Episode #185: Free-Rider Friday - March 2018

Ed’s Topics

Tweet from Keith

Alchemy Financial (@WeLivetoServe), asking us to discuss Bitcoin. You have to report your sales of Bitcoin on your tax returns, but how do you deal with the “forks”—are they dividends, etc.?

@edkless @ronaldbaker been a while since you discussed, request to talk $BTC today on @asktsoe? #AskTSOE

— We Live to Serve (@WeLivetoServe) March 30, 2018

Also, the HyperLedger, hyperledger.org, a project being run by the Linux Foundation, a who’s who of leading companies.

Ron brought up “The crypto sun sets in the East,” from The Economist, Jan 20, 2018. While Japan has embraced bitcoin, China has banned it, and South Korea is in the middle.

Though South Korea is less than 2% of global GDP, it has nearly 15% of Bitcoin-trading, yet South Koreans pay a 40% premium for bitcoins, due to capital controls.

Bitcoin is supposed to be freedom from government, yet in Asia, it is governments that are making or breaking their fortunes.

Amazon and Berkshire Hathaway Innovating Healthcare

Two articles: Capx.co article by Tim Warsaw on Amazon teaming up with Amazon and Berkshire Hathaway on healthcare.

HealthcareIT news: 5 different areas where Amazon could disrupt healthcare:

1. Durable medical equipment and supplies

2. Mail order and retail pharmacy

3. Pharmacy benefit management

4. Telemedicine and in-home healthcare using Echo and Alexa

5. AI-powered diagnostics for continuing care

Facebook Knows Your Politics

Shout-out to listener Hector Garcia.

Go to your Facebook settings > Ads > Your Information > Your Categories > US politics.

Five categories: Very Liberal, Liberal, Moderate, Very Conservative, and Conservative.  You can delete them if you want.

Stephen Hawking, R.I.P.

Barry Brownstein on Stephen Hawking's Final Warning: Why His Worries Were Unwarranted

Steel and Aluminum Tariffs

In response to the charge that the Chinese government was subsidizing its steel producers an economist said, "Number one, it’s very dubious that it’s true, but suppose it were true. Then that would be a foolish thing for the Chinese to do from their own point of view, but why should we object to them giving us foreign aid? We’ve given them quite a bit."

Actually it is Milton Friedman and it was about the Japanese government forty years ago. Why won't this myth die!

Robin Corner, FEE, Toxic Masculinity article

Autonomous Vehicle Update

“Regulators Are Asleep at the Wheel on Self-Driving Cars,” Bloomberg, March 26, 2018, Brad Stone

Tragic death of a pedestrian, cutting in front of a car, she was at fault. Will this slow down progress?

“Driverless cars given green light to operate in California,” Financial Times, February 27, 2018

On Monday, Feb 26, 2018 California’s Department of Motor Vehicles green light to manufacturers and tech companies to test and deploy autonomous vehicles without a “natural person” inside the car. Also, no steering wheel or pedals required. The car must have a “remote operator.” Arizona, Michigan, Nevada also allow this type of testing. Safety campaigners say this could turn California’s roads into a potentially lethal video game. What are they now?

50 companies are testing in CA, including Alphabet, Uber, Apple, GM, Ford, Toyota. DMV could start issuing permits for locals to take rides by April 2nd. “Disengagement reports” must be submitted every year: measuring how many times a human had to step in, and each car must have a “black box.” Waymo’s score on Disengagement: once every 5,596 miles, and General Motors: once every 1,254 miles.

Ron’s Topics

“Firm direction,” The Economist, March 3, 2018

McKinsey has been compared the US Marines, the Jesuits and the Freemasons. It consults with 90 of the Forbes top 100 firms, even helping Britain leave the EU, and the Saudis wean themselves off oil.

Kevin Sneader, Scottish Chairman replaces Dominic Barton as managing partner (2,000 partners).

Half of what it does today are capabilities that did not exist 5 years ago (it would be interesting to know how much revenue is earned from those capabilites?)

