Money $marts: A dose of economic reality

GERRY KRAMER

The issues of the 2012 presidential election debate have been defined: the economy, taxes, jobs and the intertwined elements of federal government deficits and debt. There will be a lot of pontificating, posturing, sloganeering and lies. But the economy has come to a “tipping point” where going forward, the U.S. will either continue to stagnate for years or begin the journey to fiscal responsibility and a renewed healthy growth trajectory. I am not overstating the point.

Voters need to understand reality; how the economy really works as evidenced by data and historical experience, not the self serving pronouncements of experts and advisor wannabes intoxicated by the control illusions of textbook macro-economic theories. Here’s a dose of reality.

In an economy, savings and investments are the same thing; in other words, equal to each other. Contrary to President Barack Obama’s declarations, savings do not sit around doing nothing (unless buried in the backyard). All savings ultimately become investments. The wealthy have more income and thus more savings because they are the producers, the investors, and the entrepreneurs. It is their savings that ultimately create jobs. Extracting larger shares of these “idle” savings from the wealthy under the premise that the government can “invest” it more intelligently to create jobs is absurdity.

Claims that government investments (spending) have a magical greater than one multiplier for every dollar spent is not supported by any creditable evidence. Even if true, savings invested by knowledgeable producers have a far greater multiplier effect on economic activity than government spending. That’s because producers can apply those savings across the entire spectrum of resources, not the narrow choices of the politically connected like solar panel manufacturers. Ask Warren Buffet where he gets the money to buy companies and if he would like the government to make his investment choices for him.

Producers, investors, entrepreneurs and workers together create jobs. It is a fallacy that consumption drives the economy. To be sure, consumers are a factor. But they do not, as is often stated, account for 70 percent of the economy. Universally referenced GDP numbers overstate the value of consumption by aggregating everything into a final value, the retail price of a car for example. If you broke GDP down to the stages of production, consumers account for only one third. Business to business activity, the production process, accounts for more than one half of GDP.

Moreover, production is a long planning process that excludes knee-jerk responses to short term government artificially contriving increases in aggregate consumption (demand). Temporary tax cuts, for example, fostering increased consumer spending does not result in more car production. Even higher car sales resulting from tax credit subsidy initiatives like the clunker car program, do not affect production. Producers are not oblivious to government shenanigans.

Senator Marco Rubio is right when he says we don’t need new taxes, we need new taxpayers. We are not going to get them by going after the savings of the wealthy. That’s a big dose of reality.

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Write to Gerryk3001@yahoo.com.

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