Posted on | July 28, 2012 | 26 Comments
Another reminder that they don’t teach economics at Harvard Law:
“Republicans in Congress and their nominee for President believe that the best way to create prosperity in America is to let it trickle down from the top,” said Obama. “They believe that if our country spends trillions more on tax cuts for the wealthy, we’ll somehow create jobs — even if we have to pay for it by gutting things like education and training and by raising middle-class taxes. They’re wrong.”
This little bit of economic disinformation sticks in my craw. Who would be “spending” these alleged trillions? According to Obama, it’s “our country,” which indicates that in his mind, “our country” is a synonym for the federal government, so that every penny of private income not collected by the federal government is said to be “spent” on whoever has that penny. Beyond promoting that distorted perspective, Obama’s weekly address completely misrepresents the issue at hand.
The Bush tax cuts are due to expire this year. The Democrat-controlled Senate passed a bill that would raise taxes on households earning $250,000 a year or more. Republicans oppose those tax increases, which is the basis for Obama’s bizarre accusation that the GOP plan “spends trillions more on tax cuts for the wealthy.”
Democrats want to raise taxes. Republicans don’t. Period.
Obama apparently believes that the federal government is the rightful possessor of all wealth, so that any reduction in taxes — or even opposition to tax increases — is morally equivalent to theft, taking from “our country” what is not rightly ours.
Furthermore, Obama’s belief that “our country” must “pay for” lower taxes by cuts to federal programs is demonstrably false, ignoring the dynamic understanding of economic growth, the so-called “supply-side” principle and the Laffer Curve.
Economic growth results in greater tax revenue to the government, because more people have jobs, earn more income, purchase more goods and services, and increase the value of assets. Just one tiny example: Much of the fiscal woe in California is a result of the collapse of real-estate values, with a resulting decline in property tax revenue. The only thing that can cause real-estate values to increase again is economic growth, and economic growth requires . . .?
This is the essential insight of supply-side economics that Obama’s ignorant class-warfare rhetoric and his sneering dismissal of “trickle-down” overlooks: You can’t make capitalism work without capital.
Capital is what we nowadays more commonly call “investment.” If you’ve got stocks or mutual funds in a 401(k) account, you’re a capitalist, like it or not. Your 401(k) money is invested on the basis of your speculative belief that the value of the assets — stocks, bonds, whatever — will increase over the course of time. You hope that by investing, say, $5,000 annually over the course of 20 years (for example) the accumulated profits will result in you finishing that period with an amount much larger than the $100,000 of capital you’ve invested.
Investment always involves risk, as many Americans learned during the 18 months when the Dow Jones Industrial Average plummeted from 14,093 (October 12, 2007) to 6,627 (March 6, 2009). Also, if you invested in Greek bonds, good luck with that, eh?
Income derived from investment is a reward for taking risks with your money. You could bury your money in a coffee can in the backyard, but instead you invested it in speculative ventures that make possible economic growth — Amazon, Wal-Mart, Microsoft, Apple, Ford Motors — and in the process provide employment for millions of people and the innovative production of goods and services.
Rich people own more capital than do poor people — this is obvious enough, right? The hobo sleeping on a park bench doesn’t have much use for a mutual fund prospectus. Not a lot of folks watching CNBC in trailer parks. Not many Wall Street Journal subscriptions are delivered to public housing projects.
Yet the best hope for the poor — in fact, the only real hope they have to improve their lot in life — is the success of capitalism.
Only through economic growth can the single mother in the trailer park hope that she and her children will some day be able to have a better life. Even the recipients of government aid and private charity — the hobo eating at the church soup kitchen, and the public-housing resident on food stamps and Medicaid — are dependent on the success of capitalism, because all the wealth taxed by governments or collected by charities ultimately derives from private-sector economic activity.
I believe in capitalism in the same way I believe in gravity.
Obama’s policy is based on a belief in something else — a belief that he cannot help but occasionally reveal in his rhetoric — and watching his policy in action is like watching a man attempt to disprove gravity by jumping off a cliff. We know he’ll hit bottom eventually because, as Margaret Thatcher famously observed, “The problem with socialism is, eventually you run out of other people’s money.”
No amount of rhetoric can obsure this truth. Look at North Korea teetering on the brink of mass starvation, and you see what happens to nations whose leaders mistakenly believe there is some feasible alternative to capitalism. Look at Greece circling the fiscal toilet and you see what happens to nations whose leaders encourage dependency on government as a “right.”
The tax increase on the “rich” that Obama is now promoting would hurt the prospects of economic recovery and do little to balance the budget. Ronald Reagan said it best: “The problem is not that people are taxed too little. The problem is that government spends too much.”
Still, Obama’s bad policy proposal is a relatively minor thing. It would not instantly turn the United States into Greece or North Korea. Yet it is a step in the wrong direction, and the arguments made on behalf of this bad policy suggest it will not be the last step in that direction.
The incessant class-warfare rhetoric of Obama and the Democrats betrays an implacable hostility to the free enterprise system. Politicians cannot routinely demonize the “rich” — i.e., the capitalists whose investments fuel economic growth — without eventually inciting voters to demand punitive action against these scapegoated villains. And this is why common-sense Americans took alarm when the President of the United States told business owners that their businesses are not really theirs: “You didn’t build that.”
Maybe Obama was merely pandering to the thievish mentality of the Democrat Party base, insincerely promising them a something-for-nothing gravy train of endless government giveaways that he knows full well he can never actually deliver. But with such rhetoric, Obama promotes economic ignorance and foments larcenous sentiments that threaten to destroy our economy and our freedom.
Like Rush Limbaugh said, I hope he fails.