Basic Economic Reality 101

August 2, 2010

In 1992, Bill Clinton won the White House by focusing on the simplest of messages; "It's the Economy, Stupid!"

Today, the nation's malaise is, in largest measure, a function of, "It's the Stupid Economy!"

Unfortunately, the voting public is woefully unaware of basic economic principles and realities and so they keep allowing the politicians (who are responsible for that economic ignorance – by design!) to keep making policies that ensconce the politicians in perpetual power at the expense (literally) of the productive segment of the voting populace – and creating a permanently dependent underclass voting bloc which empowers them.

Therefore, secure in the belief that an educated voter is a Conservative voter, I present the following lesson!

The political Left in America depends on your ignorance of the fallacy of two popular myths which they perpetuate and promote. The first of these is the "Zero Sum Game."

In this myth, the idea is that there is a fixed amount of wealth. In order for one person to get more, someone else must get less. If someone has "too much," it deprives someone else of the opportunity to have "enough." This is the basis on which the Left promotes class warfare.

The Left fans the flames of class envy and resentment at every opportunity. The recent Shirley Sherrod incident again highlighted this – and most folk never even noticed it!

In the "complete" tape wherein her "redemption" from racism took place… she replaced racial conflict with class warfare! In her words, it became the "Haves versus the Have Nots."

The fact is that the American economy is not a zero sum game. Wealth is created whenever a new product or service of value is created. Whenever innovation creates a product or improves a process, or efficiency is improved through technology, the economy grows.

Growth of the economy is an indicator of economic health. Every few months, lip service is given to this fact when the news makes passing reference that "the economy grew at a modest 2.1%..." or some such statement. But sadly, few actually understand what that means.

Put simply, the "pie" of the economy is not a fixed size. If the pie gets bigger, your slice gets bigger, even if you take the same "share" of the pie! This is a variation on JFK’s and Reagan's theme that "a rising tide lifts all boats."

This pie analogy works not only for the individual citizens, but for government as well. They don't need to take a bigger portion of the pie to get a bigger slice – if they can encourage the growth in the size of the pie! And this brings me to the second myth:

Tax cuts do not reduce revenues! They increase them!

This is a non-disputable fact, and it has worked every time it's been tried – from Bush to Reagan to Kennedy and others!

Why would this be?

It couldn't be true if the first myth about the zero sum game were true. Cutting tax rates would necessarily cut revenue dollars. But… cutting tax rates has behavioral effects on the drivers of the economy – small businesses take risks that generate profits. Lenders loosen credit – allowing these businesses to expand. Jobs are created. More productive workers join the workforce and pay taxes. Salaries grow, along with their resultant taxes. The economy itself grows – and the government's smaller share of a bigger pie results in a bigger slice!

The Left does not talk about revenues when it talks about tax cuts. It talks about deficits! Under Reagan, for example – his tax cuts doubled federal revenues! Still, all you hear from the Left about Regan's tax cuts are the "Reagan Deficits."

Remember, until the Gingrich Revolution of 1994, when power shifted to the Republicans in the House, Congress had been solidly in the hands of the Democrat majority for over 50 years! And spending is not done by the President – it's done by Congress! The President proposes a budget – but the House writes and passes it! Without a line-item veto – the President has only 2 choices: Sign what they give him – or Veto the entire budget of the United States. In Reagan's case, he proposed fiscally responsible budgets. Do you remember the response of the Tip O'Neill led House of Representatives? Does the term "dead on arrival" ring a bell?

Despite Reagan's tax cut created windfall of doubled revenues to the Federal Treasury, the Democrat controlled Congress ran up huge deficits.

How is that possible? Simple! For every dollar in new revenues the tax cuts generated, the Congress spent over $1.80.

Imagine if you are making $50,000 a year, but have acquired significant debt, and you are currently spending on the order of $60,000 a year – going deeper in debt every year. Now suppose you land your dream job and are earning $100,000 a year. Where do you suppose you'll be in a decade if, instead of putting this windfall toward paying down your debt, you increase your lifestyle by buying a bigger home, fancy cars, join the "club" etc – and start spending $120,000 a year? Not in a good place, I'd venture to say! Well, Congress is like that! Deficits are not a function of tax cuts. They are not a function of revenue. They are a function of SPENDING.

The American People must become educated on economic realities. We must begin to understand big numbers.

  • A MILLION is 1000 Thousand. It is 10,000 $100 bills. It'll fit in a briefcase.
  • A BILLION is 1000 Million. If you stack 12 shipping pallets 7 feet high with $100 bills, you'll have a Billion dollars. It took 87 Billion dollars to run 2 wars for a year back before the Bush/Kerry election – remember? Kerry choked on this number – voting for it before voting against it! Remember that number. We'll refer to it again.
  • A TRILLION is 1000 Billion. This is also a 1,000,000 Million. (Imagine one MILLION briefcases, with a Million dollars in each!) This is how much we're adding to our debt each year under the Obama Administration.

Federal programs never cost what we're told they'll cost. The $787 Billion bailout (9 times the cost of that $87 Billion annual war) is now $3.7 trillion! (42.5 times that $87 Billion war) Kerry choked on $87 Billion, but the American people are supposed to swallow a bailout 42.5 times that size.

Americans must also understand economic terms:

  • Revenue: The amount of tax money actually collected.
  • Deficit: The amount spent over the amount of revenue.
  • Debt: The sum total shortfall between our spending and our revenue.

Our annual deficit presently is around a Trillion Dollars. Our Debt is over $13 Trillion.

What does that mean?

First off, with approximately 250 million people in the USA, each BILLION represents $4.00 per person. That doesn't sound like much until you realize that $13 Trillion debt is $13,000 Billion x $4 per billion = $52,000 debt per person in the USA.

Realize that in the 232 years before Obama took office, our nation had acquired a sum total debt of around 11 Trillion. Obama added another 2 Trillion in under 2 years!

Remember, each Trillion costs $4,000 per person! Your debt increased $8,000 since Obama took office!

Learn these facts. Share them with your friends. Don't let Leftists get away with saying tax cuts will "cost" the government – it's not their money… it's YOURS – and besides, tax cuts will stimulate the economy and will raise revenues.

Don't let Leftists fan the flames of Class Warfare. You don't make the poor richer by making the rich poorer. It's NOT a zero sum game.

Don't let Leftists get away with the idea that a Trillion dollar deficit isn't a big deal, but a Billion dollar spending cut is.

An educated voter is a conservative voter. Get educated. Educate others.

Educate. Motivate. Activate. Propagate.

Copyright ©2010 Doug Edelman