George Rebane

I’m not sure that the tax deal announced by President Obama is all that much of a ‘victory’ for the Republicans.  In fact, I think that the GOP may come out bamboozled by the progressives when this piece of sausage finally emerges from Congress.

Backing off a bit, it is beyond clear now that the 2009 ARRA (familiar to RR readers as the American Re-election and Redistribution Act) has failed big time.  As JF Cogan and JB Taylor (‘The Obama Stimulus Impact? Zero’) report, data shows conclusively that “state and local government purchases of goods and services did not increase at all in response to the large ($862B) federal stimulus grants.”  The arguments are easy to follow and conclude –

The bottom-line is the federal government borrowed funds from the public, transferred these funds to state and local governments, who then used the funds mainly to reduce borrowing from the public. The net impact on aggregate economic activity is zero,… .

In light of these additional results, the left’s claim today that the stimulus packages were too small is ludicrous.

The truth of the ages remains the same.  It is the generation and aggregation of capital, and its subsequent commitment under risk that creates jobs and grows an economy.  As someone once asked, ‘When was the last time a poor person offered you a job?’  Without such aggregation we would all still be growing our own food and weaving cloth for our own clothes.  It is the concentration of capital that finally let people specialize and become expert at providing a certain good or service that their neighbors needed, neighbors who then could use the time to do something else to provide for the common weal.  (H/T to Chuck Asay cartoon for clarification.)

These are points that go beyond the ken of a socialist.  Even the famous Lord Keynes did not understand the effects of taxing capital income.  He demonstrated this by prescribing for Great Britain a post-war tax policy that stifled savings and growth for decades.  The incentives to take the natural risk that comes with creating enterprises that hire people totally escaped him.  When reminded of this, he dismissed it in high hubris by responding, “I doubt if people are often as actuarially minded as (such) calculation makes them.”  Well, it turns out that they are and always have been.

The arguments made by TF Cooley and LE Ohanian (‘The Bush Tax Cuts Never Went Far Enough’) nail this down.  People with money take more risk in starting companies and investing in them when they see a stable future in which their bets have a chance of surviving and prospering.  Tax cuts on income, especially capital income, that are temporary and expire into God only knows what will follow, do not invite people to risk very much of their accrued wealth.

Given this, the two year extension of the Bush tax cuts is a lame kick of the can down the road.  The prematurely celebratory Repubs are betting that in 2012 they can replace Obama and his road to global collectivism with something that will spur long-term economic growth.  The Dems are betting that they can continue to create enough economic pain (‘don’t waste the crisis’), from what they will advertize as the ‘Republican Watch’, so that their promises of socialist paradise will again buy enough votes to keep their agenda on the front burner.  Given the level of national debt/obligations, states in fiscal crisis, international assault on the dollar, and high unemployment, this wind is not blowing to the benefit of the conservatives or the country.