Or, Applied Common Sense in Economics

by Bob Frazier
EXTRA EXTRA EXTRA! An excellent Article by Thomas Sowell on Supply Side Economics

In order to provide a 'common sense' example of how supply-side economics works, I shall apply a simple method of 'dynamic analysis', as taught by the United States Navy in its Basic Electricity and Electronics course, to teach people how to analyze circuitry quickly and recognize the effects that a change in one component of a balanced circuit can affect the other parts of the same circuit. It is an effective and 'common sense' method of analysis. Once you read this, I think you will agree

Scenario #1: Taxes are increased to make up for defecit spending

The government, in its infinite wisdom, decides to increase marginal tax rates in order to increase its own revenue, for the purpose of making up the difference in a defecit-spending budget and hopefully balance it. Increasing tax rates the following general effect:

Scenario #2: Taxes are lowered to stimulate the economy.

The government, in a more sensible and less 'self-serving' move, decides to lower marginal tax rates in order to stimulate the economy, and to cut government bureaucracies and wasteful social spending until the budget is balanced. Lowering marginal tax rates has the following general effect:

A common misconception is that lowering MIDDLE CLASS tax rates while leaving The Rich with high marginal tax rates, is a good thing. There's even a ballot initiative in California to do JUST THAT. However, let us look at WHO is likely to create a job: Someone who earns $20,000 per year, or $30,000 per year? Not likely. The person likely to create a job has enough money to PAY someone $20,000 per year, or $30,000 per year. In other words, a rich person. A common misconception is that 'rich people' become rich because they win life's lottery, or get lucky at the race track, or (worse yet) INHERIT IT. Most 'rich people', though, earned their money. Higher tax rates on higher incomes merely KEEP PEOPLE FROM BECOMING RICH! So, if you want the "good ol' boys" in the country clubs to keep their exclusive hold on 'being rich', go ahead and support higher tax rates on higher incomes. But, if YOU some day want to become rich, and if YOU want to see an improved economy, you should support FLAT tax rates for everyone. That means, same percentage of income taxed for everyone. It is the ONLY sensible method of ensuring that our economy will grow, and "true fairness" is maintained (i.e. everyone pays the same percentage, regardless).

Motivation Behind Keynesian Economics

Now, you have to ask "Why would ANYONE think that Keynesian Economics is a GOOD thing?" We were taught about the 'New Deal' and how GREAT it was supposed to have been for the country, when post analysis reveals that the 'New Deal' probably SLOWED DOWN the recovery from the 1929 stock collapse. Admittedly, banking regulations and FDIC helped by preventing the financial system from train-wrecking, but that's not what the 'New Deal' really was ('banking holiday' notwithstanding). The idea of 'priming the pump' by spending money you do not have from the government (while raising tax rates to pay for it later) is simply a bad idea from the start. Tax increases put a roadblock in the economy that's BIGGER than any spending efforts from government, with one major exception: WAR.

There is NO DOUBT that World War II ended 'The Great Depression', and the economic benefits that followed the war came about NOT because of 'all of that government spending' or 'all of those war bonds', but because of all of the RESEARCH AND DEVELOPMENT that was done DURING THE WAR which put the United States ahead of the ENTIRE WORLD in technology and infrastructure. And the government spending that was done in RESEARCH and DEVELOPMENT and INFRASTRUCTURE did, for the most part, have a HUGE effect. But the WPA, the PWA, and the other 'prime the pump' spending that is taught in school as 'The New Deal' did NOTHING ELSE but slow down the recovery, and quite possibly make the United States look WEAK to its enemies.

So WHY would ANYONE want Keynesian Economis? The obvious answer: control.
It's ALWAYS about control, isn't it? Laws are made to control, so that one group will benefit from the restrictions on everyone else. High tax rates and targetd tax breaks and are a form of control also, by punishing people for certain kinds of economic activity, and rewarding them for other kinds of economic activity. Alternately it can be used to buy votes, particularly when the top 5% of income earners are paying nearly 90% of all taxes, at which point the tyrrany of the majority takes over because the 'more than 50 percent' majority don't appear to be directly affected by increasing tax rates on the 5% of people that actually PAY the taxes.

Remember Bill Clinton's "It's the Economy, Stupid!"? It's not the ECONOMY. "It's THE CONTROL, Stupid!"(that message is for gummint, not the reader).

So if Keynesian Economics is about CONTROL, WHO BENEFITS from this? I think the answer is pretty obvious when you consider who it is that 'the left' really is. It is SOCIALISTS that are driving this, and they are benefiting by increasing GOVERMENT CONTROL, for what is Socialism BUT TOTAL GOVERNMENT CONTROL over the economy and YOUR LIFE? Why ELSE do you think they want HEALTH CARE under GOVERNMENT CONTROL?

'The left' consists of a number of high profile individuals in government, and a much LARGER number of people who's names are not so obvious. And our higher education system is carefully integrated with it, primarily because of who it is that most directly benefits from socialism: OLD MONEY.

When you think of 'OLD MONEY', think of 'Thursten Howell III' (Jim Backus) from "Gilligan's Island". His character was an obviously intentional stereotype of 'the eccentric rich man' who had SO much money and believed that spreading money to the right people would always get him what he wanted. In effect, this is more or less what 'OLD MONEY' is about. By spreading money to the right candidates, the right educational institutions, the right charities (all of which are TAX DEDUCTABLE), and the right PEOPLE, they can influence everything to put themselves into positions of MORE POWER, with MORE MONEY and MORE INFLUENCE, ad infinitum.

