The Rich Man and His Money

A current hot button issue right now is the impending expiration of the Bush era tax cuts. The tax cuts in question were passed in two acts, one in 2001 and one in 2003, and both acts are to expire this year unless congress votes to extend them. The acts unilaterally lowered income tax rates for all Americans at all income brackets and simplified much of the tax code. President Obama, along with the majority of democratic lawmakers, has argued in favor of extending those tax cuts... that is to everyone except the wealthy.

And so we return to that old, tired argument that goes something like this: The wealthy have more money than they know what do with, so they can afford to pay higher taxes. Other variants of this argument include: It just isn't fair that they make that much more money than everyone else so raising their taxes is the right thing to do, and: All that extra money they have isn't benefiting anyone but themselves, let's use to help those in need.

I would like to propose a simple thought exercise. Ask yourself this, what do people who have more money than they need spend it on? I think we could create three broad categories. First, luxury items. This category could include anything from a fancy car to expensive art to a golf club membership. Second, charity. And third, investments. Now, let's suppose that we raise taxes on the ultra wealthy. While they will surely still be wealthy, the tax increases will inevitably leave them with some measure of less wealth, right? So where would the money (that now goes to Uncle Sam) have gone?

First, let's suppose the that wealthy cut back on their luxury item spending. Maybe they can only afford two Ferrari's instead of three now. Who suffers because of this? Surely not the wealthy person. They can survive just fine with two Ferrari's, right? But what about the factory workers who assemble the Ferrari's? What if all of a sudden fewer orders are coming in? Either lay-offs or pay cuts would have to result. What about the truck driver who transports the car? What about the people who collect the raw materials that make up the car? All of a sudden we start to see the big picture and realize how many non wealthy people depend on that the one wealthy person being willing to buy their third Ferrari. And so the little guy on the bottom ends up getting crushed because Uncle Sam robs the wealthy guy on top.

Ok, now let's suppose instead that the wealthy cut back on their charitable donations. After all, they are greedy and evil, right? It shouldn't take much to understand how this could potentially effect the little guy. We absolutely need non-profit organizations. They are the epitome of everything that is great about this country. They are more efficient and effective than the bureaucratic nightmare that is government welfare. They are nimble and responsive to emergencies and the changing needs of society. They are dynamic and forward thinking, pushing to solve tomorrow's problems today. I couldn't think of a more direct way to hurt those who are at the bottom than buy reducing charitable donations.

Finally, let's assume that the wealthy aren't that evil and would still be as generous as ever. Let's also assume that they just couldn't survive with out all three of those Ferrari's. What ends up suffering, then? Investment. Historically, this is the category that is impacted the most by a weak economy and high tax rates. Believe it or not, wealthy people don't sleep on beds made of their cash. Instead they invest all that extra money. Where does that invested cash go? Maybe to start a new venture that has the possibility of creating hundreds of jobs. Maybe to fund research that has the possibility of radically improving our lives. Maybe to support a company that puts out products that you use and love everyday. You see, when investment goes down jobs are harder to create, research is harder to fund, and innovation becomes just too risky. So yes, the wealthy may be fine, but the rest of certainly won't be.

What is the point of all of this? To point out that all the money the ultra wealthy have isn't just statically collecting in their pockets. It's doing something. And that something may be to provide you with a job, let you get a mortgage on your first home, or even make it possible for your loved one to get the life saving treatment they need. Remember that the next time you are tempted to fall into the philosophical trap perpetuated by Obama and the liberals that the wealthy can afford higher taxes.

I know, I know. You have one more argument to make: but the money that gets taxed from the wealthy ends up helping the little guy anyway. Does it? Are you sure? To me that is like saying that shunting perfectly good oil out of a running car engine, processing it through a colossal factory that does nothing but corrode and waste it, and then injecting it back into that same car engine is somehow going to help the car perform better than if you just left it alone in the first place. Trust me, it won't.

What do you think?

