By Mike Donald

There was a physicist by the name of Enrico Fermi. He was one of the scientists who helped begin the Manhattan Project, which developed the atomic bomb. When the first bomb was test detonated at Trinity Site, White Sands Missile Range, near Alamogordo, NM, Enrico Fermi was there. He tore a piece of paper up into confetti, and when the shock wave hit, he dropped the confetti. By watching how far the shock wave moved the bits of paper, he was able to do a quick mental calculation, and reasonably accurately come up with the power of the blast. Sophisticated equipment took readings that had to be analyzed for weeks. After this analysis, Fermi’s estimate was confirmed. How did he, with bits of paper and a few moments of thought, do what sophisticated equipment and a team of analysts took weeks to do?

Fermi’s approach was to take a difficult problem, simplify it into several smaller, easy to understand problems, solve the simple problems, then apply the solutions obtained to the difficult problem. While no one knows for sure, it is highly probable that Fermi estimated a measurement of the speed of the shock wave in the air (as demonstrated by the moving paper bits), and using that speed, estimated the kinetic energy of the moving air, and divided by the amount of energy in a 1 kiloton of TNT explosion. To the average person, this may seem very complicated, but Fermi was one of the greatest scientific minds in all of history, and the process described uses elementary physics from any college freshman physics course. The important point is not how much he had to simplify to do his calculation, the point is the process he used. This same process—simplifying a difficult problem into smaller, more manageable problems, developing solutions to the easy problems and applying those solutions to the difficult problem—is a process that can be applied to any difficult problems, not just physics problems and not just figuring out the power of atomic bomb explosions. And, if the process was used by, and worked for one of the greatest scientists in all of history, I’m not going to argue with it! By the way, it worked so well for him, that he taught his students to use this method by developing problems that were unsolvable unless this method was used.

That being the case, I have a few simplifications I would like to present. Draw whatever conclusions from them you think appropriate.

Chapter 1: Nationalized Hamburgers?
Joe owns a hamburger stand. It is the only restaurant in the city where Joe lives. One thing Joe knows is that there are always people out there who, for whatever reason, do not want to cook their own dinner. They will pay almost any price to have it done for them. Maybe they don’t have the time, maybe all of the dishes are dirty, maybe they just want a change of pace. Whatever the reason, there will always be people going out to a restaurant for dinner. Knowing this, and knowing that his is the only restaurant in town, Joe charges $10.00 for a hamburger. Fries and a drink are extra. The hamburgers that Joe serves are small, and of low quality because Joe’s customers have no where else to go, so he has no incentive to produce a better product. Joe is getting rich quickly!

Another thing Joe knows is that his employees really only know how to do one job: work in a restaurant. And since his restaurant is the only one, they have no choice but to work for him. So, Joe pays them next to nothing. He demands that they work long hours under difficult conditions. He treats them badly, and gets away with it because he can.

Tom moves into town and sees a golden opportunity. He opens a hamburger stand right across the street from Joe’s place. Tom knows that it really takes just under a dollar to produce a good hamburger—and even less to make a low quality burger. So he makes and sells hamburgers that are comparable to Joe’s hamburgers for $5.00, half the price that Joe charges. All of a sudden, the people of the city have a choice. They start going to Tom’s place, and Joe stops making money all together. Now, Tom is still making more than $4.00 profit from every hamburger he sells, so he is making money very quickly.

Something Tom knows is that if employees have a choice, the best ones will go to where they are treated the best. So, Tom pays his employees a fair wage, gives them a flexible schedule, and treats them well. He understands that the work they do is what earns him his money. When this happens, Joe sees his best employees leave, and go to Tom’s place to work. Joe has to respond, or go out of business.

Joe has now lost all of his business, and his best workers are leaving as well. He is in dire straits, and needs to do something drastic. He immediately lowers the price of his hamburgers to $4.00, gives his employees both a much deserved raise and a more reasonable schedule. As a result of these actions, Joe stops losing his best employees, and his customers come back to him.

