Sunday, June 10, 2012

An Essay on Vote Getting 101 ... Pandering to Public Sector Workers ... "The Private Sector Is Doing Fine" Remark by President Obama Is Quite Revealing


Want a lesson in why politics sucks? Well, listen up.

On Friday President Obama said "The private sector is doing fine."

Then on Saturday he followed that comment up by saying we need to hire more teachers.

Obama Urges Congress to Back Education Package has the Saturday story:

"U.S. President Barack Obama used his weekly radio address to the nation to urge Congress to pass a series of economic proposals that will help put teachers back in the classroom.

Mr. Obama said teachers across the U.S. have been laid off because of the weak economy. He pointed to thousands of teacher layoffs in two of this year's election-battleground states—Pennsylvania and Ohio—to make his case and said nationwide school districts across the U.S. have lost 250,000 educators in the past three years.

"When there are fewer teachers in our schools, class sizes start climbing up," Mr. Obama said on Saturday. "Our students start falling behind. And our economy takes a hit."

Mr. Obama last year proposed a series of economic ideas that would have put construction workers, police and teachers back on the job. Congress has rebuffed the proposals amid concerns about how to pay for them, and Mr. Obama has used lawmakers' reluctance to brand them as a do-nothing Congress.

"When states struggle, it's up to Congress to step in and help out," Mr. Obama said, adding, "We're still waiting on Congress to act.""


And that, my fellow Americans, is a sad and extremely revealing commentary about how dumb We the People are supposed to be. The total failure to even attempt to distinguish between the effects of private sector wealth creation and the public sector's spending thereof.

When the private sector is in fact "doing fine," then there will be sufficient funds to hire more public sector workers like new teachers. But the private sector is not doing fine, and the private sector is the source of all wealth creation in America. That's how we're able to fund government and pay the bills. Not by borrowing from the Chinese to hire more teachers in a troubled and debt ridden economy. First things first.

So how are we doing, if not fine? Well, we're running trillion dollar annual deficits with no end in sight. And when more debt is piled on existing debt, the private sector's wealth creation ability can't keep pace with the growth in government spending.

So what the President is really saying is let's borrow some more money from the Chinese and pile up some more debt. That doesn't mean "the private sector is doing fine." It simply means there's an election this fall. Accordingly, who votes for whom and in what key states will make the difference as to who will win this November. And that's why President Obama said what he said.

Teachers and other public sector workers in Ohio, Pennsylvania and other battleground states (don't forget Wisconsin) are likely to vote for President Obama. Oil workers in Texas and North Dakota aren't so likely to vote for the Dems. Hence, the private sector is doing fine and the help needs to come to the teachers remark. And that's why politics sucks.

Explanation of Simple Truth

But lest we be accused of old fashioned patriotism, let's use some hard headed fact based analysis about how things really work in the U.S. economy. We'll adopt the KISS approach. Here goes.

The difference between private and public sector growth can be easily explained by the one farmer example, or if you prefer, the one oil producer example. We'll stay with the farmer today.

Then we'll add to the mix the one more teacher or newly hired government worker example.

To the economy, it's simply a matter of raising enough corn or producing enough oil to pay for the public sector teacher that we want to hire or avoid the added debt that we want to avoid, assuming we do in fact intend to make an effort to live within our means someday. In any event, consider the following example of the farmer and his corn.

The farmer raises corn and then can do with it one of four things --- (1) consume it, (2) save or invest it, such as buying more machinery to increase corn output, (3) trade it for other things such as oil, corn production machinery, clothes or whatever, or (4) transfer the corn produced, voluntarily or otherwise, to others in the form of gifts or taxes. 

Corn use #s 1-2-3 will help the farmer. Corn use #4 will be used for the benefit of others.

Friday's Press Conference Remarks

Now let's hear the perhaps unintended but nevertheless loud-and-clear message from President Obama Friday in The President on Growth:

"This . . . was far more revealing for what it said about how he (President Obama) thinks an economy grows. His line about "the private economy doing fine" was followed immediately by a complaint that America's real growth problem today is shrinking government. Here's the complete context:

"The truth of the matter is that, as I said, we've created 4.3 million jobs over the last 27 months, over 800,000 just this year alone. The private sector is doing fine. Where we're seeing weaknesses in our economy have to do with state and local government—oftentimes, cuts initiated by governors or mayors who are not getting the kind of help that they have in the past from the federal government and who don't have the same kind of flexibility as the federal government in dealing with fewer revenues coming in.

