Where’s the Hyperinflation?
When the unaccountable, secretive arm of the banking industry known as the Federal Reserve started lending itself (the banking industry) billions of newly invented dollars, late last year, responsible people all over America were horrified.
Some of the soundest economic minds even started predicting “hyperinflation”.
Well, it’s been three quarters, now…soon it’ll be a year.
“Where,” other people are saying, “oh where is that oh-so-scary hyperinflation?”
The answer comes in several parts:
What is Hyperinflation? Hyperinflation is a specific thing. It’s not the three percent inflation we normally “enjoy”, any more than it’s a flavor of cream pie. We must define what it is, in order to know if it happens.
What Causes Hyperinflation? Having defined it, we need to know if the things that cause it are happening. The Fed has printed new money for nearly 100 years, never with hyperinflation. Is what happened recently sufficient to change that?
How Long Would it Take? Is it too late? It’s been nine months; are we safe?
Well, Let’s See
What is hyperinflation?
(caption: An actually hyperinflated currency; the Zimbabwe dollar was so weak that this is a single note for one hundred TRILLION. At the rate it printed money for two months last fall, the Fed would still need over eight years just to print enough to equal this one scrap of paper)
Well, “inflation” is when you increase the amount of money, or the supply of it compared to the demand for goods in society…but when non-economists say “inflation”, they usually mean “prices go up”.
And so “hyperinflation” is just “prices going up really, really fast”. The amount necessary to count is generally said to be “100% per year for three years”, for long-term hyperinflation, or else “50% per month” for short-term hyperinflation.
The most inflation we’ve ever suffered, in the 1970s, was less than 14% per year. Normally, it’s between 2% and 3%.
Right now, prices are going DOWN most months, not up. There isn’t even price stability now, much less price inflation.
But why would prices be going up OR down, in an unhealthy way?
Super-quick history:
Almost exactly 100 years ago, in 1907, the US suffered yet another in a long series of destructive depressions and panics, generally caused by money shortages creating runs on banks, price failures, stock market crashes, et cetera.
But this one was stopped dead in its tracks by a group of wealthy entrepreneurs who made very short-term loans to various financial groups, allowing banks to pay off depositors, et cetera. The result was the downturn cut short, never becoming a full-blown depression.
A brilliant lesson was about to be learned, but unfortunately government prevented that. Instead of a newish industry of short-term finance lenders/insurers springing up, the Federal Government announced it was going to act in that role, from now on. It created the Federal Reserve, which would use its coercive power to print imaginary new money to lend to financial institutions in times of crisis.
(Sadly, it did the opposite; it lent out newly minted money in good times, but tended to cut it off whenever there was a financial panic, which was the only time it was supposed to lend in the first place…this is part of what triggered the start of the Great Depression in 1929)
Well, the Fed is a whole other discussion, of course, so we’re going to skip ahead, now
Today:
So instead of lending out money during a crisis, the Federal Reserve increases the amount of money a few percent per year, lending it out in good times. This is part of why we have (usually moderate) inflation…the amount of money increases faster than the demand for goods, so there’s more money to spend than stuff to buy, and prices increase.
But from 2004 through 2008, the Fed did something it hadn’t done since 1938 when we went off the Gold Standard: It started DECREASING money supply:
(caption: Notice that M1, paper money and electronic money in US banks, shrinks (goes below 0 growth) from 2004-2008)
Notice that the most important line, the red M1, goes below zero (to shrinking money), and stays negative longer than it had been at any but one time in fifty years. And currency (actual paper money) falls lower than ANY time in that span.
This is because M3, which includes money in foreign banks, was going up so quickly: Money was fleeing the US because of our wars, and the 700% inflated oil prices, and our billions in new foreign aid. We would buy oil that should have cost a few hundred billion, but instead cost us trillions, and send the money for that oil to Saudi Arabia, and other foreign countries.
Over the course of four years, this added up to a shortfall of between two and three trillion dollars in the domestic US economy. That money was all overseas.
Here comes deflation
(caption: The Fed's monopoly could never work better than any other monopoly, and now it's produced deflation)
This didn’t even leave enough money to pay for our normal goods, much less allow the economy to grow…plus, of course, the cost of making things was shooting up from the high oil prices, as all things require energy, while there was LESS money to cover that universal new expense.
