A progressive regarding the world. Be careful what you buy from him!
(c) Can Stock Photo / ezumeimages
In my last essay I was only able to cover two of the major subsidiary lies progressives tell to both themselves and to others. By subsidiary I mean the falsehoods are told to buttress progressives’ ability to uphold their most fundamental offense to the truth, which is: Government actually has the capability to solve or ameliorate all social and economic problems without creating even worse problems. I discussed this fundamental lie in the post The Lies Progressives Tell (Especially To Themselves!). In my last post, More Lies Progressives Tell To Themselves, I debunked two of the supporting lies progressives often trot out in support of their policies. Those untruths were: first, that the ideological opponents of progressives and a large fraction of the American people are racists and fascists; and second, that free-markets encourage increasingly unequal income distribution. In this essay I want to continue the effort by rebutting four more progressive lies.
More Lies That Progressives Tell
What I will attempt to demonstrate in this section is that the following four statements are falsehoods propagated by most progressives. They are told particularly by their political, academic, and news media elites; and most particularly by politicians of the Democratic Party.
- American businesses are basically enemies of the American people; they must be closely regulated by the government.
- In economic bad times government spending is necessary to stimulate the economy.
- Because of tax breaks American businesses do not need and should not get tax cuts.
- Mankind is the cause of global warming because of its carbon dioxide emissions.
So here we go!
American Businesses Are Basically Enemies of the American People; They Must Be Closely Regulated By The Government
Here we get to the heart of the conflict between progressives and neoliberals. Progressives positively hate private companies, particularly large corporations, all of which goes along with their general distaste for free-market capitalism. Throughout the twentieth century, most Western intellectuals thought — erroneously — government planning for how economic resources were to be allocated was far more efficient and just than depending on free-markets to do the job. Progressive intellectuals never got over that enthusiasm, and have dominated the teaching of students in high school and university. The leftist domination of American higher education is something that can be rigorously demonstrated. The results of this leftist domination can now be found with the millennials being the only living American generation to be favorable toward socialism. In 2014 a Reason-Rupe poll asked of various age groups, “Would you say your opinion of Socialism is very favorable, mostly favorable, mostly unfavorable, or very unfavorable?“. Graphing the number of net favorable and net unfavorable responses versus age group gave the plot below.
Clearly, progressives have done a very good job in indoctrinating the younger generations that private companies are not to be trusted, but that government is. The obvious neoliberal retort is that although there must be some judicial recourse to companies ripping someone off, government has demonstrated it is even less to be trusted than corporations. Because the economy is a chaotic system, the economic agents (suppliers, sellers, or buyers) closest to the transactions defining economic activity are the best equipped to decide where capital is to be allocated and how much. The producers, sellers, and buyers of goods and services are best qualified to determine the quantity of goods sold at a particular price. They are the ones who can best maintain the supply-demand balances on which the health of the economy depends. As related in the post The Lies Progressives Tell (Especially To Themselves!), history has been very repetitive teaching the lesson that extensive government management freezes an economy into inactivity.
All of the foregoing is not to deny that there must be some government regulation of the private economy. The primary role of government is to defend the social contract. Mostly what this means in the context of the economy is that the government must defend the sanctity of contracts between economic agents. Enforcing contracts includes enforcing the requirement that products or services will perform as advertised. This enforcement is mostly part of the function of the courts.
In addition, government must protect us from what Garret Hardin, an ecologist at the University of California, Santa Barbara, called the Tragedy of the Commons. The Commons to which he referred were the common natural resources around us, particularly the air and water. Since the atmosphere, as well as waters and rivers that border private lands are accessible to all, they can be polluted by anyone’s emissions, which can threaten all living things. An extension of the social contract that prohibits or controls such emissions helps preserve not merely society, but living things in general.
Although American corporations exist purely to make a profit, the rules of the game require them to do this by producing wealth and income for their customers, employees and stock holders. They are not the enemies of the American people. Any progressive assertion that they are is a lie born from ignorance about social reality.
