In your example the government takes money from you in taxes and spends it on widgets. So you have lost $1M and Chronos has gained $1M. The same applies to example #2
Alas, poor Yorick! I knew him, Horatio; a fellow of infinite jest…
This is absolutely incorrect. If I give you $20, then that is a transfer of wealth. If I buy something from you for $20 we have made an exchange. This is a swapping of wealth (or property if you prefer)
People or businesses create wealth by producing something that others want to buy, or by increasing efficiency. For example, let’s say I have a worthless piece of wood. I can use my skill to carve something or build something that is of worth to another. Someone is willing to trade with me for this creation. This is not a transfer of wealth because we have made a fair exchange. I started with nothing and produced something of worth. I give it to you in exchange for money. This wealth is not transferred…we both now have something of value
Because these projects require engineers, biologists, ecologists, state workers, city workers, etc. All public projects have been grossly neglected.
The economy as chronically ill and a stimulus that doesn’t address the underlying causes, including public neglect, will fail.
I was not aware that the economic crash was due to poorly maintained roads and bridges.
While spending money on those projects is a good thing, it is not going to suddenly make it noticeably (in terms of prices or production) cheaper to ship goods. Perhaps if we were suffering from a constriction at ports, on rail or on the highway I would agree with that.
We are. See the section on “choke points” in this article, for example.
And if it isn’t? Your structure makes “fair exchange” the defining characteristic. If I sell that chunk of wood as a magical zombie repelling shillelagh for $5,000, is that, then, a transfer of wealth? Or suppose I take pity on some poor schmuck who hasn’t gotten any wood for a long time, and sell it to him cheap, 'cause I’m a nice guy, and all. Then wealth is transferred?
What reliable and infallible standard have we for “fair exchange”? Would that be another of the transcendent wonders of the Free Market?
Ignorance fought - thanks.
No, but it is a manifestation of a failed ideology that starves public spending to fund the lifestyle of corporate elites and subsidize inefficient firms.
yorick73, getting back to your original idea that nothing but tax cuts will help the economy. I don’t follow, does cutting taxes result in the government collecting more or not?
Translation: lower taxes results in increased tax revenue. Right?
Where exactly do the tax cuts pay off? Would they not put the government into a larger deficit, therefore transferring wealth from our children to the government later?
I don’t know, but I can point to what is true historically and what most experts are saying.
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The first column in this chart will tell you how long the down cycles have lasted historically. Post-WW2, the average is 10 months. If we go back to 1854, the average is 17 months.
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](Federal Reserve Bank of Philadelphia)
3) [
](How long will the recession last? - Dec. 3, 2008)
4) Noriel Roubini, “Doctor Doom,” known for his accurately predicting this downturn and for pessimism in general, is saying the recession will last two full years … which would mean things are starting to turn around in mid-to-late-2010.
Thus, to believe things will not be coming around by 2011, you have to be more pessimistic that the most infamously pessimistic forecasters.
I’m sorry, but I see no difference in monetary activity and/or wealth generation between cases (1) and (2).
In either case, I start with $1M, that $1M changes hands, and Chronos ends up with $1M (and loses $1M in widgets). The difference between the two is simply a matter of arbitrary identification: in (1) I end up with $1M of widgets; in (2), you do.
Why are they different from the perspective of monetary activity?
You’re making a more nuanced case than yorick73. For instance, you speak of net effect, which entails relativity; he presents an absolute.
Personally, I think you’re giving him too much credit, reading more into it than what is actually there.
No, you misunderstand. In example #1 you have exchanged money for widgets= wealth created
In example #2 I have exchanged your money for widgets. Yes Chronos has still created wealth and I have gained widgets but you have lost 1M.
In example #3 Chronos has still created wealth by selling to the government but, as in example #2, some group has lost an identical sum of money.
This is not to say that if government spends money then, by definition, no wealth is created. But, you must remember that government has to get that money from somewhere. So Chronos gains wealth and a group loses wealth by taxation (assuming they don’t get 1M worth of use from the widgets. The point I’m trying to make (and maybe doing a poor job of it) is that Chronos created wealth by making a valuable product. Just because the government decides to buy the products does not mean that government created the wealth. In effect, the taxpayers were coerced into aiding in creating this wealth and the government is merely a facilitator.
Yes, cutting income or sales taxes results in increased tax revenue. As tax rates increase there is a disincentive to participate in any activity. People tend to spend more when they have more of their money so, even with lower tax rates, increased spending more than makes up for the initial government loss. I’m sure there must be some happy medium…a point where reducing taxes no longer benefits the government, but I have no idea where that is. Cutting the corporate tax rate would probably have the largest effect by attracting more business to come, stay, and do business in America.
Perhaps, which is why I’m continuing this exchange. But I don’t think so.
And again, in both cases, I am out $1M. Who ends up with the widgets has no bearing on the level of economic activity in the system. If wealth is created in one case, it is also created in the other.
Now, perhaps you’re (poorly) attempting to make a moral argument, that it’s not “right” to take money from me. Your concern for me is touching, although misplaced – I specifically said “I give you $1M” to remove the moral element from the argument. And your criticism is then misplaced – it’s not cases (1) and (2) that are different, it’s (2) and (3).
Perhaps, on the other hand, you’re attempting to make a practical argument, that the $1M being traded for widgets is the result of wealth creation on my part that would not have occurred if I knew beforehand that I would gain nothing for my $1M. Ignoring that that argument was also removed by my giving you the money, that’s a valid consideration concerning taxation and the broader economic system – but that is not the same as “the government cannot create wealth”.
Exactly. You’ve just said two things: (1) That wealth can be created by the government via facilitation; it’s simply going to incur an overhead cost (be it structural, moral, or something else) that doesn’t exist in direct monetary exchanges and (2) that the foundation of your argument is a moral stance concerning taxation as government coercion.
If you would simply retract your statement that “government cannot create wealth”, changing it instead to “government is less efficient at wealth creation than private parties”, or even “the cost (however you define it) of government facilitation in wealth creation exceeds the benefit”, we’d come to rest on common ground and we can have our own little kumbaya moment.
But, be forewarned – I hate s’mores.
You are not out $1M in both cases. In example #1 you now have 1M worth of widgets. In example #2 you are out $1M and have nothing to show for it. This is not concern for you…you chose to part with your money and I wisely used it to make a purchase.
Also, I made no mention of the government creating wealth by facilitation. I said that the government can facilitate the creation of wealth by making a purchase ( I realize those sound identical) just as any individual does when he/she makes a purchase. As I stated, the maker of the widgets has created wealth and others are willing to trade something of value for it. If you make a direct purchase of the widgets you are not CREATING wealth…you are trading some of your property for something else. So, regardless of who does the purchasing the purchaser has not created anything.
And, again, I am not against taxes, am not a libertarian, and am not making any moral arguments. My only point is that government must take or borrow from someone in order to purchase anything…it is not creating wealth, it is redistributing the wealth.
You are being duped if you believe cutting corporate tax rates will stimulate the economy. The argument might have merit if corporations actually paid the 35 percent tax rate, but the tax code is riddled with loop holes that encourage corporate tax evasion. There is the decline of corporate audits, inversion schemes, intellectual property off shore schemes, global operation schemes, etc. The schemes are as elaborate as they are endless. Until the tax code is changed and enforced, corporate tax cuts are nothing but a slogan.
http://www.cbsnews.com/stories/2008/08/12/national/main4342535.shtml
The argument about a 35 percent tax rate is revealing. If anyone believes they pay that ,they should be dismissed as biased or ignorant.