Richard Rahn | Obama’s hidden-tax heist

How is it possible that the government can spend almost twice as much as it  takes in without having high inflation? The fact is that over a long period of  time, it can’t. In the short run, which can be a few years, the government can  paper over its fiscal irresponsibility by expropriating most of the productivity  gains in the private sector through regulatory and central bank actions. This is  precisely what has been happening in the United States.

The reason real, after-tax, per capita incomes have been able to increase  year by year for most Americans for the past two centuries is that productivity  has been growing — that is, the amount of goods each worker produces per hour  has risen steadily. The reason productivity rises is that workers tend to be  better trained, the amount of productive capital per worker rises, and there is  a steady flow of innovation, which reduces costs and improves goods and  services.

To understand productivity growth, look at the advances of farm and construction  machinery — which enable one worker to do more, better and with greater  safety. Wal-Mart, Amazon and FedEx have  made amazing developments in reducing distribution costs by instituting better  equipment and systems. Magnify these individual company and industry gains  throughout the economy, and the result is a steady national gain in worker  productivity.


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