In Economic Bad Times Government Spending Is Necessary To Stimulate the Economy
Since progressive ideology is centered on the use of government power to solve economic problems, and since their Keynesian economic orthodoxy posits that any recession/depression is caused by free-market failures, progressives will always want government to get us out of trouble by having it allocate scarce economic assets. Ever since the days of John Maynard Keynes in the Great Depression era, Keynesian economics (the official economics of the Progressives’ Democratic Party) always blamed free-market failures for causing a big drop in economic demand. The Keynesian and therefore the progressive solution was always to substitute government demand for the demand of individuals and companies.
Yet if we look back at historic economic crises, they were seldom (if ever) caused by actual free-market failures. Instead, the causes more usually arose from the government’s actions. The Great Depression itself was not due to cut-throat corporate competition as many believed at the time, but to the monetary policies of the Federal Reserve, a government entity, which reduced the nation’s money supply by fully one-third over a few years time. More recently, the Great Recession of 2008-2009, which was proximately caused by the financial crisis of 2007-2008, was not due to the greed of bankers originating risky junk mortgages, but to federal government housing policy that forced those bankers to make those risky loans. The George W. Bush administration even saw the catastrophe coming and begged Congress to stop enabling Fannie Mae and Freddie Mac from requiring those mortgages be made. I cite a news cast of the time, embedded below, as evidence.
Note particularly Democratic Rep. Barney Frank’s reaction to the Bush administration plea. It is especially ironic since he co-authored the Dodd-Frank Act that has been so destructive to the financial industry.
In fact the wisdom of government allocation of scarce economic assets is always questionable, usually because politicians frequently use political reasons rather than economic to make those kinds of decisions. An excellent recent example of this was the federal investments in the solar power firm Solyndra, in which the government lost at least $535 million.
Because government generally does a very bad job in allocating economic resources outside of the immediate needs of government itself, using government spending to substitute for lost private demand is generally a very bad idea. This makes the progressive claim government spending stimulus is a good way to get out of a recession yet another progressive falsehood.
Because of Tax Breaks American Businesses Do Not Need and Should Not Get Tax Cuts
Progressives crave government power, and government runs on the fuel of taxes. For this reason, many if not most progressives have never met a tax they do not like (except for those on themselves, of course). It is no surprise then if the political Left is almost always resistant to the idea of tax cuts, particularly if the cuts are for that bête noire of progressives, the American corporation. One claim often made by them is most U.S. corporations use tax deductions and credits to reduce their taxes to almost nothing. Therefore, they conclude, instead of lowering corporate taxes, we should increase them, both by raising corporate tax rates and by eliminating tax deductions. You can find this progressive sentiment in posts all over the internet, for example here, and here, and here, and here.
Yet, these pronouncements are patently false, and it is easy in principle although arduous to demonstrate that. In order to investigate these assertions, I took the 500 companies of the Standard and Poors 500 as representative of American companies. For each of these companies, I obtained their earnings before taxes and their tax information for the year 2016 from the Morningstar.com website. Dividing their taxes by their earnings before taxes and multiplying by 100% then yielded their effective tax rate, taking into account any tax breaks they took.
A couple of special cases had to be taken into account. The first is if a company has more tax credits than taxes, in which case the taxes are negative (the government pays the company, not the other way around) and the effective tax rate is negative. The second case is where a company has no earnings, but an overall loss instead. In that case no meaningful tax rate can be defined; I ignored all companies with losses.There were 46 companies — or 9.2% — reporting losses. You know you are living in economic hard times when almost one-tenth of your largest companies can not make a profit!
After calculating the effective tax rates for all companies with profits, I produced the following scatter plot of companies’ effective tax rates versus their earnings before taxes.
What this plot tells us is that the vast bulk of S&P 500 companies have effective tax rates above the European average of 18.88% and below the U.S. nominal rate of 39% (35% federal plus 4% average state tax). Some 26 had effective tax rates above the U.S. nominal rate; 287 had rates between the European average of 18.88% and the U.S. nominal rate; 102 had rates between 0% and the European average; and 39 companies had negative tax rates, i.e. the government paid them money because of tax breaks. The remaining 46 companies in the S&P 500 had losses rather than profits, and a meaningful effective tax rate could not be defined for them.