The result? Deflation, and therefore a money shortage, that led to the economic depression starting in 2008. There was not enough money to run the economy, so prices began FALLING, the US suffering what appeared to be a “loss” of about three trillion dollars. This was simply the change in prices to represent the trillions missing because of M1 shrinking for four years.
The Federal Reserve’s response? It actually CUT its offered money supply in 2008, by refusing to lend to banks suffering financial trauma…once again failing to act in its sole official role of “lender of last resort” as in 1907.
But it couldn’t keep that up, because deflation destroys a market economy.
So, once this cutting off of emergency money caused the banks to start failing, the Fed belatedly loosened its purse strings: It lend out over two trillion dollars to financial institutions, in just a few months.
Is It Enough to be Hyper?
Now if the Fed did this all the time, lending out a trillion dollars each month when the economy was just fine, we might really have hyperinflation.
But, instead, the Fed did this ONE TIME, starting from a money deficit of three trillion dollars.
So, in fact, what it did was produce enough new money to, hopefully, make up for the money shortage.
Being down trillions of dollars, then adding two trillion, could not make prices double every year. Or even once.
Even if there had been no shortage, two trillion is not enough to increase prices by 50% every month, nor 100% every year, because it is a fraction of the many trillions of dollars in our economy, and only happened one time. Hyperinflation requires more money to be printed even as prices are going through the roof, so that people come to expect it and overprice things ahead of time.
But, even if it had been enough to cause hyperinflation, there’s one last big factor:
Time delay.
How Long?
We can’t guarantee that there will be NO backlash from this infusion of money, until about 18 months have passed. Historically, changes in money supply take between 6 and 18 months to hit prices in an economy. It has to gradually spread throughout the system, being spent, invested, and saved over and again, until its full impact is felt and absorbed.
So we have until mid 2010 to see whether there are SOME effects from the unhealthy throwing of two trillion unearned dollars at our socialized banking institutions.
What About Government Spending?
For better or worse, it is actually impossible for government spending to “stimulate” an economy, at all. And since the current “stimulus packages” are financed by bonds and deficit, not the printing of money, they are actually DE-Flationary. Read the above link, to understand exactly why these things are so.
Sorry, Not Even Close
But, ultimately, whatever backlash there is, it cannot be hyperinflation. With an economy of, depending on how you count, eight to twelve trillion dollars, you can’t make prices jump even 50%, even for ONE month (and it must keep happening, to be hyper), by printing two trillion new dollars. Not even if there were not already deflation to counter.
The great danger, to this day, is deflation, not inflation, which can produce a long-term spiral of economic depression. What's worse, is that the Consumer Price Index, adjusted to compensate for annual cycles like Christmas spending and winter energy prices, showed deflation six months earlier than this chart.
Why Stimulus Spending Depresses the Economy
There is a good reason why Bush’s “economic stimulus” plans helped land us in economic depression, and why Obama following that precedent with bigger, badder stimulus plans will do even more harm.
It is the same reason why Japan’s “stimulus plans”, upon which ours were partially based, kept them in an economic depression for a decade, and did the same thing in Sweden.
Here’s How
- Lost Money: Every penny spent is taken from the private sector: whether through taxes; or by borrowing that robs from private investment, so nothing is gained. Then that money is wasted before it’s spent, because of the cost of bureaucracy, red tape, political motivation, and the lack of any control over the benefit of what it’s spent on.
- Crowding Out: The government spending competes with private spending, but has no checks or balances, no responsibility, so that it can crush the private competition out of the market, causing more economic harm instead of helping. It hires away workers and managers with large budgets, yet contributes less. It draws away research and investment from the private sector, et cetera.
- Chilling Effect: Healthy private investment and behavior is seen as punished, as unconditional public spending displaces it. Government spending tends to reward failure, and not to create wealth, while private spending depends upon productivity and success to expand. Bad companies, which do not contribute enough to society to justify their existence, have their ineffective ways perpetuated, instead of being excised and replaced with new competition.
