Say’s Law

Posted by PITHOCRATES - September 2nd, 2013

Economics 101

(originally published August 6, 2012)

Keynesians believe if you Build Demand Economic Activity will Follow

People hate catching a common cold.  And have long wanted a cure for the common cold.  For a long time.  For hundreds of years.  But no one had ever filled this incredible demand.  All this time doctors and scientists still haven’t been able to figure that one out.  Despite knowing with that incredible demand, and our patent rights, whoever does figure that one out will become richer than Bill Gates.  Which is quite the incentive for figuring out the ingredients to make one little pill.  So why hasn’t anyone found the cure for the common cold?

There are many reasons.  But let’s just ignore them.  Like a Keynesian economist ignores a lot of things in their economic formulas.  In fact, let’s try and enter the head of some Keynesian economists.  And have them answer the question why there isn’t a cure for the common cold.  Based on their economic analysis you might hear them say that we have a cure for the common cold.  Because a high demand makes anything happen.  Or you might hear them say we don’t have a cure because enough people haven’t caught a cold yet.  And that we need to get more people to catch colds so we increase the demand for a cure.

Keynesians believe if you build demand economic activity will follow.  Like in that movie where they build a baseball diamond in a cornfield and those dead baseball players come back to play on it.  So Keynesians believe in government spending.  And love stimulus spending.  As well as taxing people to give their money to other people to spend.  Because having money to spend stimulates demand.  Consumers will consume things.  And increase consumption.  So suppliers will bring more things to market.  And create more jobs to meet that consumption demand.  Unless people save that money.  Which is something Keynesians hate.  Because saving reduces consumption.   Which is about the worst thing you could do in the universe of Keynesian economics.  Save money.  For in that universe spending trumps saving.  In fact, spending trumps everything.  No matter how you create that spending.  Keynesians actually believe taxing people so they can pay other people to dig a ditch and then fill that ditch back in stimulates economic activity.  Because these ditch diggers/fillers will take their paycheck and spend it.

Today People wait Anxiously for the next Apple Release to Learn what the Next Thing is that they Must Have

Of course there is a problem with this economic theory.  When you take money away from others they haven’t created new economic activity.  They just transferred that spending to someone else.  The people who earned that money spend less while the people who didn’t earn it spend more.  It’s a wash.  Some spending goes down.  While some spending goes up.  Actually there is a net loss in economic activity.  Because that money has to pass through government hands.  Where some of it sticks.  Because bureaucrats have to eat, too.  So the people receiving this money don’t receive as much as what was taxed away.  So Keynesian stimulus doesn’t really stimulate.  It actually reduces economic activity from what it might have been.  Because of the government’s cut.

And it gets worse.  Because this consumption demand doesn’t really create jobs.  We get nothing new out of it.  What do people demand?  Things they see.  Things they know about.  For it is hard to demand something that doesn’t exist.  You see a commercial for another incredible Apple product and you want it.  Thanks to some great advertising that explained why you must have it.  In other words, when you give money to people all they will do is buy things they’ve always wanted.  Things that already exist.  Old stuff.  It’s sort of the chicken and the egg thing.  Which came first?  Wanting something?  Or the thing that people want?

Raising taxes on Apple to create a more egalitarian society by redistributing their wealth will let people buy more of the old stuff.  But it won’t help Apple create more new things to bring to market.  Things we don’t even know about yet.  If we tax them so much that it leaves little left for them to invest in research and development how are they going to develop new things?  Things we don’t even know about yet?  Things that we will learn that we must have?  Once upon a time no one was asking for portable cassette players.  Then Sony came out with the Walkman.  And everyone had to have one.  Once upon a time there were no MP3 players.  No smartphones.  No tablet computers.  Now people must have these things.  After their manufacturers told us why we must have them.  Today people wait anxiously for the next Apple release to learn what the next thing is that they must have.

Say’s Law states that Supply Creates Demand

Supply leads demand.  We can’t ask for the unknown.  We can only ask for what the market has shown us.  Which is why Keynesian economics doesn’t work.  Because focusing on demand doesn’t work.  Giving people money to spend doesn’t stimulate creativity in the market place.  Because that money was taxed out of the market place.   Reducing profits.  Leaving less for businesses to invest into research and development.  And reducing their incentive to take big risks to bring the next big thing to market.  Like a phone you can talk to and ask questions.  Again something no one was demanding.  But now it’s something everyone wants.

Jean-Baptiste Say (1767–1832) was a French economist.  Another brilliant French mind that contributed to the Enlightenment.  And helped advance Western Civilization.  He observed how supply led demand.  Understood production was key in the economy.  He knew to create economic activity you had to focus on the producers.  Not the consumers.  Because if we encourage brilliant minds to bring brilliant things to market the demand will follow.  As history has shown.  And continues to show.  Every time a high-tech company brings something new to market that they have to explain to us before we realize we must have it.  Or said in another way, supply creates demand.  A little law of economics that we call Say’s law.

If Keynesian economics worked no one would have to have a job.  The government could print money for everyone.  And the people could take their government dollars and consume whatever was in the market place.  Which, of course, would be pretty sparse if no one worked.  If there were no Steve Jobs out there thinking of brilliant things to bring to market.  Because supply creates demand.  Demand doesn’t create supply.  For fists full of money won’t stimulate any economic activity if there is nothing to buy.  So using Keynesian stimulus as a cure for a recession is about as effective as someone’s homemade cure for the common cold.  You take the homemade concoction and in a week or two it cures you.  Of course, the cold just ran its course.  Which is how recessions end.  After they run their course.  Which can be a short course if there isn’t too much Keynesian intervention.

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Say’s Law

Posted by PITHOCRATES - August 6th, 2012

Economics 101

Keynesians believe if you Build Demand Economic Activity will Follow

People hate catching a common cold.  And have long wanted a cure for the common cold.  For a long time.  For hundreds of years.  But no one had ever filled this incredible demand.  All this time doctors and scientists still haven’t been able to figure that one out.  Despite knowing with that incredible demand, and our patent rights, whoever does figure that one out will become richer than Bill Gates.  Which is quite the incentive for figuring out the ingredients to make one little pill.  So why hasn’t anyone found the cure for the common cold?

