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A Rational Advocate
"The most formidable weapon against errors of any kind is reason"
Obama shows his economic ignorance on 60 Minutes
By Ben Cerruti on December 14, 2011

On last night’s edition of 60 Minutes, President Obama showed his complete ignorance of basic economics. Evidently he has not been exposed to the following simple economics equations that apply to both businesses and government.

For Business: Capital X Turnover = Gross Income

For Government: Money Supply X Velocity (turnover) = Gross Domestic Product (GDP)

Obama ignorantly intimated that the overall income tax revenue collected was static so that for those Americans with lower incomes to benefit from tax cuts, more taxes had to be collected from those with higher incomes. Hence, he completely ignored the fact that the increased turnover (velocity) of capital can increase income with accordingly increased collected tax revenue. Thus by not raising higher marginal income tax rates the capital allowed to remain in the private sector can be utilized to expand businesses that will create additional income and attendant increased tax revenue.

Relative to Government, the following charts vividly show that GDP has only been able to show growth because the Federal Reserve Bank pumped up the money supply. This was done in order to try to offset the decline of velocity which is at its lowest level in decades. Common sense should tell us that it is necessary to increase the turnover (velocity) of capital in the private sector to create desired prosperity. The only way this can be done is to provide certainty to the business community that marginal tax rates will at least stay where they are for the present and foreseeable future.

m2 (24K) velocity (26K)

With this demonstration of economic ignorance it is no wonder that our economic malaise continues on. It appears the only way to begin to get our economy back on track is to replace Obama, who has had no exposure whatsoever to business in the private sector with someone who has.

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