Lost Money
Your Neighbors
Your neighbors are planning to upgrade all of their crappy single-pane, wooden windows to nice thermal-pane replacement windows.
(Don’t ask how I know, just work with me, here…)
Your neighbors, therefore, shall cause the full employment of a team of six carpenters/installers, for one week. And those workers will, in turn, use their pay in ways that end up rewarding others, by spending or investing.
Of course they’ll also be profiting the company that sells windows, which in turn will reward its suppliers by ordering more, et cetera.
Your neighbors will, too, have nicer windows. Their house will be more comfortable. They will save money on their energy bills. And, if they are Global Warming True Believers, they will also feel very good about their effort to save the earth.
All of this benefits society and the economy. Even the feel-good parts.
Big Brother
But perhaps your neighbors will be prevented from doing this, by Big Brotherment.
Maybe their taxes are, or will be, high enough that they won’t be able to afford to buy those thermal replacement windows.
Perhaps, in fact, the amount necessary to upgrade their house will, in fact, be spent on a Stimulus Package, funded by their taxes.
That tax money, instead of being spent on their house, will instead filter through the government bureaucracy. The majority of it will actually be paid to bureaucrats, who produce nothing but paperwork and rules.
What’s left, in theory, will go to some union contractors in Iowa, to finance a Corn Museum. Never mind that Corn makes more money for its producers than any other crop, the government is financing this to “stimulate” the economy.
So a team of three union carpenters will get paid for about five days, based on your neighbor’s tax money. Three, because a majority of the money was lost to red tape, and only five days, because the union monopoly dominating the government contract in question is overpaid.
Better still, once their hourly coffee breaks and four mandatory half-hour breaks are deducted, and you take into consideration the bizarre “safety” rules in their contract, that leave them standing around more often than working, what you will actually get is about the amount of work one carpenter’s could do in five days.
And it will be dedicated to building the 23rd corn museum in the United States.
So the options are:
Free Market
- Your neighbors get a house full of thermal windows.
- Six carpenters get fully employed for a week.
- A window company is rewarded for improving the lives of your neighbors.
- Money is saved on energy.
- The planet is no longer doomed.
Government Stimulus
- Iowa gets 0.01% of a corn museum.
- Three carpenters get employed for five days, to do the work of one carpenter.
- People may, if the project is ever finished using other people’s tax money, get to save an hour over driving to the privately funded corn museum next door in Illinois.
Now a government bureaucrat will, in defense of his precious Pork budget, say “but we can’t be sure your neighbor will buy thermal replacement windows!”
But, quite frankly, we can be just about 100% certain that they will spend it on something they value. I’m not entirely clear on how even pet rocks and full body massages would be any less of a contribution to the economy than another corn museum.
And, seriously, much of the government’s spending benefits society less than corn museums, too.
Bridges to nowhere, two thousand dollar toilet seats, military equipment the generals said they didn’t want, but some senator insisted on funding because it is built in his state, methadone for junkies that is more addictive and toxic than the heroin it is replacing, free benefits for illegal aliens…
Face it, the corn museum was actually an optimistic example of government benefiting society.
Ultimately, each dollar the government spends must come from a dollar ALREADY taken from your pocket, directly or indirectly. There is no stimulation, because it’s just the same dollar. And, worse, YOU would have bought something you felt was beneficial, not wasted it on some bureaucratic make-work project.
Crowding Out
(caption: Buying stuff on closeout from a bankrupt company helps the economy far more than a government check, regardless of whether it saves the bankrupt company)
And let’s not forget that the government’s spending competes with private spending. There is a pressure against private industry, when it’s forced to compete with a government that can forcibly finance a project without any standards for success.
Workers
As noted above, if you are a carpenter, you can get a job where you are paid for what you accomplish, in the private sector, or you can get a job in a government contract where a union monopoly guarantees you more pay, for less work, a coffee break every single hour, and you’re not actually expected to even succeed, or do good work.
With government spending, therefore, one ends up with fewer skilled workers in the private sector.
Research
Better an easy government research job with no results required except regular publication of results, than private sector research, that must actually prove some contribution to society.
This is why things like cancer research and alternative energy research have produced only insanely expensive, ineffective results.
