The Road Not Taken

The Road Not Taken

I shall be telling this with a sigh 

Somewhere ages and ages hence: 

Two roads diverged in a wood, and I — 

I took the one less traveled by, 

And that has made all the difference. 

From “The Road Not Taken

by Robert Frost (1874 – 1963)

Published 1920 in

“Mountain Interval”

I wish to use this final stanza from the famous Robert Frost poem to make a point about economics.  But first, a true (though simplified) story….

.

I was recently at a retirement dinner for a long-time coworker.   After the toasts and roasts concluded and most had left, a few lingered.  Talk turned to politics and the 2012 campaign, well underway.  One guy voiced what I have found to be the common fiscal opinion of most mild liberals, as follows:

“Yes we have some fiscal budget problems, but those radical Republicans scare me with all their talk of spending cuts.  I’m truly scared of what they want to do.  I just can’t possibly vote for those scary guys.”

I undertook to make the case for a Constitutional amendment for a balanced budget.  I described the difference between a realistic balanced budget and a wishful balanced budget.  Here’s what I meant by that distinction:  I pinned the current problem to the levels of Federal spending and tax revenues, as compared to the country’s Gross Domestic Product (GDP) [1].  I pointed out that 2012 Federal spending was projected to be about 24% of GDP, while 2012 Federal tax revenues would only be about 16% of GDP due to the sluggish economy.  The 8% difference is a $1.2 trillion deficit for 2012.

He said, “Yes, so obviously we must raise taxes.  The government must keep stimulating the economy, or it’ll never recover.”  It reminded me of when Joe Biden told an AARP town hall meeting, “We gotta go spend money to keep from going bankrupt.”

Undaunted, I gestured in the air with my hands:

Taxing and spending - compared to GDPHe was unconvinced by my air guitar playing.  Like many people, he didn’t accept the concept that the U.S. economy has a level of sustainable tax capacity that simply cannot be exceeded no matter how high the tax rates are raised.

I explained that excessive taxes sap the power from the economy.  I compared taxes to a serpentine belt on the engine of a car.  That belt turns a bunch of things like alternators, water pumps, air conditioning, radiator fans, and power steering pumps.  These devices – some Excessive taxes bog down the economynecessary, some conveniences, some luxuries – rob power from the drive shaft.  On a hot day this bogs the car down so it can’t climb steep hills very well.  And the slower the car goes, the slower the serpentine belt turns.  The car is trapped in a lethargic slow-down.  Similarly, high taxes rob strength and resiliency from our economy, so people can’t afford to spend, businesses can’t afford to hire, and our economy can’t recover from a recession very well.

I thought it was one of my better analogies, but he wasn’t impressed.

Running out of ideas, I decided to use his brain instead of mine for awhile.  “Where does the government get the money it spends?”

He said, “Obviously from taxes.”

I said, “Two thirds is from taxes, the rest is borrowed.  Why do you think spending borrowed money will help hasten prosperity in the long run?”

He said, “You admitted that tax revenues are down because the economy is stagnant.  Expert economists say that stimulating the government sector is the only way to get the economy going, so tax revenues will increase.”  He meant Paul Krugman, no doubt.

I asked, “Why do you insist that the government’s action of taxing money from citizens and spending it on government projects is more ‘stimulating’ than leaving more money un-taxed, to be put to use in the private sector?”

Finally he blinked.  I had asked something he’d never thought of before.

To drive the point home, I paraphrased from Henry Hazlitt’s book Economics In One Lesson [2].  “When Government spends beyond what is reasonably necessary, it’s not beneficial overall.  When it becomes stimulus for the sake of expanding publically-funded employment that isn’t strictly necessary, it does more harm than good.”

I continued, “With every public project that comes into existence from compulsory government taxation and spending on public works, we see those jobs and those projects trumpeted by politicians and the liberal media.  But what we don’t see is all the private jobs and private enterprises that didn’t come into existence because they were not permitted to occur.  They are imaginary, but their non-existence hurts us.  For every $B spent on government projects, there’s a $B worth of jobs that don’t exist for the private sector because that’s where the money was taken from.”

He said, “But government spending has a multiplier effect, because that same money gets spent again and again throughout the economy.”

I answered, “Don’t you realize that same effect occurs when the money is left to circulate in the private sector too?  The multiplier effect is not unique to government spending.  Hey, doesn’t everyone — public and private sector alike — spend their paycheck at the grocery and department stores, gas stations, and movie theaters?”

Awkward pause…crickets even….

Finally he said, “Well, um…I’ll have to think about that.”  Soon after, he looked at his watch and said it was late and he must get home.

What had happened?

