Where the Political Tires Meet the Road

It seems that here in Nassau County political candidates are still preaching the same old gospel of government control over economic opportunities.

I have been reminded on several occasions now that things are getting serious on the election front, but somehow I can’t find excitement for the topic anymore. As an economist who staunchly supports the belief that only the political choice for a free-market economy can give us a chance to get back on track after we have crashed hard, I recently went to listen to local Republicans and Democrats on their soapboxes reiterating why they are the only sensible choice available for the upcoming Nassau County elections, and my report is even more sobering then I thought.

No matter what denomination or gender took the microphone, they all approached economic issues the way Russia and China did for the better part of last century: a centralized command of the economy. It never worked and it never will work, no matter how you approach it. Even Cuba’s 81 year old leader Raul Castro admitted this last week when he set Cuba on the trail of a free market economy.

A central planning of economic forces is impossible considering the human genome. And yet this morning I learn that the worst bunch of them all, Congress, now wants to reign in and assume the powers of the Federal Reserve. There was a brief moment that I felt like comedian Lewis Black in a moment of utter disbelief when he looks like he wants to implode after running out of air. Not because I think the Feds under Bernanke run a fine and balanced institution. On the contrary. They have been instrumental in facilitating the banking consortiums in their effort to eliminate Mainstreet Middle Class USA.

But considering the devastating monetary power the Feds already have assumed in what once was a free economy, combining monetary policy with economic policy in a body of self centered nitwits like Congress, means essentially pulling the plug on us all. In short giving more economic and monetary power to Congress will result in a majestic acceleration of inflation, just because politicians don’t want to hear that we have anywhere from $50 to $100 trillion in unfunded liabilities for Social Security, Medicaid and other Social Entitlements.

Even though the Feds are always willing to start up the presses and print more greenbacks, in the hands of Congress, those presses will show friction burns in no time flat.

Even if no-one seems to wanna settle the inflation/deflation debate since the crash of 2008, hiding behind the eager opt-out of too many variables, the real reasons and answers have political implications, which both sides of the issue will blindly resist in favor of their own partisan arguments and views. And so I found myself once again getting into protracted arguments with people who don’t want to listen. As an economist I’ve long taken the stance that price destruction in certain assets classes, such as real estate, can make various inflation estimates look low, but that doesn’t mean life has gotten any cheaper for the average Joe. I would say rather the opposite: many of the investment assets people were relying on to guard or increase their wealth have trashed their savings, even as the actual cost of living keeps rising. And here it gets real scary because when government also controls the money supply, inflation will be the inevitable outcome.

The Republic has become an Empire and America has become the United States with a centrally controlled economy, light years removed from the principles this country was founded on. And it seems that here in Nassau County we’re still preaching the same old gospel of government control over economic opportunities.

Was it a wake up call for the organizers that there were more people playing the popular French ballgame Pétanque adjacent to the election tents? Not as far as I could tell, but the weak turnout to both events, indicated for me that people simply don’t care anymore or are confused about any alternative options. I filmed both events with the intention to air the candidates on this website and possibly the City’s PEG channel, but while watching the raw footage it struck me once again, that none of the candidates by any stretch of the imagination would benefit positively from such broadcast. Very few of the Republican candidates came with the message that government needs to get out of people’s lives, something that is obviously very close to my personal beliefs. Yet almost all of them tooted their own horns about past accomplishments, experience and job qualifications, while all the while I kept thinking, that was then, this is now!!!

We have entered a completely new world where few to no answers from the past make sense anymore. I want to know who has the vision and creativity to tackle the problems with effective solutions. I want to hear how, what, when, where and how much. Then I will tell you Who.

For now I’m going to leave you with a not so pretty tax story of which I have seen a number of iterations over the years, but this one goes a couple of steps further in explaining the dynamics of an insane system, which is why I wanted to include it here.

Taxes and Beer for Everyone

Suppose that every day, ten men go out for a beer and the bill for all ten comes to $100.
If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.00
The sixth would pay $3.00
The seventh would pay $7.00
The eighth would pay $12.00
The ninth would pay $18.00
The tenth man (the richest) would pay $59.00
So that’s what they decided to do. The men drank in the bar every day and seemed quite happy with the arrangement, until one day the owner threw them a curve.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.00.”
Drinks for the ten men now cost just $80.00.
The group still wanted to pay their bill the way we pay our taxes, so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get their “fair share?”

They realized that $20.00 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:
• The fifth man, like the first four, now paid nothing (100% savings).
• The sixth now paid $2 instead of $3 (33% savings).
• The seventh now paid $5 instead of $7 (28% savings).
• The eighth now paid $9 instead of 12 (25% savings).
• The ninth now paid $14 instead of $18 (22% savings).
• The tenth now paid $50 instead of $59 (15% savings).

Each of the six was better off than before! And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
“I only got a dollar out of the $20” declared the sixth man. He pointed to the tenth man, “But he got $9!”
“Yeah, that’s right,” shouted the seventh man. “Why should he get $9 back when I got only two? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison. “We didn’t I get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that fellow citizens is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.