Sunday, August 30, 2009

Economics 101 For Dummies and Democrats

Years ago I took Economics 101 as an elective while earning my Political Science and History degrees at Cal State. I was exposed to Paul Samuelson, John Maynard Keynes and my heroes Adam Smith and Milton Friedman. Then I earned a PHD in Economics from the School of Hard Knocks while working in business all over the world for the last 30 years. In doing so, I have worked my way through numerous recessions, real estate cycles and "crises" like wars, natural disasters, and financial calamity (still happening). As such, I am always amazed that presumably smart politicians like President Obama and the Democrat Socialists that control Congress were either asleep during Economics 101 or they hope against all odds that these tried and true principles are not valid. History tells us time and again that the principles described in Economics 101 are true. So, I thought I would post Economics 101 for Dummies and Democrats so that my readers can pass this posting along to their Democrat friends. And, I want to make it very simple because most Democrat Socialists are hard of thinking. So here goes.

1. Raising taxes leads to slower economic growth and if taxes are too high to no growth at all and even decline and less government tax revenues. Lowering taxes leads to higher economic growth and more tax revenues going to the government. This has happened every time taxes have been raised or cut.
2. Government actions distort the market place creating winners and losers. i.e. the Cash for Clunkers program which advantaged car dealers and manufacturers was at the expense of mechanics that would have fixed the clunkers and car parts makers. And, poor people will now have fewer options concerning the purchase of a car. People who bought new cars will also experience higher insurance and vehicle license costs pulling money out of the economy that would have been spent on other purchases like appliances. So though about 600,000 cars were sold, the program may actually cause job losses in other industry segments.
3. Unions have actually destroyed jobs by demanding compensation and benefits that had no relationship to the skill set of the employees unions often represent. i.e. $70 an hour fully loaded for an auto plant worker. Union demands in the last 50 years, have resulted in the loss of millions of manufacturing jobs in the US in heavy industry, textiles and service industries. Those jobs are now overseas. The only union jobs that have grown are government union jobs.
4. Job killer laws result in job losses in the US because those restrictions often do not exist overseas.
5. Competition is global not national so US employees, for better or worse, are competing with potential employees in other countries that work for substantially less money than employees in the US.
6. Socialist command economies result in slow or no growth and generally higher unemployment.
7. For every government job added, two are lost in the private sector because the taxes necessary to support government employees drain the private sector of money that would otherwise have been invested to grow the private sector.
8. Bigger government in the end leads to less economic growth and revenues for the government because while government jobs contribute some to the economy, government does not pay taxes; hence there is less money to support government expenditures. Bankrupt California, now in a death spiral, is the best example of a high tax and regulation, big government state that cannot afford the programs enacted by the California Socialist legislature because as a result of their actions companies keep voting with their feet and leaving the state further eroding the tax base.
9. Deficit spending results in higher interest rates, inflation and if excessive, the collapse of the currency. There are numerous examples in history.

Economics 101 principles are tried and true. When President Obama and the Democrat Socialists that control Congress pass laws like the SwindleUS Package, Cap and Tax, HealthScare, Job Killer bills etc. they are actually hurting the American economy and people and causing job losses which will result in even higher government deficits. These laws will result in more jobs going overseas because of the law of unintended consequences. Business will vote with their feet as has happened in California and the United States. In fact, in the last few years a very large bio tech company built a $2 Billion plant in Northern California. Before it ever opened a decision was made to move that subsidiary to Singapore. It was actually more cost effective to write off the entire $2 billion investment than to open that plant in California and the United States. This story is rather common.

If only President Obama and the Democrat Socialists that control Congress had learned the lessons of economic history and or worked in business, they would better understand corporate decision making. While no one is arguing for sweat shops or a lower standard of living for Americans, Democrat Socialists simply do not understand that their legislative actions, enacted in a vacuum, are often detrimental to the United States. Every time government changes the rules, business just goes to Plan B in response. The principles of Economics 101, which Democrat Socialists do not understand and or choose to ignore, always prevails in the end.

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