Are the American people being primed to elect as President of the United States a home-grown version of Hugo Chavez, in the person of Barack Obama? This is a question one can come away with after reading "Obamanomics," the featured article in this last Sunday's (August 24, 2008) New York Times Magazine. Written by Times' columnist David Leonhardt, the article provides insight into Obama's thinking on economics and the economic policies he would be likely to pursue if he were elected President.
Some of the highlights are as follows:
Two major impediments make it difficult for people to recognize the fact that everyone would benefit from reductions, or, better still, the total abolition of all of these taxes on the so-called rich — made possible, of course, by equivalent reductions in government spending. The first is simply massive ignorance of economics, especially of the general benefit from private ownership of the means of production. People have not grasped the profound insight of Mises that, in a market economy, in order benefit from privately owned means of production, one does not have to be an owner of the means of production. This is because one benefits from other people's means of production — every time one buys the products of those means of production.
I think I know a lot of extremely smart people who say they just don't "get" economics. I don't "get" a lot of things (like chemistry or physics), so that's understandable. But when we're talking about massive redistribution of wealth, this affects us all, so people should try to comprehend economics. And to pre-empt the comment that the Republicans are the ones who have allowed spending to get out of hand - I cede that point. I don't agree with that, but I'm a Conservative and not a Republican. There is a difference! Further, and with more pre-emption in mind, take a look at Senator Obama's acceptance speech. I was going to go through and count the new programs he's wanting to instate that "the government" will pay for, but could not stomach reading past the first few paragraphs of partisan politics and pandering. But you can go here or here for more information on how he's misleading us and how he will increase spending as well. Until Congress decides to buckle down, we'll have to keep raising taxes to pay for the pork.
The redistribution of wealth is allegedly necessary to enable an individual who does not own the wealth presently owned by others to benefit from that wealth. Only as and when their property passes to him can he benefit from it, the redistributors believe. This is the kind of "largesse" Obama intends to practice. It is taking funds from those most prodigious at accumulating capital, capital that would benefit all, and then giving the funds to others to consume. Meeting the needs of the poor with the consumption of capital is Obama's formula for prosperity.Small business owners will have a hard time growing their businesses when their capital is further taxed. Less growth also means less new jobs. And further, increased taxes on businesses will likely lead to increased cost of goods - which leads to increased prices at the counter. So while the personal income taxes may be less for a person, how much will that be offset by the increased costs incurred because the manufacturers of goods and services now have higher costs?
Starting with tax cuts for the so-called rich — based on equivalent reductions in government spending — is the only hope for the resumption of significant economic progress, indeed, for the avoidance of economic retrogression and growing impoverishment. Because of this, it is actually the quickest and surest road to any major reduction in the tax burden of the average wage earner. It holds out the prospect of the average wage earner being able to double his standard of living in a generation or less. The average standard of living would double in a single generation if economic progress at a rate of just 3 percent a year could be achieved. Such economic progress would also mean a halving of the average wage earner's tax burden in the same period of time — if government spending per capita in real terms were held fixed, for then he would have double the real income out of which to pay his present level of taxes. And then, of course, once all the taxes that most stood in the way of capital accumulation and economic progress were eliminated, further reductions in government spending and taxation could and should take place that would be of corresponding direct benefit to wage earners, that is, show up in the reduction of the taxes paid by them.
This analysis makes clear that an essential flaw of so-called supply-side economics — the policy both of the Reagan administration and of the present Bush administration — was the failure to face up to the need to reduce government spending. While the policy of reducing taxes by both administrations was perfectly correct, most of the potential benefit of the tax cuts was lost through the corresponding enlargement of federal budget deficits. Regrettably, both administrations and their supporters lacked the courage required to abolish government spending programs to make those tax cuts possible without deficits.
Their failure to have done so explains why the great mass of the American people have not benefitted from the tax cuts as they should have. The explanation is that, absent equivalent reductions in government spending, the tax cuts did not translate into increases in capital formation, but the opposite. Instead of there being more demand by business for labor and capital goods, there was less; instead of more rapid economic progress and rising real wages, there has been economic stagnation or outright decline, along with stagnant or falling real wages.
Of course, in a further display of their ignorance and blindness, members of the Left will undoubtedly characterize the line of argument I've presented in this article as the "trickle-down theory." There is nothing trickle-down about it. There is only the fact that capital accumulation and economic progress depend on saving and innovation and that these in turn depend on the freedom to make high profits and accumulate great wealth. The only alternative to improvement for all, through economic progress achieved in this way, is the futile attempt of some men to gain at the expense of others by means of looting and plundering. This, the loot-and-plunder theory, is the alternative advocated by the redistributionist critics of the misnamed trickle-down theory. The loot-and-plunder theory is the theory of Obama, of the Democratic Party, and of much of the Republican Party. It is time to supplant it with the sound economic theory developed by generations of intellectual giants ranging from Smith and Ricardo to Böhm-Bawerk and Mises.