Taxes and the Taxed

Confusing title, I know. So here is the basic point I want to make (that liberals seem unable to comprehend): there is a huge difference between who gets taxed and who actually pays for the tax.

For example, a tax levied on a company never actual gets paid by the company (what?! you say). Who pays it? The consumers and the employees. You see, a company exists to make a profit. That means revenue must be greater than expenses. Taxes are considered an expense. If you increase taxes on the company, they are forced to either decrease expenses elsewhere or increase revenue. What is the easiest way to accomplish this? Either by raising the prices of the goods or services they provide or cutting back on payroll (either by layoffs, compensation reduction, or reduced benefits). So who ends up getting hurt? The very people that were told they shouldn't have to pay taxes to begin with. The very people that liberals claim to represent.

While this is the most concrete example, there are others. Suppose you want to increase taxes on luxury items. Your thinking goes like this: the rich, who buy most luxury items, can afford to pay a little more for something they don't even necessarily need. The problem is that in reality when you tax a luxury item and thus force it to become more expensive, demand goes down for that item no matter how rich the consumer is. So the rich person will find an alternative luxury item or way to spend their money. And who ends up paying the price for the tax and suffering because of it? The industries and the (non-rich) workers that make the luxury goods, the one that are supposed to benefit from this whole plan to begin with.

The pattern that begins to emerge is that no matter what, or who, you tax it is always the people on the bottom who end up paying for it. Do you see the paradox here? The very tax system that is supposed to help the little guy is the same system that keeps him little and therefore makes him dependent. And that is exactly what liberalism needs to survive. It is a catch 22. It is a sham and we need to wake up and break the cycle.

What do you think?

Symptoms and Wrong Questions

Is it just me, or are we constantly seeing the wrong questions being asked? How great can an answer really be if the premise of the question upon which it is predicated is flawed? How beautiful can rhetoric be praised when it answers an entirely irrelevant question to begin with? I am frustrated by the the complete incompetency of our mainstream media to ask the real questions, the ones that get to the heart of all the problems to begin with. I am frustrated with our government which keeps coming out with "solutions" to symptoms instead of problems.

Take AIG for example. The public is outraged with the millions in bonuses being paid to poorly performing executives. That is understandable, I think. So the immediate questions asked and echoed by our congress are: how can we fix the bonus problem? How can we punish them and get back the money? Meanwhile, reports are coming out that these payouts were known for some time. No one seems to be asking the right questions: why are we bailing out failed institutions, again? Should we really have expected anything different when allowing the government to stick its hands into the private sector? The truth is that the millions in bonuses pail in comparison to the billions in bailouts. The biggest question that needs to be asked is why the bailouts are failing to help.

I watched an annoying interview with President Obama yesterday. As seems to be the case lately, reporters tend to give the President rather difficult and thoughtful questions, which is great. The problem is that they all allow the President to mumble whatever incoherent answer he wants and get away with it. Why doesn't anyone say wait a minute! that doesn't make sense, what about...? For example, the interviewer made a very important observation that the financial industry is very concerned about losing their best people who will want to go to industries where they can make more than 250k a year. Obama's response? Well, they should just go to poor, dumpy North Dakota and get a little appreciation for how much 250k is.

Are you kidding me?? And the interviewer let it slide and moved on. Why didn't he point out that it doesn't matter how much 250k is, as long as there is a way to make more, these people will find a way? Why didn't he ask whether or not President Obama thought it was OK for sports athletes and actors to make millions? Why didn't he ask the right questions?

Later on in the interview, the reporter brought up the idea of just spending our way out of problems and asked a good question: is there a limit? Where is that limit? Obama answered that there was, but failed to define the limit except that we must be able to afford it. Then he started talking nonsense about treasury bonds. Again, the interviewer just moved on. I was outraged. Why didn't the interviewer clarify that we actually have NO current means of funding the spending coming out of Washington, that our deficits are going to be worse than anything during the Bush years, and the treasury bonds are NOT going to save us?

