Sunday, April 15, 2012

The Buffet Rule: Libs vs. Conservatives

By now we have all heard the President's campaign rhetoric deriding the evil gazillionaires and how they game the system to pick the pockets of the rest of us. Now I know that by and large this is Obama's only strategy to get elected in November. He will have to create a populist platform pitting one class against the other.

But as I've looked at the speechifying from the administration it struck me that the One actually may believe what he is saying. I am convinced that he has no interest in improving the economy with the Buffet Rule. Point in fact. Many folks out there are reporting that if we implement the Buffet Rule it will have negligible effect on the deficit/debt and in some cases there are those who believe that it will actually hurt job creation. This from Sal Bommarito at Policymic:

The [Buffet Rule) proposal is dramatic in name only as it is predicted to generate only $47 billion of new revenue over 10 years, or less than $5 billion annually. This compares to annual national deficits of over a trillion dollars during the past four years (three of these years were during Obama's tenure).

If the capital gains tax rate were to be increased to 20% or 30% or even 35%, the vast majority of those people earning up to $10 million annually would be affected only to a small degree. Keep in mind, one would need to sell assets of $20 million for a 5% gain to earn $1 million of capital gains, or $100 million to produce $5 million of capital gains. Very few people earning $5-$10 million annually (pretax) have assets (or earnings from them) large enough to generate those types of capital gains.

The Buffett Rule would yield a relatively small amount of increased revenue for the Treasury. Frankly, I do not object to the proposal out of hand; but one must be concerned about the derivative impact of changing the capital gains tax rate on investment income in this country. Would it hurt job creation? Probably.

So if the experts are right why does Obama keep trotting out this class warfare nonsense? He must know how little effect (if any) it will actually have on economic growth. I truly believe that his intentions are not  to help the economy, rather, the Buffet Rule is in line with how he sees the economy in general and specifically how each of the participants contribute. In his (and most liberals') minds, they think that if one person is succeeding then it obviously is at the direct expense of another. Thus he views the U.S. economy as little more than Zero sum game. From Wikipedia:

In game theory and economic theory, a "zero-sum game" is a mathematical representation of a situation in which a participant's gain (or loss) of utility is exactly balanced by the losses (or gains) of the utility of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero.

From Karl Marx to Mao Tse Tung to the lunatics in North Korea and any other communist worth his salt - this is their view of economic development. In other words their faith in fair economic growth is dependent upon who controls the resources and more importantly how those resources are re-distributed. And ultimately that distribution of resources MUST inherently be defined by a centralized government because left to their own devices the evil 1% will ultimately end up with all the resources.

Counter this theory with what evil capitalists believe. In the capitalist world we believe the theory that a "rising tide lifts all boats". Again from Wikipedia:

The aphorism "a rising tide lifts all boats" is associated with the idea that improvements in the general economy will benefit all participants in that economy, and that economic policy, particularly government economic policy, should therefore focus on the general macroeconomic environment first and foremost.

Simply put the "zero sum game" theory suggests that the economic 'pie' is one static size and will always remain so, while the "rising tide" theorists believe that the pie is ever changing depending upon economic factors including how much the government gets involved. Rising tide folks believe that when the pie grows it benefits every participant in the economy regardless of where they are in the economic strata.

The big difference in these competing theories is that the "rising tide" theory requires little government intrusion assistance and that is where if falls out of bed with any hard working socialist. After all, how can they find votes if they can't inflame unproductive folks looking for a handout?

In business school I remember using the 'decision tree' process to help managers make decisions. At some point the decision comes down to a few options and one of those options is it to do absolutely nothing. In other words there is always the option not to act. I believe that Liberals are perfectly incapable of taking the ' do nothing' option because they always see themselves as the smartest guy in the room and have to try their hand at social engineering regardless of the consequences.

The bottom line is that the liberals have no faith in the population whereas the conservatives nothing but faith in their common man.

The election this November couldn't be starker in its contrast. On one side you have the liberal elite who want to keep the pie the same size (and through their policies actually shrink it) and distribute the wealth in this country as they see fit 'fairly'. On the other side, you have conservatives who want to throw off the shackles of centralized government so they can create wealth, not only for themselves, but for everyone.


  1. Once again this proves that this president is the most incompetent president in history. Jimmy Carter must be sighing with relief. No wonder the Big O won't release his transcripts. They must be woeful. We can't survive four more years of this incompetence.

  2. Shovel man good to see you - Don't tell anyone but I am going to steal you Jimmy Carter "sigh of relief" comment whole sale brother!


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