Wednesday, December 31, 2008

Economic Policies and the Standard of Living

It is regrettable that we keep forgetting what history has shown over and over to be true, because truly, it is a hard and destructive lesson to keep learning. Perhaps it is just something that every generation has to learn for itself. The political and cultural changes that come from these economic transitions will be key to the direction and quality of life for future generations. But I am hopeful because of the strength of the American people and the increased number of voices recognizing that liberty really is the only way to peace and prosperity.

This is from Ron Paul's blog Texas Straight Talk. Many feel as though the government is simply growing out of control. It is important to remember a simple rule: big government gets bigger, not smaller. There are a few ways to stop this:

1) Elect people who run on the platform of making government smaller (and holding them accountable to that).

2) Make it clear to your representatives that you will not be supporting them if they support expansionary governmental policies.

3) Educate yourself and educate others about the pitfalls of big government.

The very best thing you can do is all three. Unless people understand why certain economic policies and approaches by government are faulty, nothing will change in Washington. At the very least it is important to understand why big government is the wrong policy if you care about prosperity.

What struck me in Paul's post this week was how he emphasized that the quality of life of future generations will be directly affected by the economic policies that our government implemants. This could not be more true.

As you may know, I have started reading the excellent book The End of Prosperity. So far they have explained how cutting tax rates across the board has raised the standard of living for all. By cutting tax rates on the rich, the government can actually take in more, thereby increasing tax revenue. This is because when tax rates on the wealthy are very high such as 60, 70, 80 percent there is less incentive for them to produce more. Why should they work hard if every additional dollar they make they only receive .20 (based on 80% tax rate)? But if the tax rate was, say, 20%, they would have much more incentive to produce. This theory (which has been proven to be correct) of increased tax revenue through decreased taxes comes from The Laffer Curve.

What is going to hurt the quality of life for ALL Americans is going after the wealthy and taxing them more. The top 10% pay for more than 50% of all taxes. What has happened in the past, according to statistics in The End of Prosperity, is that while the rich do in fact get richer when taxes are lowered, everyone else's standard of living is increased. Would it not make sense that when more is produced and there are incentives in place (lower taxes) to produce and earn more, that the standard of living for all would increase?

This is why the standard of living statement by Paul struck me. The economic policies that Obama has proposed, where the wealthy have an even higher tax rate and the government grows even larger will not raise the standard of living for all Americans. This has been proven time and again over the past century.

Paul is correct, though, when he says it is inevitable that the American public will see that these policies simply don't work.


Budsy Jean said...

I'm sure that you have read these before, but it never hurts to read them again. They have been widely attributed to Abe Lincoln, but they were actually written by a Presbyterian minister. Also, pretty appropriate for your blog.

10 Good Rules to Live By:

You cannot bring about prosperity by discouraging thrift.

You cannot help small people by tearing down big people.

You cannot strengthen the weak by weakening the strong.

You cannot lift the wage earner by pulling down the wage payer.

You cannot help the poor by destroying the rich.

You cannot keep out of trouble by spending more than your income.

You cannot further equality by inciting class hatred.

You cannot establish security on borrowed money.

You cannot build character and courage by taking away person's initiative and independence.

You cannot help people permanently by doing for them what they could and should do themselves.

DC said...

Good stuff right there.