Business
Why build a privately financed corn museum, when there is a public one planned nearby? The free market depends on the pressure of demands, which can be supplied because of the reward of profit, fame, et cetera. All of which is quashed by public competition…producing LESS economic activity, prolonging, or even creating, economic downturn.
Investment
This is even true of investment. Why risk money buying stocks, or investing in any other resource that actually helps create wealth and grow the economy, if the government is issuing trillions in bonds that it can guarantee, at gunpoint, it will be able to afford to pay off?
This is part of why the US stock market is below where it was a dozen years ago; the past nine years of massive growth in government spending have crowded out even investment, depressing economic growth and the availability of money for business and individual use.
Chilling Effect
Capitalism helps society prosper, in part, by requiring that businesses be efficient and useful, or else be displaced by other, better, more efficient competition. Government “stimulus” spending helps bad behaviors and inefficient companies survive, preventing the openings for new, better ways.
Reward Failure
Government spending, too, has to reward failure and punish success, directly. Not just by bailing out failures, but with its own agencies: It would be irresponsible to expand the budget of a project that was already coming in ahead of schedule and under budget. What a waste of taxpayer dollars! Instead, if the agency wants to expand its budget, it must fail. It must show how it is over budget and behind schedule, and how natural this is, how more money and power will help it achieve its goals.
Punish Success
Meanwhile, responsible, productive businesses are punished for their contribution to society.
What if Ford ends up the weakest of the three automakers, because it didn’t take the thirty billion taxpayer dollars and declare bankruptcy? What does this tell companies in other industries, when they’re considering whether to be productive, or else squander money and go crying to the stimulus committees for bailouts?
Government Gangrene
There are hundreds of billion dollars in bad investments, loans, et cetera, that need to simply fail, because they cannot ever be productive. Right now they are gangrene on society’s body, just burdening our health and slowly spreading…but the stimulus/bailout money keeps them from being removed, and even helps them expand, quashing healthy alternatives.
The Solution
In each case, around the world in history, the only way to get out of economic depression was for the government to STOP killing the economy with its fake “stimulus” packages.
Examples
It took Japan and Sweden ten years to figure this out. Some other countries never have, and still are suffering for it.
Even in the US, the government constantly expanded spending to “stimulate” from 1929 through 1938, and only truly enjoyed healthy economic growth when spending and regulation were massively cut in the late forties and fifties.
The opposite of this was the depression of 1920-21, where banks failed, commodity prices plummeted (like housing prices now), the stock market crashed…and the US government did virtually nothing.
That lack of “stimulus” resulted in a depression less than two years long, unlike the decade of the other examples.
Check out the extensive history of economic downturns in the US, for more.
Self-Transfusion?
Ultimately, government spending actually sucks the life out of the economy, increasing and prolonging economic depression, because it must take private money in order to “spend” the public money…as if you gave yourself a blood transfusion by taking blood your left arm and putting it in your right…with the stress of the transfusion actually leaving you weaker than when you started.
Why Do Good People Hope Obama Fails?
(caption: Hoping The People succeed often means hoping a specific politician's agenda will fail.)
There was a recent hue and cry about Rush Limbaugh saying he hoped that Obama would fail.
But he has plenty of people on his side…from all over the political spectrum. Why?
Look not at the words a politician uses to adorn his proposals, but at the things it will actually produce.
There is a huge gulf between the pretty things Obama promises, and the poverty and tyranny he, like his predecessor Bush, would deliver if successful.
Progressive “Universal health care”, anywhere in the world, produces universally short supply and slow progress of medical technology.
“Renewable energy” has been the promise of government for forty years, but all that it’s ever produced is renewable economic malaise.
“Comprehensive immigration reform” means bundling bad ideas with good ones, for an overall worsening of conditions.
Our economic depression was caused, in part, by high energy prices (because of Bush’s insane foreign policies driving the price of oil up 700%). Now Obama promises to drive up energy prices even higher, on purpose, in the name of “global warming” that ignores the past two years of global cooling…and we should wish him to succeed?
