In a famous exchange, Austrian economist Friedrich Hayek was asked, "Is it your view that if I went out tomorrow [with a government subsidy] and bought a new overcoat, that would increase unemployment?" "Yes," answered Hayek, "but it would take a very long mathematical argument to explain why."
Minus the math, Hayek's argument was that money would be removed from the productive economy, and capital would be wrongly allocated to overcoats based on this false demand. Substitute Chevy Volts and you get the picture.
Yes, the wealthy, most of whom got rich by risking capital and delivering something productive to the economy, tend to save more. But they don't shove it under the mattress, they invest it in the productive fabric of the economy. The president's rhetoric harps on the notion that millionaires and billionaires don't "need" the money from a tax cut. But think of it this way: They, like Henry Ford, have proven that they can invest the money productively—better than any government program—whether directly into companies or into stocks, private equity or venture capital that create long lasting jobs and expand the middle class.
Some would call this supply-side economics. President Obama on the campaign trail calls it "trickle-down snake oil," even "fairy dust." I like the term i-side economics—for investment and innovation and individual incentive—rather than g-side economics, as in "what has the government given me lately?"
Perversely, class warfare hurts the group it is alleged to help. [emphasis added] For every dollar of stimulus or government spending paid for by the half of the population that pays taxes, you take away a dollar that might have been invested in creating higher-paying jobs. That's just dumb. Misallocating capital is a formula—a negative multiplier—for stagnation, not growth.
