All articles written by Economics9698
If the economists and politicians ever looked at the real world evidence of the United States tax since WWII the answer is as obvious as a $20 bill taped to the end of their nose. Spending overwhelmingly dictates whether we have a balanced budget and a good economy. It is not even close, taxes are a Red Herring that politicians use to divide and conquer with.
First why is not taxing the rich an effective strategy?
Several reasons, inflation, immigration, payroll taxes, but the most important reason is people are not robots. Just because you tax someone does not mean they will pay the tax. Throughout the history of taxes, from 91% to 28%, people pay what THEY think is fair. If it is too excessive people take vacations, get paid in extra benefits, or simply cut back on work. People will always pay what they think is fair and not a penny more.
The Hoover Institute looked at tax collection from 1947 to present with tax rates as high as 91% and the taxes collected as a percentage of the GDP is remarkably consistent 19.5% (actually 17.6%) of the GDP. Simply put the tax debate is a dog and pony show. There is the Hoover graph with a link.
Actual taxes collected as a percentage of the GDP according to the White House:
Here is a video by Cato Institute scholar Dan Mitchell about the Laffer Curve explaining the top tax rate should be 25% or less.
Here is a video about former Obama top economic adviser Christina Roomer’s report on the Laffer Curve and her recommendation that the top tax rate should not exceed 33%.
So how does this work out in real life?
Why is spending so much more important than tax rates?
Let’s pretend we are in the middle ages, in France, and I raise pigs and my neighbor raises chickens.
I love pork but as with anything it gets repetitious and boring after a few days. I want some of my neighbor’s chickens he sells at the local market. If the tax rate on the sale is reasonable, 5%, I am more than glad to pay my money to the king in return for his protecting my farm from bandits and thieves.
But what happens if the transaction tax is 50%, or 100%?
Now the cost of doing business at the local market has become prohibitive. I still want my neighbor’s chickens but simply cannot afford the tax. There are a couple of things I can do:
First, I can try to bribe the local tax collector and have him look the other way when the transaction takes place. the higher the tax the more economic activity becomes “black market” activity. In the USA black market activity accounts for between 8% and 10.1% of the GDP. In Venezuela upwards of 30%.
Second, I can approach my neighbor and offer to barter with him. This is simply a trade of so many chickens for pigs. If I am successful the trade takes place and I get my chickens.
Notice that while the high tax creates economic havoc and corruption, the corruption being desirable for many government regimes, economic activity still occurred and the economy was not severely damaged.
Now pretend the king is at war and he imposes a 50% tax on all farms. If the farmer cannot pay in gold or silver the king will collect the tax by confiscating farm animals.
Can you see the difference?
Now I must pay the king with the very means I have to feed my family, my livestock. When my livestock is reduced 50% this has a profound impact on my ability to make a living. The king is literally depriving me of a means to make a living for myself and my family.
This is exactly what is happening to America since 2000 when the federal government consumed 18.2% of the GDP to today when the federal government consumes 24.3% of the GDP. And there are further expenditures set to kick in with Obamacare. Simply put the King’s greed is out of control. Obama is driving the economy into bankruptcy with his plundering and pillaging of the peasants.
Here is a graph of federal tax collection and spending divided by the GDP from 1947 to 1971 when the USA was still on the Bretton Woods “gold standard” system.
Here is a graph of federal tax collection and spending divided by the GDP from 1971 to today when the US currency is 100% fiat or not backed by gold.
It is apparent that if the politicians are serious about balancing the budget and a good economy spending needs to be cut back to 18% of the GDP. It is that simple.
Monetary authorities need to stop financing the debt by buying bonds from secondary dealers, a end around game of monetizing the federal debt in a underhand deceitful manner.
What has happened is the king no longer respects the peasants and has gotten way too greedy for the good of the country. The peasants need to grab their pitchforks and do a little vigilante justice on the king and his court.
In economics the macro portion, or “large + economics,” semester constantly stirs up politics, big government versus small government. It can become a great back and forth between the students both in class and in their papers. This is the essence of college, a place where students can debate, and write passionately, about subjects that they have strong beliefs in. College and professors should wake up this passion for a cause and get the students to further explore the pros and cons of their position.