It is recruiting more data scientists and software developers, but staying relevant with technology firms is proving difficult. Unicorns, Facebook, Google, and Amazon don’t use McKinsey’s services, somewhat because McKinsey helps cut costs, and that’s not an issue in these companies.

Also, these companies compete with McKinsey in recruiting talent.

The former managing partner, Dominic Barton, also oversaw the shift towards a results-based fee model, in line with Boston Consulting Group, Bain and [Accenture].

Russia Ruins Aviation Record

Saratov (SA-RA-TIV) Airlines flight 6W703 crashed soon after takeoff, killing all 71 on board. It’s the first fatal crash since November 2016. There were no deaths in 2017.

I still can’t afford to move to Texas, Ed

“So Many People Are Fleeing the San Francisco Bay Area, It’s Hard to Find a U-Haul,” FEE, Mark J. Perry, February 14, 2018. The San Francisco Bay Area is #1 for out-migration: Sacramento, Austin, Portland, OR. Reason: high cost of housing (even high skilled). A San Jose U-Haul operator’s biggest problem: getting his vans back! Nationwide, cities with biggest inflows, according to Redfin: Phoenix, Las Vegas, Atlanta, and Nashville.

Cost of Renting a U-Haul from San Jose to Las Vegas is $1,990 Las Vegas to San Jose $121.

“AI vs. Lawyers,” LawGeex

Another shout-out to listener Hector Garcia. AI achieves 94% accuracy rate identifying and highlighting 30 proposed legal issues in five standard non-disclosure agreements. Human lawyers averaged 85% accuracy. It took the humans anywhere from 51 minutes to more than 2.5 hours to complete all five NDAs, while the AI engine finished in 26 seconds.

Ethical Question: does the Algorithm round up and charge the full hour?

“A tale of two Washingtons,” The Economist, March 10, 2018

Amazon’s second headquarters got bid from 240 cities/regions. It’s culled down the list to 20, including Toronto. Amazon says it will employ 50,000, and invest $5 billion over 15 years.

Three out of the 20 finalists are in the Washington, DC area: the city itself, northern Virginia, and Montgomery County, Maryland. Jeff Bezos already owns a home in D.C., and the Washington Post.

Amazon Web Services (AWS) already has a home in Herndon, VA, 10 minutes from Washington Dulles airport (second in Amazon employees). AWS has prominent government clients, including the CIA, and the government spend approximately 5% of the $1.6 trillion spent on technology each year.

Regulatory threat has increased as Amazon moves into financial, home security, logistics, healthcare, etc. It has already beefed up its lobbying, and having 50,000 employees and their children attending the same country clubs and schools as government officials is a shrewd strategy.

Also, having two headquarters makes a split from AWS and Amazon Retail much easier, if the company is ever divided due to antitrust laws.

“We Need Bullies: Chris Rock Speaks Truth to Weakness in Tamborine,” National Review, February 15, 2018, Kyle Smith

Who said it?: G.K. Chesterton, John Wayne, Jordan Peterson?

“We need bullies. Pressure makes diamonds. Not hugs. Hug a piece of coal and see what you get. You get a dirty shirt.”

“That’s why there’s so many fat kids in school right now—because there’s nobody to take their lunch money.”

Chris Rock, on his new Netflix special Tamborine.

“Hollywood’s New Matinee Idol: Karl Marx,” Kyle Smith, National Review, February 22, 2018

Haitian filmmaker Raoul Peck has done The Young Karl Marx. August Diehl as Marx and Stefan Konarske as Engels.

“A crashing dud.” 5.9/10 on Rotten Tomatoes

Critics Consensus: The Young Karl Marx makes a valiant attempt to make the philosophical cinematic, but lacks sufficient depth to tackle its complex themes. No one wants to watch a movie about a nerd scratching away at his desk. Marx did fight power: he was forced out of three countries.

The trailer shows him visiting a factory with a child labor: but Marx never set foot in a factory.

“He may have dreamed up a party, but he wasn’t exactly the life of it.”

“Quoting Marx puts audience in a state of enjoyment approximating winter in Leningrad.”

“Engels, a limousine liberal before limousines.”

Few will walk away with deeper understanding of Marxism or communism, sort of like reading his work.

