Sherrod Brown's 'stuck-on-stupid' economics

In yesterday's Washington Post, our Democrat Senator Sherrod Brown said:

“Everybody knows that government creates jobs.”

I kid you not.

He continued:

“Government creates jobs in highways. We hire private contractors. That creates other jobs. It builds an economic foundation for job creation.

“During the fifties, the sixties, the seventies, the eighties, the United States had great infrastructure programs. We were the envy of the world. Those are clear formulaic job creating strategies that we know.”

Can you say 'stuck-on-stupid'?

To be fair, he is technically correct that government spending can create temporary jobs - but he fails a basic economic lesson when he refuses to acknowledge that such spending comes at a cost to the private sector, which is the only true place where growth can occur.

You see, there is a difference between jobs and growth.

Government could pay us all to dig ditches. And if they wanted to employ us for a long time, they could give us only spoons to move the soil. Think about how many people could be employed if only the government did that!

But growth - the economic engine that results in long-term jobs and employment - does not come from government. It comes from the private sector when a company creates a product that others choose to purchase, creating the need for supplies and employees and transportation and marketing, etc... This is what builds "an economic foundation for job creation."

Government infrastructure projects do best when they're responding to the needs of the private market - not when they are 'busy work' in order to artificially inflate employment numbers or when they are nothing but pork or special interest projects of politicians (high-speed rail, anyone?).

Josh Mandel, Brown's opponent for the Senate seat in November, obviously has a better grasp of economics (emphasis added):

"Sherrod Brown's statement demonstrates that after two decades in Washington and 38 years running for political office, he is out of touch with struggling private sector job creators and millions of Americans looking for work but can’t find it. I believe the only way forward is to empower hard working Americans. If more wasteful Washington spending was the answer, the problem would have been solved long ago."

No matter where you stand on any other issue, the fact that Brown thinks more government spending is the solution to our economic woes should cause you to vote for Mandel in November.

The fallacy of 'giving back'

While this idea of 'giving back' has long been a pet peeve of mine, I must admit that this particular post was inspired by Walter Williams' column, "Understanding Liberals," where he concludes:

When a nation vilifies the productive and makes mascots of the unproductive, it doesn't bode well for its future.

Throughout the column he talks about the liberal concept of 'giving back' - rich people must be forced to 'give back' to the poor, as if what they'd earned had been taken forcibly from someone else. As Williams explains, liberals have a "misunderstanding" of the sources of income:

Suppose the true source of income was a gigantic pile of money meant to be shared equally amongst Americans. The reason some people have more money than others is because they got to the pile first and greedily took an unfair share. That being the case, justice requires that the rich give something back, and if they won't do so voluntarily, Congress should confiscate their ill-gotten gains and return them to their rightful owners.

A competing liberal implied assumption about the sources of income is that income is distributed, as in distribution of income. There might be a dealer of dollars. The reason why some people have more dollars than others is because the dollar dealer is a racist, a sexist, a multinationalist or a conservative. The only right thing to do, for those to whom the dollar dealer unfairly dealt too many dollars, is to give back their ill-gotten gains. If they refuse to do so, then it's the job of Congress to use their agents at the IRS to confiscate their ill-gotten gains and return them to their rightful owners.

Williams, in his plain and succinct language, details why this is a fallacy and certainly a wrong assumption to make:

Who should give back? Sam Walton founded Wal-Mart, Bill Gates founded Microsoft, Steve Jobs founded Apple Computer. Which one of these billionaires acquired their wealth by coercing us to purchase their product? Which has taken the property of anyone?

Each of these examples, and thousands more, is a person who served his fellow men by producing products and services that made life easier. What else do they owe? They've already given.

If anyone is obliged to give something back, they are the thieves and recipients of legalized theft, namely people who've used Congress, including America's corporate welfare queens, to live at the expense of others.

But it's not just in economic terms or redistribution of wealth that this concept exists. It's also routinely espoused by candidates as their reason for running for office, which is where my pet peeve comes in.

Too many candidates have no idea why they're running for office - other than they want to - but they can't come out and say "I just want to be..." a school board member, councilman, mayor, representative, senator, etc... That would be selfish, wouldn't it?

They don't say they're running with specific goals in mind, like reducing taxes, cutting costs, enlarging government, rewarding their friends. Such issues, whether liberal or conservative, don't resonate well with voters and have other, controversial, concepts associated with them.

