Monday, July 21, 2008

Crash Course in Economics

I find it amazing how few people actually understand the basic tenets of economics. We live in an economic, capitalistic society, yet fully 70+ percent of all Americans know nothing about it. But they THINK they do, and that is what keeps them at the bottom of the heap. We tend to build our lives on "foundations" known as "beliefs". If our beliefs are faulty, our lives will not be sound or stable, just as a house with a faulty foundation is threatened by collapse.

And most people have faulty beliefs when it comes to money and finance.

This becomes apparent when you hear liberals saying we should raise taxes on the rich. Either they do not understand economics, or they do understand, but hope that we do not. Either way, it is dangerous, and built upon faulty beliefs.

Let me be clear, if I may. You may not believe the following (at least not right away), but for your own sake, I hope you will at least keep an open mind, and chaw on it a bit.

  1. EVERY dollar paid in taxes is paid by the poor. No exceptions. I'll explain in a moment.
  2. Only 4% of all Americans can achieve full financial freedom.
  3. No matter how many people graduate college, there are just so many positions available at the top.
  4. There is no such thing as "middle class", and there never was.

Don't believe me?

MIDDLE CLASS: There are only three types of financial condition - wealthy, poor, or in a holding area on your way to one or the other. You may call this holding area "middle class", but that would assume that it is not in a state of flux. The rich are rich. The poor are poor. No flux. But the so-called "middle class" is not stagnant. The people there are in the process of working toward one, or falling into the other. It is always in a state of flux. So it is not a "class". Like Purgatory - it ain't Heaven, and it ain't Hell. It's a proving ground for one or the other.

COLLEGE: No matter what the country; no matter what period in history; no matter how much we might want to change it; the majority of people must be at the bottom. As you move toward the top, fewer and fewer people will be found. It is like a pyramid - the few at the top, the many at the bottom, and those in flux in the middle. Can you visualize that pyramid? So, if there are 10 positions at or near the top for every 200 people graduating from college, 190 of those grads are going to be sorely disappointed. Don't think so?

In the 40's, very few people went to college. All they needed was a two year associates degree to vie for the top jobs. So, every parent wanted THEIR kid to go to college so they could get the good jobs. The number of good jobs did not increase, but the number of college grads did. So, employers started choosing only those who got a 4 year Bachelor's degree. So, everyone stated going for the Bachelor's degree. So now employers again had to weed them out by requiring a Master's Degree for top jobs. Then PhD's. Because there are just so many positions at the top.

4%: Throughout history, only 4% of all people ever get to the top, to the point of complete financial security. This is the amount of room that is at the top. It does not change. And believe it or not, our schools and universities are geared to that, because nothing else works. If you have more than 4% at the top, there will not be enough folks below that to hold them up. Ever see cheerleaders in a standing pyramid? It takes two to hold up the top one. It takes three to hold up the two, and it takes four to hold up the three. Altogether it takes 9 to hold up the top one. What would happen if one of the girls in the middle or the bottom joined the girl at the top? The whole thing would collapse.

4% is all that can make it to the top without jeopardizing the entire economy.

I am hoping you are still following me. It's a tough concept, but once you begin to grasp it, everything gets incredibly clear. And then you increase you chances of inching closer to the top - and farther from the bottom!

All things trickle down. The rich guy pays the employee. The employee pays his gardener. The gardener pays for his groceries. Now, liberals want us to believe that everything flows UP. Give the poor more welfare, more money, and it will get spent and flow up to the rich guy. Sounds good, I know. But it is phony. Want proof?

When was the last time you asked a poor person for a job? Or, the money that liberals give to the poor - where do you think it came from? Certainly not the poor! The reality is that everything flows up AND down, but it starts by flowing down. If it does not go down, there is nothing for the folks to spend, so it cannot get back up to the rich. Again, when did you ever get a paycheck from a poor person?

