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The Tax and Spend Spectator
Fiscal Cliff Notes
Debasing the value of money by creating more of it is nothing new or esoteric.
Amid all the political and media hoopla about the “fiscal cliff” crisis, there are a few facts that are worth noting.
First of all, despite all the melodrama about raising taxes on “the rich,” even if that is done it will scarcely make a dent in the government’s financial problems. Raising the tax rates on everybody in the top two percent will not get enough additional tax revenue to run the government for ten days.
And what will the government do to pay for the other 355 days in the year?
All the political angst and moral melodrama about getting “the rich” to pay “their fair share” is part of a big charade. This is not about economics, it is about politics. Taxing “the rich” will produce a drop in the bucket when compared to the staggering and unprecedented deficits of the Obama administration.
No previous administration in the entire history of the nation ever finished the year with a trillion dollar deficit. The Obama administration has done so every single year. Yet political and media discussions of the financial crisis have been focussed overwhelmingly on how to get more tax revenue to pay for past and future spending.
The very catchwords and phrases used by the Obama administration betray how phony this all is. For example, “We are just asking the rich to pay a little more.”
This is an insult to our intelligence. The government doesn’t “ask” anybody to pay anything. It orders you to pay the taxes they impose and you can go to prison if you don’t.
Then there are all the fancy substitute words for plain old spending — words like “stimulus” or “investing in the industries of the future.”
The theory about “stimulus” is that government spending will stimulate private businesses and financial institutions to put more of their money into the economy, speeding up the recovery. But the fact that you call something a “stimulus” does not make it a stimulus.
Stimulus spending began during the Bush administration and has continued full blast during the Obama administration. But the end result is that both businesses and financial institutions have had record amounts of their own money sitting idle. The rate of circulation of money slowed down. All this is the opposite of stimulus.
What about “investing in the industries of the future”? Does the White House come equipped with a crystal ball? Calling government spending “investment” does not make it investment any more than calling spending “stimulus” makes it stimulate anything.
What in the world would lead anyone to think that politicians have some magic way of knowing what the industries of the future are? Thus far the Obama administration has repeatedly “invested” in the bankruptcies of the present, such as Solyndra.
Using lofty words to obscure tawdry realities extends beyond the White House. Referring to the Federal Reserve System’s creation of hundreds of billions of new dollars out of thin air as “quantitative easing” makes it seem as if this is some soothing and esoteric process, rather than amounting essentially to nothing more than printing more money.
Debasing the value of money by creating more of it is nothing new or esoteric. Irresponsible governments have done this, not just for centuries, but for thousands of years.
It is a way to take people’s wealth from them without having to openly raise taxes. Inflation is the most universal tax of all.
About the Author
Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com. To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate Web page at www.creators.com.
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LONE STAR| 12.4.12 @ 6:32AM
Yes, and it takes some time after printing money for it to cause inflation...This further aids the government in hiding the debilitating effects of "quantitative easing" (printing paper dollars out of thin air).
Von Mises Jr| 12.4.12 @ 7:41AM
It is true that money is sitting idle on banks and businesses Balance Sheets, but the debilitating effects do not start when the velocity of money creates high inflation.
There is already relatively high inflation since coffee was up 40% and many food items up almost 25% in the last year.
But rising prices are only part of the problem. Saving is discouraged since the only reason not to spend a dollar today is if it is worth more tomorrow. But at very low interest rates, the return on delaying your purchases is non-existent. Therefore, there is little capital formation, and no reason to invest for the future when people are better off spending their money today. When you take the future inflation into account, you are a damn fool not to spend it today since it will be worth less in real terms tomorrow.
Von Mises Jr| 12.4.12 @ 7:42AM
Furthermore, it creates mal-investment. Banks loan only to the government since the future is so unstable that the additional couple percent in lending to small businesses is not justified by the increased risks. When I spend the money I have forcing up prices on luxury goods such as suits and lobsters, tailors and lobstermen think they should invest in providing more suits and lobsters. But if I spent my money as needed since it maintained its value, I might buy shoes and steaks that take several years to grow the cattle and provide the goods. So in the end, we have suits and lobsters no one can any longer afford, and no shoes and steaks.
I think it was Mises that likened this to making all traffic lights random. No one knows when to go so they sit there waving each other past, and when they precede they more often run into an unforeseen collision.
This has been going on at least since the Romans debased their coins. But placing copper in gold is far more work and more easily detected than Ben "The Bank" Bernanke injecting $40B per month by adding a few zeros to computer logarithms.
Sean| 12.4.12 @ 7:12AM
Most of the printed money is sitting on the books of financial institutions. If it ever circulates that is when inflation will become rampant. Those institutions will be able to buy real assets with printed money.
TLP| 12.4.12 @ 2:38PM
It's Cloward and Piven.
It's Alinksy and it's Marx and Engels and Lenin and Chavez. It's Barack Hussein Obama. And, it's ON PURPOSE.
Who thinks that anything he does, is Good for Job Creation? Nobody IN THE HISTORY OF THIS COUNTRY, has Spent the People's Money, like he has.
If Churchill were alive today, he would say that: Never before in Human Conflict, has So Much been Owed to the Chinese, by So Few, for So Little.
He is Intentionally running this Country into the Ground. Intentionally, making it Impossible for Employers to add jobs. Intentionally, Bankrupting everything that he gets his hands on. Be it - Banks, Businesses, Coal Mines, Coal Fire Electrical Plants, Hospitals, Small Oil Companies, or the U.S. Treasury with "a Credit Card from The Bank of China, and putting the Burden on our Children".
WHY would he do this? WHY are his Czars so Far Left Radical? WHO thinks that Thousands upon Thousands of New Business Killing Regulations is a Good Idea?
