Normally, when a conservative and a liberal start arguing about economic theory, it ends badly, and both sides are only more entrenched in their opinions than before. This stems from the facts that they tend to argue the branches of their theories against each other, rather than go back to the place of common thought and argue the first place of divergent opinion. For example:
If you have 10 people stranded on a desert island, each with $100 American in their pocket. This means that there is a total of $1,000 on the island. What is most money one person can make in one year? A liberal would think that the answer is $900. They already have $100, and they can only make what everybody else has in total. A conservative knows this is wrong. Money isn’t “made” by taking from one, but rather by the circulation of that money. If Joe gives to Bob to build him a house, now Bob has more money. Bob then gives to Jim to make him some food. Jim then gives to Bill to protect his newly found restaurant, and so on and so forth. The more money that is circulated around the island, the more money they all make, the more moeny they all spend, and each has a quality of life that gets exponentially better. All of the things stated before can happen instantly, and there is no limit to what each can make. In theory, each could make $3 Trillion every day! This is a VERY simplistic way of showing how economics work, but it can be extrapolated to entire countries, like, say, oh, I don’t know, how about the US?
What liberals want you to believe is that there is only so much money out there, and that to bring up the lower class, one must take from the upper classes and give it to them. Where they go wrong is that an economy can grow and bring everybody up, including the lower classes, while not arbitrarily lowering another class down. This is why conservatives are constantly clamoring for lower taxes. In the hypo above, if there was on Senator on the island, who didn’t produce anything but offered valuable services to the others, the others would have to pay him, most likely in the form of taxes. Well, if those taxes are too high, nobody has the power to purchase any goods or services from the others, and the economy of the island grinds to a standstill. It is similar to the US economy — if the government takes too much of the producers money, they cannot purchase any goods or services from others, and everybody suffers.
Where too many of the arguments that happen go wrong, is that the arguments stem from the higher taxes part of the theory, not the basic divergent theories about wealth creation. This leads to two people arguing two different points in two different theories, and makes each mad until they just drop the conversation.
I will post more on how the island can teach us about the securities meltdown in a later post.