The Plain Simple Truth

Keynesian Economics : An Analogy

I.V. Baker — Wed, 16 May 2012 16:52:02 +0000

The Plain Simple Truth is Keynesian Economics ‘can’ work. To those who do not know what the basis for Keynesian theory is it is simply this. John Maynard Keynes explained that in this new age of industrialization there could be a third group of the unemployed. Those that wanted work but due to economic conditions no one could hire them. He then further postulated that in a case like this, were a government to go into debt for a short time to provide employment to these people, a recovery would take place. This would be due to that money being in the hands of people who wanted work, who now had work, going and purchasing things with that money. This would mean that shop keepers would hire more people, and in turn have to purchase more things from factories, these factories would of course have to hire more workers to produce those goods, and viola and the economy would improve.

I have found often times, that analogies allow us a greater insight to understanding that which might otherwise be lost. In the case of Keynesian Economics imagine if you will a dam that holds a tremendous amount of water, now imagine that there has been a drought that has lowered the level of the water by a large amount. The Keynesian thought process is that rather than wait for the water level to return to normal naturally you need to simply pump some water into it to bring up the level of the water.

On its surface this makes a great deal of sense and to be honest I believe that if we practiced Keynesian Economics in a wise fashion it could be a great tool. However there are several dangers to this practice, a few of which I will speak of.

You see droughts are often times simply a part of the natural course of events in the world, followed by years of above average rain fall. We as humans like things to stay how we want them to and not be subject tot he laws of nature. While I am not a naturalist of any kind I also know that there is futility in trying to stay the waves of the ocean simply because I will it so. When we interfere and pump extra water into the dam it may well be in a few years that a deluge will come and because there was not adequate room you end up creating a new problem because of the solution you came to before. Now with sound thinking and preventative measures even these effects can be mitigated, but we must be wise in the execution of our construct.

Now the anther danger is this, at times we only see the effect and misinterpret the cause. What if the reason for the water going down is not only due to drought but due to an infrastructure problem ( pun intended as most Keynesian theory centers around infrastructure projects to provide ‘stimulus’ ). If the dam has a hole in it which is pouring out water then is it not futile to try to fix the situation by adding more water behind the dam?

Before 2008 we had gotten use to a deluge of rain, money seemed in ample supply, we did not notice the leak which was pouring out money because it was in ample supply. Then the drought hit suddenly and our attention was turned to keeping the water level as high as possible. We turned to Keynesian Economics and poured money in at an astonishing rate. Yet the water level did not stabilize as we needed it to. The spigot is still turned on, we are even now watching the water flow continuously, for will we not have yet another Trillion in deficits this year despite the ended stimulus last year? People say that we needed a bigger stimulus yet has the budget shrunk at all? Is not all deficit spending a form of stimulus?

Currently, we pray for the deluge to return, this current drought has sucked away a great deal of our strength and we worry that our crops will wither and we will die for thirst, would it not be wise to examine the hole that exists in our economy and begin to repair it? This gaping hole of course is the trade deficit. Over half a Trillion a year is lost through this horrible hole. Is it any wonder that the additional funds that we threw at the economy had little lasting effect?

The economy will recover. It is part of the nature of economies to rise and fall, just as the ebb and flow of the tide. Whether it be under Obama or Romney the economy will improve. Did not the GDP of the Soviet Union improve from one year to the next? Even under the worst economic conditions ever yet there was still growth.

If we do not repair the dam we will find that we have lost so much that we could have had. We will see that the growth that we now have is nothing when compared to what may have been. Let us trade but let it be trade of equal value. Let us not become Greece, or Italy, or Spain, who borrowed money to fill the dam but never once thought to stem the loss of money that escaped swiftly from their countries crumbling infrastructure.

Taxes

I.V. Baker — Thu, 12 May 2011 18:39:28 +0000

The plain simple truth is increasing taxes on one segment of the population is not going to change the revenue coming in significantly enough to make a difference when compared to the shear volume of spending estimated to occur.

I will say this simply, Bush spent too much money. Obama makes Bush look like a Conservative ( Bush was a centrist and did not mind spending increases across the board for social and military spending ).

So how do we dig ourselves out of the hole? The sad truth is somethings are going to HAVE to be cut, or else our GDP is going to have to significantly increase ( hopefully NOT through inflation ). we have been riding the Social Security High for 30 years and all that happened is that it kicked the problem down the road. The truth is this is about to turn for the worse and that means bad times ahead.

