Do Not Go Gentle into the Post-American Era

When the U.S. was a developing nation, we expended our efforts and capital in developing the infrastructure for industry. Our government provided incentives for the development and extraction of natural resources to be used as raw materials to build, not just products, but a thriving national economy. — And that’s exactly what China and other developing nations are doing today.

But, today, the U.S. is doing the opposite. Increasingly, over the past several decades, our government has been restricting the extraction of natural resources and dismantling the infrastructure for industry. Overregulation, combined with exorbitant and ever-increasing union demands, has succeeded in driving much of our industry offshore. If we want to recover our economy, we need to reverse that trend.

The recently published White House Plan to Revitalize Manufacturing, which focuses on federal funding for “green” technology R&D, is not likely to have a significant impact on our national productivity. This administration is thoroughly beholden to the unions and environmental lobbies. In true Chicago style, this administration has used the stimulus package to pay off political debts and, from every indication, will continue the trend of dismantling the economy in favor of political correctness and payback.

Every nation has a historical trajectory. This nation has apparently passed its apogee, and is now in decline. We no longer have the drive to overcome. We’ve become complacent and, instead of striving for ever greater industrial innovation and economic strength, we are focused myopically on the niceties that developing nations cannot afford to consider.

The problem is, there’s no such thing as stasis. A nation, a corporation, a species, an individual, must either advance or decline. That’s nature. And, as we sink into complacency, whining effetely about our declining economy, there will be others advancing to take our place as the dominant world power, industrially, economically, and (eventually) militarily. That’s a historical inevitability. The same pattern can be observed throughout nature and the history of civilizations. The only question is when.

At this point, we could still reverse that trend by, once again, becoming a developing nation ourselves — one can always develop further, if one is motivated to keep striving — but we, as a nation, lack that motivation. We’re apparently content to rest on our laurels as we sink into national senescence while other countries, like China, rise up on the international horizon. The world is always changing. It’s the nature of all things. The only question is, will we, as a nation, go gentle into that good night? Or will we rage, rage against the dying of the light?   (Apologies to Dylan Thomas.)

Unfortunately, I believe I know the answer to that rhetorical question. History is being written even as we go about our daily lives. You can see it in our relations with other nations, as we make concessions that cede our sovereignty in so many minor ways. Stepping back and observing from a historical perspective, we see a once-great nation, that no longer has the will to sustain its rank as the leader of the free world, stepping aside and leaving the field open to whoever will step up and take its place. Sadly, there’s no way to choose our successor. Once we step aside, we can only watch and hope for the best. And if we don’t like the way the world is shaping up in the post-American era, we will just have to suffer the consequences.


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Delivering the Goods

The United States rose up from a handful of rebellious colonies to become the richest and most powerful nation in the world. Why? Because we led the world in production. For 200 years, America delivered the goods.

But, in the 1970’s, all that suddenly changed. For the first time in history, the U.S. started having trade deficits. That means our net consumption exceeded our net production. And, every single year since 1975, our nation has consistently consumed more than it produced. It doesn’t take a rocket scientist to know that’s not sustainable.

The depressing truth is America is no longer a world leader in production. We are trailing the pack. We are now a debtor nation, and our biggest creditor is China. — What the hell happened? And how will we ever recover? And, the more disturbing question is, what will happen to America if we don’t?

If we ever want to restore America to its proper place in the world, the first thing we need to understand is why we no longer have a productive economy. It’s pretty simple, really. — Because we no longer produce. Why not? – If we take a good hard look at the nature of production, maybe we can figure that out. The three key elements of production are capital, labor, and raw materials.

First, you need capital for research and development. To develop a new product that meets a real need in the marketplace takes a lot of research. It may take many years to develop. Research and development is extremely expensive, and there’s no guarantee of success. There has to be an enormous potential return on investment to justify that kind of risk.