There are many reasons.  But let’s just ignore them.  Like a Keynesian economist ignores a lot of things in their economic formulas.  In fact, let’s try and enter the head of some Keynesian economists.  And have them answer the question why there isn’t a cure for the common cold.  Based on their economic analysis you might hear them say that we have a cure for the common cold.  Because a high demand makes anything happen.  Or you might hear them say we don’t have a cure because enough people haven’t caught a cold yet.  And that we need to get more people to catch colds so we increase the demand for a cure.

Keynesians believe if you build demand economic activity will follow.  Like in that movie where they build a baseball diamond in a cornfield and those dead baseball players come back to play on it.  So Keynesians believe in government spending.  And love stimulus spending.  As well as taxing people to give their money to other people to spend.  Because having money to spend stimulates demand.  Consumers will consume things.  And increase consumption.  So suppliers will bring more things to market.  And create more jobs to meet that consumption demand.  Unless people save that money.  Which is something Keynesians hate.  Because saving reduces consumption.   Which is about the worst thing you could do in the universe of Keynesian economics.  Save money.  For in that universe spending trumps saving.  In fact, spending trumps everything.  No matter how you create that spending.  Keynesians actually believe taxing people so they can pay other people to dig a ditch and then fill that ditch back in stimulates economic activity.  Because these ditch diggers/fillers will take their paycheck and spend it.

Today People wait Anxiously for the next Apple Release to Learn what the Next Thing is that they Must Have

Of course there is a problem with this economic theory.  When you take money away from others they haven’t created new economic activity.  They just transferred that spending to someone else.  The people who earned that money spend less while the people who didn’t earn it spend more.  It’s a wash.  Some spending goes down.  While some spending goes up.  Actually there is a net loss in economic activity.  Because that money has to pass through government hands.  Where some of it sticks.  Because bureaucrats have to eat, too.  So the people receiving this money don’t receive as much as what was taxed away.  So Keynesian stimulus doesn’t really stimulate.  It actually reduces economic activity from what it might have been.  Because of the government’s cut.

And it gets worse.  Because this consumption demand doesn’t really create jobs.  We get nothing new out of it.  What do people demand?  Things they see.  Things they know about.  For it is hard to demand something that doesn’t exist.  You see a commercial for another incredible Apple product and you want it.  Thanks to some great advertising that explained why you must have it.  In other words, when you give money to people all they will do is buy things they’ve always wanted.  Things that already exist.  Old stuff.  It’s sort of the chicken and the egg thing.  Which came first?  Wanting something?  Or the thing that people want?

Raising taxes on Apple to create a more egalitarian society by redistributing their wealth will let people buy more of the old stuff.  But it won’t help Apple create more new things to bring to market.  Things we don’t even know about yet.  If we tax them so much that it leaves little left for them to invest in research and development how are they going to develop new things?  Things we don’t even know about yet?  Things that we will learn that we must have?  Once upon a time no one was asking for portable cassette players.  Then Sony came out with the Walkman.  And everyone had to have one.  Once upon a time there were no MP3 players.  No smartphones.  No tablet computers.  Now people must have these things.  After their manufacturers told us why we must have them.  Today people wait anxiously for the next Apple release to learn what the next thing is that they must have.

Say’s Law states that Supply Creates Demand

Supply leads demand.  We can’t ask for the unknown.  We can only ask for what the market has shown us.  Which is why Keynesian economics doesn’t work.  Because focusing on demand doesn’t work.  Giving people money to spend doesn’t stimulate creativity in the market place.  Because that money was taxed out of the market place.   Reducing profits.  Leaving less for businesses to invest into research and development.  And reducing their incentive to take big risks to bring the next big thing to market.  Like a phone you can talk to and ask questions.  Again something no one was demanding.  But now it’s something everyone wants.

Jean-Baptiste Say (1767–1832) was a French economist.  Another brilliant French mind that contributed to the Enlightenment.  And helped advance Western Civilization.  He observed how supply led demand.  Understood production was key in the economy.  He knew to create economic activity you had to focus on the producers.  Not the consumers.  Because if we encourage brilliant minds to bring brilliant things to market the demand will follow.  As history has shown.  And continues to show.  Every time a high-tech company brings something new to market that they have to explain to us before we realize we must have it.  Or said in another way, supply creates demand.  A little law of economics that we call Say’s law.

If Keynesian economics worked no one would have to have a job.  The government could print money for everyone.  And the people could take their government dollars and consume whatever was in the market place.  Which, of course, would be pretty sparse if no one worked.  If there were no Steve Jobs out there thinking of brilliant things to bring to market.  Because supply creates demand.  Demand doesn’t create supply.  For fists full of money won’t stimulate any economic activity if there is nothing to buy.  So using Keynesian stimulus as a cure for a recession is about as effective as someone’s homemade cure for the common cold.  You take the homemade concoction and in a week or two it cures you.  Of course, the cold just ran its course.  Which is how recessions end.  After they run their course.  Which can be a short course if there isn’t too much Keynesian intervention.

www.PITHOCRATES.com

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When Democrat Policies Fail and they Fall in the Polls they Scramble to Endorse Reaganomics

Posted by PITHOCRATES - October 5th, 2011

Democrats have Blamed every ill known to Mankind on Reaganomics

The Left hates Ronald Reagan.  Proclaimed the era of Reagan was over.  No more were these Reagan Republicans going to screw over the poor so the rich can live a better life.  Yes, they hated this man with a passion.  And everything he stood for.  This supply-sider of the Austrian School.  He and is unfunny Laffer Curve.  This cold-hearted tax cutter.  But now they love him.  Why?  Because he supported taxing the rich.

I’ll pause a moment for those of you who have fallen out of your chairs.  Ready?  Good.

You know Congressional Democrats are grasping at straws to promote their policies when they claim their archenemy would have supported them, too.  You know why they’re trying, though, don’t you?  If you listened to the protesters on Wall Street you should know.  With their control of public school teachers and college professors (both dependent on taxpayer money for generous pay and benefit packages), they can revise history.  And keep kids ignorant.  Hopefully keeping them oblivious of things they don’t want them to know.  Such as the true legacy of Ronald Reagan (see MILLER: Ripping off the Gipper by Emily Miller posted 10/4/2011 on The Washington Times).

Liberals are trying to twist Ronald Reagan’s words to muster support for raising taxes. House Minority Leader Nancy Pelosi’s press office sent a memo on Monday to congressional Republicans claiming they’d found evidence proving that President Reagan was the real inspiration for President Obama’s tax-the-rich “Buffett Rule.” The California Democrat posed the question: “What would Reagan do?”

