In 1965 Time Magazine cover was the title "The Economy: We Are All Keynesian Now." It really didn't matter if you were a Democrat or a Republican, they both ascribed to the Keynesian theories of economics. Our Universities have for decades nearly taught these exclusively, with some Marx thrown in, in later years more and more Marx thrown in. What is Keynesian economics we hear so much about?
In the 1930's, Lord John Maynard Keynes predicted that someday everyone would have a four-bedroom house, at which point, the American Dream having been fulfilled, people would lose their incentive to work. Keynes believed that peoples' affluence would eventually outstrip their appetites - that their demand for goods and services would reach a plateau, beyond which the amount of money they spent would represent a smaller and smaller percentage of their incomes. Therefore, he argued, the government would have to adopt fiscal policies designed to keep people from hoarding too much of their incomes. `This can be found in Keynes "The General Theory of Employment, Interest, and Money." This was why our government developed a progressive income tax, to keep you having to work harder.
It is hard to believe that was a theory anyone every believed, no less that even today, we are still finding the bulk of politicians, academia and the media that are pushing it. It seems so much of what we as a society do is more based on tradition than any thought through idea. Today, it is clear that nothing could be further from the truth of people stop wanting more after basic needs are satisfied. Indeed, we know it to be the exact opposite of what Keynes predicted. Just look at the spending habits of American consumers, they are insatiable. The more we earn, the more we spend; the more we spend, the more we get; the more we get, the more we want, and the more we want, the harder we seem to work to earn more money to get it. If any segment of society has lost the incentive to work, it is the poor, not the upwardly mobile and middle class.
What happened to confound Keynes's prediction that increasing affluence will lead to decreasing consumption? In part, Keynes got tripped up by a basic misunderstanding of human psychology. Improving prospects breed rising expectations, not complacency. Thus, as John Kenneth Galbraith noted in 1958 in his book "The Affluent Society," "In the affluent society, no sharp distinction can be made between luxuries and necessaries." Galbraith was talking mainly about consumer psychology as used by advertisers to play on consumers' insecurities, envy, and self-esteem to make them want things they don't really need: or as imposed by consumers upon themselves. Consider, for example, how buying a luxurious new suit makes a consumer feel he must have an equally luxurious silk tie, a fine linen shirt, and pair of Italian leather shoes to match. And once he has added this to his wardrobe, his less expensive suits, shirts, ties, and shoes look dreary and he wants to replace them with the better quality as well. If she was driving a Toyota then she wants his and hers, then they want to trade up to a Lexus, then two, and so on.
Add to that what technology advancements do by providing an ever expanding array of astonishing new products, the use of which changes our behavior to an extent that before long what was once a great luxury is now an everyday necessity. So the very economic system that our Establishment politicians, our academics and our business media keep pushing, the one they were all raised to believe is built on a false premise that has never ever worked. What has worked is a more Alchemic approach to economics, where the money is left in private hands, both in business and consumer hands to spend and invest as they like. That is the power that fires the engines of the economy. As John F. Kennedy said, "A tax cut means higher family income and higher business profits and a balanced Federal budget...as the national income grows, the federal government will ultimately end up with more revenues. Prosperity is the real way to balance our budget. By lowering tax rates, by increasing jobs and income, we can expand tax revenues and finally bring our budget into balance."
Throughout history, every time we reduce tax rates significantly we increase the economy and that increased economy actually creates record revenue into the national government in taxes. The reverse is also true, whenever we raise tax rates the economy slows, business people and individuals start spending more time and resources to shelter their existing income rather than try to grow more and the tax revenues to the government actually shrinks.
Sunday, February 16, 2020
Corporate Taxes Most Hurt Lower and Middle Earner Families.
We are bombarded by the arguments that those greedy corporations are not paying their fair share, that we must raise taxes on them. That this huge company paid no taxes and we need to do something about that. It is one of the most popular arguments by politicians playing their favorite card of class envy and jealousy of one group of people against another. They promise if you vote for them that they will stick it to these big rich companies who aren't paying their fair share. It plays to our most base and dark human emotions so it is very effective. Furthermore, very few people in this country have had more than a semester of economics or civics in their lives, if that much, so really have very little understanding of either. This makes it even easier for politicians and their friends in the media to play to our emotions not our minds.
What are the realities of Corporate Taxes? First of all, corporations don't actually pay taxes, small businesses do, but not the large corporations the politicians sell you they are going to get them to pay their fair share. Corporations only collect taxes for the government from their consumers through their price of the products and services. They must make a net profit to sustain their company, their stockholders, etc. They figure in the taxes they will pay into the pricing structure, so you actually pay it. This has a disparate impact on the lower and middle income earners in this country, because they spend a much higher percentage of their incomes on consumer goods and services than do the highest income or wealthy. Thus any Corporate tax has the biggest tax increase on the lower and middle income earners in America, conversely lowering it benefits them the most. Maybe not immediately, why would a company lower its pricing if people are willing to pay it, until forced to by their competition? However, that money becomes a larger profit for the company, is reinvested in future growth, lower pricing on products, and more labor. The more demand on labor the upward demand on wages. So the people who vote to tax companies are voting to tax themselves and to reduce their wages.
