Talk Of Liberty

In taking the suggestion of a fellow freedom loving blogger, Dr. Orphe Pierre Divounguy who commented on the Laffer Curve, I will take another look at it.  I suggest everyone take a look at his blog as well.

The Cato Institute made some great videos regarding the Laffer Curve I have posted below, which I also recommend you check out.

To keep it simple I will use the analogy of a deadbeat son working for a family run company.  The government in this story is the dead beat, and the family run company is America.

A family run business is very successful and operates at an extremely efficient level.  This means that they are very profitable and are able to reinvest into the company to grow it.  They have extra money each month to spend on advertising and are able to hire the best people.  Currently the deadbeat son of the owner who doesn’t work for the company, therefore there isn’t any dead weight on the payroll.  This is what zero taxes on the Laffer Curve represents, in this state, the company reinvests and grows at a very fast pace.

The family decides to hire the deadbeat, but they decide to give him 1% of the company’s profit.  Because the company is so profitable, the missing money is not noticed, and are able to keep running quite efficiently, the non deadbeats may need to work a little harder to make up the extra 1%.

The deadbeat explains he needs more money and takes on a few new roles, which he really is not good at and the company would be better off hiring someone else, but he is dads son, therefore should be paid more and gets a 20% raise.  Because he is such a deadbeat, he makes 20 times more percentage wise, but because money is being diverted from profitable centers such as advertising or hiring good people, the company is less profitable overall, so he makes more money overall, but the company is making less.  This is why on the Laffer Curve, increases in taxes are not dollar for dollar more money.

The owner of the company dies and the deadbeat inherits the company.  The deadbeat decides he should be paid 50% of all the profit.  The deadbeat parasite begins leaching so much money out of the company, they stop advertising, and begin to hold off on spending more money on hiring, overall this makes the profit begin to fall.  There is immense harm being put onto the company and makes it far higher to reinvest money into operations.  Because profit is down, the deadbeat actually makes less than when he was taking 20%.

Finally the deadbeat decides to take 100% of all profit from the company because his bills are just so high and he needs more money.  Rather than cut his expenses, he pillages more.  All the workers who are left decide it is best to quit working and work for other companies which offer far more growth.  This means the company dies, and the deadbeat makes no money.

This is the Laffer Curve in practice.  The government consumes wealth, it does not create wealth.  The government does not make anything and has nothing but for what it takes.  The Laffer Curve is a tool for politicians to figure out how much blood they can suck out of its people before it begins to kill its host.

There are some legit reasons for government and spending, but every dollar taken kills its host by that much.  Strong growth of the economy can out grow what is sucked out until you hit a tipping point.

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