AUSTRIAN ECONOMICS ADDICT

Tax (Photo credit: ( 2012)

“All the world is a stage and all the men and  women merely players:….” Shakespeare.    Remember this quote when analysing anything involving   politics.

Human action is purposeful behavior. Action is not simply verbal preference, it is the individual choosing and acting to reach a particular end. What is the particular end the actors on the “fiscal cliff” stage are trying to attain? If you say making themselves and their political party look good, and making the opposing politicians and party look bad, you have a keener insight into the plot of this play than 90% of the audience these political performers are playing to. This is all about assigning blame for the economic problem we are in, and trying to maneuver into position to take credit for any upturn in the economy, or assign more blame to the other party if it gets worse. What you are watching is not economic reality but political theater. You have to dig below the political surface and look at the underlying economic realities, in order to read between the lines spoken by the actors in this political play.

We are not going over a fiscal cliff, we went over the fiscal cliff in early 2008. Our politicians, backed by Government power, and with a bold disregard for the laws of economics, created the fiscal cliff the economy went over in 2008. Since then our politicians, and the Federal Reserve, have been trying to slow down the fall, and maneuver themselves into the best political position when we eventually hit bottom. Lets look at the politics and the economic reality.

The politics of this is being played on the tax the rich stage. They are trying to convince us that our economic problems can be traced back to the Bush tax cuts. The rich aren’t paying their “fair share”, fair never being defined. If the tax rate in the top bracket goes up to the rates before the Bush tax cuts were put into place, it would bring in an estimated 70 billion dollars. This is a static analysis of a dynamic process, and we know that people who are affected by the higher rates won’t act as they did previously. The 7o billion isn’t going to be collected, but lets assume that it is, what will be the effect of an additional 70 billion dollars coming into the U.S.Treasury .

1) The average deficit has been 1.3 trillion a year over the last four years, for a grand total of 5.2 trillion dollars, all of which was borrowed. 2) The Federal Reserve increased the M2 money stock 2.5 trillion dollars from 2001 to 2008, which was a factor, if not the main factor in creating the housing bubble (aka. the fiscal cliff). 3) Since 2008 the Fed has increased the M2 money stock by 3 trillion dollars, See chart here, which is their futile attempt to keep us from hitting the bottom, a bottom we need to find in order to start the real recovery. 4) Since the election, businesses have started making plans to protect themselves from Obama Care’s regulations and costs. 5) Businesses have also started to make plans to deal with the reality that tax rates will go up, whether its income taxes, payroll taxes, capital gains taxes, or Obama Care taxes, just to name a few. Compared to all of this, 70 billion dollars in “new taxes” is like a bucket of water being poured into a multi trillion-dollar ocean.

There is at least a decade of malinvestments that have to be liquidated, before we can begin to move out of this financial mess, a mess that was caused on the one hand by the Fed’s policy of cheap credit (low-interest rates), and also their counterfeiting of almost 8 trillion dollars and injecting it into the economy, and on the other hand by Government’s intervention into the free market through burdensome regulations.

The fiscal cliff political theater being preformed on the Washington D.C. stage is just that, a performance. It is not being performed for the benefit of the audience, it is being performed for the benefit of the actors.

Read more about our economic problems in this post titled, What Comes First Production Or Consumption. And for more in-depth analysis read, “Essays On Fragility: Our One-Off Economy“, by Charles Hugh Smith at oftwominds.com

This entry was posted on December 17, 2012 at 4:40 am and is filed under Government and Politics. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Bush tax cuts, Federal Reserve, Fiscal Cliff, Government, Politics