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Keynesians believe that you can create economic growth by spending government money. The goal of government spending is to increase aggregate demand. If just increasing demand was the way to increase economic growth, then stealing would also create economic growth. Now you make object that government spending is not like theft. The recipient of the government money did not break any laws when receiving government money, but from an economic point of view the recipient did not provide any economic value for the goods or services they received from the government money and the same is true of the thief. The thief may have expended effort to obtain the money to buy various goods and services, but they did not exchange anything of economic value. Thus, neither the thief nor the recipient of government money provide any economic value for the items they receive because of their theft/welfare. As a result, theft should provide the same economic benefits as government stimulus programs. Since increasing aggregate demand is the goal, thieves perform this function admirably. Most thieves do not save their money and they do not invest, they spend their money – this is part of what makes them thieves. This ensures that the stolen wealth is immediately converted into demand (spent), which is good according to Keynesians. Money that is saved or invested does not immediately increase aggregate demand, which is the cause of economic slowdowns according to Keynesians.
Economic growth or wealth is not created by spending, but by increasing the technological level of the country. If spending (consumption) created wealth, then a farmer could get rich by eating their seed corn. This is complete non-sense. Only by creating inventions or by investing in other people’s inventions can a country increase its per capita wealth.
There are three ways that the government can take money from productive people and give it to non-producers to spend. The most straight forward is to (immediately) tax it from producers. In this case, it is clear that the government is taking money (productive effort) from productive people and giving it to non-producers of the wealth. This is exactly what a thief does. We know that this is not a 100% efficient process, since there is the cost of collecting (stealing) the wealth of the productive people and giving it to non-producers. This requires numerous government bureaucrats and effort on the part of honest taxpayers. However, this is not the only loss in the transfer of wealth. The government has substituted its judgment or worse the judgment of non-producers for producers in how to allocate wealth (productive energy). This means we are substituting the judgment of people who have not proven the ability to create wealth for wealth producers. We know that most of the recipients will not invest in creating new technologies or diffusing new technologies, as result we know that this money will not result in an increase in economic growth. Note that government statistics will not show the whole result of this decrease of economic output, since government statistics of economic output measure consumption, not production. The Gross Domestic Product is calculated as GDP = private consumption + gross investment + government spending + (exports − imports). At first this formula would appear to balance out government spending and gross investment, but the government can only measure spending, even for gross investment. As a result, when government steals from producers this does not show up as a decrease in gross investment if the producers do not believe that the present climate is not conducive to investment. This is like the government forcing a farmer to eat or give away their seed corn, it does not show up as a net reduction in planting (investment) until later, but it does show up as private consumption. As a result, government stimulus numbers inflate the GDP incorrectly during a stimulus program and under estimate the GDP in times of private sector growth.
The government may borrow or use inflation to fund its stimulus programs. When the government borrows money or causes inflation the overall result is the same, but the mechanism is different. If the government borrows in order to pay for its stimulus program, then this reduces the amount of investment capital available and reduces private sector investment by crowding out investment dollars. It also increases the cost of labor, goods, and services by creating artificial demand. In addition, it results in higher tax rates than would otherwise be necessary in order to pay back the money borrowed reducing long term growth. Inflation is just a way of taxing (stealing) from everyone’s paycheck, savings, and investment. The net result is to transfer money from productive people to unproductive people. Since inflation does not immediately show up in the Consumer Price Index, it artificially inflates the GDP during stimulus programs at the expense of future economic growth. Inflation does not immediately show up in the CPI because the government measures the CPI at distinct intervals and because the CPI does not distinguish between changes in demand and inflation (an increase in the amount of money). Much like the way the government measures GDP, the CPI understates the inflation during times of economic contraction and overestimates the CPI in time of economic growth. Increased demand for products and services during a time of economic growth shows up as inflation in the CPI numbers, while decreases in demand during recessionary periods shows up as deflation or low inflation in the CPI numbers.
Now some people may complain that the people being taxed are not (necessarily) producers. For instance, the banks that were bailed out by TARP or the carry trades created by the Federal Reserve, or other corporations (GM, Chrysler, GE, etc.) bailed out by the government. However, the government cannot fund itself except by taking money (wealth, productive effort) from producers ultimately. Taxing government leaches results in a circular system that is negative sum game that would collapse very quickly, but for producers. Taxing non-productive entities does not change the basic analysis above.