March iTunes Reviews

Thank you to everyone who has submitted a review, it means the world to us. To review us on iTunes, visit - https://itunes.apple.com/us/podcast/soul-enterprise-business-in/id893874169?mt=2

Modern Sales Training  5-Stars by mlubbe78  March 11, 2018

This podcast has been a great way to continue to drip the ideas and methods of value pricing into my daily work habits. I run an eCommerce software agency, and my business partner, our Sales Director, and I share our sales and business development workload. Many episodes of this podcast have been shared between the 3 of us as we continue to work hard to develop our skills as pricers within the value prcing model. We’re about 3 years in and getting better with every customer interaction. I also appreciate the Free-Rider Friday segments. They’re a refreshing break from the deep value concepts, and also provide some excellent annecdotes from the present. Keep it up guys. Great stuff.

Great content, entertaining delivery  5-Stars by Tlm WM    March 13, 2018

These guys have great practical insight, refreshing they do it with humility, humor and practical experience. I even applied to my own business because what and how they explained was easy to digest. Great podcast.

Taking Down Trickle Down/and MANY others  5-Stars by Greg Lafollette, March 19, 2018

This review is way (WAY) past due. In the interest of full disclosure I must first tell you that Ron & Ed are both long time friends of mine. So there’s that. But—friendship aside, I will tell you that I consume a LOT of information via podcasts and my subscriptions often outstrip my available time to listen. When that happens, something has to give. Here’s the essence of my review: when something has to give, it is never, NEVER, TSOE. I may get behind a week or two occasionally but I always listen to every episode. These guys are smart, witty, have amazing domain knowledge, and are genuinely interested in improving the human condition—well, at least the professional services part of the human condition. Whether it’s emerging technology, value creation, pricing, the (dreaded) billable hour, or some fascinating tangent the show is always entertaining and enlightening. [NOTE: Except when Ed talks baseball—then it’s lights out for the rest of  that episode!] Keep up the great work gentlemen. You are deeply appreciated. gll

Episode #184: Interview with Professor Thomas Hazlett

Thomas Hazlett holds the H.H. Macaulay Endowed Chair in Economics at Clemson, conducting research in the field of Law and Economics and specializing in the Information Economy, including the analysis of markets and regulation in telecommunications, media, and the Internet.

He served as Chief Economist of the Federal Communications Commission, and has held faculty positions at the University of California, Davis, Columbia University, the Wharton School, and George Mason University School of Law. His research has appeared in such academic publications as the Journal of Law & Economics, the Journal of Legal Studies, the Journal of Financial Economics and the Rand Journal of Economics, and he has published articles in the Univ. of Pennsylvania Law Review, the Yale Journal on Regulation, the Columbia Law Review, and the Berkeley Technology Law Journal.

He has provided expert testimony to federal and state courts, regulatory agencies, committees of Congress, foreign governments, and international organizations. His latest book, The Political Spectrum: The Tumultuous Liberation of Wireless Technology, from Herbert Hoover to the Smartphone, was published in 2017, and The Fallacy of Net Neutrality, published in 2011.

The Political Spectrum: The Tumultuous Liberation of Wireless Technology, from Herbert Hoover to the Smartphone

By Thomas Winslow Hazlett

Buy on Amazon

Professor Hazlett also serves as Director of the Information Economy Project at Clemson University. His book, Public Policy Toward Cable Television, was co-authored with Matthew L. Spitzer (MIT Press, 1997), and He also writes for popular periodicals including the Wall Street Journal, New York Times, Reason, The New Republic, The Economist, Slate, and the Financial Times, where he was a columnist on technology policy issues, 2002-2011.

Ron’s Questions

Your Wikipedia says you were a child actor:

He was born in Los Angeles and grew up in the San Fernando Valley. In his youth, he attended Los Angeles city schools and worked as a child actor, appearing in TV shows such as McHale's Navy, The Monkees, and Land of the Giants, movies such as Walt Disney's "Follow Me Boys," and commercials for Wonder Bread and the Ford Torino. Having studied dance, he auditioned to join the traveling Bolshoi Ballet in Hollywood in 1962, but was rejected and ultimately studied economics instead.”

