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How Republicans Get The Economy Wrong

14 June 2011 24 Comments

I’m often mistaken for a die-hard Republican because of my criticism of the progressives on the economy and especially the current administration.  These people who label me a Republican simply show how little they understand and how unwilling they are to dis-engage from partisan politics and from the two-party system which dominates the media and political arenas.

The reality is that I don’t line up with most Republicans either on my views of the economy, and after watching the Republican debate the other night on CNN, most of what I already knew was confirmed.

So, how do the Republicans get it wrong?  Well, if you pay attention to the debate and the constant rhetoric, most good Republicans would have you believe that fixing the economy is a two part plan: repeal ObamaCare and lower taxes.  The reality is that any politicians who espouses repealing ObamaCare and lowering taxes as a panacea for getting the economy going again does nothing more than reveal their lack of understanding of the economy.

Don’t get me wrong, I firmly believe that ObamaCare should be repealed and we should have much lower tax burdens across all people.  But, these two policies are not sufficient to move the economy enough to get real organic growth.  If you listened to Ron Paul during the debate (the only one who understands economics), you heard ideas and explanations that actually was founded on economic principles versus political rhetoric.  For instance, when asked how to get manufacturing back in the country, instead of jumping in to bash Obama which everyone else did, Ron Paul explained that you need capital to come back into the country.  This is done by getting back to sound money (ending the inflation Federal Reserve policies), lowering taxes and getting rid of massive regulations that does nothing else but stifle business creation and create barriers to markets for small businesses.

Listen to Ron Paul talk about the economy, then listen to every other Republican candidate and you will see a stark difference.  The reality is that the government needs to get out of central planning of the economy all together if you want to move the economy.  This means liquidation of bad debt, sound money, lower taxes (and thus smaller government), fiscally responsible government, market-set interest rates, protection of private property, cutting of all or most of regulations that do nothing to prevent further crises, and let the relentlessly productive class of America go hit it and make things happen like an efficient army of ants building an insanely complex home underground.  You must let the market allocate capital, labor, resources, profits, everything.  You can’t pick winners and losers in the name of “economic stability” because it results in anything but stability.

Until the mainstream Republicans start talking like this, you won’t hear me label myself a Republican.  The Democrats?  Sheesh, they’re so far off that they aren’t really even worth mentioning.

Ron Paul being labeled “extreme” says much, much more about the state of the country and its citizens than it says about Ron Paul.  Why?  Because he restricts all his views to what the Constitution makes clear about the roles of government.  Extreme indeed.  Unfortunately, he won’t be elected because Americans are a nasty combination of ignorant and superficial, and Ron Paul doesn’t tell them what they want to hear.  His solution for the housing crisis?  Let the market bring down prices to find a true bottom so we can have a real recovery.  Is he the only politician that has ever said the solution to housing is to let the prices fall?  Probably.  And he won’t be elected President saying crazy stuff like that!

The reality is that we have a crisis of definitions in this country.  The majority of people who say they believe in capitalism don’t believe in anything close to capitalism.  They believe in some quasi-socialist version of capitalism that allows the elite to bail themselves out and to implement inflationary policies to fleece the middle class in the name of “economic stability.”  They use fear tactics by screaming that the entire world will end if we don’t raise the debt ceiling or bail out wall street.   Capitalism in this country doesn’t refer to free markets.

Even George W Bush famously said we have to get away from the free market to save the free market (in the bailout of the auto-manufacturers).  Yeah, that makes a ton of sense.  A company going out of business is about as capitalistic as it gets and it allows resources to be re-allocated into more productive means.  Instead we get inflation and the elite get richer.  And the Republican party is completely complicit in all of this.

The ultimate reality is that the market will win.  Politicians from either party can’t hold back market forces forever.  Bad debt will be liquidated and the market will win.  It’s only a matter of time.  Enjoy your day in the sun Bernanke.

24 Comments »

  • kyle silliker said:

    I have been tracking your blog and it even inspired me to start a blog of my own sailsupseattle.com. However, that is not the reason for my comment.

    One topic I thought might deserve some descussion is health care and the effect is has on entrepreneurship. I work for a relatively small business (less than 50 employees in USA) and have thought about starting my own bussiness (I am an engineering consultant). I could easily run the business on my own but the added health care costs, simply put, are a deterent to do so. What are your thoughts? Is increased taxation more of a deterent than health care insurance premiums? I feel taxation is eventually accepted as a fact of life by most, while health care costs are thought of as an added expense showing up in the monthly bills. These costs are typically inversely proportionate to the size of the company you work for. This seems like a strong deterent for small business and ultimately a more competitive market from my persepective.

  • 20smoney said:

    kyle, you're correct. insurance premiums are definitely a problem with small business. I work for a company with under 10 employees and it is a major issue. I think more small businesses will opt not to offer health insurance to employees at some point.

    The other thing is that it is getting overall more expensive to have full time employees. More businesses will hire contractors and part time employees rather than take on the additional costs of full time employees.