The military is a paltry 25% of our federal budget. Even if we cut it in half we a trillion dollars in debt. If we eliminate it entirely we are still half a trillion in debt.

Would putting people back to work help? Of course, it may close the gap an additional $250 Billion. Add onto that the $100 Billion from an increase in taxes on the Wealthy and you have almost a balanced budget again.

The additional taxes are almost NOTHING in comparison to the need to cut spending.

In the end Congress MUST check itself in spending, it must reduce spending by as much as 20% in order to achieve a resolute balanced budget. But they know they cannot do that without causing another downturn in the economy. The only reason our GDP went up under Obama is the massive Deficit spending.

Response to “Taxing the Rich : Its All Relative”

I.V. Baker — Sun, 28 Nov 2010 20:03:23 +0000

The plain simple truth is at times I read articles that set me fuming. Not because the article is not well written or that it does not indeed support itself in a convincing or articulate manner. Rather I get upset when people have a caviliar attitude toward taxation and the repercussions it has on people. I just read an article by ROBERT H. FRANK of the New York Times entitled “Taxing the Rich : Its All Relative” ( you can view it here if you really feel like it and it is still available ) In which he explains to his friend that the rich do not notice the effects of increase taxes because wealth is all relative and they won’t miss the money they don’t have anyway.

He explains basically that it is never about the money but a standard of living and so long as everyone has to change the standard of living at the same time then who cares… TO this I can only say that Mr. Robert Franks most likely has never actually had to run a business and meet a payroll. Perhaps that is the problem in life is far to many people are employees rather than employers. Every cent that goes to the government as a business owner is one more cent that I have to figure out how I am going to make up for. When a tax increase ( regardless of what form it comes in ) hits it hurts. It makes you want to ask the question, why bother going any further.

While I am currently not near the $250,000.00 a year that equates to the 40% of every dollar you make going to the Government I know how it feels as you climb the bracket. I know that when you are looking at the bracket increase and you are a small busniess owner you start asking yourself if you really care to cross it. That additional percentage that the Government takes hurts. Now many may be saying, “Gee I wish I were in that position where that next step would hurt, I mean I would be set!” Well perhaps if you are coming into money without having to actually earn it you may feel that way ( old money, huge corperations, etc ) but when you work 80 hours a week to make what you have you begin to get a little stingy with what the idea that you do not ‘earn’ it. Most households if they actually worked those kinds of hours even at minimum wage ( in a dual income household ) would be pulling in $60,000.00 a year. That is working at minimum wage!!!

It is not alright to simply take money from people because they have it. If they choose to share it fine, but to simply take it is just dumb. Mr. Franks also states that there is no collaboration between increased taxation and slowing the economy down… Well of course there isn’t when you are deficit spending the way we are!!! but the moment that you ‘Balance the Budget’ and stop spending more than you have you will see a real effect on the economy!!! there have been hundreds of papers written on this subject, I cannot believe this man is an economics professor and can make the statement he did!

The plain simple truth is that taxation is a trust the people give to a government. It is interesting how the economics professor seems to understand that cutting spending on government programs would be bad, yet taking money from private individuals is fine, they won’t miss it, after all, wealth is relative. The truth is this is a narrow minded, self-centered, bottom envy up looking set of hogwash drivel that makes me truly dislike the New York Times because I can simply imagine hundreds of thousands of people, who rather than actually having to think fro themselves and challenge the ideas asserted in this piece simply agreeing with the well articulated drivel spouted. Not to say I am well articulated or even make sense to others but at least I don’t consul others in their attempt to simply strip wealth from others.

Children and Politics

I.V. Baker — Thu, 18 Nov 2010 15:46:50 +0000

The plain simple truth is that children often hear their parents discussions on politics and obtain a cursory knowledge of what is going. However, rarely do parents take the time to sit with children and actually engage them in a one on one conversation. This may be for a number of various reasons but the main reason may well be that there are not many tools out there for Parents to use that allow children a base to build upon.

There actually are a few children’s books out there that provide a base for understanding and one of my favorites is The Fisherman’s Catch : A Conservative Bedtime Story written by Thomas Wright. It is a fantastic book and well worth the money. It gives a strong base and foundation for kids in the area of taxation and wealth redistribution but does so in a way that a child from the age of 3 all the way up to the age of, well heck Adult can understand.

