Tag Archives: Economics

Videos

Richard Epstein explains why economic inequality is required in order to promote innovation

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My friend Matt, who blogs at The Conscience of  a Young Conservative, posted this on Facebook.

Epstein explains how the profit motive creates economic value that raises the standard of living of all people, who are able to exchange their money for valuable products and services that they did not create. He explains how wealth redistribution is wasteful and harmful to economic growth.

(Found here)

Now let’s look at some myths that Christians believe about economics.

We need to understand basic economics

Christian philosopher Jay Richards explains basic economics.

Excerpt:

THE ZERO-SUM GAME MYTH.

There are three kinds of games: win-lose, lose-lose, and win-win. Win-lose games, like basketball, are sometimes called “zero-sum games.” When the Celtics and the Bulls compete, if the Celtics are up, then the Bulls are down, and vice versa. The scales balance. It’s a zero-sum.

Besides lose-lose games, which most of us avoid, there are positive-sum, or win-win, games. In these games, some players may end up better off than others, but everyone ends up at least the same if not better off than they were at the beginning.

Millions of people think that the free trade in capitalism is a dog-eat-dog competition, where winners always create losers. This is the zero-sum game myth, which leads many to think that the government should somehow redistribute wealth. While some competition is a part of any economy, of course, an exchange that is free on both sides, in which no one is forced or tricked into participating, is a win-win game. When I pay my barber $18 for a haircut, I value the haircut more than the $18. My barber values the $18 more than the time and effort it took her to cut my hair. We’re both better off. Win-win.

THE MATERIALIST MYTH.

A similar myth leads people to think of the economy as some fixed amount of material stuff—money in safes or gold bars in a vault. Since two firms competing for one customer can’t both get the customer’s money, we might think the whole economy looks that way: wealth itself isn’t created, it’s merely transferred from one party to another.

A common image of this “Materialist Myth” is a pie. If one person gets too big a slice, someone else will get just a sliver. To serve it fairly, you have to slice equal pieces.

This isn’t how a free economy works, however. Over the long run, the total amount of wealth in free economies grows. We can create wealth that wasn’t there before. The “pie” doesn’t stay the same size. Under capitalism, someone can get wealthy not merely by having someone else’s wealth transferred to his account, but by creating new wealth, not only for himself, but for others as well.

THE GREED MYTH.

Friends and foes of capitalism often claim that it is based on greed. Writer Ayn Rand even claimed that selfishness is a virtue (see the accompanying feature article). But greed is one of the seven deadly sins. If capitalism is based on it, then Christians can’t be capitalists.

In truth, Adam Smith and other capitalist thinkers did not believe this “Greed Myth.” Rather, Smith argued that capitalism, unlike static economies, channels even greedy motives into socially beneficial outcomes. “In spite of their natural selfishness and rapacity,” Smith wrote, business people “are led by an invisible hand…and thus without intending it, without knowing it, advance the interest of the society.”3

Rather than inspire miserliness, capitalism encourages enterprise. Entrepreneurs, including greedy ones, succeed by delaying their own gratification, by investing their wealth in creative but risky ventures that may or may not pan out. Before they ever profit, they must first create.

In a fallen world, we should want an economic system that not only channels greed into productive purposes, but unleashes human ingenuity, creativity, and willingness to risk as well.

I think Christians who don’t understand economics really need to make the effort to understand the basics. I recommend Robert Murphy’s “The Politically Incorrect Guide to Capitalism” and Thomas Sowell’s “Basic Economics“. If you want to see how economics works together with Christianity, then you also want Jay Richards “Money, Greed and God” and Wayne Grudem’s “Politics According to the Bible“.

News

Canada’s economic boom: low tariffs, low corporate tax and more oil drilling

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Prime Minister Stephen Harper
Prime Minister Stephen Harper

From Canoe.

Excerpt:

Finance Minister Jim Flaherty announced Sunday the government will scrap 70 tariff items to save Canadian businesses about $32 million a year.

“This builds on our government’s commitment in Budget 2010 to make Canada a tariff-free zone for industrial manufacturers,” Flaherty said in a statement. “By lowering costs for these businesses, we are enhancing their ability to compete in domestic and foreign markets and helping them invest and create jobs here at home.”

Various sectors — including food processing, apparel, electrical equipment and furniture — will benefit from the move.

The Conservatives had previously eliminated the duty on imported machinery and equipment in an attempt to make Canada a tariff-free zone for industrial manufacturers by 2015.

