Christopher,
Well, I’m glad you understand there in uncertainty in science. However, this uncertainty you are playing up is not exclusive to climate science! Thankfully, there are many statistical methods to quantify this uncertainty Even on the low end of CO2 climate sensitivity uncertainty, there will be likely worldly consequences if the earth continues to warm. But I degress. I don’t care about the policy decisions of climate change. I really don’t. I’m not political at all. Which is why I cringe when scientists become political in nature and put their scientific credentials to the wrong use (this applies to both sides of this particular issue). It just seems to pump up any percieved bias they may have.
I did not mean to be condescending here at all. Many of my peers in atmospheric and climate sciences feel the same way. We are mostly a bunch of geeks that want scientists to focus on making science less uncertain and NOT use their posts for the wrong reasons.
Hmmmm. If Robbo is a typical Canadian they must be a pretty dumb lot. Perhaps the most significant characteristic of a socialist state is that all enterprises are state owned and state managed. Perhaps a check of who owns the various mining, manufacturing and say commercial businesses or even banks in Canada would be an informative place to start. It has been the observation of many of us Aussies, seeing our country being economically damaged by a worker’s union dominated Labor Party, that Canada seems to be prospering as never before under a Conservative government that isn’t into AGW hysteria (favoured by most “socialists”) or it’s generally associated neo-pagan view of Earth’s ecology. Heard of Stephen Harper? A good socialist no doubt?
You confuse The Socialist State and the Welfare State which was implemented in Germany under Bismarck as a counter to the Socialist State and Marxism. Most modern economies, including Canada’s, are basically capitalist economies with varying degrees of state Welfare.
llew jones “Perhaps the most significant characteristic of a socialist state is that all enterprises are state owned and state managed”.
You are confusing socialism with communism, and that’s what the communists intended when they stole the word socialism. All socialisms we know, like those in Canada, the UK, Germany, Australia, New Zealand, etc., were workers’ movements carried out under democratic regimes through civil disobedience.
There is nothing in any of those socialisms that have tried to interfere with free enterprise, other than to ensure that private enterprise treats its employees fairly. Even at that, there is very little in the way of legislation to ensure that fair treatment, other than perhaps severe abuse like sexual harassment.
You need to get away from the right wing propaganda, llew, and do some objective reading on what is what. Try reading some Chomsky. He can be a bit far out at times but you can read him and get the drift.
There are several questions in play here. One is about using state power to re-distribute possessions, usually about taking from the rich and giving to the poor; how far does this make people better off overall? Another is about how an economy works, can it be driven by “aggregate demand” especially including demand created by government spending of money that is either taken from taxpayers or printed out of nothing; or does it depend essentially and primarily on the initiative of producers who create new products that people want to buy and consequently will work more to get money for. Another is about who knows best how to make a business work, a central government authority or a man on the ground out in the field. Another is about how to control more or less inevitable human vices, such as tendencies to cheat and lie, to lose heart and give up, to be lax and spend without forethought; which is worse, government corruption or private corruption; does regulation work for this purpose?
Dr Spencer,
I admire your passion for fixing the country, but you need to find out about Modern Monetary Theory. We haven’t been on the gold standard domestically since 1934 and your ideas about taxation supplying revenues for government services is about that old as well. The US federal government is no revenue-constrained (the 50 states, all business and households are) We’ve had a sovereign non-convertible currency with a floating exchange rate both domestically and internationally since 1971. It’s time everyone knows how it works, operationally. It’s the system we’ve got. No theory. No philosophy. No ideology. As a scientist you know full well that you have to deal with the data. Perceptions don’t cut it. I guarantee you this will make sense to you.
Modern Money & Public Purpose 2: Governments Are Not Households
This is the one to watch because it’s easier to watch on YouTube. Worth every minute, especially the Q&A.
http://www.youtube.com/watch?v=ba8XdDqZ-Jg
The original site of the series currently at Columbia University, and the link to the same YouTube above with the literature that backs it up:
http://www.modernmoneyandpublicpurpose.com/seminar-2.html
Gordon Robertson:
Just read an article claiming that the Canada Health System is cash poor. Your pay nothing has a term limit on it that equates to the ability of the state to continue paying the bill. It is almost up since your doctors are also starting to make people comfortable while dying.
You tell us about two emnergencies. Yes, most countries systems WILL handle emergencies reasonably. The problem is when youo have none emergency issues and need tests to find out if you NEED care in an expedited manner. Canada is letting people die due to delays in the ability to get routine exams and non-routine testing.
http://www.examiner.com/article/canada-s-health-care-system-has-its-problems
http://www.city-journal.org/html/17_3_canadian_healthcare.html
Why are leftards so Utopian that they cannot admit to the faults in their systems??
BCC,
your second chart shows that GDP rose after the tax cuts in the Kennedy, Reagan, and Bush administrations. We can also see that the Clintoon tax increase was so small that it had little, if any, effect on GDP. Of course we also see that in the 30’s there was a short drop off when the rates were raised and then the GDP rose again!!
So, the problem with this chart is that it does NOT show the actual REVENUE GENERATED from the tax rates. In the 30’s was the initial drop because of increased revenue to the gubmint and a drop off in business?? Was the following increase in GDP representative of Cronies working with the politicians to PROTECT their income decreasing the actual revenue to the gubmint?!?!
I wonder if we even agree that there is a bottom limit where reducing the rate will not improve anything and an upper limit where the avoidance mechanisms including criminality prevent any more revenue for the gubmint?
Basically Mitzi claimed he would increase tax rates but cut out many exemptions making the system more stable and less of a game. I don’t know the details so maybe it is good or not.
Barry thinks he can keep cranking up the rates until he can pay for the ridiculous wasteful spending. He is insane as there simply is not enough revenue to pay the bills at ANY rate!! He must keep paying off the corporations and rich types like Soros who spend the money to get him and his Democrats reelected insuring that they will have methods to avoid those same massive rates.
These charts are little more than teasers to start arguments. But thanks for mostly supporting Dr. Spencer’s post!!! 8>)
Gordon Robertson,
Please show us where in the Constitution and BOR that blacks were excluded?? Yasee, there were black citizens who were free, landowners, voters, and slave owners back then. How do you silly people get to believe this crap??
http://www.thecanadianencyclopedia.com/articles/slavery
Tch, tch. Canada didn’t actually abolish slavery themselves until the 1830’s only 30 years before the US. Note there was no economic pressure to keep slavery as it wasn’t a good fit to your businesses.