The correct answer is: He would cut taxes. Mrs. Pelosi’s memo sends people over to the liberal Think Progress website, where a video montage interweaves clips of Mr. Obama and Reagan saying apparently similar things about tax rates. “We’re going to close the unproductive tax loopholes that allow some of the truly wealthy to avoid paying their fair share,” said the Gipper.

You’re supposed to think that’s just what Mr. Obama is doing, but the liberals edited out the context of the 40th president’s remarks. In a June 1985 speech at an Atlanta high school, he called for a total overhaul of the tax system. He wanted loopholes closed to lower the tax rates for everyone, for a net reduction in the tax burden. Congressional Republicans point out that’s precisely the opposite of what the Democrats are now trying to do.

You see, the Democrats can’t rely on telling the truth to pass their policies.  Because their policies only benefit those in government.  And those who live like parasites on the wealth creators.  Such as those protestors on Wall Street.  Who want the wealth of the wealth creators.  But want no part of capitalism which created that wealth.  And are too ignorant to understand that you can’t have one without the other.

Thank you public school teachers and college professors.

So they must lie.  Revise history.  To try and fool people into believing that their policies are just like Ronald Reagan’s.  And apparently hoping people don’t remember that Democrats have blamed every ill known to mankind on these very same policies.  ReaganomicsTrickledown economics.  The scourge of mankind.  But the majority of Americans apparently love the big lug so they’ll swallow back their bile and say, hey, we love him, too.  And hope that the grimace on their face doesn’t look as bad or as painful as it feels.

Fannie Mae and Freddie Mac created America’s Financial Mess, not Wall Street

So where did these Wall Street protests come from?  Where did the primary impetus come from?  Apparently Canada.  Thanks, Canada.  As if the corrupting influence of Terrance and Phillip wasn’t enough already.  So I guess we have to Blame Canada (Warning:  Blame Canada contains adult content) for this, too (see Occupy Toronto leaderless, unfocused but hopeful by Dana Flavelle posted 10/4/2011 on the Toronto Star).

The Wall Street protests were inspired by Canadian anti-consumer magazine Adbusters.

Editor in chief and co-founder Kalle Lasn said he’s been calling for this kind of protest movement for 20 years.

It’s finally happening because people are angry with the financial fraudsters on Wall Street who created America’s economic mess and largely went unpunished, he said in a telephone interview from Vancouver.

But that isn’t who created America’s financial mess.  It was government.  Specifically the government sponsored enterprises (GSE) Fannie Mae and Freddie Mac.  If it wasn’t for them buying and/or guaranteeing risky subprime mortgages there would have been no subprime mortgage crisis.

That was government policy.  Putting as many people into houses as possible.  Even if they couldn’t afford them.  That wasn’t Wall Street.  Wall Street was merely an accessory after the fact.  Aiding and abetting Fannie Mae and Freddie Mac.  By selling those toxic subprime mortgages in collateralized debt obligations (CDOs).  Promoting them as high yield yet low risk.  Because they were backed by mortgages, historically the safest loans in all of America.  So investors bought these.  Not knowing how risky they were.  But you know who knew how risky they were?  The GSEs Fanny and Freddie.  Because they bought them.  And remember what the ‘G’ stands for in GSE.  Government.

If you removed government from this equation mortgage bankers would not have approved these risky subprime mortgages.  Because that risk would have been on their books.  But when government said ‘don’t worry  we’ll take that risk off of your books’ what did they have to lose in approving risky subprime mortgages?  Less harassment from the government for not approving mortgages for the poor and minorities who didn’t qualify?  Yeah, like they were going to miss that harassment.

If these protestors want to protest those responsible they should protest government.  Not Wall Street.

Damn Canadians.  If it’s not making our kids fart and curse they’re getting them to protest the wrong people.  (Editor’s note:  We like Canada and Canadians.  And mean them no disrespect.  We’re just having a little fun with the movie South Park: Bigger, Longer & Uncut.  In which incidents lead to war between Canada and the U.S.  A premise so ridiculous that it’s funny.  For Canada and the U.S. have been the best of friends.  And will always be the best of friends.)

The more Public Sector Union Employees paying Dues the more Money is collected for Democrat Coffers

Perhaps that’s the problem.  Too much government.  The federal government has grown into a behemoth.  On top of thousands and thousands of local governments throughout the country (see Infographic: Local government by the numbers by Mary Mahling and Carla Uriona posted 10/4/2011 on Stateline).

There are 89,476 local governments in the United States. They include counties, cities, villages, towns and townships, as well as special districts that handle utilities, fire, police and library services.

That’s a lot of government.  And there’s only one way to pay for a lot of government.  With a lot of taxes.

So we have government upon government upon government.  Surely with all that government we must be getting some value for all of these taxes.

More than two centuries of American democracy have resulted in a profusion of governments at the local level, not only cities and counties but villages and townships, park districts and sanitary districts and a host of others. To those trying desperately to bring a state’s budget into balance, many of these are useless anachronisms incapable of providing any service that could not be provided higher up the governmental chain. But to the tens of thousands of people who hold office in these local entities — and to millions of citizens who live within them — multiple local governments are a crucial piece of evidence that American democracy reaches down to the grassroots level.

Apparently not.  And don’t call me Shirley.

They just provide a lot of jobs for the unemployable.  By taxing the wealth creators.  And redistributing it to people whose job is a duplicate of one at another level of government.

They do serve a purpose, though.  Being totally funded by taxpayers, they have a vested interest to keep raising taxes on the taxpayers.  Which is, of course, helpful to Democrats.  So the more local governments the better.  The more public sector union employees paying dues the more money finds its way into Democrat coffers.

Any Attempt to Quantify Human Behavior will Ultimately Fail

And then you have academe.  And Keynesian economists.  Furthering the growth of government with their government-spending Keynesian economics (see Tis The Gift To Be Simple by Paul Krugman posted 10/5/2011 on The New York Times).

To be sure, IS-LM is an attempt to squeeze a dynamic economy into a static model, which is why people like me usually cross-check our conclusions with something intertemporal. But it’s actually a pretty darn sophisticated approach — as demonstrated by the fact that economists who dismiss or attack IS-LM as too simplistic or something almost always end up making assertions that are much more simplistic than IS-LM, if not falling into outright logical fallacies. In fact, I can’t think of a single exception to this rule: every attack on IS-LM I’ve ever seen (as opposed to suggestions that we should also look at more complex models) was followed by some kind of empirical or logical howler.

