I received this newsletter in my inbox today after watching the debate last night, and there isn’t anything with which I disagree. I was hoping there would be more about the debate. But, alas, I must wait.

Here’s Newt:

“I was reminded yesterday why it is so hard for planners and bureaucrats to accurately pick winners and losers…

“We were debating the resolution “Tax the rich more.” As you can imagine, I was opposed. More on the debate in a future newsletter.

“In a lunch with very sophisticated business and civic leaders, I mentioned 3D printing. In an upcoming Newt University interview, Tim Rowe, a leading paleontologist from the University of Texas describes, the amazing intersection of CAT scans, the Internet, a site called digimorph.org and 3D printing. At the very end of the interview he comments that the combination of CAT scans and 3D printing will make it possible to personalize hip replacements. We will be able to scan your hip socket and then print out a replacement for your joint that fits perfectly to your socket.

“I was describing this as an exciting future development when one of the Canadians offered an alternative solution. He serves on a Canadian medical research advisory board. His favorite solution for future hip replacements comes out of regenerative medicine. Regenerative medicine is the system by which cells can be taken from your body and a needed organ or part can be grown from your own cell line. When it is introduced into your body, there is no need for anti-rejection medicine because you are literally Injecting your own genetics back into your body. We will be doing a series of interviews at Newt University on regenerative medicine’s potential for dramatic improvements in healthcare.

“I agreed that we could have two competing solutions with the 3D printing solution being closer but the regenerative medicine solution being more powerful. Of course, it is also possible that there will be a number of additional solutions in the next decade.

“It is the very complexity and potential for previously unknown breakthroughs that makes it impossible for rational, well educated, clever bureaucrats to pick winners and losers.

“This challenge of new breakthroughs destroying the best laid plans of intelligent bureaucrats reminded me of the saga of the Stanley Steamer.

“At the dawn of the automobile age, steam was a real competitor to the internal combustion engine. Gasoline powered cars had to be hand cranked and the crank would occasionally spin out of control and break the driver’s arm. The gasoline engines were very inefficient in the first two decades of automobile production.

“In 1906, a Stanley Steamer set the speed record at a mile in 28.2 seconds (more than 120 miles an hour). The gasoline engine would not match it until 1911.

“The early advantages of the Stanley Steamer were eliminated by three big breakthroughs. Electric starters eliminated the crank and made cars both safer and more convenient. The efficiency of internal combustion engines kept improving and far surpassed the steam engine’s efficiency. And Ford’s development of mass production drove down prices. By 1924 a Stanley Steamer cost eight times as much as a Ford.

“In 1906, as Stanley set the speed record, no “expert” could have told you that it was doomed to fail as a transportation option. Similarly, in the early 1920s no expert could have told you that the greatest industrial corporation in the world, the Ford Motor Company, would be overtaken by a then-anemic and almost bankrupt General Motors.

“The fluidity and slightly chaotic nature of entrepreneurial capitalism in a free market is far more likely to produce real winners and dramatic improvement than any bureaucratic study or planning process.

Your Friend,

Newt”

I did watch the debate last night; and I am more convinced than ever that many people are two-dimensional thinkers. The perfect example of two-dimensional thinking being having a preference to, if government is having trouble funding a certain level of spending, just go tax the rich.  Perhaps the assumption is that perhaps the little guy will benefit from government benevolence.

George Pompadreou made the point, which I believe he didn’t realize is a strong argument against heavily taxing the rich, that rich people simply use their money to buy politicians. As his reasoning goes, if the rich people use their money to buy influence, and it is instead taxed away, they will have less to buy politicians with, and it will result in a fairer and more democratic government.

I disagree with that reasoning. It would be much better for government to produce a prosperous society where everyone can pay something, because it is a matter of stake in government that means everything. The larger the stake the rich have in government, it matters not how government ends up with the money, they will want their due. It is true everywhere; money talks.

The entire argument reminds me of a chapter in the story of Pinocchio where Pinocchio and his friend are lured to a supposed land of leisure only to find, once arriving, that it was actually a slave farm, and little boys who would not work magically turned into donkeys. The choice is pay now one way, or pay later in another way. There is no such thing as a free lunch.

For example, the 2001 tax cuts revamped the EIC and made the tax code more progressive than it had been in decades. And we ended up with the advocates of tax cuts complaining about the 47% who don’t pay taxes. The last campaign cycle was the nastiest and most narcissistic I have ever witnessed. Any benefit from heavily taxing the rich, if there is any at all, will certainly be short-lived, even if it isn’t immediately undone the next time power changes hands.

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