A little addition then shows that of the 454 companies for which tax rates could be defined, 313 or 68.9% had effective tax rates above the European average. Companies with effective rates below the European average were 141 or 31.1%. Almost seven-tenths of U.S. companies are at a severe competitive disadvantage with European companies just because of taxes. Concerning the American corporate tax burden in 2016, the Tax Foundation writes,
It is well known that the United States has the highest corporate income tax rate among the 35 industrialized nations of the Organisation for Economic Co-operation and Development (OECD). . . . Expanding the sample of countries and tax jurisdictions to 188, the U.S.’s corporate tax rate of almost 39 percent is the third highest in the world, lower only than the United Arab Emirates’ rate of 55 percent and Puerto Rico’s rate of 39 percent. The U.S. tax rate is 16.4 percentage points higher than the worldwide average of 22.5 percent and a little more than 9 percentage points higher than the worldwide GDP-weighted average of 29.5 percent. Over the past ten years, the average worldwide tax rate has been declining, pushing the United States farther from the norm.
With such huge U.S. corporate tax disadvantages, it is no wonder so many jobs and so much production has been off-shored to other countries. These facts also help explain why so many U.S. corporations have abandoned the United States to re-establish themselves as foreign companies through corporate inversion.
Then there is the problem of the U.S. world-wide tax system. What this means is that U.S. multinationals pay taxes on the income to the country where they earned it, and then if they bring those profits back to the U.S., they pay taxes on them yet once again to the U.S. federal government. Almost every other developed country in the world has what is called a territorial tax system in which they only tax corporate income earned in their own territories. This fact presents a huge disincentive to U.S. multi-national corporations from repatriating foreign profits. The disincentive has motivated such companies to hold financial assets overseas that were valued at $2.1 trillion in 2014. A more recent estimate was $2.6 trillion. If U.S. multinationals could be persuaded to bring a large fraction of those assets back into the U.S. and invest it, those investments could mean a huge increase in economic growth. Federal Reserve data shows third quarter annualized GDP to be $19.5 trillion, so the $2.6 trillion of overseas assets represents 13.3% of our entire GDP!
If we want to bring back jobs from overseas, stop the migration of our companies to foreign countries, sell more to international markets, and increase our economic growth rate, we must drastically reduce our corporate tax rates to at least the European average of 18.8%, and to change our world-wide tax system to a territorial one.
Can there be any doubt the progressive claim that our companies do not need both tax reform and tax cuts is an out and out lie?
Mankind Is the Cause of Global Warming Because of Its Carbon Dioxide Emissions
This falsehood is very different from the previous ones, as it is not an untruth about social reality, but about physical reality. Nevertheless, its utility for the progressives is that it gives them an excuse to centralize ever more power, particularly economic, in the state. You will often read or hear progressives proclaiming that 99% (or 97% or 98% or 99.9%) of all experts on the worlds climate agree that Anthropogenic Global Warming (AGW) exists. Yet this statement is itself a lie. One example of such a claim is a study by Australian climate activist John Cook from the University of Queensland, which claimed “97% of scientists affirm AGW.” After deconstructing Cook’s study, UN IPCC Lead Author and professor at the University of Sussex Dr. Richard Tol found that of the papers examined by Cook, only 64 papers out of about 12,000 supported the alleged “consensus.” Instead of there being a 97% consensus, only 0.53% agreed with AGW! Yet another study of 1800 scientists showed 43% — less than half — agreed with AGW, while 57% believed factors other than man were more important. You can find my own list of some of the more prominent critics of AGW in the post The Great Global Warming Scam. In addition, you might be interested in viewing a number of videos of prominent scientists showing their objections to AGW, which I have embedded in the post What Consensus on Anthropogenic Global Warming?. In particular, you might be interested in the video with the testimony of Dr. John Christy before the House Natural Resources Committee on May 13, 2015. Toward the end of the question and answer period, Christy debunks the “97% consensus” figure.
