The Chairman’s Report - August 5th, 2016

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  • Source: FAIRtax
  • 04/09/2021

Is Economics a Science?

Over the years, I have appeared on many panels discussing tax reform.  Almost always, there were several economists on the panels.  There were some notable exceptions but generally the economists failed to agree on the impact of tax reform on economic growth.  Instead, they often just discussed the theory of this tweak or that one, but they seemed divorced from how people not working for the government or a think tank would actually act.
Most of these people, along with many of the D.C. Elite, never worked anywhere other than for the government or a think tank.  They never had to worry about their employer failing and were insulated from the effects of a bad economy.  To them, economic theory was a fun game, and they earned their living by advocating one policy or another.
Some of these economists remind me of the story about the man in the English countryside who sat, watching a shepherd, and a huge flock of sheep pass by his car.  Getting out of the car, the man said to the shepherd, "I will bet you $100 against one of your sheep that I can tell you the exact number in this flock." The shepherd thinks it over; it's a big flock so he takes the bet. "973," says the man. The shepherd is astonished, because that is exactly right. Says "OK, I'm a man of my word, take an animal." Man picks one up and begins to walk away.

"Wait," cries the shepherd, "Let me have a chance to get even. Double or nothing that I can guess your exact occupation." Man says sure. "You are an economist for the government or a think tank," says the shepherd. "Amazing!" responds the man, "You are exactly right! But tell me, how did you deduce that?"

"Well," says the shepherd, "put down my dog and I will tell you."

Aren’t We All Economists?

Economy is defined in the Cambridge English Dictionary as, “The system of trade and industry by which the wealth of a country is made and used.”  It defines an economist as, “A person who studies or has a special knowledge of economics.”
Using the above definitions, how can anyone exist in life without understanding how to create the “wealth” needed to provide support to their families?  All of us have learned that we need to have a job that pays and we need to budget our money carefully.  Otherwise, we will not be able to pay our bills and this will lead to bankruptcy—we can’t just print money.
A Rising Tide Lifts All the Boats

President John Kennedy made this comment when he was asked why he was favoring a tax policy that included help for higher wage earners.  How much education and training does it take to understand that if there is more demand for products, that more people will be employed to produce and market those products?  If more people are employed, then more products can be purchased and the economy grows and the cycle repeats itself again and again.
Gross Domestic Product (GDP)

The Financial Dictionary defines GDP as, “The broadest quantitative measure of a nation's total economic activity. More specifically, GDP represents the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time.”
All of us self-taught economists know that increased GDP growth is good.  The more growth, the more jobs and because more jobs require more employees, more people will prosper. 
The Rule of 72

For those among us who can tell a dog from a sheep, we don’t have to rely on anyone to calculate the effect of economic growth rates on GDP.  If you want to find how long it will take for something to double, you can do a simple calculation.  You divide 72 by the rate of return and this yields the number of years it will take for something to double.
If you take the 1% GDP growth released this week, it will take 72 years for the GDP to double.  If you increase that to 4% it will take 18 years to double.  Obviously a huge difference.

Since no one will argue that the increase in the GDP results in more prosperity, it is obvious that one of the fundamental things to consider when entering into tax reform is its effect on economic growth.   However, it is apparently only obvious to those of us who can tell the difference between a dog and a sheep. 
Like the drug company executive that worries that his new drug might actually cure the patient and therefore eliminate the need for re-orders, many economists don’t want to “fix” the economy.  If the economy is growing at a brisk rate, economists are not needed as much.  They will find that they have much less to do and being ignored by the media is perhaps the most feared thing you can do to a “talking head.”
In closing, there is the story that when Albert Einstein died, he met three New Zealanders in the queue outside the Pearly Gates. To pass the time, he asked what were their IQs. The first replied 190. "Wonderful," exclaimed Einstein. "We can discuss the contribution made by Ernest Rutherford to atomic physics and my theory of general relativity". The second answered 150. "Good," said Einstein. "I look forward to discussing the role of New Zealand's nuclear-free legislation in the quest for world peace". The third New Zealander mumbled 50. Einstein paused, and then asked, "So what is your forecast for the budget deficit next year?

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FAIRtax Power Radio
America’s Big Solution: An Introduction to the FAIRtax is now available in print and in electronic form for the Amazon Kindle, Barnes & Noble Nook, Apple iPad in the iBook store as well as on the following services: Scribd, Inktera (formerly Page Foundry) and Kobo
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In Episode 3, Thomas Jefferson paid us a visit and gave his opinion of our federal income tax.  As you might guess, he wasn’t very happy with what he saw.  Then we searched for “the perfect tax system”.  
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To listen to FTPR on SoundCloud (free and audio only) go to these links:
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To listen to FTPR on SoundCloud (free and audio only) go to these links:
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FTPR Program 29 on YouTube
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