Caveman Books

The Caveman Explores Economics & Politics

Thoughts About Economics

Part I.

Part II, THE INVENTORY ... MODEL OF MONEY

Part III, The Overall Model

Part IV How Much Cash Is Needed In An Economy?

Part V, Money Needed ... Determined By Production Increases

Part VI, How Do Profits Impact ... An Economy?

Part VII Assets

Part VIII Summary

Part IX, Money and Fractional ... Reserve Banking

Part X, Government

Caveman Articles

Money

Government and Taxes

Creating Money & Inflation

Tax Rates VS. Tax Receipts

Taxing The Rich

Government Debt

Government Stimulus



 

 

 

 

 

How To Get The Economy Moving Again

 

A reader recently sent the following:

With the current economy, I find my economic views tilted from Capitalism to Protectionism. Until we have full employment and a balanced budget (reduction of gov) we will have a more difficult time to sustain any economic growth. What is your take on this, from a "Caveman's" point-of-view. I look forward to hearing back from you.

My view is that government is the cause of our malaise. We can not keep spending on so many things that people don't need or want. Or even if they do want some things that government provides, those things would not be high on the list of people's own priorities if the money came out of their personal pocket.

 

The prime reason that people form a government is for self-protection rightfully believing that there is strength in numbers. If we had no evil countries that threatened ours, there would be little need for a national government. If there were no evil people that threatened our families, we could do without much of local government.

 

As soon as you institute a government, leaders feel an obligation to do something for the people because if they don't promise something, rebellion is likely. Even with dictators of the "Arab spring", their ability to govern eventually comes down to the consent of the people. Maybe it will take a long time, like generations, but people eventually have a voice. In the meantime, these leaders can implement a lot of mischief that is at odds with the individual's liberty, all in the name of goodness for the country. The same is true in democratic countries.

 

Indeed, governments have implemented many policies and regulations making for inefficiency to the point that the economy has slowed to a crawl. The simple (but not easy) answer is to eliminate these burdens on the economy. We must balance the budget (and even work for reducing governmental debt). And we should reduce tax rates.

 

Balancing the budget will require cutting programs that are transfer payments to those who are slackers. It will require setting priorities that only fund the most important items and put off spending on others. You might say this is not compassionate. But it is. Forcing people to find a job that actually produces things that people need or want is beneficial to an economy. Moreover, it is beneficial to their psych and rather than being a drag on the economy, they now produce things.

 

Tax rates must be cut. The dynamics of tax rates have been covered in these pages previously in discussions about the Laffer curve. When people can keep more of what they earn, they work harder and they spend less time avoiding taxes. This builds the economy which, surprisingly to some, results in higher tax revenues. Lower tax rates imply higher tax revenues. Almost a free lunch. Not only does the theory tells us that this is so, but so does practical experience all four times it has been tried in the last century.

 

Balancing the budget will free money to be applied to the private sector thereby improving the economy. Lowering tax rates will increase work motivation also improving the economy but with the added benefit of improving tax revenues that can be used to reduce the debt of governments.

 

Protectionism, mentioned by our reader, is not part of the solution. When tariffs are applied to imports, they result in higher costs to our consumer citizens. And those regulations unbalance the natural economy. Without restrictions, a natural economy will gravitate to the low cost producer. Others will need to find ways to compete which might be through automation or through forcing workers to find jobs that require more skill. Change is hard, but trying to avoid change is worse.

 

So the Caveman's answer is to cut government and to cut tax rates. Think of our caveman tribe and imagine them spending on the multitude of things that we do today, particularly if they were short of money. That wouldn't happen.


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ARTICLE ARCHIVE

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