Florida Congressional District 24 Congresswoman Sandy Adams
Another year and another Congressional Town Hall meeting. My current congressperson is first termer Sandy Adams from Seminole County, Florida. Her claim to fame is giving US Attorney General Eric Holder the toughest questions in the infamous fast and furious scandal. As a ex -cop she is excellent at interrogations.
Her degree and background is in criminal justice so I do not hold it against her when during town hall meetings she draws a blank when the inevitable economic questions arise. She no doubt has economists on her staff but most likely if they are Keynesians or monetarist they are useless on anything but the micro level. Economics taught in college textbooks is mostly useless go big government, go Federal Reserve bull crap feed to the public to ensure future leaders think the answer to every economic problem involves printing more money.
I like Congresswomen Adams more than “Choo Choo” train, 10 term Congressman Mica.
Because of redistricting the two will face each other in the Republican Primary this August.
Adams is the “Tea Party” candidate even though she voted for the $2.4 trillion debt ceiling increase August 5, 2011. Mica by contrast is, in my humble opinion, corrupt as they come supporting his special interest colossal waste of money billion dollar train Central Florida does not need. Adams is a strait talker and would turn someone who attempted to bribe her into the authorities in a New York minute. Give me the ex-cop over Mr. Corruption, thank you.
Florida District 7 Congressman John Mica will face Adams in the Republican Primary in 2012 due to redistricting. Mica is a big special interest congressman.
Anyway back to the Town Hall meeting…
Congressmen and women, Adams is no exception, field the countless bulk of questions about economics, and inevitably they end up looking clumsy, because for most of them this is a strange subjects full of half truths, fairy tales, and propaganda.
So if I may be so bold here are some economic truths that cut through the fairy tales, propaganda, and myths.
For example one gentleman asked her about the GINI coefficient. Of course she was stumped.
The GINI coefficient is something taught in Development Economics in junior or senior level economics. It was an unfair question for her, she should have let me answer the gentleman, or one of her staff members.
So what is a GINI coefficient?
This index measures the degree of inequality in the distribution of family income in a country. The index is calculated from the Lorenz curve, in which cumulative family income is plotted against the number of families arranged from the poorest to the richest.
The index is the ratio of
(a) the area between a country’s Lorenz curve and the 45 degree helping line to
(b) the entire triangular area under the 45 degree line. The more nearly equal a country’s income distribution, the closer its Lorenz curve to the 45 degree line and the lower its Gini index, e.g., a Scandinavian country with an index of 25. The more unequal a country’s income distribution, the farther its Lorenz curve from the 45 degree line and the higher its Gini index, e.g., a Sub-Saharan country with an index of 50. If income were distributed with perfect equality, the Lorenz curve would coincide with the 45 degree line and the index would be zero; if income were distributed with perfect inequality, the Lorenz curve would coincide with the horizontal axis and the right vertical axis and the index would be 100.
This is the economic graph both Republicans and Democrats need to understand, it should be called "monetizing the debt" but the official name is "U.S. Treasury securities held by the Federal Reserve: All Maturities (TREAST)."
Well neither did Adams.
Who would with the exception of an economist?
The gentleman indicated that the United States ranks 41 (40th according to the CIA World Fact Book) and that this was somewhat bad because the USA was ranked around countries like Mozambique, Jamaica, Bulgaria, Cameroon, Iran, Cambodia, and ekes Uganda. The implication being that civilized countries like Sweden and Norway have “low” GINI coefficient numbers of 0.23 and 0.25.
What the gentleman fails to mention is that the median purchasing power parity in “social justice” high tax countries of the European Union, Italy, Spain, England, France, and Germany, countries similar to the United States in population and ethnic diversity, is $33,900 compared to $48,100. The United States citizens make a whooping 35% more! Give me more inequality please, thank you.
The poverty rate is 15.1% in the USA, which in 2008 was 13.2%, compared to the 15.1% average in the five EU countries listed above.
So what is gained by having a “good” GINI coefficient if poverty is not reduced?
Your guess is as good as mine.
Florida will have new congressional districts for 2012
The GINI coefficient number is also describing a symptom, not the problem. Wealth inequality is created by several factors but the three biggest are:
1. The Federal Reserve. Simply put by creating inflation as a policy goal those that control the means of production can instantaneously increase their prices while working class people get a raise once a year. The reason JP Morgan (Republican) and John D. Rockefeller (Democrat) wanted a central bank was to pay workers in “soft” money, pay back loans in “soft” money that was worth less over time, and not suffer the continuous deflationary competitive market forces that hard money (gold) forces upon the marketplace. Companies constantly have to strive to cut cost, or lose market-share in a deflationary economic environment.