Canadians illegally sneak to the US to get health care, when suffering or even in danger of death, because it can be months, or even years, before their own system rations out treatment to them. Britain actually bans life-saving treatments it deems “too expensive”. You’re not even allowed to buy them for yourself, much less get them “free”. The whole problem with US health care, in the first place, is that government has been increasing the “universal” and “free” parts for over forty years, stripping consumer control from our hands, causing prices to go up and service to plummet…would we really hope Obama manages to make that rationing universal?
There are debates, in America, over:
* Whether jobs should be protected from new immigrants, or they will increase wealth and demand enough to be a net plus
* Whether people who have broken existing laws in order to sneak into the country, by tens of millions, should be given blanket amnesty, or have to go back home and start over legally, or simply be thrown in prisons or exiled permanently.
* Whether tax-paying, productive people should be forced not only to subsidize poverty and failure among formerly tax-paying Americans, but even for foreigners who show up illegally just to get the free handouts, as is helping bankrupt California right now. Should their children suffer for their wrongs, or just the children of people who pay taxes?
All of those debates should be settled, separately. Lumping separate issues together to force people to take the bad ones in order to have the essential good ones is one of the great crimes of modern government.
But we must hope he succeeds in this?
That’s not the kind of “hope” people voted for in 2008.
We hope THE PEOPLE succeed…which often means hoping a specific politician’s agendas fail, completely.
Fowl-Weather Conservatives?
Beware the Republicans in Name Only, who adopt Conservative jargon only when safely out of power, but believe in socialism.
Listening to all the “Obama is a socialist, someone save us from the fascist state” hubbub going on now from the neocon pundits and politicians, you wouldn’t guess that, for six to eight years, the Liberal/Neocon wing of the Republican party controlled all important aspects of government, and acted almost exactly like Obama is now…if anything, worse.
Where were these frauds, when Bush was the one nationalizing banks, passing huge bailouts, expanding regulations to record size, socializing health care, et cetera?
Why are fake Republican pundits suddenly talking Conservative now, when they were talking Liberal then?
Because now they’re out of power. Impotent, they feel safe arguing for the liberty they despise, simply to get back into power…at which point, history says, they would simply expand government faster than the Democrats.
This happened when Nixon replaced Lyndon Johnson. He signed more Great Society bills into law than his predecessor.
The same thing happened with Bush following Clinton; he expanded domestic spending more in any ONE YEAR than Clinton did in an entire four-year term.
His solution to the Katrina disaster? Throw money at the problem, even when the corrupt Louisiana and New Orleans governments had already been given, for a decade, more Corps of Engineers money per year than the rest of the nation, combined.
When recession hit, or years later depression, both times their “stimulus” packages were Keynesian socialism, even the fake “tax cuts” mostly being socialist tax credits and semi-annual welfare payments disguised as meaningless “rebates” that did not change economic behavior at all.
When Bush crippled our economy with huge new regulatory schemes in health care, shipping, and insurance, these faux-Conservative talking heads were silent, defended him, or even bragged on it.
When he expanded socialized health care more than ever before in US history, with the prescription drug “coverage” that inevitably caused the price of prescription drugs to explode, why were they not screaming “socialism”?
When Bush said that he was banning guns in occupied Baghdad NOT to repress the resistance fighters, but only to “reduce violent crime”, parroting Liberal gun control freaks’ excuses, why did they not scream in horror? Obama has actually spoken more in DEFENSE of the second amendment than either Bush or McCain, and yet they claim he’s trying to confiscate all guns.
Let’s face it, the neocon Liberals in the Republican party leadership, and much of the “Conservative Media”, including talk shows and Fox News, don’t believe a word of what they are now saying. They are, if anything, worse than the Liberal Media…their advocacy expanded government and attacked liberty far more successfully than the Democrats have.
Let’s not get sucked in by their “rebranding” scam.
Like super-Liberal RiNO Bob Dole said, when opposed by all true Conservatives in his 1996 run for the presidency, “if you want a Reagan, Bob Dole can be a Reagan”…to them, it’s all a game of packaging and playing at what true Conservative supporters of liberty believe.
Secrecy is Tyranny
(caption: Keeping secrets from voters is exactly as coercive as holding a gun to their head in the voting booth)
Secrecy, even in and of itself, is a form of tyranny.
