Posted by: James Atticus Bowden | August 6, 2009

It’s the Economy, Stupid – in Simple Terms

The economy is all about capital.  And the ability to produce and exchange capital.

The economy isn’t based on government, infrastructure, investments, research, innovation, education, or any other soap a politician, pundit or grifter is selling.  Those things matter – as the Rule of Law and culture do, tremendously, but they are not the prime issue in economics.  It’s all about capital.

The more capital per person, if the capital is moving around, the more opportunities.  Creating more capital creates more economic choices – greater personal freedom.   It means more people can make a decent living providing goods and services for others – from specialty fishing lures to dog walking to yard work to financial management and entertainment and on.

Fundamentally, products are the engine of capital.  Services can add to, but never replace production.  Production can start with agriculture, mining, fishing, energy extraction and lumbering – taking raw materials and making them into products which are sold for more than it takes to make them.

Every unit, family, organization, business, corporation is for profit.  Even churches and socialist universities.  More money comes in than goes out, or, eventually, there is failure.  Countries, corporations and families alike can go bankrupt.  Nothing is too big to fail.

The Information Era changes the distribution of wealth to create a gap where there are fewer people in the middle of income distribution.  There are many more wealthy people.  (That is why you’ve seen the growth of McMansions).    The lower 50-60 per cent make more than lower income people have before, but tend to see the gap between them and the wealthy more than the distance above folks who lived in the past.

2/3rds of the capital is owned by families.  It’s their money.  They weren’t given the money in tax cuts.  They earned it.  Or, in the case of rich Liberal politicians married it, inherited it, or cashed in insider government secrets. 

Most job growth is from small businesses.  Most small businesses are owned by families.  Many of these families are the targeted ‘rich’ people making over $250k @ year from their business or farm where they work their butts off – and take all the risks.

The Nation’s wealth is called the GDP.  It is created by capital.  The money supply in the macroeconomic equations that model the GDP is the printed money – which is different from the real capital value of all the Nation’s goods and services.  When there is too much printed money for the available goods and services, there is inflation.  The same stuff gets more expensive.   It seems like magic, but it is basic economics.

The laws of economics are based on empirical rationalism.  That means that the laws of economics are like the laws of physics.  If you screw with them, like testing gravity, you lose.

Taxes take capital from families.  Thus, taxes kill jobs.  Every $150 million in taxes kills 5,ooo jobs (1980 rule of thumb).  Every dollar taken out of the economy produces less than 28 cents in goods and services.   Politicians who call taxes – investments, prudent, necessary, vital, stimulus, job producers, development – aren’t lying as much as they aren’t telling the truth.   Government spending is a choice to move money to winners and to take money from losers.  It’s the classical political science definition of politics. 

Taxes – and spending – are choices for government.  Every earmark, including those from Virginia Republicans, places spending for reelection above the nameless persons who will lose their jobs from the tax burden. 

Increasing the National debt, even from Virginia Republicans, by spending on purposes not in the U.S. Constitution is an inter-generational theft of money.  Because every dollar taken from the family before a child is  20 – would be 2 when he is 30, 4 when he is 40, 8 when he is 50 and 16 when he is 60.   This is called the miracle of compound interest.  Instead, the child will have to pay off the debt – at inflated higher values because the Federal government can’t live within its means to balance a check book.  

A dollar NOT taxed produces 3 to 5 dollars over a short time.  That is the production of capital that isn’t inflationary.   

Every reduction in taxes produces more capital and more jobs – and then more tax revenue.   Tax reductions have a long, long way to go from the total all taxes 32.2% average burden on Virginians to the point of diminishing returns – somewhere around 10%. 

Which brings Virginia to 2008.  There was a housing bubble – probably around $2 Trillion.  It’s causes go back to the 1070s.  But, if we must hold accountable one President and his party for when the bubble burst – let’s blame the Republicans. 

If absolutely nothing were done, banks could get 20-40% on the dollar on the houses foreclosed.  The market would fully adjust in 12 months – 18 months tops. 

The government bailouts of banks and the auto industry under Bush and Obama, simply distort the market.  They prop up failures – and prolong recessions with more capital going out of the economy – creating more job losses, mortgage bankruptcies, lower tax revenue, etc.

And the bailouts and takeovers make political allies rich – follow the money who got what jobs, are directors on boards – and where the money went. 

The bailouts and takeovers create new Federal unConstitutional powers – because no one stands up to the abuse of power – which can be used in broader, different political and financial purposes in the future.

The Housing Bubble should have taken the stock market down to a Dow Jones of 10/11,ooo.   Panic could have taken it to 9/8,000.  All loses below that were caused by the bad economic policies – the capital killers – of the stimulus bills and bailouts on Obama’s watch. 

Consequently, given the lag in job losses and recovery, all the job losses since March aren’t housing bubble loses -the fault of Bush and Republicans (Dems call it “failed policies of the past”), but they are Obama’s.   The job losses above what Obama said would happen if NOTHING was done and way above what Obama forecast with more government spending, indicates how clueless Obama’s administration is. 

Which brings Virginia to healthcare.  Social Security, Medicare and Medicaid will bankrupt the country.  There are unConstitutional takings of 50 States’ powers.  Socializing healthcare under the Obama and Democrat plans will kill more capital and lose more jobs.

If you want more healthcare options – expand private sector supply.  If you want more money to spend, grow capital in individual Health Savings Accounts – with the institutional rules set by the 50 states. 

If you want cheaper energy, increase supply.   Remember that the increases in energy costs brought down the sub-prime housing market.   Increases in illegal aliens increased the size of the sub-prime bubble.

There you go – economics made simple.  Even for politicians. 

Want to create jobs?  Lower spending, cut taxes, increase energy.  

Want to keep the Nation out of bankruptcy?  Don’t do any bailouts, buy ins, subsidies, etc. or takeovers.  The Federal government can only manage to provide for its Constitutional function of defense with massive inefficiencies and waste.   Reform Social Security, Medicaid and Medicare by sending them back to the states. 

Every bad thing that happens in the economy from early this Summer on out is on the shoulders of the current incumbents in power.   The President pretender, our Princess Di, Barack Hussein Obama and his Democrat majority in Congress are responsible – whether they man up to it or not. 

Establishment Republicans wouldn’t do much better.  They failed in the past.   Constitutional Republicans could fix the economy – not make it perfect in outcomes – but much, much better.

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