Now other people may complain that Keynes actual theory was for the government to store reserves during times of economic prosperity and then spend the reserves during economic downturns. While this may be preferable to a spendthrift government, such as the U.S. presently, it does not change the overall analysis. It just means that during times of economic prosperity, government is overcharging, has a higher tax rate than necessary. This results in underinvestment in technological, which means a lower rate of economic growth rate in the future. In economic downturns, Keynes still advocated spending on things that created immediate demand, not on investing in inventions. Such as paying people to dig holes and then filling them up. Thus, this also lowers long term economic growth. Finally, Keynes did not take into account the large overhead (entropy) necessary to take this money away from productive citizens.
Stimulus programs overinflate the GDP while the stimulus money is being spent, by ignoring the decrease in investment capital. This decrease in investment capital results in lower long term economic growth, since it means there is less money (wealth) to invest in new technologies in the future.
Not surprisingly, this also results in higher unemployment rates. There was a recent study by Timothy Conley from the University of Western Ontario, Canada Economics Department and Bill Dupor of Ohio State University which showed that the U.S.’s recent stimulus program killed two private sector jobs for every job saved or created. This is just one of many examples that shows Keynesian economic theory is truly VODOO ECONOMICS
IF KEYNESIAN THEORY WORKED, THEN THEFT WOULD INCREASE GDP AND WEALTH.
 For those engineers and people with a mathematical background saving is like a capacitor (integrator), draining the capacitor increases the short term current, but reducing the current in the future.
 Even if the money is borrowed from foreign investors, it reduces the amount of investment capital. It also reduces the willingness of foreign investors to invest inU.S. companies.
 A carry trade is when the Federal Reserve allows banks to borrow money at a lower interest rate than they can loan it out at (risk free). The most egregious example is when political powerful banks (corporations) can borrow from the Federal Reserve at a lower rate than short term Treasury Bills are yielding. This takes absolutely no intelligence to make huge amounts of money, as long as the Federal Reserve will loan out money. This is how the TARP banks have been able to pay back their TARP loans. However, it is just a fraud and the cost of this fraud is being paid for by the American taxpayer/worker.
This article is from the Golden News explains the problems with the America Invents Act.
Senator Coons recentlywrote about a looming crisis in America — a record backlog of patent applications at the U.S. Patent and Trademark Office. While Senator Coons is 100% correct about the importance of innovation to our economy, and about the foolishness of continuing to allow this backlog of patents to cripple American job creation, he is 100% wrong about H.R. 1249, the America Invents Act. Unfortunately, the authors of this bill are using the funding issue and the patent backlog crisis to implement radical changes on our patent system, which is the very engine of American job growth. This unconstitutional legislation will create new problems for our nation’s inventors, entrepreneurs and our economy.
In the name of harmonizing our laws with other countries, Congress is about to dramatically diminish the patent protections offered to American innovators over the history of our Republic. If this globalist maneuver succeeds it will severely weaken our patent system and America will have lost the value of its greatest asset: the creative genius of our people. This is no joke. S. 23 has already passed the Senate, and H.R. 1249 has passed the House Judiciary Committee. If enacted into law, provisions of this legislative onslaught will put America’s inventors at the mercy of multinational corporations and state-sponsored cyber thieves.
This pending legislation mandates patents not be awarded to the inventor of new technology, but instead to the “first entity to file” for a relevant patent.
The first language suggested by the authors of this legislation left out “inventors” altogether, but once this blatant attack became clear, the authors added the word “inventor” to “First Inventor to File” in order to confuse anyone not closely following this bill. This word-game is arrogant and insulting. Anyone filing can claim to be an inventor. There is, in reality, only one inventor. To claim otherwise, as this legislation does, will lead to injustice. The U.S. government will have setup the rules to allow Chinese probers, for example, to file the paperwork, pay a fee, and legally steal America’s creative genius. The “real inventor” is of no concern to this proposed system. CHINA WANTS TO CHANGE THE PATENT RULES TO HELP INFRINGERS FILE FIRST. This is totally out-of-sync with American tradition and contrary to our fundamental law; and it’s being changed to HARMONIZE our strong protections with weaker protections in Europe, Japan.
The second deadly component of this pending patent legislation is that it adds onto the process a whole new review, also known as a legal challenge, to a patent after it is issued. Again, the victimization of American inventors is obvious. Multinational corporations, and even just regular foreign companies, will be able to tie-up a patent owner in court, and pile monstrous expenses on the inventor to defend the patent they have been granted. And unless the inventor is already wealthy, he or she will be forced to sell at bargain prices. It happens overseas all the time. It will happen to our guys when patent law is harmonized.
