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May 18th, 2022

Insight

Don't Let Morons Ru(i)n the Economy, Part II

Laura Hollis

By Laura Hollis

Published Oct. 21, 2021

Politicians have no business trying to run the American economy.

Businesses have to persuade people to part with their hard-earned money. When private companies make poor decisions, they suffer the consequences. If they charge too much or the quality of their goods is poor, customers go elsewhere. If they spend more than they bring in, they go under.

A 10-year-old operating a lemonade stand gets these basic economic principles — or learns them quickly.

But most politicians are economic idiots. Nearly none has any personal experience with running a business, nor even the most basic understanding of costs, prices, profit and loss, or the impact of debt. When facing financial disaster caused by their poor decisions, politicians think they can just raise taxes or print money.

We suffer the consequences when their policies and budgets have flawed assumptions or strategic errors. The problems we're facing now — skyrocketing prices, exploding inflation, millions of unfilled jobs, business closures, supply chain problems and product shortages — are the direct results of our politicians meddling and imposing their pet policies on the economy like wrenches thrown into the works of a machine.

Politicians seem to operate on the belief that businesses can fail but entire economies or governments can't. They're wrong, of course. When an economy or a government operates on flawed assumptions, you don't just get business failure; you get systemic failure — catastrophic collapse.

We've seen it happen in country after country where those in charge either bleed it dry or impose authoritarian central planning. There's a reason North Koreans starve, Cubans go without basic necessities and the economy of Venezuela, once the wealthiest country in South America, has collapsed, throwing its people into abject poverty.

That reason is politicians running the economy.

It's happened here, too, albeit on a smaller scale. The 2008-2009 financial crisis is a perfect example of terrible government policies (federal laws requiring banks to make subprime loans, and the changes to Fannie Mae's and Freddie Mac's rules for evaluating and bundling subprime mortgages) turning what should have been a relatively isolated setback (a housing bubble) into a national catastrophe.

Even when faced with widespread economic damage, politicians almost never admit their role in creating it. Like the fable about the goose that laid golden eggs, politicians — particularly Democrats — behave as if the wealth American enterprise has created will magically always be there, even as their policies erode it.

The current administration has to be the historical worst in that respect. President Joe Biden, Nancy Pelosi and Bernie Sanders are pushing for trillions in new federal expenditures on top of staggering national debt. They exploit ignorance and feed envy by telling the public that "millionaires and billionaires" will pay for everything and should because they don't "pay their fair share."

What they don't tell you is that those who make more than $87,000 a year (that's less than the added average salaries of a public school teacher and a cop) already pay almost 90% of all income taxes. Nor do they tell you that the wealth of most "millionaires" and "billionaires" isn't in cash or salaries; it's the assets of their enterprises such as farmers' land, or the buildings and inventories of businesses, or intangible assets such as stock value. Disgraced Theranos founder Elizabeth Holmes was once a "billionaire" based solely on her ownership of a majority of the stock of her company. What's she worth now? Squat.

Net worth is not the same as income.

Nor do they disclose that there aren't enough "millionaires and billionaires" to pay for all the garbage they're promising; not even if they took everything the wealthiest people own and liquidated it tomorrow.

Biden says, "No one making less than $400,000 will pay more in taxes." That's both a smoke screen and a lie. It's a smoke screen because he's talking about individuals and businesses, and $400,000 a year is a mighty small business. This matters because 99% of the American workforce is employed by small business. They'll be raising taxes on your employers. That's an increased cost, so the prices of goods and services will then go up. You'll pay those higher prices on everything. And you'll pay it with less income because when the tax revenues on "millionaires and billionaires" aren't enough to pay for everything they've promised — and they never are — they'll raise and misspend your taxes, too.

None of this includes inflation, which increases the costs of everything and is also created by bad policy. You're paying for that, as well.

Even as their policies throttle prosperity and thrust the country into economic crisis, they double down and insist that what we need is more of what they've done to damage the country in the first place. Today's Democrats have a lengthy wish list: a $15 minimum wage, universal basic income, trillions spent on "social programs" (no, it isn't "infrastructure"), the elimination of entire industries and a good deal of agriculture in pursuit of so-called green objectives, single-payer health care and much higher taxes.

If Congress implements these, they will strangle our economy. Republicans are nearly as bad, just as profligate about spending and as irresponsible about debt. Their modus operandi is to campaign by pretending to oppose the Democrats and, once elected, let Democrats do whatever they want.

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When the president of the United States tells the public with a straight face that $3.5 trillion in spending "costs zero," we're in a bad place. When a socialist United States senator can announce that $3.5 trillion isn't anywhere near enough, we're in a very bad place. When the sum total of the national debt exceeds the entire gross domestic product of the American economy, which is just over $22 trillion, we are teetering on the edge of the abyss.

Don't kid yourself that what's coming will be "shared sacrifice" either. The politicians will exempt themselves from the laws they pass, as they do with remarkable consistency. Plus, they'll have their side gigs, their kickbacks, their multimillion dollar lobbying contracts, their inside information stock trades and their book/lecture circuit deals.

Meanwhile, we'll be scrounging for toilet paper, meat and antibiotics.

There was a time when American citizens took pride in leaving a better country for our children and grandchildren. If we don't rein our politicians in now and replace them with responsible, truthful people who respect our form of government and the fundamentals of our economy, we won't have anything left to leave.

(COMMENT, BELOW)

Laura Hirschfeld Hollis is on the faculty at the University of Notre Dame, where she teaches courses in business law and entrepreneurship. She has received numerous awards for her teaching, research, community service and contributions to entrepreneurship education.

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