Now it is Tom’s turn to respond. He has lost all of his business because Joe has taken it back. So, Tom does two things. First, he lowers the price of his hamburgers to $3.00, and second, he does everything he can to improve the quality of his product. Now he can tell the public that he has a better hamburger for a lower price. Of course, now the public is choosing to eat at Tom’s place.

This scenario continues to play out back and forth until both restaurants have lowered the price of a good quality hamburger to about a dollar. Both places pay their employees well, and have employee incentive programs. Even Joe, who started out as a real Ebenezer Scrooge is forced to treat his employees well in order to stay in business.

This is an example of how competition works in the marketplace. When competition exists, prices are driven down, quality and working conditions are driven up. When competition does not exist, prices are high, quality and working conditions are poor at best.


So, once the competition has had its effect, and the price and quality wars settle down, the city government is called on to worry about those poor individuals who are too destitute to buy a hamburger of their own. They say there must be a way to allow everyone to have a hamburger. So they develop laws that create hamburger insurance. It works like this, if an employee chooses to enroll in the program, they have one dollar taken out of their paycheck. Since food is a basic necessity of life, the city allows this deduction to be taken out on a pre-tax basis. The employee gets a hamburger insurance card. When he goes out to either Joe’s or Tom’s restaurant, he may get one free hamburger by presenting his card. Several things begin to happen all at once.

When this system is put into place, an insurance company called Hamburger Insurance Agency is created. This company has office space that requires rent payments. The lights need to be kept on, the place has to be heated in the winter and air conditioned in the summer, etc., all of which costs money. This company also has a president, a board of directors, agents, administrative assistants, janitors, adjusters, etc., all of whom need to be paid a salary. All of the money needed to keep Hamburger Insurance Agency in business is supposed to come from the hamburger premiums taken from paychecks.

The premiums are $1.00 per paycheck. Most employees are paid once every two weeks, so the deduction from their paycheck is about the same as if they ate out once every two weeks. There is a problem here. Now that they have hamburger insurance, they realize that they can go out every night and have a hamburger. Most people don’t go out that often, but on average, people start going out about three times a week. So now, their $1.00 is buying them six hamburgers. But that $1.00 is not supposed to even buy 1 hamburger. At least $0.50 is supposed to go to the administrative costs incurred by Hamburger Insurance Agency. Before hamburger insurance was developed, the people of this city went out to eat an average of three times a year. Hamburger insurance was supposed to allow them to go out once a month, not three times a week! The premiums being charged simply are not enough to handle this volume of business.

Processing the insurance claims causes Joe and Tom to both have to do extra work to get paid for the hamburgers they are selling. As a result, the cost of making a hamburger goes up. It is no longer economically feasible for either of them to sell a hamburger for about a dollar. Prices increase.

At the same time, Tom, being a shrewd businessman, realizes something. Since the insurance company is now paying for the hamburgers, the customer who comes into his restaurant to buy a hamburger no longer cares how much the burger costs. At this point, all the customer cares about is the quality of the burger he is getting. So, Tom spares no expense. He buys the highest quality, most expensive ingredients, and produces the best burgers this city has ever known. The cost of producing a burger this good is about $7.00. So, Tom charges $9.50 for the burger, and makes a little extra profit. Joe’s customers are attracted to the better tasting burger at Tom’s place, so Joe is forced to start producing just as high a quality burger, with the same increase in price.

With all of these factors going on, the insurance company is forced to do two things. First, it must increase premiums, and second, it must limit the number of hamburgers allowed per given time. So, in a short amount of time, premiums go way up, and covered services decrease. Not only are hamburger care premiums going up, but the price of hamburgers is skyrocketing. The city government sees this trend and decides to do something about it.

They create a Hamburger Maintenance Organization. This HMO seems like a great thing. It is designed to reduce administrative costs for both the hamburger stands and the insurance company. It requires those enrolled to select a primary hamburger giver, and only go to that location unless special permission is acquired. This way, neither hamburger stand needs to track everyone enrolled in hamburger insurance, but only the half of such people who choose each particular stand. The insurance company no longer needs to check to make sure a customer isn’t getting his quota of hamburgers at one stand, then going and getting more at the other one. This seems great in theory, but in actual practice it is a nightmare.

