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Vanity - Economics vs. Simple Math
10/5/2012 | Egon

Posted on 10/05/2012 7:06:06 AM PDT by Egon

I generally try to stay out of political discussions whenever possible. I have blood pressure considerations to keep in mind. Every once in awhile, though, something happens that really causes my blood to boil, and I’m forced to comment on it.

Last night’s debate provided one of those moments. I avoided watching the actual debate. I try never to listen to President Obama speak—I find his delivery unpalatable, not to mention his content. Instead, I watched highlights on various news channels, and even went to MSNBC to find out how the Left responded to the debate. One of the statements made by the Leftward pundits, this one by Rachel Maddow, struck me. I paraphrase:

“Romney lied. He said his five trillion dollar tax cut wouldn’t cost five trillion dollars. He’s talking about cutting X dollars from every person. That adds up to five trillion. It’s simple math!”
Let’s look at this. First of all, two very simple premises: Let’s use the extremely simplified example of a lemonade stand:

Let’s suppose I sell my lemonade for $1/cup. I sell to 100 people in one day. I make $100 that day. The next day, I cut the cost of my lemonade to $.50/cup. Simple math tells us that I’m only going to make $50 that next day. Ms. Maddow would happily go on the air and exclaim that “It’s simple math!”, and her viewers would take her (presumably educated) word for it.

That’s not how it works in real life, though. In real life economics kicks in. People that balked at my whopping $1/cup price would be much more willing to purchase a cup at $.50. There’s every possibility that I would double my sales. If I double my sales, I’ve still made $100. This is called Price Elasticity. Now this is a very simplified model, it doesn’t take into account marginal costs or other factors, but it demonstrates that, even with this simple model, “simple math” isn’t going to cut it—certainly not at the level that Ms. Maddow and, arguably, the entire Left practice it.

OK, so that’s the sales side of economics vs. “simple math”. What about the taxation side?

Well, with taxation, the “math” is even less “simple”. It’s still economics, mind you—but certainly not something that Ms. Maddow should be dabbling in. The following concept has been proven throughout our recent history:

If you lower taxes, tax revenues increase—not decrease.
The reasons for this:
  1. People retain more of their income.
  2. Everyone purchases more products.
  3. Wealthier people invest in businesses
  4. Businesses have more money to invest in production, and more incentive to, as people are demanding more product
  5. Expanding businesses hire more people
  6. As more people get jobs, the tax base increases
  7. Moreover, as more businesses start competing for employees, wages must increase to stay competitive
  8. As wages increase, the tax base increases
  9. As wages increase, people purchase more…
  10. Rinse… repeat
This is why, despite “simple math” telling Ms. Maddow and her hapless viewers that $X time the tax base equals less five trillion dollars, simple economics tells us otherwise.


TOPICS: Business/Economy
KEYWORDS: msnbc; rachelmaddow; taxation
The important question: Why did I subject myself to MSNBC?
1 posted on 10/05/2012 7:06:13 AM PDT by Egon
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To: Egon

The less education one has, either academic or empirical, in economics the simpler economics seems. Ask any fine arts major if he would pay more for a high interest bond or for a low interest bond and why. Their answer will tell you all you need to know.


2 posted on 10/05/2012 7:12:55 AM PDT by muir_redwoods (Hopey changey low emission unicorns and a crap sandwich)
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To: Egon

I try never to listen to President Obama speak—I find his delivery unpalatable, not to mention his content.

I thought I was the only one who can’t listen to “0”. His delivery is like nails on a blackboard to me and his lies are even more unpalatable. And, now, that he did a belly flop in the swimming pool the other night, the left is bring their “liar” game which, by the way, comes naturally to them. Half the country will believe those “new and improved” economic numbers and the other half who didn’t vote for “0” won’t. By the grace of God, we need to have our White House back from the thugs.


3 posted on 10/05/2012 7:16:55 AM PDT by Bitsy
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To: Bitsy
I thought I was the only one who can’t listen to “0”. His delivery is like nails on a blackboard to me and his lies are even more unpalatable.

No, you most certainly are NOT the only one. Makes my spine spaz.

Trying to convince a liberal they are wrong is impossible, especially when it comes to economics.

4 posted on 10/05/2012 7:22:53 AM PDT by madison10
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To: Egon

This is what I do with the economic illiterates (80%+ of the USA population):

I ask them 2 questions.

1. How much tax would be collected if rates were 0%?

2. How much tax would be collected if rates were 100%?

If they’re too illiterate to figure it out, I explain how both questions have the same answer. If they get that, then they must agree that lowering the tax rates can increase tax dollars collected.

We, the literate, must ALWAYS correct someone when they talk about lowering and raising TAXES. That is incorrect verbiage. Only RATES can be raised or lowered. Once they get that, got to the 2 questions and repeat.


5 posted on 10/05/2012 7:25:49 AM PDT by bankwalker (In the land of the blind, the one-eyed man is king.)
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To: Egon
The debate retorts about math and economics remind me of the old question: How do you tell when a politician is lying?.Answer: When you see their lips moving!
6 posted on 10/05/2012 7:34:32 AM PDT by buckalfa (Nabob of Negativity)
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To: Egon
Let’s suppose I sell my lemonade for $1/cup. I sell to 100 people in one day. I make $100 that day. The next day, I cut the cost of my lemonade to $.50/cup. Simple math tells us that I’m only going to make $50 that next day. Ms. Maddow would happily go on the air and exclaim that “It’s simple math!”, and her viewers would take her (presumably educated) word for it.

