Taxing the Rich

                 It has been a couple weeks since President Obama made his job proposal so perhaps the numbers have changed but the analysis is the same. 

                The plan was to cost $460 billion and $400 billion was to come from taxes on the rich.  When considering this tax the wisest question to ask is: “What would the rich have done with that money if it had not been taxed?”

                The answer is the rich would have spent it, invested it, or saved it.  Spending it and investing it puts it directly into the economy.  Saving routes the money through savings institutions like banks before it is loaned to the economy so saving puts it indirectly into the economy.  Thus President Obama’s plan is to remove money from the economy so he can put it back into the economy.  As some have noted it is like taking water from one end of a swimming pool and pouring it in the other end and expecting the pool to get fuller.

                But it’s not exactly like that.  The rich put it pretty directly into the economy.  President Obama’s plan would route the money through a highly inefficient government.  So the swimming pool illustration should go like this.  You take water out of one end of a pool using a leaky bucket and then walk to the other end of the pool with water leaking out the entire time and then you pour the remaining water in the pool.  Then you expect the pool to get fuller.

                I believe the above analysis is not perfect but it is largely true.  The question about what would the rich have done is one of the two questions that needs to be asked more often regarding public policy.  The other question is, “What are the long term consequences?”

Should we raise taxes to increase the debt limit?

Should the Republicans compromise with President Obama and agree to cut taxes because he is willing to cut some spending?

Many people are saying the Republicans should compromise with President Obama and raise taxes.  Some of the defenders of the Republicans say, “You just don’t raise taxes in a recession.”  Where does that maxim come from?

Imagine Joe has a great idea for a business but has no money.  The business will employ 20 people.  He goes to Bob and says, “Bob, invest $1 million in my business and I will give you 25% ownership.  Bob knows that the worst that can happen is that he lose his $1 million but he asks Joe what the upside is.  Joe says the business could make a million dollars in the first year so Bob would get $250,000 or 25% on his money.  Now imagine the top tax rate is 90% (it was 94% in 1944.)  Now Bob’s upside is 10% of $250,000 or $25,000 and his downside is losing a million dollars.  Obviously Bob will not invest and 20 jobs will not be created.

Currently the top tax rate is between 40% and 50% when you combine state and federal income tax.  If you raise it just a little, say 5% or 10%, you would certainly be nowhere near 90%.  BUT each increase is a discouragement and out of every 100 business start-ups a few would have reached the tipping point with the new taxes and those few start-ups would not happen.  The jobs that would be created by those few are LOST because of the tax increases.  

As Christians we care about people being hurt by the economy and we care about people who need jobs.  We should oppose tax increases, not because we want to help the rich.  Our opposition is because we care about ordinary Americans and people who need jobs.

Today President Obama announced that he cannot guarantee that August social security checks will go out because Republicans are not compromising.  Unfortunately the president is playing politics with retirees.  In August the federal government will have income of about $200 billion.  Even if the debt ceiling is not raised that is plenty of money to pay the military and pay social security.  If we cannot borrow more money only about half of the government would have to be shut down.  I cannot imagine that President Obama would choose to not pay retirees with the available $200 billion.

Should the government just create a bunch of new jobs?

A recent news show featured elected officials being questioned by regular folks.  One man asked a U. S. Senator the following question:  “Why doesn’t the government just make up a bunch of jobs and hire people for those jobs the way FDR did during the depression?”

The Senator bumbled around a bit and did not answer well.

The correct answer is easy.  That approach does not work.  FDR took office early in 1933 and immediately began starting a variety of programs, some of which were make-work programs as described above.  After years of these efforts, they accomplished nothing.  By 1937 the depression marched on and unemployment was over 17%.

But surely hiring people would help, wouldn’t it?  If it did not work, why not?

The answer can be found in the book Economics in One Lesson by Henry Hazlitt.  Hazlitt was a writer for Newsweek and, though it was written in 1946, the book is still in print.  It is well written and makes profound things simple and best of all, it is only 211 pages.  When you are finished you can honestly say you understand economics better than when you started.