Several customers who selected Tom’s stand as their primary hamburger giver show up when Tom’s place is just swamped with customers. They look across the street to see that Joe’s place isn’t that busy right then, so they request a referral. Tom has to hire extra people to handle writing these referrals. The referrals need to be processed through Tom’s restaurant, and submitted to the insurance agency. The insurance agency now needs a whole new bureaucracy to deal with these referrals. Once the referrals are approved, the customers take the referral paperwork across the street to Joe’s place. Joe needs to have people on staff to process the referrals before he can actually sell these customers hamburgers. So, rather than simplifying things, these HMOs have created new departments in all three locations: Tom’s place, Joe’s place and the insurance agency. These new departments need office space in which to work, along with all the expenses of keeping an office open as well as employees to staff the offices, all of whom will need to be paid. The price of hamburgers has to go up again, and so does the cost of the insurance.

At this point, the rising cost of hamburgers seems unstoppable, as well as the rising cost of hamburger insurance. Now, only the rich can afford to eat hamburgers. Notice that before the government got involved, natural market forces drove the price of hamburgers down so that almost everybody could afford them. In an effort to allow those few who could not afford hamburgers to have them anyway, the government made changes that caused the prices to go up. When the cost of hamburgers was getting out of hand, the government stepped in again, and the result was that the prices went even higher. What has happened here is what is called the “third party payer” effect. When the customer will consider price before buying, the prices are naturally driven down. When a third party, such as an insurance company bears the burden of the price, the consumer quits caring about the cost of the purchase, and prices skyrocket.

Well, with the prices getting so high, there are those who believe that the government should “nationalize” the hamburger industry. That is, the government should buy the hamburgers for all the residents of the city. Government supplied hamburgers would cost the people nothing, they say. It would allow everyone to enjoy the best hamburgers available, without discriminating against the poor. After much debate on the issue, the city finally gives in and “nationalizes” hamburgers. Every resident of the city gets a hamburger ID card, and presents it when buying a hamburger. Joe and Tom must serve anyone showing a hamburger ID, then charge the city for the hamburger.

Joe, who started off as an Ebenezer Scrooge, and was forced by marketplace competition to improve his behavior, remembers the “good old days” when he could charge $10.00 for a $1.00 hamburger, and make a huge profit. As he sits in his office reminiscing about the build up of the bureaucracy that was necessary to deal with the insurance company, which now deals with government regulations, he starts to realize a new opportunity he now has. Back when he was charging the customers directly, he could not charge a customer for two hamburgers, but only supply one. The customer simply wouldn’t pay for more than he was getting. But now, how would anyone know? He could charge the government for two hamburgers every time he sold one, and no one would know!

So that is exactly what Joe does. Very soon, the city government begins to suspect something is up, but they don't know what exactly. Because the city has taken over paying for hamburgers, the city now runs a bureaucracy that most people assume is similar in size and scope to what the now defunct Hamburger Insurance Agency was. The reality is that since not everyone was insured but everyone is covered by the city’s program, the city’s bureaucracy is nearly double in size. This means increased costs for everybody in the form of taxes. Now everyone is forced to pay for hamburgers whether they want them or not. But that’s not all! Now that someone in this expansive bureaucracy has noticed that something is not right, the city has to hire a team of accountants to review every transaction to see if they can determine what is going on. They need to hire enforcement agents to make sure that they put a stop to whatever it is that someone in the system is doing. Since they don’t yet know that it is Joe, they have to police the entire system. So now, the city needs a bureaucracy to patrol the bureaucracy to keep everything legitimate. This new bureaucracy of accountants, enforcement agents, prosecutors, etc.—all of whom need to be paid—needs offices in which to work, which means huge expenses.

