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Thursday, October 05, 2006

Econ 101 Always Beats Socialism 101

Disputing Joseph Stiglitz' NYT editorial that, guess what, proposed higher taxes on the rich, George Reisman explains the effect of savings by the rich. It is not "hoarding", as Stiglitz calls it, of money by the rich that hurts the economy. Such savings create capital. That capital funds new companies, expansion of old companies and ultimately pays wages of workers.

Explains Reisman:

The fact is, of course, as John Stuart Mill pointed out in the middle of the 19th Century, that what is saved, i.e., not spent in purchasing consumers’ goods, is spent. But it is spent productively, i.e., in buying capital goods and in paying the wages of workers employed by business firms. These workers, of course, then consume their wages...

Because their funds are spent in these ways, taxing the rich to reduce the government’s deficit actually means reducing the spending of business firms for capital goods and labor, the spending of business’s employees for consumers’ goods, and the spending of all consumers for expensive consumers’ goods.

The high taxes that Stiglitz and his kind propose are merely a means of income redistribution. The redistributors, ie the government, apparently know better than the unwashed masses how best to spend money for the greater good.

However, as Reisman shows Econ 101 always trumps Socialism 101.

1 Comments:

At 5:32 PM, Blogger francois said...

Geez, I would think even a left-wing Nobel Prize winner would understand that there is no such thing as "hoarding" wealth unless you stuff it under your mattress.

 

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