Tuesday, February 24, 2009

How Money Works

It seems that a great number of Americans have a very wrong-headed idea as to how an economy works. And they get that wrong-headed notion from liberals who simply do not understand the first thing about economics.

How can I say that? Because it is a proved scientific fact. People who are liberal thinkers are proven to think with the right, creative side of their brain. Creativity should be left to them. Conservatives, on the other hand, tend to think with the left, analytical side of the brain. Analytics should be left to them.

Economics is a study in analytics. If economics were simpler - as simple as liberals believe - it might be a different story. Economics involves long, complex strings of incidents in order to reach a conclusion. That requires analytical thinking. Therefore, conservatives are better able to comprehend economics far better than liberals, and few liberals have any true concept of economics at work.

If you are a liberal, that leaves you with but two choices:

1) You can choose to dismiss the science and stick to your wrong-headed ideas, or
2) You can accept the truth, and learn from it. In doing so, consider leaving economics up to those who are better at it - conservatives.

Now that we have the science out of the way, we can present a basic understanding of economics in terms that almost anyone can comprehend.

The first thing to learn is that the "trickle down" theory is the ONLY economic model that works. And here is why:

If a rich business owner has more money, he wants to become richer, naturally. To do that, he must invest much of that money into his business. He must expand, hire, and produce more product or supply more service. That is how he gets richer.

Now, the money he is investing goes to jobs, salaries for his employees, benefits, and inventory, which in turn results in other businesses having to hire and produce. The money has already begun to trickle down, and will continue to do so as those employees spend their salaries.

If, on the other hand, the rich business owner has less money, he can no longer expand, hire or produce more, or buy more inventory from other businesses. And income begins to dry up. And jobs dry up with it.

You now see how money trickles down if the rich have money. Now let us see what happens if you take that money from the rich and give it to the poor, as liberals want to do.

First, only 5% of the people are rich - in number of families that comes to roughly 6,500,000 families.

Now let's take money from that 6.5 million and divide it up amoung the remaining 125 million families. As you can see, every dollar taken from the rich only results in a nickle to each poor person, because the numbers of poor are so much greater than the rich.

Now let's assume each person's collection of nickles comes to, say, $10,000. Can a poor person hire anyone for $10,000? No. He can only spend it, or save it. Being poor, it is unlikely they will save it. So, they spend.

It is this spending that leads liberals to believe this is how an economy grows. If people spend, businesses must produce more products, and hire more people. But that is exactly why liberals should stay out of economic theory. They do not think it through, because THAT requires analysis. Because if you recall, the money for expansion and production was taken from the rich in higher taxes and given to the poor. And they are still paying those higher taxes, leaving less profit with which to grow.

For example, let's say each poor person now goes out and spends $10,000. Instead of creating an environment for businesses to expand, the real result will be a shortage of products, because people buy available inventory, but businesses are not adding to the inventory. Why? Because the money they WOULD have used to hire and produce has already been taken from them, and CONTINUES to be taken from them in increased taxes, to give back to the poor. So, more product is being purchased than can be produced and replaced.

The result: supply dwindles, causing higher and higher prices. And the higher prices mean the poor actually become poorer, because that gallon of milk is no longer $4.00, but $6.00.

So, here it is in a nutshell. Businesses are the proverbial Golden Goose. And the goose lays Golden Eggs, which we refer to as jobs, products and the taxes that pay for everything - roads, schools, defense, medicare etc. The rich already pay 71% of ALL the taxes, and the poor already get all the benefit of that, without having contributed at all. The poor use the same roads the wealthy paid for.

Now, we can either feed the goose (lower taxes), and care for it so it will continue providing more and more eggs that we need and enjoy, or you can starve the goose (higher taxes), resulting in fewer and fewer eggs being produced, resulting in unemployment, recession and poverty.

Feed the goose, or starve it. Now THAT is a choice that even liberals should be able to understand.

Of course, you can do what Pelosi, Reid and Obama want to do, and carve up the goose, feeding it to the masses (socialism). But if we do that, please do not be so naive as to think there will be any more eggs. A dead goose cannot lay eggs. That is why socialism has failed in every nation where it was tried.

Under socialism, the wealth of the nation is evenly distributed. If you are going to get exactly what everyone else gets, why bother to work harder? Or try harder? Or be innovative? Why put yourself at risk to start a business if the income will be taken and given to others? Eventually, no one is contributing because it is easier to just take your "share". But if no one contributes, your "share" eventually becomes ZERO, because there is no more wealth to share. No one is creating it. The ONLY people capable of creating wealth are the rich, who own and run businesses. But socialism kills them off.


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