You can buy the book currently only direct from the Author ( he Self-Published ) here at Conservative Bedtime Stories. This is a book every Conservative should have in their library.

Obama Asks the Question to Republicans

I.V. Baker — Mon, 15 Nov 2010 23:21:51 +0000

The plain simple truth about the new Republican congress is that there is no way to ‘pay’ for the George Bush tax cuts. This is true for a couple of reasons. First, you do not ‘pay’ for a tax cut, a tax cut is what occurs when the Government stops spending so much, or at least people stop giving the government so much. In this case Obama is attempting to frame the discussion around the idea that the ‘rich’ are being ‘paid for’ by the average American taxpayer, rather than the truth of the matter which is the Average American taxpayer ( of which I am one ) is being paid for by the ‘rich’.

This attempt by President Obama to redirect the question should be answered very simply. Rather than expand Government at the rate it currently is growing at, you simply slow down the rate of government growth in comparison to the growth of the economy. This is what occurred during the Clinton Era ( well along with increased taxes ). But during the Clinton era the economy was increasing at a high rate and taxes were kept lower than the rate of inflation, thereby diminishing the National Debt.

It is this logic that can be employed even today with keeping taxes low, however it requires a fiscal discipline not seen since the congress under Clinton ( who were Republicans ) that fought against almost every form of Government increase in spending.

This was not continued under either Bush or thus far Obama, which is the reason we are now approaching record deficits and have to ask ‘How are we going to pay for the tax cuts’, which must be one of the stupidest questions that have been uttered in many a year politically but with a media all to ready to shrug off statements like this and instead hold Republicans feet to the fire rather than Democrats all that can be done is boldly stand and educate people on the best way to fix the mess that we are currently in.

Fiscal Conservatives are the best cure for an out of control Government. The plain simple truth is that we need more of them in office to make a dent in these problems and they need to be in for decades not just a few terms.

Democrats Set to Lose Seats

I.V. Baker — Wed, 08 Sep 2010 03:02:43 +0000

The plain simple truth is that Democrats will lose seats this coming election. Some speak of this with ill feelings cursing Republicans and gripping about how the economic mess we are in is really all their fault. Republicans cheer the fact that the world is finally seeing the Democrats for what they are.

Both sides are misguided in their interpretations of this information. First, Democrats claimed they could clean up the ‘economic mess’ left by Republicans ( this despite the fact it was not caused by a political party ) after controlling house and Senate for six years people have finally come to terms with the fact that Democrats cannot in fact fix the problem. The Democrats had carte-blanche for almost two years and all they managed to do is spend more, and more, and more. With little in the way of bettering the economic lookout.

Currently the only chant Democrats have is, “Do you want to relive the failed policies of the past?” Which is moving to the converted, however falls on deaf ears of those that see that the politics of change have not moved us to a more stable economic or social ground. There is nothing they can boast of, indeed if anything you can look at the last two years and have to ask, “Did Democrats make things worse rather then better?”

The answer to this is a shrug and a hum-haw sound. It is hard to say. They certainly have created an air of uncertainty for business, passing more regulatory legislation then has been seen in perhaps fifty years. They promised the stimulus would fix the economy ( however you should read up on why it can’t fix the economy at our other post here ) since Keynesian Economic theory does not work for a country that has off-shored its production facilities.

The only problem for Republicans is all they will be able to do is tell the president ‘No’ which is actually a good thing for any Congress to do. Telling the president ‘No’ is why Bill Clinton managed to cut into the deficit spending as much as he did since Congress at the time did not allow any new spending to take place. Will the Republicans be able to fix the economy? No… the plain simple truth is until we cut back on government regulation and spending there will be little growth. We have entered the age of the European America. China and India are on the move and will soon overtake us. The only way to come back from this is to jettison the baggage we have accumulated over the years. Streamline the tax code. Simplify government involvement in business, etc, etc… Can this be done. No, there is simply not the political will.

Giving Business a Break, Too Little Too Late?

I.V. Baker — Tue, 07 Sep 2010 13:43:19 +0000

The plain simple truth about the Obama administration is that they have been thoroughly anti-business now for the last two years. All of that seems to have changed with the new latest and greatest proposal. Basically the Obama administration wants to give small businesses a tax break ( finally ) however they are using fuzzy math once again in order to accomplish it ( see the AP Story here ) promising a $200 billion credit package which will only ultimately cost the american ‘tax’ payer $30 billion in 10 years as the economy improves.

