Friday, April 18, 2008

Economics 101

Apparently, in order to run for President of the United States, you have to trust in the complete ignorance of the American people of the basic economic principles of capitalism. This is not difficult given the criminally inadequate public education system which allows most citizens to remain blissfully ignorant. For those of you who care but slept through high school, let me offer you a brief refresher-course.

First, the idea that you can raise taxes on “the rich” and it won’t effect the rest of us is a myth. When you raise taxes on “rich” people, they have less money to buy stuff (cars, refrigerators, jewelry, boats, clothes, shoes, eating in restaurants, etc.) At this point, you might say, "Gee that's too bad for them. They could survive with one fewer trip to Ruth's Chris this week." Here's the problem. When people buy less stuff, companies that make it will not need to make as much. If they don't need to make as much, they don't need to employ as many people to make it and people will lose their jobs.

Second, the idea that you can raise taxes on “evil corporations” and it won't effect the rest of us is also a myth. Taxes on corporations are factored into the price of the goods and services that they produce. Corporate taxes are passed on to the consumer (me and you) which means the price of everything goes up.

Finally, in a capitalistic democracy, government does not set the price of goods and services. For those of you who want to blame George W. Bush for everything, that includes the price of oil. Nor do "special interest groups" Senator Obama. So who does? That would be called "the market." If the price of a good or service is too high, no one will buy it. If the price of a good or service is too low, the producer will be unwilling to produce it and sell it. The point where those two factors meet is called the fair market price.

For more on this stimulating topic, see Dr. Barry Richie or read Wealth of Nations by Adam Smith. I recommend the former.

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