I have a criticism.  Any attempt to quantify human behavior will ultimately fail.  Because you can’t quantify human behavior.

Economics belong to the branch of science we call social sciences.  That is, it’s not real science.  Because the wildcard is that human behavior can always produce some unintended consequence to government action.  Such as Prohibition giving us organized crime.  Whereas the equations of science typically don’t.  We can use science to build bridges, buildings and airplanes.  And they work pretty much as planned.  Without any unintended consequences.

You can’t represent human behavior by mathematical formulas.  We know some behavioral responses.  Such as sex in advertising gets men’s attention.  But that’s a base primeval instinct.  There’s not a whole lot of thinking going on.  Not so in a complex economy.  Where there is a lot of thinking going on.  Keynesians like to think the economy is as simple as impulse buying at the point of sale checkout aisle.  Put more candy on display and you sell more candy.  Not so with buying a house.

Everyone will like to own a beautiful home.  But people won’t buy a house on impulse.  Not when there’s record unemployment.  And talk of a double-dip recession.  Because if you learned anything from the subprime mortgage crisis it’s this.  Too much debt is bad.  And there is no such thing as a guaranteed job.  Playing with interest rates won’t change that.  Only time will.  When enough time has passed to let people feel secure in their jobs again.  Then and only then will they consider taking on debt again.  No matter what the IS-LM model predicts.  Because you can’t quantify human behavior.

The Wall Street Protestors with Student Loan Debt Probably don’t have Science or Engineering Degrees

All government policy is social science.  It’s not an exact science.  That’s why strange things happen.  Unintended things.  Whenever government tries to influence behavior.  And when government tries they have a track record of failure.  Which is why they don’t run for reelection on the success of their policies.  They run on the success of someone else’s (Ronald Reagan’s) policies.  And say that their policies are the same.  And they are except with a few minor changes.  And by ‘few’ I mean they couldn’t be any more different.  So they lie.  Or they just demonize their opponents.

But our kids are blissfully ignorant.  Thanks to public school teachers.  And college professors.  Who care more about improving their taxpayer funded pay and benefits than education.  That’s why government grows.  And why we have degrees like women’s studies.  And poetry.  Degrees that offer no hope for employment in a capitalistic economy.  For what business that relies on pleasing their customers (like Apple does consistently) need people with these skills?

No.  They need people with science and engineering degrees.  You know, the hard ones.  So the kids who took the easy route in college must depend on teaching others their worthless knowledge.  Or get a government job.  Which has a lot to do with the anger of these protestors who have huge student loan debt.  And no job.  Because if they hate capitalism you can guess what their degrees are in.

(Editor’s note:  This was written before news of Steve Jobs’ passing broke.  Our condolences go out to his family.  We decided to leave the Apple reference in as a tribute to Steve Jobs.  He was one of America’s greatest entrepreneurs.  The world is a better place because of him.  For the gifts he gave us.  And the inspiration he gave to the next generation of great entrepreneurs.)

www.PITHOCRATES.com

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Taxing the Rich in America, Taxing Everyone as Rich in Europe

Posted by PITHOCRATES - September 24th, 2011

Spending is so Great the Only Way to get Serious Deficit Reduction is with Spending Cuts

Dan Greenhaus with BTIG looked at Obama‘s proposed Buffet Tax.  Crunched the numbers from the 2009 U.S. tax returns.  And found that the Buffet Tax is more politics than deficit reduction (see A Little Bit Of Math On The ‘Buffett Tax’ by Joe Weisenthal posted 9/19/2011 on Business Insider Politix).

Nonetheless, if we add up the $1,000,000 and above categories, we get taxable income of $623.6 billion that resulted in $177.5 billion in income tax paid, a rate of less than 28.5%. If we were able to somehow change that tax rate to say 35%, an increase of more than 7 percentage points, the income tax paid in 2009 would have been over $218 billion or an increase of a bit less than $41 billion. If we were able to do this over ten years, the U.S. would have extra income of $410 billion. All from raising taxes by seven full percentage points on those making income over $1,000,000.

Unfortunately, $410 billion is “only” about 7% of the deficit we expect to incur over the next ten years. That is not an inconsequential portion but considering the debate surrounding hiking tax rates by any amount, let alone generating an increase sufficient see a seven percentage point increase in taxes paid, as well as the negative consequences such a sharp adjustment would engender, this hardly seems to be the “only” place to go to achieve debt reduction.

The magnitude of the deficit is too great to pay with new taxes.  As it is now, the 2011 deficit will come in at $1.65 trillion.  A 7% tax rate hike would net an additional $41 billion.  Or $410 billion over ten years.  This would reduce the 2011 deficit from $1.65 trillion to $1.61 trillion.  Not impressive.  Remember, Standard and Poor’s wanted to see $4 trillion in debt reduction over the next decade.  And $410 billion is a long way from $4 trillion.

Take a close look at these numbers.  A $1.65 trillion dollar deficit.  And taxable income as reported to the IRS of $623.6 billion.  The deficit is 2.6 times the total taxable income from those making $1 million or more.  In other words, you could tax away all of their money and the government would still run a deficit.

The spending is so great that the only way you’re going to get serious deficit reduction is with spending cuts.  Because spending is big enough to cut to make a difference.  Unlike taxing the Warren Buffets.  Whose incomes aren’t big enough to make a difference.

So when Keynesian tax and spend liberal Democrats talk about serious deficit reduction it’s just misdirection.  They know they can’t reduce the deficit.  But that’s okay with them.  For that isn’t their goal.  They want to raise taxes for a different reason.  They like to spend.  It’s how they get power.  And votes.  But when you run such massive deficits it’s hard to spend more.  Unless you raise taxes.  And that’s why they want to raise taxes.  Not to reduce the deficit.  Which is impossible to do with tax hikes.  They’ve just run out of money.  And they want more to spend.

Left of Center Welfare States are Always Good for Vote-Getting

And if you think it’s bad on this side of the Atlantic, you should see what they’re doing on the other side.  The Europeans have a lot of social democracies.  Left-of-center governments.  With huge welfare states.  Which is always good for vote-getting.  But it comes at a price.  High taxes.  And lots of debt.