That kind of return on investment is what our current administration refers to as “excessive profits.” And they have this notion that “excessive profits” should be punitively taxed. When government puts a lid on the potential for return on investment, what happens? The investors take their capital and invest it someplace else, — someplace that welcomes production, and wants to build up their economy and provide employment for their population. (Unlike the United States, it would seem.)

The second thing you need for production is raw materials. No matter what you want to produce, you need some combination of raw materials to produce it, whether wood, paper, metal, glass, fiber, or petroleum products. All raw materials come from the earth; they don’t come out of the air, or some genius’ imagination, or the printing presses at the Federal Reserve. They all come out of the ground, either through timber, mining, or agriculture.

Here, in Southern Oregon, we live in one of the richest areas in the country, in terms of natural resources. We’re rich in timber. We’re rich in minerals. But, if this part of the country is so rich, why is it so poor? Why is unemployment so high? Because we’re not allowed to use the natural resources with which we’re abundantly blessed. Overregulation, and the endless environmental litigation it has spawned, has all but curtailed the timber and mining industries, — the very industries that provide raw materials for every sort of production on which our economy relies. And the overregulation doesn’t stop there. It’s hobbling the manufacturing industries, too.

The third thing required for production is labor. We’ve actually got a surplus of that. Look at our unemployment numbers, nationwide. Private sector jobs are steadily declining because our industries are stymied by excessive regulation and punitive taxation. So how does our government address that issue? It tries to replace the jobs lost due to declining production by creating new jobs in the public sector.

The trouble is those jobs do nothing to restore our national productivity. Public sector jobs and service jobs don’t create any new wealth. They just swirl money around in the economy. And, as that money swirls around, more and more of it leaks out to other countries, as we buy foreign-made products because we can’t or don’t produce enough at home.

As the real wealth leaks out of our economy, the Fed prints up more and more new money, which only dilutes the value of the money we already have in circulation, leading to higher and higher inflation. As long as we consume more than we produce, there is no way to add real value back into our economy, and our currency will continue to lose whatever value it has. We must restore production to have a sustainable economy.

This country was founded on the sacred principles of liberty and freedom. Not just individual freedom, but economic freedom. America became a world leader because America delivered the goods. That’s what it’s all about. That’s what it’s always been about. We have to stay solvent to preserve our liberty. If our economy fails, we’ll lose our freedom. Stifling production smothers the economy. And that’s what our government is doing.

Contact your Congressmen and Senators and tell them we want our economy back. Government can’t solve this problem. Government is the problem.


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How to Undermine the Economy

If you wanted to come up with a plan to undermine the economy of the most prosperous and successful nation on earth, how would you go about it?

The first thing you’d have to do would be to debase the underlying value system that provides the foundation for prosperity. That is, the value system to which the founders of this nation, and many generations of immigrants who came here seeking opportunity, subscribed. The core of that value system is the belief that you do not deserve anything you have not earned.

The first step would be to condition the populace to believe that prosperity is bad, that anybody who makes more than a modest income must be evil (or at least dishonest), and that nobody really deserves to be rich, no matter how much they contribute to the economy or how many opportunities they create for others. The rich, by definition, are always a minority, since the term itself implies someone who has substantially greater wealth than the average person. All that’s usually needed to turn the many against the few is a sense of grievance.

Fostering a sense of grievance can be accomplished by promoting the notion that everybody, by virtue of their very existence, is entitled to basic sustenance, such as healthcare, food, shelter, etc. This attitude can be cultivated by establishing a system of bureaucracies (paid for almost entirely by the rich) that provide free handouts to everybody else, while nurturing a sense of perpetual resentment among the people receiving the handouts toward those who provide the wherewithal to satisfy their ever-increasing expectations.

The many are not generally aware that nearly 90% of the income taxes that sustain our government, and all the services “it” provides, are collected from the top 20% of income earners. And, if the many were aware of that, do you think they’d feel like saying “Thank you”? Not likely. Because they’ve been conditioned to believe that the rich don’t deserve their wealth, and that they, the beneficiaries of all those taxes paid by the rich, deserve that money more than the people who earned it. What did the beneficiaries do to deserve it? Nothing. But they exist, and therefore they’re entitled to things they cannot afford, so the money should be taken from those who can afford it and redistributed to them.

