Wednesday, July 16, 2014


As I noted in the last post, our friends on the conservative side of things seem to believe a lot of stuff that can't pass the smell test of logic. That is to say, if it doesn't walk, quack or fly like a duck... it's not a duck, no matter how much you believe it is one.

Our second myth, then, is simply the entire right wing economic plan and answer to the endlessly repeated question, "Where are the jobs?" But don't worry about it being a long, dry list of policies. Here's the whole thing from a USAToday piece by Cal Thomas.

"Cutting taxes, lowering government spending and reducing the size of the federal bureaucracy would improve the economy... "
Ya, that's all of it. The conservative answer to all that is wrong with the Greatest Nation to Ever Grace the Face of the Earth. That, by the way, is yet more right wing clap trap. Here's the logic problem. If the statement is true then how could there be so much wrong with the country? Just sayin'

So let's dig a little deeper into the Great Plan (GP) and see how it would work to solve all of our economic problems. Cutting taxes. I assume that the idea is that leaving more money in the hands of them that earned it will translate into more investment in private sector businesses which will then produce more hiring and greater economic activity. That's the theory, anyway. Let's look at those ever so bothersome facts.

American businesses are, and have been, sitting on over 2 Trillion Dollars of cash. Not capital, not infrastructure, not warehouses full of product. Cash! There is a glut of mergers going on at the highest levels. And notice how often the deal is presented in terms of cash not just stock and other equity. We also have many large companies doing stock buybacks as a way to offer stockholders short term gain and get rid of even more of that pesky cash. What we don't have is hiring of new employees or raises for existing staff. So please, if you can, explain how giving a business even more cash money in the form of a tax cut will induce, encourage or maybe trick those companies into spending that money by creating jobs?

Businesses do not hire people because they have excess cash laying around the boardroom. They hire to satisfy a need brought on by increased demand for whatever it is that they are selling. Look at the last 6 years. Businesses have lots of money but are not hiring. Or look even farther back to 2001 and 2003. The massive Bush tax cuts, directed mostly toward the top 10% of earners did not result in increased hiring as had been predicted... by conservatives. Here's a chart of the unemployment rate since 2000.

Notice how after the 2001 tax cuts the unemployment rate went up, not down. Also notice that after the 2003 tax cuts the rate did start down, but very slowly and barely reached the level of unemployment recorded on the day George W. Bush took office. Oh, and you might want to notice that the huge upward spike starting in 2007 and ending in the first quarter of 2009 was all on Bush's watch.

So, two huge tax cuts... no effect on hiring. Tell me how this works!

Well, surely lowering government spending will do something positive for the economy. Maybe not. As I alluded to in the first myth post, government spending puts money into the economy. The logical extension of that statement is that reducing government spending removes money from the economy. But the conservative theory says that that money will still me spent and invested by the private sector which knows much better than bad old government where to pour that cash. Okay, but there may be a few problems. For example, it may be unstated but the conservative assumption is that money not spent by government will be returned to the taxpayers in the form of tax cuts (see above). This, of course, ignores the other unmentioned part of the right wing GP, the debt and deficit. I would think that any savings of tax dollars brought on by spending cuts should first go to reduce the deficit (the amount of money we borrow and then spend) and then to reduce the debt (the amount of money that we owe to those entities which lent us the money to excessively spend). They, conservatives, wale and moan about the D and D almost as often as they mention Obama's War on Coal. Which is to say, all the time. So I only think it would be fair to use spending reductions for those purposes. Want to bet on that one?

More importantly for our busting of myths (see how I avoided problems with the copyright laws), how would cutting spending, regardless of were any savings is redirected, "... Improve the economy?" I don't think it would. And I'm in agreement with the majority of economists. I'll say it again, government spending puts money into the economy. And, by the way, it also increases the moneys coming in from taxes. No, this is not some perpetual motion machine that runs forever on its own output energy. It is the simple fact that the federal government taxes transactions.

We pretty much only think of the government taxing income, but income, and in the case of businesses, profit, can also be viewed as transactions. Your part of transaction is to put in your 40 hours of working for your employer and your employers part is to give you money for your work. The same, of course, holds true for businesses. Buy 100 widgets from Widget World and they send you widgets and you pay them money. So really, all of what we call economic activity is just one transaction after another. And they're all taxable.

Those who haven't been there might be surprised to learn that unemployment payments are... taxable. Yep, all of those lazy takers receiving unemployment benefits so that they can lay around and play video games all day on the taxpayers dime are, in fact, required to pay taxes on the money they receive. One member of the household working while the other is disabled or retired? Social Security payments are also taxable under certain circumstances.

Grants from the government are generally not taxable, every transaction from that point on, is. So a science grant of say $500,000 to study hens teeth may seem like a half million dollar waste, but just remember that the half million dollars is now buying lab equipment (taxable) lab coats (taxable) paper, pens, computers, cell phones, lab assistants, etc. (all taxable). And the people who are paid for their work or their products take that money and buy bread and milk and shoes and diapers and more lab coats and stuff to sell AND IT'S ALL TAXABLE.

This basic fact is why Europe, which chose spending cutting as their way to recover from the Great Recession, is suffering under double digit unemployment and why the USA, which, by way of the FED, chose stimulus rather than austerity, has an unemployment rate of 6.1%. Facts are facts.

Okay, that's enough for now. The part about reducing the size of the federal bureaucracy is really just reduce spending said in a different way and is, as we've seen, just as meaningless. This stuff sounds good, in a kitchen table, checkbook balancing, kind of way, but the federal budget is not your checking account. The general economy doesn't work like that and believing that it does is a very big part of the problem.

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