To answer why the FDR hiring did not work one simply has to ask what would have been done with that money if the hiring had not been done.  Imagine government decides to create 100 jobs paying $50,000 per year.  They take $5,000,000 worth of taxes from the rich to pay for it.  But what were the rich going to do with their $5 million?  They were all going to buy a car.  So 100 jobs from the auto industry were lost in order to provide the 100 government jobs.  Obviously this is simplified.  What if they were going to buy foreign cars?  Then the foreign country has money to buy our products or money to buy our bonds, thus lowering interest rates.  The book deals with some of the complications but the basic idea is sound.

Another illustration that many have repeated is this.  It is like taking water from one end of swimming pool and pouring it in the other end and expecting an increase in the level of the pool.

The book is a great book.   The fundamental lesson of the book is that we have to look beyond the short term effects of a policy.  When we see the long term effects, it often suggests that a short term policy is unwise.

Good news for the poor in Africa?

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Good News for Africa?

                One cannot read much Scripture without noting that God has special concern for the poor.  It follows naturally that Christians should too.

                We can say with caution, then, that seems to be good news in Africa because some of what we are hearing about could bode well for the poor.

                The most exciting event is the one about which we hear the least.   Sudan.  Earlier this year the people of South Sudan, voting in a referendum, chose overwhelmingly for independence.  Of course who would not vote for independence from the cruel regime of Sudan’s Islamic President Omar al-Bashir.

                How bad has it been in Southern Sudan?  85% of the people are illiterate.  A fifteen year old girl is more likely to die in childbirth than she is likely to finish school.  In recent years Sudan government forces have attacked their own citizens, persecuted Christians, and participated in widespread genocide.

                But now there is hope.  This summer a Southern Sudanese government will be formed.  Since the period of colonialism African governments have followed well-meaning western advisors down a path leading to big state governments.  Statism leads to sluggish economies so Africa has suffered.  Let’s hope that the new government will look to recent successes in China, India and other parts of East Asia where free market economies are lifting millions of people out of poverty.

                In Egypt it looks like some positive things will happen.  Greater political freedoms often lead to other freedoms which can lead to free markets and reduced poverty.  But we must not be too optimistic.  Will Egypt have a western style democracy?  Not likely.  Three underpinnings of democracy are 1) freedom of the press, 2) freedom of religion, and 3) rule of law.  Egypt is not strong in any of these areas so I do not anticipate a democracy.  Nonetheless greater freedoms could and should lead to some economic liberties that should help the poor in Egypt.

                There is hope for Libya as well.  The analysis for Libya is almost identical to that for Egypt.  I pray that a few places in Africa will try real free market capitalism.  That is the best hope for lifting African people out of poverty. 

                I am reading a great book called Dead Aid.  The book is written by a woman born in Zambia who has a doctorate from Oxford.  She makes the case that foreign aid for Africa has not only failed to help, it has actually hurt.  I will write a post on the book when I finish.

Who is worse, Mubarak or Chavez

WHO IS WORSE, CHAVEZ OR MUBARAK?

                I saw a reporter asking a Congressman why the United States has tolerated Mubarak in Egypt but not Chavez in Venezuela.  The Congressman insisted that the behavior of Chavez was despicable but seemed unable to go beyond that. 

                THE SAD FACT: both Chavez and Mubarak are/were terrible dictators. 

                I believe Christians should be thrilled that with Mubarak gone the people of Egypt will experience more freedom.  We pray the Islamic fundamentalists will not get control of the Egyptian government.  For the 14 million plus Egyptians (18.5% of the population) who live on $2 or less per day, we hope the new government relies on capitalistic economic ideas because the impoverished rise out of poverty dramatically faster in market based economies.

                But is Mubarak, the standard despicable dictator as bad as Chavez?

                A dictator mercilessly sucks wealth out of his people and lives like a king while much of his citizenry barely keeps alive.  Both Mubarak and Chavez are guilty.  In Venezuela, despite being the 5^th largest oil producing country in the world, over ten percent of the people live on $2 a day or less.  That is about 3 million people.  Christians who care about the poor should be appalled. 

