Thoughts on Economics

 

Walter Williams spoke about the value of profit.  His excellent talk is given below.

 

   Mr. Williams also wrote an excellent article about the problem of imposing tariffs on foreign imports which is linked to here.  Another excellent article by Joshua Withrow makes it clear that instead of imposing taxes on foreign imports we should stop imposing taxes on our own companies.

  Obama appeals to voters by saying he will make the rich pay their fair share of taxes and not raise taxes on those who aren't rich.  He is following in the footsteps of France.  Why this is bad is shown in the video below.

 

 

This is a way of saying that he will redistribute the wealth.  A very good ad explaining the problem with this is embedded below.

 

Here is another talk about what's wrong with Obamanomics and Obamacare.

 

And another excellent one a talk by Stephen Moore is included below.

 

     States with higher taxes and generous welfare programs have more inequality in wealth than states that don't and residents flee high tax states for low tax ones.

     Raising taxes on wealthy companies results in them creating less wealth and hiring fewer people.  It can even lead to their going out of business.  Why not just raise the taxes of wealthy people?  That will induce the wealthy people to leave.  Why not take all their money if they leave?  The United States has such an onerous tax burden already that wealthy are leaving.  In order to stem the flight of the wealthy the U.S. has imposed a financial penalty on wealthy people who decide to give up their citizenship.  So what?  Why not collect all that money for the needy?  If you trap the wealthy by stealing their money if they choose to leave than they might stay but they will have much less incentive to create wealth since that wealth is taxed so highly.  If they flee then their wealth creating talents flee with them. 

    On Feb 13 Rand Paul gave a speech in which he pointed out that the United States is borrowing $50,000 a second.  He said:

Trillion-dollar deficits hurt us all.

Printing more money to feed the never-ending appetite for spending hurts us all.

We pay higher prices every time we go to the supermarket or the gas pump. The value of the dollar shrinks with each new day.

Contrary to what the President claims, big government and debt are not a friend to the poor and the elderly. Big-government debt keeps the poor poor and saps the savings of the elderly.

This massive expansion of the debt destroys savings and steals the value of your wages.

Big government makes it more expensive to put food on the table. Big government is not your friend. The President offers you free stuff but his policies keep you poor.

Under President Obama, the ranks of America’s poor swelled to almost 1 in 6 people last year, reaching a new high as long-term unemployment left millions of Americans struggling and out of work.

The cycle must be broken.

There is a cycle here, people vote for politicians who give them free stuff and as a result get poorer and more dependent on free stuff.

 

 

Politicians get elected who offer money for entitlement programs to get votes

 
People vote for Politicians who Give them money.

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Spending drains the economy.
 

People become poorer and more dependent on government spending.

 

 

John Perazzo wrote:

"In 2010, for example, not even one of the ten poorest large cities in the U.S. had elected a Republican mayor since the 1980s. In fact, 8 of the 10 cities had been led exclusively by Democrats for more than half a century.

The common thread running through each of these economically decrepit cities is a phenomenon that Harvard scholars Edward Glaeser and Andrei Shleifer famously dubbed “The Curley Effect,” after its prototype, James Michael Curley, who served four non-consecutive terms as mayor of Boston between 1914 and 1950. This phenomenon, Glaeser and Shleifer explain, is the strategy of “increasing the relative size of one’s political base through distortionary, wealth-reducing policies.” Forbes magazine puts it this way: “A politician or a political party can achieve long-term dominance by tipping the balance of votes in their direction through the implementation of policies that strangle and stifle economic growth. Counterintuitively, making a city poorer leads to political success for the engineers of that impoverishment.”

The Keynesian justification of such borrowing, used by the Democrats, is that it stimulates the economy.  The problem with Keynesian reasoning is that it ignores the downsides of the equation one of which is that money borrowed is money that has to be paid back with interest.  Businesses borrow money all the time and often such borrowing does make it possible for the business to grow but businesses who make bad investments overall go out of business and the one's that make the good investments survive and grow.  If the government makes bad investments the economy of the entire country is at risk of going out of business i.e. hyperinflation, huge interest, huge unemployment, etc..  A business is likely to attempt to invest in order to grow, a government is likely to spend money to get votes.  Such government spending usually bolsters welfare and entitlement programs which grow and drain the economy.  From the Keynesian point of view that's not true at all, welfare and entitlement programs give people money to spend according to the Keynesian argument which stimulates the economy.  Well if that's true why not print trillions of dollars and make everyone a millionaire!

Another very important downside of borrowing is that it allows bad policies to continue and so allows problems to grow.  A very simple way to explain that is to consider a teenager who goes on a spending spree with his parents credit card.  As long as he can borrow with the card he can get his parents further and further into debt.  It's not until the card is maxed out or his parents get the bill and stop him that he stops wasting money on drugs or expensive cars etc..  Borrowing allows the U.S. government to give money it doesn't have to countries that hate the United States such as Egypt and Pakistan in an attempt to buy them off.  It allows Obama to get reelected while blocking the wealth from the Keystone pipeline and making energy more expensive.  It masks the damage he is doing to the economy.  Although the national debt has increased $5.9 trillion during Obama’s presidency he insists that he cut the deficit by 2.5 trillion dollars. He's not willing to admit the disaster he is creating.