The city is forced to put together a mammoth network that dwarfs the scope of the Hamburger Insurance Agency. Taxes need to be raised to the point where the amount people are paying just to support the “free” hamburger infrastructure is on the order of twenty hamburgers a week, but they are limited by city law to only have one hamburger every other month. Even at that, the city is forced to only allow mustard and ketchup to be served on the hamburgers because the expense of additional condiments—such as pickles, onions, lettuce, tomato, mayonnaise, etc.—is just too much for the city to pay.

When the city pays for the hamburgers, they force both Tom and Joe to file a mountain of paperwork to “prove” the sale of the hamburgers. Hamburgers that are sold and eaten today are not paid for until the paperwork is processed, which at government speeds means sometime in the next three or four months. But, to get supplies to keep making hamburgers, Joe and Tom need to pay their suppliers up front. The money is going out, but no money is coming in. Both are forced to purchase the cheapest, lowest quality ingredients available to make the money stretch out until they get paid. They are forced to lay off workers because there is no money to pay the workers, and those who are not laid off must work much harder to keep production up. Even though he doesn’t want to, Tom is forced to make his employees work long hour in poor working conditions, and he is able to pay them next to nothing. Notice that this is how Joe started out treating his workers. This is called the “single payer effect,” which comes about when only one entity—such as the government—is responsible for paying for a product or service. More on that in a moment.

The lack of money doesn’t just come from the delay in payment. The city government’s “experts,” who have never run—or even worked in—a hamburger stand have told the city that they should pay no more than $0.75 per hamburger. Not having the experience of running a hamburger stand, they have calculated the theoretical cost of making hamburgers. What they did not consider is that pure theory is never put into practice without significant adjustment! Tom’s and Joe’s actual cost of making the lowest possible quality hamburger and dealing with the bureaucracy to get the hamburgers paid for is closer to $1.50 per hamburger if they don’t pay the workers.

So now, the people who want to eat hamburgers have more limits on what they can have than ever before while paying much more than ever before. The quality has been driven down as low as it can go, and the employee’s working conditions are deplorable, meaning that they are most decidedly NOT happy to serve you. This is what a single payer system produces.

Tom’s golden opportunity has long since vanished. He chooses to close up shop, leave town and move to a city where hamburgers can be freely bought and sold without government interference.

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Comment by Fredrick Lindner on April 12, 2012 at 1:05pm

Also read from Milton Freedman, I really like how he made the arguements for free markets.


The Pencil


Free Markets and Healthcare


Comment by Mike Donald on April 11, 2012 at 2:09pm

Chapter 2: Lowering Taxes Cuts How Much From the Budget?

Tom opens up a new hamburger stand in a new city. One of his first big lucky breaks is hiring Ben. Ben is a real go-getter, who is eager to work as much as possible, and who always gives his best.

One day, while unloading the supply truck, one of the workers isn’t feeling well, so Tom sends him home. Ben stops in a little later to pick up his paycheck and offers to help finish up. By this time there is only a few minutes worth of work left, but Tom lets him help anyway. There is so little left to do that Ben doesn’t even bother clocking in. After Ben has worked for about five minutes, the work is done. Tom doesn’t want to let Ben’s work go unpaid, so he gives him one dollar in cash for the five minutes of work. This chapter is about that one dollar.

Because this dollar is part of Ben’s pay, he knows that income taxes for that dollar will be coming out of his next paycheck. Even so, he is quite certain that he can afford to stop at the store on the way home and use the dollar to pick up a pack of gum. So that is what he does. He spends the dollar on the gum, and also pays sales tax in addition to the dollar.

That dollar then becomes income for the store. So, the store receives the dollar, and pays income tax on it.

Later that same day, before Sam, the store’s owner, has had a chance to make a bank deposit, one of the store’s suppliers is having a cash flow problem. He comes to Sam and tells Sam of the trouble he is having, and asks if there is any way that Sam could pay him in cash for today’s supplies. Sam has been doing fairly well, and sees no problem with helping his supplier through a tough time. So, Sam collects the cash that he would normally take to the bank as his daily deposit, and gives it to this supplier. This cash includes the dollar we are following.