When economists wanted to express their slant the macroeconomics is considered to be a perfectly acceptable forum. Different professors got reputations and Keynesian, Monetarist, or Classical economists based on their macroeconomic textbooks.
Microeconomics, “small + economics,” was always dull, boring, dry, business, nonpolitical, mandatory, insomnia curing, intellectually a dead end zone. The course usually consist of basic economic supply and demand, market structures, light duty business evaluation, and some behavior economics thrown in for good measure. Generally it is a break from the more political classes taught in universities.
Now that has changed.
One of the most glaring examples was my recent microeconomics textbook by David Colander, (2010). Economics (8th ed.). New York, NY: McGraw-Hill. It was one chapter after another discussing social justice and how to create a “fair” command and control economy instead of traditional business curriculum. That is not to say that the book is totally devoid of basic microeconomics, every piece of propaganda must have some truth to be believable.
Mixing social justice in with business is like mixing Leon Trotsky with Carl Menger, not a good idea. The reason is simple; profit is the most important part of the economy.
Businesses have to be cold, calculating machines looking to continually cut cost and increase efficiency. This is why humans work 50, 60, 70, or even 80 hour a week, profit. Profit motivates people to work more producing more stuff at a cheaper cost to sell to more people. Capitalism is how man rose from the middle ages when the average income was $300 per year and the average life expectancy 35 years to $48,000 per year and 77 years of age. It was not government, although they would like the credit.
When there is no government interference in the market capitalism rewards good managers and good people and punishes bad managers and corrupt people. If the free market was allowed to work Goldman Sachs, JP Morgan, and thousands of other companies that have corrupted the federal government would no longer exist. Only through government intervention can free markets be turned into cesspools of crony capitalism.
Social justice has a place and a time, churches, synagogues, local government, even state government. Local businesses sponsor charities in every community in America. Social justice does have a place in society and it is not in the local microeconomics classroom.
For the sake of brevity I will single out a couple of chapters that really offended me. The first one was titled “Who Gets What? The Distribution of Income.” I was flabbergasted. Was this author serious?
First the distribution of income is a macroeconomics topic. The author goes into income distribution concepts like the Lorenz Curve and Gini Coefficient and moves on to defining poverty, the cost of poverty, economic mobility, international inequality, income distribution among countries, and job income inequality. Surly the average student reading this is getting the impression that capitalism, and America, are evil.
As I am reading this chapter I am continually asking myself am I teaching microeconomics or a social justice class. I feel like a dirty little Khmer Rouge communist stooge preaching to my captive audience the Little Red Book secrets of our wise overlord, President Obama.
When did American education turn into Germany 1935? USSR 1975?
Did I miss the memo somewhere?
The chapter belongs somewhere, but certainly not in microeconomics. One of the justifiably biggest criticisms of university graduates are they are not prepared for the business world. If you are a business major how do social justice studies help you to become a better businessperson? Ethical behavior would be appropriate but social justice? Not in my book.
It does nothing but elicit sympathy for the poor and tries to influence the student that we need more government command and control over the economy to make things “fair.”
The chapter ends with the standard answer to economic injustice is to increase taxes on the wealthy.
Don’t quote me on this but I think a 4th grader could have come up with that conclusion. There is this old fairy tale called Robin Hood where the poor steal from the rich…
This is mind blazingly stupid 4th grade economics.
Why is education overpriced?
So a whole chapter is devoted to income distribution and the pros and cons of different taxes and their effectiveness. The author warns that if taxes are too high some bad people will try to avoid them, and some people might get lazy. I am not making this up; college students are paying $200 a semester hour to learn this garbage.
Something intelligent that the author could point out is that despite tax rates of 91% to 28%, post WWII, the average federal income collected has been around 18% of the GDP. So increasing federal taxes above 25% according to CATO Scholar Dan Mitchel or 33% according to Obama economic adviser Christina Romer, is counterproductive. Nope, not a chance this would ever make it into a college textbook, just advice on collecting taxes, with a list of dos and don’ts.
