Barack Obama and Myron Felgewater have at least two things in common: a deep-seated ignorance and/or contempt for the fundamental principles of economics, and the fact that I will never vote for either one of them for any political office, ever.
Let’s begin with Myron. When I worked for him, part of my job was to help determine pricing for our product. We were working in a business where fixed costs were high and marginal costs were low to nonexistent, much like, say, the airline industry. Every time a plane takes off, the cost of the flight is essentially the same if the plane is full or the plane is empty. In addition, you can’t put the airplane seats back up on a shelf and store them in your inventory if you don’t sell them. Once the flight is gone, it’s gone.
That’s why airplanes offer so many specials and discounts and incentives. Any cash that comes in to fill an otherwise empty seat is found money, and as long as it covers the cost of the complimentary beverage service, you come out ahead.
This was too much for Myron to grasp. Every time I would offer a discount, he would wail about how much the discount would “cost.” See, if a plane fare was regularly $1,000, and I sold it for $800, Myron would moan the fact that this ticket had “cost” him $200. To him, this was the equivalent of opening up his wallet, yanking out two Ben Franklins and flushing them down the toilet. He would prefer the seat remain unsold, which means that he would rather lose the potential of a real $800 to “save” an imaginary $200 that was never his in the first place.
I should note that this also flew in the face of his own unique sales technique, which was to offer ridiculous discounts and freebies to friends and family and anyone else just to prove what a big cheese he was. (Frequent commenter WhiteEyebrows could probably provide plenty of firsthand stories to verify my account.) His own personal inconsistency in applying his own rules, however, merely illustrates his pettiness and arrogance, not an appreciation for economic principles.
In his defense, Myron’s argument has some merit if the airplane is always full, and everyone on the plane is always paying full price. But at the time, most of our flights were half-empty, and a full flight was cause for celebration. It was essential that we fill those flights in any way possible, but Myron’ solution was to resist discounts and jack up prices, even on flights that weren’t selling.
Finally, in a fit of exasperation, I proposed a different solution.
“Why are we wasting time offering such cheap fares?” I said. “Why not bump the ticket price up to $1,000,000 a head? Of course, if that were the price, then every time you sell a measly $1,000 ticket, it would cost this company $999,000 dollars!”
That made the point. It also made Myron mad. That was usually the way things worked back then.
You’d think that Barack Obama would be a little brighter than your average Felgewater, but after last night’s debate, which I made the mistake of actually watching, I’m not so sure.
What was remarkable about the debate was that the candidates were asked real questions. They were called on the carpet for their stupid statements and lies, and, in a moment that made me drop my jaw, Charlie Gibson posed a question about the capital gains tax that was actually economically intelligent.
Here’s the opening part of the exchange:
MR. GIBSON: You [Barack Obama] have… said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton, which was 28 percent.”
It’s now 15 percent. That’s almost a doubling if you went to 28 percent. But actually Bill Clinton in 1997 signed legislation that dropped the capital gains tax to 20 percent.
SENATOR OBAMA: Right.
MR. GIBSON: And George Bush has taken it down to 15 percent.
SENATOR OBAMA: Right.
MR. GIBSON: And in each instance, when the rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
Holy cow! Charlie Gibson acknowledges that a tax cut raises more government revenue? Isn’t that a sign of the apocalypse?
But if you’re not a Felgewater, you can understand the principle. Generally speaking, a lower tax rate on a higher volume of revenue brings in more money than a higher tax rate on a lower volume of revenue. If the capital gains tax were raised to 100%, it would be just like Felgewater raising ticket prices to a million bucks a head. The high rate would bring in no money, because no one would be stupid enough to take a capital gain under such a punitive system.
So here was Barack Felgewater’s answer:
SENATOR OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness. We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year — $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That’s not fair.
Did you get that? Obama does not dispute Gibson’s point. But he doesn’t care. The overriding principle is fairness, so he’s going to raise the capital gains tax even if it costs the government money to do it!
You know, if I’m a secretary, my paycheck isn’t going to get any bigger if my boss has to pay more in capital gains tax – quite the opposite, since that boss now has fewer resources to reinvest into the business.
Do you grasp the enormity of this? Obama is proposing to raise taxes not to get more money for the government but solely to punish the rich.
He continues, trying to temper his remarks but still digging himself deeper into his hole:
And what I want is not oppressive taxation. I want businesses to thrive and I want people to be rewarded for their success. But what I also want to make sure is that our tax system is fair and that we are able to finance health care for Americans who currently don’t have it and that we’re able to invest in our infrastructure and invest in our schools.
You want money for your “investments,” Barack? Then don’t raise the taxes and squelch off the revenue stream! Incredibly, Gibson manages to call him on this.
MR. GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.
To which Barack lamely responds:
SENATOR OBAMA: Well, that might happen or it might not.
And the sun might rise tomorrow or it might not. And Myron Felgewater might have lots of planes full of people paying a million dollars a ticket. You cannot repeal the law of supply and demand, Barack, no matter how fair you want to be.
The thing that scared me about this debate is the thing that initially made Obama attractive, and that is this: Barack Obama is a decent, honorable man who is true to his word. So when he says he’s going to jack up taxes even if that costs the government money, he means it. When he says he’s going to yank out the troops even if it throws the entire Middle East into chaos, creates a safe haven for al Qaeda, and allows Tel Aviv to disappear in the shadow of an Iranian mushroom cloud, he means it.
Hillary, with her smug little smile and her cackle of doom, doesn’t mean anything. She promised to pull the troops out, but she won’t do it. She won’t jack up taxes just because she can. She’s going to pander as much as possible to maintain power, and she’ll screw over her own party every time she has to.
That makes her the most contemptible person running for office, and, horrifically, the most conservative.
I want to throw up.
I’m going to be writing in my vote for president this year. Captain Bob Morris is currently my leading candidate. But if you’d like to be in the running, let me know.