What happens when socialist governments runs out of other people’s money?

The face of socialism
The real face of socialism

Which socialist nation ran out of money? Brazil.

Investors Business Daily explains what happened next:

Back to the wall, Brazil’s biggest socialist manque, Luiz Inacio “Lula” da Silva, has issued a loud call for tax cuts to revive his nation’s moribund economy. Why is it it takes a depression and impending political doom for socialists to recognize the truth about tax relief?

Newly named as cabinet chief by embattled President Dilma Rousseff, the once-popular and much-hailed former socialist president told a press conference Monday that he wanted tax cuts (and more consumer credit) to revive Brazil’s economy. He’s got no support from Dilma’s finance chief, and he won’t improve anything with more consumer credit. But on taxes, you heard right, a heavy-duty socialist had just embraced supply-side economics as a proven means of reviving economic growth.

And no question he believed it: “I am convinced that I can contribute, and it will be possible to change the mood in this country in a few months,” Lula declared. Such a transformation could only come of a near-death experience. Which is about economic situation in Brazil right now.

The country isn’t just experiencing a bad recession. It’s heading for what qualifies as a depression — a third year of economic contraction, with another negative 3.66% of GDP forecast in 2016. Inflation has topped 10% and unemployment is above 18%. Both huge industries and small businesses have gone belly-up. More than half of Brazil’s 95 million consumer credit accounts are delinquent, and sovereign debt has been cut to junk.

Do tax cuts work? Only about every time they are tried. But what about raising taxes – what does that do?

According to the Tax Foundation’s William McBride, citing an aggregation of 26 studies, 26 tax hikes slashed economic growth in all but three instances, while cutting taxes consistently sets the stage for economic growth. McBride found that in one study, a 1% tax hike slashes GDP by 1.3%, while a 1% tax cut yields a 1.4% rise the first year and another 1.8% gain in the second.

McBride also found that the most powerful impact comes from cutting the corporate tax, which mainly affects investment and capital formation, the very thing Lula said Brazil needs. Corporate tax cuts also fuel startups and entrepreneurial activity.  Brazil’s corporate income tax is 34%, the 16th highest in the world last year.

The U.S. corporate tax rate is the third highest in the world, 39.1%. And we just got a number for the most recent GDP change in the US economy – 1.4%. The average GDP growth under Obama is much lower than under George W. Bush.

Real Clear Markets explains:

Right now, the nation is probably already in a recession. The BEA’s first estimate of 4Q2015 RGDP growth was only 0.69%, and there is mounting evidence that this will later be revised downward. However, making the wildly optimistic assumption that 2016 RGDP growth will come in at the CBO’s current forecast (2.67%), Obama will be the only U.S. president in history that did not deliver a single year of 3.0%+ economic growth.

Again, assuming 2.67% RGDP growth for 2016, Obama will leave office having produced an average of 1.55% growth. This would place his presidency fourth from the bottom of the list of 39*, above only those of Herbert Hoover (-5.65%), Andrew Johnson (-0.70%) and Theodore Roosevelt (1.41%)

No matter what happens in 2016, Obama’s record on economic growth will be considerably worse than that of the much-maligned George W. Bush. Bush 43 delivered RGDP growth averaging 2.10%, with two years (2004 and 2005) above 3.0%.

You might remember that Bush cut taxes by over $2 trillion, and that created 8.1 million new jobs before the Democrats took over the House and Senate in January of 2007. Obama? Our labor force participation is around a 38-year low. Economic growth creates jobs, and we haven’t had any under the socialist Barack Obama.

Anyway, enough of that. We’re hearing a lot about socialism these days, and how great it is.  The young people have been taught by their public school teachers and others about how great socialism is. But is it really? It seems to me that in order to make that decision, we should look at countries like Brazil and Argentina and Venezuela and Cuba – where socialism has been tried – and then decide based on their experiences. We know what creates economic growth, and that’s leaving the money in the hands of the people who earn it.

2 thoughts on “What happens when socialist governments runs out of other people’s money?”

  1. SHARED.

    We really do live at an exciting time in the history of man. I like what Billy Graham had said, “I read the Bible in one hand and the newspaper in the other.” I know that may not be his exact words, but I think we can get the gist of what he means.

    As Christians, we should pay attention to what is going on around us.

    For me WK, I would like to see some of your thoughts on China and Russia.

    I read once where China is going to build a military base in Africa. I should have copied and pasted that story. During these days, I find these stories, those on Russia and China, the most fascinating.

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