Gordon Robertson,
Chomsky?? The really smart intellectual who tried to convince us for years that people are born with language capabilities passed down from parents somehow?? That Chomsky??
HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA
So capitalism generates wealth. Who will best administer this “commons” wealth? US politicians have been buying votes with the ” commons” since LBJ. This process has run its logical course. It is another “Tragedy of the Commons”.
Dear Dr Spencer,
Of course it would be good if the 1% could create more jobs and provide work for the other 99%, but if only 1% of the nation have all the money, where are the buyers of the goods the 1% are producing going to come from?
The Republicans seem to be planning on cutting government spending by 50% to repay the deficit, but if they do that then, when 50% of government employees and contractors are sacked, unemployment will rise and there will be even less customers for the products that are produced by the 1%. Don’t forget a 50% cut in government science spending means either you or Dr Christie must lose your job!
Romney pointed out that 47% of Americans don’t pay federal taxes. Surely the plan should be to raise their incomes so that they do pay tax. It does not make sense to reduce the taxes of the riches 1%. They have already built their businesses and are now retired. It is 1% who are at present poor and need a break who will be the next generation of wealth creators.
http://rense.com/1.imagesH/american_incomes_sep_19_201.jpg
This graphic will explain why the 1% should not be supported and should be taxed heavily. They are destroying the US and so many right-wing advocates are cheering on the destruction. I really cannot understand how right-wing minds process informtion. Seems more like a cult of superiority (makes you feel good because in your limited comprehension you feel you are above the rest as evidenced in many posts I have read from this perspective).
With wages stagnant or declining (as the last post pointed out) people are losing their purchasing ability and the economy is in decline. We are reverting to the past of Landlords and peasants and the right-wing seems to want this. Did they forget why so many Europeans took huge risks to come to America to originally populate this land?
The right-wing tea party mentality is pushing us back to that existence for some unknown reason. It makes sense for the 1% to want this. Makes zero rational sense for anyone else to wish this to happen. Wake up!! You are not superior nor better than anyone else. Humble yourself or you will be humbled! If the 1% get their wishes met, your grandchildren will be serfs working on land for these few families. Only now there is no New World to escape to!
That chart is SOOO lousy and false it can even beat hockeystick at it! Look at the chart, the drop started not in 1980 but in 1973 when the gold standard was abolished!!!!!!
Here is an oversimplified example but it will show why corporations will not create good paying jobs in the US regardless of taxes or who is President and supporting these corporate decisions will definately destroy any chance at a good living standard in this country. I would totally reject Dr. Spencer’s economic view and go the opposite way. Tax the super weatlthy (multi-billionaires) at about 90%. Not so much to save unwise government spending, but more to limit the power of a few families from taking over everything (as they were doing before Theodore Roosevelt ended this activity). Progressive taxes were designed to stop a complete takeover by a few wealthy families at the complete expense of freedom.
Company USA: Has 1000 workers and pays $20 an hour
Overhead is $10,000/hr
Raw materials are $10,000/hr
Company USA makes a 10% profit so the sales are $44,000/hr
Now reduce company USA taxes on profit to zero. Company makes $4000/hr.
Now we have Company China: Has 1000 workers and pays $1/hr
Overhead is $10,000/hr
Raw Materials are $10,000/hr
Company China is able to sell goods at the same price as Company USA (consumer used to this price). Sales are still $44,000/hr. Removing all the payouts to make this he is left with a $23,000 profit. Even if China has a 50% tax on profit Company China profit still is much greater than Company USA.
Since corporations absolutely do not give a “rat’s ass” about my well being or yours, why would they move manufacturing to the US??? Unless you and your children and grandchildren want to work for $1 and hour there will never be an incentive to move work back to the USA regardless on the Zombie programming put into those who are the right of the political spectrum. Wake UP!!
Dr. Spencer, such is a good article in ways. As constructive criticism, though, there are two common falsehoods best to preemptively counter more (as can be seen from comments):
1) The false meme that there was a 90% or other extreme top-bracket tax rate on businesses in the 1950s, a time of economic growth: Actually the U.S. corporate income tax rate at the highest bracket has never ever been above 53% nominally. In practice, after deductions and tax minimization strategies, it has always been far less than that.
http://taxfoundation.org/article/federal-corporate-income-tax-rates-income-years-1909-2012
Later on, in the Reagan era, top personal income tax rates were reduced until becoming more comparable. Such led to more businesses organizing for pass-through taxation, and more business income became lumped into the category of personal income for tax purposes and reporting. When top personal income tax rates were higher than corporate, though, more businesses were corporations.
A 90% tax rate on businesses of highest income instead of under half of that as an effective average would have crippled economic growth, but it never existed in the U.S.: not in the 1950s, not ever.
Countries like China have rather low corporate income tax rates today, lower than the U.S. today actually. Off the top of my head, the only country in the world I know of with effectively above a 90% tax rate reached on businesses is North Korea, which is nominally near pure communism, like 100% tax rate or rather the state taking everything so there is nil free enterprise on large scale, none beyond such as small scale activities hiding in the black market (and unsurprisingly a terrible economy).
2) The false meme that tax rates matter primarily just for motivation. On the contrary, no matter how motivated someone is, even if they would robot-like try just as hard no matter the tax rate on their business, business growth is very dependent upon how much aftertax profit is available.
Too few leftist political ideologues even really understand the difference between revenue and profits. Profits are not just some extra unnecessary surplus; without profits, a business can not grow; do much interesting; and there is little to any point in operating it. For those who think revenue is all that is needed, I can tell anyone of typical middle-class resources how to make $500000 a year in revenue. Just buy a $10000 item each week and resell it for about the same price or less, repeating 50 weeks a year. But such does nil good as then (revenue – expenses) equals either zero or in this case most likely a negative figure, meaning zero to negative profit.
Aftertax profit is what determines how fast a business can grow if it grows at all, mattering exponentially in effects adding up over the years. Even superficial exceptions like a business raising money from debt financing or selling stocks only come from the perception of future aftertax profits, unless the investors are going to get ripped off.