In your latest book is The Political Spectrum: The Tumultuous Liberation of Wireless Technology, from Herbert Hoover to the Smartphone, published in 2017, you write, "No natural resource more critical to 21st century than radio spectrum." Why?

You cite Cooper’s Law: wireless traffic doubles roughly every 2 years. We enjoy one trillion times the wireless capacity of networks than a century ago. Did I read that right?

How can the spectrum be “scarce”—and thus we need government regulation—if it has grown one trillion times?

You call it “The Wise Man Theory of Regulation”—the idea that the FCC can know “the public interest.” The price mechanism is very capable of allocating a scarce resource, we do it all the time. It’s superior to a centrally planned economy, as the USSR and other socialist failures have taught us. I love this line from the book, "It’s not the physics of radio waves but the economics of public choice [that help you understand this allocation process]."

The Political Spectrum chronicles the delays imposed on the market by the FCC from Cable TV, Satellite TV & Radio, FM radio, and cellular telephones. I’ll just ask you about one of those. Would you tell the story of Edwin Howard Armstrong, born in 1890?

One of the greatest inventors of the 20th century, largest shareholder in RCA for his patents on AM radio. He invented FM radio in 1933.

• FCC doubted it would work; incumbents argued against it.

• Finally, the FCC allows it in 1941, with 67 FM stations in operation.

• In 1954: Armstrong commits suicide.

• In 1960 FM rises from the dead; by 1979 FM listeners outnumber AM listeners.

 Is it fair to say that if net neutrality rules were in place in 2007, Apple could not have marketed the iPhone?

Switching to television, spoiler alert: I LMAO at this story in your book. You write about the most famous speech EVER given by an American regulator, in Las Vegas, on May 9, 1961 by FCC Chairman Newton Norman Minow [the “vast wasteland” speech” that equated broadcasters with drug dealers. The passive-aggressive response from TV broadcasters was in the 1964 debut on CBS of the TV show “Gilligan’s Island,” which mockingly named the stranded boat the S.S. Minnow].

You discuss how in 1961 Cox Cable offered 12 channels in San Diego for $5.50 per month, but the FCC delayed Cable TV competition for years. The FCC even squashed the Dumont Network in 1955, which had “The Honeymooners.”

Cellular technology was introduced in July 1945 but the FCC didn’t allocate spectrum until 1982, and granting licenses in 1989. You estimated the delay of licensing cost consumers $100 billion.

As you say, perverse regulatory consequences mean never having to say you’re sorry!

Ed’s Questions

1. How is your NCAA Bracket doing?

2. Regarding net neutrality: whenever both sides talk about this, a frequent metaphor is the road system or package delivery service. Do you think those are good metaphors, why or why not?

3. Whenever net neutrality emerges, I always get two images in my mind: two tennis players on different courts trying to playing each other, and both sides seem to talk past each other, not using the same language, etc., would you address that for a bit?

4. Is it too far fetched to say that the composition of the FCC is economically nearly as important as the Supreme Court?

5. Your former colleague, economist Bryan Caplan has coined the term “the political Turing test”: a challenge for you to argue for or against something making the best case for your opponents so they think you agree with them. What is your best argument in favor of net neutrality?

6. Have you seen any early positive or negative effects from the repeal of net neutrality?

Episode #182: How to Have a Value Conversation

Why is it so hard to have the value conversation? Two reasons: 1) Professionals are solutionists (Mahan Khalsa's great word), i.e., they jump to the solution, which is the antithesis of the value conversation; and 2) Professionals are afraid there is “no value,” what they offer is a “commodity.”

Yet holding a value conversation shouldn’t be difficult since both sides want to maximize value!

Ron confesses his early mistake in 1989: I did pricing in a vacuum. I didn’t have a value conversation. I fell in the trap explained by Karl Albrecht, "The longer you’ve been in business, the greater the probability you do not really understand what’s going on in the minds of your customers."

Resources

Ed’s blog post: “Without the Conversation, There is no Value Pricing.”

Ed’s presentation in South Africa on the value conversation.

