July 17, 2010Weekend Edition
This is intuitive to every person who has ever had a real job
Below, I'll debunk your faith in humanity... but you might find yourself laughing. Sometimes it's all you can do when faced with the enormity of the problems facing our country and the ignominy of our leadership.
Let me begin with Hillary Clinton. God bless her. Has there ever been a more unfortunate woman in history? She wasn't qualified to pick a spouse, let alone run the foreign affairs of the United States. And now this... Let history record that economics has never entered her mind. Hillary was comparing the United States to Brazil recently when she said: "Brazil has the highest tax-to-GDP rate in the Western Hemisphere and guess what – it's growing like crazy."
She was implying that if we raised tax rates on the rich, our economy would improve. And just to remind the audience exactly what she meant, she began her talk by pointing out a theme that's growing in popularity in Washington these days: "The rich aren't paying their fair share," she said. Never mind the fact that the "rich" pay for the vast majority of government and roughly 50% of American citizens pay no federal income tax at all.
What Hillary either didn't know or didn't care to mention was the highest income tax rate in Brazil is 27.5% – even lower than the Reagan-era rates her husband jacked up. Compared to the 43% rates "the rich" will be paying this January, Brazil seems like a tax haven for wealthy Americans.
It's hard to believe Hillary could be so woefully ignorant of the real lesson the Brazilian economy demonstrates: Lower rates of tax generate far more revenue (as a % of GDP) than do steeply progressive rates like we have in the United States. The reason is utterly simple and intuitive to every person who has ever had a real job: Nobody likes to give half his paycheck to the government.
As any economist (liberal or conservative) would tell you, steeply progressive taxes result in lower economic growth, higher unemployment, and vastly more tax avoidance. When will the Democratic party cease its attempts to capitalize on class demagoguery and adopt sensible economic policies?
Washington D.C. is the Daytona 500 of uselessness, ignorance, and vaingloriousness. I never imagined someone could overtake Hillary on the race to the bottom. But I seriously underestimated the mind-blowing ignorance of Nancy Pelosi...
On July 1, Pelosi proclaimed in a weekly press briefing that the best way to stimulate the economy was to extend unemployment benefits – beyond the two-year limit. "It injects demand into the economy... It creates jobs faster than almost any other initiative you can name."
Silence. There's nothing but stunned silence. And the growing realization that these people (our leaders) have no idea what they're doing...
Pelosi is the daughter of a congressman. She went to college in Washington D.C., interning for senators. She married out of college and raised five children. Then, in 1987, she won a special election in California's Eighth District, where only 15% of the voters are registered Republicans. It is probably the "safest" Democratic seat in Congress.
In short, Pelosi has spent her entire life in government – sitting in a guaranteed seat. She has never run a business, held a regular job, or employed anyone in her entire life. I'm sure she believes what she said – that the government should simply support everyone and doing so is the quickest way to improve the economy. It is all she knows. As she said: "It's impossible to think of a situation where we would have a country that would say we're not going to have unemployment benefits."
Actually, Nancy... until 1935, there was no federal role whatsoever in unemployment benefits. Such arrangements were organized voluntarily by trade associations and unions – and were self-funded. It didn't occur to Americans that they ought to be responsible for someone else's unemployment insurance until Franklin Delano Roosevelt showed how the newly expanded electorate had changed politics in America forever. Campaigning with the explicit promise to rob your neighbors was good politics. And it has been ever since.
The irony is, such policies have now become so mainstream that politicians like Pelosi don't even remember where they came from... or their party's role in creating them. Nor do the politicians yet understand that believing in these ideas – that everyone can live at the expense of their neighbors – will lead to a catastrophic financial collapse, a situation that's well underway right now.
Regards,
Porter Stansberry
The Weekend Edition is pulled from the daily S&A Digest, produced by Stansberry & Associates. The Digest comes free with a subscription to Porter's Investment Advisory. To learn more about a risk-free trial subscription click here.
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