Friday, October 22, 2010

Paul Krugman: The Sky is Falling!


Mr. Krugman's latest article, British Fashion Victims, misses the mark by a wide margin. He should really just stop writing and put his pacifier back in his mouth.

Mr. Krugman says that there may be a time for austerity in Britain, but the time is not now. Not when there are so many social programs that need to be given a chance to work. Unemployment is high, you know.
The operative word here should, however, be “eventually.” Fiscal austerity will depress the economy further unless it can be offset by a fall in interest rates. Right now, interest rates in Britain, as in America, are already very low, with little room to fall further. The sensible thing, then, is to devise a plan for putting the nation’s fiscal house in order, while waiting until a solid economic recovery is under way before wielding the ax.

What is going to get an economic recovery underway? More spending? More debt? Expanding the welfare state? More taxes? More regulations? The answer is right in front of his face, in his own article, and he still fails to see it.
Britain came to rely too much on profits from wheeling and dealing to drive its economy — and on financial-industry tax payments to pay for government programs.

Over-reliance on the financial industry largely explains why Britain, which came into the crisis with relatively low public debt, has seen its budget deficit soar to 11 percent of G.D.P. — slightly worse than the U.S. deficit. And there’s no question that Britain will eventually need to balance its books with spending cuts and tax increases.

The British government (and the U.S. government as well) should try not only spending cuts, but regulation cuts. As far as tax increases are concerned, where do tax increases end? How much of the labor of individuals can the government claim to own?

All wealth is held by individuals. It can only be confiscated by the government. A corporation is made up of individuals: Its governing body, stockholders, and employees, serving one primary function, which is to make money. A business, if it expects to survive, sees taxes and regulation compliance as costs of conducting business. These costs are passed on to the end consumer, which is the individual. Therefore, all taxes whatsoever are borne by the individual who pays those "hidden" taxes and costs in the final price of the good or service. Why is this so hard for someone such as Mr. Krugman to understand?

Want to solve the unemployment problem and the revenue problem at the same time? Eliminate corporate and capital gains taxes. Duh.

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