The economy is getting better. You want to know why?
Because taxes went up.
In the words of the great philosopher C.D. Stengel, you could look it up. The extra 4.3-cents-a-gallon gasoline tax went into effect Oct. 1, the start of the quarter in which the economy grew by 5.9 percent, its biggest jump in six years.
Then, as the new year dawned, so did the higher income tax withholding rates, retroactive yet, for the “upperest” of the upper-income. And economic growth continues to chug along at a mighty pretty clip.
So there you have it. Conclusive proof. As taxes rise, so does prosperity.
Wait a minute! Wait a minute! Is this serious?
Well, no, not entirely. But hyperbole, a lie when it is hidden, can illustrate a truth when it is acknowledged.
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That truth is that society is not a laboratory. And because it is not, all assertions about what will happen in it are imprecise.
So the wise citizen should look askance on the predictions of partisans who call themselves social scientists. In fact, the more scientific they claim to be, the more “askantitude” is required.
It is, after all, one of the “scientific” rules of economics that raising taxes suppresses economic activity by taking money out of the economy, especially if that money is not put back into the economy through higher spending.
There’s a good reason for this rule. It’s true, in and of itself.
So why haven’t the recent tax increases and spending cuts suppressed the economy? Simple. They aren’t in and of themselves. Nothing ever is.
In this case, the dampening effects of higher taxes and lower spending were offset by several factors, including the ebb and flow of the business cycle and a little luck.
They were also offset by themselves. One reason for today’s growth is low interest rates, and the rates are low because both the deficit and long-term debt are projected to shrink as a percentage of gross domestic product, and that shrinkage is the result of the budget cuts and tax increases.
In fairness to economists and their scientific credentials, some of them had predicted this, though they were largely drowned out by those who did not. But nobody predicted the extent to which the rates would fall, or the extent to which the low rates would inspire people to buy stuff.
They couldn’t have. Some of what inspires people to buy stuff is that nebulous thing called a public mood. Trying to sound scientific, economists call this “consumer confidence” and feed it into a computer. But it’s still a nebulous thing, based on results of a public opinion poll and quantifiable only in general.
Another law of economics (well, of one economic school) is that increasing the minimum wage will cost jobs. Makes sense, doesn’t it? If you raise the cost of hiring workers, fewer workers will be hired. In and of itself, a higher minimum means fewer jobs.
But once again, it isn’t in and of itself. If it were, every increase in the minimum wage would have been followed six, nine or twelve months later by a higher unemployment rate. But that hasn’t happened. The minimum wage was raised four times during the 1960s, at the end of which unemployment was quite a bit lower than it had been 10 years earlier.
Remember, some credentialed economists, with computers, provided proof last year that the Family and Medical Leave Act would lead to job losses, too. Unemployment has been falling ever since.
The same claim has already been heard about proposals to change the health care system. Some business spokemen argue that if firms which now don’t offer health insurance are forced to do so, their cost-per-employe will rise, forcing them to lay off workers, or at least not to hire new ones.
That makes sense, too. If a business has to pay more for each worker, and if nothing else changes, it will hire few workers.
But something else will change. It always does. One of those things might be demand. If a firm can sell more goods or serve more customers at a profit-making price, it will do so even if it has to hire more people and pay them higher benefits.
This is not an argument for any particular health care plan. It is a reminder that ideologues and the academics they hire are perpetrating a scam when they claim to predict economic consequences or social trends as certainly as physicists predict the behavior of molecules.
When they understand their limitations, the social sciences are valuable. But even physicists only claim to know what molecules will do when they are in “a closed system.” If there is anything this society or this economy is not, it’s a closed system.