Monday, June 20, 2011

“The Government Creates NOTHING”

My brother understands economics instinctively, so when he says something, I listen.

I keep seeing/hearing this “the government creates NOTHING” meme and it just drives me frigging crazy. It’s a favorite of the right and it’s just so wrong it’s making me crazy. And I can’t argue the most recent occurrence because it came on a board that I’m a moderator for, with a strict no politics policy. The most interesting part of this is that it comes from … wait for it … a right wing California real estate appraiser. He creates … ??

The bulk of our economy “creates nothing”. Banks, supermarkets, barber shops, tanning salons, plumbers, electricians, and real estate appraisers all create nothing. They move people, money, goods, etc. around, but make nothing. They do, however, offer jobs, add value and make money. This economic activity is key to our economy.

The worst part of it is that government can/does do one thing that none of these other business can do: create demand. Government builds roads, water and sewer systems, buildings, courts, provides health care, and order military hardware. All of these create demand from whole cloth (actually from taxes or borrowed money). But unlike the service businesses that are dependent on demand created by others, government can (and does) decide to do things, and that independently creates demand. No other entity has the power to create demand completely out of nowhere.

That’s why this is just so wrong. It’s part of the “government is evil” meme that they cite repeatedly without challenge. It interestingly came at the end of a diatribe by this clown saying “don’t hate on big business, they create nearly everything in this economy”. Which ignores the fact that 99.7% of the businesses (by number) in the country are classified as small businesses, that over 50% of the jobs in the country are in small business, that small businesses pay 44% of all private payroll, etc. Here is a small business owner who so completely drank the tea that he can’t even see his own company’s contribution to the economy.


Not only that, when one of the last major industries in the country — the automobile manufacturers — were in trouble two years ago, the right-wing meme was to let them die; that’ll teach them a lesson in capitalism, and kill off the left-wing labor unions while they’re at it. Aside from the fact that it would have decimated one of the last few manufacturing industries left in the country — all the others have been shipped oversees by those noble American captains of industry — it would have destroyed the demand economies of the cities and states where the companies were located. The first to go would have been the small businesses that relied on GM and Chrysler, and not just the parts suppliers; it would have been the banks, supermarkets, barber shops, tanning salons, plumbers, electricians, and real estate appraisers.

The next favorite right-wing economic mantra is that lower taxes are the only way to stimulate the economy. Fareed Zakaria makes the case that cutting taxes and spending by the government doesn’t stimulate the economy.

The Republican prescription is to cut taxes and slash government spending — then things will bounce back. Now, I would like to see lower rates in the context of tax simplification and reform, but what is the evidence that tax cuts are the best path to revive the U.S. economy? Taxes — federal and state combined — as a percentage of GDP are at their lowest level since 1950. The U.S. is among the lowest taxed of the big industrial economies. So the case that America is grinding to a halt because of high taxation is not based on facts but is simply a theoretical assertion. The rich countries that are in the best shape right now, with strong growth and low unemployment, are ones like Germany and Denmark, neither one characterized by low taxes.

I never studied economic theory beyond a class I had in high school, but it doesn’t take a degree from the London School of Economics to know that tax cuts alone don’t lead to prosperity. Every time in recent memory that we’ve tried massive tax cuts, we’ve gotten a recession soon after: Reagan in the 1980’s and Bush in the 2000’s, and we’ve had some of the best economic times when we’ve have comparatively high taxes; i.e. the 1950’s, when the top tax rate was a whopping 91% under that socialist Dwight Eisenhower. What we need is a balance of both revenues and spending, and so far, all the Republican offerings have been unbalanced… in every sense of the the word.