Doing the same thing over and over again and expecting different results.
That, as much as anything coming from
the psychiatric community, sums-up insanity. It is the delusion, the break with
reality, that provides the force of Einstein’s definition. What he is saying is
that for Action X there is Result A and that you can perform Action X (assuming
that nothing go wrong in the execution) a hundred or a thousand or a million
times and you will always get Result A. It is like gravity. You can stamp your
feet, argue and intellectualize against gravity all you like and it won’t
matter a bit. Gravity works.
Physics of Economics – Tax Cuts
Economics is another sphere where we
have empirical evidence that certain things work and certain things do not.
When President-elect Obama announced that 40% of his new economic stimulus plan
involved tax cuts on business and individuals, his aides admitted that such tax
cuts are the fastest way to stimulate the economy and get people working. Since
then, we have seen congressional democrats balking at the notion, eager to
raise taxes and spend that money to stimulate the economy.
The problem is that history teaches us
that the cuts these senators and congressmen are against are the very things
that have a real track record in stimulating the economy. John F. Kennedy,
Ronald Reagan, George Bush—they all cut taxes and upon doing so, the economies
they presided over improved. Ireland
dropped its corporate taxes to 12.5% and they are among the most prosperous
countries in the world. Hong Kong, with its
low taxes and loose regulations holds the title as the world’s freest economy
and it is perhaps the most prosperous spot on Earth.
How does that work? It works because
the free market takes care of itself. It works because keeping more money in
the private, productive sector of the society has a real stimulating effect on
the economy than siphoning the money off to the non-productive (aka
governmental) sector of society intent on “spreading the wealth.”
Physics of Economics – Bailouts and Stimulus
It was proven, back in the 1940s, that
bailouts and stimulus programs, then called The New Deal, did not work. That
was the assessment of the highly respected Treasury Secretary, Henry
Morgenthau, a staunch FDR ally, when he testified before the House Ways &
Means Committee in May of 1939:
We are spending more money than we have
ever spent before and it does not work. I want to see this country prosperous.
I want to see people get a job. I want to see people get enough to eat. We have
never made good on our promises … I say after eight years of this
Administration we have just as much unemployment as when we started … and an
enormous debt to boot.
And that came from a guy who liked FDR! He didn’t sugarcoat
it and he didn’t have to, the New Deal, with all of its “infrastructure”
spending, protective tariffs, bank regulation and so on, was such an obvious
failure that all Morgenthau really needed to do to get the point across was
open a window and invite the Committee to have a really good look outside. Jim
Powell, a senior fellow with the CATO Institute, sums it up like this:
The New Deal tripled federal taxes between 1933 and 1940 -- excise taxes,
personal income taxes, inheritance taxes, corporate income taxes, dividend
taxes, excess profits taxes all went up, and FDR introduced an undistributed
profits tax. A number of New Deal laws, including some 700 industrial cartel
codes, made it more expensive for employers to hire people, and this
Frequent changes in the tax laws plus FDR's anti-business rhetoric
("economic royalists") discouraged people from making investments
essential for growth and jobs. New Deal securities laws made it harder for
employers to raise capital. FDR issued antitrust lawsuits against some 150
employers and companies, making it harder for them to focus on business. FDR
signed a law ordering the break-up of America's strongest banks, with the
lowest failure rates. New Deal farm policies destroyed food -- 10 million acres
of crops and 6 million farm animals -- thereby wiping out farm jobs and forcing
food prices above market levels for 100 million American consumers.
Why did FDR do all of this? Publicly
because Hoover, who presided over the beginning of the Great Depression, failed
to act quickly enough or strongly enough to get the country out of the economic
mire. Roosevelt had to do something to get the
American economy back on track again. But all he did was make things worse
until World War II, ironically, arrived to make things better again.
Fast-forward to the latest economic
debacle. Like Hoover
before him, Bush thought the answer was to throw money at the problem. Tax
rebates, the TARP program, the automakers. He panicked everyone by allowing
Paulson and Bernanke to demand $700 billion from Congress, no questions asked.
Like Roosevelt, they said they had to do something. Unemployment skyrocketed.
The economy continued to tank. Nothing that the government—the ones who are
really responsible for our troubles today—has done or can do will fix this
problem. They talk about fixing roads and bridges. That is fine, where will the
money come from? It will be taken from other, healthier sectors of the economy.
The same goes for all these green jobs they talk about and research into new
energy technologies. Giving money to these activities merely means taking it
away from actually productive places.
Of course, Paulson and Bernanke have
already promised to simply print more money to cover these expenses. You can do
that when the currency is not actually backed by anything more substantial than
the promise of the government that it is good for paying debts. That means
American money is only as good as you think it is and printing lots more than
you should only leads to runaway inflation as the perceived value deteriorates.
So there you have it: Spreading the
wealth around. It doesn’t work. It has never worked. Yet, here we are, in much
the same circumstances, about to do it again, with Bush in the role of Herbert
Hoover and Obama in the role of FDR. All we need, then is World War III to
really cure the economy and history will have truly repeated itself.
Do those shoving this course of action
down the collective throat of the American people believe that the results of
high taxes and high spending will be different this time? If they do, then
Einstein and his definition of insanity is vindicated. If not, then we are,
indeed, witnessing the most rapacious, ideologically-driven power-grab in
American history by a left-wing political elite that easily dominates a weak,
go-along-to-get-along opposition and finds socialism far more congenial than
Either way, it is the reality of our
time and so it is time for small business to demand its share of the pie. Florida is doing it, the
Federal Government should be doing it, too; an end run around the banks and the
credit squeeze. Then, at least, the real engine of the economy and employment
will have some fuel to run on. Even better, though, is the idea of Texas
Republican Representative Louie Gohmert to stop the government from
collecting any taxes until the full amount of the bailout is reached. The
government keeps the bailout money, you keep your money. Simple. That would
have a powerful effect on the economy since the money would remain in the hands
of those who actually keep the economy going—businesses and consumers.
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