There are surprisingly few "laws" in economics. All of them keep being beaten up by liberal political economists, but their fundamental truth remains.
In my "Econ 101" course, seeing the relationship between income and consumption was a minor epiphany for me. The poor spend more than they produce and the rich spend less. This means that the rich have the ability to save and invest. Oh how I wanted to be rich--to produce more than I spent to let the money pile up like Scrooge McDuck. With no athletic ability, no audience-attracting appearance or skill, and yet enough math skills to understand that Off Track Betting would more likely impoverish me than enrich me, I worked hard and climbed from the middle class to the 1%.
Well, if big government looks at the same chart, they think, "Wow! I can tax that away from the productive rich and spend it better than they can. At least it will get spent and be recycled into new kidneys for drug addicts, sex change operations for convicts and $800 toilet seats for aircraft carriers." And of course, that's what the big government types continue to think. "We must spend everything. We may call it investing in higher education, but in reality we're spending taxpayers' money getting young people into debt buying worthless educations in theater arts, diversity training, gender studies and art history. We may call it investing in green energy, but in reality we're hiring Americans to do what the Chinese can do for a fifth the cost."
Conard's book comes out just as everyone is thinking about the 1%. Yes, about 3 million Americans are somehow able to generate 20% of the income and 40% of the income tax receipts. One kid in your third grade class or in the classroom next to yours or the classroom across the hall has an income equal to one-fifth of all the income earned by all the students in all three classrooms. He's paying two-fifths of all the taxes collected from three classrooms of kids. That kid--whom you can't remember--is the problem. He's the guy who should be spending more so the economy could recover. Forget the fact that confiscating all that the 1% earn, less what they need for subsistence and what they already pay in taxes, would not eliminate the $1 trillion per year deficits that only grow over time. It would however make it difficult to find college students willing to work hard (i.e., take engineering, science, and math classes) and take risks (i.e., leave cushy jobs to start new businesses). Very few people buy lottery tickets when the jackpot is low.
Woah! I'll bet that kid you can't remember didn't get his money from his parents. They gave him his genes and taught him to do his best, but the 1% in the US is not generally hereditary. He may be in the 1%, but it's likely his kids won't be. The children of athletes, the children of entertainers, and the children of politicians seem to inherit more from their parents than the children of the 1%.
Conard's book comes out after the economy had experienced a financial panic and responded poorly. He demonstrates how poor the response was. Asset prices--houses, stocks, etc.--had skyrocketed. Institutional investors withdrew their money from the banks as asset prices collapsed in respinse to the panic. Housing prices were off 30% and stock prices were off 50%. The system needed cash and the government gave it to their friends. The unions were given General Motors. The big banks were given TARP. The public service employees were given "stimulus." Millions stopped working for paychecks and started collecting unending unemployment and cash in the underground economy. The government boosted spending to 25% of GDP. Of course, nothing happened but for running up $5 trillion (so far) in debt.
Conard is sketical that anyone can bring spending down. The recipients of government largesse are much tougher than the providers.
Conard demonstrates that the US, not Europe or Japan, is the economic model that works. He goes further to say that America has created far more jobs than other high wage countries--jobs here for office workers, jobs here for immigrants, and jobs in China and other developing countries for people who don't emigrate to the US. He's far more realisic about those latter two groups and our success with them than most politicians are.
Perhaps what's greatest about this book is that it's "foundational." Complete as it is, it suggests no end of enquiry into thinking quanitatively about the overwhelming second- and third-order consequences of economic actions. How is it that after all the money spent on "poverty" programs, we have more poverty and not less? How is it that one in seven Americans needs food stamps? How is it that student loans create graduates unable to pay-off their student loans? How is it that Medicare creates a market for $6,000 wheelchairs for people who used to get by with $100 walkers?
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- Reviewed in the United States on August 24, 2015
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Top reviews from other countries
- Sarah AllenReviewed in the United Kingdom on February 27, 2018
Good account of crisis