Having undermined the cultural values that provide the basis for a prosperous economy, by fostering a culture of dependency on ever-expanding government services, you now have popular support for the next step, which is to penalize production. You do that by regulating industries to the point where the cost of doing business is too great to justify the returns, forcing businesses to either downsize, go bankrupt, or relocate offshore. That increases unemployment, creating an even greater dependency on government services. At the same time, it reduces production so there’s less wealth to tax, and less money coming into the system to support the ever-increasing demands.

At that point, you’ve got a self-perpetuating cycle, with ever-increasing demands on the system and ever-diminishing resources from which to draw to provide for them. To add fuel to the firestorm, you can use the increasing demands as an excuse to raise taxes on the remaining top producers even more, driving more employers out of business or offshore, creating an even larger non-productive class, and further accelerating the drain on the system…

But why stop there? At this point, the economy is so unstable, it can be toppled with ease. To finish it off in style, all that’s required is to spend like a drunken sailor. Get the nation so far in debt to hostile foreign powers that they won’t accept our IOUs any more. Print up fiat money and dilute our currency to the point that the whole world loses confidence in it and the G20 proposes a new international monetary standard. Then distract the citizens by holding contests in Congress to see who can spend money the fastest, and call it a “stimulus plan.”

At that point, the death spiral reaches critical mass. That’s where we are today. How did we get to this point? Well, it could just be a combination of entropy, ignorance, and well-intentioned idiots. Or it could be that there are those who actively seek to undermine our economy to bring our nation to its knees. For what purpose? That depends on who’s pulling the strings. I concede that this begins to sound a little paranoid from someone who usually dismisses conspiracy theories. On the other hand, it’s hard to imagine that anyone, especially the leaders of our nation, are stupid enough not to realize they’re doing the exact things required to accelerate the collapse of our already destabilized economy. And, if they’re not stupid, then they must have a reason for what they’re doing.


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Rise Up and Take a Stand


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Looting the Economy

Even in the midst of the deepest and most far-reaching economic crisis since the Great Depression, Americans are still pretty comfortable. The poorest of the poor in this country would be considered wealthy by the standards of most of the world’s population, taking for granted “luxuries” like plumbing, elecricity, and medical care.

The reason we’re so comparatively wealthy in this country, even during this worldwide economic crisis, is because this country has had a historically strong economy, built up over decades of productivity, of leading the world in industrial and technological innovation that has not only generated wealth for the entrepreneurs and investors who made it possible, but has created abundant opportunities for people who were willing to learn a marketable skill, and work hard at it, to earn their way out of poverty and into the middle class.

People like to go on about the “shrinking middle class,” but neglect to consider that the “poor” in this country today have, on average, a higher standard of living than the “middle class” had a couple of generations ago. It isn’t that there’s more actual poverty today, it’s that the bar keeps being raised on what we consider “poor.”

A rising tide lifts all boats, and that has been the case with our economy, up until recently. The standard of living bar has been continuously raised for everybody, generation after generation. This is not because the government provides for us all, but because the productive members of society generate not just money, but value, not just wealth, but opportunity, providing goods and services that continually improve the quality of life for all, while creating jobs and providing the foundation for a sound and healthy economy.

When you hamper or discourage productivity (or drive it offshore) through excessive regulations and punitive taxation, for the dubious benefit of the unproductive members of society, the economy as a whole must suffer. If a rising tide lifts all boats, what happens when the tide recedes? The overall standard of living goes down. We are standing at that inflection point today.

Years ago, we shifted from a production economy to a “credit economy.” Where our economy used to be based on goods delivered, now it’s based on promises, and many of those promises are turning out to be undeliverable. So what do we do now?

The solution is not to keep expanding our dependency on government, while sinking our nation ever deeper into debt, relying more and more on the government to provide what the producers no longer can because the government has tied their hands or driven them offshore. That course of action can only dig us deeper into the hole we’re in right now. The way to recover is to return to a production economy, where you only get rewards for what you produce. If you want something, you have to pay for it. To pay for it, you have to produce something for which somebody else is willing to pay you.

We need to restore productivity, not just have government hire more people and create more bureaucracies to employ them. We need to create value, not pump more money into the economy, which only serves to devalue the money already in circulation. We cannot borrow our way out of debt, nor spend our way into solvency. We need to return to the basic foundations on which this once-great nation was built: hard work, self-reliance, entrepreneurship, industry, and personal responsibility. It’s not rocket science. It’s common sense.

So why are our legislators doing just the opposite of what clearly needs to be done to regenerate our economy? Why are they jamming the accelerator to the floor as the economy heads over the cliff? Because the impending disaster that has been building up for years is now imminent, and they believe it to be inevitable. They’ve given up all hope of salvaging the economy, and figure they may as well grab what they can while there’s still something left to grab. They’re in a feeding frenzy of earmarks, stuffing every bill with as much pork as they can cram in. They are literally looting the economy, justifying their reckless plunder because they figure it’s all going down anyway.

So they pour more money into the economy, mortgaging our country to foreign interests, indenturing future generations of taxpayers, while they and their buddies rake theirs off the top. And the rest of us sit watching in dumb horror (or blind hope) as the value of the money in our bank accounts gets diluted by the flood of new dollars being pumped into the system, and the stock market plummets day after day.

And what happens when it all bottoms out and there’s nothing left to loot? In one scenario, we start over from scratch, the way our forefathers did, and struggle to rebuild a stable economy based once again on real productivity. In a more nefarious scenario, there’s somebody waiting in the wings with other plans for our nation…


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No! Don’t Do It!!

It’s like watching a horror movie. No! Don’t do it!! Don’t open the door! You cover your eyes because you don’t want to look. You can’t believe they’re going to do it. But you know they are. Even though it makes no sense, and it’s obvious to everybody watching that it’s the absolute worst thing they could possibly do. They’re going to do it anyway. Why? In a horror movie it’s because it’s in the script. And ultimately, it doesn’t really matter, because it’s all make believe.

But this isn’t a horror movie. It’s real. And it affects every one of us, but we’re powerless to stop it. All we can do is write our Congressmen and say No! Don’t do it!! Don’t give them the bailout money! And that does about as much good as shouting at the movie screen Don’t open the door! Because you know they’re going to do it anyway.

First they said they needed $700 billion to bail out troubled financial institutions. Letters to Congressmen ran 20-1 against the bailout and, last September, Congress voted against the bailout bill. But they kept sweetening the pot with a little pork here and a little pork there until everybody in Congress had enough pork in the bill to lure them into voting for the bailout, in massive disregard of the indignant outcries of the people who elected them.

Then Bernanke and Paulson turned around and said, You know what? We’re not going to use this bailout money the way we originally said we would, because that would have been a really stupid thing to do. (Really? When did you figure that out, Mr. Genius? That’s what all the people writing to their Congressmen were screaming all along.) But, even after acknowledging the plan was hopeless, instead of rescinding the bailout, they decided to spend it on something else. After all, they already had the money; you could hardly expect them to just give it back! — Not that they actually do have the money. But that’s never stopped them from spending it before. Why should it stop them now? — So they voted to spend all this money they don’t actually have, and then decided not to spend it for the purpose for which they swore they needed it. So now they’re going to spend it on something else. They haven’t yet told us what, exactly. Why not? Because they don’t know. They don’t have a plan. But spend it they will.

They’ve put out the word that there’s $700 billion of free money on the table, and they’re going to give it all away. To whom are they going to give it? The criterion to qualify seems to be incompetence. But not just any incompetence, only massive incompetence will do. To qualify for some of this free money, a corporation or institution has to prove they’ve mismanaged their finances on such an unprecedented scale that they’re billions of dollars in the hole and have absolutely no way out, short of a federal bailout.

The three automakers deserve to go out of business. GM and Toyota each sold 9.37 million vehicles last year. Toyota made $17.1 billion. GM lost $38.7 billion. What more needs to be said? But, instead of letting economic Darwinism take it’s course, the government wants to compel the taxpayers to throw our hard-earned money at them so they can flush our money down the drain after their own. This is madness. Just say No! Don’t do it!! Don’t open the door!

And, of course, now everybody else is lining up for bailouts as well. Even city and state governments are getting in line. The economy is bad. An awful lot of businesses are losing money or going bankrupt, and local governments are losing tax revenue because their tax base is losing their jobs. So why not just stick a hose directly into the pockets of all the taxpayers in the country, and siphon out more and more money until the well runs dry, to keep businesses afloat that are unable to make a profit on their own merits? Surely, every business deserves to make money, whether or not they provide good value to their customers and investors. Free market be damned! Move over Rover, let Government take over. It seems the government is determined to prove they can waste even more money faster than the failures they’re bailing out.

Which brings us back to the horror movie. Everybody in the audience can see that disaster lurks behind that door. But the protagonist is about to open it. We’re all sitting on the edge of our seats, gripping the handrests, holding our breaths, and whispering through gritted teeth – No! He hesitates with his hand on the knob. Don’t do it!! (But we know he will.) He twists the knob. Don’t open the door! And then he does ———————–


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Depression-Era Values and a New New Deal

There’s not a lot of nostalgia for the Great Depression but, if we’d retained some of the values from that era, we might not be careening toward another one now. The Great Depression followed hard on the Roaring Twenties. The economy went from boom to bust. We look back on the twenties as a frivolous period of flappers and speakeasies, exuberant spending, loose moral standards, and widespread disregard for the law. There were those who condemned the gleeful irresponsibility that became emblematic of that era, but the young and “young at heart” scorned their dourness and ridiculed their dire predictions.

Then came the crash, followed by acute economic contraction. Exuberant spending was replaced by extruding the maximum value from every penny surrendered, cutting back to the essentials, and then learning that not all “essentials” were essential. Every tiny luxury, like a bar of soap or a candy bar, was appreciated more than the most extravagant bauble of the preceding era.

Instead of flinging away money for a night on the town, people found ways to entertain themselves that cost nothing, like huddling around the woodstove telling stories or playing games. People spent more time with their families, even if it wasn’t by choice. But the hardships they endured together forged strong familial bonds. Neighbors rallied to support one another, because nobody knew when they might be the one in need. Those who could get work worked hard, knowing they had to provide superior value to keep their job in a time when jobs were scarce. And they took pride in that fact, and honed their skills to ensure continued employment.

I’m not romanticizing the Great Depression. It was a miserable time. Many who would have been glad to work couldn’t get jobs. Many suffered tremendous losses through no fault of their own. Some even died from their hardships. But the vast majority managed to survive and became stronger, wiser, and more resilient, not in spite of, but because of, the adversities they endured.

Some say the New Deal was instrumental in ending the Great Depression, with its social welfare programs, agricultural subsidies that paid farmers not to grow crops, and the replacement of the gold standard with a fiat currency that has no intrinsic value. But there’s widespread disagreement among economists as to whether the New Deal helped or prolonged the Depression. The only thing we can say for certain is that it took World War II to end it.

WWII bolstered the economy, creating employment for everybody from soldiers to factory workers, and the surge in patriotism helped revive the spirit of the nation. Luxuries were still rare, but people felt they were sacrificing for a reason, and that gave them a sense of purpose and pride. After the war, the lessons instilled by years of austerity laid the foundation for a new era of prosperity.

The programs instituted by FDR as part of the New Deal were intended to be short-term recovery programs. Unfortunately, once a bureaucracy is established, it takes on a life of its own. It’s nearly impossible to dismantle government programs once they get entrenched. Many people were deeply ashamed to go on the dole, and the habits they acquired of continual striving to rise above that humiliation often led to great success later on. For the most part, they passed that fierce sense of self-reliance on to their children.