I have a very great suspicion that those physical scientists who support AGW do so for fear of losing the government contracts supporting their research. Any physical scientist with the least amount of knowledge of thermodynamics could easily demolish the AGW theory. The basic problem is that there is not anywhere close to enough atmospheric CO2 at 400 parts per million (or 0.04% of the atmosphere) to do any significant heating. Adherents of AGW have known all along that there is entirely too little atmospheric carbon dioxide, and that CO2 molecules could absorb only a minuscule portion of the available thermal spectrum, to do the bulk of the atmospheric heating. Instead, they envisioned carbon dioxide as a trigger to a feedback mechanism that would amplify the CO2‘s effect. The modest amounts of CO2 heating would cause increased heat flux into the oceans, raising their temperatures and creating increased water evaporation. The increased water vapor, being a much stronger greenhouse gas, would then strongly heat the atmosphere. That is their theory, anyway.
However, one knows from thermodynamics that there will be heat flow between any two parts of a thermodynamic system — from the warmer part to the colder — until the temperature of the two parts equalize. Then the heat flow ceases. However, taking known values of how much thermal energy can be held by both water and carbon dioxide per unit mass of the material (specific heat capacity), together with the mass of water in the oceans and the CO2 in the air, we can get an order of magnitude estimate of how much ocean temperatures would rise with energy flowing into the water from the atmospheric CO2. The answer is on the order of 10-7 to 10-6 °K, a truly insignificant amount. Absolutely no additional ocean water could be expected to evaporate into the air with such an unmeasurable temperature increase, and the AGW model fails. The specific heat capacity of water is greater than that for CO2 but the largest single reason for the conclusion is that there is so much more mass of oceanic water than there is CO2 in the air. This picture is developed in somewhat greater detail in the posts Thermodynamic Interactions of the Oceans With the Atmosphere and Thermodynamic Effects of Atmospheric Carbon Dioxide Revisited.
In point of fact, the Earth has entirely too little atmospheric carbon dioxide for the health of plant life. It has been shown experimentally that plants generally grow better with CO2 concentrations north of 1200 parts per million. In fact, if you were to plot average global temperatures and atmospheric CO2 concentrations over the past 550 millennia, derivable from glacier ice cores and marine sediments, you would get the plot shown below.
At the time of the greatest explosion of life on Earth 540 million years ago, the Cambrian Explosion during the Cambrian period of the Paleozoic Era, carbon dioxide in the air peaked at almost 7,000 parts per million. Why, then, should we worry about a paltry 400 parts per million today?
The progressive claim that man is the cause of global warming is a most egregious and cynical lie, told for the purpose of centralizing more economic power in the government. For some of the actual, natural causes of global warming see the posts Solar Wind, Cosmic Rays and Clouds: The Determinants of Global Warming and The Complexity of Atmospheric Physics.
The Consequences of Lying
When anyone lies to everyone else about fundamental aspects of reality, they can expect eventually to lose all credibility as others catch on to the duplicity. But if at the same time you are lying to yourself, you can expect Reality to take a big bite out of you. It might just eat you alive. If progressives can not amend their ideology to be a better map to reality, it is hard to see how they can reverse their political fortunes for a significant period of time.
Berner, R.A., 2001, “Modeling Atmospheric Oxygen Over Phanerozoic Time”, Geochimica et Cosmochimica Acta, v. 65, pp. 685-694.
Boucot, A. J., Xu, C., and Scotese, C. R., 2004, “Phanerozoic climate zones and paleogeography with consideration of atmospheric CO2 levels”, Paleontologicheskiy Zhurnal, v. 2, pp. 3-11
Ehleringer, James R., Thure E. Cerling, and Dearing M. Denise, editors. A History of Atmospheric CO2 and Its Effects on Plants, Animals, and Ecosystems. New York. Springer Science+Business Media. 2005
Scotese, C. R., 2001, “Paleomap Project”, http://www.scotese.com/climate.htm