Monday, July 9, 2012


In a prior posting here I talked about the apparent lack of understanding between our political parties. It seems that each side is using different definitions of words and concepts. This becomes clear when one listens to the most basic ideas of how the American economy works. An example might help.

When discussing that most hated of all things government; taxes, politicians on the right will invariably trot out two arguments that they are sure will convince the simpleton asking the question of the, if you'll excuse the pun, rightness of their position.

First, they will tell us that, back home in their district, business people come up to them and tell them that if the incredible tax burden that they are under and the job killing regulations they face were just lifted, why then all would be well and jobs would flow forth as if from a fountain. Or something like that. Bottom line, business people want lower taxes and less regulation. Fair enough. But does it bother anyone else that this is like asking an eight year old if he wants more ice cream. You sort of know what the answer is going to be before you ask the question.

Second, and more to the point of this post, those on the political right will sometimes lecture an interviewer with a little lesson from Econ. 101. It goes like this. " We shouldn't raise taxes on the 'Job Creators'." "When we do that we just extract money from those 'Job Creators' and then redistribute it to poor people." "Since no new money is created in the transaction, the economy gains nothing." "In fact," they will say, "Those extracted dollars are no longer available to create jobs so taxing and redistribution are BAD for the economy." This is usually said with a bit of a smug smirk, as if the speaker is sorry that the interviewer is too stupid to understand such a simple concept.

Now, the problem that I have with this explanation is that it only seems to make sense in an Econ. 101 text book. Or maybe in a game of Monopoly. "Oh my, if you charge me for landing on your Boardwalk I'll be unable to buy a hotel for Illinois Ave. Think of all the hotel workers who won't have jobs." Ya, that makes sense. It's a zero sum game. There's only so much money to go around. If I give it to you, by way of the government taxing me, then I don't have the money to invest.

Back here in the real world things are a bit different. We have to deal with a global economy where rich people and corporations invest in businesses and securities from around the world. Where they park millions of dollars in off shore bank accounts. Where they spend billions on capital investments in other countries. Now just how does any of that square with the zero sum tax and redistribute game that they say explains our economy? Simple answer - it doesn't.

Those off shore or out sourced dollars offer no benefit to the general economy here in the USA. They only benefit the corporation, its investors and the country where the money now lives. So while extracting taxes from the rich for redistribution may look like it takes funds out of our economy, the rich aren't really playing a zero sum game at all. In fact it can be argued that their out of country investing is (one of) the actual reasons for our national unemployment problem. It's those dollars that have been removed from the economy, not the dollars extracted by taxes.

1 comment:

Sarah Gholson said...

As usual, well writen, so that we can all get a better picture of reality. Faithful fan,