When he receives that dollar, as well as several others, the supplier knows that all of this money is income to him, so he will have to pay income taxes on it. He sets aside enough of the money to cover those taxes, and uses the rest for payroll.

In the course of dispensing payroll, the dollar gets paid to one of his workers, who must pay income tax on that dollar.

So, in the course of one day, Ben pays both income tax and sales tax on the dollar. The store pays income tax on the dollar. The supplier pays income tax on the dollar, and the supplier’s employee pays income tax on the dollar. This one dollar has been taxed five times.

(Author’s note: for the sake of this example, Ben could have been working in the finance industry, earned one hundred thousand dollars, and bought a yacht on the way home from work. The story would still be the same, and the numbers would still work out the same way. The one dollar figure and the pack of gum were chosen to be a simple, easy to relate to example. So, don't be fooled by the consideration of just one dollar into thinking that this is not a true representative example of how taxes work!)

Where Tom’s new hamburger stand has been built, all of the tax rates are ten percent. So, for the day in question, our dollar has been taxed five times, and raised fifty cents for the city.

For the sake of argument, let’s go back in time, and replay the day with one exception. The city government was having budget shortages a few weeks back, and voted to double taxes to raise more money. So this time, tax rates are at twenty percent. We go back to the point where Tom is paying Ben the dollar.

Because this dollar is part of Ben’s pay, he knows that income taxes for that dollar will be coming out of his next paycheck. Ben has several bills he must pay at the end of the month; rent, gas & electric, cable, phone, etc. With the high rate of taxation, he knows that he must save every extra dollar to make sure he can pay all of his bills on time. He decides not to buy a pack of gum on the way home, but to put the dollar in his checking account until bill time.

So, in the course of this day, that same dollar now only gets taxed once. The city only raises twenty cents off of that dollar. This is less than half of the fifty cents that were raised when taxes were only ten percent. But that’s not all that happens.

Sam is worried. Nobody is coming into his store to buy gum anymore. And not just gum, many of the products on his shelves that are not basic essentials are not selling. When products don’t sell, Sam can’t make enough money to pay his workers. While he is trying to figure out how he is going to make payroll without having to lay people off, a pesky supplier comes up and starts whining about cash flow problems. Sam has problems of his own, and is not able to do anything for the supplier.

The supplier goes back to his office and has to tell his workers that there is no money to cover payroll. He is very sorry, but he can’t pay his employees this week. He has some bills out to clients, and when the clients pay, he will be able to pay his workers. But until then, he has no money to keep his operation going, and will have to close down. He hopes this is only temporary, but only time will tell.

Now, all of the supplier’s employees are laid off, and it looks like some of Sam’s employees aren’t far behind. The city has to pay out unemployment benefits to more and more workers as business after business lays off employees. This creates an even greater strain on the city’s already overburdened budget. As we saw earlier, because people like Ben are spending less, revenues generated through taxation have gone down since the tax increase. In addition to that, fewer people are paying income taxes because they have been laid off, and no longer have an income. The city is making much less money than before, and is having to pay out much more money than before. This situation is definitely not helping the budget shortages that prompted the tax increases in the first place.

So now, taxes are up, unemployment is up, and the city’s deficit is up. For complicated reasons that may be discussed in a later chapter, this particular situation tends to cause inflation and interest rates to go up as well. All-in-all, the city is experiencing an economic nightmare. Tom is thinking he may have to move his hamburger stand again.

City elections come up, and a new batch of city council members are voted in. They ran on a “cut taxes now” platform. The first thing they do is cut taxes back to ten percent. With all of the new spending for unemployment benefits, this causes the budget deficit to go way up.

Everyone watches to see what will happen. And…nothing happens. So many people are out of work and can’t afford to buy extra packs of gum that the economy doesn’t seem to be affected by the tax cut. But after a few months, people begin to notice that the inflation has stopped going up, and is even coming back down.

