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Thursday, October 4, 2012

President's Profound Economic Ignorance Was on Display at Last Night's Debate

First, let's make the critical and necessary distinction between being stupid and ignorant. President Obama is not stupid.

But he is obviously ignorant about how our free enterprise market economy functions and why it has been able to provide American citizens with the highest standard of living the world has ever known.

And since adequate job creation is lacking today, as it has been for several years, he should by now at least have learned the basics of economics and our free enterprise system. That he apparently hasn't bothered to do so should be a great concern to all of us as Americans.

In plain language, at last night's presidential debate, the incumbent U.S. President exhibited an amazing ignorance concerning our uniquely special American free market economic system and how it works.

Of course, we all are ignorant about many things. But we're all also knowledgeable about lots of things as well. I can't speak Chinese, for example, and a nuclear physicist I'll never be. But I do have a fundamental understanding of business, economics, law, government and markets.

And while I don't consider myself stupid, I have lots of areas in which my ignorance is pronounced.

But now let's talk about the President and his sphere of ignorance about a market based economy and how it works.

When it comes to job performance, the U.S. President should have at least a basic understanding of how the free market system works. Last night President Obama showed a remarkable degree of  ignorance about the different characterisitics of enterprises operating in the private and public sectors, respectively.

How do they differ? Well, there's competition versus monopoly. That results in a focus on productivity, low costs and quality products and services in the COMPETITION BASED private sector. Not so in the monopolistic public sector. The government agency doesn't have to be productive and neither does it have to achieve low cost status relative to its competitors. That's because it has no competitors. It doesn't have to satisfy customers, earn a profit or provide high quality products and services for which customers will be willing to exchange their money for value received.

The government agency, unlike the private sector company, doesn't have to earn a profit to stay in existence. But so what, says the President. He believes eliminating the "middleman" who is earning a profit and replacing that middleman with a government bureaucracy will magically cause  the government to become the lowest cost, highest value provider in the marketplace. Dream on, Mr. President. Government monopolies don't have to be cost competitive, because they have no competitors. They aren't required to provide a satisfactory product or service to stay in existence.

The example we'll use to prove his "ignorance on display"is the comment about eliminating the "middleman" private sector insurance companies and substituting the government in order to save taxpayers money. As I understand what he was saying, by cutting out the profit factor, costs would be lower and the taxpayer would reap the savings from this middleman eliminating technique.

That's just plain ignorant and contrary to a long history proving otherwise. What government agency is more cost competitive, provides a higher quality product and service or leaves a more satisfied consumer than private sector 'for-profit' companies? What government agency outperforms companies like Wal-Mart McDonald's and Apple in providing customers with what they want to buy at a price they're willing to pay? The drivers' licensing bureaus, the post office or the nation's public schools? Of course not.

Profits are an integral and necessary part of the private sector entrepreneurial risk based free market system in America. It's all about COMPETITION.

My best explanation of the role of profits is that they represent the company's COST OF STAYING IN BUSINESS. They're not something which is a given. They have to be earned. Companies can't charge as much as they choose just because they have high costs, and they want to make sure they earn profits. In the private sector, it is all about PRICE BASED COSTING and not the government's monopolistic COST BASED PRICING approach. Companies that can't compete lose money, lose customers, lose investors and go broke. Game over for the losers.

The best companies control costs, supply goods and services of high quality and compete with others for customers. They're also the most profitable. Consumers win better products and lower prices and companies that satisfy those consumers get to stay in business and grow profits, make investments and provide good jobs. Only by constantly improving their productivity, cost structure and customer service do they stay in business. It's that simple, and our President doesn't get it. Here's why.

If government elimination of the "middleman" were a cost effective approach for taxpayers, the post office would be world class cost effective, and there would have been no reason for FedEx, UPS or others to exist. In addition, through "creative destruction" the government would have embraced e-mail over physical delivery long ago and the post office physical delivery system wouldn't continue to look today like it did when I was a child.

Government monopolies breed mediocrity at best and they are not now, nor will they ever become, customer centered and productivity minded. Unlike private sector for profit companies, no government agency has to make a profit to stay in business.

And absent a government monopoly, my friends, profits are a must. And they are only made by companies that offer customers low cost and high quality products and services delivered in a timely manner. COST, QUALITY AND ON TIME DELIVERY are the "Big 3" of private sector competition.

To repeat the obvious, who among us believes the local drivers' licensing bureau or post office are paragons of customer centered behavior focused on providing customers with the best possible service at the lowest possible cost?

Simply stated, profit centered enterprises are what make the free market system work. They are what have enabled us to have the highest standard of living in the world and the most prosperous citizenry, too. This wasn't accidental or due to government brilliance, intervention and control. It was due to free people acting freely to invest their time, talent and money to build their businesses. Yes, "they did build that."

American Exceptionalism is real. We are unique.

This American dream stuff all happened because individuals were free to pursue their dreams, develop their ideas, take chances and compete for customers. Some won and some lost. It still works that way today.

Candidly, government control stifles competition. It instead fosters monopoly.

As an example, if a student know he'll get an "A" grade regardless of how hard he works or how much he studies, he'll not become a very good student. That's human nature.

If he knows he'll get as much court time as the best player on the team regardless of how well he plays or how hard he works, he'll not become a very good player. That's human nature.

You see, Mr. President, it's all about the impact on performance of the presence or absence of competition and individual incentives. Performance is what moves the society forward, the student forward and the athlete forward. And appropriate incentives encourage continuously improved performance.

No, Mr. President, profit making private sector companies aren't the efficiency stifling bureaucratic middlemen. Government already fulfills that role extremely well.

And it's sad, very sad, that a smart guy like you hasn't yet learned that very simple and basic fact of life. Freedom to do and to dream as we please is both a personal and a moral thing, Mr. President. It's what makes us who we are as We the People.

In summary, government doesn't make anything more efficient or cost effective. Neither does it improve customer service or quality. The three factors of cost quality and customer service are all better when the competitive free market is allowed to work its magic.

It's a certifiable shame that our nation's president apparently doesn't understand that yet.

No, he's not stupid, but he sure is ignorant about how to make the U.S. economy prosper and get people back to work. At least that's the way he acted last night.

Now I feel better. I hope you do, too.

Thanks. Bob.

1 comment:

  1. Pedro the Camel DriverOctober 5, 2012 at 7:22 PM

    "La ignorancia?" Perhaps. Or, a demonic diatribe by an el diablo demagogue designed to damage then destroy as denoted in every tin horn dictator's coup d'├ętat no? Si!!

    I'm putting my dinars (and pesos) on numero dos!

    ReplyDelete