Economics 101, Lesson One

 

One way you can create jobs is to lower people's taxes. If people have more money to spend, it means somebody has got to produce more for them. And the producers then need to hire people. It's Economics 101!

 

-- George W. Bush, Springfield, MO, January 14, 2002*

Mr. Bush was very fond of saying "It's Economics 101!" It was a catch phrase for him, and other politicians often say it. But can you think of a critique of the above statement? Is there anything wrong about it?

(Jeopardy! music plays.)

 

Okay. When government acquires revenue from taxes, what happens to the money? Does it just disappear? Why no. The government spends the money. Where do you think the salaries of schoolteachers, police officers, highway workers, soldiers and sailors, and firefighters come from? For that matter, about half the income of doctors and nurses, medical assistants, hospital staff; most of the income of nursing home workers, and retirees. And almost all of the income of university-based biomedical and public health researchers, as well as physicists and astronomers and -- well, you get the idea. 

 

Much of this, in addition to simply putting money into the pockets of people who are likely to spend it (and, yes, somebody has to produce for them and therefore hire workers) is investment that either makes production possible -- e.g. the road network, and educated work force, law and order -- or will fuel technological innovation and more productivity and wealth in the future. 

 

Next, I'll discuss the theory of the Free Market™ and why it is unmitigated bullshit.

 

 

 *George Bush II actually got a C- in Economics 101 at Yale