Ever since the November elections, the primary stories in the media have been about one aspect or another of the so-called Fiscal Cliff. Most of these reports fail to address fundamental economic realities. The lack of clear and accurate media reporting, on the one hand, and the fallacies that are promoted, on the other, are in part responsible for the fact that most Americans are tragically ill-informed about how the economy and our global monetary system work, and thus ill-equipped to protect themselves and provide security for their families. Let’s take a look at some surprising facts:
As reported last month by Simon Black:
The so-called Fiscal Cliff is a compromise reached between the White House and Congress during the last budget ceiling skirmish. Should the two parties fail to reach an agreement on how to reduce the deficit by Dec. 31, a series of automatic tax increases and budget cuts would take place. But the Fiscal Cliff spending cuts will primarily affect discretionary spending; its impact on mandatory entitlement program spending will be a mere drop in the bucket: $110 billion and $16.9 billion respectively.
Even though taxes cannot possibly be raised enough to meet U.S. obligations, both media and politicians continue to focus the discussion on taxes. Specifically, the discussion revolves around how to increase revenue by additional taxes. But here’s the thing: As Professor Antony Davies explains in this week’s video selection, for the past 60 years or so, whether tax rates have been high or low, the amount of tax revenue U.S. government has managed to collect has remained remarkably steady at just under 18% of GDP (Gross Domestic Product)—when tax rates rise, people find ways to avoid paying. This historic pattern indicates that policymakers who are counting on higher tax rates generating billions in new revenue are likely to be disappointed.
The larger issue here is the dearth of accurate reporting and the way in which misinformation and limited information are systematically used to keep the public confused about the true nature of the problem.
Former Libertarian presidential candidate Gary Johnson described Washington’s tomfoolery like this:
So if none of the solutions currently being offered have any hope of solving the U.S. deficit and balancing the U.S. budget, why do the primary players continue to discuss taxes. The reason is simple: the true, underlying problems are much more challenging and not so easily solved. The real problem is primarily that the government is simply too big. Even Nobel Prize-winning economist Milton Friedman, who was wrong about many things, had this one right. In an exchange with Dallas Federal Reserve President Richard Fisher, Friedman said, “From the long-run point of view, the only thing i am really worried about is that government will grow too large."
Friedman states in a nutshell the reason politicians would rather fight over tax increases than tell the people the truth about the state of the nation’s finances and the global economy.
In his November 14, 2012, farewell address to Congress, Ron Paul talked about the consequences of our collective economic ignorance:
As long as Americans and the global population remain largely unaware of economic realities, there will be no public outrage. The pyramid scheme of the fractional reserve banking and fiat currency systems can continue their relentless ascent to the pinnacle. The people, kept in the dark, will fail to take measures to position themselves correctly for the ultimate end-game and, as ever throughout history, will end up paying in loss of wealth and future security. We at Wealth Cycles strive to shed light in the darkness; we hope it will be enough.