—————————–
As this article implies, income at high levels does not just go into personal consumption. Someone running a company with billion-dollar profit does not personally eat 10000 times the food per year of someone with $100000 profit. Rather the former income is more likely primarily reinvested in businesses. At low and moderate levels of income, money is primarily about personal consumption. At really high levels from business income, it can be more about being able to direct large-scale activity. True communist states (not such as China which is highly capitalistic now but North Korea) eliminate the economic path to power, leaving only the political path to power, but that is terrible because the former is more often based more on actual performance, innovation, and efficient management.
A common misperception important to counter is the belief encouraged by government-funded economists that the economy is driven primarily by consumption rather than investment and production. The real difference can be illustrated by asking which would help mankind more as a thought experiment:
(1) We get a portal to the ultimate producer planet, a race of robots which produce goods for us but consume next to nothing, giving us an abundance of food, residences, electricity, and so on.
or
(2) We get a portal to the ultimate consumer planet, filled with entities which consume whatever is sent to them but produce nothing and send nothing back.
Regarding:
http://rense.com/1.imagesH/american_incomes_sep_19_201.jpg
There was not really an 80% increase in U.S. productivity per capita from 1979 to 2009, which makes the chart invalid. There was politically motivated under-adjustment for true inflation in official figures (e.g. shadowstats.com ). While the Carter years and beyond corresponded to huge rise in amount of dollars in circulation and inflated GDP figures, reality can be seen looking at more physical metrics.
Prosperity and living expenses primarily correspond to physical goods. The most important is residences, being the single biggest living expense. Secondly, there is food, energy, and transportation (such as cars and gasoline). Everything else is less major than those.
Over the past several decades in the U.S., there has been real gain in food production, increase in electricity generation (largely through the result of adding to prior infrastructure), and a lot more fun electronics. But U.S. production of houses per capita, cars per capita, tons of steel relative to population, fuel even if adding in imports, and most physical goods has hardly climbed much (and in many cases even declined) since around partway through the 1970s. Per person, such has not doubled.
Prosperity does not come just from such as overpriced services. For instance, as a thought experiment, if I were pay my neighbor $100 to pay my lawn, and he paid me $100 to mow his lawn, GDP would go up by the corresponding amount with our rise in incomes (despite our rise in expenses as well), yet really that is just an illusion (compared to if we each mowed our own lawn without the money exchanged, giving lesser GDP but not really lesser prosperity). When women moved into the workforce after the 1960s, some of the gain in GDP was overstated when, for example, a daycare worker’s services are counted in GDP but not the prior method of the mother raising the kid directly. (I’m not saying women shouldn’t be free to work but simply pointing out how much of official GDP gain from the 1970s to now is overstated; there was no 80% increase of real total production per person in the U.S. over that period in more relevant terms).
In some ways, the government could do more to help the very poor, but that is not even the direction of most increase in government spending in practice. At all levels from local to federal combined, U.S. government spending is already $6.4 trillion a year, a vast increase from when it was $3.9 trillion a decade ago ( http://www.usgovernmentspending.com/ ), and the government does not need more increase in spending and more taxes so much as to use less wastefully the money it already takes in.
In practice, under typical congresscritter management, much of what increased acceleration of government spending does these days is expand money flowing into the service sector at the expense of the rest. For instance, the cost of college education has utterly skyrocketed, because increased government spending subsidizing loans lets the relevant businesses (colleges) jack up prices more and more while still getting as many customers (students) as ever. A dirty little secret is that colleges these days even tie tuition increases to when they see changes in government supported loans, as they know that is when they can get away with such, whereas otherwise so jacking up prices would have made them get reduced customers (students) and be forced to moderate prices like a normal business.
We have far more students getting degrees in humanities subjects (far in excess of the actual marketplace demand for such degrees), using taxpayer money which is taken in part from what physical producers are still left in operation. Yet meeting living needs is as dependent as ever primarily on production of residences, vehicles, energy, and food (all physical goods).
U.S. manufacturing can not all just go to China because by now the system of them giving us goods of real physical value indirectly largely in exchange for our issuing of questionable government IOU debt is starting to break down. At some point, the matter becomes why would the Chinese want to? Our surplus lawyers, humanities majors, government bureaucrats, and the rest of our bloated service sector population does not provide an unlimited amount of physical products of real value to ship overseas to pay them back for goods.
As the relative value of our American money breaks down under our inflation, the U.S. dollar is already starting to become lower and lower value relative to the Chinese yuan (including a fresh record reported in the WSJ a couple days ago, incidentally).
The false bubble that came from the U.S. hollowing out its manufacturing sector but surviving by imports is coming to an end, which in a way is a good thing, a necessary adjustment.
American workers making 20 times as much as Chinese workers is already history.
For example, to quote:
““We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015.” “After adjustments are made to account for American workers’ relatively higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states, wage rates in Chinese cities such asShanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states. And since wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.—even before inventory and shipping costs are considered. After those costs are factored in, the total cost advantage will drop to single digits or be erased entirely, Sirkin said.”
http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-75973
What matters in the end for prosperity is primarily four things:
1) Whatever the absolute “value” of each in dollar terms, the relative ratio of the cost of a residence locally to income.
2) The same but for food relative to income.
3) The same but for for another set of physical products, energy and vehicles, relative to income.
4) Only to a lesser degree everything else.
Physical production and manufacturing can come back in the U.S. to a degree, provided growth of taxes and badly designed regulations do not too cripple it. (Already the government is destroying the U.S. coal industry, so as to prevent the imaginary horrors of more plant food in the air; we may be able to survive that economically, but the leftist environmentalist dream of wiping out growth in natural gas fracking as well would be a devastating combo).
HClark,
In your thought experiment on the two planets (all production vs consumer) neither would be good and both would promote laziness and lack of motivation.
If robots produce all the goods and services what motivation does the person have to do anything?
If we are all consumers but not producers than what motivation is there to do anything.
We become like well fed cats, lie around all day and exert very little effort.
Best planet is a balance between the two. Best economic system is one in balance. The extremes are BAD!! Pure capitalism has been around a long time and is very bad for the majority!! Communism likewise is very bad. It is like temperature. 110F is bad for most and -20F is likewise bad. Most like it around 70F.
