Economics 101: When wealthy reduce spending, poor are hurt

Posted: Thursday, December 06, 2001

There's a little ditty from the 1961 Broadway musical "Carnival" that says something, in a different context, about the class warfare fought by Democrats against Republicans:

"The rich put cream on their berries;

The rich drive shiny black cars.

The rich go here, the rich go there;

It's close to the truth, but far from fair."

Far less cleverly than Bob Merrill's lyrics, Democrats have decided to reprise their long-running class warfare strategy, which never changes and often succeeds with the untutored.

A recession having been declared, Democrats plan to run commercials blaming it on President Bush. Why not? It worked with the president's father, who presided over a recovery but never got credit for it because the major media ignored the economic turnaround until after the 1992 election.

Predictably, Democrats will focus on the supposedly "unfair" breaks the Bush administration has been giving "the rich" through current and proposed tax cuts. They will ignore huge new spending brought on by the terrorist attacks and pork barrel spending by both parties.

Low-income people have a different perspective that can be instructive. They are losing money and sometimes their jobs because of what has happened to "the rich."

In an odd twist, the pro-big government, pro-high tax and pro-big spending New York Times carried a story Nov. 29 about how limousine and taxi drivers, waiters and hotel bellmen have suffered because "the rich" are spending less than before Sept. 11. Economists estimate that 75,000 service and other blue-collar New York City workers have suffered badly in the last three months. This does not include an estimated 80,000 workers who've been laid off during the same period.

Are the layoffs and economic hardship of these people occurring because "the rich" are getting too many tax breaks? Not according to the Times. The newspaper reports that "the rich" have cut back on their spending because they have less money to spend.

If this formula works one way, surely it must work in reverse. When "the rich" have more money to spend, they spend more money, thus employing and prospering more people at the lower end of the economic ladder. It then follows that the more "the rich" are taxed, the less money they have to spend.

Every job I've ever had has been with a company that earned more money than I did and do. Those companies were, and are, rich, at least compared to me. I wanted the opportunity to also be rich if I had the will, and the skills, and was willing to take the necessary risks offered by a free society.

No poor person ever hired me. Neither have I been employed by anyone who earned less than me. The only people able to hire workers are those who earn and have more capital than their employees. If a company's income drops due to an economic downturn and/or high taxes, one of its first steps is to lay off workers in order to save money. If it earns and keeps more money, it's able to hire more people who will, along with the company, pay more to the federal treasury. Employees might receive pay raises if the company prospers and the stockholders are happy.

This is basic economics. It is difficult to understand why so many people have bought into the fiction that by "soaking the rich," those with less will somehow do better. The only way I can benefit from the government's taxation of others is if government gives me some of other people's money. I will never be able to take enough from others to significantly better myself. Given the right tax and other incentives, my company and I will earn more and ultimately pay more in taxes to government. That has been the history of earning and taxation in modern America.

We used to teach these things before a sense of entitlement and guaranteed outcome replaced individual responsibility and equal opportunity.

Ask those New Yorkers who are making less, or not now making anything, if they'd rather have the rich making enough to spend again.

Republicans have an opportunity to successfully counter the Democrats' misinformation campaign. That will be an early challenge for Marc Racicot, the new chairman of the Republican National Committee.

Cal Thomas writes for Tribune Media Services.



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