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J.P.'s moment of common sense - Economics 101

August 20, 2011

[Fourth of my weekly oratorial expositions on Broad View, KBZZ 1270 AM Reno. Click on the microphone to listen.]

Thursday evening there was a debate here in Reno, a debate between the four candidates trying to win the congressional seat vacated by Dean Heller, who was promoted to senator. During the debate, Kate Marshall, the Democrat, stated there is a “surplus” of $2.2 trillion dollars sitting in the Social Security trust funds, and she wants a law which prevents Congress from spending that $2.2 trillion dollars.

... I’m pausing here for dramatic effect. Because Marshall’s comment is almost a punch line it’s so ignorant. Anybody who thinks there is money sitting in the Social Security trust funds has been living under a rock, or doesn’t know how to read, or doesn’t bother to read.

I wish Marshall was an exception, but she’s not. There’s an epidemic of people in positions of power who don’t have a firm grip on basic facts, and knowledge about economics is a particular problem. It’s a long time since I graduated from college, but I seem to recall that Economics 101 was a required course, one of the basics they made you take to assure that you were a well-rounded human being when you graduated. Maybe I’m wrong about it being a requirement. I must be wrong, because look at what Barack Obama said earlier this week. He was talking about the auto industry, and he said the automakers, “...can’t just make money on SUVs and trucks... They are gaining market share for the first time in years, but what we said was, ‘If we are going to help you, then you have also got to change your ways.’”

The President of the United States of America has the strange notion that General Motors can tell Americans what kind of car to buy! He thinks, now that they’re making some money, they can tell buyers, “Hey, the president wants you to buy Volts and hybrids, so get over to your nearest dealer and buy one.”

It’s such a silly notion that you’re tempted to laugh and forget about it, but when the President of the United States is that ignorant, it’s dangerous. Do you know how many Volts General Motors sold in July? 125. 125! That’s how unpopular the doggone thing is. The Volt factory can probably build one thousand of them a day, but they’re only selling 125 in a month. Call me crazy, but I’ll bet we read about layoffs at the Volt factory before too long.

When that 125 number was published, the CEO of GM, Dan Akerson, a man with zero automobile experience handpicked by Obama to run the company, announced that GM would be increasing production of Volts.

Huh? What the heck is he smoking?

Apparently Dan Akerson skipped the same Economics 101 class that Obama skipped. Maybe they took Marxism 101 instead.

I heard somewhere that Akerson and Obama were childhood friends, and when they were ten years old they set up a stand in the front yard on a hot summer day, but instead of selling cold lemonade they tried to sell warm milk. When sales were disappointing, Obama got angry, gritted his teeth, and said, “Danny Boy, someday, when I grow up, I’ll be president and I’ll make them buy warm milk!”

The GM Volt is your warm glass of milk. Drink up, America.

Meanwhile, on MSNBC Tuesday, our Secretary of Agriculture, Tom Vilsack, announced that food stamps stimulate the economy and create jobs. Seriously. This is apparently a man who not only skipped Economics 101, but wasn’t altogether bright in the first place. Talking about food stamps, Mr. Vilsack, literally boasting about the large increase in the number of people receiving them since Obama became president, said:
“If people are able to buy a little more in the grocery store, then someone has to stock it, shelve it, process it, package it, ship it. All of those are jobs. It’s the most direct stimulus you can get in the economy during these tough times.”
If the man had ever learned basic economics, he would know that taking money from one American to give to another American doesn’t add to the amount of money available in the economy. Duh.

Then it was Warren Buffet’s turn. I have a special fascination with Warren Buffet. I’ve spent years trying to figure out why the man gets so much respect. Everybody talks about the man being a financial genius, but I have this strange habit of remembering people’s predictions and watching to see if they’re accurate, and Warren Buffet hasn’t been right about anything since approximately the time of Moses. Go back and check for yourself. Heck, he supported Obama for president – what else do you need to know?

He makes money because he invests other people’s money, and it’s hard to go wrong in that line of business if enough people trust you and give you their money. Just ask Bernie Madoff.

Anyway, Buffet said this week that rich people should pay higher taxes, because a super rich dude like him has a lower tax rate than his housekeeper. Which is utter nonsense. I doubt very much that Buffet has seen any part of his income tax return other than the signature page in decades. Number one, he’s getting money from corporations, either because he invested in their stock and the price rose or because they’re paying him dividends, and corporations are paying income taxes at 35% before the money ever gets to Warren. Then he pays at his own rate, and even if he’s getting taxed at the 17% capital gains rate he mentioned in his New York Times op-ed, that’s still a 52% rate of tax altogether and I guarantee you his housekeeper isn’t paying 52% in income taxes.

Here’s the thing to remember about people like Warren Buffet: they already have their fortunes. They’re all set. Buffet has tens of billions of dollars, more than he can ever spend. Even taxing his income at 100% wouldn’t force him to miss a meal, so of course he can advocate higher income taxes. It’s the young geniuses just starting out, who want to accumulate their own fortune and are busy inventing the products that will enrich our lives tomorrow, who will get slaughtered by higher income taxes.

I have an idea to shut Mr. Buffet up about higher taxes: let’s tax wealth instead of income. Let’s suggest to Mr. Buffet that we reduce the income tax rate to zero and let people who work for a living keep whatever they earn. Instead of income taxes, let’s tell everybody to send Uncle Sam 10% of their total acquired wealth at the end of every year.

Mr. Buffet, your first payment will require a check to the IRS for five billion dollars.

Something tells me he won’t like this idea. But here’s the interesting thing: a 10% wealth tax would balance the budget, run a huge surplus, and pay off the national debt in about five years. Welcome to Economics 101, Mr. Buffet, but the discussion involves confiscating your money instead of mine.

"Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity." – Martin Luther King Jr.

From Reno, Nevada, USA       

August 23, 2011 - Well said Jim. There is a basic lack of economic knowledge in our government today. The government cannot grow the economy. - Charlie H., Michigan

August 22, 2011 - I agree 100%. And by the way, I think MLK was talking about some of my family members. - B.K., Nevada

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