But others, too exhausted for the struggle, found it easier to sink into the trough that was offered them and accept government handouts as their lot in life. The social programs were seen to be a particular boon to the disadvantaged, but those are the ones for whom it proved most detrimental in the end. Those who would have had to work even harder to overcome the greater obstacles before them had less incentive to undertake that Herculean task when given the option to just accept what the government offered as compensation for their disadvantaged circumstances. And many of them passed that embittered sense of perpetual entitlement on to their children. To this day, that sad legacy of the New Deal has kept generation after generation mired in government-subsidized poverty.

Ironically, the descendants of those who achieved success in the post war boom, after only a couple of generations, were reduced to complacency by the very affluence their parents and grandparents struggled so hard to provide for them. The baby boomers had it easy, compared to their parents’ generation, and the generation that followed was spoiled by the expectation that everything in life should come easily. If they couldn’t afford something they wanted, they simply said “Charge it,” and it was theirs. They developed their own sense of entitlement; only instead of feeling entitled to mere subsistence, they felt entitled to a big house and a constant stream of little luxuries to gratify their every whim.

Now, the good times are over. A new depression may well be on the way. Maybe it will bring back some of those old-fashioned Depression-era values that served our parents and grandparents so well. Unfortunately, with our new president-elect, I foresee another New Deal on the horizon as well, even bigger and “better” than the last one…


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Economics Lessons for Liberals: Minimum Wage

A year ago, the minimum wage went up from $5.15 to $5.85 per hour. Last week, it went up to $6.55. Next year, it will go up to $7.25. That’s more than a 40% increase in two years.

My friends on the left tell me that’s a good thing. What could possibly be bad about legislating raises for poor people? They’re absolutely incredulous that anybody could be against it. After all, it doesn’t come out of your pocket, so why should you begrudge it to others?

Economics for Liberals, Lesson #1. Profit is revenue minus expenses. If expenses go up, without a commensurate increase in revenue, profits go down. Profits are necessary to stay in business. In today’s economy, many businesses, particularly small businesses, are just hanging on. Small businesses hire a lot of minimum wage workers, because that’s all they can afford. They also generate less revenue than larger businesses, so they’re more sensitive to higher expenses. Smaller businesses are hit hardest by minimum wage hikes, and may find their profit margin squeezed so thin they can no longer sustain their business.

When we see a rash of local businesses closing their doors, my liberal friends always shake their heads and blame it on the encroachment of big chain stores. They prefer not to acknowledge the role that increased labor costs play in their favorite local businesses being unable to compete any longer. Yet they still defend every increase in minimum wage because they think it “helps poor people.” Meanwhile, as more local businesses go under, more minimum wage employees are left without jobs.

Economics for Liberals, Lesson #2. There are two only two ways to increase profits. Increase revenue or cut expenses. When faced with a significant increase in the cost of labor, a business has two options to recoup the immediate loss of profits. They can either lay people off or raise prices. Both have negative impacts on the economy. One causes unemployment and the other causes inflation.

Nobody likes to lay people off but, when labor costs go up by 40%, many employers are forced to cut their work force by up to 40% to offset the higher cost per employee. When an employee is given a raise based on merit, the expense is offset by the fact that their high productivity contributes to increased revenue. But, when legislation raises wages arbitrarily and unilaterally, there is no increase in revenue to offset the increased expense, so it’s an out and out loss to the business. Furthermore, a significant reduction in work force usually results in reduced revenue, so the small business is squeezed from both ends. First, they cut to the bone; then they raise prices to make up the difference.

In some businesses, cutting back on labor isn’t an option. For example, in agriculture, cutting back on labor would leave produce rotting in the fields. In such cases, the employer has no choice but to raise prices to offset the increased labor costs. Many basic materials, from which other products are made, are produced by low-skilled, low-wage workers. When the prices of those materials go up, due to increased labor costs, it drives up the prices of all the products that depend on them, directly or indirectly, creating a ripple effect of rising prices throughout the economy.

