Economics 101 (EP. 46)

In Capitalism, Podcast, Responsibility, Socialism by Will Luden2 Comments

Summary

With all of the conversation about capitalism vs. socialism, healthcare and housing being human rights vs. doing things for yourself, and redistributing wealth vs. keeping what you make, there is one thing glaringly missing: Simple, basic economic lessons.

Links and References

Ratchet Effect

Socialism Works

Moral Compass

Contact

Please do reach out with comments or questions.  You can email me at will@resultswithreason.com, or connect with me on Twitter, Facebook, and LinkedIn.

And you can subscribe to the podcast on your favorite device through Apple Podcasts, Google, or Stitcher.

Transcript

Let’s start today’s Economics 101 conversation with two simple truths:

  1. All societies levy taxes and redistribute wealth.
  2. Before there is any wealth to redistribute, somebody has to make a profit.

Let’s take question No 1. All societies levy taxes and redistribute wealth. The basic function of any government, no matter how limited, includes providing for basics like defense, law enforcement and at least some infracture, for example, roads and bridges. And in any country, some people will pay more in taxes than others. If the use of what the government has provided from the unequally collected taxes is more equal than the taxes collected, that is clearly redistribution of wealth. For example, all the people in a given country are equally protected by the same military. Given that payment for that military is unequal, the tax money that goes for the mutual defense of all residents is redistributed. Same thing for law enforcement, infrastructure and fire protection. And so on.

Now for No. 2. Before there is any wealth to redistribute, somebody has to make money, that means somebody needs to make a profit, that is, money, revenue, in excess of all costs. Without somebody or something making a profit, there is nothing to tax. If a business does not make a profit, by definition there is nothing to tax, therefore there is nothing to redistribute. Business revenue by itself is not taxed. At least not yet. And without continuing profits, businesses cannot expand, and hire more people. And without those people, there are no wages to tax. Profitable businesses, and only profitable businesses, pay taxes, and employ people who in turn pay their own taxes. These same profitable businesses buy goods and services from other individuals and businesses, so this cycle of profits and hiring and tax paying and spending can productively go on and on.

Now, let’s look at some definitions:

  1. Capitalism. The voluntary exchange of resources, typically money, for desired goods and services.
  2. Socialism (modern usage). Heavy redistribution of taxed wealth. To the best of my knowledge, and I’d love to hear from others on this topic, this is what Bernie Sanders and others mean when they advocate for Democratic Socialism here in the US.
  3. Socialism (traditional definition). Government ownership of the companies that create the goods and services in that country. Public schools in the US are an example of socialism. Public schools are enterprises that produce a service–education–are taxpayer supported, and government owned and operated. Venezuela gave us another example when Hugo Chavez nationalized the previously privately-owned oil industry in that country.
  4. Communism. Socialism (traditional definition) along with the complete elimination of private property.

OK, now tackle two questions:

  1. Is the US already socialist?
  2. If not, do we want the US to be socialist?

Let’s start answering these two questions by discarding the original, the traditional, definition of socialism and stick with the definition that focuses on the heavy redistribution of wealth without government takeover of the means of producing that wealth. No country in the history of history has done anything but fail miserably implementing either traditional socialism or its first cousin, communism. Remember, someone or something has to make a profit, in other words, create wealth, before that wealth can be redistributed. Capitalism is without question the greatest wealth-producing engine the world has ever seen. On the other hand, governments are famous for spending money, not so much for either saving or making money. Capitalism needs to be regulated, and, perhaps more importantly, it needs a moral compass. Please see Moral Compass.

In the US, we already have hundreds of billions of dollars of wealth redistributed annually, starting with basics like providing for common defense, to education to the many and growing welfare programs at the local, state and federal levels. The question is not do we want to redistribute wealth, but how far do we want to go in this direction–a direction we have been taking for decades.

Now, let’s take a vital turn in our line of reasoning, our line of questioning, and ask the key, the core, underlying question: What is the attitude, the thinking, that an individual–and the surrounding society–has when wealth is redistributed? Is it:

  1. “Thank you; I will take only what I absolutely need, then commit to working my very hardest to stand on my own two feet, and, eventually to help others.” or,
  2. “I am entitled to all of this–and more. After all, these things are all basic human rights. That’s what I have been told, and that’s what I believe.”

The answer to the above question will shape the destiny of individuals, families and entire countries. We will unpack this and more in future podcasts starting with the next one on Friday the 27th: “Money and Dignity.”. Results With Reason publishes two podcasts and related blogs each week; midday on Tuesdays and Fridays. Twice a week, every week.

Links and References

Ratchet Effect

Socialism Works

Moral Compass

Contact

As we get ready to wrap up, please do reach out with comments or questions about this podcast or anything that comes to mind.  You can email me at will@resultswithreason.com, or connect with me on Twitter, Facebook, and LinkedIn. (N.B. I did not answer the above questions re the US and socialism. Would love to hear your answers.)

And you can subscribe to the podcast on your favorite device through Apple Podcasts, Google, or Stitcher.

Frequency: Results With Reason publishes two podcasts and related blogs each week; midday on Tuesdays and Fridays. Twice a week, every week.

Now it is time for our usual parting thought. For us at Results With Reason, it is not only change your thinking, change your life. It is change your thinking, change your actions, change the world. And if you can do it in love and enjoy the people around you at the same time, all the better. And if we, you and I, don’t do something, then the others who are doing something, will continue to run the show.

Remember: Knowledge by itself is the booby prize.

Will Luden, writing to you from my home office at 7,200’ in Colorado Springs.

Will Luden
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Will Luden

As an author, speaker, public company board chair, family man, a man with many friends (and friends-to-be), citizen and a child of God, I am driven to contribute. One way to for me to contribute is to start thought-provoking discussions.My overall objective is to stimulate “Passionate, Relentless, Reasoning.” My specific goals include getting people to act (only) after Reasoning.
Will Luden
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Comments

  1. According the media today, America is divided into two camps. One believes that every social problem has a government solution (Marx wins). The other thinks that social problems will always exist, so “Don’t bother me”. Neither really believes that they as individuals are their brother’s keepers. I would like to believe that there is another dimension in society that sees and sympathizes with the unfortunate and rolls up their sleeves (or opens their wallets) to try and fix the problem without relying on other people’s money.
    BTW, sales and excise taxes do not rely on underlying profits. They only take the government cut off the top without regard to whether the taxed transaction is profitable.

    1. Author

      Hi Charlie, love it. Starting with “I would like to believe…” you make the case for being our Brother’s Keepers. Yes? And, agreed, there are some business taxes based on revenue, inventory, property, etc.; I was trying to stay out of the weeds…:). Cheers, Will

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