-By Dan Scott
Have you ever listened to an argument made plausible by the clever rhetoric of a person skilled in public speaking? How about attending one of those time share sales meetings where you know something is not quite right but you just can’t put your finger on it? In the end, you reject the sales pitch not because of their failure to be persuasive or factual but because deep down inside you know intuitively that somehow what they are pitching can’t possibly be correct and more importantly will separate you from your money. Intuition, which many call the sniff test is an important part of a healthy self- defense mechanism that protects many of us from being conned by fast-talking hucksters even though we can’t articulate exactly what our objection is. We don’t know where the faulty logic begins but we sure know what a faulty conclusion looks like by life experience or effect.
Most confidence men (women) base their persuasive arguments on a plausible false assumption that they get their mark to buy into by condoning the concept. When I speak of condoning, I speak of the failure to assert an objection whereby we demand proof of the assumption being presented to us. The failure to object in essence implies your acceptance of the assertion as fact without proof or truth. A clever lawyer can insert many an unsubstantiated fact via an unchallenged assertion without the need of proof. Much like the false proof in geometry, the failure to question the assumptions whether spoken or unspoken is the basis of many a false conclusion. Using the logic of geometry or even math we can using flawless logic reach the false conclusion by using a false assumption as a starting point. I call this the process of condoning the assumption.
When liberals like Obama, Pelosi and Reid advanced their stimulus plan they claimed the government spending some 787 billion dollars would jumpstart the economy and all would be well again. We were told something had to be done and the price of doing nothing was greater than their plan. Many of us scratched our heads and said no way because we intuitively knew such a plan was doomed to failure JUST BECAUSE the government was attempting to centrally control the economy. Based on our experience with the Soviet Union, other Communist and Socialist economies, we knew the plan didn’t pass the sniff test because we knew the effect.
The idea the government can spend $1 in stimulus to get $1.50 in economic effect is built on a faulty assumption, we knew that because we know the effect. Since when does government create wealth? Hasn’t the entire proposition admitted by liberals been the redistribution of wealth? The proposition is risible on its face by experience. Typical of Keynesian arguments, Obama never acknowledges the source of that $1 the government would spend, which is the cause of the eventual effect. The source of all government funding is the private sector, period. One can quibble about China or Japan buying US Bonds, however, that money was from their private sector export earnings. Nor does he acknowledge that in either taking that money via a tax or borrowing that it is diverting money from investment in wealth production by the private sector. When the government confiscates $1 from the private sector and spends it, the net effect is subtraction ($1 confiscated – $1.50 government effect). Therefore I contend the net effect is a loss of 50 cents, not a gain of 50 cents as they claimed. You may not like the round figures I used, but those figures came initially from the claims of Obama’s staff. So on top of the risible claim that the government can spend $1 and get $1.50 in effect, government spending actually causes a loss of profit or wealth creation, which is a NET NEGATIVE economic effect. That is why the Stimulus failed and will always fail because consumption spending does not expand the economy, only investing does.
This is also why tax cuts or rather keeping the rate of taxation low spurs economic growth and in the end increases tax revenues because the private sector is allowed to make more money with the money that otherwise would have been taken from them. In turn the private sector creates more jobs and thus the government gains their revenue via volume instead of gouging taxpayers at higher rates. The concept of making profits on volume is nothing new, American companies pioneered and excel at this paradigm. The concept of the government collecting more NET revenue on higher volume is just a logical extension of American business practices. The failure of liberals to understand such basic economic concepts only underscores how behind the times they are and their limited understanding of the economy. Which is also why that after the tax cuts of 2003 they pretend the government didn’t collect a trillion dollars MORE in revenue annually than EVER before than even under Clinton. Their real lament is that they didn’t collect MORE!