Robert Frost told us.  Economically speaking, I had pointed out The Road Not Taken…the road less travelled.  If more money were allowed to travel that road, it would make all the difference.

The Road Less Travelled(photo credit)

Footnotes:

1         GDP and revenue/spending for 2012…but you can use the drop-down menus to show any year, including 5 forecasted years.

2         Free downloadable 205-page PDF of Economics in One Lesson by Henry Hazlitt, published in 1946.  Chapter 4 (pp 17- 22) is called “Public Works Mean Taxes.”  Read it now.

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About Necessary and Proper

Jeff believes in the Individual's ability to excel when liberty and freedom of choice are protected. Also believes in the Community's ability to take care of the vast majority of its own issues and needs when the federal government leaves the Community's resources and sphere of control alone. State and local choice produce better results than centralized federal control. https://necessaryandpropergovt.wordpress.com/
This entry was posted in Our Political Economy, Politics in Practice, Theory of Gov't and tagged , , , , , , , , , . Bookmark the permalink.

22 Responses to The Road Not Taken

  1. bullright says:

    One of my long time favorites., “And I, I took the one less traveled by.” Its always been inspirational to me. What a shame more people don’t seem to get it.

    Like

  2. sally1137 says:

    You are MUCH better at arguing with leftists than I am. I need to practice not getting angry and calling them a efing idiot.

    Like

  3. I’ve seen it pointed out, although it escapes me by whom at the moment (Veronique De Rugy perhaps?), that tax rates have varied very significantly since the income tax was first initiated, and yet revenue has pretty steadily averaged 18% of GDP despite all those tax rate fluctuations. That points to the parasitic nature of taxes in themselves, that eventually revenues won’t go up because either too much money is diverted away from efficient private enterprise, or people simply stop complying with the tax code, or a combination of both.

    And I agree with Sally; you’re much more patient than I.

    Like

  4. tannngl says:

    You did that so calmly.
    Me? My heart would be beating a mile a minute and my ability to think would drop to -5. I just get too emotional.

    You made someone think! I’m proud to know you. People like you will really make the difference. I pray this man has or will wake in the middle of the night and truly think about what you said.

    Like

    • Hi Tannngl.

      I know I portrayed the story as if it’s the verbatim transcript, but the conversation lasted a couple hours and took many other twists and turns. What I wrote is my recollection several months later of the strategic approach I took in one of those mixed-company situations (ideologically), and the main planks of the debate. I simplified the key points to illustrate an example of someone who holds liberal beliefs based on a superficial view of economics. When boxed into a corner that reveals a fallacy beneath their ideology, they don’t know what to say. At least he was honest in saying that he needed to think about it.

      Also, I had worked with him for nearly 20 years and I respect him — so it was a fairly cordial debate, not a confrontation.

      – Jeff

      Like

  5. Jack Curtis says:

    If you are going to clutter economics with facts and data, you won’t be invited to any more liberally provided social affairs; that’s entirely de trop. Well done, too.
    Add that it is hard to see how spending borrowed money that must be repaid plus interest can stimulate anything since it is a burden from the start…
    I’m not sure there is any discipline of ‘Economics’ since it is always overtaken in reality–and prostituted–by politics. Perhaps it’s more honestly, a department of political science? Admit that and maybe at least some could stop lying about it!

    Like

  6. Nice.

    If only we could get government down to about 17% of GDP.

    Ghost.

    Like

  7. Reblogged this on thewordpressghost and commented:
    Friends,
    Here is a well written discussion of over-spending government versus private spending (we get to keep our money).
    Ghost.

    Like

    • Jane says:

      Jeff, that was seriously an ingenious way to explain how untaxed money helps stimulate the private sector which props up the public sector. And the opposite occurs when taxed money is taken from the private sector into the public sector (which doesn’t generate revenue). I would have given up after your first two incredible examples. It’s amazing how common sense can be argued away. I commend you for finding a unique way to explain economics.

      This somewhat reminds me of when my children think they are earning extra income for the whole family when they get paid by me. I’ve had to very simply explain to them that it really isn’t generating any revenue when I pay them. It’s just a redistribution of the same money we already have. The only way to really make extra money is to create a business or product that others will pay them for. Which they, in turn, will spend that extra money in the private sector.(on toys, of course!)

      Like

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  11. xPraetorius says:

    I love the synopsis of your conversation. Nicely done. There is so little discussion “out there” about the economic activity that does not take place as a result of taxation.

    I’ve used the image of 100% taxation, asking whether that would be ok. Typically my interlocutor will respond, “Of course not!” To which I reply, “Ok, so we both agree that there is a level of taxation that is just too much.”

