Tipping Point

Well, here’s a silly discussion with an important underlying economic lesson. When you “spread the wealth” by taxing some people more and spending their money some other way, the total amount of money being spent in the economy doesn’t change. If you raise my taxes, I must spend less or invest less. The government will spend more or give my money to someone else who will spend more. The amount being spent doesn’t change.

It is impossible to predict exactly how this plays out because spending patterns are so diverse. But imagine it was concentrated. Suppose that the tax increases on the wealthy were simply passed out as checks to the poor. Further suppose that the wealthy react to higher taxes solely by eating out less and the recipients of checks spend their new money by eating out more. It’s not hard to see that some high-end restaurant workers will lose their jobs, while Burger King and McDonald’s will be hiring more people. The result will be to displace jobs that pay well with jobs that pay less.

Of course, the change in spending habits won’t be concentrated in one area. They will be spread across many different parts of the economy. But the impact will be the same: jobs will be lost but replaced with jobs that pay less.

That’s Obamanomics!

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