A second point about income inequality that has yet to be written into any economic textbook is that since President Nixon removed the USA from the Bretton Woods “gold standard” system the workers share of income as a percent of the GDP has declined from 53% to 43% today.
Could this be related to inflation caused by the Federal Reserve increasing the monetary base 4,157% since 1970?
One wonders, or in the case of Colander, ignores the obvious.
Perhaps it is the bankers’ fiat money Ponzi scheme increasing total debt from 150% of the GDP to 350%?
Would creating a financial shift from efficiently allocating resources to a debtor’s planet possibly have maybe a teensy weensy bit to do with income inequality?
So we tax the rich and that fixes the problem?
No talk of a gold standard or the role of fiat money and debt. That would make the elites mad and require intestinal fortitude.
Maybe increasing foreign born citizens from 4.7% in 1970 to 12.3% today because we have no immigration policy had something to do with the United States increase in wealth inequality?
So we tax the rich and that fixes the problem?
Perhaps the increase immigration of blue collar unskilled and low skilled labor that now makes up 85% of new immigrants?
Maybe if we changed the ratio to 85% white collar workers someone in Washington would pay attention to this issue?
What the hell, tax the rich.
Or perhaps increased payroll taxes from 9.6% to 15.3%?
Tax the rich.
Has the increased government burden from 26% of the GDP for federal, state, and local services to 42% been beneficial for the poor or the special interest rich?
None of this is discussed; the only answer to income inequality is to tax the rich, 4th grade economics.
To quote a genuine economist:
“With inflation as well as with taxation, it is the citizen who must foot the total bill. The distinguishing mark of inflation, when considered as a method of filling the vaults of the Treasury, is that it distributes the burden in a most unfair way, overcharging those who are least able to bear it.”
–Ludwig von Mises, 1881-1973
The chapter does not belong in a microeconomics book and the author does not appear to have the intelligence to give rational explanations for wealth inequality. Wealth inequality since 1970 is primarily caused by inflation, higher government burdens paid for partially with inflation and immigration patterns that depress wages primarily in blue collar occupations.
Valuable time is wasted on this social justice nonsense in the best light and
fascism 101 is taught in the worst portions of the textbook.
Another chapter, “Behavioral Economics and Modern Economic Policy” is fascism 101 for students.
In this chapter the students learn what a “modern” economists does to persuade people that they need to come together for the good of whatever the wise government overlords deems is best for them. Yes the wise government needs to guide the peasants into the best course of action. Peasants are unable to think for themselves and must be nudged, pushed, or shoved into the correct course of action.
The author repeatedly refers to economists as “modern economists” like we are somehow superior to the old fuddy duddy economists Murray Rothbard, Ludwig von Mises, Henry Hazlitt, and Carl Menger. Yes the old fuddy duddies just were not up to speed on modern fascism like David Colander.
Funny I have a 1929 economics textbook my grandmother used in high school and what do you know? They were “modern” economists back in the day of Irving fisher and John Maynard Keynes! It’s amazing! And all they did was cause the Great depression with their expansion of credit, high tariffs, and deficit spending policies.
Isn’t that “modern” economic policy?
To quote Colander:
“Modern economists use their insights about incentive compatibility problems to design mechanisms that align incentives with desired ends. This has led to the development of a new branch of economics, called mechanism design, which is explicitly interested in designing mechanisms to achieve specific ends. Mechanism design involves identifying a goal and then designing a mechanism such as a market, social system, or contract to achieve that end.”
Kiss the free market goodbye students, there is a better way! Forward!
Obama czar Cass Sunstein and his “nudge” economics model is explained along with the good old fashion Hitler “push” and the Joseph Stalin “shove.”
When these models are presented in class I make sure that “modern” practitioners of these methods are prominently placed next to the methodology, Obama and Cass Sunstein, Hitler and John Maynard Keynes, and Stalin with Karl Marx. Credit where credit is due. I would not want to let a good learning opportunity go to waste.
To quote Lord Keynes:
“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”
Teaching out of this book made me nauseated. It was a how to book for fascism, nothing less. The author does not understand economics and is more concerned with pushing his view point at the expense of educating future business leaders.