No, this doesn’t mean when you don’t tell your friend about his surprise party, nor concealing the recipe for Coke Classic, not even the hidden initiation rites for that fraternity…
But when you cause someone to do something they would have otherwise not chosen, because you conceal information from them, then you are coercing them, the same as if you pointed a gun at their head.
And, in the case of government, when the People are supposed to control policy through elections and popular support, any government-concealed information that changes how they would vote is tyranny, same as if they sent stormtroopers to help fill out ballots on election day.
Any pundit you see complaining that a government official told the American public too much is, in effect, advocating tyranny.
It’s one thing to hide when troops are making an attack for a few days, or to openly refuse to tell exactly how a nuclear bomb is made…but it’s another, entirely, to conceal information that will change how people vote, no matter what “national security” excuse they invent.
This is most painfully transparent when the actual “national security” excuse is “this will embarrass [some government official or office]”. Embarrassment, shame, and general changing of how someone sees something are obviously not legitimate excuses. What’s more, it would not matter either way, because that is the price of liberty.
America is supposed to be a free country. This requires responsibility for the consequences of one’s actions, including when it means something embarrassing, whether to your neighbor or the foreigners who will be horrified or disgusted at our government’s behavior.
In fact, without secrecy, many of those evils would not occur in the first place, just as in our real lives. If the government can’t hide when it bribes a foreign official, or tortures someone, or other evils, then it will face public and international shame, and the threat of voter retaliation, and hopefully not do it in the first place.
By preventing voter retaliation, a government does not make itself more stable…just more tyrannical.
Unamerican Policies Are Great Tiger Repellent
We didn't get attacked for the ten years prior to 9-11 either.
Little Old Lady: [Long Island Accent] This tiger repellent is so expensive, I may have to cut back on my groceries to keep getting it!Sane Person: But…tiger repellent is a scam! Why would you buy such a thing? It’s a waste of money!
Little Old Lady: Well, I started buying it when that magician got mauled. And obviously it works; I haven’t been attacked by a tiger, since!
No matter whether Bush’s policies violated every American principle or not, one thing you can definitely say is that we haven’t had a terrorist attack on US soil in the seven years since he started them.
Nor have we been attacked by tigers.
In fact, we did not have a terrorist attack on US soil for almost ten years BEFORE 9-11. Crediting Bush’s violation of every American and Conservative principle with this “safety” is actually somewhat more foolish than the little old lady buying tiger repellent.
Unless it actually attracts tigers.
Because Bush’s evils, committed in our name, like:
- Torturing now-helpless captives
- Attacking countries without provocation
- Rounding up people at random from suspected areas and keeping them for months, or years, without outside contact or even determining which ones, if any, are actually the targets
- Handing out billions in cash and military supplies to top state sponsors of terrorism like Pakistan and Saudi Arabia
All have increased likelihood of attacks against America.
It is no coincidence that terrorist attacks worldwide increased with each implementation of these policies. That they didn’t happen in the US is because zero times some amount is still zero.
These evils are a perfect recruitment system for terrorism. What other way do these people have to stop us? Would YOU not fight back, if these things were being done to your family?
Evils we would not normally commit, we should not commit just to gain some benefit…but especially when the benefit is imaginary. “We haven’t been attacked since 9-11” is as ridiculous as “I haven’t been attacked by a tiger since Siegfried and Roy were attacked”.
Thank Liberalism for the SUV…again
(caption: You can't ban powerful vehicles, any more realistically than you can ban stupidity.)
Years ago, busybodies decided to violate the limits to the powers of the Federal government, by setting gas mileage standards (and many other harmful regulations) on automobiles.
As is always the case with the Law of Unintended Consequences, this actually produced the opposite of the intended results.
It created the green-hated SUV boom.
This is because there are legitimate uses for large engines, and large vehicles. You can’t just declare that everything has to get X miles per gallon. Obviously, trash trucks cannot. The tractor-trailer rigs that deliver most of our goods cannot. Vehicles that actually are needed to drive somewhere on the road and then go off-road to do work cannot.
There are, in fact, many sporting or work activities that require the power or weight that make high gas mileage impossible.