The amount of investment dollars committed by any company or individual is determined by risk. There are many things that determine risk, however, the general concept is the same for all industries, the greater the risk of failure, the higher the return must be to justify the risk. When risk exceeds reward, investors move their earnings to less productive investments where there is a parity between risk and reward. The central issue for any person attempting to understand how a business operates is the source of investment money. That money comes essentially from only one source – profits. Either someone deposited their profits in the bank for later use or it is cash generated by the business. Banks aggregate everyone’s savings to extend credit for investment, no savings, no credit and no investment. Secondly, profits only exist when all the expenses have been subtracted from sales. When the government levies taxes, fees and mandates against a business, all those expenses subtract from profits. There are no profits when expenses exceed income, period. Business taxes are different from your personal income tax levy, which essentially takes money off the top of your earnings BEFORE expenses. This is an important point that liberals either misunderstand or hope you don’t realize when they accuse businesses of being greedy and not sharing the wealth. Every penny of tax or mandate is passed on to the customer/buyer; businesses are merely conduits to collect government taxes from the customer. Therefore, the total taxes an individual pays is their annual income tax PLUS the incremental share of taxes levied on businesses passed on to them in the products and services they purchase. When liberals make their arguments about businesses paying their fair share, what they really are doing is a bait and switch. It is a distraction in hopes the public doesn’t realize a liberal’s desire is to increase the burden of taxation on the individual all the while claiming they are reducing taxes on the poor or middle class. In fact, the method of placing stealth taxes on business is the most regressive form of taxation there is on the poor since they spend nearly all of their income, while the middle and the wealthier class invest their unspent earnings shielding them from these taxes.
Driving this a little further, any reported GDP economic growth by government spending is over estimated because it does not take into account the greater GDP that would have been produced by the private sector IF this money spent by the government had not been confiscated. It’s basically conflating that $1 of government spending is equal to $1 of private sector spending without accounting for where the money came from. Claiming the government is stimulating the economy by spending is like claiming if I stole $1 million from Donald Trump and then spent it on myself, that spending would have equal economic effect. You know that’s wrong because Donald Trump creates profits (wealth) with the money whereas I (the thief) frittered (consumption spending) it away on myself. If stealing creates sustainable jobs equal to investing, then why is it illegal? We intuitively know the claimed effect is absurd but liberals have a knack for disguising the essence of what they do. When government takes money from the private sector under the guise they have something better to do with it for the national good, it is nothing less than stealing. Just because the thief wears a uniform or has a title doesn’t change the fact that you are parted from your earnings and deprived of investing it. The underlying and unspoken assumption by liberals is that they, not you, not Donald Trump, not Exxon-Mobil, know better how to spend money with greater economic effect. We know this to be an absurd assumption, and yet we don’t articulate it. The bottom line is no amount of consumption spending by government can sustainably drive the economy, only investments by the private sector can do this. If government consumption spending could do this, then why do they need to come back every year to collect taxes? You see the fallacy exposed? The government doesn’t produce much of anything of value, they primarily consume, not turn a profit, therefore they must collect taxes to support that consumption. Whereas the private sector produces a tangible product or service that has value for which people are willing to pay creating a profit (seed money for investment). Some may contend the government doesn’t produce anything of value, but that’s an exaggeration since the functions of the military and law enforcement is a valuable service. There may be others depending on how they are competently done, such as collecting the gasoline taxes for road building and maintenance, trash collection or water utility, but I’m hard pressed to think of them.
Speaking of road building and infrastructure construction as a means of driving the economy, even this area is fraught with fallacies. Is all road building of equal value to the economy? If you remember the flap over the bridge to nowhere in Alaska, we know intuitively that not all road construction projects are equal. Claiming infrastructure projects are a net positive to the economy is like claiming you can pay someone to dig a hole and then pay someone else to fill it as a benefit to the economy. It’s not. Building sidewalks and bike trails with money from the Highway Trust Funds are not equal in economic effect to widening a busy road anymore than putting up signs that say, “Paid for by Stimulus Funds.”
On top of conflating that government spending is equal to private sector spending, the idea of creating government jobs to employ people is also a fallacy. Nancy Pelosi was even heard to say that unemployment insurance was good for the economy as her justification for extending it. Government sector jobs (including those collecting unemployment, TANIF, Food Stamps, etc.) DO NOT make NET CONTRIBUTIONS to the economy and certainly not to the Treasury. Where does the Government get the money to pay its employees? It only comes from taxes and borrowing FROM the private sector. Every time the government increases the number of its employees, it increases not decreases the drag on the economy. Why? Because that money was diverted from the private sector where it would have been invested in creating wealth and in the process a net contributing taxpayer would have been created. In fact, no matter how much you tax a government employee, all you have accomplished is taking money from one government account and deposited in another government account, a shell game. If creating government jobs were a boon to the economy, then Cuba which employs 95% of its working population, would be thee richest country in the world. The sniff test tells us it isn’t. The only employee that is a net contributor to the economy (also to government tax revenue) is the one employed by the private sector.