Make no mistake, this pending legislation is being pushed by the globalist corporate elite who have sought to dismantle America’s patent system for decades. Today, their dream is closer than ever to becoming our nightmare. They present this legislation as if it merely tweaks our patent system, instead of attacking it. Senator Coons wasn’t yet in Washington the last time this legislation came to the floor, so he doesn’t remember the last assault on our nation’s innovators, or the ones before that. We stopped this attack before, and we must do it again! This legislation poisons the long-term health of American competitiveness and national security.
Congress needs to hear from the working people of this nation rather than the multinational corporations, who could care less what this bill will do to the future of America.
All of my colleagues, on both sides of the aisle, should oppose this unconstitutional overreach, which will undermine our future, and pass legislation that fully funds the patent office with our current patent laws in place. Only then can we reduce the backlog of patent applications while maintaining the strength of our patent system by fully protecting inventors from infringers at home, and from around the world.
Trademarks have their origin in ancient history. Manufacturers and artisans would place a mark on the goods they produced to distinguish it from competitors’ goods. English common law recognized a tort (of unfair competition or passing off) for deceiving consumers by placing a competitor’s mark on your product. The first recorded case in English law covering trademarks is Southern v. How, Popham 143, 79Eng. Reprint 1243, first reported in 1656. The starting point forUS trademark law is the English common law on trademarks.
The policy behind trademark law is to prevent people from profiting by deceiving consumers as to the origin of a good. In order to deceive a consumer the owner of the mark must have established in the marketplace that consumers associate the mark with the manufacturer’s goods.
Trademarks can develop into incredibly important intellectual property assets. Image if McDonalds did not have an exclusive right to the name McDonalds ®. How much would a franchisee be willing to pay for a franchise that had no exclusive right to the name McDonald’s ®? Coca Cola company has a market capitalization of $110.4 Billion and total tangible assets of $25.3 B. Thus the market values Coca-Cola’s intangible assets at $85.1 B. Coca-Cola has two main intangible assets, its “secret formula” and its trademarks (Coke ® and Coca Cola ®). The “secret formula” can probably be duplicated and therefor the trademarks probably account for most of the value of the intangible assets.
Trademarks are still recognized under the common law of most states. The court will recognize a company’s trademark if they can show that relevant consumers associate the mark with the company. When a company wants to let the world know that they believe they have rights in a mark, they use the ™ symbol with their mark. This puts the world on notice that the company believes they have rights in that mark. Note that the SM symbol may be used with a mark designating a service. The law for service marks SM and trademark ™ is essentially the same. In this post when I use the term trademark it means both trademarks and service marks. In addition to common law trademarks, many states have statutory and registration processes. This post will not focus on individual state registrations.
A federal trademark law was enacted in 1879 and found unconstitutional. This effort was followed up by a trademark Act in 1881. The present trademark statutes can be found at 15 USC § 1051 et seq. and are commonly referred to as the Lanham Act. It is important to remember that the federal trademark statute only applies to trademarks used in interstate commerce. This is because Congress only has the right to regulate interstate commerce under the constitution, US Constitution at Article 1, Section 8, Clause 3. The Lanham Act provides for registration of marks used in interstate commerce. When a mark is registered with the US trademark office, the owner may now use the ® symbol with their mark. A federal registration has a number of advantages over relying on common law trademark rights. For instance, by obtaining a federal registration it is a non-rebuttable “legal assumption” that the owner of the mark is using the mark through all states and territories of theUnited States. 15 USC §1057(c). Federal registration of a mark also provides the owner with prima facie evidence of the right to use the mark exclusively. 15 USC §1155(a). The term of a trademark is indefinite, however federal registrations must be renewed every ten years. 15 USC § 1059. A trademark terminates when the owner abandons the mark. The statute defines abandonment as three consecutive years of non-use. 15 USC §1127.
Henry R. Nothhaft author of the book Great Again was interviewed on the Dylan Ratigan show on MSNBC and the Harvard Business Review blog radio. The Dylan Ratigan show focused on job creation and how all new jobs are created by startups not by small business or large corporations. Mr. Nothhaft argues thatWashington is forcing a once size fits all government on American businesses. He wants an immediate freeze on new regulations on startup business and a carve out from Sarbanes Oxley and Dodd Frank for companies with a market capitalization less than $500M. He explains that multinational companies have choices to create jobs in theUS or outside the US and suggests that large companies have decided to create jobs outside the US. While I think it is important to point out the current business climate in the US is causing companies to move overseas, the reality is that large corporations never produce large numbers of net new jobs and they are not the engine of innovation. The host attempts to argue that labor rates are the only reason that companies are relocating outside the US. Mr. Nothhaft explains that for high technology companies labor costs only represent 3% of their total expenses and it is the US tax and regulatory structure that are killing startups.
