Tuesday, July 12, 2011

Want More Jobs? Then RAISE Taxes. Really!

The more I educate myself regarding how economics works, the more I realize how the Hayek model (named after Austrian economist, Friedrich August Hayek), also known as the "Chicago school of economics," which is currently championed by disciples of Ayn Rand and most Republicans, fails in many regards. It refuses to acknowledge the obvious factor of luck, inevitably the source of nearly all the success of the wealthiest 1%. Through their lenses, an undeserved dollar simply does not exist. An unearned buck is seen as having been gotten by the sweat of their own brow rather than by the winds of fate. Any tax system which compensates for this is seen therefore not as a counterweight for fairness' sake, but as theft of what's theirs. No wonder they scream so loudly about taxation!

But in our current budget fight, one thing outweighs the national debt crisis, and that's jobs. Currently, we have competing views on how to create jobs, and there's two main schools of thought. On one side, the idea is that if the wealthy are taxed, they'll cut jobs in order to hang on to more of their money. On the other side, the idea is that more taxes will ensure more government programs which strengthen social guarantees and the building of infrastructure -- both of which help create jobs, though not right away. The fight between these two sides has gotten rather heated as of late.

I've come to realize both sides are wrong.

Here's how it really works. Suppose you're wealthy (which is a very easy thing to both wish for, and imagine). You've just been given a big tax break. What do you do with the money? According to Republicans, you'll hire more workers. But that model assumes you're content with what you have, and primarily desire to build more business. This is hopelessly naive. You could just as easily want to take that extra money and do something else with it. Like party. Or travel abroad. Or finally open that Swiss bank account you've been pondering (which sometimes costs a premium to open, especially these days). Maybe a sailboat, or a winter home? Maybe buy gold. Maybe buy a mistress. All kinds of things besides hiring another worker to do with that money, and you know as well as I do that the chances are far, far better that those other things will come first.

You see, the wealthy will hire more workers, but only when it's in their interest to do so. If it isn't, then cutting taxes on the rich is as helpful to the "trickle down" system as filling the cistern, and then failing to turn the spigot! What good is all that liquidity going to do way up there if none of it "trickles down" to here because the rich didn't turn the damned faucet on? Oh, sure, there will be a few philanthropists, but most won't be. (There are too few Herb Kohls and Chris Abeles.) So, the trick is to make sure that it's in the best interest of the wealthy to hire more workers, of course. How on earth do we do that?

Let's imagine that you're wealthy again. (Fun fantasy.) This time, let's say that you've enjoyed the benefits of a large tax break for some time. Say, since the Bush II years. But now, that cushion's about to disappear, and you'll be returned to Clinton-era tax rates. Now what? It's the opposite scenario of the above, isn't it? Obviously, you'll want to restore that extra income, if you can. But how? Do you cut your business, slash workers' salaries and fire people? Well, you can't, because in this shaky economy, you've likely already done that. Your business has been waiting for the economic recovery, but the recovery has been sputtering, and you've been reluctant to hire. Now you're income is about to take a hit. You can't pare down. What can you do?

You have only one choice: Build your business and gain greater market share. In other words, because your taxes got hiked, your best bet at restoring your lost income will be to HIRE MORE!

Holy shit! REALLY?

Really. The way to make it in the best interests of the wealthy to hire more is to restore the balance between too much, and too little taxation. We've had an imbalance of too little taxation for a long time now, and so there's been too little hiring. Raise taxes on the wealthiest just a bit more, and more hiring takes place as they struggle to continue keeping up with the Joneses the way they have been. Isn't that what we want?

The current hue and cry is that raising taxes will be bad for the economy. Indeed! Okay, it's going to make those who have it made have to make a little bit more, but so what? Aren't these the clydesdales we want to harness to pull our economy out of the dumps? Why leave them in the barn?

Make no mistake, the "raise no taxes" line in the sand is exactly the same as a "hire no workers"
line in the sand.

Atlas has shrugged long enough. It's time for him to punch back in and go to work!

Eric

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