‚ÄúI spent most of every day thinking about liquidity, talking about liquidity, looking to the heavens and pleading for liquidity.¬† My kingdom for liquidity.‚ÄĚ¬†‚Äď Phil Knight, Shoe Dog
For those who don‚Äôt know, Phil Knight is the co-founder of Nike. The global business he created is presently worth $115 billion, but was once so impoverished that there was no money to repair the broken windows at the company‚Äôs ‚Äúheadquarters‚ÄĚ above a bar in Portland. So poor was Nike that Knight worked as a part-time accounting professor to pay his family‚Äôs bills since he couldn’t collect a salary from Nike (actually, Blue Ribbon then) until well into the business‚Äôs existence.
Knight‚Äôs story is instructive. It cannot be read enough for it telling readers of all ideologies how crucial is liquidity to the survival of a business. Hard as it is to imagine, Knight spent nearly every night of Nike‚Äôs first eighteen years fearful that the next day would be its last due to a lack of funds. There are quite simply no entrepreneurs, no businesses, and no jobs without liquidity, and no fancy economic theory or School of thought can get around this truth. Businesses need capital to remain in operation, but it‚Äôs exceedingly hard to find for all but the bluest of blue chips. Investment bankers are paid very well for a reason.
All of the above rates mention in consideration of Treasury secretary Steven Mnuchin‚Äôs recent assurance to the New York Times that the tax cuts being planned by the Republican Party are ‚Äúspecifically focused on the middle class and not beyond that.‚ÄĚ Mnuchin‚Äôs promise of sorts is further evidence that ‚ÄúRepublicans‚ÄĚ and ‚ÄúStupid Party‚ÄĚ pair very well together. Mnuchin‚Äôs admission to the Times is an unwitting one from the Treasury secretary that the GOP is set to expend enormous political capital on a tax cut that will have nothing to do with actual economic growth. That‚Äôs the case because the middle earners who will surely benefit (and should benefit) from Congress‚Äôs shorter fingers will likely spend a high percentage of the dollars not taken from them by their minders in Washington.
Ok, but wait a second‚Ä¶Isn‚Äôt consumption the driver of all economic growth? Don‚Äôt ‚Äúeconomists‚ÄĚ tell us that consumption is 2/3rds of GDP? They sure do, but then economists also tell us near-monolithically that the maiming, killing and massive wealth destruction that was World War II actually stimulated the U.S. economy. Economists make the astrology profession look serious. That they believe consumption powers economic growth is yet more evidence of how distant their theories are from actual reality.
Back to reality, consumption is an effect of economic growth, not a driver. As individuals we all have endless consumptive desires but we‚Äôre only able to fulfill them insofar as we produce first. Our production is an effect of investment; the more invested in us the more that we can produce. If readers doubt this, imagine how small the U.S. economy would be today absent the car, the computer, and WiFi. All three were the result of savings and investment that have massively increased individual productivity.
It‚Äôs a waste of words so obvious is it, but investment wrought by savings is always and everywhere the driver of economic growth. The more that‚Äôs invested in us, the more that we‚Äôre capable of producing. Economists typically turn the basics of economic growth upside down.
Crucial about the actual driver of growth is how it explicitly reminds the mildly sapient of how important the rich and superrich are to economic growth. They‚Äôre intensely important precisely because they can‚Äôt possibly spend all of the money they have. This is true whether they work or whether they‚Äôre the picture definition of idle. As the great Steve Forbes puts it, ‚ÄúWhile the rich may be idle, their money never is.‚ÄĚ That‚Äôs why it‚Äôs so important that the wise in the political class make it their unrelenting policy goal to reduce the tax burden as much as possible on those with the most: they should do so because the rich, by virtue of being rich, have so much money.
While middle earners will once again consume what Congress laughably presumes to ‚Äúgive back‚ÄĚ to them, the rich will save what Congress doesn‚Äôt expropriate and invest it. There‚Äôs your growth. And if such a basic truth is doubted, readers need only consider Phil Knight once again. His daily worry for eighteen years was a lack of liquidity to keep his entrepreneurial vision afloat. Nike nearly died, and the unseen when Nike is considered is the millions of companies that have died over the years thanks to a lack of funds.
To reduce taxes on the rich is to increase the amount of investment (liquidity) without which there are no companies and jobs. To quote Steve Forbes yet again, ‚ÄúWhile the rich may be idle, their money never is.‚ÄĚ In that case, readers would be wise to forget their excitement about class struggle and shrinking liberty, all the while channeling their energy into the generation of economic progress. There‚Äôs quite simply no progress without investment, and the rich have investment funds in spades.
The shame of course is that the lefty class warriors can‚Äôt be blamed this time. Though the Republicans have control of the White House, House and Senate, it‚Äôs apparent they‚Äôre yet again afraid of their own shadow. They don‚Äôt want to be seen ‚Äď gasp ‚Äď cutting taxes on the rich, so they instead promote economically worthless ones.
The bigger shame is that as the GOP and Mnuchin talk up tax cuts for middle earners, Democratic senators like Ron Wyden tell their media enablers that the Republican tax cuts will only help ‚Äúcorporations and the donor class.‚ÄĚ Basically the Republicans aim to shrink tax rates for the middle class even though they‚Äôll be blamed for reducing the rates levied on the rich. The Republicans want nothing for something. Stupid Party indeed.