So rather than tell the truth, they state that they want to 'give back' to the community.

My first thought when hearing such a phrase is: "Give back - what have you taken?!? And if you took something, running for office isn't the way to return it - that just puts you in a position to take more!"

Most who make this claim cannot even explain, when asked, what it means. They'll say that their 'community' has helped them in some way - been good to them, educated them, provided a safe place to grow up, given them an environment of clients for their business, etc...

But those things are 'purchased' - in fact, the education and safe environment are clearly paid for by themselves and their own families through income and property taxes and even fees. As for clients, that's a free exchange of goods - people willingly purchasing a product or service which has been offered. That's not a 'taking' (unless you're bilking them in some way) but an economic transaction.

Of course, in today's world, many people see such transactions as 'gifts of government,' failing to understand the economic principles behind the free exchange of goods, services or products. Too many think that their safety, for example, is not something purchased but something they, as a member of a community, are 'entitled' to without consequence (cost) and must, therefore, be 'repaid' to the community as a collective.

It is the implied collectiveness that so concerns me with this 'giving back' concept. It is as if they are saying that everything you have belongs to the community as a whole and you cannot earn them, as a result of your hard work, labor or ingenuity; they are 'granted' to you by the community as a whole which is responsible for dealing them out, obligating you to 'repay' them at some future date through service to the collective.

This collectiveness approach is clearly anti-American, as it is the opposite of individual liberty with the resulting consequences/rewards.

But there are instances when candidates have been the beneficiaries of charity - either by groups of people coming together in an organization or by individuals. If, in fact, a candidate has been such a recipient of someone else's charitable efforts, the way to 'give back' isn't to run for office, but to serve in a similar capacity, either by repaying to the individual(s) or organization through service or donations, or by 'paying forward' to some other in a similar circumstance.

The fallacy of 'giving back' as a reason for running for office is even more onerous when one considers the authority of such offices sought. Most individuals who are elected do not approach the duty of the office as 'service' to the community but as an authority over the community (or a warped sense of service being to tell others what is best for them despite their own opinions or wishes)- instituting laws, rules, regulations, fees, taxes, etc... to accomplish their own personal goals, even when such goals are contrary to the community as a whole.

So when I hear a candidate/politician say they want to 'give back,' I know two things:

1) They really don't know why they are running for office, or, if they do, they don't want the real reason known, and

2) They aren't going to be the type of representative that I want in a position of authority, as they clearly do not understand freedom versus collectivism and will make decisions based upon their 'misunderstanding.'

Top 10 worst economic myths

Every year the Business & Media Institute reviews the year's news and comes up with their top 10 worst economic myths. Here is their 2010 list:

10. GM Repayment Shows Taxpayer Bailout Worked

9. All the Economy Needs is More Stimulus

8. Soda is Like Cocaine and Ads Cause Obesity

7. Obama the Tax Cutter

6. The Tea Parties are Astroturf, but Green Groups Aren't.

5. Despite Largest Budget in History, Obama is Fiscally Conservative

4. Lack of Press Freedom in Gulf Doesn't Point to Obama

3. Nearly 10 Percent Unemployment Isn't So Bad

2. ClimateGate? What ClimateGate?

1. The Chamber of Commerce is Taking "Secret Foreign Money" for Election

For details and background on why these items made the top 10 worst economy myths list, see the full article here.

Tax hikes, 2011 economic collapse and the impact on public budgets

We're all being told by politicians at just about every level of government that as the economy improves, revenues for government will increase.

This is not necessarily a wrong premise, since increased economic activity obviously provides more 'income' that government can tax.

However, when government plans to increase the amount of taxation on such 'income' whether it be dividends, wages, capital gains, etc..., people will make plans to reduce what they have to pay and to increase the amount of money they can keep.

Arthur Laffer, in a column in the Wall Street Journal (subscription may be required), makes the argument that people will maximize their income this year to take advantage of the current - and lower - tax rates. He predicts this will have a devastating impact on our economy next year when the economic activity would have normally taken place.

This does not bode well for budget projections or for politicians who are not making cuts in spending now hoping for increased revenues next year.

Toledo's elected officials have already expressed such hope for future revenues and are counting on increased monies to pay for costs they've pushed into next year. They've deferred police overtime until 2011 when it will be paid out at a higher hourly wage since police will be getting a pay increase as of January 1.