To keep spending at their levels of spending they have raised tax rates on the ‘rich’.  And lowered the threshold for being ‘rich’.  The Business Insider crunched the numbers and put together a little slideshow showing the tax rates.  And what it means to be rich in these countries.  We pulled the data from the slide show and put them into tabular form below (see These Are The Toughest Taxes For Europe’s High Earners by Nick Jardine posted 9/24/2011 on Business Insider Europe).

We calculated the numbers above based on the threshold salary that puts these taxpayers into the top tax rate.  And the tax rate.  All numbers are in U.S. dollars.  The numbers very a little from the Business Insider slideshow possibly due to rounding error.  Or other tax considerations.  But the numbers were close enough to fill in the blanks where needed.  Though it may not be completely accurate, the numbers should be close enough in magnitude for the purpose of discussion.

When they couldn’t Tax the Rich Anymore, they Taxed the Middle Class.  By Redefining them as Rich.

Depending on your political persuasion, you no doubt will draw different conclusions from these numbers.  A Keynesian liberal Democrat will say Germany isn’t taxing their rich enough.  That they are the richest of the rich.  And that they should probably tax everyone earning over, say, $100,000 at the highest rate.  Like in Greece.  A non-Keynesian will see it differently.  They will note that only the German economy is rich enough to bailout the poorer nations of the Eurozone.  Particularly Greece.  Meaning that the more rich people you let be rich the more tax revenue you will have.

A non-Keynesian will think it’s not fair that a rich German only gets to keep $3,581 from the $6,511 he or she earns every week.  The Keynesian will have no problem with that.  Of course, they may not think it’s fair that a Belgian only gets to keep $446 of the $892 he or she earns every week.  They’ll think it’s fair to take about half of what the rich make.  But they don’t think it’s fair calling someone rich who makes only $46,349.  Or calling someone rich who only makes $20,613.  Especially if they earn more than they do.  And currently pay no income taxes.

None of these countries started out at these income thresholds or tax rates.  They’ve lowered income thresholds through the years.  And they’ve raised tax rates.  Whenever their governments spent more money than they had.  Employing class warfare they vilified the rich.  Raised their tax rates.  And when they couldn’t raise tax rates on the rich anymore, they raised taxes on the middle class.  By redefining them as rich.  And they then paid the higher tax rates.  It’s gotten so bad in some countries that people who pay no income tax in America would be paying the highest tax rate in some European countries.  But it all starts with taxing the rich.

With Keynesians in Power you’ll never see Spending Cuts because that’s how Democrats Buy Votes

We have to be careful of what we ask for.  Such as taxing the rich.  Because we may be rich ourselves one day.  As the threshold for being rich shrinks over time.  First it was the billionaires.  Then the millionaires.  Then those earning $200,000 or more.  Then those earning $100,000 or more.  Down to as low as $20,000.

Fair is fair they’ll say.  So you’ll agree to make the rich pay their fair share.  And then those earning less than you will also agree to make the rich pay their fair share.  And by rich they’ll mean you.  Until all earners will be taxed at the highest rate.  To support those non-earners who vote Democrat.

But no matter how much they’ll take it will never be enough.  Because you can’t reduce the deficit/debt by raising taxes.  They’re just too big.  The only way you can reduce these is by reducing the thing that made them so big.  Spending.  But that’s not likely to happen.  As long as Keynesians are in power.  Because that’s how Keynesian tax and spend liberal Democrats buy votes.

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Obama’s Choice – Cut Spending or Downgrade U.S. Sovereign Debt

Posted by PITHOCRATES - July 27th, 2011

The BIG Problem is the Excessive Spending, not the Debt Ceiling

I don’t know what’s more annoying in the budget debate to raise the debt limit.  The cries on the left for the Republicans to quit being partisan.  To instead propose a true bipartisan bill that has a chance of passing the Senate.  And by ‘bipartisan’ they mean one that gives the left everything they want.  Or is it the doom and gloom being bleated by the president, Congressional Democrats and the mainstream media if the debt ceiling isn’t raised (see Debt-ceiling threat has Wall Street scrambling by Nathaniel Popper and Jim Puzzanghera posted 7/27/2011 on the Los Angeles Times).

Without a deal, the most feared scenario is that the U.S. will miss payments on its bonds and default — which financial experts say would be disastrous. While still considered unlikely, the prospect is popping up more in conversations…

No.  This can’t happen.  There’s enough money to pay interest on the debt.  And to issue Social Security checks.  But they will have to make cuts elsewhere in some nonessential areas.  Like in some cabinet departments (Education, Energy, EPA, etc.).  This is all fear peddling by the Obama administration to do one thing.  Raise the debt ceiling.  So they can keep spending.  And this is the BIG problem.

The more likely scenario that investors are preparing for is that a temporary deal is struck to lift the debt ceiling. But such a makeshift plan is unlikely to allow the U.S. to maintain its AAA grade with bond rating companies. Citigroup analysts say the odds are 50-50 that the U.S. will be demoted to an AA rating for the first time ever.

Such a downgrade could lead to a temporary market panic. In the longer term it could push interest rates up for everyone from bankers down to ordinary people taking out car loans, and weaken the dollar’s position as the world’s reserve currency.

Even if they raise the debt limit in time there is a far greater problem.  And yet few are talking about THIS problem.  The excessive spending that will ultimately cause the credit downgrade.

To Avoid Credit Downgrade will Require $4 Trillion in REAL Spending Cuts

And it’s no secret.  S&P was very explicit in their report of what would cause a credit downgrade.  Unrestrained government spending (see The Real S&P Warning: A $4 Trillion Deal or a Downgrade by Veronique de Rugy posted 7/19/2011 on National Review).

As the debt-ceiling showdown heads into its final stages, the political maneuvering has intensified. Yet I fear that we are losing sight of the only reason why the fight over the debt ceiling matters: It forces a discussion of the country’s real problem — unrestrained government spending and the tremendous fiscal imbalances that jeopardize our financial safety.

This is the real message in the July 14 S&P report.

First, S&P writes that unless there’s a credible $4 trillion deal within the next three months, they will downgrade us. By “credible,” S&P explains, they mean a plan that will actually be put into place (i.e., not one where the tax increases happen but not the spending cuts). Not $2 trillion, not $1 trillion,  but $4 trillion. And it has to be credible.