  • Richard said:

    I read one book by Ron Paul a few months ago, hoping to get some good economics. In it he admitted that the book was inspired by something a crowd of college students started chanting one day, and I found a few parts reaching pretty far even based on my limited knowledge of his theoretical background.

    Are there any examples of these theories being put into practice successfully in recent history? In my business I'll always trust imperfect action over a theory that's gone untested for 50+ years, and I tend to support politics on a similar basis.

  • 20smoney said:

    Richard: If there's anything that has proven over and over again to fail, it is socialism or a perverted blend of central planning capitalism.

    Which book did you read? I have read End the Fed, and it is excellent.

    If Obama or one of the other Republicans get elected, you can bet that nothing will change and the only change will come when the market forces it since we will have no leadership to change the course of America. The market will ensure it is a painful transition.

  • Richard said:

    That's the same book I read 🙂 I would be interested in seeing real examples of these theories being applied to better understand their effects.

  • 20smoney said:

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  • 20smoney said:

    See Ron Paul's comments from the debate here: http://www.zerohedge.com/article/complete-ron-pau

  • Luke said:

    I was talking to a democrat who told me that Ron Paul's deregulation of the economy is exactly what the large corporations want. In theory yes because regulations can hurt the large companies, but it will drive small competitors out of business or prevent others from entering the market. There's a reason why the media won't pay lip-service to him and corporate interests aren't throwing him money… they're afraid of him and the ideas he represents. And the fact that MSM can't mention his philosophies without spinning them is proof that he's the right man to change our current economic system (despite his supposedly low chance of getting elected).

  • 20smoney said:

    I completely disagree. Big business loves regulation because they essentially write the regulations themselves. Regulation only hurts small business and erects barriers which prevent small business from chipping away at the markets that big corporations dominate. Big business has a seat at the table. Small business does not.

    When has regulation prevented a crisis? It hasn't and it won't prevent the next one.

    Of course big business doesn't throw money at Ron Paul, he wants to cut them out of the Washington circle and make them make it on their own without public backing. The last thing Wall Street wants is Ron Paul because it means cutting Wall Street off from public money either directly from bailouts and TARP or indirectly from Fed "lending of last resort"

    The dumbest thing in America is that people think the Democratic party has it out for Wall Street. Time to wake up.

  • The Ambassador said:

    Here is why I disagree with democrats always wanting to take the tax dollars,this is a real life story about government production versus private production:

    I saw Hillary Clinton being interviewed on O’Reilly some years ago. He asked her what percentage of his income she thought the government was entitled to. Her answer, after trying to dodge the question, was 70%.

    Later in the week, a male employee asked me if I could ever vote for a woman for president. He had Hillary in mind. I said yes, but not a Hillary Clinton. Why he asked and I used that example first. He could not understand why and thought she was correct. So I gave him this example:

    I ran two hotels in New Orleans. One of the hotels sold and the owners gave me a $50,000 “thank you” check. I asked him if by Hillary’s beliefs, the government was entitled to $35,000 of the $50,000. He said yes and thought it was fair since this was a bonus payment. In response I broke it down this way for him.

    Liberals ideas for a legitimate breakdown:

    $35,000 onetime payment to government to be redistributed for the study of green house gases in cows belches, payoffs to political cronies, payoffs to the unproductive, etc. Basically this is just thrown away money. That would leave me with $15,000 and not enough to start my own business.

    Versus a 10% tax,

    $5,000 in taxes and $45,000 for me to be able to start my own business. The taxes were actually a little higher but I still opened my restaurant. In the first year, this is the breakdown.

    $800,000 in sales creating the following comparison for tax revenues:

    Over $20,000 in build out taxes
    Over $56,000 in sales tax
    Payroll of $27,600
    Income taxes estimated at $5,000
    15 jobs created = additional economic activity

    In one year alone, by keeping my money and starting my own business, the total taxes paid was in excess of $108,000 in the first year alone versus the onetime $35,000 tax Hillary prefers. The taxes I paid/generated continued for several years. Hillary wanted her onetime payment of $35,000 versus the other scenario? She can’t be that stupid, so why make these arguments? I don’t think I like the possible answers.

  • Panama corporation said:

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  • David said:

    US can never get these jobs back that are similar to those in China/india/Mexico because of the cost issue.
    US should learn from Japan and Germany: still manufacturing, but manufacturing high premium products. But that requires the high quality of the workers. Unfortunately with all these illegal Mexicans, US can't do that.

    Stopping those illegal immigrants from Mexico but having more technical immigrants from other countries is the way to go.

  • Jobs in the Gulf said:

    To the observer of the spectacle that has become the U.S. debt standoff, the leadership of the Republican Party seems prepared to risk a global financial crisis over tax breaks for the oil industry, deductions for wealthy taxpayers and generous depreciation rules for corporate jets.

    From a public-relations standpoint, this is an impasse in which the GOP is not well positioned, even most conservative pundits admit.

    If the unimaginable comes to pass and a failure to raise the debt ceiling sparks a default or credit downgrade, polls show the American people will largely blame the Republicans.

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