    At that point, I’ve started them down the road toward a conversation in which I can say that there’s therefore an optimal level of taxation that maximizes revenues to the government and that, by definition, that level of taxation absolutely cannot impede economic activity, or else it then lowers/b> revenues to the government.

    If I can get them to that point, and they’ve still hung in there politely, then I’ve got them to the point where I can say that business people and their customers simply have an understanding of what level of taxation makes them uncomfortable, and start to think of saving their dollars, rather than engaging in economic activity with them. Further, I can tell them that we have observed levels of taxation that have maximized revenues to the government. And, at that point, the debate is probably mine. However, I rarely find leftists who want to hang in there to follow it to that point.

    It’s just easy to be a liberal. Can’t remember if I said this to you, but I’ve said it many times in my blog: Margaret Thatcher: “The facts of life are Conservative.” xPraetorius: “The facts of life are Conservative, but society’s white noise — Hollywood, Academia, the media — is liberal.” It’s easy to be a liberal, when society’s white noise constantly praises you for ignoring common sense in economics.

    Americans marinade in a bath of warm, soggy, leftist, societal white noise 24/7/365…hardly surprising that it’s hard to break through the fog, but it can be done. Your conversation with your mild liberal friend underscores the fact that we just have to hang in there and keep dispensing the common sense.

    Best,

    — x

    Like

    • Hi x,

      You said, “However, I rarely find leftists who want to hang in there to follow it to that point..” In those cases, you’ve experienced the risk of using the method of leaping all the way to the ridiculous end of the continuum and then working your way gradually back to the proper sensible/sustainable point. You’re assuming the person appreciates the necessity of a limiting principle in any policy matter that affects the public en masse. Many liberals see no logical reason for limits, and don’t care about the relative effects of the degree to which they apply their philosophies far and wide. In their eyes, if a little is good for the few, then a lot must be splendid for everyone…”period.” Starting the debate by venturing to the crazy end of the high wire, and then hoping to be able to walk it back across to the side of sanity sometimes just leaves the same chasm in place that you started with.

      BTW, if you want an extreme overdose on the theme of “It’s just easy to be a liberal,” you might like the 4-part series that I re-published two months ago (originally from Sept 2012) called The Headwind Against Conservatism.

      Finally, please reply or send me an email to the address on my Contact page with recommendations of a few favorite articles that you’ve written that you think I’d enjoy.

      Cheers,
      – Jeff

      Like

  12. xPraetorius says:

    Jeff: you hit it on the nose, when you said that it’s hard to find liberals who will admit to a limiting principle. I used to call it “going to the logical extreme,” or “taking that argument to its logical extreme.”

    Every time I expressed it that way, I got the admission that there ought to be a limiting principle that pertains to all governmental activity. Then, of course, that admission falls off, as the debate/argument proceeds. I constantly find myself having to remind my interlocutors of what they’ve already conceded!

    It’s funny; I find that it’s actually quite easy to get liberals to concede to point after point after point, but I rarely get them to put two and two together and come up with four!

    Looking forward to reading about the headwinds!

    I’ll send along to your e-mail address, a sampling of things of ours that I think you might enjoy.

    By way of small introduction, we’re a group of seven (now) bloggers, all of whom currently occupy, or have occupied, positions of some prominence in business, industry and politics. The common thread with all of us is politics.

    I’m both one of the writers and the chief editor for the other six. Since some of our number continue to occupy positions of great prominence in American public life, they need to maintain their anonymity. This forum allows them to vent, to pound their chests, to expound in ways they’d never be able to do in their public roles. I accomplish the protection of their anonymity through high-tech and low-tech means.

    We use the xPraetorius name when one of our group submits a post or posts to which all agree. If we don’t obtain unanimous agreement, then the writer is free to post under his or her own Praetorian Writers’ Group identity. Usually, however, we post as xPraetorius; our beliefs and values are pretty similar throughout the group.

    Also, since we all have our own areas of expertise — with considerable overlap, of course — we cover a lot of ground as far as topics are concerned.

    What’s the point of all this introduction? Simply that I’ll probably point you to a number of essays and posts that fall under the byline of xPraetorius, but that are likely written by any or all of our membership. I wanted you to be aware of that.

    Best,

    — x

    Like

  13. Great analogy…..I always thought money left in our pockets for the privet sector had more benefits than taxed more for the government to additionally waste.

    Like

  14. Greg Ward says:

    Jeff – well-thought out and researched. I loved your graphics. As I read your story I imagined you about to break into a rap like the Hayek v. Keynes “Boom or Bust” video. I especially agree with you, if I interpret you correctly, when you say that “balance” is a key component of conservatism, especially fiscally, but also in maintaining the republic we were given. Great job!

    Like

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