But if Laffer is correct, those hoped-for revenue increases will not materialize, leaving us with no additional funds to pay for the extra/delayed costs we know will have to be paid.

So what then? Even more taxes foisted upon us? Well, that seems to be the cycle....

When will they learn?

The 'appearance' of economic growth

This morning on NewsTalk 1370 WSPD, a caller had a question for Rep. Bob Latta who was scheduled to call in to discuss his no vote on the stimulus bill.

The caller wanted to know why Latta would vote no on the bill when there was a sod company in his district that might have benefited by one of the provisions in the bill - to spend $20 million on sod for the National Mall.

Latta explained that the bill as a whole was bad and wouldn't do what was promised - but there's an even better answer that demonstrates the reason why conservatives don't support government spending as 'economic development.' However, given time constraints, Latta probably wouldn't have been able to give it.

Suppose, for instance, that the local sod company decided to go through all the headaches and red tape of doing business with the federal government and then actually got part of the contract for supplying the sod. The owner would have a single large order paid for with tax dollars.

Now, those tax dollars have to come from somewhere, so either the government borrows the money (increasing our debt and subtracting dollars from future projects in order to meet the interest payments) or it taxes us more in order to raise the funds. It could also print up more bills, leading to inflation.

Regardless, the government 'takes' (in one form or another) the money from us. That means that none of us have the funds to replace our own sod. The local company has the single order which probably won't be duplicated. Potential customers in this area are left with less funds so they won't be ordering from him. Government - in spending this way - creates the appearance of economic growth, but no growth has actually occurred.

Now, if the government gave every taxpayer (not every citizen, but everyone who actually pays taxes) a reduction in their tax rates, every taxpayer would have more money. Those taxpayers would then either spend it, invest it or save it. If they spend it, they generate the activity that leads to economic growth, creating a demand for products and services. If they invest it, it provides the equity and funds for companies to do capital projects, like upgrading equipment or facilities. Again, that generates the activity that then leads to economic growth. If they save it, the bank they use has higher assets and can loan more.

And the local sod company would have many potential clients with more disposable income to provide a long-term customer base for their own growth.

And all of this would happen without government spending a dime - all government would have done is change a policy.

So which is the best way to 'stimulate' the economy?

I'd say the tax cuts, but then we're dealing with a Speaker of the House who believes that food stamp handouts "bring a bigger return than the tax cuts." No wonder the stimulus bill passed.

Of course, I'm reminded of the quote from President Ronald Reagan who said:

"The trouble with our liberal friends is not that they're ignorant: It's just that they know so much that isn't so."

Accurate numbers or political spin?

Fellow Samsphere blogger, Skip, of Granite Grok, has an intriguing post about the economy. He takes a look at the status of the economy in 1996, when many were claiming things were good, and compares it to today, when many are claiming we're in a recession.

He references this article:

Democrats on the Economy in 1996:
“Our economy is the healthiest it has been in three decades.” (President Bill Clinton, State of the Union Address, January 23, 1996)

Democrats on the Economy in 2008:
“The bottom line is that this administration is the owner of the worst jobs record since Herbert Hoover." (Senator Charles Schumer, Press Release, March 7, 2008)

The numbers in March 1996 were slightly worse than today. But in 1996, these figures were being hailed as good. Granted, the housing market is in a much-needed correction and the credit crunch has some people concerned. But when it comes to the labor market, I think I'd take today's numbers over those from 1996.

So is it the economy? Or is it the politics?

Tidbits

* Revolver, a Findlay restaurant specializing in haute cuisine, garnered a mention in the Wall Street Journal's weekend edition June 2/3...congrats to them!

* Also seen in the WSJ, was an interesting letter to the editor by Dr. Stephen Ball, Lourdes College Associate Professor and Chair of the Department of Leadership Studies. He took exception to the characterization of the woes of the West Outer Drive neighborhood in Detroit (an article about the effects of sub-prime lending). He says, "An element that comes through in almost every story of subprime-lending failure is the inability of borrowers to take personal responsibility because of the ignorance of personal finance concepts and their application." He advocates for problem-based learning in K-12 math curriculum. Way to go Prof. Ball!

* And while on the subject of economic ignorance, I came across this quote by Winston Churchill. "The multitudes remained plunged in ignorance of the simplest economic facts, and their leaders, seeking their votes, did not dare to undeceive them."