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Is A Completely Free Market, True Capitalism, Bad For The Little Guy?

22 September 2009 One Comment

This topic is at the core of just about everything going on in politics.  Whether it’s Michael Moore, Pelosi, Obama, ACORN, and many others around the country, capitalism, despite being a major driving force in making America great, has a bad rap these days.

Without getting into this broad debate too much, I want to look at a specific scenario and look at its effect on America.  In an email dispatch from one of my favorite economic research reports that I subscribe to called Casey Research, the author addresses the following question:  what would be your ideal solution to fix America’s problems, and potential allow America to be able to afford something such as universal healthcare? His response is as follows:

Tomorrow morning, or as soon as possible thereafter, begin the process of closing down at least half of the current government. Simultaneously, wipe away any laws deemed to be anti-business or anti-wealth accumulation. Starting by slashing corporate taxes to zero (companies don’t pay taxes, consumers do), adopt a flat income tax starting at 20%, but with a clear path to lower it to 10% over the next decade. Do away with capital gains and let the world know we’re happy to have them invest in American companies. Further, institute the British system whereby if you bring a lawsuit and lose, you pay for the other guy’s legal costs. While that will result in some additional challenges for small guys who want to sue big guys, it will also dramatically clear out the legal system and radically reduce the burden businesses now bear in fighting off frivolous suits brought against them by lawyers working on contingencies.

To bullet-point his plan, he calls for:

  • Shutting down half of the government (think agencies, programs, employees, etc.) at all levels, but probably mostly at the Federal level
  • Cut corporate income taxes to zero
  • Get rid of the progressive income tax, and move towards a flat tax of 10%
  • Abolish capital gains taxes
  • Legal reforms to get rid of frivolous lawsuits that eat up resources

While this is a general idea, he goes on to say that it’s just for starters but that you can get his “general drift”.  Furthermore, he goes on to say, if we did that and then some, then we could begin the discussion of universal health care because then we could actually afford it (whether it’s the right approach or not is a different discussion).

But, I’m not here to talk health care.  I want to talk about such an idea of significantly removing government from the economy and significantly lowering taxes and moving towards a very pro-business culture.  I want to talk about the effects of such a scenario, specifically on “the little guy” or as our wonderful politicians love to say, “the average hard working American”.

American Business

Now, most people would agree that these changes would be very good for business.  If you can’t agree on that, I’m not sure what else to say to you.  Killing off corporate income taxes would allow businesses to keep more money, invest that money and grow the business and make more money, etc.  Killing off capital gains taxes would spark more investment which would grow businesses.  Killing off most income taxes and taking it to a flat tax would spark massive consumption and investing which is good for businesses that depend on consumption.

So, who gets screwed by this?  Many people would say that the average worker would get hurt.  But, would they?

“The Average Worker”

The liberal side of the argument would be that many people would depend on government programs just to get by, just to survive.  Taxes are needed to fund these programs.  Therefore, we can’t cut these programs and we can’t cut taxes.  Some even think, we need to raise taxes and increase government spending because people are dying out there!

My question is what is more important for these people, an increase in job opportunity or an increase in welfare assistance?

Some people need aid.  I’m not stupid and I realize that.  But, some people don’t, even if they are “struggling” to get by.  Even honest, hard working people who didn’t go out and buy a house for 3x what they could afford, are really struggling because they lost their job or had their hours cut.  But, what do these people really want?  More welfare assistance or a better job?

By embracing a pro-business culture, we can embrace a pro-jobs culture.  Make it attractive for companies to operate here and hire people!  Why do cities such as Orlando try and incentivize companies to relocate and move to Orlando?  Because if they come here, they hire people, and the local economy is better.  Why do we not extend this idea to the national level?  Instead we dis-incentivize companies to do business here bceause of corporate taxes, tough regulations and other things.

Your Feedback

I want your feedback, and the two comments you are not allowed to make is “Look where capitalism got us!” and “Look what Bush’s last 8 years of tax cuts got us!” because my responses to these arguments are as follows:

  1. Capitalism didn’t get us here – Not allowing failure for many many years has made it so that businesses like Wall St. banks can take excessive risks and know that they will never have to pay for it.  Failure MUST be a part of capitalism for it to work.  This means no bail outs.  True capitalism does not encourage bubbles (like we just had) because businesses who participate in bubbles end up going under.  Our government’s policies encourage the bubble – bust cycle that we continue in today.
  2. Tax cuts didn’t cause the recession – excessive risks and over leveraging from the largest banks to the individual consumer is what caused the recession

I want your comments on the idea that a pro-business culture would encourage business growth and create jobs.  Do these job creations do more than government programs for people who are “struggling”?  Lastly, we’re not focusing on the people who need aid due to disabilities or whatever.  We’re focusing on people who can work and should work.

Last point… I’m not a Republican.  Bush didn’t embrace capitalism simply because he did tax cuts.  Remember, Bush tried to “save the free market by stepping outside the free market” – what a joke.  I’m a libertarian and I believe in the power of the free market to grow an economy and benefit every level.  I look forward to your feedback.

One Comment »

  • Veronica said:

    I am going to comment on the psychology of failure because you make a point about Capitalism that is true about the American psyche. At the same time as Wall Street was allowed to take great risks without the consequence of failure, our schools have been pushing the "everyone is a winner" mantra to our children. Kids without merit can compete without consequence. Children are no longer taught to learn by their mistakes and failures, but instead expect to be rewarded whether or not they earned it.
    America has been pushing anti-failure in other ways, most notably by pushing drug use for every ache and pain, both physical and mental. In the emotional arena the message is: rather than work through your failure and suffering, take something so you don't have to deal with it. A little Prozac, or Zoloft, and your ready to continue making the same mistakes without emotional consequence. Yes, this is a oversimplified and perhaps insensitive statement, but it reflects a change in attitude over the last 50 years from taking personal responsibility to giving it up, and expecting favorable returns in the process.
    Perhaps our economic problems are directly related to a more insidious pathology afflicting Americans general attitude; an attitude of entitlement without personal risk. Less and less are Americans able to deal in an appropriate manner with failure and suffering. Bailouts and Prozac are the way to recovery.