One of the factors that brought about the economic mess that we're in were bad loans made by American banks.  The Community Reinvestment enacted under Carter and made more aggressive under Clinton was responsible for these loans.Obama is on the record personally helping sue one lender (Citibank) into lowering its lending standards.

Unfortunately it appears that the only thing that will stop U.S. government spending beyond it's means is economic disaster. 

    The economy which will probably lead to the most overall wealth is one in which the costs people pay for commodities correspond to the real costs of those commodities.  Often there are hidden costs which are not reflected in the cost of the item.  The hidden costs of cigarettes for example are the costs of medical care of cigarette smokers who develop cancer or emphysema.  Oil purchases from Iraq , had hidden costs for the United States.  The oil money made it possible for Iraq to build a powerful army.  The United States had to send a large army to the Middle East to fight Iraq at a huge cost.  If this cost were reflected in the cost of Iraqi oil it would have been more economical to buy oil elsewhere.  As a result Iraq would have less money with which to build a powerful army and the United States might not have had to spend money to fight Iraq at all.  Saudi money is funding the spread of radical Islam in the United States and the rest of the world.  As a result the United States went to war with Afghanistan at immense cost.  A glimpse of the cost to the United States in the future of the growth of radical Islam can be seen by looking at France today which has become a violent antisemitic society with demonstrations of hostile Muslims yelling "Kill the Jew". 

    The market is driven by costs and if the costs paid are not close to the real costs than hidden costs will build up and the overall price paid will be higher and so overall wealth will be lower.

    In theory governments could impose taxes to bring the cost of items closer to their real costs.  For example they could tax cigarette purchases to pay for the hidden medical care costs.  Unfortunately there are hidden costs of government taxation as well.  The government usually is not an efficient organization and is expensive to run.  Government taxation means more government money and more government power.  This may be undesirable as it may lead to infringement of civil liberties.  The imposed taxes by government may not bring the costs closer and may even bring them further away from the real costs. 

    There are economic laws that are common sense that politicians ignore.  For example Obama is passing laws to make it more expensive for American companies to hire overseas.    Problem with that is that then the cost of making products goes up and the American companies can't compete with foreign companies that use cheaper labor and go out of business. 

    You can pass minimum wage laws and suddenly there are fewer jobs. 

    You can tax foreign goods in order to encourage local businesses and then foreigners tax your goods and you lose business.  In addition the higher cost of living from higher costs of goods force local companies who use those goods to charge more for their products and can force them out of business. 

    You can pass laws setting the costs for products and suddenly companies stop making those products because they lose money by doing so. 

   Gary DeMar wrote an article titled This is Why College Costs So Much.  He wrote:

When the government decided to take money from some Americans and give it to other Americans so their kids could afford to go to college, demand went up. This meant that costs went up. 

    Ironically then subsidizing in order to bring done costs led to higher costs. This led to a vicious cycle in which the government subsidized even more.  Mr. DeMar wrote:

The universities began to realize that with more money available to families, they could raise prices, hire more staff, and build more buildings. When costs rose, politicians screamed that something needed to be done, and, of course, the solution was to make more money available. This isn’t the solution; it’s the problem:

Like anything the government subsidizes with money taken from some people, we get more of it: poverty, babies born out of wedlock, substandard housing, welfare, and welfare recipients.


Trump wants to bring back jobs by imposing tariffs on other countries and devaluing the currency.   Free trade generally helps the economy as explained by John Stossel in an article called My Trump Bubble Burst

The conventional wisdom is that China manipulated it's currency so that Chinese goods were cheaper than American ones so all the jobs flowed to China.  There are various problems with this.  If the Chinese yen is devalued by the Chinese government Chinese businesses need to charge more for their products to make ends meet. So why are the jobs flowing to China? 

Lets consider what would happen in a free market situation.  Lets say the Chinese are charging less for their goods than Americans are.  In a free market the American companies that were charging more would be in danger of going out of business.  In order to save their company they would cut the salaries of their employees so that they could compete.  Employees would work for any salary because otherwise they would have no money at all. 

What happens in the American economy.  Union contracts may make it difficult if not impossible to cut salaries.  If they cut it to much their employees would go on welfare. 

Where does the money come for welfare?  From taxation and borrowing and money printing.  Who do we borrow money from?  We used to borrow from China.  Borrowing is bad.  We still have to pay, and we pay interest and we lose jobs.  Who do we tax.  Companies who otherwise would have hired and made money.

 

 

c o p y r i g h t   ( c )   1 9 9 9 - 2004 Karl Ericson Enterprises.  All rights reserved

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