The answer would be to eliminate the Federal Reserve and go back to private money and 100% fractional reserve banking, but I am not holding my breath Congresswoman Adams will adopt that position anytime soon.
2. Taxes and specifically transfer payments, which hurt the poor disproportionately. In 1960 Social Security as a percent of the GDP was 2.8%, in 2010 it was 6%. In 1960 the federal, state, and local government consumed 26.2% of the GDP, today 45%. Simply put we have a larger government burden to pay for and the poor pay for this through lower wages, less benefits, and finally loss of employment.
3. Unregulated immigration. In 1970 only 4.7% of the population was foreign born, today 12.4%. Most of the immigrants compete for blue-collar jobs, lowering wage cost for the capital users, contributing to the spread between white-collar wages and blue-collar wages since 1970.
Politically incorrect subject matter not likely to be discussed during the campaign.
Representative Adams, Geneva, Florida 3-12-2012
So can Representative Adams be excused for not quite up on the intricacies of economic theory?
I give her a pass.
Another economic puzzler, is lowering the tax rate on the “rich” good for the economy?
Democrats and Keynesians falsely believe that if you take money from a rich man and give it to the poor man the economy will be better off because the poor man has a greater marginal propensity to consume. In other words he will spend most, if not all, of the money.
What this fails to take into account is that the rich man does not put his money under the mattress. The rich man will;
1. Save the money in the bank and generate interest. In this case the money is being used by bankers to make loans, creating jobs for America.
2. Investing the money in stocks, bonds, mutual funds, or other financial vehicles. All these options create capital for economic growth whereas giving the money to government, then giving it to the poor man increases consumption, but will not improve the economy in the long run. Only savings and investment creates improved economic performance in the foreseeable future.
3. If the rich man decides to spend his money the money will enter the economy, and he will pay taxes on the money, just like the poor man with the exception that the government does not get a percent of the money as a redistribution tax.
The final economic puzzler, does increasing taxes increase revenue?
No absolutely not above 30%.
Fewer taxes are collected with a tax rate over 30%. The proof is right there in the Historical White House Budget Tables from the Office of Management and Budget combined with the Historical Top Tax Rates. Next time someone ask if increasing taxes will raise revenue the answer should be a resounding NO! And use the White House tax collection data since WWII to prove the point.
The Reagan economist Arthur Laffer looked at the historic top tax rate and actual taxes collected and came up with his famous Laffer Curve.
Simply put the top tax rate should be 25% or less. From 25% to 30% more taxes are collected, but with the result being slower economic growth. Over 30% corporations and individuals avoid the tax by engaging in tax avoidance behavior such as practiced by Warren Buffett or Mitt Romney getting paid with capital gains and not the higher taxable income. Simply put when you own the store you can pay yourself $1 a year and $1,000,000 in capital gains.
The best solution is a Fair Tax or Flat Tax.
Both are the same. Both eliminate double taxation, corporate taxes, dividend taxes, capital gains taxes; they simply come from different collection points.
Corporate taxes are counterproductive because they come from consumers, dividends, profits, wages, benefits, research and development.
Dividend taxes are double taxation. The IRS should get one chance to tax income, not two, three, or four times like today’s tax code.
Capital gains taxes are the most economically backward tax on the books. Why on earth would you want to tax someone for taking a risk and investing into the economy? As long as the activity is promoting job creation and growth it should be encouraged, not punished.
Taxes should not punish behavior we want as a society.
Finally every congressperson should know that inflation comes from the Federal Reserve printing money.
Since Obama was inaugurated the federal debt held by the Federal Reserve has increased 238%. The Federal Reserve now owns 11% of the national debt, or $1.6635 trillion. You do not have to be an economist to understand creating money out of thin air and buying your own debt is extremely inflationary.
In a way I feel bad for Congressmen and women giving town hall meetings, fielding questions which they have no background whatsoever. It would be as if I had to teach a law class, I would fake it, read a large amount of power points, and pray there were no law scholars in the audience who could cut me up into pieces if they so desired. So for my beloved congresswoman I certainly do understand why she does not know what a GINI coefficient is.
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