I could continue, but my point is that we have to ask more questions and we have to ask the right questions. We have to be careful about the premise of questions asked and we should never just accept the answers given to us without asking even more follow up questions. I think Washington is purposefully putting the attention on all these "symptoms" and coming up with these courageous efforts to cure them because they know if we ever shifted our attention to the actual problems, we would all realize that Washington is to blame for almost every single one.

Recession and Production

There has been much debate over the past months about how an economy best recovers from a recession. It is clear that President Obama and Congress believe the answer is to simply spend our way out of it. The argument goes that by government spending money it will act as a catalyst that will ignite our economic engine once again. I reject that theory entirely. I do not believe we can spend our way out of a recession, because it has never worked before. The answer, then? We must produce our way out of a recession.

Now let me be clear. Producing our way our of a recession necessarily involves a certain amount of spending. But that spending has to a painful necessity, with a clear purpose. The spending has to be directed towards investments that are capable of growing on their own (this is important), and add to the utility of the people. For example, investing in alternative energy is a terrible idea, because none of these industries have reached the point to be self sustained without government subsidies. You are simply adding debt to more debt. The gleeful notion that we just need to spend and spend and everything will get better is ridiculous. History has taught us this.

The great depression was a terrible time in our country's history. Text books teach us that it was a heroic President Roosevelt and his life saving New Deal that finally pulled us out of our slump, thus proving that government intervention and massive spending works. Even Obama stated that this was inarguable. The facts, however, tell another story. The New Deal began in in 1933 and four years later the economy actually got worse! From 1933 to 1939 the federal expenditure tripled. And employment did not recover until into 1940. According to wikipedia, there is still widespread debate about whether or not the New Deal actually lengthened and deepened the depression.

That is the equivalent of saying that the economy will still be as bad in 2017, but yet somehow Obama's policies are working. Are you kidding me? And a look into history shows us that the real catalyst to our recovery from the Great Depression was World War II. We produced our way out the depression, and the war provided the means whereby we could do so. Of course, it required a responsible investment, but it wasn't the spending, the government intervention, or the massive regulations that saved us. It was the ability for our country to find a way to increase productivity.

Flash forward to the 1980s. Again, American found itself in a serious recession. This time President Reagan inherited the problem and was faced with tough decisions about how to help put the economy back on track. Massive spending? Tax the rich? See, this is the dirty little secret that you will never hear from a liberal. Reagan did neither. And it worked. In fact, he cut taxes from a staggering 70% to a reasonable 28% over 7 years for top personal tax bracket. He did not expand domestic government or churn out massive spending bills and regulations. Why? Because he understood that it was only the productivity of the people that would reverse the economic trends. He knew that he needed to foster an environment where that could happen. He believed in free market principles and in the American people.

After 7 years, the results speak for themselves. The GDP almost immediately began to grow at an annual rate of 3.4%, unemployment tumbled, and 16 million net jobs were added to the economy. What an incredible contrast to the 7 years following the new deal. So, why aren't we being taught this? Because liberalism owns our government and our media. Because the goal of liberalism is power, not prosperity. We must reject this notion that spending our way out of a recession is the only way. It has never, and will never work.

More common sense and Americans

More news today that Americana are on the path to awakening. The WSJ published an intriguing article, that I am sure you wont see in any of the main stream media. The article showed how polling numbers indicate that Americans are growing increasingly disatisifed with President Obama and his wreckless spending. From the article:

"Overall, Rasmussen Reports shows a 56%-43% approval, with a third strongly disapproving of the president's performance. This is a substantial degree of polarization so early in the administration. Mr. Obama has lost virtually all of his Republican support and a good part of his Independent support, and the trend is decidedly negative.

A detailed examination of presidential popularity after 50 days on the job similarly demonstrates a substantial drop in presidential approval relative to other elected presidents in the 20th and 21st centuries. The reason for this decline most likely has to do with doubts about the administration's policies and their impact on peoples' lives."

It is interesting to note that President Bush had a much higher approval rating at the same point in his presidency. Read the entire article here.