Ben notices that since he is not paying so much in taxes, it is like he got a raise. Tom is paying less in business taxes, and so he is able to give his employees a real raise without raising the cost of his hamburgers. So to Ben, it is as if he got a double raise. He goes out and buys not only gum, but also a bottle of soda pop. He starts doing this every week.

Soon, enough people who still have jobs are doing this that Sam needs to hire a few extra people to help take care of all of the customers. These people are no longer collecting unemployment, and after receiving a steady paycheck for a while, are able to go out and buy a few “extras” to improve their quality of life. So, the stores they go to need to hire a few more workers. All of a sudden, several stores in town are unable to keep their shelves stocked. They simply need more suppliers to keep them supplied. Some of the unemployed workers get loans from the bank and start up supplier companies. Their companies are successful, and they hire several more people. There is an economic boom.

Now that the economy is thriving once again, it is important to note that this is where things were when the city had its initial budget shortfall. One of the things the city was forced to do during the economic downturn was to stop spending money wherever it reasonably could. As a result, when the economy goes into its upswing, the city is spending much less than it was before it raised taxes. This decrease in spending, over the course of several years will take care of both the budget deficits and the debt that the city incurred during the years of deficit.

So, some of the things to note from this chapter: Money gets taxed every time it changes hands, and the number of times it changes hands is far more significant to the government’s treasury than the rate at which it gets taxed. However, the rate at which it gets taxed will affect how many times it changes hands. Raising taxes will cause a decrease in revenues to the treasury, while lowering taxes (to a point) will tend to increase revenues to the treasury in the long term (historically, there has been an economic boom about eighteen months after every major tax reduction in American history). When a politician wants to raise taxes, it is not because he wants to raise money for the government, he has other reasons in mind, which may be discussed in a later chapter. And finally, when taxes are cut, doing so does not cost the government anything in the long run, regardless of what the politicians and news media claim.

Comment by Mike Donald on April 11, 2012 at 2:08pm

Chapter 3: The Only Purpose For Investments By Rich People is So They Can Make More Money?

Tom has been operating his hamburger stand for some time now. He has been quite successful. Business has been booming, and he is having trouble keeping up with the demand for the hamburgers he sells. So, to take care of this problem--if you can call it that--he is considering two options. The first option is to close the stand down temporarily for a remodel and expansion. The second option is to open a new store elsewhere in his city.

For the first option, Tom would need to close his stand down for a while. That means his employees won't have anywhere to work, they won't have a job until the stand can be reopened. Also, Tom must consider that his hamburger stand exists on a city lot that has a limited size. If he expands the store, he must take up space that is currently being used as part of the parking lot. Since his parking lot is already often full, this could create problems for his customers and cost him business. Also, closing down his stand would create an inconvenience to his customers. For these and several other reasons, Tom does not like the first option.

So Tom chooses to open a second hamburger stand. Before we discuss the new hamburger stand, let's take a quick look at Tom's past. Tom's dad was not a wealthy man, but he worked hard all his life, and invested some of the money he made. He paid off his mortgage early, then added the amount he had been paying on the mortgage to what he was putting into investments. When he passed away, between the investments and his substantial life insurance policy, his widow, Tom's mom was quite well off. When, some years later, she died, her fortune was to be passed on to Tom. As it turns out, slightly less than half of that fortune, which Tom's dad worked so hard to create, actually made it into Tom's hands. The larger portion that Tom did not see went to the government in two payments. The first payment was something called the estate tax, where the government helped itself to almost half of what Tom's parents wanted to pass on to him. The second payment was in the form of income tax, because the government sees his inheritance as income for him. Once Tom received this inheritance, minus the large chunk that the government took, he decided to move and start a new life. That was back at the beginning of chapter 1. He used much of his inheritance to start up his original hamburger stand, and when that was no longer a feasible operation and he closed up shop, he used most of the rest of his inheritance to move to a new city, where hamburgers were not regulated by the government, and start his current hamburger stand. So now that he is ready to open a second store, he doesn't have that inheritance to invest in putting up a new building. He must find some way to come up with the money he will need.