We are seeing those results right now, if we but look for them. Under President Trump, the reduction of corporate taxes from 35%, the highest in the developed world, to 21%, This has caused a tsunami of billions if not trillions that companies were storing off shore back to being repatriated into our economy at home. We are seeing companies moving manufacturing back like we haven't seen in any of our lifetimes. What we were told could never happen seems to be happening monthly as manufacturing is coming back, investment in America is coming back. We have the best economy for any and all demographic group in decades if not historically. And keep in mind it's VERY early in the process, it has only been in place not yet two years. Those factories, those expansions of existing facilities are yet under construction and haven't started hiring to fill them yet. This is the beginning of an economic juggernaut like we have never seen. However, we can look to the not too distant past to see the science behind such an expansion.
The Media, the political left, and frankly the Establishment Republicans all tout Keynesian economic models in their view of the world. Unfortunately, the Keynesian model has yet to actually work anywhere in the world. For centuries economists from Adam Smith, to Karl Marx to John Keynes, while their methodologies differed, shared some things in common. They all based their views on how society uses and distributes "scarce" resources. Ronald Reagan and his supply side economic model, showed us that those long standing theories were flawed by the long-term economic growth during the use of supply side until it was cast aside for the old models once again and the drying up of the economy. In 1981, pushed by newly elected President Reagan Congress passed ERTA, The Economic Recovery Tax Act, which dramatically lowered tax rates and provided incentives to businesses that purchased new equipment. The idea behind this was that the increased work incentive resulting from lower tax rates would lead to increased economic activity, which in turn would more than offset the reduction of federal revenue that tax cuts might normally be expected to produce. All the traditional economists predicted disaster and economic collapse. They were all wrong.
Late in 1982 the GNP began a meteoric rise that initially outstripped even the most optimistic projections by the supply-siders. Many began predicting that unless the spiraling budget deficit could somehow be checked, the nation would face severe inflation, escalating interest rates, and economic stagnation. The economy however, paid no attention to such warnings. From 1985 to 1988, the budget deficit continued to increase. Yet despite dire predictions to the contrary, GNP continued to grow unabated. By 1989 most economists, ignoring their earlier concerns, were expecting the economy to continue its climb well into the 1990's, although they were unable to support their projections with a specific explanation or theory. Clearly something was going on that no one was able to explain. It was, in fact Alchemy at work.
The expansion of the past decade had its genesis in 1946, when the first electronic computer, known as ENIAC, was developed at the University of Pennsylvania. Over the next thirty-five years, even though computers became smaller, faster, more powerful, and easier to use, their use remained generally restricted to the sterile carefully guarded data-processing centers of universities, government agencies and large corporations. By 1981, the computer had evolved to the point where it was ready to burst out into the wider world, onto the factory floor, inside the automobile, and onto the supermarket checkout counter. Serendipitously the Reagan Economic Recovery Tax Act came to be at that moment.
The tax incentives that ERTA gave businesses in 1981 - in effect, a government subsidy amounting to 58 percent of the cost of new equipment - virtually forced corporate America to retool. This greatly accelerated the integration of the computer throughout the economy, dramatically increasing productivity and growth in implemented technology, on a scale not seen since the dawn of the industrial revolution. The impact of these massive productivity increases were both immediate and profound. By significantly lowering the production cost of virtually all goods and services, they reduced inflation. In addition, by swelling corporate profits, they effectively expanded the supply of capital, which in turn kept interest rates down. As well as they gave the United States eight years of unprecedented economic growth. In fact, the effect of this technological change on inflation, interest rates, and GNP has been so significant that it has compensated for the continuing growth of the federal budget deficit.
The reason for this impressive growth had to do with the technology gap. When traditional economists talk about a technology gap, they are generally referring to the disparity of technological sophistication between one country and another, or the industrialized nations and the Third World. However an Alchemic view of the technology gap is not between countries, but between technology currently available and any less-advanced technology actually in use. The size of that technology gap, that amount between what is available and what is being used, is the greatest determinant of economic growth. Our current technology gap is as wide as ever in history, so the future is very bright the more we reduce that gap.
As we reduce the burden on American businesses, we increase their incentive to grow and increase their profits, not find ways to shelter those they already have. This causes them to reinvest in ways to continue to make them more and more competitive. So that money that would have been taken out of the private sector into the public where no growth of wealth every has or can happen, it lights a fire on the economy in the private sector. This is where capital comes from, where wealth is built, were jobs are created, where wages grow as companies trying to grow must compete for the labor force. This is how the wealth of a nation and all of its people come from.
