Thursday, February 24, 2011

Merkel's Bogus Claim

German Chancellor Angela Merkel claims that Ireland's low tax rate helped cause the banking crisis. Although a lower tax rate on some sector of the economy can cause more investment in that sector, it cannot cause malinvestment. Malinvestment is caused by false economic signals from the central bank's artificially lowered interest rate. This makes all economic actors believe that more capital exists for long term investment than is actually the case. Ms. Merkel is deflecting the cause of the banking crisis from excess money creation, caused by the European Central Bank, to bogus and unproven claims that higher taxes will ensure economic stability. It is ever thus with those who live off the efforts of others, as do all politicians. They try to convince the wealth generators that they, the wealth consumers, are somehow responsible for economic prosperity and are due a bigger share of the pie via higher taxes.

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