Is the private sector supposed to serve only government? Of course not

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During the past half-century, our policymakers have viewed members of the private sector as medieval serfs, whose primary function is to provide the economy a pace of growth to enable the all-important public sector to expand without boundaries. Federal fiscal, debt management, tax and costly regulatory policies are apparently driven to serve welfare, entitlement and public employee-expenditure expansion.

THESE SWEEPING AIMS are justified under the guise of fairness, equity and justice to be implemented by reducing income and wealth inequalities, either by taxation or by regulation. It is as if the private sector exists only to fulfill the expansion aims of the public domain, entirely opposite to that of the obvious intent of our Founders.

This effort has its costs: Suffocating tax and regulatory policies reduce investment incentives, and hence the nation suffers a loss in national output, while the private sector attempts to adjust to these shocks. There can be no assurance that these losses can be recovered. Other costs are inefficiencies because of misallocation of society’s scarce resources as they are misdirected to questionable uses.

A parallel effect of these redistributive efforts has been, rather than reducing income inequality, an ironical increase in inequality. Launched by President Lyndon Johnson as the War on Poverty, this vast program to help equalize wealth and incomes has been, on average, a monumental failure. This implies that instead of increasing taxes on the few that pay them, we should reduce their burden.

The flood of recent data purporting to show an increasing income gap between rich and poor leads to misleading and very erroneous inferences. But on its face it adds further evidence to support the conclusion that the redistributive effort has been a political failure. What kind of evidence does it take to be convinced of this conclusion? Indeed, when the famous folklorist Pete Seeger wrote the poignant song Where Have All the Flowers Gone? he inserted the plaintive query, “When will they ever learn?” Yes, when will they ever learn?

THE INCREASES IN income tax progressivity of our tax system have been well-documented. But the growth in government regulatory costs has only recently been recognized. For example, Wayne Crews of the Competitive Enterprise Institute, in his latest compendium on federal regulations (Ten Thousand Commandments), alone estimates that their compliance and economic impact costs total approximately $1.9 trillion annually, a sizeable quantity when compared to our annual gross domestic product of $16 trillion. This results in a remarkable comparative relationship of such costs amounting to one-eighth of our national output. These costs virtually are dead-weight losses to the economy with no significant benefits to gross product.

NOW COMES THE famous French economist Thomas Pikettey with his new book Capital in the 21st Century, espousing the theory that since the earnings rate on private capital investment is virtually always higher than the growth rates of income and output, this must be the cause of the increases in income inequality.

Pikettey argues that the divergence is inevitable and that the only solution for reversing growing inequality is more steeply progressive income and wealth taxes.

Wow! This is the traditional Marxist, leftist, liberal prescription. No persuasive, well-thought-out arguments or relevant empirical data are offered. According to Pikettey and many others, the mere plausibility of this hypothesis is sufficient to establish its validity. Of course, this is far from being a convincing argument.

IMPORTANT CRITICISMS of this idea follow. First, a major premise of the argument is that comparing income distributions (an income distribution is a table showing the percentage of income captured by people in each income category) between two years and drawing inferences of increasing or decreasing incomes among income classes is a valid form of reasoning.

Generally, it is not. Between time periods, incomes of people jump from one income class to another (up or down). Over time, people are added to the sample, and others are dropped. These factors distort the inferences that are being drawn. To be precise, to draw valid inferences about changes in inequality one must have a sample where, at the least, the people in the sample are the same in each time interval. Of course, this condition implies no change in inequality. But this is all we can establish with such data. Obviously, to infer that inequality has changed is dangerous.

Second, keeping the Pikettey book in mind, in his earlier statistical studies of inequality in the United States his data show rising income inequality, even though vast efforts through increasing progression in tax rates prevailed over the sample period. But according to Pikettey, inequality was supposed to decrease, not increase. Since the proof of the pudding is in its eating, his proposed tax policy to correct inequality does not work.

EXPRESSED IN LOGICAL terms, under conditions prevailing during the latter part of the 20th century, the theory is refuted. Further reinforcing this conclusion is further evidence of increasing inequality provided by data from the recent recession.

Of all the sweeping social changes our nation has been subject to during the past half-century, the view that the private sector serves as the handy servant of a rapidly growing public sector must be the most significant, and the one most fraught with peril for the nation. And of all recent social engineering efforts, the attempt to reduce inequality by redistributing income must rank as the most ambitious failure of all.

When will they ever learn?

