Saturday, June 12, 2010

The "Macro" Could Learn from the "Micro"

The headlines that dominated the news from Congress this week could be summarized by one seen at Bloomberg.com: "Republicans Thwart Bill With Unemployment Aid." That dastardly GOP, always hurting America's poor! The fact the national debt is now growing at a rate of $1 trillion annually, has finally become an issue to Republican members. Bloomberg notes: "The latest version would have added $33 billion to the budget shortfall...Republicans said the cost-cutting didn't go far enough." The Obama administration initially sought $50 billion in aid.

But the cost was not the only concern. The truth is, Republicans are worried that, after months of financial assistance, those on these benefits may be getting too used to getting 'something for nothing" and are concerned about what affect such plans are having on job searches. It is not much different from the forty something sons in the movie "Step Brothers," you have to give these guys an incentive to take care of themselves. Sure, in the long term, subsidy of adults makes for a funny movie, but also for a disastrous domestic policy. Such policies foster long term dependence and poverty, when people are needing economic freedom and the prosperity that comes with it.

I have spoken before of my father-in-law from Minnesota, whom I consider a friend and really enjoy his company. We both love golf, classic rock, and my family, but when it comes to politics, we tend to have to keep our conversations short. One time when, he and I were both golfing we began discussing his future retirement, at that time he noted that he planned on moving to South Dakota. I knew he was from there originally, but I also knew he loved his adopted home. So I asked him why he was leaving and he said, "that's easy, South Dakota has a much better tax situation for retirees than virtually any state in the country." I cannot begin to state the many times he had told me how unpatriotic businesses were to leave the country because of tax and other laws.

Obviously I couldn't resist, "so here you are, the average American, who is smart enough to change where you live to protect your wife and you from higher taxes, but you don't expect businesses to do the same thing with often large numbers of employees and even greater tax implications?" It is very rare to get him to get quiet once we get started (and he would say the same about me), but he had that knowing look on his face that this conversation was now done.

The United States has the second highest corporate tax rates of any industrialized country in the world and could be number one in this dubious area as early as next year. Businesses are about efficiency, profit, and looking out for the interest of its stockholders. Taxes, like regulations and licensure laws, are just a fixed cost of doing business. If the costs get too high, businesses have no choice but to move to better places for commerce. It isn't personal, it is just business and now it is easier than ever to do such.

Most of the things that work or don't work on a micro level, translate the same on the macro level, because in both cases they include human nature and humans tend to respond to incentives (and disincentives) the same way. If the government could eliminate their fantasy and replace it with reality, all of our lives would be so much better. If you work more, you make more in business, but we want a tax system that equalizes the rewards of our activities? If companies do that, they go out of business. As we look at economies all over the world, so do countries. We need to elect public officials who will ask the question, "would the approach of this policy work in my home, my work, or any other part of my life?" If the answer is no, it will not work for the nation. That is economics in the real world and that is exactly what this country needs, a little dose of reality.


Post a Comment

<< Home