The Tories say that since 2009 they have eliminated more than 1,800 tariff items and have provided more than $435 million in annual tariff relief to Canadian businesses.

According to the leftist CTV news, Canada also has lower corporate taxes.

Excerpt:

The study released Wednesday by KPMG International found Canada’s corporate tax rate has dropped by more than 16 per cent over the last 11 years.

Canadian companies are actually paying less than their American counterparts.

On average, Canadian companies pay 28 per cent of their income in federal and provincial tax, well below the 40 per cent paid by American companies.

But Canada’s corporate tax rate is higher than Europe’s 20 per cent and the OECD average of 26 per cent.

Canadian corporate taxes fell three per cent in 2011, from 31 per cent in 2010.

“Canada’s corporate tax rate falls around the middle of the pack among the OECD countries,” said Elio Luongo, KPMG’s Canadian Managing Partner for Tax.

“But Canada’s general corporate tax rate is anticipated to continue to fall in 2012, when the federal tax rate will be 15 per cent, versus 16.5 per cent in 2011.”

I’ve written before about how Democrats oppose the job creation that would occur if the United States developed energy in Alaska, the Gulf of Mexico and the Ohio shale. Additionally, Obama has also opposed building the Keystone XL pipeline, which would have created 20,000 jobs paid for by a Canadian company. But Canada has no problems with developing their own energy resources, because their government operates independently of the environmentalist left.

Excerpt:

As world leaders gather in South Africa to discuss climate change this week and next, Canada’s environment minister says he plans to defend Alberta’s oilsands and is willing to argue they are an “ethical” and reliable energy source.

Heading into the 17th Conference of the Parties meeting, Environment Minister Peter Kent says he will not sign on to any deals that mandate some countries reduce greenhouse gas emissions while others don’t — as his government argues was the case under the Kyoto Protocol. He is also unequivocal in his defence of northern Alberta’s bitumen production, a position he expects will be supported by Alberta Environment Minister Diana McQueen when she joins him at the end of the week.

“We still need to — and the industry needs to and our provincial partners need to — be aggressive in ensuring international friends and neighbours and customers recognize Alberta’s heavy oil is no different from heavy oil produced in any number of other countries which don’t receive nearly the negative attention or criticism,” he says. “It is a legitimate resource.”

Kent has made headlines in the last year by arguing that Alberta’s oil is “ethical.”

“We talk about this on quite a regular basis,” Kent says. “I think it’s important we correct where we find … misunderstanding, misinformation or deliberate ignorance to demonize, to criticize and to attempt … to create a boycott.”

In January, on his second day as environment minister, Kent referred to Alberta’s oilsands product as “ethical oil” during an interview with a newspaper reporter.

Reports immediately linked Kent’s comments to the title of conservative activist Ezra Levant’s recent book, Ethical Oil: The Case for Canada’s Oil Sands.

The book essentially compares Canada’s human rights record to those of other oil-producing countries, and argues Canada’s “ethical oil” is preferable to “conflict oil” produced in countries with poor human rights records, such as Sudan, Venezuela, Saudi Arabia or Iran. The argument removes environmental issues, such as greenhouse gas emissions, from the equation, though Levant notes Alberta’s data on environmental issues is more transparent than information shared by other countries.

So in total I’ve presented three reasons why the Canadian economy is booming, while the American economy is stuck in neutral. Obama opposes free trade, lower corporate taxes and domestic energy production. When you elect a socialist lawyer, you get a Greece/Spain economy. When you elect a capitalist economist, you get Canada’s booming economy, and consequently, a lower unemployment rate. Recall that our recession began exactly when we elected Nancy Pelosi to the House leadership and Harry Reid to the Senate leadership in 2007. Democrats wreck economies. There is no reason why America cannot be more prosperous than Canada, but we have to not elect an abject buffoons as our leaders.

Commentary

Thomas Sowell explains the historical effects of tax cuts

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Thomas Sowell
Thomas Sowell

Here’s part 1 of 3.

Excerpt:

The actual results of the cuts in tax rates in the 1920s were very similar to the results of later tax-rate cuts during the Kennedy, Reagan and George. W. Bush administrations — namely, rising output, rising employment to produce that output, rising incomes as a result and rising tax revenues for the government because of the rising incomes, though the tax rates had been lowered.

Another consequence was that people in higher-income brackets paid not only a larger total amount of taxes, but a higher percentage of all taxes, after what were called “tax cuts for the rich.” It was not simply that their incomes rose, but that this was not taxable income, since the lower tax rates made it profitable to get higher returns outside of tax shelters.