The best economy is one in the middle. You have top wage earners that make the most money and use profits to invest in new ideas and products. You have workers (producers) that get a good living wage (not excessive) for their labor. You have the top earners realize their wealth comes from those producers and their is a nice balance and things run smoothly.
My objection is one extreme (communism) or the other (pure capitalism which generated communist thinking) is all most can think of. Few realize somewhere in the middle is best. The US government is currently one of extremes. Either total Left or Right, no room for the most rational middle. Balance of power is the way to go for the best benefit to the most people.
A clear and down to earth analysis, thank you Dr. Spencer. I reposted it in my blog, cheers, http://funwithgovernment.blogspot.com/2012/10/inequality-14-99-percent-to-support-1.html
HClark: “2) The false meme that tax rates matter primarily just for motivation. On the contrary, no matter how motivated someone is, even if they would robot-like try just as hard no matter the tax rate on their business, business growth is very dependent upon how much aftertax profit is available.”
Hear, hear.
There were years when I expended on personal consumption less than one dollar of every eight I made. Much of the rest went to taxes, of course, but I invested the remainder, some directly into start-up enterprises and more to previous such investors, who thereby freed up funds to do more of the same.
One could argue whether the capital expenditures I thereby made advanced total societal wealth more than bridges to nowhere, $800-million-per-mile subways in San Francisco, or birth-control pills for Georgetown law students. But it stands to reason that–as a group–people whose investments have made them wealthy (and I’m not among them) tend to invest that wealth better than the rest of us or the government. And it’s clear to me that the amount available for those capital expenditures of mine were reduced dollar for dollar by my tax bill.
It’s also clear to me, by the way that “trickle-down” is a misleading expression; my excess income absolutely flooded down to the suppliers of struggling enterprises in which I invested: I saw some of it go directly into the pockets of, e.g., machinists who produced prototypes of high-efficiency water-cleaning devices.
In the US, the top 10% of income earners paid over 70% of federal income tax according to latest stats. It’s hard for me to take seriously the argument that the top earners are somehow getting off easy!
Also hard for me to believe is how anyone could possibly find Roy’s notion that capitalism is efficient a controversial idea.
Not sure what happened to y’all down in America.
ps BCC could be reminded that in the 1950’s America had real money backed by gold rather than fiat money that loses its value through qualitative easing (money printing). Different as apples and oranges!
Norman:
I agree with not wanting an utter extreme. We would presumably differ on quantitative figures favored and on perception of overall trends in government spending (on whether there is more risk in practice today of erroring on the side of too much or too little), but in a qualitative sense we agree on the aspect of having a mixed economy. I definitely do not mean to advocate an extreme like no government or no regulations.
————-
Joe Born:
Indeed; that is a good illustration.
@Dave in Cameron,
In the 1950s, America did NOT have “real money backed by gold rather than fiat money.” America hasn’t had gold-backed money (convertible currency) since 1934. The final unhook to a monetarily sovereign non-convertible currency with a floating exchange rate occurred in 1971, when Nixon took us off gold payments internationally after someone advised General de Gaulle to drain the US of gold at $35/ounce.
Returning to paper/debt instrument legal tender in 1934 created a significant number of benefits to the USA, those same benefits the British colonies enjoyed until Britain, fearing loss of control, enacted The Currency Act of 1764 and forced all taxes paid in gold and silver. Guess who controlled the gold?
It allowed FDR to initiate a massive public works program that put an impoverished USA back to work. That is, until the deficit hawks jumped on his back in 1937 and made him “balance the budget.” The USA was back up to 19.4% unemployment within a year. Read about it in wikipedia (about the only thing they get right).
It allowed three obscure government economists to create The Victory Plan that put American factories to work creating materiel for WWII. The USA could pay for all resources and output immediately because now it was issuing its own currency. What you call fiat money. (Incidentally, gold is fiat as well.) When you issue your own currency, you can pay all debt in your own currency, something Paul Ryan does not know. The corrected history of this was just published in “Keep From All Thoughtful Men, How US Economists Won World War II” by James G Lacey, a military historian.
The countries in the world that have sovereign non-convertible currencies with a floating exchange rate (fixed rate would peg it to something like gold) are the USA, Canada, Japan, Great Britain, and Australia. (Japan’s debt to GDP is over 200%, its credit rating is below Botswana, and the interest rate hasn’t risen above 1% in 20 years, yet it has universal health care, takes care of its seniors, a world class currency, vibrant business climate, clean modern cities, better educational system than we have, etc. etc. How does it do it? It denominates all debt in its own currency and there ain’t anything a bond vigilante can do to get in there to steal from them.)
You need to learn how our monetary system REALLY works. Ours and Canada’s. Everyone in the comments section is thinking pre-1934, including Dr. Spencer. Scroll up for my name and click on the link.
BTW, isn’t your money plastic now?
Oh, and for the record, capitalism has nothing to do with efficiency. It has to do with sales. Households in this country account for 70% of spending. Business, depending on the business cycle, for 11 to 14%. Government about 13%. And the foreign sector the remainder.
Business is sitting on $2 trillion right now. There is no incentive to spend until households deleverage (get rid of their debt), which Congress could hasten if it would do its job and pass the mortgage relief acts, and other acts to get sales back, and institute fiscal policy which i has abdicated. Households are saving to pay off debt, accumulated in the late 90s and early 00s.
Business would spend if the sales were there. No one fires workers if the restaurant is full. No one lays off engineers if the firm has tons of orders. Businesses are waiting for sales to come back.
We have a capitalist system. And it’s pretty simple: incomes drives spending, spending creates sales, sales create jobs, jobs produce income.
Since neither the household nor the business sectors can, or are, spending right now, it is up to the public sector, the government, to step in and spend dollars into existence with infrastructure spending, education, transportation, communication, research, etc. That will produce the income that drives spending that creates the sales that create the jobs that produce the income.
Roy got it basically right. However, some of the comments require that I address one issue here. Anyone that equates letting a company keep more of its’ money as being the same as giving more money (or equivalent resources) as direct aid (food stamps, subsidized housing, medicade, etc.) to people (money that came from others) is simply misinformed. One is a possible decrease in taking from (but not giving), and the other is giving to. While a cutoff on the low end of income for taxes and a somewhat progressive structure of tax at the high end is likely to be acceptable to all if it is not too extreme, assuming you have the right to take from the high end of earners or businesses and transfer to the people at the low end of income is the slippery slope to long term failure, as there will be a continual tendency to adjust the progressive slope.