They would also say that if you raised your price to $100/cup, you'd generate $10,000 in revenue.

7 posted on 10/05/2012 7:44:06 AM PDT by Sloth (If a tax break counts as "spending" then every time I don't rob a bank should be a "deposit.")
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To: Egon
Economics 101 .

Individualistic Capitalists MAKE money,

Communistic Socialists TAKE money.

President Clinton's greatest decision was to keep Alan Greenspan on as Fed Chairman.

8 posted on 10/05/2012 7:45:45 AM PDT by OldNavyVet
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To: Egon
Great posting, you hit the nail on the head with a prime fundamental of Marxist economic theory, which requires that you break things down to their simplest elements, eventually taking things to a static system. This is actually in conflict with the concept of "dialectical materialism," which Marx brought into his philosophy, which claims that systems are interdependent. So right then and there, Marxist economic theory is self-contradictory.

In addition to that, there's this huge disconnect in the minds of leftists. They seem to know instinctively that if you don't like a product or activity, tax it, effectively increasing the price, and people will buy or do less of what you don't like. But at the same time, they don't seem to understand that this is the case for ALL products and activities, even those that are beneficial. So they don't seem to understand that when they increase taxes on productive activities that produce revenues, the result is actually less revenue to the government, because they're discouraging those activities, and at some point, people will simply do less of it.

BTW, did anyone else notice that during the debates, Obama continually use the term "revenues" incorrectly when he actually meant "taxes." Someone should send him a dictionary so he could learn the difference. "Revenue" is the money coming into the government. Taxes are a means to generate revenue for the government. But even Obama realized and is on record admitting that increasing taxes actually DECREASES revenues to the government, but that it's OK, since it's "more fair."

This certainly shows the priorities of leftists.

Mark

9 posted on 10/05/2012 7:49:07 AM PDT by MarkL (Do I really look like a guy with a plan?)
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To: madison10

Trying to convince a liberal they are wrong is impossible, especially when it comes to economics

That’s because they make up their “economics” as they go along. They haven’t a clue what works and what doesn’t all they know is that the rich need to pay more taxes (the rich being people like me making a lot less than $100,000 per year) so they can give it to the poor, under educated, needy ones. Of course, they have created the poor, under educated, needy ones by rotten educational opportunities and entitlement programs. Now, these grateful recipients of all that wealth of entitlements will vote lock step for their benefactors. It is a form of slavery the liberal/progressive/democrats have been practicing forever. Economics is not in their vocabulary - greed and power is.


10 posted on 10/05/2012 8:04:53 AM PDT by Bitsy
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To: Bitsy

Lying liars who keep on lying — yep. In the Garden, it began with a lie. Jesus said to the Pharisees (religious leaders of their day) that they were liars and their father was a liar, referring to the Serpent/Satan. There is Truth in the world, and there is the Lie. Ann Coulter’s book, Demonic, really sums it up beautifully - the mob mentality - witness Sodom in Genesis - has its roots in the lies of the Liar. Those who embrace that way of dealing in the world are of their father, the Devil. People need to be aware of which father their characteristics are putting on display.

It won’t go well for habitual liars to be calling Romney a liar. God is watching.

Great piece up top.


11 posted on 10/05/2012 8:52:37 AM PDT by Orgiveme (Give me liberty orgiveme death!)
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To: Egon

OK, if you sell 100 cups of lemonade for $1 apiece you make $100, and if you sell 200 cups at 50 cents apiece you make $100...but doesn’t it cost the seller more to make enough lemonade to fill 200 cups than to fill 100 cups?


12 posted on 10/05/2012 8:54:11 AM PDT by Verginius Rufus
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To: Verginius Rufus
doesn’t it cost the seller more to make enough lemonade to fill 200 cups than to fill 100 cups? -- VR

Now this is a very simplified model, it doesn’t take into account marginal costs or other factors, ... -- Egon

Of course it costs more in materials to make 200 cups of lemonade, and more for the cups, but the per cup material cost would be the same, or actually less (because larger quantities of materials can be bought cheaper because of bulk discounts).

13 posted on 10/05/2012 9:18:38 AM PDT by RhoTheta ("We're from the Government, and we're here to help you ... NOT")
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To: Verginius Rufus
doesn’t it cost the seller more to make enough lemonade to fill 200 cups than to fill 100 cups?

P = SR - C, or in other words profit equals sales revenues minus costs. If the sales revenues stay the same at $100, but the costs of producing 200 cups is higher than producing 100 cups, then overall profit decreases.

14 posted on 10/05/2012 9:28:34 AM PDT by mjp ((pro-{God, reality, reason, egoism, individualism, natural rights, limited government, capitalism}))
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To: Verginius Rufus
...but doesn’t it cost the seller more to make enough lemonade to fill 200 cups than to fill 100 cups?

As someone else pointed out, I purposely left out factors like that for this model.

...but: it goes directly to my point, which is: even the simplest real-world business/tax model cannot be reduced to "simple math".

Rachel Maddow, and Leftists in general should stick to what they do best: Adding their own snarky spin onto other peoples' talking points.

...or maybe that's what she was doing.

15 posted on 10/05/2012 9:36:35 AM PDT by Egon (Romney/Ryan. Because Jimmy Carter doesn't need a third term.)
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To: Orgiveme

God is watching.

Thankfully, yes!


16 posted on 10/05/2012 9:45:38 AM PDT by Bitsy
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To: bankwalker

It is truly amazing how many deny the fundamentals of the Laffer Curve.


17 posted on 10/05/2012 3:24:20 PM PDT by FreedomPoster (Islam delenda est)
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