That means REAL spending cuts.  Not those ‘future’ kind that never happen.  Those that Democrats have promised time and again only to renege on those promises.  Or the base-line budgeting type of ‘cuts’ that still increase spending.  The onus is all on Obama and the Democrats.  Because they are the ones steadfast in their opposition to any real spending cuts.

The Electric Car – Typical Wasteful Government Spending

To get an idea of their voracious appetite to spend, consider the electric car.  What the economy of the future is based on.  Green energy.  The thing that’s going to make America rich and prosperous again (see California dials back its electric car credits by Eric Evarts posted 7/26/2011 on Consumer Reports).

In large part, EV appeal was greater in California due to a $5,000 state rebate that came on top of the $7,500 federal tax credit. With the tax credits, the price of an all-electric Nissan Leaf could be as low as $21,000, making it cheaper than a Toyota Prius and putting it on par with other small cars. (The Chevrolet Volt was not eligible for the state credit, although it does receive the $7,500 federal tax credit…)

While the price of electric cars is going up for California drivers, other factors still make the Golden State more attractive than most for electric cars: California uses no coal to generate electricity; its major electric utility companies have time-of-use rates and special power rates for electric cars, effectively lowering their energy costs; and perhaps most importantly, pure electric cars are still eligible to use carpool lanes on the state’s notoriously congested freeways with just a driver onboard. In addition, public charging infrastructure is on a faster track than it is elsewhere in the nation.

So that’s $5,000 from the state.  $7,500 from Washington.  That’s a discount of $12,500 (37.3%).  And yet the price of the Nissan Leaf is still $21,000.  But that still isn’t enough to make this car sell.  They need a subsidized electrical rate as well.  Government at all levels is paying a lot of our tax dollars to make a car no one wants to buy.  And this is the kind of spending that they just can’t cut.  Wasteful.  And this is only one example from the multitude.

Repeal Obamacare – Save Money, Please the People

Cutting $4 trillion over 10 years will not be easy.  But we can halve this number with one stroke of a pen (See By a Margin of 21 Points, Americans Favor Repeal by Jeffrey H. Anderson posted 7/27/2011 on the Weekly Standard).

While President Obama’s notion of a “balanced approach” to deficit reduction isn’t written down anywhere, it’s quite clear that it doesn’t involve repealing Obamacare (despite the fact that the health care overhaul would cost over $2 trillion in its real first decade, from 2014 to 2023). Polling, however, strongly suggests that it should. The latest Rasmussen poll of likely voters shows that, by a margin of 21 points (57 to 36 percent), Americans support the repeal of the centerpiece legislation of the Obama presidency.

Repealing Obamacare would be a step in the right direction.  It will save $2 trillion in spending that is pushing the U.S. toward a credit downgrade.  And the people don’t want it by a margin of 21 points.  Save money.  Please the people.  It’s a no-brainer for responsible government.  If only government was responsible.

The Choice – Cut Spending or Downgrade U.S. Sovereign Debt

The president said we need to live within our means.  And he’s right about that.  But living within our means doesn’t mean taxing and borrowing more to pay for out of control government spending.  Living within our means starts by NOT spending money we don’t have.  Not to spend first and figure out how to pay later. 

And just because other presidents raised the debt limit doesn’t mean we have to raise the debt limit.  You don’t justify bad behavior with bad behavior.  We’ve borrowed too much.  The credit rating agencies have spoken.  We need to cut spending.  And not get all professorial and lecture the American people that we need to be ‘responsible’ and raise taxes to pay for the government’s irresponsible spending binge.

We either cut spending.  Or Obama and his Democrats will downgrade U.S. sovereign debt for the first time in history.  Those are the choices.  And a good place to start would be to repeal Obamacare.  Because that’s all future spending.  All $2 trillion.  Not like Social Security or Medicare.  You can cut Obamacare.  And no one will miss it.

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The Obama Reelection Strategy: Increase Gas Prices to Crash Economy to Lower Gas Prices

Posted by PITHOCRATES - April 29th, 2011

The 2nd Largest Oil Reserves in the World

Saudi Arabia has the largest oil reserves in the world.  Take a guess who has the 2nd largest oil reserves in the world.  Kuwait?  Iraq?  Iran?  Libya?  Nigeria?  Venezuela?  Qatar?  Angola?  Algeria?  Ecuador?  United Arab Emirates?  No.  No.  No.  No.  No.  Uh…um, no.  No.  No.  No.  No.  No.  Could it be the United States?  It could be.  But it’s not.  With so much U.S. land off limits to drilling who knows how much oil they have.  So who has the second largest oil reserves in the world?  Here’s a hint.  Think Wayne Gretzky.  Who used to play on a team called the Oilers.  In the city of Edmonton.  In the province of Alberta.  In, of course, Canada.

Yes, Canada has the second largest oil reserves in the world.  But this oil reserve isn’t in pools underground waiting for someone to pump it up.  It’s in the Athabasca oil sands.  Think of hot oil spilled into sand which then cools into a thick tar.  Once upon a time this type of oil was worthless.  Because you just couldn’t drill for it and pump it.  You have to process this tar into useful oil.  And the cost to do this used to be prohibitive.  But with the price of oil today, this once worthless tar is now a very valuable form of crude oil.

America, the world’s largest economy, imports the majority of her oil from Canada.  In fact, the Canadians export more oil to the U.S. than they consume themselves.  Which is rather interesting when you consider Canadian gas prices are higher than American gas prices.  Now oil is oil.  And one would assume that the Canadians make their gasoline from the same oil we make our gasoline from.  Canadian oil.  Yet their gas prices are higher than in the U.S.  Why?  Because when it comes to their gasoline, they’re a lot like the Europeans.  They tax the bejesus out of it.  Taxes average about a third of the price at pump.

Even with all that Oil Canadian Gas Prices are High

With the world’s second largest oil reserves, one can’t blame the lack of supply for high prices.  They have supply.  So much that they export more than they use.  Could they have a refinery shortage?  If they did, they could fix that easily by building more refineries.  I mean, with the domestic oil reserves, the Canadians are in the driver’s seat when it comes to their gasoline prices.  It would be pretty darn hard for their gas prices to be ‘too high’ to affect their economy.  So how are the little guys doing in Canada?  The small business owners (see Rising fuel costs hit small businesses by Anita Elash posted 4/29/2011 on The Globe and Mail)?

Steak is off the menu, comfort food is in and prices are up by as much as 20 per cent at the Yellow Belly Brewery in St. John’s, Nfld., this spring, partly because of rising fuel costs.

