My blog reader Kevin wrote,
Stop muttering about that role-playing stuff and check this out:
I would LOVE to see you take the time to deconstruct this article, one line at a time. It’d be a real eye-opener for all the commie pinko VTES players out there.
Well, as long as we’re going after commie pinko VTES players, count me in! Well I read Dr. Reich’s blog entry, and, sure enough, it’s dreadful beyond belief. Not it that typically way a politicians ideas are all hot air kind of dreadful, but in that much more pernicious way thinking that only macroeconomists seems to think.
In essence, Dr. Reich’s argument is this:
- I’d be nice if we could reduce our national debt (an idea with which I can whole heartedly agree).
- A tax increase can help us reduce our national debt (also logical, but I’m never a fan of higher taxes).
- We need to increase taxes in such a way as to maximize our consumer spending.
- Therefore we should soak the rich, because they already spend all the money the could ever hope for and any taxes increases won’t decrease their consumer spending one little bit.
- Also, the rich are to blame for this economic crisis we’re in, so it’s only fitting that they pay the way out.
Ah, Macroeconomics. It’s the only place I know of that uses bizarre mathematical models to argue against common sense while at the same time reducing people to simply cogs in the greater wheel of the national economy. I remember distinctly sitting in Intermediate Macroeconomics while the professor explained to me the benefits of inflation being that it got people back to work faster in economic downturns because unionized workers would never agree to a pay cut but these same workers would easily be fooled to return to work for the same nominal wage. Therefore, he argued, these workers would have taken a defacto pay cut because inflation would have fooled them into mistaking real and nominal wages. I then pointed out to the professor that all he was saying was that inflation was a wonderful tool of cheating the common man out of his hard earned wages- which left him without a rejoinder.
Dr. Reich’s argument is clearly one that John Maynard Keynes himself would be proud, for it combines some of Keynes’s favorite activities. Firstly, it argues against intuition or good old common sense to instead make a case for complete balderdash that any person who is not a Macroeconomist could tell you is complete and utter bullshit. For instance, if you stop most anyone on the street and ask them if people will spend less if they have less money, they would state rather empathically that this is the case. It crosses the line from illogical to simply fantastical to think that the amount of money a person spends is not a function of how much income that person has. But that’s just the kind of poppycock that Macroeconomists deal in on a day to day basis. They typically argue against common sense by either a mathematical model or a bizarre and revisionist version of history. Since it’s a toss up which subject the average person is more ignorant of, mathematics or history, either is bound to get the glassy eyes stare that the Macroeconomist was looking for that will allow him to continue to argue his preposterous notion more or less unchallenged.
Dr. Reich decided to go with a selective interpretation of history rather than a mathematical model to support his argument. It’s probably the right choice for him, because it does boggle the mind to think of how one could even write on the chalkboard:
- Consumer Spending = f(consumer income)
- f(consumer income) = f(consumer income- 10%)
Or, to translate out of mathematics, consumer spending is a function of consumer income and will be exactly the same at consumer income less 10%.
So the selective interpretation of history that Dr. Reich chose to grace us with is that higher taxes have accompanied economic expansions in the 1950s, 1980s, and 1990s. I couldn’t help but notice the absence of the economic time period almost everyone has some cursory knowledge of, the Depression Era 1930s. Over that decade, we saw that tax increases seem to have exacerbated the conditions of the Great Depression and instead prolonged it. Instead he chose to look at the 1950s, a time when we had the only means of production because the rest of the world lay in ruins, and the 1980s and 1990s, a time when the Federal Reserve started it’s long campaign of reducing interest rates from their highest point ever in 1982 all the way to zero today. The Federal Reserve does this buy pumping more money into the system, so over that time period, people lost income when measured in real terms after taxes but were able to make up for it by expanding the use of credit which got so loose that college students with no jobs were given credit cards.
Which, of course, brings me to the real cause of our current financial crisis: credit expansions. People can only replace lost income with credit for so long. Eventually a point is approached by which their current income can no longer service their debt load and defaults start to look likely. Of course, Macroeconomists hate it when that happens, because the collapses of credit expansions are horribly messy things that then to result in societal upheaval and social unrest in the resulting severe economic contraction. Oftentimes, an opportunistic politician will propose a war to put people to work, and then people are dying. So to avoid that, the credit defaults are avoided as long as possible, and that is only possible by the expansion of more credit. Which is how we go to where we are today.
In summary, reducing our national debt would be a good thing, but that will never happen, regardless of our national income, until we can reign in our government spending. Of course, Macroeconomists would never allow such a thing because it would reduce GDP (a figure that they themselves invented which doesn’t seem to have much bearing on anything of importance). Not to mention, when the government is running deficits to the tune of a trillion dollars a year, you’d have to be insane to think that a tax increase on the wealthy will reduce the deficit enough for anyone to notice. Insane, or a Macroeconomist.