MRW
I completely agree with what drives capitalism…Number 1 is sales.
There is a way to avoid Government spending and debt to generate the sales. Your path supports one class of citizens. Bankers who gain interest off the huge Government debt. Very easy money. There are some who want the debt to continue rising.
Everyone seems to think the Presidential vote is important or critical. Thanks to the Founding Fathers the President has limited power. The most important vote is the vote we make daily at the marketplace. With our purchase we are voting for something. If we buy Mom & Pop items we support that lifestyle. If we seek the absolute lowest cost item in the stores, we vote for the lowest wages, benefits, terrible environmental regulations. The US consumer is choosing to purchase Chinese made products which is making China’s economy grow at a fantastic rate and ours stuggles.
We are supporting the decision of CEO’s to maximize their profits by producing in China. If we choose not to support this then CEO’s will choose to produce in the US. If no one buys the latest Chinese made Iphone (and lets Apple know why they are not buying it via eamil or other communication) then Apple will not make money based upon their decision to use the lowest labor costs to maximize their profits.
We have these fantastic brains which can easily figure these things out but choose to use them as little as possible then blame a President because they have no job. We the People could restore prosperity to the US but we won’t. We would rather blame than fix. There is no workable solution. Cutting taxes on the rich or corporations will change nothing except increase debt or make a bunch of Americans really angry which could tip the scale and start a revolution or unpleasant riots.
Dr. Spemcer:
Marvellous article!! You flushed out the 1-fingered typists world-wide.
My question is simple. Why do lefties put no value to the economy on a $ spent by an individual? To the libs, the economy is boosted only by a $ taken from an individual, transferred to Washington where an overhead charge is extracted, and the remainder put back into the economy in a manner directed by some K-Stret lobbiest?
DH
P.S.
My apologies for even mentioning this but wouldn’t it be great if the presidential candidates had to debate these points rather those the god-awful TV ads?
I am sick of this modern polarization between rightwingers claiming that only 1%-ers create jobs and leftwingers claiming we need to heavily tax corporations.
As for only 1%-ers creating jobs: Decades ago, many middle class people created jobs. A major source of jobs has been mom-and-pop stores and other small businesses.
Now that income is more unequally distributed and the 1%-ers are taxed less and making more, they are largely sitting on money that they are making and not creating jobs.
As for corporate taxes: “Corporate fat cats” do not pay corporate taxes – they pay (low) taxes on their capital gains and dividends, and income tax on whatever salaries and bonuses they get. Our IRAs and 401Ks are taxed by corporate taxes.
I have another point: Although I believe 1%-ers need to pay more, I would not make tax rates on them punitively high. Those who would invest in businesses are more likiely to do so if they get to keep a majority of what they would make, including if they become 1%-ers in the process or already are 1%-ers.
So, I propose:
1: Reduce the corporate tax rate to 10%, and deduct from
taxable corporate income amounts used to pay dividends to USA tax (or tax-exempt) filing entities.
2: Eliminate the exceptions, exemptions, etc. that make USA’s average taxation rate on corporate profits 12% while the marginal rate is in the 30’s. Corporations will spend less effort on tax avoidance. Producing goods and services will become more important for their bottom lines.
3: Increase top personal tax rates, including on capital gains and dividends, to about or nearly what they were during the mid and late 1990’s. Except I would add some adjusting for inflation for capital gains on assets held 3 years or longer.
4: Do something about regulatory burden, which is a detertrent especially to mines and small manufacturers that need to put time and money into compliance. I propose that OSHA, EPA, etc. regulators have their job performances evaluated on basis of quantity of industry and workplaces operating in compliance, and operations achieving lack of violations by means other than offshoring. Regulations should be reviewed for ratio of benefit to burden, and ones with excessive ratio of burden to benefit should be either scrapped or modified to be less burdensome.
For one thing, I believe a stronger economy will make the country and the world more able to afford addressing genuine environmental and safety issues.
Donald L. Klipstein says: “they are largely sitting on money that they are making and not creating jobs.” Perhaps they really sit on the money, in dollar bills under the chair. Then indeed they wouldn’t be creating jobs with it. But many of them don’t go that way. Let’s hope that as many as possible of them instead put it in the bank, which lends it to others who use it to create jobs, which “will make the country and the world more able to afford addressing genuine environmental and safety issues.” That is, unless the government heavies them to lend to people who they know won’t be able to pay it back.
MRW says: “We have a capitalist system. And it’s pretty simple: incomes drives spending, spending creates sales, sales create jobs, jobs produce income.” He left out the real initial driver: desire or lust drives working for income. And he got some other things confused. Spending doesn’t create sales, it is a component of a sale, driven by the same desire and lust that drives working for income. Sales don’t create jobs: it’s employers’ desirous and lusty anticipation of sales that creates jobs.
Norman,
You write, “Your path supports one class of citizens. Bankers who gain interest off the huge Government debt. Very easy money. There are some who want the debt to continue rising.”
No, it doesn’t. My path supports public purpose. The economy is here to serve all people, make all prosperous and content, and provide a bright future for our kids.
The bankers are gaming the system because they know how federal accounting really works, we don’t. We spout platitudes and throw around accounting words in discussing the economy that are inexact.
I urge you to watch this seminar held on October 16, 2012 at Columbia Univ. It is part of the Modern Money and Public Purpose series that the students are holding. Seriously, you won’t regret it.
http://www.modernmoneyandpublicpurpose.com/seminar-2.html
Christopher Game,
Lusts and motives are not quantifiable data. Like the difference between perception and numerical data in climate science. I was sticking with the data. Something you can measure.
MRW,
One problem with the path to utopia is the nature of the beast. Human nature. If people have it too easy they get really lazy as whole and then the system collapses because all those good things take effort to make. The motivated get it in their head that they are above everyone and greed starts to drive them. Never enough. Like the tyrant keeps grabbing more power and control of things, never satisfied.