                I contend that dictators of the left, of the ultra-socialist and Marxist type, are indeed even worse than the bad dictators like Mubarak whose primary objects are first to stay in power and second to squeeze as much money out of the people as possible.

                In the forward to the book The Absence of Tyranny by Lloyd Billingsley, Richard John Neuhaus opined that leftist dictators are even worse for three reasons. 

                FIRST: Dictators on the left are part of a worldwide pursuit of a utopian ideal which destroys freedom wherever it goes.  These dictators, whether Stalin, Castro, Chavez, or others aggressively pursue the spread of their horrific ideal to other countries around the world.  Wherever this ideal goes, people suffer and lose freedom.  Dictators like Mubarak do not try to spread their domination, they simply try to stay in power.

                SECOND: Dictators like Mubarak are satisfied, once they have sucked the wealth out of a people, to leave the society of the people alone.  Not the leftists.  They rip the social fabric to shreds in an effort to build their utopia.  They tell families how many children they should have.  If the state would benefit from the taking of children out of a home, it happens.  When leftist Daniel Ortega decided the state needed the homeland of the Miskito Indians in Nicaragua he moved them away from land where their ancestors had lived for many generations.  For the leftist dictators the state comes first and the social well being of the people is ignored.

                THIRD: Neuhaus calls leftists the “friends of unfreedom.”  Wherever socialist/Marxist ideas take root, people lose their freedom.  Leftist dictators co-operate with loss of freedom whether it is political, academic, religious or otherwise.

                END NOTE: The Shah of Iran was a dictator, but internal unrest was forcing him to yield some powers and give some freedoms.  This was not enough for the Jimmy Carter administration.  They forced him from power before the time was right and the Islamic fundamentalist government came in.  Iran would not be the horrible problem it is today if Carter had not made one of the worst foreign policy decisions in the past century.  To the credit of the George W Bush and Barack Obama administrations, they did not force Mubarak out of power.  They let the people of Egypt develop their own response to the dictator.

Was George Washington a Christian

George Washington

                George Washington was a deist.  At least this is what I was taught and what I believed.  It was not too far-fetched.  The enlightenment had influenced many people to depart from orthodox Christianity.

                But many years ago I read Washington’s Farewell Address.  It contains statements like this: “Of all the dispositions and habits, which lead to political prosperity, Religion and Morality are indispensable supports.”  While this is not an assertion of Christianity it certainly is not a statement a deist would make.

                Then a couple years ago I came across a book called Washington’s God by Michael and Jana Novak.  Michael Novak is a respected Catholic scholar and Jana is his daughter.  Glancing at the dust jacket and through the book I was surprised that the Novaks were making a case for George Washington being a Christian.  Hmmm.

                Now, in the current issue of World Magazine, I see that Westminster Seminary President Peter Lillback did a ten year study of Washington, including surveying the 37 volumes of letters that Washington wrote, and he concluded that Washington was a devout Christian.  His book, George Washington’s Sacred Fire, should put the question to rest.  It is over 1200 pages and contains massive footnotes and documentation.  It responds to arguments like the false assertion that Washington quit taking communion.  (Even prominent twentieth century liberal Norman Cousins, in his book “In God we Trust,” notes that Washington’s temporary cessation from taking communion was “more political than religious.”

                Washington was a Christian pure and simple.  That does not mean that all founding fathers were.  It does not mean that the enlightenment did chip away at the faith of some of them.  Christians should not be led to believe that the founders were monolithically Christian.  After bitter wrangling at the Constitutional Convention, Benjamin Franklin proposed that the sessions be opened with prayer.  His proposal did not pass.  (Nor did it fail, it just was not voted upon.)  If the entire assembly had been all Christian, this would have passed virtually without discussion.  Gregg Singer, strongly conservative and one of the founders of the PCA denomination, says in A Theological Interpretation of American History that deism was a necessary motivator for the American Revolution.

                But on the other hand those who started the United States were not as diverse as modern liberals would have us believe.  They were largely Christian and most of them believed that democracy, free enterprise, and the United States would not prevail without a foundation of morality, and most of them believed that morality would derive from the Christian faith.  Many who want to rewrite American history do so because they want to minimize the influence of Christianity both in history and the present.