Obviously, there are a lot of nuances and factors in economics. But I think it boils down to two opposing worldviews: conservatives see the world as a dynamic place that will go in whatever direction the market (people) want it to go, while liberals see it as a static place that can be micromanaged and planned.
For liberal planners, this is the way things are and the way people are, and this is how it’s always going to be. It’s one pie, and the bigger the piece one takes, the smaller pieces everyone else gets.
Conservatives believe that the world is ever-changing. We’re constantly advancing, innovating and discovering. What’s true today may not be true tomorrow. And when one succeeds, it doesn’t happen at the expense of another. It means the economy is expanding.
Subway fares make a good example of static thinking. When liberal politicians are looking for more government money, they might look at a subway system upon which 100 people ride for one dollar per day, equaling $100 dollars in revenue per day, and decide that if we raise the rate to two dollars per ride, we can raise revenue to $200 dollars per day.
What they don’t account for is that when you raise the rate, you affect human behavior. If you increase the subway rate, people will find other methods to get where they’re going. Maybe they’ll bike. Maybe they’ll drive. But you won’t see that $200.
Recently, there was a man who paid an airline baggage fee of $25 to have his bag transported, along with himself, to his destination. When he arrived, he learned his bag had not. The bag was never recovered, and he demanded a $25 refund because the bag was not delivered – which is why there was a fee. The airline refused, and he paid a $75 fee to take the airline to small claims court to get his $25. That’s right, he paid $75 to sue for $25. Even if he won, he was out $50. This is the type of erratic, if not principled, human behavior for which planning cannot account.
The man, driven by the desire to make a point and seek a little justice (being right, for many, is a great motivator) was willing to make what many others would see as an irrational decision.
Apply these lessons to taxes. We’re often told that we have to “pay for tax cuts.” The fact is that if you cut taxes, you will nearly always raise revenue. How?
By cutting taxes, people get to keep more of their money. When people have more money, they spend more money. When more money is spent, more goods and services need to be produced, so more people are hired to meet the demand. When more people are working, you have more taxpayers. More taxpayers means more people paying taxes.
So while the tax rate per person dropped, the number of people paying taxes has increased, resulting in more tax revenue.
We’re told by liberal politicians that this – known as “supply-side” or “trickle-down” economics – doesn’t work. Yet any policy you put in place, no matter what it is – liberal or conservative – is supply-side economics. Every policy will affect some people more than others.
And when the people affected most come to understand the policy, they will change their behavior, which ultimately affects everyone else.
For example, when you raise taxes on businesses, they don’t simply pay more taxes and take a hit to their net revenue. Instead, they cut expenses (usually payroll) and raise the prices on their products to make up for the lost revenue. When they raise their prices, fewer people can buy, which means less gets sold. When less gets sold, fewer workers are needed, resulting in less hiring or layoffs. More unemployed people means less money circulating in the economy. Less money circulating means even more job loss and more expense to the government, which is paying more unemployment.
This is simply the way it works. It’s supported by hundreds of years of economic policies from countries all over the world.
Conservatives are sometimes mocked because it appears their answer to everything is to lower taxes. In some ways, that’s exactly right. Lowering taxes is one policy and one act. But the concept behind it is much greater.
By lowering taxes, you’re essentially empowering people by letting them keep more of the money they earn and encouraging them to do what they want with it. People will always make better decisions with their money than any government institution. By letting people keep their money, market forces – not the government – will determine the direction of the economy.
When people have more money, they get to pick product and service winners by voting with their dollar in the form of purchasing. To compete for that dollar, individuals and businesses are incentivized to be innovative and responsive to their customer base.
This means that new innovations will lead to new businesses. And some of those new businesses will make old businesses obsolete. Those workers from that old business may learn the new business and get a job there. Or they may innovate even further and start their own business. Or they may change careers.
Businesses have an incentive to have a fully-employed workforce. Only citizens with money can purchase their products. Without customers, businesses will not last very long.
The economy is an ever-changing, dynamic organism that ebbs and flows as new ways of doing things replace old ways. When you keep taxes low and reduce regulations, you allow for natural inertia to guide the economy. The economy expands and people thrive.
When you raise taxes and expand regulations, you give more control to the government. And when government has more control, they attempt to guide the economy. Any artificial guidance of the economy works against naturally-occurring evolution – which slows growth and stunts the entire economy. This is why despite government intervention, as long as a percentage of the economy is governed by market forces, any capitalist economy will, sooner or later, overcome government-caused recessions.
Another critical component to an effective economy is businesses knowing what the rules are going to be. When government is passing or proposing massive and complicated laws that even the members of Congress who pass them don’t understand, businesses don’t know the rules, and will be inclined to pull back and wait until they understand them.
Because no one knew what was coming next from the Obama administration, for example, most businesses were waiting for the dust to settle so they knew the new rules.
Liberal politicians often ask conservatives for a plan. But not having a plan IS the plan. Create simple rules, enforce them, and let the innovation and creativity inherent in free market workers supply all the “new ideas” for which you search.
To have a plan, the way liberals mean it, is to try and direct humanity through an economic model. It’s like trying to plan the perfect crime. It can’t be done. Something unexpected always happens. (I like to refer to those as unintended consequences.)
My belief is that liberal politicians are not comfortable with the lack of control over a free market economy. It’s too unpredictable, and people fail. Liberals are not comfortable when people fail – and that is, in a way, quite admirable. The difference is that conservatives believe those who fail will rise again, and their rise will be enabled by a free market.
Conservatives also like the idea of people being rewarded for their hard work and innovation. And if they are running a business that is constantly growing and hiring, they should be rewarded even more.
But some believe that successful business owners are lucky or greedy or somehow gained their success at the expense of others. If that’s the case, I can’t help but wonder if big companies only hire immoral, evil people to run them, or are only evil and immoral people able to make a company successful?
When you conduct your own assessment of the economy, look at the performance of capitalist America versus the rest of the world over the last hundred years. Given the status of the United States as an economic powerhouse, it’s hard to argue with our results.