So the bureaucrats were forced to create special exceptions…for example, a Sports-Utility Vehicle class.
But arrogant, ivory-tower civil rulers cannot anticipate all needs. OK, let’s face it, they are actually incompetent at anticipating the needs of real people.
So it didn’t occur to them that regular families need large vehicles, for many reasons. Nor that the regulations on minivans would make them too underpowered and, well, ugly, for most people to find tolerable.
So, in fact, the typical family was faced with an artificial division between the “efficient” vehicles, and those even more powerful than they need.
They were, therefore, actually driven (no pun intended) to buying from the latter class. Stuck between feeble, dangerous, ugly cars with good mileage, and inefficient, powerful, good-looking ones, they chose the latter. As they should.
It’s the environmentalists’ own fault.
And now they’re at it again:
The Obama/Pelosi administration have announced a McCain-like plan to FORCE Americans to drive even weaker, uglier, more fuel-efficient cars. This will not only increase poverty, by hugely raising the price of cars and therefore pricing people out of transportation, but will surely have many other unintended consequences, in the long run. More automaker bankruptcy, as they’re forced to make cars we won’t buy? Even crazier automotive trends, as we try to find a way to get what we actually need, instead of what they want us to have?
Have fun finding out what they’ll be.
Trickle-Down Taxation
Item #2 of the Communist Manifesto: "A heavy progressive or graduated income tax". What isn't mentioned is that this was a way Marx could make the poor even poorer and weaker, not the rich. Marx gained power from the strife caused by poverty.
One of the best-sounding of the freebies that Obama is offering to hand out (if it’s not just another politician’s empty campaign promise) is exempting everyone who makes under $200K from the income tax. This one even tempts me. Lower taxes are good for the economy, for economic freedom, and of course for everyone who earns less than that amount of money.
But there’s a serious down-side to this. How do we fund all of the other freebies he is giving out, if we are going to cut government tax revenue with this one?
Of course the answer is simple: We are going to tax the people who make OVER $200K so much more that it makes up for the loss. Obama says it’s only fair, to “spread the wealth around”.
Now this may not be quite as bad as it sounds:
- First, people who make over $100K or so pay most of the taxes, already. Unfortunately, Bush’s tax cuts were not really all that “for the rich”, and “wealthy” people already pay almost all of the taxes. It was pointed out today that there are some companies, in fact, that are forced to pay more taxes per year, individually, than 66% of all families. It’s famous that the top two percent of earners pay something like 60% of the taxes.
- Second, tax cuts boost the economy, which increases tax revenue. Both Reagan and Kennedy both demonstrated this, cutting and simplifying taxes, and having tax revenue increase.
Unfortunately, those two things aren’t enough. The billions paid by people who earn less than $200K still adds up…and tax cuts don’t all work equally well.
For example, tax cuts that favor one group over another help the economy less, while ones that spread the burden evenly help everyone more. In fact, simply spreading the burden evenly, with NO tax cut, would boost the economy more than cutting taxes for some people, while raising it for others.
Especially when the taxes (as they already, are, and will now be more) are designed to punish hard work, success, and contribution to society.
Just as a slight increase in interest rates, so small it certainly doesn’t change any one person’s mind, has a large nation-wide impact on how much people borrow, so a tax that increases as you earn more money has a nation-wide impact on how much people earn, depressing income growth.
But there’s something involved, that’s more important than ALL of that:
WHEN Barak Obama raises taxes on people who earn more money, the wealthy will not pay a penny of it.
You will.
The counterpart to trickle-down economics (which points out that wealthy people who earn more money spend and invest more, allowing all of society to become more wealthy) is…
Trickle Down Taxes
When you raise taxes on the rich, they ALWAYS respond to defend their wealth. The more money and power they have, the better they can do this. They can give themselves raises, pay accountants to shelter their income, or otherwise make up for the new tax.
But where do they get the new money, to pay themselves enough to make up for the taxes?
From you.
Wealthy people and companies can, for example, raise prices to pay themselves enough extra to make up for the taxes. Guess who pays the higher prices.
They can also cut jobs or pay among their employees, in order to make enough to pay themselves more. Guess who the employees are.
