The Seven Biggest Lies in Economics? Not So Fast…

1. People have thrown around this “trickle-down theory” for years since it was used back during Roosevelt’s years. It was directed toward tax revenue. Lower taxes at the top will boost taxable income to increase revenues. In 1921, when the tax rate on people making over $100,000 a year was 73 percent, the federal government collected a little over $700 million in income taxes, of which 30 percent was paid by those making over $100,000. By 1929, after a series of tax rate reductions had cut the tax rate to 24 percent on those making over $100,000, the federal government collected more than a billion dollars in income taxes, of which 65 percent was collected from those making over $100,000. In addition, when the government is continually bailing corporations out, what incentives are there to bring in tax revenue to a government that mismanaged the money?

2. There are a TON of other factors involved in the booming economy. Tax rates are not the end all be all for whether an economy will flourish or not. The “golden age of capitalism” or this economic boom after WW2, is a result of a period of global prosperity. The restructuring of Europe, the influx of workers back from the war, a period of innovation and prosperity, that of course, leads to economic growth. But in 1965, Kennedy cut the rate to 70 percent? Why? Because things weren’t so hot. Huge industries were threatening to move their headquarters abroad. Under a lot of pressure against it, he proposed huge tax cuts that went from 91 to 70 percent. The economy boomed, and revenues came in. Similar to question one.

I also want to reemphasize that it was not all rainbows and butterflies during the period he’s talking about. The in-kind benefits we have today did not exist, and the economy then was going up and down, especially in the early 70s. He’s right though, high taxes don’t hurt the economy in the short run. But in the long run, I’d conjecture it does.

3. Government financing projects and offering employment to many competes with the private sector and ultimately monopolizes the industry it is trying to jump into. They have virtually unlimited pockets and the ability to raise revenue through coercion to finance anything it wants. What it does, though, is get in the way for the private sector to fill those roles. Humans have needs and desires. Entrepreneurs see those needs as opportunity. They hire people not out of generosity or because government told them to—but because it’s profitable to employ people if they produce valuable goods.

4. The deficit and the debt need to be the priority of the people, which it is not. Whether or not we should attack that ever-growing pile of borrowed money depends on if we think the investors are wanting to cash in. If creditors came to the U.S. looking for the money, everyone in the U.S. would essentially have to pay $60,000 to cover the costs. Will they come knockin’? Probably not. But as this debt continues to compound it will get scarier and scarier unless we all decide we aren’t going to pay that back and our money goes the way of the dodo.

5. To continue on the debt a little bit, healthcare spending, social security, and military are huge contributors to the debt. Healthcare and military spending are expenditures that help a lot of the rich folk. Cronyism, government-granted privilege, corporate welfare, all stem from increased government spending. It is safe to say government can’t manage anything very well. How do we think it can manage one of the largest sectors of the economy—healthcare? Healthcare is crushing the budget due to how inefficient it is being run and how it completely dismisses the pricing mechanism that allows market to work so well.

6. It kinda is though. It is currently transfer payments, if you will. Social Security, like the federal government as a whole (which is 57 percent underfunded), has been run on a take-as-you-go basis. Each generation of retirees (rich, middle class and poor) takes from the young, promising the young that their turn will come when they’re old, at generational expropriation. This is a big reason we’re #genfkd. It all depends on how we look at it. We either have unlimited pockets, so no worries. Or conversely, we’re totally screwed because of how unfunded we are in most government programs.

7. I don’t know who says this…

I like Robert Reich. He’s a great communicator. However, there is a lot of data that counters his social agenda. Unintended consequences from government’s intervention have done much to stagnate the economy. It’s just really easy to get social support to have more government involvement when most have not gone into the weeds to study this phenomenon.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s