I still believe the best economy is a balanced one. One that provides motivation but not one that only works to benefit a few families at the top.
Norman,
I completely agree with you; however, my remarks are about the plumbing of the economy. How it works, actually works. Without theory or ideology or philosophy, or even values and desires, getting in the way. Thereafter, the decisions are societal or political: why kind of society do we want? Well, then, what kind and size of government do we need to produce it? What’s more important to us? Defense, agriculture? Education, transportation? Whatever. I’m not talking about those societal or political parts. Those are decisions a citizenry makes based on its desires and values.
I’m talking about the underlying foundation. Because the foundation of our economy changed completely on August 15, 1971. Completely. We became completely sovereign monetarily with a non-convertible currency worldwide. Ok, call it fiat money, although gold was fiat as well.
Up until August 15, 1971, households, businesses, state and local governments, and even the federal government had to earn revenue in order to spend. The federal government didn’t need it for its domestic spending (since 1934), but it certainly did for anything international, so it needed to keep gold in the vault.
On August 15, 1971, the federal government was decoupled from that list in the previous paragraph. Now, only households, businesses, and state and local governments need to have revenue before they can spend. Still do.
On August 15, 1971, however, the federal government was no longer revenue-constrained! An enormous event. The USA legally issued its own currency for all transactions domestically and worldwide.
The bankers understood it. Woooeee, did they understand it, and they made hay. The middle class didn’t. There’s a reason why real wages have fallen for them since that time, even though productivity has gone up. The politicians don’t understand it, but those who do, don’t want to tell you.
I am saying that every single person in this country needs to understand what happened on August 15, 1971 and what it means for them and their businesses and families. Because they’ve been missing out bigtime, with loss of jobs and homes and health and whatever dignity is left. And the truth of what happened (8/15/71) and what is means is not complicated. That bastard Greenspan lied to President Clinton about what he could or could not do as prez the week before Clinton was inaugurated until, of course, much later the economy tanked and Greenspan now has to save his reputation. So now the bastard is telling the truth straight out since 2008 instead of mumbling gobbledegook. Clinton was a state governor. Reread paragraphs three and four above. State governors have to balance their budgets, have to get revenue in BEFORE they can spend; in addition, it is constitutionally mandated. Not so the federal government after August 15, 1971. State governors don’t understand federal accounting; they think government is run like a business. Reagan, Clinton and Bush, none of them understood it. Look where we are today. Reagan deregulated the very rules that would have protected the middle class because he thought the bankers were telling him the truth, and we got Milliken and the S&L crisis, and 12 tax increases. Clinton unpegged Glass Steagall and brought in the WTO because he thought the bankers were telling him the truth, and we got the start of the mortgage crisis and so-called free trade that destroyed US industries. Bush deregulated the rest and we got the 2008 global recession/depression.
This is what I am trying to say, Norman. It’s like building a house. You buy the land, then you get an architect or contractor in to build it for you. You buy land that a house could sit on, right? The architect and contractor can do the complicated stuff. Your job is picking the land. You don’t buy a mountain peak, or swampland.
Well, before August 15, 1971, you would pick one kind of homesite. I’m saying (in this analogy) that after August 15, 1971, the homesite specifications changed. Dramatically. And no one knows. Which is why there is so much quiet desperation out there. “I thought I was playing by the rules.”
And the politicians and Wall Street are not steering the economy properly; why should they? The people don’t know the difference. All this talk of free-markets and laissez-faire. No such thing with an economy that must serve 308 million people. No one puts a Ferrari out on the street without a wheel. You’ve got to steer it. (Not even Dr. Spencer throws his satellites up into space without an orbit.)
I’m saying that once the American people know how their economy works today, no fluff, no muss–simply, 1-2-3–there will be some Come To Jesus moments yanking half of Congress out of office.
You might be interested in reading this:
http://neweconomicperspectives.org/2012/10/letter-to-my-brother.html#more-3461
Excuse all typos.
And just for the record, Romney and Ryan don’t know what they are talking about when it comes to the economy. It will be even worse because of the euphoria; everyone will let them do what they want. Obama hasn’t understood it for the last four years although he appears lately to understand a few things. Putting Erskine Bowles in there would be an unmitigated disaster.
Norman, contd. (somehow this sentence evaporated.)
I’m saying that when you put that Ferrari out on the street, you have to know the lay of the land before you can steer it. People need to know the lay of the land.
For the record, we’re not borrowing from China. China’s money is sitting in a bank account at the Fed. Take a look.:
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
I’ve been a student of economic for more decades than I care to reveal. I have to tell you, Dr. Spencer, that I have never run into a better explanation of economic reality than this piece.
Bravo! I will be busy linking and forwarding your words. Maybe— just maybe— they will cause a light to go on in a previously closed mind.
Gordon Robertson,
“There is nothing in any of those socialisms that have tried to interfere with free enterprise, other than to ensure that private enterprise treats its employees fairly.”
Well, at least ONE is against free enterprise. Here is what the UK Socialist website says:
“The building of Socialism requires a social reorganization where the earth’s resources and the apparatus of production are held in common by the whole community. Instead of serving sectional interests, they are made freely accessible to society as a whole. Production will be organized at world level with co-ordination of its differing parts down to local levels.
In Socialism there will be no market, trade or barter. In the absence of a system of exchange, money will have no function to perform. Individuals will participate freely in production and take what they need from what is produced.
…
Armies and armament industries with their squandering of men and materials will be swept away. These will disappear together with all the wasteful appendages of trade and commerce.”
http://www.worldsocialism.org/spgb/socialism-or-your-money-back/turbulent-seventies/what-socialism-means
That sounds to me like they want to “interfere with free enterprise” and not merely “ensure that private enterprise treats its employees fairly.” I hope this is “objective” enought for you. But, maybe I am reading it wrong…
At October 21, 2012 at 5:00 PM, MRW says: “Lusts and motives are not quantifiable data. Like the difference between perception and numerical data in climate science. I was sticking with the data. Something you can measure.”
He speaks of “the” data. He means the data that he chooses because he thinks it is the relevant data. But science is about causality. That means that the relevance of data depends on the causal structure, and MRW ignores that prerequisite for a rational choice of data. One might argue that income is a measure of lust and desire, as well as of other real causes, and that there are indeed other measures of lust and desire than the income that they drive. MRW is like the man looking for his car keys under the street light instead of down the street where he dropped them.
