Welcome to the first “official” episode of The WaddellCast: The podcast where a fiscally-conservative, small-government Democrat discusses the issues.

In this episode, I introduce this new podcast and follow-up on the “Economics for Righties” segment that I released earlier this month.

The theme song for the WaddellCast is Waterfall by Jeff Wahl. You can find this, and other great songs at Magnatune.com.

As you may have already noticed, the first episode of this podcast was a rebuttal to a couple episodes of the podcast Quick Hitts. I had so much fun putting that piece together that I decided to make my own podcast. So, first of all, let me thank Dave Hitt of the Quick Hitts podcast for inspiring me to start the WaddellCast.

So, by now you’re probably wondering what “The WaddellCast” is going to be. Well, let me first tell you what it is not going to be. Although I was originally inspired to create this podcast by Quick Hitts, this podcast will not just be a rebuttal to each episode of Quick Hitts.

As the tagline for this podcast indicates, this will be a show where I discuss issues from the perspective of a fiscally-conservative, small-government Democrat. What exactly is a “fiscally-conservative, small-government Democrat?”

Well, first off, all of us who want a small-government, whether we are Republicans, Democrats, Libertarians, etc., believe in the statement by Thomas Jefferson: “That government is best which governs least.” In other words, we want to limit the role of government to only those things which we absolutely need the government to provide in order to have a stable, functioning society. One way to limit the power of government is by limiting its spending power. Those who believe that the government must exercise prudence in spending and debt are referred to as “fiscal conservatives.”

Because all small-government fiscal-conservatives share these 2 main beliefs, we could all be considered Libertarian-leaning, or minarchist. However, there are considerable differences of opinion in how you define the statement “only those things which we absolutely need the government to provide in order to have a stable, functioning society.” It is because of how I answer this question that I consider myself a Democrat and not a Republican.

I believe that corporate welfare is a greater danger to our society than is social welfare. I believe that environmental protection is essential to our long-term survival. I believe that our civil liberties are more threatened by our government than are our economic liberties. I believe that the war on drugs is just as failed as was the 1920’s prohibition on alcohol. Finally, I believe that accessible education for everyone is the best way to ensure both our democracy and our global economic competitiveness.

Although these beliefs may sound fairly mainstream Democratic, it is in how I propose to address these issues that makes me a small-government fiscal-conservative. It is this exploration – how to address these democratic goals while reducing the size and cost of our government – that will be the focus of this podcast.

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In the “Economics for Righties” segment, I addressed 2 issues very briefly: Social Security and Supply-Side economics. I plan to address these issues in more depth in future episodes. However, I did want to follow-up briefly on the email response that I got from Dave Hitt regarding this segment.

First off, Dave correctly points out that his “Economics for Lefties” segment did not mention supply-side economics, although it did deal with tax-cuts in general. However, in the introduction to “Economics for Righties,” I stated that economic misunderstanding is just as prevalent among “Righties” as it is among “Lefties.” I was using supply-side economics as an example of a concept that I believe “Righties” are greatly mistaken about.

At this point, I should pause to explain the terms “Righties” and “Lefties.” These were terms that Dave Hitt uses in his podcast to describe the extremists of the two major political parties. I am using them in this episode because of that – I will most likely not use these terms in future episodes.

Dave’s rationale for why supply-side economics supposedly works is “If someone gets more money to spend or invest, that goes into the general economy and helps people out.” Unfortunately, this statement doesn’t support supply-side economics because any tax cuts will have this effect. Whatever money the government gives out will end up in the general economy, no matter who it is given to. The government could add money to the general economy just as well by spending that money themselves on government employees and contracts (as long as it is spent domestically).

Dave then provides 2 examples that he claims “prove” that supply-side economics has worked in the past. First of all, he mentions the Luxury Tax that Bush Sr. signed into law. The result of putting a 10% tax on luxury purchases was many of the rich simply bought their luxury items overseas and the domestic companies suffered as a result. However, this example doesn’t prove that taxing the rich is bad for the economy, it just proves that it is bad for certain industries. Whenever a certain product becomes more expensive relative to other similar products, that event shifts where people spend their money. If Congress taxed California wines, people would buy more of their wines from Oregon instead. If Congress taxed all wines made in the U.S., then people would buy more wine from overseas. Any tax is going to hurt the overall economy because people have less of their own money to spend, but when you preferentially tax one item over another, you are just shifting business from one group of people to the other – there is not necesarily any overall benefit or detriment to the economy as a whole.