South Africa Tour: Introduction to value-led pricing from Ed Kless

Mahan Khalsa’s Book: Let’s Get Real or Let’s Not Play

Let's Get Real or Let's Not Play: Transforming the Buyer/Seller Relationship

By Mahan Khalsa, Randy Illig

Buy on Amazon

Backward Bicycle Video

The four steps to move off the solution

1. Listen

2. Assuage

3. Move

4. Close

The Five Golden Questions—Getting to Value

First, recognize a “measurable” word:

• Revenue

• Cost

• Customer Satisfaction

• Quality

• Performance

• Productivity

• Et al.

Second, ask Mahan Khalsa’s Five Golden Questions

1. How do you measure it?

2. What is it now?

3. What do you want it to be?

4. What is the value of the difference?

5. Over time (usually one year)?

The Art of Questioning

Language was invented to ask questions. Answers may be given by grunts and gestures, but questions must be spoken. Humanness came of age when man asked the first question.

Social stagnation results not from a lack of answers but from the absence of the impulse to ask questions.

––Eric Hoffer, Reflections on the Human Condition

Naïve listening

Calvin Coolidge, said to be one of the country’s most laconic Presidents. When his successor as Governor of Massachusetts met him in the White House he is said to have asked the President how it was that he sometimes stays in the Governor’s office until 11:00 p.m. working and meeting with his designated appointments.

Yet, his aides inform him that when Coolidge was Governor he used to leave the office each day no later than 5:00 p.m. The successor asked Coolidge, “What’s the difference?” Coolidge responded: “You talk back.”

Listening is hard since we think faster than people talk. Talkers may dominate a conversation, but listeners control it.

Our favorite opening for the value conversation: Mr. or Mrs. Customer, we will only undertake this engagement if we can agree, to our mutual satisfaction, that the value we are creating is at least three (to ten) times the price we are charging you. Is that acceptable?

Sample Summary of Findings Report

Click here to access the sample.

Episode #181: Taking Down "Trickle Down"

Linguistics

Words and terminology change, we accept that fact. And indeed, even some proponents of supply-side economics describe it—positively—as “trickle down.” Even Rush Limbaugh does.

But the label doesn’t explain how economy works. Thomas Sowell once wrote something to the effect that it can take 23 pages to refute a bumper sticker, and that’s how we feel about this topic. It’s complicated, with a rich history that goes far beyond the “trickle down” moniker.

What is Supply-Side Economics?

Supply-side economics is perhaps one of the most misunderstood, and mischaracterized, theories in recent times. In reality, it’s quite simple, and very logical. Basically, capitalism is propelled by supply, not demand. Each actor in the economy has a dual purpose—that is, of producer and consumer. Which comes first?

People don’t consume in order to produce, they produce in order to consume. You don’t write a book because you acquire a computer; rather, you acquire a computer in order to write a book. Everyone knows, however, that their ability to consume, on the whole, is no greater than their ability to supply. In real terms, then, demand is supply.

Any buyer of a book, automobile, haircut or stereo pays not in the currency of demand—i.e., money—but from his own provision of goods and services to others.. 

When you obtain a haircut, you are simply trading some of your services as a CPA for those of a barber. Money is simply a convenience; it takes away the need for a “coincidence of wants” necessary in a barter economy. Money allows the trade to commence, even though your barber may not need CPA services at the time of your haircut. 

By focusing on money—that is, demand—we miss the real essence of what makes an economy work. The very idea of people as consumers is deceptive and patronizing, as people must supply first in order to demand later.

This is the reason supply-side models are unconcerned with spending and demand.  Rather, they focus on the producer by removing obstacles to production and trade.  Economist Jean Baptise Say coined Say’s Law of Markets: Supply of X creates demand for Y.

In other words, a society’s income can never exceed its output.

In this case, supply of lemonade creates demand for electronics.

If you’d like more information on supply-side economics, as well as the logic and history behind it, Ed and I have found the following books most helpful. We’ll provide some of the main point from each below.