What are the realities of Corporate Taxes? First of all, corporations don't actually pay taxes, small businesses do, but not the large corporations the politicians sell you they are going to get them to pay their fair share. Corporations only collect taxes for the government from their consumers through their price of the products and services. They must make a net profit to sustain their company, their stockholders, etc. They figure in the taxes they will pay into the pricing structure, so you actually pay it. This has a disparate impact on the lower and middle income earners in this country, because they spend a much higher percentage of their incomes on consumer goods and services than do the highest income or wealthy. Thus any Corporate tax has the biggest tax increase on the lower and middle income earners in America, conversely lowering it benefits them the most. Maybe not immediately, why would a company lower its pricing if people are willing to pay it, until forced to by their competition? However, that money becomes a larger profit for the company, is reinvested in future growth, lower pricing on products, and more labor. The more demand on labor the upward demand on wages. So the people who vote to tax companies are voting to tax themselves and to reduce their wages.
We are seeing those results right now, if we but look for them. Under President Trump, the reduction of corporate taxes from 35%, the highest in the developed world, to 21%, This has caused a tsunami of billions if not trillions that companies were storing off shore back to being repatriated into our economy at home. We are seeing companies moving manufacturing back like we haven't seen in any of our lifetimes. What we were told could never happen seems to be happening monthly as manufacturing is coming back, investment in America is coming back. We have the best economy for any and all demographic group in decades if not historically. And keep in mind it's VERY early in the process, it has only been in place not yet two years. Those factories, those expansions of existing facilities are yet under construction and haven't started hiring to fill them yet. This is the beginning of an economic juggernaut like we have never seen. However, we can look to the not too distant past to see the science behind such an expansion.
The Media, the political left, and frankly the Establishment Republicans all tout Keynesian economic models in their view of the world. Unfortunately, the Keynesian model has yet to actually work anywhere in the world. For centuries economists from Adam Smith, to Karl Marx to John Keynes, while their methodologies differed, shared some things in common. They all based their views on how society uses and distributes "scarce" resources. Ronald Reagan and his supply side economic model, showed us that those long standing theories were flawed by the long-term economic growth during the use of supply side until it was cast aside for the old models once again and the drying up of the economy. In 1981, pushed by newly elected President Reagan Congress passed ERTA, The Economic Recovery Tax Act, which dramatically lowered tax rates and provided incentives to businesses that purchased new equipment. The idea behind this was that the increased work incentive resulting from lower tax rates would lead to increased economic activity, which in turn would more than offset the reduction of federal revenue that tax cuts might normally be expected to produce. All the traditional economists predicted disaster and economic collapse. They were all wrong.
Late in 1982 the GNP began a meteoric rise that initially outstripped even the most optimistic projections by the supply-siders. Many began predicting that unless the spiraling budget deficit could somehow be checked, the nation would face severe inflation, escalating interest rates, and economic stagnation. The economy however, paid no attention to such warnings. From 1985 to 1988, the budget deficit continued to increase. Yet despite dire predictions to the contrary, GNP continued to grow unabated. By 1989 most economists, ignoring their earlier concerns, were expecting the economy to continue its climb well into the 1990's, although they were unable to support their projections with a specific explanation or theory. Clearly something was going on that no one was able to explain. It was, in fact Alchemy at work.
The expansion of the past decade had its genesis in 1946, when the first electronic computer, known as ENIAC, was developed at the University of Pennsylvania. Over the next thirty-five years, even though computers became smaller, faster, more powerful, and easier to use, their use remained generally restricted to the sterile carefully guarded data-processing centers of universities, government agencies and large corporations. By 1981, the computer had evolved to the point where it was ready to burst out into the wider world, onto the factory floor, inside the automobile, and onto the supermarket checkout counter. Serendipitously the Reagan Economic Recovery Tax Act came to be at that moment.
The tax incentives that ERTA gave businesses in 1981 - in effect, a government subsidy amounting to 58 percent of the cost of new equipment - virtually forced corporate America to retool. This greatly accelerated the integration of the computer throughout the economy, dramatically increasing productivity and growth in implemented technology, on a scale not seen since the dawn of the industrial revolution. The impact of these massive productivity increases were both immediate and profound. By significantly lowering the production cost of virtually all goods and services, they reduced inflation. In addition, by swelling corporate profits, they effectively expanded the supply of capital, which in turn kept interest rates down. As well as they gave the United States eight years of unprecedented economic growth. In fact, the effect of this technological change on inflation, interest rates, and GNP has been so significant that it has compensated for the continuing growth of the federal budget deficit.
The reason for this impressive growth had to do with the technology gap. When traditional economists talk about a technology gap, they are generally referring to the disparity of technological sophistication between one country and another, or the industrialized nations and the Third World. However an Alchemic view of the technology gap is not between countries, but between technology currently available and any less-advanced technology actually in use. The size of that technology gap, that amount between what is available and what is being used, is the greatest determinant of economic growth. Our current technology gap is as wide as ever in history, so the future is very bright the more we reduce that gap.
As we reduce the burden on American businesses, we increase their incentive to grow and increase their profits, not find ways to shelter those they already have. This causes them to reinvest in ways to continue to make them more and more competitive. So that money that would have been taken out of the private sector into the public where no growth of wealth every has or can happen, it lights a fire on the economy in the private sector. This is where capital comes from, where wealth is built, were jobs are created, where wages grow as companies trying to grow must compete for the labor force. This is how the wealth of a nation and all of its people come from.
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