Tag Archives: liberals

The Economics of a Frivilous $8,000 Purse

Gary Nolan (and THE Scrappy Doo)
Gary Nolan (and THE Scrappy Doo)

Recently, a socialist-minded coworker was having a discussion in the office, and indicated she was disgusted that a famous celebrity bought a new purse, costing thousands of dollars. They said something to the effect of, “Yeah, that’s why the rich need more tax breaks, so they can buy expensive purses” followed by a pejorative laugh.

So I did a Google search for this purse company, Bohlux. As it turns out, they are made here in the United States. Certainly I think $8,000 is a ridiculous sum of money for a purse, but I’ve always told people that it’s important to understand that “expensive” is a relative term. Since I am fairly poor, I couldn’t dream of spending money on something like that, but to someone who makes several million dollars a year, it is less than a week’s pay, meaning that $8,000 to her was like me buying a nice dinner.

Bohlux Structured Hand Bag
Bohlux Structured Hand Bag

My left-wing cohort’s argument of course, is that the money would be better spent in the form of taxes to assist solving every American’s problems at the government level. But let’s think about what would happen in the two scenarios for a moment.

If that money went to the government, it would end up in places like Solyndra. It would end up in the hands of entitlement abusers such as welfare fraud perpetrators or unemployment collectors who could work, but choose not to. It would end up in the pockets of politicians. Or it would end up supporting a myriad of other wasteful government programs—the list goes on.

I’m not condemning all government functions, I do believe that there are some good roles for Uncle Sam, and there is a need for taxes to pay for those services. I’m a libertarian, not an anarchist.

I am not trying to assert that the above list is representative of the whole of government or even the majority of it, but it is a substantial portion. The problem is, virtually none of those people or causes actually did anything to earn that money and therefore should have no right to it.

On the contrary, if a millionaire buys an expensive purse, an American purse maker made money, the store that sold it made money, the employees of the manufacturer and the store got paid. Then all those people probably spent that money on goods and services at local stores who also made money…and the cycle just keeps going into a nice, free-market, economic circle. The most important part of that though, is that the people in this scenario did actually earn that money.

The fact is that the people who get mad at rich people blowing their money on frivolous items don’t seem to get how that helps the economy. The money they spend literally creates jobs because someone is performing the service they are paying to receive or building the product they are buying, where entitlements simply delay the inevitable.12627-highlights-rockstud-craftsmanship[1]

If rich people just sat on their money and stuffed it in a mattress, then yes that would hurt the economy, but that rarely happens. The rich invest their money, they spend their money on needs, they build companies that create jobs, or they enjoy it through wasteful spending on purses and such.

We covered how spending helps, but investing helps too of course.

If they buy a million dollars of stock from a company, that company uses that money to grow their business, often in a new direction. That results in the company hiring new employees which is also a boost to the economy.

Standard Oil Common Stock
Standard Oil Common Stock

If they buy stock from a private owner, that person now has cash in their hands to spend on goods and services, which again creates jobs.

People often refer to the term “Income redistribution.” I think the term is inaccurate because both situations redistribute wealth. However, the system those of us on the small government conservative side promote redistributes it to people who earned it, whereas our big government friends redistribute it to those who didn’t.

So when they talk about “fair share,” I’m sorry but their understanding of the word “fair” is grossly misappropriated.

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Simple Math: Economics 101 – Why Government Sucks

Gary Nolan (and THE Scrappy Doo)
Gary Nolan (and THE Scrappy Doo)

Math Problem #1

Let’s imagine there was a country with 50 citizens.

Then let’s imagine they all made a product that generated them $2.5 million in income. For purposes of this argument, we’ll say $50,000 a year for each of them.

Then let’s imagine they decided to elect one person of the group to be their “government” because they felt like they needed someone to handle things a government generally does. This means that they can now only make $2,450,000 worth of goods, because the 50th person isn’t producing any longer.

At that point, the 49 people, making $50k each still, would have to sacrifice about $1000 each to pay their government employee who is no longer generating product themselves because he/she is the government now. The result would be that they would all only make $49,000 each instead of $50k, including the government worker.

Now, let’s imagine that you kept adding government functions and thus needed more people to administrate them until you got to a 50/50 ratio of private sector/government workers. The 25 remaining private sector workers that started out making $50K would have to contribute $25K each so that their 25 government counterparts could make $25k each as well.

Notice that in each scenario, as more workers were moved to the government, the average income for everyone went down while the amount of goods they produced went down as well? The fact that government employees no longer generate a marketable good is often lost on people. They are a necessary expense, but entirely an expense, nonetheless.

Here’s where the math gets interesting though. The drop from 50:0 private sector/government workers to 49:1 resulted in a mere 2% loss for everyone. However, the drop from 25:25 to 24:26 ($25,000 to $24,000) would result in a 4% loss for everyone, and if we were to go from 10:40 to 9:41 ($10,000 to $9,000) it’s a difference of 10%, and the 2:48 to 1:49 ($2000 to $1000) is a difference of 50%!

What does this mean you ask? It means that as we add government employees, the losses are not linear, they are exponential, as it relates to the earner. The addition of each government employee hurts at a higher percentage than the addition of the one before it, as opposed to just the same hit each time.

This is a simplified equation to make it easily understandable, but the beautiful thing about math is that it doesn’t care whether one likes it or not. It simply is what it is.

While it is easy to want the government to solve all of society’s problems, individual problems are the responsibility of the individual to fix—not mine, not their neighbor’s, and not their government’s. When the government grows, we all hurt.

Math Problem #2

People assume that government workers are taxpayers. While it is true that they return some of their income in the form of taxes, from a mathematical standpoint this is false.

Again let’s assume they make a $50k salary, and then let’s assume they pay $15k in taxes. That is a net cost to the actual taxpayers of $35k, right? Wrong actually, but I’ll get to that in a minute. So while they are paying taxes, it’s still a debit, not a credit. The term payer gives the impression they’re contributing, but from a mathematical standpoint, government workers are takers, not contributors, and when they “pay” taxes, they are effectively just reducing the amount they take.

I know I said that that’s a cost of $35k, but like a stereotypical politician, I lied to you. Because if that same person were in the private sector making $50k and paying $15k in taxes, that would be a $15k credit to the tax pool. So it’s either a $35k loss if they work for the government or a $15k credit if they’re in the private sector. This means that the loss is the entire $50k. So yes, they do “Pay” taxes, but be assured their complete $50k salary is the cost to us taxpayers, not just the untaxed amount of $35k.

Summation:

After reading this, it may seem that I am anti-government. I am not anti-government or even against government workers. Government serves an important role as it is the only thing separating us from anarchy.

However, one should think of government workers like food. It is necessary for us to have government, a proper diet and proper portions are required for good health. But while that stimulus slider, regulation cookies, and entitlement cake may look good and even taste good, they are surely the way to diabetic shock and an early death if not done in moderation.