Home Prices Rose in May - WSJ.com

Q&A: Can't we blame the rich?: Home Prices Rose in May - WSJ.com: "- Sent using Google Toolbar"

Question: Shouldn't we blame the rich for all our problems? After all, before Obama, Bush gave every tax cut known to Republican kind while business and the wealthy who prospered from it drove the economy into the ground in the name of wanting more.


Answer:
You certainly believe in an ax to grind that lacks any understanding of basic economics.

To wit, you might consider that the US is in a globally competitive economy with vast numbers of better educated, harder working people who work for vastly lower salaries and benefits.

As such, how do you expect those Americans who earn outsized global salaries and benefits to keep their jobs?

You may feel that those who retain globally competitive jobs are cheating those who don't - but, it's still a reasonably free market where people compete for jobs (even in the US). This is rather evident from the number of applicants per job as reported in the press.

You may also be unfamiliar with the concept of the average amount of capital behind an average job in a society. In the 1970's the figure for the US was about $50,000. (I don't know the current figure.)

Clearly as the cost of non-salary compensation (e.g. retirement pay, healthcare, workmen's compensation and unemployment insurance) escalate, the cost per job increases and the employee has to produce more and more value for the employer. (Look up the "labor conundrum" to see how this distorts economic and labor productivity.)

The biggest problem you should be concerned with isn't rewarding investors and business people but the fact that the laws and regulatory environment are raising the costs of investing and doing business in America while the little guy (the one who wants a job) is being lied to about why businesses don't want to locate in America.

Take a look at someone you pay for a service or a product you buy. Now double or triple the cost and ask yourself if you'd still buy the same good or service (or could afford to). This is the problem the government is presenting to the business person in America. Labor is too expensive (particularly indirect labor costs) and the net, after tax, risk-adjusted return on capital cost has risen to the point where investing in America (compared to other parts of the world) keeps going up.

Just consider that Europe faces an even worse situation in old Europe than in the US due to the high taxes. But other countries, such as the new Europe (e.g. Czech Republic) recognize they want jobs and entrepreneurs to come to the country and flourish - so they have a maximum income tax rate of 15%.

Frankly, I see the US as punishing the rich and investors and, as a result, they are being forced to look elsewhere.

(Consider the case of 2 entrepreneurs, 1 in America with a 50% plus tax rate and 1 in Asia paying 15%. After a few years, who is going to have the greater resources left to invest in their business, pay for research and hire employees and sell their products for less. Unless you have total blinders on, you'd have to say the entrepreneur that keeps more of their money.)

Sorry, you've bought the Administration's line about the problem being someone other than the government. The US is getting what it's policies are asking for - fewer jobs and likely a second dip in the economy.