Economics for Liberals, Lesson #3. The real value of a dollar is its purchasing power. When prices go up, your purchasing power, and the value of every dollar you have, goes down. This is known as inflation. Rising labor costs aren’t the only cause of inflation, but even the most basic understanding of economics tells us they cannot help but fuel it. In the short term, the people at the bottom of the pay scale will have more buying power. But, as the ripple effect permeates the economy, everybody ends up having less. In an economy where inflation is already getting out of control, the last thing we need is to fuel it faster.

Raising the minimum wage results in higher prices, fewer jobs, and more businesses closing their doors. — But, if that’s true, why would our elected representatives continue to do it? They do it because most of their constituents have no understanding of economics, and more money always sounds good, so promising more money gets them more votes. And getting votes is more important than the economy.


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Obamanomics

We’ve heard a lot about Hope and Change from Senator Obama, but his actual positions on the issues have so far struck me as vague. He almost seems to have become a modern cult figure, with hysterical fans fainting and squealing at his appearances, and all the frenetic excitement he’s generating among the young and ‘young at heart.’ So I decided to visit his Web site and see if I can figure out where he actually stands on some issues.

Naturally, the first issue that drew my attention was the Economy. According to Senator Obama, The Problem with the economy is twofold. The first part of the Problem is that “Wages are Stagnant as Prices Rise.”– As soon as I read that, I thought “Let me guess. He wants to raise the minimum wage.” Sure enough, further down the page, it says “Obama will also increase the minimum wage and index it to inflation to ensure it rises every year.”

Now, those of us who have taken Economics 101 know that’s like a puppy chasing its tail. As wages increase, they drive up the cost of goods and services, which, in turn drives up inflation. Wages being indexed to inflation, this drives up wages even higher, and the cycle perpetuates itself into a never-ending inflationary spiral. Sound like a good idea? Not to a fiscal conservative, perhaps, but the reaction of the average undereducated citizen is “Higher wages? Oh, boy, I’ll get a raise!” And, while Senator Obama may know better, himself, that’s exactly the reaction he’s counting on.

The second part of the Problem with the economy is apparently “Tax Cuts for Wealthy Instead of Middle Class: The Bush tax cuts give those who earn over $1 million dollars a tax cut nearly 160 times greater than that received by middle-income Americans.” Huh? When I read that, I couldn’t help but wonder where Senator Obama is getting his data. 

The Congressional Budget Office releases statistics on the Effective Federal Tax Rates for each year. (The latest figures are from 2005.) The effective tax rates are not the same as tax brackets, but represent the actual taxes paid as a percentage of total gross income from all sources before any deductions, exemptions, credits, etc.

Effective Individual Federal Income Tax Rates
Income
Distirbution
Catagory
2001
Effective
Rate
2005
Effective
Rate
Percent
Change
2001-2005
Lowest Quintile -5.6 -6.5 -16.1%
Second Quintile 0.3 -1.0 -433.3%
Third Quintile 3.8 3.0 -21.1%
Fourth Quintile 7.2 6.0 -16.7%
Fifth Quintile 16.3 14.1 -13.5%

The data shows that the middle and lower-middle income distribution catagories have actually received larger effective tax cuts than the upper income categories. So it’s rather difficult to see what Senator Obama is talking about, especially since he didn’t reference any sources for his claim.

Even assuming he’s referring to actual dollar amounts, rather than percentages, it’s hard to imagine that the tax cuts received by those earning over $1 million a year amounted to 160 times (that’s 16,000 percent!) of the tax cuts received by the middle class. It’s true that the top five percent of earners did pay 60.7% of all taxes in 2005 but, in 2001, the top five percent of earners only paid 55.5% of all taxes. That means the wealthiest taxpayers actually paid a higher percentage of all taxes collected in 2005 than in 2001. So how is it they got 160 times the tax cuts that the middle class got? I’m trying to do the math, but it just doesn’t work.

