Home » Economy, Politics

Letter Re: How Republicans Get The Economy Wrong

15 June 2011 7 Comments

Jason from Gold Stock Bull wrote in to comment on the article entitled How Republicans Get The Economy Wrong.  My response is below the content of the letter.

Nice article.  I don’t associate with any political party.  While I agree that there are too many regulations and hoops to jump through for small businesses, I also think that we need to enforce a small set of sensible regulations on big business.  Free-market thinkers don’t seem to mention this.  Adam Smith’s idea of the “invisible hand” is bunk in my opinion.   We can’t just let the markets to themselves (no regulations) and expect big business to act responsibly and morally.  Deregulation is partly responsible for the economic mess we are currently experiencing (along with the FED actions and central planning).

I’ve also seen evidence that lower taxes are not necessarily good for the economy.  It mostly helps the rich and perhaps there is some small trickle-down effect to the rest of us, but it (alone) does not seem to address the huge income disparity that creates so many of society’s ills.  Some of the strongest economic times in this country’s history were during very high taxation rates on the richest in society.  Same goes for other industrialized nations.  Trickle down economics has been proven to be false.  Furthermore, most of the big corporations in American pay little or no taxes by using accounting trickery, offshoring, etc, so it is hard to argue that high tax rates are hurting big business and to blame for the weak economy.  There are other factors such as running out of cheap oil and coming off artificially good economic times that were not sustainable.

The unemployment rate can be explained largely due to technological unemployment (robotics/automation) and offshoring for cheaper labor, but the nobody is addressing what happens when machines can replace 50% or more of human labor or suggesting that we take huge pay cuts to compete with Asian labor and attract capital. The real problem is that in the end, debt can never be paid back and the burden of interest payments will only continue to grow.  This is effectively handing over wealth and resources to the richest people in the world, the banksters, while constraining economic growth or prosperity for the rest of the population.  Until we address this, there is no way to return to strong economic growth.  Let the banks fail, default on all debt and restructure the system to be debt-free by cutting out these parasite middlemen that add little or no value to the equation.  End the FED, repeal the income tax, shrink the size of government substantially, bring the troops home and focus on renewable energy and other technological advancements.  We can also take from the scary communist playbook and give some land to the poor in society to farm and build on.  There are plenty of resources for everyone if they are not artificially concentrated in the hands of a few.  Simply cutting regulations and taxes is not enough.  Neither is ending central planning.  We have to eliminate the cancer – banking, debt and interest that can never be repaid.

I would be happy to hear your thoughts or criticisms on my point above.

My Response:

“Adam Smith’s idea of the “invisible hand” is bunk in my opinion.   We can’t just let the markets to themselves (no regulations) and expect big business to act responsibly and morally.  Deregulation is partly responsible for the economic mess we are currently experiencing (along with the FED actions and central planning).”

Expecting business to act morally is the biggest fallacy in how progressives view economics.  A business’ sole purpose is to make money.  Nothing else.  They produce a good or service, and another party makes an independent decision to purchase that good or service based on their personal view of value.  There is nothing moral or immoral about that process.  Now if they make money by fraudulent means, the justice system is there to make sure businesses make money in honest ways.  But a business that works hard to produce and earns massive profits is very, very good for the economy.

Moreover, who deems what is moral?  Is it immoral to fire an employee?  Is it immoral to make over a certain amount of money?  The market determines what is moral, not central planners, not regulations and not politicians.  A better example might be a restaurant that says they don’t serve food to black people.  People would be up-in-arms and want politicians to shut that place down or pass a law to prevent racism.  I say that the market will punish that business handily because most people won’t buy food from a place that is blatently racist.

“I’ve also seen evidence that lower taxes are not necessarily good for the economy.  It mostly helps the rich and perhaps there is some small trickle-down effect to the rest of us, but it (alone) does not seem to address the huge income disparity that creates so many of society’s ills.  Some of the strongest economic times in this country’s history were during very high taxation rates on the richest in society.  Same goes for other industrialized nations.  Trickle down economics has been proven to be false.”

I think we need to look at taxation outside of the political lens which we too often view it through.  Instead of looking at it as taxing the rich versus the poor, let’s look at it this way.  I’m a middle class person who works hard, is paid an above average salary, is by no-means “rich”, but also pays a lot of taxes.  Would it be better or worse for me to keep more of my money that I work for?  It would be better.  I’d spend more, I’d invest more, I’d save more.  All good things for the economy.  Taxes do one thing and one thing only.  They take money out of the productive economy which would be distributed via market forces and instead puts it in the hands of politicians and distributes it via political forces.  Politicians have never and never will allocate money in a way that results in a better economy for the masses.  It doesn’t work, no matter how many nations and societies continue to try it.

I don’t promote “trickle down economics,” instead, I promote an economy that is free to run itself.  A free economy where people are free to work hard and achieve and earn money and spend it and invest it as they want is an economy that brings prosperity to more people than any other economy.  This doesn’t mean I don’t believe in some form of a safety net, but let’s make it a real safety net which helps the truly poor who are going to starve if somebody doesn’t step in, not a safety net that gives aid so people can buy iphones and fancy wheels for their cars.  Even then, I still see the merits for NO safety net.  What happened to a country where people took care of themselves?

Corporations get around the tax code because the tax code is retarded.  Another reason why Republicans going on and on about “lowering the corporate tax rate” won’t really do anything.  The rate is high, but they still don’t pay taxes.  Simplify it, lower the rate, and then enforce the actual tax code.

On the last paragraph on unemployment, bad debt and the Federal Reserve, I’m in agreement for the most part.

Thanks for writing in.

7 Comments »

  • Davidr said:

    Good reply.

    For the unemployment, I think we need to follow what Japan and Taiwan did. Initially, Japan and Taiwan used cheap labor to compete but when their living standard became high, they switched to premium products, i.e. products containing high technology factor so you can charge high price.
    US needs to do the same way since you can never compete with China on cheap labor.

  • Will said:

    There’s a treriifc amount of knowledge in this article!

  • lsbygi said:

    Q6bN9k fbtbetmamgey

  • crimit said:

    hi

  • Natividad Bonillas said:

    Seems like you have got …not precisely springtime fever, but more like spring inspiration. This write-up made myself think that some thing inside me desires tweaking, a change. However , it is a horrible, usually really difficult to improve your self by yourself. Practically nothing significant by any means. I’m going to receive a bathroom and go to bed, could make it more suitable tomorrow. Thanks a lot for that posting, wonderful day! 🙂

  • finance_expert said:

    Speaking about the taxes, I would advocate for the idea of lowering them. Ronald Regan coined in the 80's the phrase "voodoo economics", a concept related to economic growth's stimulation by low taxes . The concept is as simple as it can be…if consumers have more money they will spend it. Spending more money creates economic growth. So by LOWERING taxes we get more people hired and create more jobs. This is called voodoo economics and it works.

  • David Gallo said:

    A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main method is via charging interest on the capital it lends out to customers