I heard an exasperated congressman say that people on unemployment spend 100% of the money they get in the economy, and therefore this is the best place money could be spent to stimulate growth, certainly better than extending tax cuts for those making more than $250,000. (For the record, I think it is better than building interstate off ramps to nowhere as individuals can make decisions about how to spend the unemployment benefit.) On the surface, this wealth redistribution argument sounds great, put money in the hands of people eager to spend it, instead of letting the wealthy hoard it, right? The devil is in the details. What they are suggesting is that setting money aside while paying someone to collect the tax and review the tax return, pay someone to account for it, pay someone to distribute it to the relevant agency, pay someone to distribute it to the state employment agencies, pay them to account for it, pay them to distribute it to relevant case account, and pay to distribute it to people who are not working, puts more people to work than the high income earner spending it themselves, or investing it or anything else they might do with it. The argument is that paying people to manage a government program produces more wealth than turning raw materials into finished products.

What’s my problem with this? I have a problem with the assumptions insinuated within the premise that the government pulling leaky buckets buckets of water from one end of the economy pool and dumping them in the other somehow lowers the level on one end and raises the level on the other. (Consider they are sucking water from the water-multiplying end of the pool.) The first assumption is that high income earners are less efficient at spending money in the economy than low income earners. Second, the assumption that paying for unemployment generates less unemployment. Third, the assumption that giving capital to consumers generates more capital than investing in production generates, so much so that it can cover the interest paid to borrow it. Finally, I take exception with the assumption that individual’s situations can be improved by applying a single solution to the group as a whole.

First, why do high income earners make the big bucks? Pick a reason. Half of you will say something like tenure, or favoritism, or just plain luck. Although the luck argument probably exists, it cannot be sustained, Chelsea Clinton asside; indeed none of them can, without one truth. Sustained employment exists when an employee produces more than they cost the employer for a sustained length of time. A private endeavor goes out of business if they pay more than they earn. The simple truth is that high income earners produce higher returns on their employer’s pay investment in them than does someone doing a minimum wage job could make for them. Otherwise, there would be no sustained high income earners. When faced with the decision of whether to hire a $300,000 employee or 2 employees making $150,000, the decision comes down to which situation makes it more likely that the company will survive. In short, that option which produces the most money in return. Raise the cost of having a $300,000 employee, via tax increases on those making more than $250,000, and you skew the decision slightly and get fewer $300,000 employees. In some cases, that means hiring more $150,000 employees which is good for out of work $150,000 employees. In some cases, the $150,000 option is not profitable. (The $300,000 employee may have been more profitable than the lower paid option by an amount which straddles the break even point.) Those businesses will stop conducting business, or move this business to another country to survive, firing all other American employees in both cases. This produces a net decrease in all jobs at all income levels, clustered near the tax break level of $250,000.

My next problem is with the idea that paying people to sit at home, or unsuccessfully look for work, keeps their money going in the economy even though they are not producing anything. Remember the bucketing of the pool water idea? Taking money out of the economy, or promising to do so by borrowing it, and then putting it back via the hands of entitlement recipients, does not create anything. Simply, there is no return on the investment. Just like friction in an engine, there are parasitic losses in doing this, and there is a time lag between when the taxes are known, and the payments put them back in circulation. Also, when you increase the cost of some activity, you get less of it, when you lower the cost of some activity, you get more of it. We tax tobacco and subsidize GM’s Volt with this conviction. Raising the cost of employing people, via taxes or future taxes via borrowing, reduces hiring, and eliminates the marginal businesses from the American economy. The marginal companies go under, or move away to survive, taking the remaining jobs with them. Concurrently, when you make it less costly to be unemployed, you get less effort to change that condition by the only person who can affect it, the unemployed. Of course some take any job as soon as they can, and some feel like they hit the lottery and would not take a high paying job until all the “free” money stops. Those people who did not need to work, or who were barely breaking even after paying the costs of getting to work and dressing for work, will stay home and take the unemployment payment. They are not immoral, in my opinion, they can simply add. Why get up each morning, come up with gas money ahead of the paycheck, and give up your day to spend time on the road, hire daycare, and loose an 8 hour day, when you can stay home for anything in the ball park of the same net income? Shame you say? Perhaps, but some of those working out of a feeling of obligation, not need, such as those whose spouses are able to pay the essential family expenses, will not work with the “unemployed” badge of honor shielding them from feeling shame. Encourage businesses to not hire people with promises of increased unemployment taxes while encouraging people to put off searching for a job with promises of benefit extensions, increases unemployment. Do a little research and see just how close to the end of unemployment payments people get, ON AVERAGE, when they miraculously find an acceptable lower paying job. People turn down lower paying jobs than they lost in hopes of finding a higher paying job than exists in their market, for as long as they are being paid to do so. When you make future job creation cost more, and current joblessness cost less, you get higher current unemployment and higher future unemployment in a downward spiral.

The next is one of my favorite pro-government-program arguments to dispute: the idea that low income people spend their money in such a way which creates more jobs than more affluent spenders do. In other words, 5 people who only make $20,000 a year do more to create jobs than a single person making $100,000 does. Ask yourself this, is a “poor” person more likely to buy things that are mass produced by machines, (pop tarts), or custom things that are handmade, (omelets)? Is a “rich” person more likely to buy cheaply produced food from a factory, (tater tots for home), or hire local kitchen staff to prepare more labor intensive, expensive food, (baked potato in a restaurant)? Come on, be honest. “Poor” people buy flour and make bread; “rich” people buy bread, and pay the baker. The affluent also invest in bakeries and bakery company stock. Another obvious question, which is more likely to have cash stashed in a shoebox under the bed, and which is more likely to have it in a bank account or invested in stocks? In other words, in preparation for the proverbial rainy day, who is more likely to have their available money in the economy and which is more likely to have it hoarded? Know anyone who thinks they will start saving and investing once they make a little more money? That is me. I can’t wait to make enough to hoard, all the while flexing my spending up and down to match my income. I doubt that this is a “poor only” phenomenon. I suspect that promising future tax increases by borrowing against future taxes, actually encourages the higher earners to hoard their money instead of spending it or investing and paying capital gains. Those who barely think now’s the time to invest, will switch over to the buy-gold-and-hoard side, removing their money from the economy. This money stays out of the economy until the capital gains tax rate is low enough. It has to be low enough to pay the double tax of cashing in gold and paying the tax, and investing in stocks and paying the tax again each year. Even if gold goes down, but by a lower percentage than the tax, it may not be sold. Which do you think makes gold rise, government spending or government frugality? See the catch 22 of raising taxes on the rich to “create or save” jobs?

The last assumption is at the core of the government spending v.s. private spending debate. The idea is that everyone on unemployment gets extended payments because someone will have a worse time if they don’t. My belief is that the national government should steer the national efforts, those which will benefit the most people, not those that will benefit any single person. Those who want to raise unemployment benefits agree with me, otherwise they would not suggest we extend every unemployed person’s benefit time. If they wanted to help individual situations, they would encourage and empower the people familiar with the individual. At a minimum they would leave the money in the states to pay out and eliminate several middle men. They would suggest local control of unemployment programs instead of single-location control from Washington DC. I question whether votes for extension is about helping a person or about looking like they want to help. Helping people can get you re-elected, so can looking like you are, and the two can only be contrasted in light of fact and principle and rejection of feelings and emotion. We will limit job growth for everyone via the promise of high taxes to cover debt service which produces nothing. We are willing to allow millions of new workers to suffer without a job, in order to believe that one previously employed person will not suffer having lost one. Why is a new employment ready person not important but one who held an over paid position, no longer needed, worthy of borrowing money from the Chinese?

More philosophically, consider this story. A man has $20 and stops at an intersection with 5 men sitting next to, “Will-work-4-food” signs. He rolls down his window and gives each $4. A dozen people driving by notice this act and applaud it. The 5 men buy burgers and eat. Next day, another man, also with $20, stops and asks if any are truly willing to go home with him and help him rake his leaves. 3 stand up and get in the car. He goes home with $20 worth of groceries and rakes leaves. A dozen neighbors notice and applaud the second man. The second man and the workers eat their share of the groceries, the three men remaining at the intersection get nothing.

The next day, both men collide with each other and die and can no longer offer up $20. Now that there is no longer either man to offer help, which dozen applauders is more likely to respond to signs of Will-work-4-food? Which of the men are more credible in the argument that they would work for food for what work there exists? In other words, which situation actually gave them opportunity to improve their lives and which situation actually encouraged others to employ the men? Most of us would agree that it is better to make a man a fisherman than to simply feed him fish.

So how can we claim to produce more fish when the fisherman supplies a government fish collector to give non-fishermen free fish?

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/02/AR2010040204207.html

Mr. Stuever is correct in the assertion that this is not news, but he misses the point that much of what is paraded in front of us is not news. Bald children claiming to need S-CHiP expansion to get treatment is news(?) but the revelation that the family could afford health insurance but campaigned for federal aid expansion so they would not have to, is not (?), ad. nauseam on both sides.

But, there is one point of merit, veiled as he points out, that we are told daily that we cannot do inspiring things like help one another. We are told that Massachusetts cannot provide health coverage for all, only the federal government can do that. We are told that Virginia cannot regulate drilling off her shores, only the federal government can do that. We are told that the state of Utah cannot manage her lands, only the federal government can do that. We are told, although subtly, that people cannot do inspiring things, until they go to Washington.

So, he is correct that this is not news to most of us. But, that this particular show got any comment at all, indicates that the author knows that someone was trying to say something, (political perhaps, it is Palin after all?) but the fact that the author lumps it in with all the sunshine being blown at us indicates that the thinly veiled point was lost on him. Or, perhaps not, perhaps he would like to think it will be lost on his readers if he simply wills it.

We were promised that Social Security taxes were the property of the person paying them, that they would be available with interest once one retired, and that they could be passed on to one’s heirs should one die before drawing the funds out. How does that resemble what we actually have?

We were promised that if we only gave people who needed it a Welfare hand up, we could assist most in moving back into the working main stream. Now, more people are on Welfare as a percentage of population, the programs were extended to less and less willing to accept a hand up over a hand out, and who find a gap between what the government will pay them to stay home and what working people are paid (after the taxes are paid).

We were promised that the 4 cent per gallon gas tax would only be used to fund highway construction and maintenance. It did just that, until Congress voted to use the funds to support public transportation like Amtrak, city busses, subways, etc. Now, transportation funds are scarce, Amtrak looses $39 per passenger (despite promises that it would be returned to the private sector, at a profit for taxpayers, once it is profitable), and gas taxes are many times the 4 cents per gallon that originally worked.

In Virginia, we were promised that if we allowed a state lottery, the money would be used for public education. Although the amount spent on education does come from the left over lottery money, the left over money equaled the previous budget. The original money was used for other desires. Now, the Virginia lottery participates in the Mega Millions ring that includes several states, the payouts have risen in dollar amounts, the chances of a Virginian winning have gone down, and the school systems are still peddling cans of Virginia Diner peanuts to help supply classrooms.

In June, a District of Columbia Metro crash killed 9 people. Accidents happen, and the causes must be identified and corrected, regardless of who is in charge. In an unrelated line of thinking, the NTSB and others exclaim this as an example of the need for more federal oversight of locally operated systems. They say that there needs to be more uniform rules among States and within localities. Why is this related to the “Trust me, I’m with the government” charade of the previous examples?

The District of Columbia is the exclusive purview of Congress. The DC Metro is completely within federal control. How can the NTSB then claim that the accident indicates the need for more federal oversight? They do so same way that they say that the deficit in highway spending is the result of anything other than Congressional raiding of the funds for other desires. They do so in when talking about the deficit in funds for Social Security after allowing people to get benefits without being citizens, much less contributors to the system. They talk about amendments to the current health care “bills” to forbid the use of Medicare money for other programs, even though the “trust fund” has long been dissolved and the money spent for other desires and Medicare funds do not cover Medicare expenses now, much less other desires.

In the words of Ronald Reagan, “Government is not the solution, Government is the problem.”

Are we more interested in doing the most good with the available resources? Or are we more interested in having equal good for all, even if it is, on average less good?

The “poor” are now a powerful electorate demographic, our children are less educated despite the spending, Amtrak is still bankrupt, people are still “denied” health care, and the list goes on. And the statist wrings his hands and points to these facts as proof that the original takeovers of these things didn’t go far enough.

I ask a simple question: Is there any cause for which our public servants solved the problem in their charge, where the program and its offices were then closed, and where the taxes collected for that purpose stopped?