(The writer is a professor emeritus of financial economics at the University of Georgia. He lives in Aiken, S.C.)

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Riverman1
93637
Points
Riverman1 05/25/14 - 05:11 am
3
2
They'll Never Stop

Liberals are going to keep screwing with free market capitalism and redistributing wealth until people are jumping over the Berlin Wall or running south of the 38th parallel.

Bodhisattva
7193
Points
Bodhisattva 05/25/14 - 07:42 am
1
8
"THE INCREASES IN income tax

"THE INCREASES IN income tax progressivity of our tax system have been well-documented." Obviously, senility has severely set in on poor Dr. Beranek. Either that or he's deliberately writing the largest pile of propaganda, untruths, and garbage he can come up with. Increases in the progressivity of our tax system? Be sure to put on your galoshes becauses the good Dr. has everyone walking knee deep in you know what. At the height of the explosion of the middle class and what most would consider the best economic times in our nation's history.
Individual Income Tax Parameters
Married Filing Jointly
1954-1963
Rate
$0
-
$4,000
20.0%
$4,000
-
$8,000
22.0%
$8,000
-
$12,000
26.0%
$12,000
-
$16,000
30.0%
$16,000
-
$20,000
34.0%
$20,000
-
$24,000
38.0%
$24,000
-
$28,000
43.0%
$28,000
-
$32,000
47.0%
$32,000
-
$36,000
50.0%
$36,000
-
$40,000
53.0%
$40,000
-
$44,000
56.0%
$44,000
-
$52,000
59.0%
$52,000
-
$64,000
62.0%
$64,000
-
$76,000
65.0%
$76,000
-
$88,000
69.0%
$88,000
-
$100,000
72.0%
$100,000
-
$120,000
75.0%
$120,000
-
$140,000
78.0%
$140,000
-
$160,000
81.0%
$160,000
-
$180,000
84.0%
$180,000
-
$200,000
87.0%
$200,000
-
$300,000
89.0%
$300,000
-
$400,000
90.0%
$400,000
-
and over
91.0%

Sorry for the way the graph came out but it shows the Dr. is full of it. According to the GAO, US corporations paid an effective tax rate of 12.6%. Big, fat, whoop. How can they stand it? Obviously the good Dr. must think we need to pay them for the honor of having them stay here and pay substandard wages. His God Milton Friedman would be so proud. Steal national corporations from nations overseas where the profits wnet to benefit the citizens of the country, sell, really give them to US corporations for less than penies on the dollar, drive the countries in bankruptcy through the WMF, but by God, the US corporations make a killing. It's easy to do when you get an industry worth billions for next to nothing. How he became a Dr. I'll never know, unless he's just lost it over the years, or maybe he was just always spewed nonsense. He fits in well with the rest of the propaganda and yellow journalism of this paper. Why should he let the truth get in the way when the regular editorial board never does. Either by omission or by intention, it never stops them from straying as far as possible from the facts. The good Dr. fits right in.

Gage Creed
19399
Points
Gage Creed 05/25/14 - 09:11 am
2
1
Amazing!

Someone would actually post these numbers and want to use them as reference?

A 91% tax rate??? really? Really? REALLY?

dichotomy
37448
Points
dichotomy 05/25/14 - 10:09 am
2
1
"Someone would actually post

"Someone would actually post these numbers"

Well....you know Bod. He is basically a Communist who thinks that anyone that makes anything should hand it over to the government to be redistributed to those who don't work, won't work, and wouldn't get up every day and go to work if you made them the CEO of GM.

You know what Bod? When we had those high tax rates and all of that prosperity the tax money was being used to build infrastructure like interstates, dams, and pipelines. It was not being wasted on "Great Society" social welfare programs and disability fraud to support lazy scumbags. It wasn't being used to fund government agencies that restricted freedom and strangled businesses.

You cut off the welfare leeches, repeal Obamacare, and defund the EPA and I will be happy to pay more taxes to build roads, bridges, and fund the military.

It was a different time Bod, with different priorities. It was okay then but it sucks now. It worked then but it won't work now. Companies are leaving this country, AND TAKING THEIR MONEY AND JOBS, in droves because of our tax rates. It's not about the U.S. anymore because it is a global economy with global competition. U.S. companies buy an overseas company, reincorporate in the other country, and we lose ALL of the taxes, jobs, and investment.....all because of our corporate tax rates. But the Communist, anti-business looney tunes here are just too stupid to admit that what needs to happen is our corporate tax rates lowered and that we need a flat tax that EVERYONE pays.....not just 52% of us......100% of us need to be paying federal taxes on every dollar.

deestafford
31880
Points
deestafford 05/25/14 - 03:52 pm
3
1
All of the push for regulations, increased taxes....