"Trickle Down Theory" and "Tax Cuts for the Rich"

By Thomas Sowell

Buy on Amazon

 “Trickle Down” Theory and “Tax Cuts for the Rich”, Thomas Sowell, 2012

“No such theory has been found in even the most voluminous and learned histories of economic theories…”

In a syndicated column Sowell challenged anyone to name any economist who advocated a “trickle down” theory. Lots named someone who claimed someone else advocated it.

It’s a classic case of arguing against a caricature instead of confronting the argument actually made, very similar to the Strategic Defense Initiative vs. Star Wars.

President Franklin Roosevelt’s speech writer, Samuel Rosenman referred to:

“The philosophy that had prevailed in Washington since 1921, that the object of government was to provide prosperity for those who lived and worked at the top of the economic pyramid, in the belief that prosperity would trickle down to the bottom of the heap and benefit all.”

Much same argument was made by William Jennings Bryan’s famous “cross of gold” speech in 1896.

Economist John Kenneth Galbraith labeled supply-side economics by using “the-horse-and-sparrow” metaphor: The horse is fed oats, some will pass through to the road for the sparrows.

President Woodrow Wilson in a 1919 message to Congress actually understood the negative consequences of high tax rates:

The Congress might well consider whether the higher rates of income and profits taxes can in peace time be effectively productive of revenue, and whether they may not, on the contrary, be destructive of business activity…

There is a point at which in peace time high rates of income and profits taxes discourage energy, remove the incentive to new enterprise, encourage extravagant expenditures, and produce industrial stagnation with consequent unemployment and other attendant evils.

The idea that profits “trickle down” to workers depicts the actual economic sequence in the opposite order. In reality workers are hired and paid first, before any output, or indeed, profits.

The real effect of tax rate reductions: they make future prospects more favorable, leading to more current investments, more economic activity, more risk-taking, entrepreneurship, and jobs.

Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity, Brian Domitrovic, 2009

This is the first scholarly history of the supply-side movement based on primary sources.

The movement was enhanced by a bunch of renegade, mavericks, all under 40, such as Jude Wanniski (author of the fantastic book, The Way The World Works), George Gilder, Robert Bartley editor of the Wall Street Journal, Congressman Jack Kemp and his staffer Paul Craig Roberts, who did have a PhD in economics.

There were two academic economists: Art Laffer and Robert Mundell, the latter a Nobel Prize winner in 1999). Five other Nobel economists were also associated with Supply-Side economics: Robert Lucas, Edward Prescott; the pioneer in “public choice” theory, James Buchanan; and Milton Friedman.

Robert Mundell elaborated on tax cuts and stable money in 1971 at a talk in Italy. His Nobel address is a great statement of supply-side economics and its historical vision.

Mundell has a university in China named after him: Mundell International University of Entrepreneurship.

No one called it “supply-side economics” in the 1970s. Jude Wanniski referred to it as “The Mundell-Laffer Hypothesis.”

Herbert Stein, economist and father of Ben Stein (of Ferris Bueller’s Day Off fame) labeled the movement “Supply-Side fiscalists,” a term of mild derision. Wanniski liked it, and used supply-side economics instead.

In December 1974, at the Two Continents restaurant in Washington, D.C. Arthur Laffer drew his now famous curve on a cocktail napkin. Present were: Jude Wanniski, Donald Rumsfeld (President Ford’s Chief of Staff), and his deputy, Richard Cheney.

Paul Krugman in an article in the New York Times, “The Tax Cut Con,” Sept 14, 2003: “Supply-side economics was a political doctrine from Day 1; it emerged in the pages of political magazines, not professional economic journals.”

This is untrue. From Day one it emerged on the pages of the IMF Staff Papers. And with Mundell’s presentation of a paper in 1958 to a Stanford faculty seminar, including the editors of the American Economic Review.

The Laffer curve is nothing more than a common sense view of taxation that comports to reality—that is, there are two rates that will bring zero revenue to the government: 0% and 100%. The crucial rate, to the supply sider, is the marginal rate, not the effective rate—the rate that applies on the last dollar earned, since it affects the decision to invest.

If you subscribe to the logic that 0% and 100% will generate the same level of revenue, that logically leads you to conclude that the power to tax is, indeed, the power to destroy. Thus, every human undertaking, short of breathing, can be destroyed by taxation.