Occam's Razor, for God sakes.
There are none so Blind, as those who Refuse to see.
And, I'm thinking that all of these Brainiacs, need a New Pair of Glasses.
I don't even have a Riding Mower, and I know this Sh*t.
GobBluthe| 12.4.12 @ 8:47PM
if you want to frighten a conservative just say "Alinsky" or "Cloward-Piven". These names no one ever heard of until 2008, send conservatives in to hysterics of fear.
spike59| 12.5.12 @ 5:43AM
if you want to frighten a liberal, just say 'personal repsonsibility', 'freedom' or 'morality'..these concepts send liberals into hysterics of hatred, bile, and diaper-wetting
Jacob McCandles| 12.4.12 @ 8:02AM
We are truly living in an upside down world. I used to think what the democrats told voters was misleading, not so true, or just fantasy. Now I'm seeing that what they say is usually the exact OPPOSITE of the truth. Upside down. We will tax the rich more = the poor get poorer. Obamacare will help the poor get more care = obamacare will limit access to doctors, hospitals and treatments for those dependent on government. Black is white, white is black.
I used to wonder if liberals were ignorant or evil. Yes, there is no shortage of ignorance in the democrat party, but those people running the show behind the scenes are truly evil SOBs.
Bob K| 12.4.12 @ 9:50AM
It is all about bailing out the Financial Firms!
http://market-ticker.org/akcs-www?post=214542
Pecos Pete| 12.4.12 @ 10:32AM
The best investment today? Buy booze today, sell or barter it in two years.
Von Mises Jr| 12.4.12 @ 11:01AM
Actually Peter Schiff recommends this in "The Real Crash."
When I drink whites, I like Macon Uchizy for about $13. Once the dollar collapses, unless the Euro coincides in its decline, it will be too expensive like the Corton, Gevrey Chambertin and Puligny-Montrachet wines Ben "The Bank" Bernanke priced out of my range with the collapsing dollar.
holmegm| 12.4.12 @ 10:54AM
"Inflation is the most universal tax of all."
Well, at least that would be more fair ... force *everyone* to have some skin in the game.
JD| 12.4.12 @ 12:52PM
Not exactly.
Inflation taxes wealth. Those of negative net worth have none to lose; in fact, the real value of their debts goes down. Of course, their salaries will also go down, unless their nominal amount immediately increases for "cost of living" or as a result of Democratic policies mandating salary increases.
Going further, even most conservatives don't appreciate how much the poor lose vs what they would otherwise have due to economic contraction as a result of Democrats' policies. However, even there, increases in social welfare attempt to more-than-counter the economic losses, resulting in a feedback loop spiraling downward.
To be a Democrat is to be in a continual battle to give money to poor people faster than your policies take it away from them.
Occam's Tool| 12.4.12 @ 11:41AM
My max rate will go from 33 to 36 percent on about $170 K. It blows, as usual. I despise Obama. He's an idiot.
Buck Ofama| 12.4.12 @ 2:26PM
Then you are "rich", so we, duh gubmint b axin u 2 pay a lil mo............ nomuh sayn?????????? cuz we b need 2 git mo sneekers an sh|t nomuh sayn?
sup wi dat sh|t? ware d fry chikin at?
cicero| 12.4.12 @ 4:06PM
What we are seeing is the destruction of private property. "... life, lliberty, and the pursuit of happiness." The sanctity of life is gone; the regulatory society has destroyed true liberty; and now they are working on the pursuit of happiness (the ability to obtain property for yourself and your hiers by your own labors). This is what killed the Roman republic, and virtually every democracy from antiquity until now. Maybe our hoi poloi are waiting forr their Ceasar. the siren song is always the same. Redistribution of other peoples' wealth; foregiveness of debt owed by one person to another; free stuff from your savior, the government. Works every time.
RJ| 12.5.12 @ 2:16AM
Yes, I believe you are right. The American Republic, like the Roman Republic died when the people lost their virtue and principles. We have only some of the symbols and trapping of liberty and republicanism left.
Gone are 1) the rule of law, as more decisions are left to the discretion of the regulator; 2) equality under the law, as micro-targeted laws allow government to discriminate between classes of people; and 3) consent of the governed, as government exceeds its constitutional limits and increasingly acts through unelected bureaucratic agencies.
As we have witnessed over the recent decades, personal liberty and property rights are lost to the whims of the state when these three principles are abandoned. As people became less self-reliant and more dependent, they have discarded freedom for the hope to use government to live off of others.
Marc Jeric| 12.5.12 @ 3:04AM
To start the fight about the coming fiscal cliff we should first eliminate completely:
(1) Department of the Interior;
(2) Department of Agriculture;
(3) Department of Commerce;
(4) Department of Labor;
(5) Department of Health and Human Services;
(6) Department of Housing and Urban Development;
(7) Department of Transportation;
(8) Department of Energy;
(9) Department of Education;
(10) Environmental Protection Agency;
(11) Small Business Administration;
(12) Federal Housing Administration.
Then a thorough review must be performed to eliminate about 70-100 various boards, commissions, panels – such as NLRB, FCC, EEOC, etc. Obamacare nightmare and that monstrosity invented by Frank & Dodd must be repealed in their entirety, and all bureaucrats there fired without delay. These bloodsuckers should join the ranks of the unemployed to compete with their protégées illegal aliens for part-time temporary gardening jobs at $8/hour.
RJ| 12.5.12 @ 4:05AM
A good start, Marc.
I wish candidates would campaign on what departments, agencies and programs should be terminated. And you can bet that within each legitimate function of government that there is waste and fat which has been imbedded in it to feed corrupt interests.