President Obama says he has the solution to our nation’s economic ills. It is, of course, in compromise. Compromise, that is, of President Obama’s making, has never been formally articulated, and with which nobody agrees. In other words, President Obama’s compromise looks a lot like unilateral speechifying.
But let’s take his proposal seriously nonetheless. Here’s what he thinks will fix our fiscal woes: “let’s live within our means by making serious, historic cuts in government spending … let’s ask the wealthiest Americans and biggest corporations to give up some of their breaks in the tax code and special deductions.”
Sounds great, right? You don’t own a corporate jet, so you won’t get hurt – and we’ll cut the spending we’ve been needing to cut. Only one problem: Obama hasn’t put a concrete proposal on the table. More than that, his theory itself is deeply flawed. By raising taxes during a recession, Obama’s plan actually fosters a decline in tax revenue over the long haul, meaning that our deficit grows larger rather than smaller. Only a consistent and flourishing Rolls Royce economy can generate the kind of tax dollars America needs to pay off her Boeing-sized debt. If we shrink our economy to the size of a Toyota Tercel – which is precisely what raising taxes does – we can forget about fixing the debt crisis anytime soon.
Liberal solutions to the economy are almost always this wrongheaded. They don’t take into account two basic concepts: fluidity of economic modeling, and opportunity costs. Fluidity of economic modeling means that whatever we do will have an impact on the economy, for good or ill. If we raise taxes, we aren’t just taking a larger slice of a static pie – we are taking a larger slice of a pie that shrinks because people don’t like giving up their pie.
Opportunity costs are costs imposed by forcing people into making silly choices. For example, liberals want to force us to spend our cash on idiotic fluorescent light bulbs. To that end, they regulate away incandescent light bulbs by explaining that doing so will help spur the economy. What they fail to realize is that by forcing people to spend more on light bulbs – money they don’t want to spend on light bulbs – they are forcing them not to spend money on products that are more market-ready and don’t require regulation and subsidization in order to reach market. Ten green light bulbs sold via governmental intervention equals a memory upgrade for somebody’s computer not sold. A windmill forced on the American population means several transformers that we aren’t able to pay for. The consumer is best situated to decide what their lifestyle requires, not the government. Furthermore, the consumer-driven market makes products better and cheaper through competition; the government-driven market generally doesn’t.
For some odd reason, the left doesn’t think that either of these concepts apply in the real world. So they call for raising taxes; so they call for redirecting money from one industry (e.g. the computer industry) to another (e.g. the health care industry or the car industry).
Let’s take liberal economics to its logical extreme and come up with an all-encompassing solution for the market. Here we go:
The real estate market is in turmoil. There is simply too much housing, and too little demand. Meanwhile, the unemployment rates are too high. Let’s solve both problems in one fell swoop: let’s spend tax dollars to hire thousands of people to tear down apartment buildings and condos and houses. Sure, that means we’re destroying perfectly good housing. And it also means that banks will lose tons of cash, since those houses are value to them. So let’s tax people more to pay off the banks.
Now we’ve jacked up the price of real estate, raised the ability of banks to lend by shoring up their accounts, and created jobs. The only cost: tremendously high taxes.
Where’s the problem?
The problems are obvious if we keep in mind the two basic principles we’ve established. First, the economy is fluid. If we tax people to pay for the destruction of real estate and to pay off the banks, people will not work as hard because they know they will make less money anyway. If banks know that real estate is being deliberately destroyed to heighten prices, they will make it more difficult to get loans, knowing that the price of real estate will eventually fall again once supply increases to meet demand.
Second, opportunity cost is high. The tax dollars spent for tearing down and bailing out could be spent by consumers buying houses that already exist, boosting the real estate economy directly; or they could be saved and put in banks, which would boost lending directly; or they could be spent elsewhere, in a market that isn’t already saturated.
Now, if this liberal strategy seems inane, don’t scoff – it’s precisely what FDR did during the Great Depression with make-work projects and agricultural programs designed to pay farmers to burn grain even as American starved in the streets. Now we’re repeating the process. Does that sound like compromise, or idiocy?