What I personally find annoying is not the credulity of those who prattle such fallacies or many of the public who gullibly believe and take on faith these fallacies without performing the sniff test. The annoying ones, are those who actually know better and fail to expose and counter the fallacies prattled by liberal demagogues like Barrack Obama. How many times have we watched a TV host give a free pass to the risible assumptions prattled by these hucksters? A free pass that condones a fallacy is tantamount to endorsing it as truth. Most of those who know better simply assume too much that the general public has a healthy degree of skepticism about things propounded as fact, when in fact they are mere fiction. The first rule of writing or even public speaking is to know your audience and to speak to their level of understanding. Talking above your audience does not improve their understanding, it only confuses them and tunes them out. Ignorance and misinformation may be fashionable and easy but over coming fallacies does not have to be boring or tedious.
The real reason why the economy has stalled and we currently face a double dip recession is because of government consumption spending that is diverting money from private sector investments. Any reported anemic growth in GDP is in spite of, not due to government spending. You may disagree with this conclusion but then you need to ask yourself the question. Why is it that when Democrats took control of Congress in January 2007, the declining annual budget deficit trend was reversed and started back up in the final two years (FY 2008 and FY 2009) of the Bush Administration when Democrats made the budget decisions? (FY 2008 Federal Budget started October 1st, 2007) Is this because President Bush passed the legislation or because the reality is Congress passes all budget legislation and the Executive Branch only accedes to it? Nancy Pelosi and Harry Reid (and Obama as Senator) were responsible for increasing deficit spending in those years until now. Is it a coincidence or a cause that the economy started to unravel at the same time as they pushed up government consumption spending via growing deficits? What does the sniff test tell you? While deficit spending was not the only drag on the economy such as mortgage defaults and rising energy costs, it was the one I contend pushed the economy over the brink. If government consumption spending drives the economy, then why did we go into a recession in the first place when Pelosi, Reid and (Senator) Obama increased such spending annually in FY 2008 and FY 2009? Again, when the government borrows money for deficit spending, the money comes from the private sector, not the government. This is on top of the uncertainty factor created by the undesired anticipation of increased taxes from the expiration of the Bush Tax Cuts, increased energy costs from the EPA and increased employee costs associated with ObamaCare. When government increases the risk to an unknown level, investors are forced to seek other more conservative strategies to find parity and that means people lose jobs.
The real question that should have been asked by policy makers was, what is the effect of allowing the private sector to keep and invest one trillion dollars a year versus deficit spending that amount every year? Did they even bother to ask the question? Of course not, because if the private sector did the job creation, then Obama and Democrats in general could not have claimed the credit for any positive effect. The entire stimulus package was a political decision by politicians for political effect at the tax payers expense, economics had nothing to do with anything, it was merely a label placed on the liberal wish list spending package. A real economic stimulus would have been to reduce government spending to reduce deficit spending which would increase the amount of investment dollars available to the private sector to create jobs. Money for investing comes from somewhere (private sector) and those who have money to invest do so because stuffing their mattresses with hundred dollar bills doesn’t gain them anything unless it is for preservation of capital. Because the Treasury was forced to sell low interest bonds (due to the irresponsible spending of Congress), investors fleeing risk essentially stuffed their mattresses by buying those low interest bonds.
So the next time, when some liberal Democrat prattles more people would have been unemployed IF the government didn’t deficit spend, you know the assertion is absolutely false. Not only is it false, it actually REDUCES the number of gainfully employed net contributors to the economy.
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Dan Scott calls himself a “Member of the Global Capitalist Cabal preaching Capitalism and personal responsibility as the economic solution to world poverty.” He is also a member of the 14th Amendment Society — victimhood is a liberal code word for denying the civil rights of others. He is also a proud member of the Global Warming Denier Cabal, insisting that facts not agendas determine the truth.
Dan can be reached for comments at dscott8186@yahoo.com.
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