Jobs and Unemployment, Taxpayers and Tax Consumers

Posted by PITHOCRATES - March 19th, 2012

Economics 101

The Privileged Class enjoys the Good Life Today by Buying Votes with Government Benefits

Jobs are everything.  They pay your bills.  They pay the government’s bills.  And they pay for all those government benefits.  Especially those government benefits.  Which are little more than a pyramid scheme.  Where the few collecting those benefits are at the top of the pyramid.  And those with the jobs paying the taxes to fund those benefits are at the bottom.  And every good pyramid scheme needs to do one thing.  To keep the base growing at a greater rate than the top grows.

Why do politicians do this?  Give out so many benefits?  Simple.  For votes.  Specifically, to buy votes.  We’ve come a long way from the Founding Fathers’ America.  Adam Smith’s invisible hand and free market capitalism.  Representative government.  The things that let all people enjoy life.  Not just the noble class.  This change began in England.  Ironically with the noble class.  Who presented Magna Carta (1215) to King John.  Saying they paid the taxes.  So they were going to have a say in how the king spent those taxes.  As well as protect their privileges and liberties.  And Parliament was born.  Changing England forever.  The American Founding Fathers built on this.  And improved on England’s form of government.  The constitutional monarchy.  By getting rid of it.  Along with heredity power.  And the nobility.  The Founding Fathers had put an end to privilege.  Pity it didn’t last.

There has always been a privileged class.  And there will always be one.  There will always be a small elite group trying to live a privileged life.  Once we called them the aristocratic landowners.  Today we call them politicians and government workers.  Who are a little craftier than their landowning forbears.  For they just can’t have the right last name.  Or marry a good last name.  Because, technically, there is no aristocracy these days.  No.  They need the taxpayers to vote them this good life.  And fund it.  By paying higher taxes.  Which means the taxpayers will live less of a good life to give the politicians and government workers their privileged life.  Hence the government benefits.  And the buying of votes.  Because no taxpayer in their right mind will sacrifice their good life to support a privileged class.  The nobility wouldn’t do it for King John in 1215.  And taxpayers won’t do it now.  So the privileged class buys votes with these benefits.  Particularly from those who don’t pay taxes.

Jobs Matter because the Taxes of the Taxpayers have to balance the Consumption of the Tax Consumers

There are two types of people in the world.  Those who like high taxes.  And those who don’t.  Those who like them are the politicians and government workers who live a privileged life.  And, of course, those who don’t pay taxes but receive government benefits (another steadily growing group).  These are the tax consumers.  Then you have those who don’t like high taxes.  Those with real jobs in the private sector.  The taxpayers.  As government grew from our Founding so did the number of tax consumers.  Which, of course, required more taxes.  And higher tax rates.  On the shrinking group of people with jobs paying the taxes.  To support the growing group of politicians, government workers and recipients of those government benefits consuming those taxes.

This complicates the pyramid scheme.  As you have fewer people supporting more people each taxpayer has to pay a larger and larger share of the tax burden to support the tax consumers.  Meaning you have to increase tax rates further.  Which isn’t easy to do.  Worse, as workers pay more in taxes they have less to spend in the economy.  Thus reducing economic activity.  Businesses hire fewer workers.  As more businesses go through this the unemployment rate begins to rise.  Which means, of course, the number of taxpayers begins to fall.  Making it harder to provide the taxes for the tax consumers.  A group that continues to grow even when the unemployment rate rises.  Because government is like a bacteria.  It takes on a life of its own and grows simply by splitting and creating new bureaucracies.  A growth that never stops.  And soon the rate of that growth overtakes the growth rate of the taxpayers.  Violating the one cardinal rule of pyramid schemes.  Keeping the base growing at a greater rate than the top grows.

This is why jobs matter.  For everyone.  The taxpayers.  And tax consumers.  Because the taxes of the taxpayers have to balance the consumption of the tax consumers.  A fact lost on many voters.  Who don’t understand (or don’t care) that the freer their ride the less free the life of the taxpayer.  Who believe these government benefits can keep coming no matter how many people are working.  They are perfectly all right with the unemployment rate going to 100%.  And having the government provide everything free of charge.  But government can’t do this.  Even with the power of the printing press to print money and give it away.  Because if no one works who is going to build the houses we buy with that free government money? 

Taxpayers voting on How the Government Spends their Money ensures Responsible Government Spending

Someone has to work.  Because houses (and the other things we buy) don’t spontaneously appear.  So who will build them?  Would you labor to build something when the government gives you money?  Even if you don’t have to work?  Probably not.  The only reason we work is for a paycheck to buy the things we want.  The more things we want the harder we work.  That’s incentive.  Take it away and no one will work.  Just as if you tax someone too much you’ll take away their incentive to work harder.  And to vote to raise taxes.  Which is why jobs matter.  Because they pay the bills.  They pay your bills.  They pay the government’s bills.  And they pay the bill for all those government benefits.

Politicians can buy votes by giving away more government benefits.  Converting taxpayers into tax consumers.  Preserving their privileged life.  However, there is a limit to this.  Because as you convert taxpayers into tax consumers you reduce the tax revenue to pay for those benefits.  Especially during periods of high unemployment.  And if they raise tax rates to make up for the reduction in taxpayers this will increase both the rate and duration of unemployment.  By increasing the cost of doing business.  And leaving workers with less money to spend.  Both of which reduce sales revenue.  And the need for workers.  Over time this combination of high spending obligations and low tax revenue can have dire consequences.  And can bankrupt cities.  States.  Even countries.

This is why the nobles met King John on the field of Runnymede.  And presented him Magna Carta.  The nobles were paying a lot of taxes for the king’s wars on the Continent.  If the king continued he could have bankrupted them.  So by making the king apply his Great Seal to Magna Carta they were forcing him to, among other things, spend responsibly.  As they, the taxpayers, now had a say in how the king spent their taxes.  The only way to ensure responsible government spending.  And when politicians and government workers maintain their privilege by having those who don’t pay taxes vote to raise taxes on those who do it removes all responsibility from government spending.  So they spend.  And they tax.  To pay for that spending.  Hurting job creation in the process.  Which is a very big problem.  For jobs are everything.

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