San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Wednesday, February 10, 2016

What Is "An Economy?"

An editorial in the Denver Post a week or so ago correctly described Bernie Sanders as a socialist misfit who is preaching economic ideas that were, or should have been, "discredited decades ago."  As you might expect, those who support Bernie and religiously believe in the confiscatory principles of socialism have taken exception to the newspaper's position on the issue.  One socialist by the name of Mary Casper, of Bailey, took the time to write a letter to the editor in which she ends up making a vain attempt to defend socialism and discredit the free market.  Her comments are indicative of what passes for an economic argument in the minds of the socialists and I thought it would be worth repeating and criticizing her arguments here today.  Mary wrote:
"Your editorial is wrong about which economic ideas should be discredited.  The 'trickle down' theory of enriching the already rich has decimated the middle class.  I can remember when we did have an economy that worked for most people. There was an accessible education ladder that we could use to move out of poverty.  As recently as the 1970s, our state paid four-fifths of the cost of college tuition for in-state residents at public colleges.  Now a college education comes with massive student debt, limiting options for young people.  The privatization of student loans and many other services might be good for Wall Street, but not for Main Street.  Let's return to an economy that works for the common good."  Thus saith Mary of Bailey.
Mary begins by contrasting her religious socialism with what she calls the "trickle down" theory.  The trickle down theory of economics is not an actual school of economic thought.  Some people believe the phrase can be attributed to Will Rogers.  Perhaps that is true, I don't know.  Most recently the phrase was used by socialists to ridicule the free market, supply-side economics of Ronald Reagan.  According to Wikipedia, supply-side economics "is a macroeconomic theory which argues that economic growth can be most effectively created by investing in capital, and by lowering barriers on the production of goods and services. According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices; furthermore, the investment and expansion of businesses will increase the demand for employees and therefore create jobs. Typical policy recommendations of supply-side economists are lower marginal tax rates and less government regulation."
A simpler expression of supply-side economics is the assertion that "consumption takes care of itself."  The general understanding is that the universal economic problem of scarcity is best resolved by allowing capitalists to create goods and services.  Capitalists create those goods and services because they believe consumers will eventually buy them.  Economic wealth and economic growth are therefore products of entrepreneurs utilizing savings and investments to produce capital, goods and services which others are willing to purchase.   Concentrate on the supply side, and the demand side will take care of itself.  That is the correct belief of the supply-siders.
The alternative economic position is that of Keynes who wrote about the problem of aggregate demand.  According to Keynes, demand is what creates economic growth.  Consumers demand things and somehow those shiny things magically appear.  Keynes is one of many who claim that economic growth can be created by having the government print more money and distribute it to its cronies. In their view this creates an almost unlimited demand as those cronies spend the counterfeit dollars into the economy that somehow magically induces capitalists to  create shiny things for them to buy.  I call the Keynesian theory believed here the "pushing on a string of money to create economic growth" theory.  Yes, it is as stupid as it sounds.
The pejorative phrase "trickle down" actually describes a real economic benefit of the free market.  Another way of expressing it is to say that a growing economy raises all boats.  Everyone benefits when an economy expands.  Both rich and poor become wealthier when an economy grows.  The problem for socialists like Mary, however, is that entrepreneurs grow richer more quickly than non-entrepreneurs do when the economy expands.  The fact that businessmen assumed all the risks when they decide to create goods and services for the consumers seems to be lost on Mary.  The fact that those who take all the risks should be rewarded for their efforts is a concept Mary is incapable of comprehending due to her religiously held doctrine of class envy.  Mary is wrong.  The "middle class," whatever that is, has not been "decimated" as the rich businessmen of this country have become richer by producing goods and services consumers want to purchase.  Here is a graph from her very own socialist government proving that point.  Although there have been brief periods of time when real personal income has declined for a quarter or two, it is the case that real (inflation adjusted) personal incomes have grown at the rate of  about 3% per year since the 1950s:

                              https://research.stlouisfed.org/fred2/graph/fredgraph.jpg?hires=1&g=3kRP

Here is the long term view of personal income growth in real terms.  Real disposable personal income is at an all time high, and continues to grow:

                              https://research.stlouisfed.org/fred2/graph/fredgraph.jpg?hires=1&g=3j9F

Mary reminisces fondly about the good old days when "we," whoever that is (it certainly does not include me) "had an economy that worked for most people."  I wonder which economy she is thinking about?  Could she be dreaming of those wonderful days when 90+% of the citizens of this country worked on farms?  Ah yes, what beautiful days those were.  Working from dawn to dusk, behind the smelly end of a horse or some other beast of burden which was being enlisted to pull your plow through hard-packed soil, in the hope of having enough of a harvest in the fall to get through the winter without starving to death.  I remember it well how people who had children in those days would refuse to give them names until they had survived one year.  No point in naming a child only to have it die, they thought.  Then something happened.  Evil industrialists designed new machines that allowed economic production to skyrocket.  Former farmers flocked to the cities where they could get high paying jobs and better living conditions.  Sickness declined, life spans lengthened and people were much wealthier all across the board.  Then, an evil man named Henry Ford began producing an automobile that was affordable enough for practically everyone to be able to purchase one.  Makers of horse drawn carriages, buggy whips and other horse paraphernalia, as well as all of the maintenance people employed to clean up after horses on the city streets, were suddenly without a job.  Curse that evil man!  Oh how we all long for the days of full employment when the city streets were clogged with disease and fly infested piles of horse manure.  If only the government had been strong enough at that time to protect the poor working people who suddenly found themselves out of a job and living in those filthy streets.  We could still be riding horses today.  How wonderful it would all be!
Mary, like all true believers in Bernie, focuses upon the idea that college education should be free.  She pines away for the day when the taxpayers were forced to pay a good portion of the expenses associated with college degrees.  She longs for the day when the taxpayers will be forced to pay for "free" degrees for everyone in this immoral and envy-filled land.  It does not seem to bother her in the slightest that she must first steal money from someone, primarily the middle class she so adores, in order to get the funds to pay for her free degrees for all program.  Nope, the only thing that bothers Mary is the fact that someone somewhere makes more money than she does.  That will not do.
Mary seems a wee bit confused when it comes to her understanding of the relationship between student loans and the wildly escalating costs associated with college.  Like her mentor Bernie she blames "Wall Street," whatever that is, for the problem of high college costs.  It is lost upon her poor, envy-filled little brain that the blame for higher higher education costs lies squarely on the shoulders of the government and career politicians she worships.  Contrary to Mary's view of the matter, student loans have not been privatized.  A truly privatized student loan would not require a mountain of government paperwork to get one, nor would it have a government subsidized interest rate and repayment plan associated with it.  The government of the Socialist Democracy of Amerika, bending to the will of the majority and in attempt to buy more votes, decided to subsidize college educations.  To the surprise of nobody who understands the economics of the free market, when you subsidize something you get more of it.  With more demand for college degrees the institutions producing those degrees were able to raise the costs associated with them much more quickly than the costs for other things that were not government subsidized.  If Mary truly wanted advanced education to be affordable for the middle class she would be calling for the government to get completely out of the education business. But Mary does not want that.  Mary wants me to pay the bill for her son to get a college degree, and then return to her home to live in the basement and play video games for the rest of his life.
Mary's final comment is classic.  "Let's return to an economy that works for the common good," she writes.  Mary sees the economy of the SDA as an entity that can be managed by elitist government planners for the "common good," whatever that means.  Here is a very simple truth to grasp....the economy of the SDA is the combined economic activities of hundreds of millions of people as they go about their daily lives and engage in buying, selling, saving, investing, producing and consuming.  It is no more possible to manage or control the economy of this country than it is to herd cats or train wallabies.  The socialist dream of a steady-state economy that is tangible, predictable and able to be managed by government bureaucrats working at the direction of career politicians is a complete and total fiction.
Mary's "common good" is, of course, nothing more than a socialist mantra.  I can assure you, if Mary had her way it would not be good for me, and I am a mere commoner.  My taxes would go up.  More of my money would be stolen by the government and given to her.  Mary does not want an economy that works for the common good because that would mean a free market economy in which each person is rewarded according to what he produces for others.  No, Mary wants an economy in which the politicians she elects use their coercive power to take money from the productive and give it to her and her ilk.  Mary wants a Robin Hood economy where the productive are punished and the lazy and slothful are rewarded.  In a word, Mary is a socialist.

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