What is an employer to think when a student is hired and they do not know something as basic as why is it important to know where marginal cost intersects marginal revenue. Instead the new employee is concerned about pay equality?
Are you kidding me?
Can anyone see where this will lead to?
Quite frankly I am surprised and shocked more professors to not protest this crap in textbooks. They deprive students of the opportunity to learn and prepare for their future careers wasting their time on nonsense and fiction.
I will not be silent.
I am calling BS on this. Colander is welcome to debate this with me anytime. I would love to call him a fascist to his face.
“Among the laws set to change at midnight on December 31, 2012, are the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers),
1. The end of certain tax breaks for businesses,
2. Shifts in the alternative minimum tax that would take a larger bite,
3. The end of the tax cuts from 2001-2003,
4. The beginning of taxes related to President Obama’s health care law.
5. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect. According to Barron’s, over 1,000 government programs – including the defense budget and Medicare are in line for “deep, automatic cuts.””
The media gives three alternatives:
The first is to allow the tax hikes and spending cuts to go forward and that would “cause a recession” as per the Keynesian dogma of the day. One problem, we are already in a recession, although not official.
This media blitz is nothing more than a blame game for the recession that has been happening since July 2012 but will not be “official” for another three to six months.
That is all it is.
Another clown show by the president and congress that will determine who get the blame the “Ds” or Rs.” Of course the media is poised to blame the Republicans (Washington Generals of the political world) for the recession and if the past is any indicator the Republicans will step into the dog squeeze as required by political protocol.
The other two are predictable:
Spend more money; borrow more money, the preferred elitist and bankers’ option.
A “compromise” that is whatever congress and the president want it to be.
The economic misinformation in the random media report is so convoluted one wonders where to begin.
First government produces nothing.
Government borrows, taxes, or prints money. That is all it does. It does not make anything. All government can do is destroy, it creates nothing. Cutting government programs will help the economy by allowing resources to transfer from the public sector to the productive private sector.
Second increasing taxes over 30% according to economist Dan Mitchell of the CATO Institute or 33% according to economist Christina Romer, formerly Obama’s top economic adviser, will result in less taxes collected. So why is there ANY discussion of any taxes above 33%?
Because it is part of the class warfare dog and pony show Democrats love inflicting on the economically illiterate public. As long as the average IQ of the average voter is below 100 this tactic will work forever. The press loves it, the public loves it, why deal with reality?
Third all this talk ignores the reality that we have already went over the fiscal cliff in 1998 when we exceeded a total debt, federal, state, local, private, to GDP ratio of 250%. In 1998 the total credit market debt owed was $22.572 trillion with a GDP of $8.793 trillion or 257%. That was the fiscal cliff of no return. Since then it has been a run to the edge with the winners being the ones who can grab the most cash and turn the cash into physical assets before the final crash.
The elite bankers have known this for decades. They have known the demographics of a aging population have doomed Social Security, Medicare, and other socialist programs. Instead of warning America or doing something positive they with the help of the Federal Reserve, who they privately own, have chosen to impoverish and plunder the American people with one bubble after another.
Remember that eight years from now when it is over. The one group that really understands finance, the creme de la creme of banking, choose to intentionally enlist the Federal Reserve and politicians to plunder trillions from Americans before the death of the nation. The elites choose to plunder and our politicians were clueless or helped in the plunder. Bush, Frank, Dodd, Pelosi, Obama, Boehner, Waters, Reagan, Nixon, and countless others from both parties sold out the USA.
Today we owe $55 trillion with a GDP of $15.7 trillion or 350%. The only reason we have sustained our federal debt is the public, Federal Reserve, foreigners, have purchased $15.8 trillion in debt. Someday soon these investors will realize that the debt will not be repaid.
Did I mention we are in a new recession?
The fiscal cliff has been passed years ago. It is over with. We will default, create massive inflation, cut federal programs, or go to war. None of these options will be painless.
What lies beyond this cliff is Russia, China, and hostile middle east countries replacing the dollar as the worlds reserve currency. China and Russia have signed agreements to trade oil in the Chinese currency the Yuan. China has signed several of these agreements and their intentions are clear, replace the dollar as the world currency.
