American Elephants

Milton Friedman on ‘Redistribution of Wealth’ by The Elephant's Child
December 1, 2011, 8:16 pm
Filed under: Capitalism, Economy, Statism, Taxes | Tags: , ,

One of the most wonderful things about the computer age is that now we have access to the thoughts and words of those who are no longer with us.

Income Inequality: Myth or Reality? by The Elephant's Child

You have to be remarkably unfamiliar with economic facts to buy into the story that the top 1% have been exploiting the 99% for decades. But the Occupy movement, supported by the liberal establishment, seems to believe just that. The rich have been getting richer at the expense of the middle class and the poor.

How does that work?  How does somebody get rich? In the most prominent cases that we know about, it’s making something that other people want — something like iPods and iPhones and iPads or Windows operating systems or X-Boxes, or for that matter — Big Macs. They buy a whole bunch of iPods. That’s how some rather famous rich people got so rich. You made them rich, you consumers, by buying their products.

Well, they didn’t need to charge so much for that stuff.  They were too expensive. What is the right price? Often the first examples of a product are very expensive. Think very large TV screens, can you remember how much the first ones cost?  And you were probably not prepared to spend that much, but quite a few wealthy people were, and as lots of wealthy people bought one, economies of scale allowed the manufacturers to reduce the price. An exchange (a sale) takes place when the buyer and seller agree on a fair price. If it’s not fair — you wouldn’t have paid for it, would you?

So who made the 1% wealthy? Consumers! And what did you think the wealthy do with their money?  Do they put it under their mattresses?  Maybe they buy yachts. And if they do, they hire a boat builder to build it, and that involves a lot of workers, and all the accessories require factories that employ lots of workers to produce all the materials that go into building a yacht. And all those workers who made a good living constructing a yacht or assembling  fish-finders or making sails and winches, and building engines go out and buy things and pay taxes, and the economy grows.

Economist  Walter Williams uses Joanne Rowling as an example.  She was a welfare mother in Edinburgh, Scotland, who followed her dream and wrote a book.  She had a hard time selling it, but eventually ended up with Scholastic as a publisher, and as they say, the rest is history. Her Harry Potter novels and movies have made her the world’s wealthiest author.  She sold some 500 million books, and the kids are to blame.  So to all those ‘Occupy’ people who are whining because they ran up too much student debt getting their English degree — go home, start writing and stop whining.

During the 2008 campaign, candidate Obama said “The project of the next president is figuring out how do you create bottom-up economic growth, as opposed to the trickle-down economic growth that George Bush has been so enamored with.”

President Obama hasn’t been able to figure that out, although Republicans keep trying to tell him how it works.  Income inequality has been growing significantly on his watch, one measure shows it has climbed 5.7% since he took office.  The rich actually got poorer under Bush’s eight years, the wealthiest 5% of U.S. households saw incomes fall 7% after inflation.  During Clinton’s eight years, the wealthiest 5% saw their incomes jump 45% compared to 26% under Reagan.  The Bush “tax cuts for the rich” increased progressivity in the tax code. The rich got the smallest percentage tax cut.

The envious folk who are so sure that “the rich” or the top 1% are getting rich by somehow cheating them are partially right. What was unusually prominent at the Occupy encampments was the profusion of iPods, iPhones, iPads and laptops, expensive tents, down-filled sleeping bags, that perhaps they didn’t pay for themselves, but somebody did on their behalf.

Wealth doesn’t exist in a pie shape where if one person gets more — someone else got less. It doesn’t work that way. The pie is infinitely growing or shrinking.  If someone makes a popular new product and gets rich — the supply of money increases to compensate for that.  If the supply of money increases greatly without new products or services that require that increase, you have inflation — too much money chasing too few products and services, and it takes more money to purchase the same things, and everyone gets poorer.

Governments are not very skilled at controlling these things. They are far more expert in taking money away from taxpayers and giving it to favored supporters. President Obama speaks against “the rich” and “millionaires and billionaires” at every opportunity, making class warfare a central theme of his reelection campaign. At the same time, he is funneling taxpayer money in the form of subsidies to the very rich people who supported his 2008 campaign. The words of his mouth seldom match his actions.  Watch what he does.

Why Do They Always Say “Unexpectedly?” I Expected It, Didn’t You? by The Elephant's Child

Unexpectedly. new claims for unemployment insurance rose last week, climbing past the 400,000 mark as the jobs market continued to show signs of weakness.  Weekly applications for benefits rose by 6,000 to a seasonally adjusted 402,000 for three straight weeks.

Economists projected that employers added a net 125,000 jobs, and the unemployment rate remained at 9 percent for the second straight month.  This is barely enough to keep up with population growth.  Applications would need to stay below 375,000 consistently to push down the unemployment rate.

This is the report from CNBC, and the government report on job growth will come out tomorrow.  The emphasis from the media is always on new claims for unemployment insurance, which doesn’t cover those who have run out of benefits and those who have quit looking or those who are working a couple of part-time jobs. They seem to have trouble separating new government jobs from new jobs in the private sector and the pace and reality of government actions that prevent job creation just escape the media entirely.

Republicans have been generously explaining how jobs are created for three years now, but unexpectedly, Democrats continue failing to understand how joblessness comes about.

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