Roy has probems with the Second Law of Thernmodynamics, and now he has revealed that he has problems with the fundamentals of a Democratic Society. Having the destitute poor feed the greedy rich is a formula for both political and economic disaster. That is what we had duing the Bush years as Bush fed his 1%, greedy, and unregulated “base”. It led to a near collapse of the world’s economy.
Roy should stck to preseting his important data. His interpretations are somewhat dubious, and his ventures into reactionary politics and economics are laughable.
this completely undermines the credibility of this as a climate site. and any site that mixes politics of left or right with science is similarly undermined.
MRW,
I went to your link about Modern Money Theory. It was interesting but complex, it will take my mind sometime to absorb the information and be able to apply it to the current economic situation.
My feeling is that as Martin Hertzberg that feeding the 1% is a huge mistake. Regardless of how the money is created in the system, a few will seek to get most of it by whatever means they can (legal maybe, moral probably not).
What our system has become is a billionaire ladder (I know most want to be super rich and that is why they support the current system). Think about it. How many Billionaire’s does the average person know. Just a handful only the top ones (Gates, Buffet maybe a few more). So you work your butt off to become a billionaire and no one really cares. To be “special” or someone you have to be near the top. So there is a race for these billionaires to aquire ever more of the pool of money (regardless if it causes homelessness, hunger, economic disaster). To me it is the most pointless waste of human energy I can imagine.
That is why I favor progressive taxes. Not to punish success but to limit power and to end a pointless race that is highly destructive. You can get so much and that is all you need. I would have super low taxes on small business but it would go up as the business got larger. Large businesses can start to gobble up all competition and buy out other industries not related to the original production line. There is no limit to the power and control a company or individual might attain. Our system is based upon balance of power and history teaches when power is unbalanced very bad things happen.
Christopher Game,
Do you have an treasury.gov figures for lusts and motives?
Norman,
You are to commended (by me, of course) for even clicking the link to MMT. And I concur with Hertzberg.
Vickrey was a Nobel Prize winner in Economics (1996). He died three days after getting it. This paper was published posthumously.
http://www.cfeps.org/pubs/wp/wp1.html
It’s his 15 Fallacies. It’s just as complicated, but perhaps you could skim the first sentence under each fallacy to see how we’ve been lied to.
I admit, fully, that this is difficult to wrap your head around. I realized this three years ago, and I’ve been spending night and day checking all this out. I’ve called the Federal Reserve to verify assertions. I’ve bought Library of Congress documents to see the originals of sources. I’ve contacted the British Museum to get originals of Franklin’s documents because the concepts in MMT go back to the American Revolution and I am the type that needs to see the original quotes. The American Revolution was not the result of the Boston Tea Party. It was the result of Britain imposing a gold and silver standard on the colonies for taxes that nearly bankrupted what were to become Americans.
Anyway, check the stuff out. Watch that video I link to above.
Thx.
MRW,
I glanced at the first few and, if you believe what this paper states, you are sadly ignorant. Apparently this man received his Nobel as a political statement like the Nobel Peace Prize!!!
KuhnKat,
Don’t be so quick to reject it. Analyze it and think about it. I am watching parts of the video MRW linked to in an earlier post.
These are things I have not heard of before and it is rather amazing to hear them. Must be some form of supperssion preventing a wider distribution of this type of information.
MRW, thanks for the links. It may take me awhile to go through them. I have been investing a lot of my time in understanding climate science. The concepts you have introduced are alien to my view of economy and I am sure different to most. It takes awhile to rewire the brain to be able to process this stuff.
MRW at October 22, 2012 at 6:59 PM asks do I have any treasury.gov figures for lusts and “motives” (again misquoting my “desires”).
No, MRW, I don’t. In your dreams. The treasury don’t deal in important causative factors like those. That’s part of the reason one can’t expect government to ‘fix the economy’, no matter how much politicians of all stripes, and leftists would like it to be able to do so. Politics is not a quantitative science. It is a humanity, and needs moral compass and judgement. Remember that the intellect is the slave of the passions, and to get politics right you have get your passions right. The leftists have their passions too.
Christopher Game,
“needs moral compass and judgement,” and “you have get your passions right.” I could not agree with you more.
What I wish, and urge, is that these values were applied to a correct understanding of how federal accounting actually works.
Christopher Game says:
October 21, 2012 at 1:26 PM
” But many of them don’t go that way. Let’s hope that as many as possible of them instead put it in the bank, which lends it to others”
This is wishful thinking.
In a stagnant economy many of the hyper rich have their money invested in physical gold and gold futures.
There is also the activities of hedge funds taking positions in commodities like oil and creating artificial shortages to increase profits.
Some hedge funds recently announced that they see the poor global grain harvest as an opportunity to cash in on hunger.
MRW,
I have been thinking some about the Modern Money Theory. Is this correct that the government creates money by spending on projects? It then gets injected into the system to circulate and generate production. Taxes function would be to remove some money from circulation to prevent inflation. It seems as if all current policy of working to reduce debt and government spending will actually cause the collapse this path is supposed to avoid. I guess as long as inflation is in check the government can spend as much as it needs to keep the wheels of economy spinning.
Some questions do arise. All money is a faith based process. It has value because people believe it does. I have some cash or credits and I go to the store for food and I can get some food because the store has faith that the money I have will help them buy more produce to keep their store going.
In a closed loop system the MMT may work as long as everyone believes in the value of the currency created. But what about when you go outside the closed system. What if you want to buy 10 million barrels of crude oil from Saudi Arabia? They may not value your currency and not make the sale to you. If they do not have faith in your dollar, it has no value to them it is a piece of paper or a number in a computer, no real value. If we keep spending money and going into debt it may make other nations we trade with not respect the value of this dollar. They might think they are getting conned (similar to what Germany was doing to France for payment of war reparations after WWI). If our dollar loses credibility on the international level we will be out of luck for buying goods made by other nations.
