Math-challenged Liberal/Lefties – II

The economy is all about disposable income.

You can’t stimulate the economy by taking money away from people. Liberal /Lefties don’t get this point, I know, because math is hard. Let me try to explain.

People generally receive a fixed amount of income, let’s call it a “pie”. Some of that pie, up front, goes to paying for essentials, or “overhead”- i.e., shelter, transportation to and from work, utilities and food (although there is a lot of discretion on that last point). For most people, this number is a fixed quantity.

Another major portion of that pie goes to taxes. This fixed-and-ever-increasing quantity, I think we can generally agree, is pretty much non-stimulatory to the economy. There are reasons why government spending is very poor at stimulating the economy, the leading one being government’s inherent inefficiency (I remember learning in an economics class long ago that only $0.10 – $0.25 of every government dollar goes to its stated objective). As witness for the prosecution, I present you with the Great Obama Stimulus of 2009 – 2010.

This leaves the third portion of the pie: disposable or discretionary income. People can do two things with discretionary income: a) invest or save, both actions which make money available to the economy in the form of investments or bank loans; b) spend money on goods and services. Both of these activities are very good for the economy. The more that people invest and save, the more that is made available as capital to fund development of products, build companies and create jobs. The more that people spend, the greater the demand for goods and services, which creates jobs. I can’t think of any clearer explanation of how this works than Milton Friedman’s famous recounting of “the pencil”.

So, bottom line. It is only (and I mean only) by increasing discretionary income that one can grow an economy. So, here is the equation:

[Total Income] – [Overhead Expenses] – [Taxes] = Economic Growth.

When Liberal/Lefties declare that taxes must be raised to fuel government activity and that overhead expenses (e.g., cost of fuel, utilities) must be raised through economic costs imposed on business (e.g., environmental and cap & trade legislation), there is less and less left to stimulate the economy and create jobs.

No matter how well Tuesday’s elections turn out for those of us on the conservative-libertarian side, we still have a lot of work to do in overcoming our Liberal /Lefty friends math anxiety with some basic truths regarding jobs and the economy. I suggest that we will need to keep our arguments as simple as possible. Math is hard.

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  • Ymarsakar

    My view is that the cannon fodder at the bottom of the Leftist pyramid scheme is in denial or simply ignorant. The ones at the top, however, know very well the math involved and it is expressly because they know how dire the consequences are that they are deliberately manufacturing such failure.

  • Indigo Red

    Liberals won’t understand until they don’t have enough money to ignore where it goes. Even then the arithematic may still be too hard.

    Two years ago, I posted It’s still funny.

  • Bookworm

    Danny, I never thanked you for this useful primer.  Thank you!