But if money flows down, why aren't the poor getting richer? That's simple - look back to that pyramid. If the rich guys puts $100 into the pipeline, by the time it filters down to the masses at the bottom, each will only have a dime. You are splitting up $100 among 1000 people - it's the pyramid again. The $100 in the hands of one person represents certain wealth, but distributed among 1000 people, it represents poverty. And that is why the poor stay poor. As Jesus said, the poor will always be with us. They have to be. They are the base that holds up the pyramid.

OK, so we are almost there. Let's see how and why the poor pay EVERY dollar of tax, and the rest of us pay none. Really!

Let's assume Poor Guy eats Ramen soup, because it's all he can afford. Liberals get elected by promising the poor that they will tax the rich, and use the money to help the poor. Since there are more poor people than rich people, they get voted in. So now they tax the Rich Guy an extra 10%. Sounds good, huh?

But look closely. Every expense a person has is a COB (cost of business), or COL (cost of living). And whenever we create and sell a product or service, those costs are factored into the price. They have to be, because Uncle Sam does not allow us to print our own money - only the government can do that.

So, you increase Rich Guy's tax by 10%. He deals with this as with any expense - he adds it to the cost of his products and services. The folks who buy those products and services are, therefore, paying his taxes for him. And so the Rich Guy who makes Ramen increases the cost of the Ramen that the poor guy has to eat. And the poor guy is now paying the taxes of the rich guy by way of higher prices on the Ramen.

Did I just hear some wiseguy say, "I pay taxes, but I am just a guy working for someone else. I can't pass my taxes off on the poor. I gotta pay my own." Nope! You don't. Your taxes are one of your costs of living. As your costs of living go up, you demand a cost of living raise, which covers those costs (including taxes - where else will you get the money to pay them - you ain't got no money tree, Bubba). So, in truth your taxes are paid by your employer, who must now increase the costs of his products/services in order to cover your raise, because he ain't got no money tree, either. And the folks who buy those things end up paying your taxes.

No matter who you are or what you do, if you "pay" taxes, ultimately those costs gets filtered down and passed to the poor. They are the only ones who are not in any position to pass them on, because there is no one below them.

The short of it: when a whale craps in the ocean, it falls to the bottom of the sea. So, any and every tax is paid by the poor. Increasing the tax on the rich - or anyone else - results in the poor getting poorer.

Taxing the rich, then, is not the solution - it's part of the problem. So what, then, can we do to make things better?

That's easy - you reduce the burden on the poor by reducing taxes. And you reduce taxes by requiring our legislators to spend our tax money more wisely. You require they give up ALL "pork barrel" spending. You require, with your votes, that they monitor costs - no more paying $1500 for a toilet seat. You require that the government, like yourself, should live within its means.

There are two ways to accomplish this - one is temporary, the other is permanent.

The temporary method is to "fire" every single legislator in office, regardless of party by voting for the opposing candidate. This sends a clear message to all other politicians and aspirants - do the job, and do it right, or dust off your resume and go back to working for a living! Start with the coming election - vote against every incumbent, to stir things up and send a very clear message. Say, "Work for me and not yourself, or look for another job". The current legislators have not been doing the job, and every one of us knows it.

Voting out EVERY incumbent is the only way to take back control of the government.

The permanent solution can and should be accomplished by first using the previous temporary method, then tell every new legislator that if they want to serve a second term, they had better vote in the "Fair Tax" (look it up, and learn more about it at This places a lower burden on everyone, provides adequate revenue for the government, and places the power and authority to raise or lower it to the people. The legislators would no longer have that power.

And it reduces the burden on the poor - they will still be poor, but not as poor as they are now. And why is that important (other than being the moral high ground)? Because everything flows up AND down. The more money the poor have, the more they can spend, and funnel back up into the economy. And you, my friend, cannot get your hands on money that is not moving. The Fair Tax moves more money through the system, faster and easier.

If you seriously want to move upward in the pyramid, and if you want America to become stronger and financially stable, think about these things. Then get the changes made at the voting booth. Because that is where "real change" occurs. Is starts with YOU, not the politicians who seek only to empower themselves.

No comments: