Open Economics Discussion


DigitalShadow
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While I am certainly no expert in economics and I will freely admit that I haven't even taken Economics 101, I do possess some critical thinking ability and would appreciate not being patronized. I am also not looking to prove anyone wrong or insult anyone's point of view, so I request this discussion to remain civil and not resort to political name calling on either side.

With that said, I would have some questions to start off the discussion for anyone who would like to participate:

1. Assuming that there is a finite amount of money that the government needs to keep running and it has to be extracted from the public via taxes, in your opinion, what is the optimal distribution of this tax burden to help the economy? (I ask this without giving my opinion because I am honestly not sure)

2. I have heard it proposed that tax cuts on the wealthy would help the economy because the wealthy create jobs. In my limited economic understanding, I was under the impression that companies and corporations that create the vast majority of jobs, not wealthy individuals. Whether the CEO personally makes $40k or $40 million a year, he can still create jobs just as effectively. Similarly even if he had a 99% personal tax, it would not hurt his ability to create jobs in his company.

You could claim that the wealthy CEO making $40 million will reinvest his money, thereby creating jobs, but non wealthy people do that every day by purchasing products and buying stock. What economic advantage is there for all that wealth to be held by one person?

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Yikes! I think I may have been too harsh on that other thread. It's just a peeve of mine when people use economics as a weapon in their political arsenal... Especially when class warfare is waged. Especially when they start attributing economic activity to a President! He may be powerful but he's not THAT powerful. So yea, this thread would be awesome if we can keep political affiliations out the door...

I'm no expert either but Economics is one of my interests... Interstingly, Economics was my only post-grad class that I did not get an A on! I was arguing with the professor too much.

1.) This question is completely subjective because, especially in America, the tax schedule is so convoluted you will need a team of accountants to make heads and tails out of it. So, this is just my opinion on things and not something based off of economic theory.

Fact is: taxation in a society that advocates private property is punitive. For example, taxes on cigarettes is high to discourage people from smoking. Therefore, taxes on income/production/gains discourages productivity. If you have a tax schedule that has higher taxes on incomes above a certain threshold - say, $50,000... Then basically, it conveys the message that a person doesn't need the money over $50K, so the government can take it.

I completely believe that taxation should be taken at the consumption end. You can graduate the taxes between necessities versus luxuries, so that, for example, milk is not taxed but yachts are taxed at 50%... or something to that effect.

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2.). Several misconceptions on this:

- Corporations do not create the vast majority of jobs. Small businesses (comprises over 90% of employers) currently employ 60% of the workforce in the USA. In 2004 (the last figure I have in my notes), small business are responsible for 98% of new jobs.

- The CEO is just another employee. He does not create jobs. His job is to make a profit.

So, I'm not sure how to answer your question.

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I can say this for #2...

One of the job creators are the people that start up franchises like McDonald's.

One of the requirements to get approval to open a McDonalds franchise is to have $100,000 liquidity. That is, you have to have $100,000 worth of stuff that can be turned into cash at any single moment. This is in addition to the money you have to come up with to "buy" a franchise. The franchise can cost you between $600K to 1.2 Million dollars.

Therefore, I can almost guarantee that anybody thinking of opening a McDonalds franchise (requires at least 20 employees at start-up) will be those people who has made over $250,000 per year.

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My bottom line is that Forbes was on to something back in the '80s. He proposed what is more accurately called a proportional income tax--but got nick named "the flat tax." Personal exemptions would be higher than now, but no other deductions. So, if I understood right, a family of four making up to about $25K would pay nothing. Beyond that, the taxes were about 17%. So, at $50K, that family would pay 17% on $25K, or about $4K or so. For many in the middle class, the result would be a wash. Most poor would be better off, and the rich would pay more, but due to simplicity, would probably not find it worthwhile to dodge.

As for class warfare and the super wealthy--most of their money comes from investing, not earning, so income tax rates matter little.

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My bottom line is that Forbes was on to something back in the '80s. He proposed what is more accurately called a proportional income tax--but got nick named "the flat tax." Personal exemptions would be higher than now, but no other deductions. So, if I understood right, a family of four making up to about $25K would pay nothing. Beyond that, the taxes were about 17%. So, at $50K, that family would pay 17% on $25K, or about $4K or so. For many in the middle class, the result would be a wash. Most poor would be better off, and the rich would pay more, but due to simplicity, would probably not find it worthwhile to dodge.

As for class warfare and the super wealthy--most of their money comes from investing, not earning, so income tax rates matter little.

Capital gains do. Capital gains is in the "Bush Tax Cuts" as well as Death Tax, and Corporate Tax.

By the way, a corporation is not a person, therefore, it is not capable of paying taxes... So, corporate tax is really nothing but production cost which is paid for by the consumer.

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I completely believe that taxation should be taken at the consumption end. You can graduate the taxes between necessities versus luxuries, so that, for example, milk is not taxed but yachts are taxed at 50%... or something to that effect.

The main problem I have with a consumption tax is that it is essentially a regressive text since the less money you have, the higher the percent you spend on simply living, thus the higher percentage of your income is taxed, but having it variable based on the degree of necessity of the item could make sense. Haven't thought through all of the scenarios or overall impact but at first glance it sounds like a decent plan.

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Capital gains do. Capital gains is in the "Bush Tax Cuts" as well as Death Tax, and Corporate Tax.

Those kinds of taxes--especially capital gains, are political potent, and very bad for the economy. The problem is that the rich benefit directly from lower rates, but high rates ("soak the rich!") discourage investment--which we desperately need right now.

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1. Assuming that there is a finite amount of money that the government needs to keep running and it has to be extracted from the public via taxes, in your opinion, what is the optimal distribution of this tax burden to help the economy?

You mean business vs. personal tax, or rich vs poor? Are you talking mechanics of taking taxes, or are you talking what's fair? There are plenty of ways for a government to extract money from the economy. And really, whether it takes it in the form of income tax, property tax, consumption tax, or tax on business, it all ends up coming out of the economy one way or the other. We also use tax as a way to engineer social change. Like a mortgage tax credit is engineered to aid and support private home ownership. Or a 'marriage benefit' where couples pay less overall tax than they would if they were single.

If you're talking what's fair, well, yeah, that's very subjective. I personally think representation without taxation is as horrible an idea as taxation without representation. I'd like to see less double-triple-quadruple taxation on things, maybe a simpler tax code, like a flat tax or straight consumption tax.

2. I have heard it proposed that tax cuts on the wealthy would help the economy because the wealthy create jobs. In my limited economic understanding, I was under the impression that companies and corporations that create the vast majority of jobs, not wealthy individuals.

Here's how it works:

Bob is rich. He spends his money on stuff, meaning some company somewhere has hired people and bought stuff, and use the people to turn the stuff into what he bought. If he wasn't rich and buying stuff, that company wouldn't be employing anyone or buying anything to sell to him. Or, rich Bob invests his money. Businesses use the money he's invested to expand - hire more people. Other folks borrow Bob's money to do things like pay for college. The more govt takes from Bob (and the rest of us), the less money gets into the economy.

What economic advantage is there for all that wealth to be held by one person?

Economic advantage: People like to improve their situation in life. Making oodles of money is nice. If you exist in a country where it doesn't matter how hard you work or how smart you are, you'll never get rich, you're less likely to work hard. People ask "what economic advantage is there for you to have all the money". Something they are saying that they miss, is "I want the government to take your money by force and give it to someone else." It sounds different when you think about it like that, but that's basically what the idea entails. Someone gets rich, but the govt has a policy to take it away, just because they have it. That's not fair.

LM

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1. Assuming that there is a finite amount of money that the government needs to keep running and it has to be extracted from the public via taxes, in your opinion, what is the optimal distribution of this tax burden to help the economy? (I ask this without giving my opinion because I am honestly not sure)

Frankly, it's hard to figure out the best way to get "enough" for a government to function, without establishing a baseline of where "enough" is. And we could debate that one forever. ;)

As a matter of economic expediency (not fairness): it probably wouldn't hurt to tax the rich a bit more, as long as that taxation is not discouraging investment. If Paris Hilton individually has to make do with fewer packets of off-the-shelf hair bleach . . . the economy will survive. If Warren Buffett quits investing . . . that hurts more. Because (wise) investments don't just redistribute wealth; they create it where it didn't previously exist. (See below.)

I think it's wrong in principle to penalize success; but as a practical matter we can probably get away with it up to a point (this is where the Laffer Curve comes in--theoretical rates get high enough, and the producers "go Galt" and everyone gets hurt).

2. I have heard it proposed that tax cuts on the wealthy would help the economy because the wealthy create jobs. In my limited economic understanding, I was under the impression that companies and corporations that create the vast majority of jobs, not wealthy individuals. Whether the CEO personally makes $40k or $40 million a year, he can still create jobs just as effectively. Similarly even if he had a 99% personal tax, it would not hurt his ability to create jobs in his company.

You could claim that the wealthy CEO making $40 million will reinvest his money, thereby creating jobs, but non wealthy people do that every day by purchasing products and buying stock. What economic advantage is there for all that wealth to be held by one person?

I could be off base here, but I see the issue as one of creating new goods and services, versus exchanging goods and services that already exist.

If you and I are on an island, and I have a piece of gold, and you have a coconut, and we trade--our "gross domestic product" hasn't changed. The island's GDP still consists of one piece of gold and one coconut. We have redistributed wealth (which isn't a bad thing), but we have not created any.

But let's say I suddenly realize you now have that shiny piece of gold, and I want it back. How can I (legally) get it? Well, maybe I figure out a way to make a decent spear, which I'm sure you'll want badly enough that I can trade it to you for that piece of gold you now have. I make the spear, and you buy it from me. Now the island's GDP consists of a coconut, a spear, and the piece of gold. By producing a good or a service, I have created wealth from almost nothing.

The principles are the same even on a macroeconomic scale. It isn't the CEO's wealth or position per se that ought to entitle him to preferential tax treatment; it's the fact that he can use that wealth (as an investor) and position (as a director of the company) to create (or instruct others to create) new goods and services out of nothing, which leads to overall economic growth. That's the kind of behavior we want to reward and (arguably) incentivize through the tax code.

Edited by Just_A_Guy
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2.). Several misconceptions on this:

- Corporations do not create the vast majority of jobs. Small businesses (comprises over 90% of employers) currently employ 60% of the workforce in the USA. In 2004 (the last figure I have in my notes), small business are responsible for 98% of new jobs.

I was including small businesses in with "corporations and companies", my point was simply that the majority of jobs out there are not created by wealthy individuals hiring directly with the own personal money.

- The CEO is just another employee. He does not create jobs. His job is to make a profit.

I am aware that a CEO is just another employee. The position was irrelevant, I was simply using the CEO as an example of an extremely wealthy person who may have the capacity to create jobs through a company, but whose personal wealth is irrelevant to how many jobs he may or may not create.

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I can say this for #2...

One of the job creators are the people that start up franchises like McDonald's.

One of the requirements to get approval to open a McDonalds franchise is to have $100,000 liquidity. That is, you have to have $100,000 worth of stuff that can be turned into cash at any single moment. This is in addition to the money you have to come up with to "buy" a franchise. The franchise can cost you between $600K to 1.2 Million dollars.

Therefore, I can almost guarantee that anybody thinking of opening a McDonalds franchise (requires at least 20 employees at start-up) will be those people who has made over $250,000 per year.

That addresses more of what I was getting at, but wouldn't opening a Mom and Pop's diner also create (arguable better quality) jobs? Also, not all franchises are independently owned. If GameStop wishes to place another location, they can simply use corporate funds to do that rather than requiring a single millionaire.

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Here's how it works:

Bob is rich. He spends his money on stuff, meaning some company somewhere has hired people and bought stuff, and use the people to turn the stuff into what he bought. If he wasn't rich and buying stuff, that company wouldn't be employing anyone or buying anything to sell to him. Or, rich Bob invests his money. Businesses use the money he's invested to expand - hire more people. Other folks borrow Bob's money to do things like pay for college. The more govt takes from Bob (and the rest of us), the less money gets into the economy.

But doesn't this happen the same whether people are rich or poor? Whether wealthy Bob just got paid a million dollars, or a million poor people got paid one dollar, it would still go towards goods and services as people spend it. In fact aren't poor people more likely to spend it as opposed to Bob who might let it sit in a bank until he decides what to spend it on?

Economic advantage: People like to improve their situation in life. Making oodles of money is nice. If you exist in a country where it doesn't matter how hard you work or how smart you are, you'll never get rich, you're less likely to work hard. People ask "what economic advantage is there for you to have all the money". Something they are saying that they miss, is "I want the government to take your money by force and give it to someone else." It sounds different when you think about it like that, but that's basically what the idea entails. Someone gets rich, but the govt has a policy to take it away, just because they have it. That's not fair.

I agree completely that without richer people and poorer people, there would be far less motivation to accomplish great things. I mean, if got the same amount of money no matter what I did, I would still be in my parents basement playing World of Warcraft rather than a successful software developer.

To me, the real the question is, to what extent is this useful? Taken to the other extreme of only one person having 99% of the country's wealth, is there really much motivation to accomplish anything if you know that whatever you do will be ultimately futile because someone with far more resources would simply take it from you.

Granted that's a ridiculous example, but not any more ridiculous than a world where everyone makes the same amount of money no matter how smart or talented they are. My point is that having the distribution of wealth skewed towards the very rich who simply get richer is not very motivating either.

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Frankly, it's hard to figure out the best way to get "enough" for a government to function, without establishing a baseline of where "enough" is. And we could debate that one forever. ;)

As a matter of economic expediency (not fairness): it probably wouldn't hurt to tax the rich a bit more, as long as that taxation is not discouraging investment. If Paris Hilton individually has to make do with fewer packets of off-the-shelf hair bleach . . . the economy will survive. If Warren Buffett quits investing . . . that hurts more. Because (wise) investments don't just redistribute wealth; they create it where it didn't previously exist. (See below.)

I think it's wrong in principle to penalize success; but as a practical matter we can probably get away with it up to a point (this is where the Laffer Curve comes in--theoretical rates get high enough, and the producers "go Galt" and everyone gets hurt).

Thank you for the info, I will definitely check out that wiki page.

I could be off base here, but I see the issue as one of creating new goods and services, versus exchanging goods and services that already exist.

If you and I are on an island, and I have a piece of gold, and you have a coconut, and we trade--our "gross domestic product" hasn't changed. The island's GDP still consists of one piece of gold and one coconut. We have redistributed wealth (which isn't a bad thing), but we have not created any.

But let's say I suddenly realize you now have that shiny piece of gold, and I want it back. How can I (legally) get it? Well, maybe I figure out a way to make a decent spear, which I'm sure you'll want badly enough that I can trade it to you for that piece of gold you now have. I make the spear, and you buy it from me. Now the island's GDP consists of a coconut, a spear, and the piece of gold. By producing a good or a service, I have created wealth from almost nothing.

The principles are the same even on a macroeconomic scale. It isn't the CEO's wealth or position per se that ought to entitle him to preferential tax treatment; it's the fact that he can use that wealth (as an investor) and position (as a director of the company) to create (or instruct others to create) new goods and services out of nothing, which leads to overall economic growth. That's the kind of behavior we want to reward and (arguably) incentivize through the tax code.

Thank you very much for this explanation, I have a much clearer idea of your point of view now. It does make a lot of sense and I hadn't really thought of that way.

I guess my only issue with that is when it comes to people with very large amounts of wealth, even assuming they are vital to the economy, does it really incentivize them to get a tax cut? I mean, if you're taking home 30k a year and you get bumped up to 35k or 40k, it is a very significant incentive and you can now pay for rather vital things that improve your quality of life, but if you are already a multi-millionare, does your quality of life really improve to the point where you are significantly incentivized if you take home 1.7 million vs 1.5 million?

Edited by DigitalShadow
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In fact aren't poor people more likely to spend it as opposed to Bob who might let it sit in a bank until he decides what to spend it on?

As previously mentioned, 'letting it sit in the bank' is also a way of growing the economy.

My point is that having the distribution of wealth skewed towards the very rich who simply get richer is not very motivating either.

How else you going to skew it? Who gave you the authority? If you're going to do it differently, that basically means taking from people via the threat of force, and giving it to someone who didn't do anything to earn it, right?

Discussion point: since the dawn of time, there has been unequal distribution of wealth. There have been, and always will be, haves and have-nots (city of Enoch as an exeption, and all this ends with the millenium.) Given that fact, does it not make more sense to have a structure where you can choose to move up or down the wealth curve according to your own efforts and desires? To do what you want with the fruits of your labors, as opposed to having some sort of nebulous "them" out there who know better what to do with your riches than you do?

LM

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I guess my only issue with that is when it comes to people with very large amounts of wealth, even assuming they are vital to the economy, does it really incentivize them to get a tax cut? I mean, if you're taking home 30k a year and you get bumped up to 35k or 40k, it is a very significant incentive and you can now pay for rather vital things that improve your quality of life, but if you are already a multi-millionare, does your quality of life really improve to the point where you are significantly incentivized if you take home 1.7 million vs 1.5 million?

Well, IMHO, from an economic standpoint, what we want to "incentivize" isn't just people keeping more of their money, but then turning around and investing that money. That's why conservatives are so big on cutting the capital gains tax, in particular--the capital gains tax is the functional equivalent of an investment penalty. Raising the estate tax at this moment isn't particularly helpful either, because what it basically does is force the heirs to the estate to cash out a lot of pre-existing investments.

As far as income rates: part of the problem is, our current tax code encourages the wealthy to put their wealth into a cat's cradle of strategies, funds, trusts, and shelters--and Zeus only knows exactly how fiddling with the income tax rate will change all that. I'd be a little more adventurous if the economy were more solid, but right now it just isn't.

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How else you going to skew it? Who gave you the authority? If you're going to do it differently, that basically means taking from people via the threat of force, and giving it to someone who didn't do anything to earn it, right?

Discussion point: since the dawn of time, there has been unequal distribution of wealth. There have been, and always will be, haves and have-nots (city of Enoch as an exeption, and all this ends with the millenium.) Given that fact, does it not make more sense to have a structure where you can choose to move up or down the wealth curve according to your own efforts and desires? To do what you want with the fruits of your labors, as opposed to having some sort of nebulous "them" out there who know better what to do with your riches than you do?

Did you completely miss my statement agreeing that unequal distribution of wealth is inevitable and also necessary? There's no need to frame my argument as trying to take away money by force. I never mentioned force, I never even mentioned what was fair (which is a completely separate and far more subjective discussion), I am simply discussing what would hypothetically be best for the economy since there seems to be controversy on the economic effect of tax cuts to various classes.

To recap, your point was that rich people inspire the poorer to work harder and be productive thus improving the economy. My point, which apparently I didn't convey well enough, was that that is true but only to an extent. Once the wealth gets too concentrated within a few people and you have a vast gap between the haves and the have nots, it appears less likely that you have a chance of breaking free from the have nots and therefore less motivation to be a productive economy improving citizen.

I made no claims as to what extent it was good to have an uneven distribution of wealth or what measures we should take to "fix" that, I simply was saying that there is an upper limit to its benefits. Do you disagree with that?

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Well, IMHO, from an economic standpoint, what we want to "incentivize" isn't just people keeping more of their money, but then turning around and investing that money. That's why conservatives are so big on cutting the capital gains tax, in particular--the capital gains tax is the functional equivalent of an investment penalty. Raising the estate tax at this moment isn't particularly helpful either, because what it basically does is force the heirs to the estate to cash out a lot of pre-existing investments.

As far as income rates: part of the problem is, our current tax code encourages the wealthy to put their wealth into a cat's cradle of strategies, funds, trusts, and shelters--and Zeus only knows exactly how fiddling with the income tax rate will change all that. I'd be a little more adventurous if the economy were more solid, but right now it just isn't.

That makes sense, I dare say that I may even agree with that... Does that mean I'm a conservative now? :eek:

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That addresses more of what I was getting at, but wouldn't opening a Mom and Pop's diner also create (arguable better quality) jobs? Also, not all franchises are independently owned. If GameStop wishes to place another location, they can simply use corporate funds to do that rather than requiring a single millionaire.

What do you consider "Mom and Pop"? The mom-and-pop diner next door don't hire people. They're a Mom-and-Pop - as in Mom and Pop runs the store and maybe one or two of the kids. If they were to expand, they will need investment capital to buy raw materials and make payroll. Once you got "payroll" involved, that requires lots of money. Why - because first you have to pay the people (cash outlay), then they produce the product - then the product is sold which would then bring money into the business which then goes to the investor. The cycle starts over for the next payroll period.

The interesting thing is that payroll HAS to be made. So that, the small business owner will forgo his share of the profits just so he can make payroll... especially in this economy.

Small businesses are not corporations - A corporation is not human. It acts like a human but it is not. A corporation, therefore, cannot create jobs. Now, the PEOPLE forming the corporation is human - they're the ones that can create jobs. These are the investors. If the corporation is funded by private funds, then you got pretty much one or a small handful of wealthy people pumping money into the business. If the corporation is a public offering, then one entity would own the most stocks and be the controlling interest and run the board of directors - the minority interest - while a slew of people with money own a very tiny percentage of the business through stock options. The board of directors are the guys who can create jobs - the controlling interest guy has a lot of pull on these decisions. I own Walmart stocks - I can't create a single Walmart job. The Walton family are the people who are creating the jobs.

Now, about Gamestop and "corporate funds" - where did that corporate fund come from? The investors. People with money. Remember - the corporation is not human... you have to find the human behind it. I believe the guy with the controlling interest in GameStop is that wealthy guy who runs Barnes and Noble. Not sure about this though.

By the way, McDonalds was just an example of a small business. There are tons of them like it... 90% of the economy tons. There's the software company producing apps for the iphone... there's the gas station on the corner... there's the salon, the car wash, the super suppers, the oriental store, the craft store, the pet breeder. Okay, here's a good exercise: Drive to the middle of a commercial center in your town... look around and identify all the small businesses. Then see what kind of people own these places. A lot of these people are not Paris Hilton wealthy - but just wealthy enough to have liquid investment money - like just over $250,000 worth. These are the majority of job creators in the United States today... well, a few years ago. I don't know if there are any jobs created today outside of the government.

Edited by anatess
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That makes sense, I dare say that I may even agree with that... Does that mean I'm a conservative now? :eek:

Not necessarily. These are economic principles, not necessarily political principles. It just so happens that the Republican party (usually identified as conservatives although I can argue that) currently holds this same position whereas the Democrat party currently holds Keynesian principles. But these economic principles are not "conservative" or "liberal" - it's not a political position.

But, Keynesian economics is just as valid as Laisez-faire. It's a "different" outlook. Not necessarily bad. For example - Keynesian principle helped the USA get out of the Great Depression by government expenditure on military weaponry. Obama administration is trying to do the same thing using government expenditure in construction. The big difference though is - back in the Great Depression days, the US was exporting weapons. So that - even though the government was basically just re-distributing what money is already in the economy (taxes), it was generating new money from other countries. The construction effort in the Obama administration lacks that "new money", so I'm very skeptical that this particular application of Keynesian economics is going to work.

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What do you consider "Mom and Pop"? The mom-and-pop diner next door don't hire people. They're a Mom-and-Pop - as in Mom and Pop runs the store and maybe one or two of the kids. If they were to expand, they will need investment capital to buy raw materials and make payroll. Once you got "payroll" involved, that requires lots of money. Why - because first you have to pay the people (cash outlay), then they produce the product - then the product is sold which would then bring money into the business which then goes to the investor. The cycle starts over for the next payroll period.

The interesting thing is that payroll HAS to be made. So that, the small business owner will forgo his share of the profits just so he can make payroll... especially in this economy.

I didn't necessarily mean a literal mom-and-pop diner, but a smallish non-franchise business that doesn't require nearly the capital to start a McDonalds which I am aware is one of the more expensive franchises to get started.

Small businesses are not corporations - A corporation is not human. It acts like a human but it is not. A corporation, therefore, cannot create jobs. Now, the PEOPLE forming the corporation is human - they're the ones that can create jobs. These are the investors. If the corporation is funded by private funds, then you got pretty much one or a small handful of wealthy people pumping money into the business. If the corporation is a public offering, then one entity would own the most stocks and be the controlling interest and run the board of directors - the minority interest - while a slew of people with money own a very tiny percentage of the business through stock options. The board of directors are the guys who can create jobs - the controlling interest guy has a lot of pull on these decisions. I own Walmart stocks - I can't create a single Walmart job. The Walton family are the people who are creating the jobs.

Actually I don't believe the Walton family technically create jobs either. I highly doubt they go to every single Walmart, assess the situation, decide what positions need to be filled and put out classified ads for them. The fact that the entity of Walmart exists is what allows jobs to be created (if you're going to be picky about the phrasing), regardless of the individual wealth of any of the board of directors or the Walton Family. That is all I was getting at.

Now, about Gamestop and "corporate funds" - where did that corporate fund come from? The investors. People with money. Remember - the corporation is not human... you have to find the human behind it. I believe the guy with the controlling interest in GameStop is that wealthy guy who runs Barnes and Noble. Not sure about this though.

Again, there is nothing here that necessitates a single person with a large amount of wealth, since nearly anyone can scrape together enough money for a share which is what helps fund the creation of more GameStops.

By the way, McDonalds was just an example of a small business. There are tons of them like it... 90% of the economy tons. There's the software company producing apps for the iphone... there's the gas station on the corner... there's the salon, the car wash, the super suppers, the oriental store, the craft store, the pet breeder. Okay, here's a good exercise: Drive to the middle of a commercial center in your town... look around and identify all the small businesses. Then see what kind of people own these places. A lot of these people are not Paris Hilton wealthy - but just wealthy enough to have liquid investment money - like just over $250,000 worth. These are the majority of job creators in the United States today... well, a few years ago. I don't know if there are any jobs created today outside of the government.

I am aware of the importance of small businesses, I'm not sure how that relates to what I've been discussing though.

Edited by DigitalShadow
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I didn't necessarily mean a literal mom-and-pop diner, but a smallish non-franchise business that doesn't require nearly the capital to start a McDonalds which I am aware is one of the more expensive franchises to get started.

Actually I don't believe the Walton family technically create jobs either. I highly doubt they go to every single Walmart, assess the situation, decide what positions need to be filled and put out classified ads for them. The fact that the entity of Walmart exists is what allows jobs to be created (if you're going to be picky about the phrasing), regardless of the individual wealth of any of the board of directors or the Walton Family. That is all I was getting at.

Again, there is nothing here that necessitates a single person with a large amount of wealth, since nearly anyone can scrape together enough money for a share which is what helps fund the creation of more GameStops.

That's not really it, Digital... JOB CREATION is not necessarily the "act of hiring". Of course the businesses have their managers do that! The manager of Gamestop is given a personnel budget. They hire people according to that budget - therefore, they are not creating jobs - they are simply filling empty spots. Job creation is new business or expansion of existing business. Your local Gamestop can't do that. Only the Board of Directors - or in the case of the small business, the business owner - can do that. The stock holders do not have the power to do that either - unless they have controlling interest. Now, a stock holder/venture capitalist provides capital to a business, true. So, in a way, they "empower" the Board to start a new business or expand an existing business. But the decision rests solely on the Board.

I am aware of the importance of small businesses, I'm not sure how that relates to what I've been discussing though.

The reason I mentioned it is because we were talking about job creation. Job creation in the USA is not mostly created by corporations that you seem to keep the focus on. Job creation in the USA is mostly created by small businesses. So when I talk about wealthy I don't mean only Paris Hilton types. I mean people who has the money to start a business and hire people. And that's why I tried to shift the focus to these people - because, in any legislation currently on the floor of Congress, it's these people who are the ones greatly affected.

Edited by anatess
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The real question is: how much government do we want?

Do we want a government that does little for us, so we have optimal freedom to run our lives and businesses as we want? Or do we want a complete government that runs most things in our lives, protecting us from ourselves?

Congressman Anthony Weiner (D, NY) was recently on Megan Kelly's show (Fox News). She asked about why an insistence on increasing or even having the inheritance/death tax, as it equates to double taxation. Weiner explained that there was no longer an argument of whether it should be taxed, but just how much.

So, should we tax 100%? What is "fair"? When does the government have too much money? If we give 100% of our income to the government, and it is still not enough, what then?

Every time Congress taxes or regulates something, it places more expenditures on business. Businesses must plan for the future, and if taxation or regulations make it no longer feasible nor profitable to stay in business, the company will shut down, or not expand.

Right now, due to no 2011 tax budget and also regulations passed in the last 2 years, few businesses are expanding or being started. In the Obamacare bill was a requirement for all businesses who buy more than $600 worth of goods/services from another, must provide tax forms to them. For a small trucking business that gets gas at dozens or hundreds of locations across the country, it could easily mean going out of business, or raising rates enough to pay for such a costly regulation. Imagine what that will do to Mom and Pop shops that order from hundreds of companies each year! Can they afford to hire someone just to deal with the additional paperwork?

Your first assumption that there is a "finite" amount that the government requires to function does not work. Right now, our government is $14 trillion in the hole, with $4 trillion of it coming in just the last 2 years! As it currently is, government will spend not only every dime it receives, but many dollars that it does not have, as well. They work on the assumption that debt is not a bad thing, or if it is, we only need to tax people to pay for it all. Yet, government is a voracious animal, whose appetite only grows with its size. If we were to increase taxation enough to pay for all the new toys Congress and the White House are wanting, taxing the rich will only place a marginal dent in the needed moneys to pay for both current spending and past deficits. And there is no guarantee that government wouldn't just spend more than that number, too. If national health care is good, then buying everyone a car is better! (Oh, wait, we've already done Cash for Clunkers).

Why don't we just give every family their own house, and a million dollars? Or if that isn't enough, how about giving each family $1 Billion dollars? Why not? If you are going to deficit spend, you may as well go big time.

Just what are the limits?

The reality is, to grow the economy and enrich the American people requires the following:

1. Reduce government spending. Review all programs, eliminate those that are not giving actual positive results. This means that pet projects that are fruitless must go away forever.

2. Government must bust illegal monopolies. This includes the banks that are "too big to fail", and the teachers' unions that keep us at #25 for math among the nations.

3. Move most government functions back to the states and local governments, where they belong.

4. Expect all people to carry their own load. Welfare is for those who truly cannot work, and is not for scammers. Welfare should have built in incentive to leave the program and return to work.

5. Reduce government regulations that eliminate or harm business.

6. Government should be promoting free markets, and not for protecting specific companies. No more bail outs of GM or big banks.

7. Government's support for free markets means it can help with general technology development (green energy, for example), but not assist one specific company over another (GM over Ford).

I could go on, but you get the message. As for tax cuts, they only work if government spending is limited to the money given it. Right now we have the Bush/Obama tax cuts in place, but no job growth, because of the excessive spending and regulation of government under these two regimes.

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I would like to bring up the concept of “The Business of economy”. In this regard the economy can have many meanings. One of the things that concern me most is the effort to define all things within an economy with the value of money. As an engineering consultant one of the things I have learned is that as we consider wealth distribution there are important things to understand. Every business or if you will, organizational entity must have a model that defines it. The business model currently most employed in the USA is highly dependent on economic growth. This creates a wonderful working environment as long as there is economic growth but a disaster when there is an economic down turn (which always occurs).

The problem is that our economic model or our business model is unsustainable. The reason is really quite simple. A business (or government) begins by offering goods and services. To do so the business or government begins with something, modifies or improves it and then outputs or provides something. To determine the value, need or economy of a business or government we begin by analyzing the value of what is taken in; add the value of what is added or modified and compare that against the value output or provided. The process of business or government is in reality a process of creating wealth.

What makes a business or government fail is in its distribution of wealth contrary to the economy of value for services provided. That is when the value of some element is over rated or under rated – the result is eventual economic breakdown and collapse. There are several reasons but the simplest way to understand this is the imbalance of a process or task that cost more than the benefit it provides. The imbalance forces another process or task to provide another benefit for less than it is worth. This model also means that something provided at less than value will create a vacuum for a process or service to acquire more wealth than it provides value.

Most people with an IQ above room temperature realize that the standard business model in the USA (world in general) compensates management (self) beyond the value of their contribution. Call it corporate greed or just plain greed but management compensates itself based on different criteria than it compensates the “worker bees”. There have been many efforts to balance unsustainable models with unions, government regulation, taxes and revolutions. Whatever the political view – I believe it is imperative that we all recognize that our economic problems all stem from various elements attempting to obtain more wealth (value) than service (value) they are willing to provide.

The Traveler

Edited by Traveler
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