Home » Uncategorized » Do Taxes Help Businesses Because They Build Infrastructure?

Do Taxes Help Businesses Because They Build Infrastructure?

An intelligent person who uses the name Just Jokes commented on my article about Hurricane Sandy, but for some reason it got posted on the Bread and Circuses article. He raises a few points worthy of discussion, so let’s begin by giving a bit of background.

I had mentioned in the article a reductio ad absurdum argument to prove that increasing total spending and/or total income in an economy does not mean that we are any better off. What counts is increased production. Just Jokes begins by quoting my argument, so let’s do that:

“Say the Govt taxed rich people at 50%, and poor people at zero, and then gave the tax money to the poor. The rich had no intention of spending that money. The poor go out and spend it all, buying all the wine and cocaine the rich had stashed away for future use. Total Spending went up. Total Income went up. But that did not improve the economy at all.”

Just Jokes clearly understands what I’m driving at, for he sums it up very nicely:

“…I see your point that Productivity isn’t taken into account in the spending=income equation.”

He then goes off on a tangent, wishing to discuss an alternate scenario. He writes:

Say the tax was spent employing people to build roads, bridges, air and seaports, and water infrastructure. And let’s say those newly employed used the income they received to buy food, clothes, shoes and books and also to buy a home where they could rent out a room to receive further income for a rainy day. Now excess money that was going to sit unused or for “wine and cocaine”, eg derivative bets and speculation, has improved or renovated the infrastructure businesses use to carry their goods and their customers and employees and demand has been created where none existed for clothes, shoes, books, etc…

Actually, Just Jokes is summarizing the standard gov’t line for why taxes are so wonderful for everyone.

1. The tax money is used for infrastructure, say, so businesses benefit.

2. The workers get to live dignified lives, so they benefit.

3. All the businesses the workers patronize have new customers [those very same workers], so they benefit, too.

4. The foolish rich, who don’t know what do to with their own money and just squander it away on derivative bets and speculation, are merely handing over to the wise gov’t  the money that they would have lost gambling anyway.

Bottom line, what’s not to like?

Here’s my reply. Isn’t it fun when an argument makes four assertions, and all four of them are flawed? Without further ado:

1. The tax money is used for infrastructure, say, so businesses benefit.

Whole books have been written refuting this one. The key question that reduces this argument to rubble is, “If infrastructure [or any other govt idea, program, whatever, to “help businesses”] is so wonderful, why didn’t the businesses think of it themselves? Why didn’t they build the infrastructure that is supposedly so wonderful for them? Does Barack Obama, who has never run a business of any sort, know better than the professionals who make their living and risk their fortunes daily deciding on such matters? Have we been so blessed with a Godlike, All Wise President that knows everything about a subject other mortals with similar education and life experience know nothing about?

The answer, of course, is that the businesses have long since concluded that the money Obama wants to give to his pals who own infrastructure companies is better used elsewhere, as far as they are concerned. Obama wants to help a chosen few, but the business community as a whole has already decided that it is bad business to use the money for infrastructure. Having Obama decide what the economy needs is exactly the same as if some thriving business was handed over to Moe, Larry, and Curly to run.

Now you may ask, “What’s wrong with investing in infrastructure? Aren’t the roads and bridges a huge mess? Should we just let them rot away? Why indeed, did businessmen decide not to put money into infrastructure? Don’t they want their trucks to have roads to travel on?”

I’m not a businessman, so I don’t know the details of the answer, but I can tell you the general idea. Quite simply, the money is needed for something else. The business community has decided they can get by with the infrastructure as it is for a while, because they have bigger problems that need to be tended to.

So much for the first supposed benefit of the govt meddling in infrastructure. By The way, let’s not forget who ruined our infrastructure in the first place. Back in the day, all roads and bridges were privately built, and they were just fine. Only when the govt took over building our roads did they start looking like the pockmarked landscape on the moon.

Part Two.

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2 Comments

  1. blazingtruth says:

    Certainly you’re not deferring to Hazlitt as an honest and humble authority on economics, are you? I’m a bit disappointed to see “Economics in One Lesson” mentioned favorably in this way – as it’s now just used as a piece of propaganda. I do even believe it to be the case that most actual Austrian economics would even be wary of Hazlitt’s contribution…

    Like

  2. sdavesblog says:

    1. Whether Hazlitt is honest and humble or not is beside the point. We are concerned with the validity of his arguments, not with his personality. Please show us where his mistakes are, if any.

    2. Whether his book is used for propaganda or not is beside the point. We are concerned with the validity of his arguments, not with the use to which they are put. Please show us where his mistakes are, if any.

    3. Whether actual Austrian economics [sic] are wary of Hazlitt or not is beside the point. We are concerned with the validity of his arguments, not with peoples wariness. Please show us where his mistakes are, if any.

    4, In any case, Hazlitt was an honest, humble person. His book is not a propaganda work, but a rock solid logical masterpiece. And he is highly respected and admired by Austrian economists.

    Like

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