Dave’s second example is an article on how Bush Jr.’s 2003 investment tax cut package reduced the capital gains tax rate from 20% to 15%. As a result of this, there were twice as many capital gains realizations in 2005 as in 2002. This resulted in an increase in tax revenues in 2005 despite the lower tax rate. However, again, this doesn’t prove that supply-side economics works. When capital gains tax rates were reduced, you had a huge number of people dumping stocks that they had been holding onto because of this lowered intrest rate. Generally you see major dumping of loss stocks just before the end of the fiscal year so people have a tax writeoff. Here, you see a major dumping of gain stocks because of the lowered tax rate. This does not reflect an overall increase in stock market investment or stock prices and thus is not necessarily a sustainable effect.

Finally, Dave pointed out that insurance is a method of sharing the risk for an event that may or may not happen and he still maintains that social security is fundamentally a Ponzi scheme and not a poorly-run insurance plan. And now a word from our sponsor…

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In the next couple of days, I will be posting a list of topics that I am planning on addressing in future episodes, as well as a list of other podcasts that I subscribe to and recomend, to my website. These will not appear in the podcast feed, so please visit mwaddell.com to view these lists and to add your ideas and suggestions.

As always, you can contact me with any questions, comments or constructive criticism you may have by visiting my website at mwaddell.com.

I recently came across Quick Hitts thanks to a promo on Skepticality. Overall, I think that Quick Hitts is a great podcast, however after listening to the 2 “for Lefties” episodes [1, 2], something bothered me. That something is that Lefties clearly do not have a monopoly on economic misunderstanding – there’s more than enough of that to go around! In that vein, I present:

Economics for Righties!

Supply-side economics, also known as “trickle-down economics” by President Reagan, “voodoo economics” by President George Bush the First, and simply as “economics” by President George W. Bush, is the theory that if we give tax breaks that primarily benefit the wealthy, that they will use this money in a way that will grow the overall economy and help everyone.

This sure sounds nice, doesn’t it. Unfortunately, the real world just doesn’t work that way.

A businessman with any economic sense knows that the only reason to add an extra dollar to his company is if he can make a profit on that dollar. How much money he has sitting in his personal bank account has absolutely no bearing on the answer to that question. In fact, a smart businessman won’t invest extra money in his business if he could make more on it just by investing in an index fund.

If you want to encourage business growth, all you need to do is lower the interest rates on business loans. Now, the decision on whether to grow the business is not “will this money I’m investing make more than an index fund?,” but instead “will this money I’m investing make more than the interest rate that I’m borrowing it at?”

So, if personal finances don’t enter into a business’s investment decisions, then maybe supply-side economics works because if you give the rich tax cuts, they’ll go buy new yachts and help create jobs at the local yacht manufacturer? Unfortunately, this argument doesn’t work either because the rich spend a very small fraction of their wealth compared to the poor. If we want to increase consumer spending, we should give those tax breaks to the poor, who spend almost all of their money on consumer goods anyway.

If Righties want to give tax breaks to the rich because they think the rich pay too high of a tax rate and they want to make the tax flatter, or just because the rich helped them win that last election, then they should at least have the decency to say so and not try to pass their tax cuts off as something that they’re not.

In the episode Social Security for Lefties, Dave discussed how Social Security is a very poorly-run retirement plan, and could even be described as a Ponzi scheme.

So, what exactly is a Ponzi scheme? According to Wikipedia,

“A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business…. The high returns that a Ponzi scheme advertises require an ever-increasing flow of money from investors in order to keep the scheme going.”

Does that sound like Social Security to you? When I think of Social Security, I definitely don’t think of “abnormally high returns on your investment.”

So, what exactly is Social Security? We already know that it is not a retirement plan, because if you die before you retire, you don’t get any benefits. So what is it then?

Well, with Social Security, you have a system where a group of people pay regular premiums and when a certain situation occurs, they get a pay-out, if that situation never occurs, they get nothing. You know what? That sounds like an insurance plan to me! In fact, that’s just what Social Security is – it is an insurance plan which pays out in case you become too old to work or you become disabled and cannot work.

That all sounds like a pretty good idea, right? However, just like everything else run by the government, social security is a very, very poorly-run insurance plan. The government has made it way too easy to qualify for benefits which is why it is having financial problems right now.

So, remember “Social Security is not a terrible retirement plan, it’s a terrible insurance plan!” Let’s just be clear what it is that we’re trying to fix.

If this podcast taught you just a little bit you didn’t know before, or helped you understand a different point of view, congratulations, you’ve been Smartenized! [For those of you who didn’t go listen to the relevant Quick Hitts podcasts before reading this page, this sentance is how Dave Hitt ends every Quick Hitts episode.]

If you would like to contact me, please visit my website at mwaddell.com.

If you would like to contact Dave, you can contact him at davehitt.com.