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Friday, March 24, 2006

Billionaire Bashing

Michael Kinsley's latest opinion piece "Why Be a Billionaire" is classic liberalism at it's best; Billionaires have a lot of money, they don't spend enough of it, so the government should take more away from them.

I don't think Michael understands certain things about wealth like that. Most of what billionaires have isn't in cash, it's in investments. We already tax those when they sell them. France is the only countr I know of with a "wealth tax", which may be why so many wealthy folks have left.

The "stuff" they do have that he didn't like, yacts, expensive cars, huge homes all do provide something, employment for those who make them, service them, and sell them. On top of that, especially the "real property", they pay taxes on, just like everyone else.

He also shows a basic lack of economic knowledge, at least in a practical, proven 20th century sense. While his Kenysian desires to have government take wealth and create jobs sounds good, the truth is we continue to prove every day that it's the wrong way to do it.

It takes about $50,000 in private investment to create a job, yet when the government funds programs to create jobs, it costs between 30 and 50 percent more to do it and about twice as long. The Ludwig von Mises Institute has an interesting article about how taxing to create jobs instead creates an economic drag.

For a practial lesson in that arena one only need look at France, and other "old Europe" economies that are trying to tax their way to prosperity. France taxes at 48% once taxable income exceeds about 48,000 euros (per household). With that kind of taxation they should have no problem with job creation (according to Keynes). Instead they have a 10.5% unemployment rate and rioting over job programs.

The other end of the lesson is Denmark, which began a very comprehensive, supposedly tax neutral shift from high marginal income, business and capital gains taxes. The naysayers (Kenysian economists) said the country would be bankrupt, and the social fabric destroyed.

Instead, the country ended up with overflowing coffers, one of the best employment pictures in Europe, and a more stable economy. What was supposedly a revenue neutral shift ended up being revenue positive for the government.

What Kinsley doesn't seem to grasp is all that "paper wealth" that billionaires are accumulating acutally does provide good for others. When Carl Icahn buys 100 million dollars worth of company A stock, that company becomes more valuable. When they go to expand their business, because of that added value, they get better rates on borrowing, meaning less is paid to service debt, and more to expansion.

On the "closer to home" example, suppose that Bill Gates decided today to sell off all of his Microsoft stock, (about 10% of the companies outstanding shares), and just pay the taxes on it, because it' the right thing to do.

What would that do to the price? It would probably crush it. How would that affect you? Well a large amount of the 90% that Gates doesn't own is in institutional investments, you know, the mutual fund you bought, or your 401(k)'s diversified option, your union's retirement fund investments.

That means that because Bill sold his stock to pay the taxes that Michael Kinsely thinks he should, your retirement could be in jeopardy. Look at what happened to many retirement funds with the dot com bubble of the late 90's or the 1987 market crash.

It would be nice if economics were simple, but they aren't, and Kenysian economics have proven to be more dangerous to an economy than the "do-gooders" who support them will ever admit.

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Carry On America also has a take on this.
******************************************************************
Personal notes: I'll be blogging less for the next week, my wife is in town visiting.
My "big little bro" is now blogging, everyone go visit CommonFreakingSense and say "HI", tell him I sent you.

7Comments:

Blogger Robosquirrel said...

I'm confused.

"With that kind of taxation they should have no problem with job creation, but instead have a 10.5% unemployment rate and rioting over job programs."

Increased taxes are synonymous with a contractionary fiscal policy, so why would jobs be created with oppressive taxation? According to what I remember about macroeconomics, high unemployment is exactly what should be happening in France. Coupled with unwise governation and domestic policy, France's declining economy and unhappy population makes perfect sense.

But, yeah, other than that, right on!

11:34 AM  
Blogger Crazy Politico said...

I added an (according to Keynes) to that to hopefully clear it up. I did a poor job of linking that to the Mises institute in the paragraph above.

I don't believe a country can tax it's way to prosperity, Denmark and Britain have proven the old Europe model wrong, but the rest of europe refuses to acknowledge it.

1:17 PM  
Blogger Steven Tucker said...

Great post as always- there is such a general ignorance of economics out there... it's very frustrating to see people suffer, not from bad ideas, but from ideas drawn not from any science or understanding, but from fantasy.

1:29 PM  
Blogger shoprat said...

They want not only equal opportunity, but also equal results for unequal talent and unequal work. They seem to think that all wealth is from luck or oppression.I agree that in a perfect world luck (which they also want to eliminate) would never enter the picture but I know that's not how it is.

8:37 PM  
Blogger Crazy Politico said...

Steven, what's sadder is to see them ignore the fact that they might have it better if they'd give up that ideology.

Shoprat, you are correct. to a certain extent there is some truth to the fact that some folks start at a disadvantage. However, many have looked into themselves to get beyond it. Others have blamed someone, and gone no where. I'll take a little hard work.

9:28 PM  
Blogger Patrick Joubert Conlon said...

Michael Kinsey is a miserable envious fellow - always has been.

"Most of what billionaires have isn't in cash, it's in investments."

Investments that create jobs. I pay more to my employees than I pay myself.

12:18 AM  
Blogger Crazy Politico said...

I knew it patrick, you had to be rich, since you go around using 3 names :)

His column goes write back the "micro thinking" I hate so much. If you only look at the big numbers, and not what those numbers are doing it's easy to be envious. I wonder if Kinsley realizes he has a job because rich folks buy stock in the company he works for :)

6:40 AM  

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