First off, Tom tallies up his expenses. He needs to buy a new lot. He needs to either build a new building or remodel an existing building on the lot he buys. He needs to purchase the restaurant equipment necessary to run a hamburger stand. He needs to buy supplies: ground beef, buns, condiments, beverages, cheese, etc. He needs to hire workers and start paying them before the first hamburger can be sold. He needs to get the lights, heat and air conditioning running, phones hooked up, etc., which means he has utility bills before he starts making any money at the new store. He has permits to pay for and other fees. He has to pay property taxes on his new lot. And so on. By the time everything is added up, Tom figures he needs about three and a half million dollars to open up a new store. Because business has been good, Tom has just slightly over two million dollars for this project, which means he needs to raise one and a half million more. So, how to do that?

Tom considers his options. He could try to get a loan from the bank. To do this, he will need to have a feasibility study done, and a proper business plan drawn up. These are good ideas anyway, so Tom has already started working on them. He could present these to the bank, and try to get a low interest loan. That would still mean that he ends up paying back nearly twice as much as he borrowed, which, in Tom's opinion, does not make good business sense.

Another, more appealing option is to seek out investors. If Tom can get a few people to put up the money, he can build the second store, and let those people be partial owners of it. They would earn a percentage of the profit equal to the percentage of the start up costs that they paid. And, once the new store was making enough money, Tom could buy them out by paying them what their share of the store is worth. In the long run, Tom could end up owning the store by himself, but only spending one and a quarter times the initial start up costs by seeking investors rather than getting a loan. This is what Tom decides to do, so, Tom sets out on his quest to find investors.

All he needs is the money, then he will be providing jobs for a real estate agent--to buy some property, a construction crew--to either build or remodel a building, city administrators--to procure a business license, necessary permits, etc., utility workers--to provide him with utility services, manufacturers--to produce the equipment he will use in the restaurant, suppliers--who will supply his restaurant with the raw materials he will need to run it, and a crew to operate his new hamburger stand. The crew will consist of a general manager, three assistant managers, a kitchen staff of twelve workers, a front counter staff of twelve workers, four drive through window workers, and a three member overnight cleaning crew. This will allow him to operate the restaurant for eighteen hours a day, seven days a week. So, Tom will give lasting jobs directly to thirty five people, and his new store will create jobs at the companies who supply him. He will also have provided temporary jobs for nearly a hundred other people.

So tom, with feasibility study and business plan in hand, goes out seeking investors to help him build his new restaurant. First, he goes with what he knows: he goes to the local country club, where he is a member, and starts asking some of the wealthier members there about investing with him. The first person he asks is Bill. Bill's response is just a little discouraging. Bill says, "It's really a great plan Tom, and I wish I could invest in it. But with the 'Tax the rich' policies that this new government administration is implementing, I'm not even sure I can keep my own company afloat. If I can't find some way to get out of paying these ridiculously high tax rates, I may end up having to close up shop. That means I'll be laying off over a thousand employees! I'm afraid things are starting to look grim, and there won't be any change in the foreseeable future."

Undaunted, Tom keeps asking around. After approaching about fifty of the wealthiest members of the country club, he keeps hearing the same story. "'Tax the rich' is driving my business into the ground!" "I can't even afford to renew my membership here at the country club. You won't be seeing me around here much longer." "I just had to lay off 500 workers because I'm paying so much in taxes that I can't afford to pay their wages!" "I tried raising my prices to meet this heavy tax burden that the government has imposed, then sales took a nosedive. I'm filing bankruptcy as we speak. I just hope my employees will be able to find good jobs somewhere else." Everywhere Tom turned it was a story of unemployment on the rise because those who should have the money to create jobs were having that money taken away from them through taxes.Next, Tom decided to hold an investment seminar, where he would hire an expert to try to convince people to invest with him. The expert recommended an "invitation only" seminar where they could hand pick those whom they thought would be most likely to invest. They invited 500 potential investors, and 173 of them showed up for the seminar. Those who attended were asked to fill out a comments card at the end. Of the 28 comments cards that were actually filled out, two investors said they could each put up $50,000 to $100,000. The rest of the comments were more of what Tom had heard at the country club. So, of the one million dollars he needed to raise, he now had, at best, two hundred thousand dollars. So, with all of his efforts, he was about 1/10 to 1/5 of the way to his goal.

