Republicans and Zombies: Tax Cuts and Brains
In the eternal war between sensible people and conservative Tea-Zombies, the one fixed point is that the Conservatives will call for
brains tax cuts every day, in every forum, and with total disregard for reality. The clip is an example from last week. Cenk Uygur, Ryan Grim of Huffington Post, and Jane Hamsher all ask John Feehery, a Republican operative, to explain the mechanism by which firing state workers encourages businesses to hire more people. It does, insists Feehery, unable to proffer even a feeble explanation.
Tea-Zombies hate the devil, John Maynard Keynes, but they don’t have an answer for him either. Keynes says:
When a man buys an investment or capital-asset, he purchases the right to the series of prospective returns, which he expects to obtain from selling its output, after deducting the running expenses of obtaining that output, during the life of the asset. This series of annuities Q1, Q2 … Qn it is convenient to call the prospective yield of the investment.
The General Theory of Employment, Interest, and Money, 135. This simple statement tells us that the only thing that influences the purchase of an investment, whether a machine or a financial asset like a bond, is the prospective yield. Feehery is saying that I won’t buy stock unless I am sure Ohio plans to fire enough teachers to insure that I can recoup my investment. Brains!
Actually, we now know exactly how the Zombies plan to improve the prospective yield of Treasuries. They intend to sacrifice the old and sick to make sure that the US pays on its bonds. Scarecrow points us to Deroy Murdock who writes:
It’s not accurate at all to equate a failure to raise the debt limit with a default on our Treasury obligations,” Sen. Pat Toomey, R-Pa. tells me. “That’s totally false. Tax revenues will be nearly 10 times the amount of money needed to avoid defaulting on our debt.”
Indeed, the Congressional Budget Office forecasts $2.23 trillion in federal tax revenues for fiscal year 2011 and net interest expenses of $213 billion. Geithner will have plenty to pay bondholders.
It is fitting that this guy is with a group named after Depression Expert Herbert Hoover. Senator Jim DeMint agrees, as David Dayen (dday) tells us.
According to the Republican Party, it is more important to pay off rich people’s bonds than to pay Social Security and Medicare.
How Much Do We Pay For Financial Assets?
In the quote, Keynes describes two kinds of capital assets: directly productive assets, machines and such, and financial assets, stocks, bonds and similar instruments. When you buy a bond from a corporation, you are counting on the ability of the corporation to make enough profit to pay interest throughout the term and to repay the principle. When you buy a treasury note, you are counting on the willingness of the US government to make payments. When you buy stock, you are betting that the company will be profitable, and that you will be able to recoup your investment in the future.
The Federal Reserve Board recently released the 2011 Flow of Funds Accounts for the United States (.pdf). It says that in 2010, households and non-profit businesses held $46.9 trillion in financial assets, and that non-farm non-financial businesses held an additional $14.2 trillion. This isn’t all of the financial assets; there is money hidden offshore and not reported, and there are financial assets in financial companies that ought to be counted, but let’s just look at that total, more than $60 trillion. All of that money wants a return from the productive sector. If financial assets get an average return of 5%, they suck $3 trillion out of the productive sector.
US GNP is currently running at about $15 trillion. Every year, we pay 20% of the value of our production as the price of capital. That’s just cash outlays, not the cost of the distortions to the political system necessary to make it possible for capital to dominate the economy.
The government limits itself to financing itself with taxes and with debt, although there are other and better options. Insistence on the use of debt creates an obligation to pay interest. Now, we could finance that interest with taxes or new debt, or we could use one of the other options, but the political reality is that we are going to use new debt for a while, and then we are going to turn to paying it off with taxes.
And guess who is going to pay those taxes. Certainly not rich people. Certainly not the members of the Chamber of Commerce or the Business Roundtable.
It is your responsibility, your moral imperative, to pay that debt along with your share of the price of financial assets. And if that means that you don’t get your Social Security, or have to eat catfood to pay for your medical expenses, at least you can be happy knowing that you are morally serving the rich.