Islamic countries like Turkey have increased gold reserves. China has dramatically increased gold reserves. It is clear that in the next decade China will be the number one economy in the world and the days of the “petro dollar” are numbered. In the transition period trading in gold or silver will be an option for some countries that cannot be ignored.
When this transition happens it will be swift.
The Republican and Democrats will be out of business, maybe hanging on as dictators, maybe ending up like Mussolini with their head on the end of a spike, but despised by all as millions wake up to the realization that it was all a lie sustained by debt and our political leaders were paralyzed by the power of the top 0.01% of bankers at 33 Liberty Plaza, New York, New York.
The Federal Reserve is desperately trying to create one more bubble in housing, cars, government, anything, before the final coup de grace.
Can they do it?
It is possible but even if successful it will be short lived, maybe a year to two at best. By the end of the decade it will all be over. We will be new countries with freedom and liberty, engaged in a world war with China and Russia, or a basket case third world economy like Venezuela with a 21% inflation rate as our leaders hang on to the glory days of the past.
The fiscal cliff was sooooooo 1998, get over it.
I call the transition, September 2013.
Emerson, Lake & Palmer. Classic.
Obama cheats. Obama lies. Obama uses government as an instrument of theft.
He cheated in his Senate race when he dug up dirt on his opponent Jack Ryan from Ryan’s bitter divorce with actress Jeri Ryan thus forcing a last minute resignation and an inferior replacement opponent, Alan Keynes. Obama challenged and successfully disqualified four of his primary opponents in his 1996 State Senate in Illinois’ 13th district. All these are legal tactics but a reflection of how devoid this man is of morals and standards.
In 2008 we had the ACORN scandals, Mickey Mouse voting, voter fraud convictions, arrest, and the election of Obama.
So what part of the memo did Republicans not get?
The fact is that Republicans and conservatives are waking up to the reality that they are rooting for the equivalent of the Washington Generals. The Washington Generals are the opponent team of the Harlem Globetrotters who lost 2,499 games before winning a game in 1971. The Republicans today, with the sole exception of Alan West, are the Washington Generals.
Please let me explain voter fraud to the Republican audience so maybe in 2014 or 2016 the Republicans will catch on, if we are not 100% fascist by then.
In my 4th grade in Pontiac, Michigan there were model car contest for the students to display their talent. The students would bring in their model cars and fellow classmates would vote on the best car of the month. The prize was usually an attaboy from the principal.
At first everyone was honest and voted only one time. After a few months some of the losers grew impatient at not being as talented as the more brilliant winners and began stuffing the ballot box. At first it was 10 or 20 votes, just enough to sway the election. After an upset election the more talented model builders began to catch on to the fraud and they began stuffing the ballot box. By the end of the school year there were two or three times more voters than students. In disgust the principal cancelled the contest for the rest of the year and there were no winners.
And that is where we are in 2012 with the Presidential election and many key local elections like Representative Alan West’s Florida congressional election. Stuffing the ballot box and pretending there is no problem.
The democrat strategy of 2012 was simple, raise a lot of money, buy a lot of commercial time, avoid issues like the economy, focus on personality flaws of the opponent, and stuff the ballot box in key swing states. Once the votes are in the system it’s impossible to get them out of the system. Even if fraud is proven how do you determine which votes are legitimate and which one are not? It’s a win win scenario for Democrats. The end justifies the means.
So here is a partial list of how the fraud is accomplished:
1. When a county reports a 99% turnout, or over 100% which is often the case, it is fraud. No county, no city, no precinct anywhere does that. People forget, they have to work, they don’t care, they are sick, they die. It does not happen. It is fraud.
To accomplish the fraud the precinct supervisors would have to have a way of voting for the voters who do not show up. Absentee ballots already filled out would work. Paper ballots filled out ready to go would work. It is a relatively simple task for the elections precinct supervisor to watch the voter turn out, look at the total registered voters, and fill in the difference.
Example, suppose there are 2000 voters in precinct 25 in Ohio. A healthy 70% turn out to vote for their favorite Obama. 93% vote for Obama. That is 1302 votes for Obama and 98 for Romney.
