This is Congress. Faith leads to higher certitude than knowledge. [I had a Jesuit Education.]
This does not mean they are more right. Only that they are more sure.
This is Congress.
On one side, people believe that if you cut taxes for the rich, the money will trickle down and the economy will trickle up.
Trickle down economics is a myth.
The other side believes that if you raise taxes and spend money, you will stimulate the economy. You will create jobs. As one pundit said, “No country ever taxed its way to prosperity.
Now, both sides have experts. Economists. Well, back in my youth someone said, “He knows the price of everything but the value of nothing.” We can move in that direction. However, can we say, “He knows everything but understands nothing”? Well, not quite. It is simply a matter of the interpretation of the truth.
As Jack Nicholson said to Diane Keaton in the movie, Something’s Gotta Give. “I always told you some version of the truth.”
Thus, it is with Economists.
Here goes.
One Economist works for a company that sells red paint. He says, "If you want to improve your business, paint the walls red."
Another Economist works for a company that sells blue paint. He says, "If you want to improve your business, paint the walls blue."
That much may be obvious. The difficulty arises when they cite the statistics.
The Red Paint Economist says, "Our study shows that red paint motivates employees. They produce more widgets. Your productivity will go up."
The Blue Paint Economist says, "Our study shows that blue paint creates a more serene atmosphere. Your employees will make fewer mistakes and the quality of your widgets will go up."
What each side does not tell you is this:
With red paint, the employees work faster, make more errors, and reduce the quality of the output.
With blue paint, the employees make fewer mistakes and produce higher quality widgets, but make fewer widgets and productivity goes down.
However, they are experts; and we listen to them.
The following aspects of Economics must be taken into consideration.
Economic Stimulus.
Economic Stimulus works. The issue is where do you stimulate the economy?
Now to explain. For this, we will need to create that all-important metaphor. In addition, I should like to apologise in advance for the one snarky remark I will make about a former President. (One must compare apples to apples.)
For the purposes of this lesson, we will assume that Joy, brown-bags it every day except Friday. On Friday, she takes 10 hard-earned dollars and goes to Whoopi's Sandwich Store for a baloney sandwich.
Now Elisabeth is out of work. However, Jimmy Carter feels her pain. Therefore, he taxes Joy $10 and gives it to Elisabeth so she can buy a baloney sandwich. Joy is not happy. She's being ripped off. Elisabeth is no better off because she still does not have a job. Now, what about Whoopi? She is no better off because she is still selling one baloney sandwich a week.
In response to critics, Jimmy decides to tax Whoopi $10 to train Elisabeth how to make baloney sandwiches. After getting her certificate, she goes to Whoopi's store looking for a job. However, Whoopi tells her, "Sorry, Friday is my last day. Jimmy Carter taxed me out of business."
Now, President Obama comes along and says, "That is not how to do it. I am going to have the SBA lend Elisabeth the money to go into her own business."
Elisabeth opens up a soda store next door to Whoopi's Sandwich Store.
Back to Joy. Aptly named because her tax cut allows her to go back to Whoopi's store and buy a baloney sandwich; and she goes next door to buy a soda.
Elisabeth is happy because she's making money, so she treats herself to a baloney sandwich.
Whoopi is thrilled because she doubled her sales volume and revenue. In fact, she is doing so well; she hires Sherri to help make sandwiches. (Whoopi trains Sherri, as it should be in business.)
Sherri is happy because she has a job, and, please forgive my little joke, her compensation package includes a free lunch. However, no beverage. Therefore, Sherri goes next door to Elisabeth's soda store to buy a soda. Well, with all this soda being sold, Elisabeth hires Barbara to work in her soda store. Now Barbara is thrilled because she has a job.
Back to the Oval Office:
The President's Economic Advisor comes in.
"You wanted to see me, Sir?"
"Yes, I have some money for you. It is part of Sherri and Barbara's benefits payments. They are out of work. I want you to send the money to Sherry and Barbara."
However, the advisor says to the President, "But Mr. President, Sherri and Barbara don't need that money anymore. They have jobs."
"That's great," the President says. "The government is saving money."
The advisor continues. "It's better than that. Since they are working, they are paying income taxes. So, I have some money to give to you from Sherri and Barbara."
"Wow", the President says. "I save money because Sherri and Barbara are working, and I bring in money because they are paying taxes. This stimulus package is great."
This is how economic stimulus works. It takes a little time, but this is how the economic stimulus works.
Government Borrowing
Wolf Blitzer wants to buy a new suit. This, he figures, will attract more viewers [customers]. He borrows the money from John King—a CNN colleague.
Mr. Blitzer’s ratings [revenue] go up. He repays Mr. King.
Mr. King, seeing Mr. Blitzer’s success, uses the profits from his lending venture to buy a new suit. His ratings [customers] go up.
Upstairs, Mr. Turner is looking over the balance sheets. He sees this uptick in [revenue]. He asks his accountant what happened. His accountant tells him. Mr. Turner gets an idea. He issues a memo to his on air people.
CNN will make low interest loans to those who want to go out and buy a new outfit to wear on the air.
Ratings go up. Revenue goes up. Mr. Turner issues another memo.
Up until now, in the cafeteria, employees could buy a meal [breakfast, lunch, or dinner] for $10. Due to the increased revenue, we are going to charge you [tax you] only $5.
As a result, the employees have more money to spend. John King buys a new tie. Gloria Borger buys a new scarf. Candy Crowley buys a necklace. Don Lemon buys a new shirt.
This upgrade in the “metaphorical image” generates more viewers [customers]. Revenues go up. Salaries are increased. All is well in CNNtopia.
However, what if all were not so enlightened.
What if Wolf Blitzer had borrowed the money from Bret Baier?
Well, Mr. Blitzer would still have a new suit. However, the profits would have gone to Mr. Baier who would have used his profits to buy a new suit. Mr. King, not having the profits from his loan to Mr. Blitzer, would have had to go to Shepard Smith for a loan to buy his new suit.
Now, Bret Baier and Shepard Smith could use their profits to invest in a business partnership to lend money to fellow Fox News Anchors. They would have a spiffed up image and more viewers [customers] generating more revenue.
Back to CNN.
With Mr. Blitzer and Mr. King having to pay interest on the loans to people at Fox, they have to cut back on expenditures. Now, instead of buying lunch or dinner in the cafeteria, they brown-bag it. Revenues in the cafeteria fall. CNN issues a memo. Due to lost revenues, the cafeteria will have to raise prices [taxes] on lunches and dinners. This affects the other employees. No shirts, no scarves, no ties, no necklaces, declining image, lost customers, decreased revenues—CNNistant.
What is the crucial difference between CNNtopia and CNNistan? That is the difference between solving the US economic crisis and not solving the US economic crisis.
The Multiplier Effect
Next, we have the Multiplier Effect. While trickle down economics is a myth, the multiplier effect can be seen as counting the dollars in our economy. This is an illustration.
This does not lend itself to a blog posting. Thus, a brief PowerPoint presentation is available. Real Brief. Look and click to the next of several slides.
I will not use the word dishonest. Our Congressional Leaders truly believe what they are saying. Then, when the mounting debt is still there in the morning, they say, “I thought so.”
Regards,
Slim
PS. I am no Paul Harvey; however, I will entertain job offers as a paid blogger or commentator.
Regards,
Slim
Copyright © 2011 Slim Fairview
