The stimulus bill is also a time machine in the sense that it’s based on an old, and largely discredited, economic theory. As Harvard economist Robert Barro pointed out on these pages last Thursday, the “stimulus” claim is based on something called the Keynesian “multiplier,” which is that each $1 of spending the government “injects” into the economy yields 1.5 times that in greater output. There’s little evidence to support this theory, but you have to admire its beauty because it assumes the government can create wealth out of thin air. If it were true, the government should spend $10 trillion and we’d all live in paradise.
The problem is that the money for this spending boom has to come from somewhere, which means it is removed from the private sector as higher taxes or borrowing. For every $1 the government “injects,” it must take $1 away from someone else — either in taxes or by issuing a bond. In either case this leaves $1 less available for private investment or consumption. Mr. Barro wrote about this way back in 1974 in his classic article, “Are Government Bonds Net Wealth?”, in the Journal of Political Economy. Larry Summers and Paul Krugman must have missed it.
Obama missed it, too. He was too busy community organizing and never caught up, as we saw during this exchange with Charlie Gibson during the Democrat debates.
GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28 percent. It’s now 15 percent. That’s almost a doubling, if you went to 28 percent.
But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.
GIBSON: And George Bush has taken it down to 15 percent.
GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.
So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.
So Obama would cut off the federal government’s nose to spite its face. Because of “fairness.”
Is is fair that half of the public pays virtually no federal income tax?
I quit the Democrat party in the early ’80s when I realized two things: a) capitalism creates the wealth we all enjoy and fight over and b) Democrats instinctively dislike capitalism because its fruits are not “fairly” distributed.
Liberals look at the economic bell curve and see those on the left side as victims of exploitation. What never seems to register is that even the poorest Americans today live better than most people on planet Earth and better than most Americans of years past. We’ve all gotten richer.
Capitalism is the greatest system ever created for alleviating general human misery, and yet it breeds ingratitude.
People ask, â€œWhy is there poverty in the world?â€ Itâ€™s a silly question. Poverty is the default human condition. It is the factory preset of this mortal coil. As individuals and as a species, we are born naked and penniless, bereft of skills or possessions. Likewise, in his civilizational infancy man was poor, in every sense. He lived in ignorance, filth, hunger, and pain, and he died very young, either by violence or disease.
The interesting question isnâ€™t â€œWhy is there poverty?â€ Itâ€™s â€œWhy is there wealth?â€ Or: â€œWhy is there prosperity here but not there?â€
At the end of the day, the first answer is capitalism, rightly understood. That is to say: free markets, private property, the spirit of entrepreneurialism and the conviction that the fruits of your labors are your own.
For generations, many thought prosperity was material stuff: factories and forests, gold mines and gross tons of concrete poured. But we now know that these things are merely the fringe benefits of wealth. Stalin built his factories, Mao paved over the peasants. But all that truly prospered was misery and alienation.
… Any number of countries in Africa are vastly richer in baubles and soil than Switzerland. But they are poor because they are impoverished in what they value.
In large measure our wealth isnâ€™t the product of capitalism, it is capitalism.
Now the anti-capitalists hold the throne.