Owner Brenda O’Reilly says her expenses have increased steadily since she opened her micro-brewery and gastro pub three years ago, but the sudden price hike at the gas pumps this year has been “the straw that broke the camel’s back.”

In addition to coping with higher labour costs and escalating commodity prices, her main supplier has slapped a steadily rising fuel surcharge, now up to $3.50, on every delivery – a cost that significantly cuts into profits.

I guess the price of Canadian gas can be ‘too high’. 

Forced menu changes and higher restaurant prices are just one of the ways record-high fuel costs are affecting small business this spring. Surveys for the Canadian Federation of Independent Business show that fuel costs are now the biggest concern for small business owners. Seventy-five per cent of members said they’re worried about rising fuel prices, compared to 50 per cent who were worried two years ago.

CFIB chief economist Ted Mallett said wide fluctuations in fuel prices over the past few years have created a lot of uncertainty for business owners and make planning especially difficult. Many have signed contracts or service agreements based on costs several months ago, and “if they guessed wrong about fuel prices, it comes out of their bottom line.”

These are the kind of problems they’re having in the U.S.  Because the Americans have no control over gas prices.  They are at the mercy of the oil exporters.  Exporters like Canada.  Which begs the question.  How can both the United States and Canada have such high gas prices?  If the Canadians are getting rich off of the Americans, they should be able to lower their own gas prices.  If they’re giving the oil away, then the Americans should be able to lower their gas prices.  It’s hard to imagine how the second largest oil reserves in the world results in high prices in both the U.S. and Canada.  Unless they’re both taxing the bejesus out of their gasoline.

High Gas Prices Kill Anemic Economic Recovery

The Canadian consumer is making things hard for Canadian small business.  And it’s no different in the U.S. (see Gas costs siphon off much of March rise in incomes by Martin Crutsinger, Associated Press, posted 4/29/2011 on USA Today).

Consumer spending had been expected to post solid gains this year, helped by stronger employment growth and a two percentage-point cut in Social Security payroll taxes. But Americans are paying more for gas, prompting economists to scale back their growth forecasts…

“The increase in prices is absorbing pretty much all of the windfall from the payroll tax cut,” said Paul Dales, an economist with Capital Economics. “If gasoline prices were to stop rising, real consumption could bounce back in the second quarter. But even then, jobs growth and wage growth are not strong enough to result in a significant and sustained acceleration in consumption growth. This economic recovery is going to continue to disappoint both this year and next.”

Consumers are spending more.  But they’re getting less.  Any extra disposable income is just paying for the higher cost of gasoline.  Which means consumer spending is flat.  And will remain flat.  For another two years.  Or more.  Because of the cost of gasoline.  The environmentalists may be happy.  But high gas prices are making the rest of us make a lot of sacrifices we’d rather not.  And it’s killing off what anemic economic recovery there was.

The Weak U.S. Dollar Increases World Oil Prices

There is a reason gasoline prices are soaring.  And it’s just not demand outpacing supply.  Though that is a huge part of it.  But it’s another government policy that is compounding the supply problem (see Oil edges up, but choppy, as weak dollar supports by Robert Gibbons posted 4/29/2011 on Reuters).

“Oil is reacting to the dollar…,” said Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.

Higher interest rates in Europe compared to the U.S. have undermined support for the U.S. dollar, pushing up the euro by 11 percent so far this year.

The weak dollar also helped push spot gold to a new record as investors continued to seek alternative assets to hedge against inflation.

Thursday’s report that growth in the U.S. gross domestic product slowed more than expected to an annual rate of 1.8 percent in the first quarter from a fourth-quarter pace of 3.1 percent, reinforced the perception that the U.S. central bank will continue with its loose monetary policy.

It’s not the greedy oil companies.  Or their record profits driving up prices.  It’s Federal Reserve policy.  All that quantitative easing.  Printing money.  They just increased the money supply so much that they devalued the dollar.  Which gives us price inflation.  Where everything costs more because our money is worth less.  And we price oil in U.S. dollars in the international markets.  Which means American monetary policy is increasing world oil prices.  Not the oil companies.  Their getting obscenely rich is just a byproduct of loose U.S. monetary policy.

Oil’s price rise could be tempered by increasing evidence that high prices will erode demand.

U.S. consumer spending rose as households stretched to cover the higher cost for food and gasoline as inflation posted its biggest year-on-year rise in 10 months.

But all is not lost.  Oil prices will come down.  Like they did in 2008.  Because that’s what recessions do.  They lower prices.  When people don’t have jobs they don’t buy gas.  Which lowers demand.  And this lower demand will bring down gasoline prices.

If you Like Stagflation and Misery, Vote Obama

Perhaps this is the Obama reelection strategy.  Ramp up inflation to crash the economy.  Thus lowering gas prices.  It may work.  If people don’t mind another ‘worst recession’ since the Great Depression.  As long as gas is more affordable.  It’s a risky plan.  And it hasn’t had a successful track record.  It made Jimmy Carter a one-term president.  But perhaps Obama can succeed where Jimmy Carter failed. 

Interestingly, stagflation and economic misery are not the only things these presidents have in common.  Both were/are engaged in the Middle East, too.  Carter brought peace between Israel and Egypt while Obama has…

Perhaps they should consider another reelection strategy.

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Public Sector Pay and Benefits are Bankrupting France and New Jersey

Posted by PITHOCRATES - October 22nd, 2010

Soon, in France, You’ll be Able to Retire Before You Start Working – If the Protestors Get Their Way

Je suis français.  I am French.  And being French, it is my birthright to get lots of free stuff.  Or so says Gilly, a cemetery union representative in Marseille.  The following quotes come from AP’s French strike to save ‘birthright’ of privileges posted 10/20/2010 on Google News.

For Gilly and many other Frenchmen and women, social benefits such as long vacations, state-subsidized health care and early retirement are more than just luxuries: They’re seen as a birthright — an essential part of the identity of today’s France.

I remember reading about the French Paradox.  While Americans were suffering epidemics of heart disease, the French were living to ripe old ages.  Free from heart disease.  The paradox?  The French diet.  Heavy creams.  Cheese.  Wine.  Sure, the Americans eat a lot of crap.  But how can the French have such a high cholesterol diet and not suffer heart disease like the Americans?  Perhaps this can explain it:

“We want to stop working at 60 because it’s something our parents, our grandparents and even our great-grandparents fought for,” says Gilly, 50, a union representative at Saint-Pierre Cemetery, the largest in this bustling Mediterranean port city.

