Grandpa Lake’s Weblog

Why does the government (any government) collect taxes? The answer should be obvious. Government cannot create money. To get money, government must take it from someone who creates it.  You cry, “Foul! The government creates money all the time.”  No, the government prints money.

There’s a difference. Printed money has no value of its own. Money created by the production of goods and services is in circulation.  If the government put white strips of paper the same size as money into circulation, anyone given a strip of paper would be able to tell what is real money and what is phony money because they’d look different.  They’d reject the white strips of paper.  If however, the strips of paper are made to look like money, those taking money can’t tell which strip is real money and which is phony money.  They have to take any piece that they are given.  Each piece, therefore, has the same value and the money that is earned by the production of goods and services has less value.   The money supply is inflated by nothing of value. That’s why it’s called inflation. Because the money that is earned loses value through inflation, the printing of money is just another way of taxing the production of goods and services.

All people are consumers. We consume the value of money by buying those things that we need and that we want. Some consumers are also producers. These people produce things that people consume. People whose income depends on others being taxed are pure consumers. In this group are many government employees, people on Social Security and other forms of welfare.

Those government employees who provide a service that has value include those in the military and those who maintain our infrastructure. Government employees whose task is to redistribute money taken in taxes to those who don’t produce goods or services are in the same category as the welfare recipients, for if the non-producers didn’t receive taxpayer money, those government employees wouldn’t be needed either.

Whenever goods and services are taxed, for whatever purpose, that tax money cannot be used to produce the goods and services that they otherwise would have produced. When the government provides jobs, even when those jobs provide a service to the community, the money generating part of the economy suffers because of the tax money that is required to pay for those government jobs. Government can only redistribute the money that other people earn.

When the solution to unemployment in the productive sector of society is for the government to provide jobs, we begin the following cycle:

Money to pay for government jobs must be taxed from those providing goods and services, thereby reducing the money available to provide goods and services. This will create more unemployment in that sector. More government jobs are created which will require the raising of taxes either directly or through inflation. This causes the money available to produce goods and services to recede. We call that a recession. The recession depresses the ability of consumers to buy goods and services and of the productive sector of society to produce them. Eventually, even those who receive taxpayer funding will find it difficult or impossible to buy what they need. This is called a depression. If you see that the solution to unemployment is more government jobs or handouts, go to the beginning of this paragraph, which says…

Otherwise, vote those who support Keynesian economics out of office. This includes all Democrats and most Republicans.  And, yes, there are other options.