The ever-literal Charlie Quimby pulls out the Minnesota tax tables to defuse my argument that the unemployment of non-essential government workers is a benefit to the community – that and a bit of sarcasm aimed at anyone who might assume that enduring economic principles actually exist. Free market economics, he seems to imply, is a “horse and carriage” concept. The object of Mr. Quimby’s discontent is an example I used to refute Dave Mindeman’s contention that “massive” cuts in state services will mean more job losses, I used what Mr. Quimby disparagingly, but correctly, calls a parable.
A family, let us postulate that they are well-to-do, is sitting at the kitchen table about to sign a contract with a home remodeler to build an addition on its home for $10,000. But just before they sign a newspaper article catches their eyes. It relates how the state of Minnesota will raise taxes in their bracket by $10,000 a year. This sobering news makes the prudent family reconsider, and it does not hire the remodeler to build the addition on its home.
Faced with the genesis of an economic principle, Mr. Quimby evolves an argument based on the Minnesota tax tables to prove that my scenario would never occur under Minnesota tax law. SCSU Scholars King Banaian provides the economist’s response to the tax table argument.
Charlie, why would you assume the addition is paid for in one year? The addition provides a stream of income (imputed, rental) that is supposed to have a net present value greater than $10k (or else you don’t invest in the addition.) All we would need is a tax increase that decreases after tax income enough to give up the flow of imputed income. So if your couples were to face a $1000 PER YEAR extra tax it may be enough to get it to give up a $10,000 ONE TIME expenditure on a remodel.
Got to compare apples and apples here, Charlie.
King’s comment provides the economic justification of my parable, but the example also stands on its own as a simple story illustrating a greater truth. So, for the literal Mr. Quimby let’s walk through the whole insidious taxation process vis-à-vis eliminating non-essential government jobs.
To pay the salary of a government worker whose services are not essential, government actually, in reality, according to the tax tables, in accordance with state law and by whatever other god Mr. Quimby wants to call upon, takes take a little money from this family, a little from that family, and a little more from the well-to-do family. The effect of the little-bit-here-little-bit-there process is largely unseen. But sooner or later, $10,000 in taxes converted into salary for a non-essential government worker is $10,000 removed from the discretionary income of people who earned it. The $10,000 the government worker spends on himself is $10,000 taxpayers (in aggregate) do not have to spend on themselves. The $10,000 the government worker spends with some in the local community is $10,000 the person who earned doesn’t spend with different businesses in the local community. That scenario, however, does not represent an equal swap. The families earning the aggregate $10,000 earned the money and when they purchase products or services they are willing to pay for, wealth is created and vendors are rewarded. The non-essential government employee does not earn his salary (he may work hard for his money, but he produces no equivalent value); the government employee consumes wealth. Society is always poorer by the amount of wealth he consumes. The only difference in this scenario is it is harder to see than in the hypothetical one family-one remodeler example.
In his response, Mr. Quimby disagrees that I accurately portrayed Mr. Mindeman’s argument. He says that Mr. Mindeman, in his reading, does not say benevolence requires preserving government jobs. Mr. Mindeman simply observes that cutting services to avoid raising taxes on the wealthy produces more unemployment. I say, that is a distinction without a difference.
The unemployed government employee is what is seen. What is unseen is that the private sector funds that no longer go to support a non-essential worker flow to more productive use in the private sector. Those funds create demand for products and services people are willing to pay for. They create jobs for former government workers who can transfer their skills to providing products and services that people are willing to pay for. Aggregate, productive, employment rises. Wealth is created.
Managing an economy is tricky business, which is why governments can’t do it as effectively as the free market. The more government tries to tinker and make the system “fair,” the more unjust it becomes and the more economically inefficient and the more harm it does to the very people well-intentioned collectivists are trying to help.
Sorry, Charlie. “Do the math.”
