Why you are hurting the economy by sending your hard-earned dollars to Uncle Sam…

Just in time for Tax Day comes John Tamny’s counter-intuitive view of the economy, including why you are harming the economy by sending your hard-earned dollars to Uncle Sam. Titled “Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics,” it shows why money left in the hands of individuals, even rich ones, benefits the economy more than sending the money to the government to be spent by bureaucrats on Solyndras. It upends traditional views on the supposed evils of outsourcing, climate change, and budget and trade deficits.

Tamny, who was my editor when I wrote for RealClearMarkets.com, has never been afraid to swim against the stream. He has written a brave book, a courageous book, that should be read and discussed by all who are interested in America’s future. Here are three out of many counterintuitive nuggets from “Popular Economics.”

The best way to “spread the wealth” is to leave it in the hands of the wealthy. The justification for progressive systems of taxation is that the government can make better use of funds than the individuals who earn the dollars. Therefore, the traditional argument goes, higher-income earners should pay taxes at a higher rate. Not so, writes Tamny. Unspent funds left in the hands of wealthy individuals are saved and used to power a broad array of investments.

Tamny offers numerous examples. If corporate taxes had been in place in the early-20th century, Henry Ford might not have had the capital to invent the Model T at Ford.   In 1989, Jerry Jones bought the money-losing Dallas Cowboys for $149 million and turned the team into a powerhouse, with three Superbowl wins in the 1990s. That encouraged Robert Kraft to buy the New England Patriots for $172 million in 1994. The team is now worth $1.8 billion.

Most companies and the jobs they create are the result of private investment. Yet the tax code gives government spending preference over investing in the next Steve Jobs.

“If the capital-gains rate had been 98%, or even 50%,” writes Tamny, “Jones probably wouldn’t have built the wealth he needed to buy the Cowboys, and Kraft would have been unable to attract the financing for his purchase.”

Most companies and the jobs they create are the result of private investment. Yet the tax code gives government spending preference over investing in the next Steve Jobs. No government program would have invested in Steve Jobs’ garage, where he was building future Apple computers, or in Michael Dell. Jobs, Dell and others had to persuade private citizens to take risks and support their fledgling companies. “The French Connection” was turned down by scores of studios before 20th Century Fox took it on and released it in 1971. Now these companies are multibillion-dollar entities enriching shareholders, employees and consumers alike, and “The French Connection” is now considered a film classic.

That’s why Tamny suggests that Facebook co-founder Eduardo Saverin helped the economy by renouncing his U.S. citizenship to avoid capital-gains taxes. Saverin’s assets were in Singapore, but they were able to be invested to help private companies grow. That meant better sports teams, more movies, more private successful companies.

Tamny’s solution: a flat consumption tax with an end to the Internal Revenue Service, which “is politicized no matter which party is in power.” But the IRS’s behavior under Director of Exempt Organizations Unit Lois Lerner and Commissioner John Koskinen is unprecedented. Lerner investigated her political enemies, and it’s widely believed that Koskinen lied under oath that her emails had been destroyed — without even asking officials who were in charge of the back-up servers. There are many reasons to end the IRS, but tarring all politicians with the same brush as the Obama administration is not one of them.

Outsourcing makes Americans better off. Most people, Republicans and Democrats, think outsourcing is wrong and un-American. In 2012, President Obama attacked Republican presidential candidate Mitt Romney for outsourcing jobs to China when he worked at Bain Capital. House Speaker John Boehner and then-Senate Majority Leader Harry Reid opposed America’s Olympic uniforms, which were made in China.

“Popular Economics” shows that normal people outsource every day. Hardly anyone manages without outsourcing. People outsource cooking by going to McDonald’s and laundry by going to the dry cleaners. In recent days, many have outsourced tax filing by going to H&R Block or buying software programs such as TurboTax. This makes people better off by giving them more time to engage in productive activities.

Similarly, firms that outsource do better too. It’s no coincidence that some of the most profitable companies in Silicon Valley outsource to China, according to Tamny. They bring together the technology and the marketing but leave the assembly to workers in other countries. It has been said that only one American touches the Apple iPhone before it gets to its user, and that is the UPS driver. (Of course, some iPhones are sold in Apple stores, where the retail clerks touch them too.)

In contrast, some of the poorest areas in America are those with little outsourcing, such as Detroit. The Big Three auto companies employ American workers and are attacked when they outsource car parts.

Sea levels aren’t rising. It’s not popular to be a climate denier these days, but Tamny is a skeptic. Markets talk to us through price signals, and they tell us that climate change will not have the disastrous effects described in former Vice President Al Gore’s movie, “An Inconvenient Truth.” If climate change were resulting in rising sea levels, coastal homes would not go for such fabulous sums. Rather, properties near the sea would be dropping in value every year. A quick look at the “Mansion” section of Friday’s Wall Street Journal shows that this isn’t happening.

Popular Economics cover

“Even more troublesome for climate alarmists is that the most expensive coastal communities — places like Malibu, Manhattan and the Hamptons — are filled with people who say they believe in man-made global warming,” writes Tamny. Al Gore’s mansion close to Montecito, Calif., shows that “global warming’s most famous advocates apparently don’t take their cause all that seriously.” When climate change begins to cause the seas to rise, expect prices to fall.

In contrast to many boring economics tomes, “Popular Economics” is filled with sports and movie references that illustrate the value of individual initiative. A better name for the book would be called “Unpopular Economics.” These days it’s not popular to say, as Tamny does, that the economy would be better off if the rich were allowed to keep more of their income; that inequality doesn’t matter; and that climate change isn’t damaging America’s coastline. And space does not permit me to mention bank bailouts that caused the Great Recession and the floating dollar that crippled economic growth. For that, you’ll have to read the book.

[by Diana Furchtgott-Roth, writing for MARKETWATCH]

NORM ‘n’ AL Note:  This is one more very powerful example of something many of us know intuitively: Money given to the US government is not only not spent wisely, it’s not even wasted wisely. Or honestly. The Obama administration has proven this over and over again. Whole truckloads of American cash completely vanished when shipped to Iraq or Afghanistan. More than half a billion dollars of taxpayer money given to Solyndra as the next wonderful showstopper on the road to economic solar power…only to watch the company go bankrupt in little more than a year. (There were many more Solyndras to follow, to the tune of about $80 billion.) More than 40 million US taxpayer dollars used by Obama and family for vacations. Obama’s treasury secretary, Tim Geithner, cheated on his taxes, got caught, and paid fines. His cohort, Larry Summers, director of the White House Economic Council, collected millions in fees from troubled Wall Street firms and other organizations, a clear conflict of interest. (Guess they were just following Obama’s lead, who hasn’t told the truth to America any time before his election or since.) Obama’s Financial Reform Bill did not prevent banks from returning to the trading practices that got us into the global recession in the first place, which means the banks can go back to their risky behavior anytime they want. Obamacare was, and is, the most divisive, convoluted program of his White House tenure and could yet bankrupt the country. (He promised in 2008 that he would not force US citizens to buy health insurance, which is exactly what the Affordable Care Act does.) And he is still taking our national debt level into the stratosphere at over $18 trillion and counting, a sum we have not a prayer of ever repaying. When you vote a liberal into office, and one who has no experience whatsoever outside of government and very little in it, you have no right to be surprised at the results. Such a man could at least be an honest one, but it seems that honesty is in very short supply in Washington…as Harry Reid proved to us only recently. Liberals believe government is the answer. Conservatives know government is the problem.


As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis


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