The economy is in a downturn, the worst since the beginning of the 80’s, and it has the potential to surpass that recession. Let’s examine what help we can hope for from the new administration:
There are two points regarding our president-elect’s plans for taxes to mention here: 1) increased capital gains tax—that is, the tax for positive returns on investments, 2) higher taxes for the rich. First, a brief economics lesson about the money supply:
The nation’s money supply consists of more than just what cash is floating around. When I lend you five dollars, expecting you to pay me a usury of 20%, I think I have six dollars, and you think you have five, and our money supply together is eleven dollars. Then we both continue to engage in trade with the “money” that we have: I buy a television on my credit card, and you buy lumber to build a lemonade stand. (A close enough parallel to what I mean by the nation’s money supply.)
What if because of the economic slump, you decide not to invest in a lemonade stand? You won’t borrow the money from me, and you won’t contribute to the market with your new lemonade business. And I’ll only have five dollars instead of six, so I won’t buy the television. When investment drops, the national money supply diminishes, and so does trade.
In light of our brief economics lesson, we see a solution for our economic downturn: to have the citizens with the most money (the rich) put it into the market by buying goods and services (investing). However, by means of the increase in capital gains taxes and taxing the rich harder, we are punishing the very people who have the means to correct the problem (the rich) for doing the very thing that we want them to do (pump money into the economy by making wise investments). “Punishing”? Yes, punishing, because if the investors do not invest or if they make poor investments, they will not be hit with the capital gains tax.
The capitalist’s hero, Adam Smith, explained that the invisible hand of a free market pushes the economy to its optimum. Artificial attempts to govern the economy prevent it from reaching that ideal. Need evidence? Look at the wealth that capitalism (free market) has produced compared with communism and socialism (government control). Our philosophy in the US for many years has not been one of a free market but rather of the idea that the economy should not be allowed to make decisions for itself because some people and industries will be marginalized.
Every year, we’re looking for “change,” the magic word to make all the problems go away. But the economic change we implement is only to shift in what way we artificially influence the market. This looks like change, but it is not a change of principle, a change in what we allow to govern the market. In fact, our “change” is often nothing more than intensifying previous efforts to effect change, which only exacerbates the problem.
Let’s lay the rosary of change to rest, stop calling on its name in prayer, and stop interfering with the capitalist free market via higher taxes, bailouts, stimulus packages, and heightened tariffs (there’s another thing that the new administration is considering).
Addendum:
What benefit comes from unshackling the market? The buyers patronize the suppliers who are offering what they want, with the marriage of quality and thrift which they want at the time. So the useful producers and are promoted, and their effective behavior is promoted in the market at large.
