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Economic Novices - Don’t Listen

J.J. Jackson* | February 5, 2006 

WASHINGTON ? One day after Congress gave final approval to a contentious measure to reduce the deficit by nearly $40 billion through 2010, the Senate on Thursday night easily approved a $70-billion tax-cutting measure that would more than wipe out all of those savings. - LA Times

Notice that the story originally ran in the Washington Post and it isn’t a surprise the LA Times picked it up and ran with it.

This isn’t journalism. But the mainstream press wants you to believe that it is.

Here is their (failed) “logic”. We cut spending $40 billion then we cut taxes $70 billion and that means we are $30 billion in the hole. YAWN! Perhaps in a steady state economy this might be the case but NOT in the American economy, which still has some Capitalism, left in it.

Ok, let’s go through this.

$70 billion is left in the hands of Americans. That $70 billion dollars is used to do what? The correct answer is that it is spent in the economy creating jobs and/or increasing wages and profits for other companies or reinvested back into the business to develop new technology and expand that business. Both generate higher standards of living and more money for people to spend, grow the economy and increase their standard of living.

And what happens then? If you said that $70 billion grows to MORE than $70 billion you get a cookie. And what happens as that $70 billion grows? If you said that it generates MORE tax dollars you get another cookie.

But if we let the government keep that $70 billion what would happen? It would generate NO new money, be used to pay bureaucracy and then maybe, just maybe some of it would be given back to the people that paid it. In other words, government is a black hole. You put money in - but you get a heck of a lot less back out. That is unless you are bureaucrat. Then you make out like a bandit!

To economic Marxists that look at the government as the source of wealth for the people this is hard to understand. And to reporters trying to be editorialists commenting on subjects that they have little knowledge of it is even harder to understand. The economy is NOT a zero sum game folks. If it were, we would have the same amount of money today as we did back in 1803. And we don’t now do we?

Capitalism and Freedom : Fortieth Anniversary Edition (Book) Authors:Milton Friedman Manufacturer:University Of Chicago Press Released:15 November, 2002

The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (Book) Authors:Hernando Desoto, Hernando de Soto Manufacturer:Basic Books Released:08 July, 2003

The Victory of Reason : How Christianity Led to Freedom, Capitalism, and Western Success (Book) Authors:Rodney Stark Manufacturer:Random House Released:06 December, 2005

Contributor's website: http://www.libertyreborn.com




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