Britain, in the 1970s, had a top marginal rate of 98% on investment income. At a time when England was in economic decline, there were many Rolls Royces on London’s streets. This was mistaken as a sign of prosperity, when in fact it was a sign of confiscatory tax rates on investment income. It simply made more sense to consume than invest.

There are basically two effects from reductions in marginal tax rates (as opposed to tax revenues):

• Income Effect—people have more money, so they work less (a target income theory).

• Substitution Effect—work pays more relative to leisure, so people work more.

The argument is over which effect dominates. If it were true that people worked harder, in order to achieve a “target level” of income—even at tax rates approaching 90%--then we should tax the poor and lower-to-middle income workers at these rates in order to encourage them to work more.

This is nonsensical and is not consistent with human behavior—the way to get people to work harder is to raise their taxes! One wonders what workers would do if employers proposed the same work at reduced wages? Once you understand that additional effort often requires increasing rewards, then you have the basic logic behind supply-side economics.

This could explain why Americans work more than Europeans?

Unbelievably, this same argument is used for savings—that is, people have a “target level” of savings they want to achieve, and by lowering the tax rate they will achieve it faster, and therefore consume the excess. This also does not comport to human behavior.

Andrew W. Mellon, Taxation: The People’s Business, 1924

Incomes over $300,000

         Year    Rate    Taxes paid at progressive rate          Returns filed

         1916    7%                 $81,404,194                                1,296

         1921    77%              $84,797,344                                 246

In 1921, over 80% of those earning over $300,000 disappeared!

There were 206 millionaires in 1916; tax rates rose, then there were 21 in 1921! After rates dropped, they climbed back to 207 by 1925.

How did the rich avoid tax? Tax-exempt bonds, etc. Congress enacts the high tax rates, then creates the loopholes that allow the wealthy to avoid those high rates. Why?

So they can engage in class warfare rhetoric for votes, and continue to receive Donations from the wealthy.

Wealth and Poverty, George Gilder, 1981

The source of the gifts of capitalism is the supply side of the economy.

Even Marx knew enough not to stress control over the means of consumption! (or even the supply of money).

Every economy has unlimited demand, but there is no demand for new or unknown goods.

Say’s Law (supply creates demand) was not only refuted, it was implicitly reversed, with cause and effect hopelessly confused in the proposition that demand creates its own supply—“take and you will be given unto.”

Buying power does not essentially “trickle down” as wages or “flow up” and away as profits and savings. It originates with productive work at any level. Give and you will be given unto.

Consumption doesn’t need encouragement; production does:

“Even in the short run real aggregate demand is an effect of production, not of government policy. The only way tax policy can reliably influence real incomes is by changing the incentives of suppliers. By altering the pattern of rewards to favor work over leisure, investment over consumption, the sources of production over the sumps of wealth, taxable over untaxable activity, government can directly and powerfully foster the expansion of real demand and income. This is the supply-side mandate.” 

Say’s Law and the Keynesian Revolution: How Macroeconomic Theory Lost its Way, Steven Kates, 1998

Kates is the Chief Economist at the Australian Chamber of Commerce and Industry.

John Maynard Keynes tried to refute Say’s Law, but misunderstood and misrepresented it.

Say’s Law: the proposition that failure of effective demand does not cause recession. Your demand power is determined by your supply power. Production is the cause of consumption, not its consequence.

Kates writes that even Sowell failed to understand the core meaning of Say’s Law in his book, Say’s Law: An Historical Analysis, 1972.

Say’s Law declared that demand would never fall short of properly proportioned supply.

Ron equates this using this example: Children are demand-side economists, while parents are supply-siders.

Jean-Baptise Say: “It is the aim of good government to stimulate production, of bad government to encourage consumption.”

Say was the French Adam Smith who coined the term entrepreneur (undertaker), loosely translated as “adventurer.”

Other Resources

John F. Kennedy’s address to the Economic Club of New York on December 14, 1962

Comedian Tim Hawkins: The Government Can

Ben Stein in Ferris Bueller’s Day Off, boring his students in economics