Also since it is factual money has no intrinsic value but only has value based upon a faith/trust system, this truth will not help the current problem in our system. If the currency is a piece of paper, a bar of gold, or a number in a banking computer, what is going on is the few are grabbing more and more of these and leaving the rest in the cold (literally as there are many new homless families). I can’t see how MMT will change this behavior. I can see the Government changing it by increased the taxes the richer one becomes (no incentive to be the richest man). This practice was inacted before and worked and should work again. If the super rich want to pack up and leave I say “don’t let the door hit your ass on the way out” Let them go.
Martin Hertzberg said on October 22, 2012 at 10:03 AM:
“Roy has probems with the Second Law of Thernmodynamics,”
I have heard this criticism before, on basis of greenhouse gases aloft radiating infrared to the warmer surface.
The Laws of thermodynamics only requires that *net flow of thermal energy* be from what’s warmer to what’s cooler. Increasing ability of the atmosphere to absorb thermal infrared from the surface and and reradiate some of that back to the surface will cause the surface to warm.
The Laws are not violated because the surface continues to
be cooler than sun, the atmosphere (as a whole for radiating purposes) continues to be cooler than the surface, and the “edge of the universe” continues to be cooler than the atmosphere.
Heat continues to have net flow from sun to surface & atmosphere & outer space, from surface to atmosphere and outer space, and the atmosphere mostly (by mass) continues to be cooler than the surface by radiating to outer space.
Increasing atmospheric concentration of greenhouse gases
does not cause a reversal of any net heat flows. Slowdowns of net heat flows due to increasing ability of a cool atmosphere layer to radiate backwards to the surface, and increased ability of atmosphere to absorb thermal energy
and reradiate some of that back to the surface, are nhot violations. As long as *net heat flow* is from hotter to cooler, the Laws Of Thermodynamics are being obeyed.
The Laws Of Thermodynamics only require *net flow* of energy to be “downhill in potential” and for net entropy of the universe or a closed system to only move upward. Rates of flow of heat are not governed by these Laws. Changing
radiation emissivities or other factors affecting rates of heat flow can change temperatures of items in the heat flow path – the Laws only require *net flow* of thermal energy to be from hotter to cooler.
Increasing atmospheric concentration of CO2 will make the surface warmer, assuming solar output does not change. The question is how much, or how little.
Bryan at October 3, 2012 at 11:38 AM says:
“October 21, 2012 at 1:26 PM
” But many of them don’t go that way. Let’s hope that as many as possible of them instead put it in the bank, which lends it to others”
This is wishful thinking.
In a stagnant economy many of the hyper rich have their money invested in physical gold and gold futures.”
If their putting in the bank would be good, even if wishful thinking, then putting it physical gold and gold futures would also be good. All these are ways in which the dollar bills are taken from under the chair and made available for others to invest to create jobs.
Bryan’s seeing putting the dollar bills into physical gold as keeping it out of circulation is revealing of his own attitude: anything the super-rich do is bad, simply because they are super-rich, even if it is just contributing to the creation of jobs. I forget how to spell envy or covetousness; can someone help me please?
Sorry, it was Bryan at October 23, not October 3.
Norman,
Two things.
First, read this, from Forbes Magazine by a conservative author. “No, The United States Will Not Go Into A Debt Crisis, Not Now, Not Ever.”
http://www.forbes.com/sites/pascalemmanuelgobry/2012/10/19/no-the-united-states-will-not-go-into-a-debt-crisis-not-now-not-ever/
Second, you don’t yet understand MMT, but that Forbes writer does. MMT is not a solution, or a recipe to fix something in the future. It is a description of how federal accounting actually works NOW. Operationally. The nuts and bolts of how our monetary system works in actuality. But I will say this, when you first encounter it, you say to yourself, No! Impossible! If it worked like this people would know! Well, certain people do know, and after Reagan got in, they convinced his admin and later Clinton’s and Bush’s to remove the regulations so that they could take advantage of it, and leave the 99% out in the cold and dark. Many of them homeless and without a job. That’s been the criminogenic aspect to deregulation. The majority of Americans had, and have, no idea of the deregulations they consented to, because they think regulations are taboo. Grandpa Reagan lulled them to sleep with that soporific. We would be a third-world country without regulations. (If you don’t like illegal immigration, then screaming for an immigration regulation is hypocritical, for e.g.)
Further, the Supreme Court Legal Tender Cases in the 1870s determined once and for all, per the Constitution, that anything the US federal government puts the American Seal on, and the currency is the only currency acceptable for payment of taxes, then it was “Legal Tender.” It’s value is determined in this country by law as having “the full faith and credit” of the US Government.
Christopher Game says:
October 24, 2012 at 2:35 PM
” putting it physical gold and gold futures would also be good. All these are ways in which the dollar bills are taken from under the chair and made available for others to invest to create jobs.”
I fail to see the difference between sitting on gold bars as opposed to dollar bills.
Neither will create any jobs whatsoever and are sighs of a broken economy.
Christopher implies that I am motivated by “envy or covetousness”
I think anger at the causes of the broken economy is my motivation.
I am in fact well off financially thank you very much.
There is a striking parallel between the academic consensus of economists prior to 2008 and the leading climatologist ‘consensus’ of the IPCC on AGW.
The economists virtually all agreed that an almost unregulated marker was best.
Hence regulations like the Glass-Steagall Act were scrapped.
In one notorious scam Mortgages were combined and marketed as AAA rated even though such instruments were later found to be worthless junk.
By such means the relative wealth of the 1% was bloated at the expense of middle and working class 99%.
Some hyper-rich are so greedy that they want this trend to continue indefinitely and are reluctant to pay any tax.
Bryan at October 25, at 5:33 AM writes: “I fail to see the difference between sitting on gold bars as opposed to dollar bills.” The difference was already pointed out in Christopher’s post, but apparently not clearly enough for Bryan. Dollar bills paid for the gold bars have thereby gone out of the hands of Croesus and into circulation where they can be used to create jobs. The gold bars won’t create jobs, but the dollar bills will do so to some degree. Perhaps Croesus would have done better to use them to set up his own new job-creating business, but perhaps he has enough on his plate already, and so needs the help of others.
Sell Krugerrands Boston
Your style is unique compared to other people Ive read stuff from. Thank you for posting when youve got the opportunity, Guess I will just book mark this page.
Your style is unique compared to other people Ive read stuff from. Thank you for posting when youve got the opportunity, Guess I will just book mark this page.