All of the push for regulations, increased taxes, and redistribution of wealth is for one reason and one reason only---POWER FOR THE ELITE RULERS. Those who think they know what is best for us because of THEIR vision of how the country and the world should be.

Their vision is completely different from the vision of the Founders of America and the vision of the true Conservatives of today.

I would not listen to anything a Frenchman had to say about governing. Look at the French Revolution and you will see that it was originally for a true democracy (one where a sheep and two wolves voting on what to have for lunch) and "equality". Their definition of "equality" was for everyone to be the same with the same outcomes no matter the efforts. The thing got so out of hand that the originators of the revolution were deheaded themselves.

By the way, Obama and his staff have been eager readers of this Marxist's book...most likely the only book Obama has read since being in the White House. I guess he is just to intelligent to have to read books whereas that stupid G. W. Bush had to read one a week to learn anything because he was did not have the brilliance of THE ONE.

edcushman
7930
Points
edcushman 05/25/14 - 06:03 pm
3
1
"I would not listen to
Unpublished

"I would not listen to anything a Frenchman had to say about governing."
dee, in the late 90s I became friends with the manager of a manufacturing plant in France. He told me that taxes, gov't regulations and unions were destroying his country. That plant is now shut down and moved to India.

deestafford
31880
Points
deestafford 05/25/14 - 08:37 pm
1
0
ed, Maybe I should have qualified...

ed, Maybe I should have qualified my comment with, "...any Frenchman in the government or academia."

Darby
29249
Points
Darby 05/26/14 - 01:07 am
2
0
Am I the only one to notice that if

liberals/progressives/socialists didn't have government/bureaucratic driven statistics and nonsensical politically motivated data to keep them going they'd have no life at all?

corgimom
38385
Points
corgimom 05/26/14 - 07:23 pm
0
1
" When we had those high tax

" When we had those high tax rates and all of that prosperity the tax money was being used to build infrastructure like interstates, dams, and pipelines. It was not being wasted on "Great Society" social welfare programs and disability fraud to support lazy scumbags."

Yes it was, those high tax rates continued for years.

In fact, one of the individuals that paid the greatest amount of personal income tax in the US for those years was Elvis Presley, in the 50's and 60's.

Where do you think all that money came from for those social programs, Dichotomy?

corgimom
38385
Points
corgimom 05/26/14 - 07:26 pm
0
2
POWER FOR THE ELITE RULERS.

POWER FOR THE ELITE RULERS. Those who think they know what is best for us because of THEIR vision of how the country and the world should be.

Dee Stafford, learn your American history. The tax rates and the courts, property taxes, etc were all set up for the wealthy, only a very few people ran everything in every city, county, and state. THAT was the vision that the Founding Fathers had.

Poor people had zero power. If you didn't own land, if you didn't own assets, you had no voice in anything.

Bodhisattva
7193
Points
Bodhisattva 05/30/14 - 06:59 am
0
0
Our Commie founding fathers

Cultivation is at least one of the greatest natural improvements ever made by human invention. It has given to created earth a tenfold value. But the landed monopoly that began with it has produced the greatest evil. It has dispossessed more than half the inhabitants of every nation of their natural inheritance, without providing for them, as ought to have been done, an indemnification for that loss, and has thereby created a species of poverty and wretchedness that did not exist before.
In advocating the case of the persons thus dispossessed, it is a right, and not a charity, that I am pleading for. But it is that kind of right which, being neglected at first, could not be brought forward afterwords till heaven had opened the way by a revolution in the system of government. Let us then do honor to revolutions by justice, and give currency to their principles by blessings.
To create a national fund, out of which there shall be paid to every person, when arrived at the age of twenty-one years, the sum of fifteen pounds sterling, as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property:
And also, the sum of ten pounds per annum, during life, to every person now living, of the age of fifty years, and to all others as they shall arrive at that age.
Taking it then for granted that no person ought to be in a worse condition when born under what is called a state of civilization, than he would have been had he been born in a state of nature, and that civilization ought to have made, and ought still to make, provision for that purpose, it can only be done by subtracting from property a portion equal in value to the natural inheritance it has absorbed.

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