Jesus talked about the futility of putting new wine into old wineskins. The opposite strategy works better. Start with a lovely old wine that's scorned by the young and hip and update it with fresh packaging. You'll have a winner.
That's what Harvard professor N. Gregory Mankiw did in a recent Sunday New York Times piece: "I Can Afford Higher Taxes. But They'll Make Me Work Less." The title explains it all. It's an old truth, yet Mankiw, a former economic adviser to President George W. Bush, gives a fresh take on it. Mankiw knows of what he writes. He's in high demand as a speaker and consultant, which means he controls his income--he can accept or decline any offer. Most people who make more than $250,000 a year control their incomes at the margin. They are doctors, lawyers, business owners, high-priced consultants, movie actors and top salesmen. At the margin, they can choose to work or not.
Production is a choice
Supply-side economics is the lovely old wine in our analogy. It says that the way to juice the economy, grow wealth and stimulate demand is to first get producers to produce. A world of motivated inventors, entrepreneurs and suppliers competing on price, innovation and value is what gets buyers excited and money flowing. Supply side is a powerful idea that has stood the test of time. The idea is so simple that professional economists, politicians and pundits are afraid of it. They'd rather pretend that economics is much more complicated. Job security, I guess.
In the political realm supply side means this: Reduce the tax and regulatory burden on the producers, and you'll get more production; raise the tax and regulatory burden on producers, and you'll get less.
Stretching the analogy (perhaps to the breaking point): On a recent weekend I competed in a bicycle time-trial race of 3.35 miles, straight up the side of a mountain. Right before the start--after I'd warmed up, changed jerseys, swallowed some energy goo and hydrated--I emptied every last drop from my water bottles. I wasn't going to need any more water during the 25-minute ride. And I sure as heck didn't need the extra 2 pounds, the weight of a quart of water.
Suppose a bureaucrat in Washington had called me up before the race and said, "In the name of fairness, we want you to carry an extra 10 pounds uphill." Just as I was doing the mental calculation of how many minutes this would cost me, he added, "No, make that 7 pounds--no, 11 pounds--or, maybe, 18 pounds. The final poundage will be based on Friday's polls, with input from Senator Harry Reid and two of our unelected czars, Carol Browner and Elizabeth Warren, and from Ben Bernanke, who is highly concerned about the value of the pound." Right before hanging up the Washington bureaucrat hinted that I might be able to negotiate lower pound-age for my race if I agreed to endorse Senator Barbara Boxer in California.
How would I react to this? I wouldn't like it. Maybe I'd decide not to participate in the race at all. I might seek out less regulated races in other locations. After all, it would be my choice.
The more you tax and regulate things, the less you get of those things. What's really important to understand is that the "less you get" part is not linear. There's a tipping point at which you may get nothing if you pile on too many burdens. The supplier always has a choice to supply or not. Capital can go on strike. Atlas can shrug.
That's why Professor Mankiw's piece is so terrific. He warns us, in the style of a personal confessional, of an old truth: Higher taxes will result in fewer goods and services. That hip surgeon you wanted to see? After ObamaCare and higher income and investment taxes, he's cut back his office hours to three days a week. He figures it won't pay to work the fourth and fifth day. That means your hip replacement will have to wait another six months.
While you suffer, console yourself that the hip surgeon is paying his fair share” in taxes. That makes the pain better, doesn't it?
Gloom Redux
Who wrote the following? Paul Krugman? Nouriel Roubini? Eeyore?
"Much of the American wealth is an illusion which is being secretly gnawed away and much of it will be completely wiped out in the near future. . . . So what is the rest of your future? A grisly list of unpleasant events--exploding inflation, price controls, erosion of your savings (eventually to nothing), a collapse of private as well as government pension programs, and eventually an international monetary holocaust which will sweep all paper currencies down the drain and turn the world upside down."
Answer: Howard Ruff in 1979.
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