Saturday, July 10, 2010

On Eccomomics

All right, let's get one thing clear from the get go:

Keynesian Economics is not just simply wrong, it's the most positively debunked theory since Galileo irrefutably disproved Copernican Heliocentrism. On the scale of rational theories it is somewhere behind the Luminiferous Aether and Lamarckian Evolution.

It's so glaringly wrong that you have to wonder if folks have actually, you know, been paying attention to the past 100 years of history.

Velocity of money is simply wrong. If I give you 5 bucks and you give me 5 bucks, Keynes counts that as $10 of economic activity. Despite the fact that no product was produced and each of us has the same amount of currency as before. (actually we have less, since the exchange took some amount of time greater than zero and so some of our buying power was reduced by inflation).

Arthur Laffer (yes the Arther Laffer of the famous Laffer Curve) has an article in the WSJ on why unemployment benefits are not stimulus.

Laffer WSJ

Here's a teaser:
On the face of it, the idea that higher unemployment benefits won't lead to more unemployment doesn't make much sense. Imagine what the unemployment rate would look like if unemployment benefits were universally $150,000 per year. My guess is we'd have a heck of a lot more unemployment. Common sense and personal experience indicate higher unemployment benefits will make unemployment less unattractive and thereby increase unemployment even in the Great Recession.

Read it. It's a powerful rebuke to the Keynesian ideal. Which, again, shouldn't be necessary to anyone who has been paying attention at all to economic matters since, oh, 1928 or so.

We all know what is required to stimulate the economy. The Laffer curve tells us that above a certain point, tax revenues go down as the tax rate increases.

Simple proof:
At 0% tax rate the government gets $0
At 100% tax rate same thing 0% (think about it)
At some rate betewwn the two, the government does take in income.

It's been obvious for decades that we are somewhere above the apex of the curve. Every single time tax rates have been lowered, government revenues have increase. Every time. Thus lowering tax rates not only increases total taxes, but increased real economic growth as well.

In time of war, I think it makes perfect sense to try to optimize said revenue. Otherwise, we should be well below the Laffer peak. Growth, as my friend Aretae is fond of saying, trumps everything else in the end.

Thus one might wonder, if it's clear through evidence that we are above (well above) the Laffer curve peak, why is the tax rate so high. Hint, it's not about government services, it's about control.

Lowering the tax rates would mean more money for both guns and butter, as well as increasing employment rates. The only reason for high taxes is control. The one thing a Statest (of either Conservative or so-called progressive bent) cannot stand is the thought that an individual might be better off making his own choices, even if he has to suffer the consequences of bad ones.

1 comment:

Freedom said...

"The one thing a Statest (of either Conservative or so-called progressive bent) cannot stand is the thought that an individual might be better off making his own choices, even if he has to suffer the consequences of bad ones."

I was listening to Dave Ramsey last night and his quote of the day was about how in order to be successful one must be willing to make mistakes.

Your post adds another piece:

If one is not given the freedom to make those mistakes....