1. high investment taxes which make it riskier for the investor to put his money into process initially.
2. our monetary system which changes the value of the dollar according to the whim of the Federal Reserve Board — this is a little more complicated but the effect on manufacturing is that it changes the cost and price of the raw material unpredictably in the middle of the production process, so a manufacturer can lose money from the currency swings. Increases risk.
3. high taxes on the output. The government takes at certain points in this process: in sales tax on the material, income tax from the worker, sales tax on the finished good, and capital gains tax on the investor. The money from this may be put to good uses, but every bit of it increases the risk on the initial investment.
4. environmental or other regulations. Some of these are good, like clean water, but I believe global warming is a hoax so that’s not worth it in my book. But others specifically oppose taking raw materials as earth rape and seek to stop such work by jacking up the costs. No raw materials, no manufacturing.
#2 is the basic change in our time, which has led to all the downward pointing indicators since the early 1970s. Before this the dollar was linked to a physical commodity — gold — and that is why physical production was at least not disfavored. Once we decided to allow human beings to manipulate the dollar for goals (which at the time were deemed socially beneficial) we favored the financializers who played these dollar manipulations at the expense of physical manufacturers.
The Democrats little part in this is to favor inflation in order to eliminate the debts of their poor(er) constituents. This is what William Jennings Bryan was about. I believe that Bryan was right about farmers getting the shaft from the system, but his idea of what to do about it was wrong and that’s why he lost. But the impulse is still there. The result however has been the erosion of middle class lives by cutting salaries and wages through inflation. Many of the weird cultural efforts of Democratic-types (single moms are great, being poor isn’t so bad, having kids is wrong, etc.) are attempts to rationalize things that indicate our collapsing standard of living.
justice4all says
You’re forgetting a few things…
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p>1. Our monetary system is market-based…this isn’t China or Venezuela. And yes, the decision to go contractionary or expansionary changes our interest rates…but it’s a response to the market, unemployment and the economic conditions of the nation. It’s what strong, independent, national banks do.
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p>2. Favor inflation? Ah…not quite. How do you think “inflation eliminates the debt of their poor constitutents?” That doesn’t make any sense…inflation drives interest rates up, which increases the cost of borrowing. The only ones benefitting from inflation are the “savers”, not the poorer constituents. No one favors inflation, which can be a response to an extended expansionary period. The thing you also want to avoid is deflation, which will kill an economy just as quickly.
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p>3. Inflation. http://www.usinflationcalculat…
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p>4. Taxes at various points along the manufacturing chain. Yes – they pay taxes on goods (like everyone else), and then collect the tax at the sale…but there are also tax credits and other manipulations along the way, depending on the industry. Investor pays capital when he/she sells their shares, and have a profit.
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p>5. Environmental issues are real. It’s less about raping the earth than destroying the workers with chemicals. Black lung is real. The Bhophal disaster was real. Cancer clusters are real. Not sure what you’re getting at here.
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p>You also need to explain the “high investment tax” thing, making it riskier for the investor?
seascraper says
Well thanks for writing.
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p>Theoriteically the strong central bank was supposed to resist calls for loose money from Democrats. The automatic nature of the Bretton Woods system, which linked the dollar to gold, made it hard for the central bank to loosen during periods of contraction, because doing so simply drained off your gold reserves. It was embarrassing.
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p>On a more general level the strong central bank sees its place as opposing the population, especially in times of growth. I think this is elitist and certainly the wrong approach in a democracy, as well as needless and miserly.
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p>During Bryan’s age, the farmers went into debt before each growing season, and this still happens. During inflation, they take out a fixed amount of money, and pay it back with dollars worth less than those they borrowed. Therefore the creditor loses the difference.
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p>You are right that rates go up, but only on the next loan.
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p>This is simple: the calculated return on your investment will have to take into account the taxes. If you want to clear 10% after the investment, the taxes make it less likely. If you make it harder for the investor to get the return they want, they are less likely to put the money in in the first place.
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p>Again wages and salaries increase by applying capital to the job of the laborer. A man with a $1M bulldozer moves much more dirt than a man with a $12 shovel, and consequently makes a lot more money.