When you subsidize something you get more of it - and when you tax something you get less of it.  That doesn’t seem hard to understand, right?  It shouldn't, because it is common sense and yet most economists and politicians don't understand this basic concept or more likely, don't want to understand it.

Case in point, the International Monetary Fund today issued a statement saying that the United States needs to better control its budget deficit.  Yeah, no kidding, but then they go on to suggest cuts in benefits and raising taxes.  Here's the thing; whenever taxes are raised it NEVER collects more money but it does reduce economic activity.  This is ALWAYS the case.  It makes perfect sense if you think about it.  For example, if the tax on Capital Gains goes up, as it will on January 1 of next year, people who might have sold an asset and paid the lower tax will now think twice about that and many will not sell at all.  That means zero taxes collected.  On the other hand if the tax was cut, people would buy and sell more freely and voila!  More taxes are collected!  Not too hard to wrap your brain around, is it?  Well, if you get it, then you know more than the president and his Treasury Secretary plus the IMF.

Moving along to subsidies, I watched a story this morning on CNBC regarding electric trucks. It seems that there is a company selling these things with their short ranges and unknown repair problems.  They claim that the trucks are cost effective compared with Diesel.  When pressed, the CEO answered that with heavy government subsidies they would only cost $80,000 per as opposed to $60,000 for the diesels and this would be, in his mind, favorable given the lower operating costs related to fuel. Hmmmmm....here is my question; does nobody understand that when you subsidize something you need to ask yourself why?  I mean, if electric cars and trucks are such a panacea, why do we need to subsidize them at all?  Shouldn't we let the free market decide if they are good or bad and reward or punish the producers of the vehicles?  Let me help you with this; electric vehicles are pretty much only good for, unsubsidized, playing golf.  All other uses are just plain silly! 

You see, when you subsidize something the money has to come from somewhere else in the form  of taxation, and that money was already productive where it was.  So when you take it from a productive place, add on the huge costs and inefficiencies of government administration, and then send it to someplace less efficient you are doing something that is, well, stupid! So-called experts never learn, God help us.  We need to fire them all!