The facts are unmistakably plain, for those who bother to check the facts. In 1921, when the tax rate on people making over $100,000 a year was 73%, the federal government collected a little over $700 million in income taxes, of which 30% was paid by those making over $100,000.

[…]By 1929, after a series of tax-rate reductions had cut the tax rate to 24% on those making over $100,000, the federal government collected more than a billion dollars in income taxes, of which 65% was collected from those making over $100,000.

There is nothing mysterious about this. Under the sharply rising tax rates during the Wilson administration, fewer and fewer people reported high taxable incomes, whether by putting their money into tax-exempt securities or by any of the other ways of rearranging their financial affairs to minimize their tax liability.

Under Wilson’s escalating income-tax rates to pay for the high costs of the First World War, the number of people reporting taxable incomes of more than $300,000 — a huge sum in the money of that era — declined from well over a thousand in 1916 to fewer than three hundred in 1921. The total amount of taxable income earned by people making over $300,000 declined by more than four-fifths in those years.

Secretary Mellon estimated in 1923 that the money invested in tax-exempt securities had tripled in a decade, and was now almost three times the size of the federal government’s annual budget and nearly half as large as the national debt. “The man of large income has tended more and more to invest his capital in such a way that the tax collector cannot touch it,” he pointed out.

Getting that money moved out of tax shelters was the whole point of Mellon’s tax-cutting proposals. He also said: “It is incredible that a system of taxation which permits a man with an income of $1,000,000 a year to pay not one cent to the support of his government should remain unaltered.”

Here’s part 2 of 3.

Excerpt:

Empirical evidence on what happened to the economy in the wake of those tax cuts in four different administrations over a span of more than 80 years has also been largely ignored by those opposed to what they call “tax cuts for the rich.”

Confusion between reducing tax rates on individuals and reducing tax revenues received by the government has run through much of these discussions over these years.

Famed historian Arthur M. Schlesinger Jr., for example, said that although Andrew Mellon, secretary of the treasury from 1921 to 1932, advocated balancing the budget and paying off the national debt, he “inconsistently” sought “reduction in tax rates.”

Nor was Schlesinger the only highly regarded historian to perpetuate economic confusion between tax rates and tax revenues. Today, widely used textbooks by various well-known historians have continued to misstate what was advocated in the 1920s and what the actual consequences were.

According to the textbook “These United States” by Irwin Unger, Mellon, “a rich Pittsburgh industrialist,” persuaded Congress to “reduce income tax rates at the upper-income levels while leaving those at the bottom untouched.”

Thus “Mellon won further victories for his drive to shift more of the tax burden from the high-income earners to the middle and wage-earning classes.”

But hard data show that, in fact, both the amount and the proportion of taxes paid by those whose net income was no higher than $25,000 went down between 1921 and 1929, while both the amount and the proportion of taxes paid by those whose net incomes were between $50,000 and $100,000 went up — and the amount and proportion of taxes paid by those whose net incomes were over $100,000 went up even more sharply.

And here’s part 3 of 3.

Excerpt:

President Kennedy, like Andrew Mellon decades earlier, pointed out that “efforts to avoid tax liabilities” make “certain types of less-productive activity more profitable than other more valuable undertakings” and “this inhibits our growth and efficiency.” Therefore the “purpose of cutting taxes” is “to achieve a more prosperous, expanding economy.”

“Total output and economic growth” were italicized words in the text of Kennedy’s address to Congress in January 1963, urging cuts in tax rates. Much the same theme was repeated yet again in President Reagan’s February 1981 address to a joint session of Congress, pointing out that “this is not merely a shift of wealth between different sets of taxpayers.”

Instead, basing himself on a “solid body of economic experts,” he expected that “real production in goods and services will grow.”

Even when empirical evidence substantiates the arguments made for cuts in tax rates, such facts are not treated as evidence relevant to testing a disputed hypothesis, but as isolated curiosities. Thus, when tax revenues rose in the wake of the tax-rate cuts made during the George W. Bush administration, the New York Times reported:

“An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year.”

Expectations, of course, are in the eye of the beholder. However surprising these facts may have been to the New York Times, they are exactly what proponents of reducing high tax rates have been expecting, not only from these particular tax rate cuts, but from similar reductions in high tax rates at various times going back more than three-quarters of a century.

It’s Thomas Sowell – the official economist of the Tea Party.