Math Challenged Democrats

I just saw a news article on MSNBC relating to the Senate vote which failed to pass legislation which would have extended tax cuts for 'all but the highest' income levels. Accompanying the story was a picture of Democrats standing next to a big poster with the headling 'GOP Plan'. The poster was supposed to show how unfair the Republicans are being to the middle class and said the following:

Middle class family making $60,000 ... get $2,500 Make $1 million ... get $43,000 Make $100 million ... get $3,800,000

This information is supposed to show you how unfair the Republicans are to working people. However, if you think about this information for more than a few seconds you would actually see that all three income groups are being treated fairly equally. Unfortunately there is a large percentage of the population, including most of the media, who would simply look at these raw numbers without actually thinking about what they represent. Naturally Democrats would rather pander to laziness or ignorance than to have an honest debate about the subject. There are two things to consider with the information presented by Democrats. First is the notion that any taxpayer is getting anything from the government. Taxpayers don't get money from the government when they get a tax break, they get to send less money to the government. Obama and Democrats continue to act as if all income belongs to them and they get to decide how much each person gets to keep. Since this isn't the case, a more honest wording would be:

Middle class family making $60,000 ... send the government $2,500 less Make $1 million ... send the government $43,000 less Make $100 million ... send the government $3,800,000 less

This still leaves us with the second problem that the uninitiated would still have the impression that high income earners are somehow getting a better deal than middle class workers. As usual, the Democrats, and those involved in class warfare, like to fool people with big numbers. However, if you break down the chart by percentage a different story would be told:

Make $60,000, send the government 4.17% less in taxes. Make $1,000,000, send the government 4.3% less in taxes. Make $100,000,000, send the government 3.8% less in taxes.

Doesn't quite have the same 'evil' ring to it, does it?

Outsourcing

We're coming into the final stretch on the mid-term elections and it seems that not a day goes by that I don't receive some mailing from the Democratic party denouncing the other candidate for the crime of supporting 'outsourcing' or having had worked for a company which 'ships jobs overseas'. You can see the same narrative coming out of our so-called leaders in Washington as well. Outsourcing is one of those tough topics, like foreign trade, which requires careful thought rather than a knee-jerk reaction. On the surface, opposing outsourcing seems rational, after all some jobs are lost here while others are gained in a foreign country. When our country is going through tough economic times it seems wrong to be 'shipping' these jobs overseas. Of course, those who are opposed to outsourcing are guilty of only looking at what is seen, not what is not seen. What is seen are jobs that have disappeared from this country. What is not seen are the benefits of outsourcing. Companies outsource as a way to manage costs. If a company can save costs by moving some activity off shore they are going to do it. By lowering costs, they increase their profit. This gives the company more resources to grow. When the company can grow, it can afford to hire additional workers in different parts of the business. In the end, outsourcing creates increased and better job opportunities in this country. According to a 2007 study by Matthew Slaughter, an economist at Dartmouth's Tuck School of Business, when U.S. firms hired lower-cost labor overseas through foreign subsidiaries, the parent companies in the U.S. hired even more people in the US to support expanded operations. For example, between 1991 and 2001, foreign employment of U.S. subsidiaries grew by 2.8 million jobs, but during the same time frame, the parent firms in the U.S. increased employment by 5.5 million jobs. Effectively, for every outsourced job, two new jobs were created in the U.S. There is no doubt that if you lose your job because it is outsourced to another country it is bad for you. However, this really isn't any different than if your job was 'outsourced' to another state, or if your job was eliminated due to automation. Companies will always find ways to lower costs and on aggregate this is a good thing for everybody. It lowers the costs of goods and services, freeing resources to be applied to other goods and services, driving their costs down as well. This 'creative destruction', as described by economist Joseph Schumpeter, is the engine behind increased prosperity. If Democrats, and those who mindlessly oppose 'outsourcing' , succeed in impeding outsourcing, we will all be worse off. Rather than opposing a candidate who understands the benefits of outsourcing, they should be supported. We need people in Congress who actually understand business and economics, not a bunch of lawyers who think they can control the world at the stroke of a pen.

Stimulate Consumer Spending? Why?

In an excellent article in the Sacramento Bee, Robert Higgs discusses some interesting facts about spending in the economy. We are told by politicians that we need to stimulate consumer spending so the economy can get back on track. Yet, according to data presented by Higgs, consumer spending during the downturn actually increased and is currently at 71% of GDP. However, investment spending fell some 36% from a peak in 2006 and has yet to recover. From the article:

When private domestic investment last peaked, in the first quarter (January-March) of 2006, it was nearly $2.3 trillion (in dollars of 2005 purchasing power), or 17.5 percent of GDP. When it hit bottom in the second quarter of 2009, it had fallen by 36 percent to $1.45 trillion, or 11.3 percent of GDP. It is still far below the 2006 peak. By contrast, in the second quarter of this year, personal consumption was actually at an all-time high, at nearly $9.3 trillion (in 2005 inflation-adjusted dollars). If stimulating consumption were the key to an economic recovery, we would have achieved one already.

Investment is crucial to growing an economy and it is lagging. Consumer spending, while important, is already at an all-time high. But what do our brilliant solons keep pushing? More consumer stimulus. What else are they pushing? Higher taxes on investment. At the same time they wonder why the economy isn't performing better. It's far past the time to send these idiots packing.

Stimulus?

Regardless of whether or not you believe that an economy can be 'stimulated' by government spending, it would seem that if you are trying to get out of a recession, you would spend the stimulus money now, not later. However, according to the Congressional Budget Office, of the $787 billion appropriated in the final bill, $236 billion won't be spent until 2011. That's 41% of this monster. If the true nature of this bill was to stimulate the economy, $236 billion could have been cut and still provided the necessary stimulus. The truth is that this bill is a sham and will burden current and future generations with a mountain of debt. George Bush and Congress (both parties) took 8 years to dig a deep deficit hole, it has only taken Obama and Congressional Democrats days to dig a deeper one.