After reviewing the comments from the comments cards, Tom's expert suggests a different route. Instead of trying to get a few investors to each invest a large sum of money, they would try to get a lot of investors to each invest a small amount of money. Tom had avoided this option initially because of the complications involved. More investors means more quarterly payouts when the business makes a profit, more calculating who gets how much, more paperwork, more checks to write, more envelopes to stuff, and more stamps to put on the envelopes. Besides the costs of paper, checks, envelopes and stamps, there is also the cost of paying someone to do the calculating, write the checks, address, stuff and stamp the envelopes, and get the checks to the post office. While this means more workers will be hired, it also means smaller profits from the business, which makes it that much more difficult to expand again later, and makes it that much more difficult to convince people to invest. But, since this now seems to be the only viable option, Tom and his expert decide to pursue this course of action.

Tom buys newspaper and radio advertisements to let people know about his upcoming investment seminar. The cost of hiring the expert, renting out the room for the first seminar, advertising the second seminar, and renting space for it as well, were not included in Tom's original business plan. As a result, he needs to revise his business plan already. He is now looking for two million dollars worth of investments.

The big day arrives for the second investment seminar. Seven hundred fifty-three people show up! Tom is very excited! Surely he will be able to get the lion's share of what he needs to open his second store from this crowd! Early in the seminar, the expert starts asking audience members a question. He asks them, "What made you decide to come to this seminar?" The answers were not what Tom was expecting. He heard things like, "I just got laid off, and I'm looking for a way to make money that doesn't depend on a job." And, "The company I work for is filing for bankruptcy, so my job isn't very secure. I was looking for a backup source of income." And, "In this economy, it's a good idea to be ready for anything. Having a few investments might give me an extra insurance policy." Tom knows that these kind of responses do not come from people who have enough money to make a serious investment. Small investments make for small payouts, and the few dollars per quarter that these people would likely make off this investment would not be the "insurance policy" they are looking for.

By the end of the day, eighty-three of the attendees were each willing to invest an average of two thousand dollars. So now, Tom has spent about $500,000 on an expert, advertising, and two seminars, and has only raised $366,000, which means that at best, he is $134,000 in the hole. Thanks to the "Tax the rich" policies of the government, job creators no longer have the money they need to be able to create jobs by investing in business ventures like Tom's. Average, middle class investors don't have the money to invest either because they either have lost their jobs, or they are worried about the possibility of losing their jobs at some point in the near future. Tom decides that, although he doesn't want to, the only way to open a second store is to get a loan from the bank.

So, Tom goes to a few different banks, and fills out loan applications. After reviewing Tom's business plan, each of the banks independently determines that, although Tom has good credit, and although the business plan is sound, they cannot give him the loan. Their reasoning? If Tom were to open up the second store, and it was as profitable as the business plan and feasibility study suggest, then the amount of money Tom would be making at both stores combined would put him into the highly taxed, "Rich" tax bracket. At that point, the banks did not believe that Tom would have enough money left over after taxes to repay the loan.

At this point, Tom is forced to indefinitely postpone his plans to open a second hamburger stand. So, the thirty-five new, permanent jobs that his store would create directly will not be created. The additional jobs at his suppliers will not be created. The hundred or so temporary jobs getting his new place up and running will not be created. All because he could not get the investors he needed. The purpose of investments is not to make rich people richer, that is a side effect. The purpose of investments is to create jobs. Then, because someone was brave enough to risk the possibility of losing their money just so they could create a job for you, they get that side effect: a "Thank-you" in the form of the return on their investment. When governments "Tax the rich," jobs stop being created because the rich no longer have the money they need to create those jobs!

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