Retire at 60?  Work for half of your life (or less) and enjoy a generous retirement.  No wonder they’re living so long.  No stress.  Cradle to grave welfare.  An early retirement.  Gosh, that sounds good.  Almost too good to be true.  Once upon a time, in feudal France, you worked from childhood until you died.  Things have definitely got better.  Just how long has it been this good?  According to Gilly, it goes back generations.  All the way to his great-grandparents.  But has it?

It was in 1982, under Socialist President Francois Mitterrand, that the minimum age to stop working was lowered from 65 to 60. The measure, emblematic of the 14-year Mitterrand presidency, was adopted by a special ordinance that bypassed parliament.

And now the government wants to raise the retirement age to 62.  You can understand Gilly’s consternation.  If you do the math, the average lifespan per generation must be somewhere around 10 years.  So one can understand how the 50 year old Gilly is anxious to retire at age 60 instead of at age 62.  Because people in his family rarely live beyond 10 years of age.  Unless Gilly is exaggerating for effect.  Or lying.  Because the French were retiring at age 65 until Mitterrand changed that in 1982.

Tax the Rich, Middle Class and Anyone Else Who Isn’t in the Public Sector

This is all well and good as long as someone else is paying the bill.  And this is something that the people in the social democracies don’t understand.  There is a limit to the treasury’s generosity.  For the public treasury to pay these very generous benefits, there has to be money in the treasury.  And states fill their treasury, basically, in one of three ways: taxing, borrowing and printing money. 

If they tax too much, people will have less disposable income.  They will buy less.  Private business will see a loss in sales revenue.  At the same time, they will have to pay more in taxes.  They may lay off employees to adjust to the reduced demand and higher tax burden.  The economy will slow into a recession. 

If they borrow too much money, interest rates will rise.  This will increase the interest people pay on their credit cards.  They will buy less.  Private businesses will see a loss in sales revenue while their costs go up (because of the higher interest rates).  They may lay off employees to adjust to the reduced demand and higher costs.  The economy will slow into a recession.

If they print too much money, they may ignite inflation.  Inflation raises prices.  People buy less because of high prices.  Private businesses will see their costs go up with these higher prices.  They may lay off employees to adjust to the reduced demand and higher costs.  The economy will slow into a recession.

To summarize, excessive government spending leads to recession.  Which results in fewer jobs in the private sector.  This is a big problem for those public sector jobs.  Because it’s the taxes from those private sector jobs that pay for those public sector jobs.  In other words, the more the public sector demands, the more they kill the private sector, the golden goose providing that rich public sector pay and those glorious public sector benefits.

The Sans-Culottes are Very Much Avec-Culottes These Days – But They Still Revolt

I’m sure the French understand this.  I mean, how bad is it really getting over there?  Well, see Clashes, protests in French tensions over pensions by AP’s Angela Charlton on www. apnews.myway.com.  She begins with:

PARIS (AP) – Protesters blockaded Marseille’s airport, Lady Gaga canceled concerts in Paris and rioting youths attacked police in Lyon on Thursday ahead of a tense Senate vote on raising the retirement age.

A quarter of the nation’s gas stations were out of fuel despite President Nicolas Sarkozy’s orders to force open depots barricaded by striking workers.

Gasoline shortages and violence on the margins of student protests have heightened the standoff between the government and labor unions who see retirement at 60 as a hard-earned right.

New violence broke out in Lyon, as police chased rampaging youths who overturned a car and hurled bottles. Riot officers tried to subdue the violence with tear gas. A gendarme helicopter circled overhead.

Wow.  If it wasn’t for the Lady Gaga and the airport and the gas stations and the police helicopter, you’d think the sans-culottes were making another revolution.  It brings to mind the classic lyrics of Adam and the Ants’ classic Ant Rap (my sister was a BIG fan):

Liberté, égalité, au jourd’hui c’est tres tres tres

Voici l’opportunite nous incroyables!

But this ain’t the 18th century.  And famine isn’t a way of life for the masses.  No.  In fact, life is pretty darn good.  No 18th century peasant lived as grand.  In fact, the life they’re protesting about today was closer to the French nobility than it was to the Third Estate in 1789.  These aren’t food riots.  This generation just doesn’t want to work another 2 years before retirement. 

It would appear that these protestors don’t understand the intricacies of a market economy.  Perhaps they have lived too long in a quasi-socialist state.  Been brainwashed by their unions.  Or maybe they just don’t care.  As long as they get their benefits now they don’t care how they impoverish future generations.  It’s a pity.  How a minority of the French people can destroy a great nation. 

Good Work if You Can Get it – and You Can Get it if You Belong to a Public Sector Union

One wonders how people can resort to violence.  Of course, when you consider how much better the public sector lives than the private sector, you wonder how this hasn’t exploded earlier.  Let’s go across the pond.  To New Jersey.  But first, if you work in the private sector, pause for a moment and think about your pay and benefits.  How hard you work and how little time you get off.  Feel overworked and underpaid?  If you worked a 60-hour week or two, you probably do.  Now, think about the last time some public sector union went on strike.  When they asked you to feel their pain.  To support their cause.  Okay, now read this excerpt from a My FOX New York article by Luke Funk (see Audit: NJ Turnpike Wasted Millions On Perks on www.myfoxny.com):

MYFOXNY.COM – Auditors say the New Jersey Turnpike Authority wasted $43 million on unneeded perks and bonuses.  In one case, an employee with a base salary of $73,469 earned $321,985 when all payouts and bonuses were included.

How does that make you feel?  Think about this the next time you get change from the person sitting in a New Jersey toll booth.  Think about your skill level and your pay.  Then think about the toll booth occupant’s skill level and pay.  Now switch places and imagine someone wanting to cut your pay and benefits.  I mean, if someone was trying to cut your pay by, say, $300,000 because the state is on the brink of bankruptcy, what would you do?  Start looking in the want ads for another unskilled job that pays 3-5 times of a skilled job in the private sector?  Or are you going to do what the French are doing?

Is it any wonder Europe is burning?  First Greece.  Now France.  You get pay and benefits like this and you live like royalty.  And one thing about royalty.  They don’t abdicate without a fight.

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