"And so, if Republicans want to be helpful, if they really want to move forward and put people back to work, what they should be thinking about is, how do we help state and local governments and how do we help the construction industry."

Mull that one over. GDP growth in the first quarter was a measly 1.9%, revised down from an initial 2.2%. The President's response is to say as his first policy priority that the federal government should borrow or tax more so it can then finance more hiring by state and local governments. Spur the economy by growing the size of government. . . .

Mr. Obama also misdiagnoses state and local government layoffs. They aren't the result of falling state and local revenues, which have increased by 6% over the last two years, according to the Census Bureau. The problem is that the cost of worker benefits is growing faster than revenues. Governments are having to lay off workers to pay for their rising pension and health bills.

That's especially true in states that haven't followed the example of Wisconsin's Scott Walker and altered their benefits or reformed collective bargaining. Think California and Illinois. Mr. Obama is asking Congress to tax Americans from every state more, and borrow more from China, to send money to states that have been the most spendthrift.

If the President really wants to help state and local governments, he'd campaign with Chicago Mayor Rahm Emanuel for pension reform. Or he'd join Mayor Chuck Reed in San Jose to praise that city's voters for passing a reform referendum this week. Both mayors are Democrats.

The fair if depressing takeaway from Mr. Obama's press conference is that he continues to believe, despite three and a half years of failure, that more government spending is the key to faster growth and that government really doesn't need to reform. This is how you get a jobless rate above 8% for 40 months and the weakest economic recovery in 60 years."

Simple Math ... Zero Added Yields Zero Extra

Now let's return to our private sector entrepreneurial farmer.

Private sector growth -- more corn production -- means lots of good things for the farmer but everybody else as well. For the economy as a whole, it means more consumption, investment and trade. That's the effect of the 1-2-3 approach cited above.

Number 4, however, is the public sector transfer, voluntary or not, approach. It's not wealth creation  but rather wealth redistribution. No added corn output means no extra consumption, investment or trade.

In other words, choosing #4 does not produce any more corn but simply redistributes that corn which farmer A previously produced. Thus, farmer A's corn can be taken by the government in the form of taxes and used to hire more teachers, as the President suggests. But it won't yield any additional corn.

And after we've taken all the excess corn from farmer A in the form of taxes (#4) or savings (#2), we'll have to borrow corn from China and others to pay for the teachers we're hiring. That's the situation we're in today. And our kids and grandkids will get the bill.

Summing Up

But that's not necessary if the private sector really is "doing fine." We'd be creating more corn, producing more oil or manufacturing more products that people want to buy.

For example, if we produced more oil, we'd have more to consume (#1) and trade (#3), thereby bringing more corn to the government coffers in the form of higher taxes. And we'd have more money to invest and buy new machines (#2) to produce more corn and manufacture other products to sell to others.

In simple terms, we'd have created more output by producing more oil.  Just like we'd create more output if we produced more corn.

Producing more teachers by taking corn away from farmer A and giving it to the newly hired teachers won't generate any more output or corn. And if we have no "excess" corn that we've saved, borrowing from the Chinese to pile debt on debt will only make the indebtedness hole deeper for future generations of American taxpayers.

There is a huge difference between the private and public sectors, Mr. President. One grows corn and the other eats the corn that has been grown.

And taking it from farmer A and giving it to teacher B doesn't create any more American corn.

On the other hand, producing more oil would result in a completely different outcome. The employees hired to build the infrastructure, drill the oil and produce it, and then distribute and sell that oil throughout the world would generate real economic output, in turn providing more real funds for the government coffers. That could be used to reduce deficits, repay debt, and hire those teachers --- and pay for them at the same time.

But if "The private sector is doing fine." --- as the President says, then I guess how much debt we incur to hire more public sector workers such as teachers so the President can get more public sector votes this fall really doesn't matter.

Well, it matters a whole lot to We the People.  Pass the word.

As I said, politics sucks.

Thanks. Bob.

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