One of the panel members suggests that Google, Facebook, Twitter, etc show thatSilicon Valleyand innovation in the US are doing just fine. First of all, Google was started in the late 1990s before SOX, other regulatory burdens and before the patent system in this country was undermined. SOX and the changes to our patent system have destroyed the venture capital market in theUS. Second, social media companies have not driven the entire economy like the Internet did in the 1990s and the personal computer did in the 1980s. These companies and the social media industry are isolated islands of success that have little significance to the broader economy. If the panel member had any insight to the US economy he would known that the number of technology startups has declined precipitously. The Information Technology and Innovation Foundation index ranked the US dead last among 40 countries in the change in our rate of innovation last decade and many other indicators show the US is falling behind technologically.
The host of the show and the panel seemed to have no idea what Mr. Nothhaft was talking about. My guess is that the host and panel are all Wall Street experts who believe finance is the American economy. They believe in Keynesian economics in which manipulating the money supply and increasing demand by increasing government spending are all that matters. They have no idea what affects technology startups and they do not really believe they are important. They do not understand that technology startups create the inventions that increase our real per capita income.
The Harvard Business Review interview again focused on how startups create jobs. Mr. Nothhaft again argues for a two-tiered approach to SOX and other financial regulations. He argues that technology startups do not use leverage and do not pose a threat to the financial system of the US. He also points out that Lehman Brothers, AIG, Goldman Sacs, etc. were all SOX compliant going into the current financial crisis.
He later explains that the patent system has been undermined by the theft of user fees from the Patent Office by Congress to the tune of over $1B in the last two decades. Congress just stole another $100M from the Patent Office in the continuing resolution bill – See Stealing From Inventors.
The HBR interviewer is also ignorant of the US’s lack of innovation in the last decade. She does not understand that increases in technology are the only way to increase real per capita income. The host ends the interview with the condescending comment that it’s clearly a very complex issue. It is not complex! When the government interferes with property rights (particularly patents) and imposes absurd regulatory burdens (SOX, Dodd Frank) and the US has the highest corporate tax rate in the World it is straight forward that the result will be fewer businesses, fewer jobs, and a lower standard of living for all.
I respectfully disagree with Mr. Nothhaft’s two-tier approach to SOX and other financial regulation. First of all, Mr. Nothhaft points out that SOX failed to stop financial fraud and the 2008 financial meltdown. He points out that the companies he believes should be subject to SOX were all SOX compliant, but they were also the ones that caused the financial meltdown. So if SOX does not work, why have a two-tiered approach? SOX should be repealed – period. Second, laws that only apply to certain people or businesses are the essence of tyranny. A good law should apply to all people equally, much like a law of physics/nature. When Congress exempts itself from certain laws (e.g., antidiscrimination, Social Security, Obama Care, etc) and makes convoluted tax laws to help the politically connected at the expense of the rest of the country, you know that you are on the path to tyranny. Adding another law that only applies to certain businesses will only accelerate the US’s decline into despotism.
The excellent book Great Again by Henry R. Nothhaft with David Kline, points out that 2000 was the year in which the tax and regulatory burden in theUS reached a tipping point compared to other OECD (First World) countries. 2000 was also the year in which average corporate tax rates of OECD countries fell below theUS’s. TheUS now has highest marginal corporate tax rate in the world (in most states) and our effective tax rate is 50% higher than the European Union average. Is there any wonder why the US is losing high quality jobs to other countries?
The book’s identification of the year 2000 as the tipping point is ironic since this is also the year that I identified in my book as the tipping point for anti-technology startup regulations. The book Great Again calls the decade from 2000-2010 the lost decade, let’s hope it is only a single lost decade. Besides the negative effects of the US corporate and capital gains tax rates, the US has also significantly weakened our patent system and made it extremely difficult for startups to raise capital because of Sarbanes Oxley (although Dodd Frank only makes this worse). The major asset of startups is their patents – legal title to their inventions. Weakening our patent system has undermined this asset.
Some other interesting points made by the book include that a SBA (Small Business Administration) study showed that 1% cut in the corporate tax rate increases the number of start-ups by 1.5% and decreases the rate of failure by 8%. A World Bank study showed that 10% increase in the effective tax rate results in 2.2% reduction in investment to GDP.
The policies necessary to grow high quality jobs and get our economy growing are clear. The only conclusion is that the US is not interested in growing the economy, it is only interested in growing government power.
Great Again: Revitalizing America’s Entrepreneurial Leadership, by Henry R. Nothhaft with David Kline
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