It’s Basic Economics

February 16, 2009

The Stimulus Bill will not work. This isn’t a Republican thing, it’s not a Democratic thing, it’s not a Conservative thing, it’s not a Liberal thing, nor does it matter what your age, race, culture, religion or income is….it’s just basic economics.

Once again, our government has failed to account for human nature when creating a formula for success. Businesses are in busuiness to make money. The entrepreneur who started the buisness did so with the intent to make money and the people currently running the business are still doing so in order to make money (non-profits excluded). These businesses may make charitable contributions and they may provide some great products and services that are to the betterment of mankind, but at the end of the day the top priority for any buisness is maintain their bottom line. Without it, they cease to exist.

It is because of this bottom line mentality that the Stimulus Bill is doomed to fail. It does not account for human nature nor does it take into consideration the basic laws of supply and demand.

For example purposes, let’s assume that milk costs $1 a gallon and 1 million people buy milk. If money is handed out to people so that they can buy more milk and suddenly 2 million people are buying milk, then the cost of milk will increase to $2 a gallon in order for milk companies to maintain their bottom lines. As a result, not only will the additional 1 million people still not be able to buy milk because their additional income is cancelled out by the increase in cost, but the original 1 million people may also no longer be able to buy milk because they may have been able to afford it at $1 a gallon but unless their employers increase their pay to account for the additional cost of living, they too may not be able to pay $2 a gallon for milk.   And so rather than providing an opportunity for more people to afford milk, you have in essence created an environment in which less people can buy milk than what you originally started with.

The same is true to increasing taxes on buisnesses. Once again, because of the bottom line mentality, no business will ever incur the tax increase that is imposed upon them. Instead, they pass the tax increase onto us by either raising prices, cutting jobs or a combination of both. You may not like it but this is the way it is and it’s the way to world works.

The answer is a combination of tax cuts and spending for public works projects. When businesses are given tax cuts, they put to use the additional gains to their bottom lines by re-investing in their business. Hiring new employees, growing their company, investing in new products and services, etc. Wouldn’t you rather have a paycheck coming to you twice a week from your new employer as opposed to a one time check in the mail from the government for a couple hundred bucks? In addition, for those of us not working in the private sector, the spending portion of the bill can be used to finance public works projects such as building roads and bridges, updating infrastructure, etc. Again, wouldn’t you rather have a paycheck coming to you twice a month rather than a one time check in the mail for a couple hundred bucks?

Obama complains that he inherited this economic mess. Reagan inherited one from Carter that was much worse. Statistically speaking, Reagan inherited a situation in which the unemployment rate was higher per population, inflation was higher per average income, gas prices were higher per costs of goods, etc. Yet Regan saw the benefits to cutting taxes, limiting the size of government and funding works projects. So my question is this; if we have been here before and there is already a model for success in place, then why not use that model once again to our benefit?

– Paul M. Harvey

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