Government may be its own worst Enemy

Pretensions of Journalism kills the Economist in Us all. It is a regrettable fact as true for David Henderson as it is for Paul Krugman. I agree with Henderson that the current Run of Krugman articles and Posts leave something to be desired, but so do his own. Take his assessment of the 2001 Tax Cut. Henderson states that the Tax Cuts were about equal for each Tax Group. He does not stipulate that under increasing Inequality of Income, equal Tax Cuts mean a loss of progressivity in the Tax rates. The Whole works out that higher Incomes achieved both a nominal and real Tax advantage which lower Incomes missed. This factor made it harder for lower Income groups to enter the higher Income field, while higher Incomes had a much easier time in staying within their Grouping. That said; Krugman is wrong, Henderson is wrong, and I am wrong for suggesting that there exists a real greater impediment of entrance into the higher Income groups; if there has been a real gain in productivity through the ideas or labor of any element of labor. Loss of Importance in the Productivity Process still is followed by loss of Income, which is the real determinant of Income.

Here is a prime example of a Company’s attempt to preserve their own Income base, with Microsoft borrowing Debt to preserve their Equity value. The loss of Innovation by the Research facilities at Microsoft meant a loss of additional Income without an ability to reduce Production or Research Costs, the Staff necessary to meet Customer Concerns. Microsoft had the choice to either dilute the Stock, or borrow Operating Capital. They chose to borrow so the major Stockholders could maintain their flow of Income. All Debt has to be subscribed by Debt Holders, who insist on some equitable rate of Return which will reassert itself in the near future, and such Borrowing places undue pressure on all subscribers of finance, so that all artificial subscription of debt brings added pressure and higher Pricing to acquiring Capital. A small, select group of wealthy individuals thereby raise the total Costs of all in need of Debt finance.

Here is another approach to the Problem, one where the Government itself may be an impediment to the adequate finance through their insistence on Debt Return suppression. The Government insists on low rates of Interest on Debt, but which brings a corresponding reduced rate of finance supply. The Government has no vested Collateral backing their provision of funds, which suppresses all Interest rates. Continued Government supply of necessary finance will only lead to Inflation, while the Private Sector will not replace the Government supply of finance, until such time as the Interest rates return to normal. My Estimates, and I repeat my Estimates, suggest that the Inflation rate will not drop below 3% annually without Private Sector provision of finance; a circumstance unattainable until the rate of Return on loaned Capital exceeds 5% annually. It could be that the Government and its policies are the real impediment to normalization. lgl