Raising Taxes vs. Reducing Wealth
First a little Humor. A rather overweight chap walks into a pizza shop and says, “I would like to order a large pizza and a side of breadsticks.” The kid behind the counter squeaks “Would you like that cut into 12 or 16 slices.” The fat man says, “Make it 12, I am on a diet.”
This joke clearly demonstrates a person who doesn’t understand the concept of the laws of conservation. Basically they state that “the sum of the parts can never be more than the whole.” Or in this case, can be “no less”. If a pizza has 2000 calories, it don’t matter how many pieces you cut it into, when you eat it, you are eating the same amount of calories. The same is true about the collective whole of the U.S. wealth.
The US has an amount of “wealth” that, like the pizza, has a definitive value. It is hard to put that value into terms that are easily understood. (It was way easier when we were on the gold standard. You are probably going to hear calls to return to that standard in the near future.) To simplify let us say you are the blissfully unaware governor of a state whose only source of wealth is oil. There is a finite amount of that resource in your ground. Let us say that there are 100 billion pieces of paper that represent 1/100 billionth of that total amount of oil. People are paid in these slips of paper every week. Some actually trade in their pieces of paper for oil to put in their car. Most people use them to barter for things like food, mukluks, and pudding for their hot tubs. So what happens if somebody in the states government decides they are tired of flying across a local river and that they should instead build a bridge? The government, being short on those slips of paper, and feeling they might not get re-elected if they (tax) take them away from their constituents, has a new idea. They decide to just print more. They say, what the heck, the logging industry can use the boost, so they print twice as many. Now instead of each slip being worth 1/100 billionth, they are not only worth 1/ 200 billionth of the total amount of oil under the ground. This is quickly noticed when the store owner selling Siberian made mukluks goes to purchase more and the mukluk maker says, “wait a second, this slip of paper will only get me 1/2 as much of your oil as it would the other day. You are going to have to give me two pieces of paper per pair of mukluk instead of just one.” From there the store owner has to pass on the bad news to his customers. Either they are going to have to pay double for their mukluks, or they will have to cut off a leg. (Hence the term “costing an arm and a leg.) The average voter didn’t see any money come out of their check directly from the government. So the pretty governor can’t be responsible. I mean, heck she sent them $3000 earlier in the year? Yah? You betcha. However, somehow they are not able to fill their hot tub as full as they used to because those darned pudding manufactures are charging more for their pudding.
There are a few ways to put money into the system other then flat out printing it. Thinking about it, just because the government prints the money, how do they get it into the system? Basically they use interest rates to entice banks to lend more money. I mean they are not going to just send every tax payer a check in the mail, right? That would be silly.
Republicans are notorious for wanting to lower interest rates to make it easier for business to borrow. Even if the business isn’t selling much product. They are also notorious for wanting to lower taxes on business so they can hire more mukluk makers. They seem to neglect the looming questions of, “what if everybody has all the mukluks they need?” and the more important question of, “what good is it going to do our economy if they hire more Siberians?”
So the next time a conservative Republican says to you, “but the democrats are going to just raise taxes and force businesses to go over seas.” Just look at them, wink, and smile. (They like that.) If you want you can try to explain it to them. Some of them you might have to explain the pizza joke slowly 5 times.