When tax rates on high income earners go up, most people think that 'the rich' are now PAYING THEIR FAIR SHARE. WRONG!'Old Money' NEVER pays it's 'fair share' because taxes are on INCOME, and not ASSETS! And if you think INHERITANCE TAX applies to these people, do a little research on how a TRUST works. That's right, a TRUST, a legal entity that's managed by a TRUSTEE or a BOARD of TRUSTEES, that pays a FLAT TAX RATE (that is typically LOWER than the rate paid by top income earners and capital gains) and doles out money whenever the TRUSTEE decides to do so. Houses, property, assets, and charitable contributions are ALL managed by 'the trust', and there are NO INHERITANCE TAXES when a member of the BOARD of TRUSTEES dies! THIS is how 'OLD MONEY' keeps its assets, while promiting the TAXATION of EVERYONE ELSE so that entrepreneurs and hard working upwardly mobile INDIVIDUALS cannot join "THE COUNTRY CLUB" of being 'THE RICH'. And those few who jump the hurdles and become 'THE RICH' end up falling into the SAME PATTERN that 'OLD MONEY' has established for hanging onto the wealth and power for generation after generation.

'OLD MONEY' in the United States is like the NOBILITY CLASS of EUROPE in the days of the Magna Carta. The rich land owners got together and FORCED the King of England to give power to 'the people', or more specifically, 'the rich nobles', in the name of a more representative form of government. Admittedly, it is an IMPROVEMENT over totalitarianism, except that NOW the RICH NOBILITY have distributed power amongst themselves, keeping the PEASANTS in their places. In modern times, 'OLD MONEY' is attempting to keep us 'peasants' in OUR places as well! And they use Keynesian Economics to keep entrepreneurs from joining the 'rich boy' club, and SOCIALISM to keep THEIR candidates in office at the EXPENSE of those who are trying to BECOME 'the rich'!

If you personally want to join 'the rich boy' club, you're going to have to WORK HARD and jump over all of the hurdles (high marginal tax rates, excessive regulation, etc.) that have been INTENTIONALLY put in your way. If you remember the 1980's, don't remember the 'hype' of what de-regulation supposedly did to corporations. Everybody was MUCH BETTER OFF as a result of LOWER TAX RATES ON THE RICH as well as de-regulation. NOBODY can deny the economic information, seeing the GDP increase several times over between 1980 and 1988. If it were not for Bush 'the first' caving in and increasing FICA tax and other tax rates, the U.S. government would have had a TAX SURPLUS and could have lowered tax rates EVEN MORE. But SOCIALISTS convinced him NOT to do this, and we ended up with Bill Clinton for 8 years. Bush 'the second' had the right idea, but not enough - he TARGETED his tax rate reductions instead of making them ACROSS THE BOARD. And NOW we have a SOCIALIST (OBAMA) driving the economy into BANKRUPTCY.

Looking back at history we see that World War II brought the United States economy out of depression and into the number 1 slot. The 1960's also showed a HUGE economic benefit from TAX RATE REDUCTIONS as well as NASA. Keep in mind that RESEARCH and DEVELOPMENT and INFRASTRUCTURE spending by the U.S. Government DOES have a direct benefit on our economy, and at a bargain price! By driving research into TECHNOLOGY that benefits EVERYONE at some point, the United States becomes a WORLD LEADER in technology, and our economy benefits directly. But as we all know, Bush 'the second' wanted to INCREASE THE NASA BUDGET and found nothing but OPPOSITION in Congress. Bush 'the second' wanted to go BACK TO THE MOON, but Congress wouldn't let it happen! And NOW, our current sitting president OBAMA has EMASCULATED NASA and announced that we will NOT be going back to the moon!

A big part of the economic boost from NASA came from the attitude that people had as a DIRECT RESULT of seeing great things happen, like orbiting earth, landing on the moon, building a space shuttle, putting telescopes in space, getting global navigation satellites for personal use, and so forth. People saw the vision, and they saw the possibilities, and they saw the direct results and the 'YES WE CAN' attitude that comes NOT from empty promises, but SEEING GREAT THINGS ACCOMPLISHED by those who are PIONEERS! It is, of course, PIONEERS who drive innovation, and PIONEERS who built our nation to begin with. But SOCIALISM is the antithesis of PIONEERS. Being a PIONEER is the exercise of FREEDOM. SOCIALISM is the exercise of CONTROL. So eliminating the PIONEERS is a LARGE PART of the agenda of Socialism. And high taxes on those trying to BECOME the rich is a large part of this plan, because pioneers won't be able to benefit from their activities once the tax rates on their 'pioneering' activities is high enough. It would 'keep them in their place', by making the COST of RISK TAKING so HIGH that you can't possibly win.

Keynesian Economics attempts to focus on 'the working man', or more specifically the UNION EMPLOYEE. Pay a bunch of people to use shovels instead of purchasing a tractor. That is the effect of Keynesian Economics. But if you purchase a tractor, you get something that pays for itself very quickly in cost reduction. Then the people who build the tractors would benefit, and hire more employees to help keep up with demand, design better tractors for the future, repair existing tractors, and so forth. This is SUPPLY SIDE economics, which (as I outlined above), works every time it's tried. The 'problem' with the Supply Side model is that someone is going to get rich building tractors. And 'OLD MONEY' just can't have THIS happening, because it dilutes their power base.

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Last updated: 9/26/2012