Bailouts and Dinosaurs

One of the most detrimental interferences government can make in a capatilistic, free-market soiciety is that of proppoing up an industry or firm that is incapable of sustaining itself on its own. In such cases, everyone loses. No wealth is being created and debts are simply transferred from the firm to the government to the taxpayer, literally dragging everyone down. It is for this reason that some firms and some industries must fail.

Lately we have seen the big three automakers beg for bailouts from the government. (Never mind they flew to DC in their private, luxury jets.) They reason that their industry is vital to the economy of the country and that the collapse of their companies would deepen the recession and destroy America's ability to compete in the global auto industry.

The fundemental basis for their arguments assumes that there could never be new American automakers. This is preposterous. If anything, America needs new automakers. We need fresh faces with innovative solutions to the problems we face. We need american automakers who aren't tied to the inneficient traditions of the past.

Here is the thing: giving the automakers bailout money will only posptone the inevitable. It will reduce the incentive for them to make real changes. Even now, we aren't seeing clear plans with solid visions and redical innovations proposed by the big three. We need a paradigm shift and all we are seeing are some proposals for small adjustments to the status quo.

Mitt Romney wrote an excellent article about this topic. He listed three major changes that need to be made in the auto industry. First, they have to control their costs better. There needs to be a complete restructuring of labor agreements with the unions. If they can't compete with foreign costs stuctures, they will always be at a disadvantage. Second, they need new management. They need to purge the old ways of doing things and embrace a new vision. Finally, they need to set their sights on the long-term. No more fussying about quarterly earnings and short term gains, all decisions need to be made with eye on the future.

If the big three can't do this on their own, in my opinion, it is time for them to go extinct. The American auto industry is too important to be in the hands of dinosaurs. Where ever there is a demand for a product, there will always be a company ready to step in and meet it. That is the beautiful thing about capatilism. I am excited at the thought that America could someday again be global leaders in the auto industry, and I am confident that could happen with or without the big three.

What do you think?

Read Mitt Romney's article here.

Founding Father quote of the day

I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I traveled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.

Benjamin Franklin, On the Price of Corn and Management of the Poor, November 1766

Economic Equality

I would like to mention briefly a fundamental difference I observe between liberalism and conservatism. We all like to talk about fairness and equality. We all want to make a system that is fair for everyone. I think where the two philosophies differ is the perspective and definition they use to describe economic equality.

Liberalism tends to put emphasis on equality out outcomes. For example, if Peter makes $50,000 a year and Sally makes $30,000, the obvious conclusions is that this economic situation is unfair because Peter makes more. Furthermore, the only way to make it fair would be to penalize Peter and compensate Sally until they are both making the same amount of money. The easy assumption would be to tag along the rationale that it must be unfair because Sally is a woman and has an unfair advantage.

The problem with this rationale is that it too easily makes assumptions and connections that may not necessarily be true. Are some women discriminated against? Yes, but not all are. Outcomes are easy to identify and easy to contrast. But the hard questions aren't being asked here. Did Peter invest more in his education? Does he work harder? Does he produce more? More importantly, were both Peter and Sally given the same set of opportunities and rules? If these questions aren't asked, it is easy to look at our country and view it as being so ridiculously unfair that drastic measures need to be taken. We see outcomes and we make huge assumptions because it is the easiest thing to do, but I argue that it is not the real picture.

Conservatism tends to put emphasis on the equality of opportunity. It looks more deeply into those questions and favors a system whereby everyone is held to the same standards and rules. This, of course, means that we need to ensure that everyone has access to the same opportunities (education, anti-discriminatory laws, etc..). Assuming that those opportunities are in place, then we look at outcomes as consequences of individual choice, and not as a result of a flawed economic infastructure.

You can't help someone that doesn't want to be helped. You can't force someone to be successful if they don't want to be. You can't change someone's values until they themselves want them to change. It is for this reason we will never see an equality of outcomes in our society, but that doesn't necessarily make out society unfair.

What do you think is more important? Equality of opportunity or equality of outcome?