As I said, I can’t help but wonder where Senator Obama got his figures. Perhaps it was a misunderstanding. Perhaps a campaign aide mistranscribed the data, or he misremembered something he thought he had heard. Who knows? Is it important? That depends. Perhaps the actual statistics aren’t as important as the underlying message. But, if so, why quote statistics at all?

Regarding the underlying message, someone sent me a link recently to a very insightful (and entertaining) Modern Fable of Taxing the Rich, written by one of our neighbors to the North. I highly recommend it.


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Published in: on March 2, 2008 at 12:00 am  Comments (6)  
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Economic Histrionics

Yesterday, I saw an article in the newspaper titled Bush Insists US Not in Recession. Why should he need to insist, I wondered. More to the point, why should his simple statement of an easily verifiable fact be characterized as insistence, which carries a connotation of defensiveness and denial?

A recession is defined as a decline in Gross Domestic Product for two or more successive quarters. According to the U.S. Department of Commerce, we haven’t had two successive quarters of decline in the GDP since 1991. The last time we had a decline for even one quarter was in 2001. Considering that we haven’t had a single quarter of decline in the GDP for the last six and a half years, it seems rather whimsical of the media to be declaring we’re in a recession, doesn’t it?

Earlier in the week, I read an article titled Survey Shows Economic Depression Likely. The article went on to say an opinion poll revealed that the majority of Americans think we’re headed for a depression. Oh, my. That certainly sounds scary. A depression is even worse than a recession! And, if the majority of Americans think it’s likely, then it must be, right? I mean, the majority of Americans can’t be wrong….

Then again, if you were to ask the majority of Americans what’s the definition of an economic depression, how many of them would know? Is asking a bunch of random people who don’t actually know what a depression means really the best way to determine if one is imminent? The definition of an economic depression is a decline  of over 10% in the GDP. The fact is, over the last four years of Bush’s presidency, we’ve seen an 11.8% increase in the GDP.

What? How can that be? With all this talk of economic disaster, is it possible that we’ve actually had the opposite of an economic depression? Something must be wrong with the data. After all, why would a majority of Americans believe we’re headed for a depression if it has no basis in fact? — Well, perhaps they believe it because that’s what they’ve been told by the media, over and over, for the past year. And now the very fact that they believe it is being sold to them as evidence that it’s true! 

So, how do you know whom to believe, the mainstream media or the data from the Department of Commerce?  Is it conceivable that all this talk of dire economic straits is hyperbole? Well, look around you. How many bread lines have you seen recently? But, if it is just media hype, why would they want us to believe that? In whose interest might it be to stir up fear and uncertainty in the population?  Whatever could be their motivation?

At the risk of sounding cynical, it is an election year. If the majority of Americans believe we’re headed for a depression, or that we’re in the middle of a recession and our president is lying to us about it, they might get pretty upset and worried and feel like we really need a change. (Seems I’ve been hearing that word a lot somewhere lately.) If Americans are living in fear of an imminent economic collapse, they’ll be all the more receptive to claims that it’s those evil capitalists, with their greed, warmongering, and tax breaks for the rich, that have gotten us into this mess. It only makes sense that we need to elect a Democrat to get us out of it.

Not only will the Democrats punish the large corporations for making too much profit, and end the war by heroically turning our backs on the terrorists and scurrying back home, they’ll raise the minimum wage and provide you with free healthcare, free lunches, and free whatever else they can convince you that you need (whether they can deliver it or not). Why would anybody believe that kind of unrealistic rhetoric? Because a lot of people want to believe it, and most people are more than ready to believe what they want to believe. The Democrats know that very well.

But first they have to convince the majority of Americans that times are bad. Times are very bad. — If the aforementioned survey is a reliable indicator, it looks like phase one is succeeding.


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Published in: on February 29, 2008 at 11:58 pm  Comments (6)  
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