Even as lopsided as this is the precinct supervisor is not satisfied. There are still 580 votes missing for Obama if the turnout was 99%. So the precinct supervisor can run 580 pre filled out Obama ballots through the process in a very short amount of time between the closing of the polls and the official count and turning in of the ballots to the county supervisor of elections, or grab 580 prefilled out Obama absentee ballots and throw them into the count.
Once these fraudulent votes are in the system it is impossible to distinguish then from real votes. If the supervisor is really daring she can replace the 98 votes Romney received with Obama ballots, and some have done this.
Any district, even a 100% black district, will never have an 99% turnout and 100% Obama vote total. Impossible. The only reason this fraud is being caught is it is so absurdly stupid one wonders who these idiot precinct supervisors are and what university did they graduate from.
2. Dead people voting, a Chicago favorite for decades. No explanation needed.
3. Machine voting. If it can be programmed it can be programmed for fraud. No paper trail is an invitation for fraud. In Venezuela Opposition leader Capriles was leading dictator Chavez 51-48 but magically lost through the magic of electronic voting 54-44. Electronic voting should be banned.
4. Multiple voters. New York voters love to get residence in Florida to avoid those New York taxes and vote twice. Bust then and throw them in jail.
5. Illegal aliens voting. It took Florida Governor Scott thousands of taxpayer dollars in legal cost and perseverance to get access to the federal government data base on legal and illegal persons in the United States. Illegal’s need to be purged from the voting rolls. Most states do not care.
I am sure I am missing some voter fraud schemes, please do tell Democrats.
How is this fixed?
The way it was fixed in grade school was to simply stuff the ballot box with more votes than your opponent. Republicans could hire Democrat precinct supervisors to train Republicans precinct supervisors on how to stuff the ballot box. With proper training by 2016 the Republicans could become competitive in national elections again.
Or we could require video taping of all voting and processing of ballots with a flawless chain of custody from the voter to counting. Combine the video taping with electronic fingerprinting of voters. This would not discriminate against minority voters with no ID card, an objection of Democrats.
Absentee ballots could have tape on the outside of the envelope where voters could imbed their fingerprints to be verified by the Supervisor of Elections. Having the fingerprints on the outside of the envelope would ensure confidentiality keeping the ballot secret. Scanning machines could be developed to instantaneously read the fingerprints before the ballot is counted.
Every single ballot entered into the system should be video taped from receipt of absentee ballots to actual voters on Election Day. Every aspect videotaped. No exceptions.
For Republicans they should not lose heart. They won the 2012 election. What they lost was four years from 2008 to 2012 to pass laws in Ohio, Florida, Pennsylvania, Wisconsin, and Michigan that would have prevented this voter fraud that cost them the presidency and most likely some senate races.
Republicans need to understand that there are dishonest people out there who do not care about honesty and decency. People lie, cheat, steal, rape, and murder. Our president, Barry Soetoro, is a prime example of a complete fraud that will do anything for the cause. Until Republicans get the memo they will be the Washington Generals of politics rolling over like Supreme Court Justice John Roberts anytime the opposition party wants a win. No one respects them or takes them seriously.
The 2012 election is a textbook case of why conservatives need to form a third party. Call it the Tea Party, Libertarian Party, Right Wing Party, anything just do it.
Politics is the art of theft. It’s nothing more than a game of organized theft. The less talented want to steal from the more talented. Both sides need political representation for the system to balance out. If one side does not have politicians that will break some skulls and beat some gluteus maximus the other side will take advantage of it. This is the same thing as the schoolyard bully beating up on the weakest kid. Republicans need to realize they are the weakest kid.
This has nothing to do with voter strength and who controls what legislative body. It’s about physical and mental toughness to fight to the death against your opponent no matter what the odds. We expect no quarter from our soldiers we need this from our politicians.
Democrats will lie, cheat, and steal elections. It is who they are. It is what they do. Republicans never fight back with the sole exception of Congressional Representative Allen West. That is the problem.
Republican voters deserve to have politicians that will fight and represent them. If that means kicking down a few doors and pissing people off then so be it. Stand up to the bully and kick his ass. Break his nose. Why is there only one Alan West on the team?