Friday, July 27, 2012

The Public and Private Sectors ... Only One "Horse" Can Lead Us Out of This Mess

Public sector versus private sector.

Economic security versus economic opportunity.

Which horse will we choose to ride?

But wait, it's a false choice to even ask that question. Only one of the two horses can be ridden.

You see, government (domestic affairs only are being considered herein--- not foreign matters or national security) can't provide us with economic security. Or with economic growth. No matter what anyone says to the contrary. It has nothing of its own. It only can take from others, and especially its citizen taxpayers.

Simply stated, the public sector is nothing more than an intermediary between its various citizens. It performs other roles as well, such as an umpire and policeman, but it adds exactly zero to real economic growth and financial security. To perform its functions, it needs money which it gets from taxpayers.

To the extent that government takes more than is required to perform its legitimate limited functions effectively and efficiently, it harms the overall output of the nation's economy. Taking MOM to convert into OPM should always be minimized by government officials, although it hardly ever is.

America's Two Economies is subtitled 'With Barack Obama, the competition between the private economy and the public economy is clear.' I would add that America is resembling Europe more and more in recent years as government grows and the emphasis on individualism wanes.

Here's the story and the political context behind it:

"For a long time, the United States had one economy. Now we have two economies that compete for America's wealth: A private economy and a public economy. The 2012 election will decide which will be subordinate to the other. One economy will lead. The other will follow.

How the U.S. arrived at the need to choose between two competing economies reveals a lot about the political polarization in the country. Any history of the Democratic Party in the 20th century will recognize its roots in the American labor movement. The party was defined by the names of those unions. The United Mine Workers. The United Auto Workers. The Brotherhoods of Teamsters and Railroad Workers. Consider what those names represented: Both Democrats and Republicans were rooted in the private economy. Unionized workers knew then that this private economy was where they made their living. The arguments were over dividing the productive fruits of that economy. That was your father's Democratic Party.

From the 1960s onward, the professional Democratic Party began to lose its relationship with the private economy. Democratic politicians drew closer to a rising public-sector union movement and its campaign financing, while the private unions declined. This meant the party itself was slowly disconnecting from the machinery of the private economy and becoming part of a rising parallel economy, the public economy of government. . . .

Today the private and public economies are in head-to-head competition for the nation's wealth—with the private economy calling that wealth capital or income, and the public economy calling it tax revenue and making moral claims for spending tax revenue.

Until recently and except for the Reagan years, the Republican Party has largely been a confused onlooker, uncertain how to embrace the private economy. In the 1990s, the party embraced the private sector mainly as a source of contributions via K Street lobbyists. In short, crony capitalism.

With the Obama administration, the tensions between the country's two economies clarified. The $831 billion spending bill in 2009 was intended to stimulate hiring of public-sector workforces but also among the satellite businesses that are subsidiaries of the public economy. Barack Obama's routine use of the traditional private-economy term "investment"—in energy, education and such—is the public economy claiming capital for its needs.

President Obama is telling the private economy it must subordinate itself to the public economy's moral efficacy. The passage in 2010 of the Affordable Care Act, with no Republican support, was justified as a 1960s-type act of moral necessity. The private economy, in his view, can't compete on that basis.
In the November 2010 elections, the private economy pushed back. Two years into the financial crisis and amid tea-party insurgencies, Democrats were swept out of office at every level of government.

These are not small events. Powerful belief systems are in motion today, and they are slamming into each other. Rep. Paul Ryan in the first sentence of his now-famous Roadmap budget said, "Rarely before have the alternatives facing America been so starkly defined." President Obama, announcing his ideas on taxes on July 9, said, "What's holding us back . . . is a stalemate in this town, in Washington, between two very different views about which direction we should go in as a country" (emphasis added).

Those are the two poles in an historic battle over who runs the American economy.

For about 40 years before 2008, spending as a percentage of GDP was around 20%. In 2009, it rose to 25% and has remained at 24% of GDP. This isn't just spending data. These numbers are a proxy for the standoff between the public economy and the private economy.

Some in the Democratic Party argue that this higher, "normal" spending level (the White House projects 22+% of GDP going forward) is necessary to fulfill the commitments our politics have made to retiring baby boomers and others. The role of the private economy in the U.S. will be to support the long-term wants and needs in the public economy.

President Obama is right: This is a choice between two paths into the American future, the clearest choice since the end of World War II. It is a mandate election.

Barack Obama is explicitly seeking a mandate to make the public economy pre-eminent. That is the unmistakable meaning of "You didn't build that." His opponent so far is talking about, but not seeking a mandate for, the other economy. One expects that in time Mitt Romney will seek a mandate equal to Mr. Obama's."

My Take

The U.S. Democratic party today is a minor variation of the socialistic parties so prevalent in the European welfare states. Neither has a clue --- or at least won't publicly admit that it's strictly up to the private sector --- as to how to grow an economy, create employment and stabilize a nation's debt and deficits.

The Democrats and most Europeans continue to take economic growth for granted, having been able to do so for many decades after the end of World War II. They apparently don't realize that times have changed and things are permanently different from the long gone "good old days."

In truth, globalization and excessive national debt loads have ended those "good old days" for good, even though the Democratic party still is unable or unwilling, as the case may be, to recognize this simple truism. Either way, what's done is done and what's gone is gone. The goose that laid the golden egg for so long is in serious need of attention and economic health care.

Meanwhile, today's public sector unions are influential and powerful. All we need do is to look at the state of the public school system in our country's largest cities for confirmation. Meanwhile, underfunded middle class welfare entitlement programs are threatening our nation's economic health and security as medical care and retirement benefits become increasingly more expensive and government mandated.

Since the 1960s, America has progressively tilted toward bigger and bigger government, accompanied by bigger and bigger debts and deficits. And lest we forget, stronger and more global competition has appeared on the other side of the argument.

As a result of all this, the collectivist European welfare state is in the process of falling apart right before our eyes. Of course, our own economy continues to struggle as we follow Europe's lead, even though we're a ways behind them currently. It's not too late for us.

Summing Up

Most importantly, there's a healthy and growing recognition among more and more of We the People that more unfunded and underfunded government mandates won't solve our widespread and burdensome economic problems. And that we're on the wrong financial track.

Accordingly, it's just a matter of time -- -although just how much time I don't know --- before enough of us come to understand and share this simple reality. A simple U-turn is needed.

You see, there can be no contest between the public and private sectors, because the public sector as an economic entity and participant is a mere illusion. It's nothing more than a wealth confiscating and costly intermediary between different groups of citizens.

In the end, the private sector is the only one that can "save the middle class" and lead We the People out of this ugly mess we've created over the decades. So let's stop beating each other up in the name of "fairness."

Thanks. Bob.

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