Is this from the same economic team that said we were going to have a recovery summer? Do they actually know how math works and that while investment does help companies grow that this kind of ‘investing’ is about as passive as you can get? Why not create something long term in which companies and the people that invest in them could rely on LONG TERM, like say a reduction in taxes? Giving companies a short spending spree will not create sustained manageable long term growth. Instead it will prop up short term stability followed by instability once the program ends.

Examples that have occurred thus far of this same mentality are the housing credit and cash for clunkers program, both short term shot in the arm followed by stagnation. Short term economic rigamarole’s end in no true gain for anyone except those that take advantage of them for the short time they exist. The plain simple truth is these kinds of economic stunts get ‘ratings’ on a political level but are nothing more then headline grabbing attention getters and show an administration more bent on popularity then actually fixing this nation.

The Party of ‘No’

I.V. Baker — Mon, 06 Sep 2010 17:45:35 +0000

The plain simple truth is we need a party of ‘No’. Change is not typically a good thing. It unbalances things. Often times creating a larger issue then what really was around in the first place. Did we need a Health care bill? Do we need additional regulations on banks? The moment something becomes economically inviable then we stop doing it.

A perfect case in point was what occurred in the housing market. Does anyone honestly think in the next 50 to 60 years banks are going to make the same mistake? Of course not, however new regulations have now made it so that start-ups and other entities are going to have a hard time entering into the foray of the ‘Big Boy’ banks.

What about healthcare? Look the idea is noble, however more people spend more on cars and car insurance then they do on their healthcare insurance. Admittedly costs have been increasing at a tremendous rate, however little of it has to do with anything other then increased demand and the need for doctors to make sure they are covered if they get something wrong. Once again regulation, which improves quality, also of a necessity increases costs.

What we need is a party that will stand up and say. No. No more. It is not needed so don’t do it. I do not want my politicians to go to Washington to ‘DO’ anything. All to often they feel like they need to effect change, rather what I want is a politician that can look at the long term consequences of choices and say, “No”.

Unfortunately we not only now need a party that will say ‘No’ but one that will say, ‘chuck what we have done’. The plain simple truth is this is hard to have occur because people become dependent/expectant on programs instituted by the government. It takes a great deal of self sacrifice to be able to say, ‘I will make due’ and Americans no longer have what it takes to do it.

Glenn Beck 8-28

I.V. Baker — Tue, 31 Aug 2010 02:16:51 +0000

The plain simple truth is that the 8-28 event hosted by Glenn Beck was in many ways a simple form of protest about how bad the media is ignoring and marginalizing a segment of society. They are those that have felt left behind by the media and abandoned by the press. It does not matter if it was 78,000 or 500,000 people, they came. They came because they wanted to be counted.

I have read many differing thoughts on whether the event was a success. Well that depends on if you consider the five million dollars raised to the Charity a success or not. Perhaps it was, perhaps not. But for the past several days leading up to and then after the event all I can hear is how bad Glenn Beck is. How dare he this, or moron that, or zealot, etc, etc…

What I heard as I stood there was nothing of the sort, it was theologically well reasoned ( i.e. if you accept the premise that there is a God ). Moving at times and funny at others. It was Glenn’s Event so I suppose the true question is did it accomplish what he meant for it to accomplish. If it did then it was a a success.

The plain simple truth is that often times we become engrossed in other peoples definition of success and forget that it is what we do that counts, we are the masters of our destiny. Perhaps that is what bothers the press the most. That they cannot seem to destroy a man. A man they hate. Instead he simply continues to succeed. Another question may well be why are they trying to destroy him?

Loss of Freedom

I.V. Baker — Thu, 12 Aug 2010 04:29:25 +0000

The plain simple truth is whenever a law is enacted it means a loss of freedom. Laws are meant to constrain, bind, and enforce. There are very few laws that are actually needed and when we begin to create a system of laws such as we have now, that allows people in Washington absolute authority ( cause the courts are partisan now as well ) to subject others to their will.

There was a time when so long as the law didn’t say you could do something, you could. Now even the law does not state something it can be implied to state it by an agency and you can be fined, imprisoned, and in general open to prosecution whether it is warranted or not. Typically the warranted is simply a matter of opinion, rather then just cause.

In the end it will be interesting to see how many laws we bind ourselves to before we see that what we really need are fewer laws and more opportunity. None of the laws passed will stop the next bad thing from happening. Such as the housing bubble. Typically the just make it harder to fix things through the red tape.