Tuesday, October 28, 2008

Where Have All The Dollars Gone?

It may well behoove me to create a titled series - like the "Questions of the Day" - dedicated to clearing up stupid conservative myths that the liberals have not adequately countered. The only problem is that I could write one entry per day, from now until the end of time.

Today's conservative canard: the Black Hole of Government.

Conservative economic rhetoric is still fundamentally based on the principle of Reaganomics - the trickle-down economy. Rich people, they say, should not be taxed more than everyone else, because they're such a crucial consumer group - their money goes into the pockets of hundreds of people they employ and make purchases from, thereby stimulating the economy. They take offense, for example, at the liberal notion that we're simply stopping a millionaire from buying that third yacht - we're not just punishing him, they argue, but they hundreds of people that built it and worked on it and will be required to pilot it for him. That yacht creates jobs, and that millionaire's cash output stimulates the economy. What's wrong with us?

This entire myth is based on a fundamentally mistaken premise, which is that money taken in by the federal government as tax revenue immediately vanishes from the economy. This is an absolute cornerstone of the conservative rhetoric; it's also a ridiculous farce, and I really shouldn't have to point out why. It can be easily countered in four words: the Government spends money.

Almost every dime the government takes in as tax revenue almost immediately re-enters the economy through exactly the ordinary channels. Let's take our defense budget as an easy example: that tax money goes to pay DoD employees, defense contractors, raw-goods manufacturers...tens of thousands of people are employed by our defense budget. Public works - roads, bridges - employ tens of thousands more, as epochal Democrat Franklin Roosevelt understood better than most. Even supposed financial sinkholes like Welfare are going straight back into the pocket of consumers - which, like it or not, poor people certainly are. They take their welfare checks, pay their rent, and make their landlord wealthier - at which point he can, indeed, stimulate the economy by making purchases. The government is not a fiscal black hole; they are simply a hugely wealthy consumer.

Even that small percentage of the American budget that does not go right back into the American market simply goes into overseas markets - in which we profitably participate. Overseas aid, for example - even if we give it in the form of cash - might well be spent on wheat (of which we are the world's largest producer) and drugs (a huge percentage of which are of American make). If that money isn't paid to us directly, there is still no reason to assume we will never see it again. We are members of the global market economy.

In short, it is very, very difficult to remove money from the economy. One of the only long-term ways to do so, in fact, is to stash it in a savings account to accrue interest - and I'm sure no one will suggest our government is doing that. Stop pretending taxation = money lost from the economy. The equation has no merit.

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