What If the Rich Really Gave Back as Obama Wants?

President Obama tells us that the rich should give back to society. He even knows many wealthy people who want to give back more. (I guess they can’t until their taxes are raised). We learn from him that the rich owe their success not to business acumen and risk taking but to public roads, schools, the courts, food stamps, disability payments, workplace regulation, and other government services. We even owe the first rumblings of the internet to DARPA, unfortunately the research arm of the military-industrial complex. (Or was it Al Gore?).  Obama feels it is only fair that the rich return what the government gave them. What business could survive without access by public road? Fair is fair, after all.

What would happen if we, like France’s socialist state, taxed away seventy five percent of earnings above one and a quarter million and  high-net-worth business executives with  $2.5 million in salary, dividends and rental property pay a marginal rate of 90.5 percent. At such rates, our rich would really be giving back to government what it is due, and perhaps more.  Fair is fair.

With so much “going back,” there is little reason to go forward. The “rich” should just cash in their chips, stop building their businesses or starting new ones, pay their high taxes, and live off their wealth, unless that is taxed away too. After all, the government can “invest” their money in Solyndras,  Volts, and entitlement programs. As Obama claims, government investment has higher returns than private investment.

If Steve Jobs had paid his fair share back to society after he made his first ten million, Apple today would today be a relatively small company worth less than a billion and employing a thousand or so. It would not be the world’s largest company in market cap, it would not employ 60,400 people worldwide, and we would not have the IPads, IPhones, Apps, and other innovative Jobs products, which improve the quality of lives and raise living standards. Apple shareholders would not hold shares worth a half trillion dollars.



go to forbes.com

More Speculation Nonsense

I regret that the “profitable speculation” diagram has disappeared from economics texts. If more people knew it, we could avoid unnecessary nonsense. Even observers from the right have no idea of  the positive role of profitable speculation.  Bill O’Reilly this evening launched another attack on speculators.

If Bernie Sanders’ (and others’) proposals succeeded in eliminating speculation, we would experience broader price and quantity swings and would be worse off.

The concept is very simple. If speculators anticipate lower future supplies (and higher prices), they buy now and hold for future sales. If they guess right, they sell in the future at a profit. If they guess wrong, they sell in the future for a loss. The profitable speculator has moved supply from a period of relative abundance to a period of relative scarcity and has smoothed out prices. We have been made better off.

In other words, profitable speculators perform a positive service for the economy. Unprofitable speculators make things worse, but they can’t stay in business if they continue to guess wrong. They disappear. Those with a knack for speculation remain and smooth out prices and supplies.

Notice that there is no outcry when speculators conclude that future supplies will improve and they push prices down.

I guess that people will never understand this simple proposition. So we’ll have to live with this hot air.