Along with those two tools of passing along higher taxes, the rich and powerful can cut quality of products, again to save for themselves. Ice cream that was once two quarts is now 1.5 quarts, and the same price. Check Edy’s and Breyer’s, next time you’re shopping. Guess who ends up paying for all the reduced-quality/quantity food. Not the rich guys…the can afford to pay a premium for consistent quality.
Ultimately, ALL costs the government imposes on the wealthy, they pass down to you.
Oh, but the tax trickling isn’t done, yet.
If They Lose, You Lose More
Let’s say you, somehow, manage to force the wealthy and powerful to pay for their own taxes.
You are now shutting thousands of people out of jobs, and, causing more hunger and poverty.
Why?
Because the wealthy don’t put their money in giant Scrooge McDuck vaults, to play in while they cackle wickedly. Instead, they either spend or invest it. Spending it creates jobs directly. If they buy a car, someone built it, someone shipped it, someone sold it, people repair it, people clean it…maybe someone even drives it as their job. The less money ANYONE spends, the less work there is. But, let’s face is, the wealthy have more money, per person, than other people, and therefore supply more jobs with money.
Poor people have to mow their own lawns (if they have them). Middle class people may be able to pay someone to mow their lawn for them. A few dozen families might, between them, manage to keep one lawncare guy employed. But one wealthy dude may employ a half dozen lawn guys, all by himself.
Take away his money, and the rich guy may have to lay off his lawn people…perhaps one hundred times the job impact of a middle class person having to stop hiring a lawn guy.
But most of a wealthy guy’s money is not spent, so it doesn’t make jobs.
Well, not directly.
Investment Creates Jobs
The “capital” in capitalism is investment.
Rich people and companies are the reason most new jobs ever get created at all, because it requires investment to build the factory, or store, or restaurant, whatever it is. Even when poorer people start their own successful business out of pocket (something pretty rare, because of government regulation and taxes), they only create large numbers of jobs as they become successful and rich.
One of the many reasons the economy is so weak, now, is because investment is so rare, thanks to punishment of investment through taxes, regulation, deflation, and the preference for stagnating money shelters like bonds and treasury notes, over the stocks to which government has proven to be so hostile.
If we are to get back on the road to economic growth, we must first get on the road to economic freedom for all, including the wealthy, who just happen to pass on ALL effects we try to have on them, good or bad.
About
This site has its origins before the word “Blog” existed. Back then its owner, Kaz, was simply thought of as having a website that published socio-political articles with regularity…But the only real difference was that the RSS/XML protocals were not yet used this way.
The website was known as Site of the Sentient, a reference to the famous Words of the Sentient, that Kaz had been editing for years previously.
When some random portal site hijacked the domain siteofthesentient.com, it was a dark time for the human knowledge quest. Fortunately, But Now You Know is striving to take up the slack, and even has some revamped versions of the original articles, for example Conscription, is it Slavery, and How to Get Out of Jury Duty, and be a hero instead of a bad citizen.
Kaz is a writer, graphic artist, and supplements his income by being a hardcore senior web developer.
Along with this blog, you can track his efforts with the dedicated facebook page here.
Speaking of tracking:
You can follow But Now You Know here, on Twitter
And you can follow But Now You Know, via our Facebook Page, here.
Share This Article
Words of the Sentient- Tolkien, on Government
- Criminals Are Never Disarmed — Robert Heinlein
- Power Attracts the Corrupt — Frank Herbert
- Under Democracy — H.L. Mencken
- Guard Your Enemies from Oppression —> Thomas Paine
- Your Right to Not Support Evil
- Global Warming Shamanism
- The Squeaky Wheel…May Be Foolish
- Disarming the Victims
- The Inconvenience of Too Much Liberty
Recent Comments
kazvorpal on Monkeys Don’t Kill Peopl… Jenny Brewer on Monkeys Don’t Kill Peopl… Pater Rolf Hermann L… on It’s Not Even an Effing… Upholding Integrity… on Why the End Does Not Justify t… Alf from Albany on Why Workers Dislike Union… - Pithy Pontifications
- An error has occurred; the feed is probably down. Try again later.
But Now You Know 