You Think You’re So Smart — 4 July 2011

Liberals are supposed to be the smart ones.  They count among their number most academic types, and of course the elite opinion-setters in the news media, in television and in the entertainment fields on both the East and West Coasts.  By contrast, conservatives are often too dumb to know that they hold views inimical to their own interests – a proposition that puzzles columnist Thomas Frank in his “What’s Wrong with Kansas?

What then explains the fact that so much of liberal opinion is so shallow and superficial?  For instance, liberals have long held that “tax cuts for the rich” were responsible for the deficits of the Bush era, and are a key part of our current debt problem.  Even now President Obama is lusting to reverse those tax cuts.  This, despite the fact that tax receipts skyrocketed after those tax cuts, reaching levels above even what the Congressional Budget Office predicted would be achieved without the cuts.

Another shallow analysis is the conviction that Big Business hates Big Government regulation.  Obama feeds this, with his constant excoriation of Big Oil, Big Pharma, insurance companies and the like.  In actual fact, Obamanomics is a symbiotic joining of Big Business with Big Government, as Washington lavishes subsidies on well-connected companies for favored activities and lets them help write the regulations that effectively suppress competition from smaller, less wealthy start-ups.  Read GE’s annual report and count the references to “partnership” with government.

The latest example comes in an op-ed in the Wall Street Journal by Princeton economist and one-time Fed Vice Chairman Alan Blinder.  He takes aim at the frequently-cited Republican expression, “job-killing government spending.”  How, Blinder asks, can government spending kill jobs?  If the government hires someone, that person has a job; if it buys computers from the private sector, those computer makers have jobs.  How is that different from the same activities going on among private companies?

Of course, in an obvious and superficial way, he is right.  But you don’t have to peel the onion too deeply to see the shortcomings in his argument.  For instance, Obama loves to riff about an abundant future of “green jobs.”  Well, Spain had one of the most ambitious policies of alternative energy generation, and they found that every green job created resulted in the loss of about 2 -2.5 jobs elsewhere in the economy.  That’s because green jobs are uneconomic; if they weren’t you would have private capital creating them.  So the taxpayer money that goes to a green job inevitably draws more than one job’s worth of money from productive enterprise.  It’s simple math.

Liberals were fond of saying, in support of Obama’s “stimulus,” that putting money in needy people’s hands was one of the best things one could do for the economy “because they will spend it.”  As if what the economy needed was for some people (taxpayers) to give money to other people (handout recipients) so they could spend it.  But there’s absolutely no evidence to suggest that that would result in a net increase in spending – it was redistribution, pure and simple, dressed up to look like it was helping the economy.  Did it create jobs? Or did it just create jobs in one place at the expense of jobs elsewhere?

The administration is also proud of the “jobs created or saved” mantra, although their figures on that are very soft.  But many of the “jobs saved” were those of government employees at the state level.  Since the stimulus money eventually ran out, the states eventually had to face their own budget shortfalls, resulting in the loss of thousands of those jobs.  So the jobs saved were merely layoffs postponed.  That’s some help to those particular state employees, assuredly, but was it just treatment of the next generations of taxpayers who will have to pay for that postponement?  And did it really create jobs, even a little?

And then there’s government sponsored destruction.  The “cash for clunkers” program was a marvel of economic nihilism.  First of all, it unquestionably resulted in no significant new sales of cars – it just pulled sales into August of 2009 from later months.  Auto sales for September 2009 were 23% lower than sales the previous September, which was a disastrous month for Detroit.  Not only that, the condition for getting the $4500 government gift was that the buyer trade in a less fuel-efficient car that had to be scrapped.  Taking a productive asset out of the economy can not possibly add to productivity – what it does is increase the cost of similar assets, in this case used cars.  So guess who paid for this hugely successful program (apart from the taxpayers who funded it, of course)?  The low-income people who had to pay more for used cars – or had to do without.   Show me where the new jobs are in that.  Billions down the rat hole.

But, Blinder says, the argument that all this spending is just money diverted through taxation from others’ spending doesn’t apply, since these days we raise our money by borrowing.  And there’s plenty for everybody; government can’t be sucking up all the available capital, because if it were, interest rates would be much higher.  Interest rates are low, clear evidence that our borrowing does not harm the economy.  So what’s the worry?

Borrowing money now requires tax proceeds in the future.  So it’s merely a deferral of taxation, not a substitute.  And here is the nasty little troll in the calculations that people seldom pause to consider: the taxation to be raised in the future to pay down our metastasizing debt is on top of the taxation that will be needed at the same time to pay ongoing expenses.  We would have to run monstrous surpluses on our basic budget – and do so for decades – to even begin to reduce that debt mountain.  And of course, interest rates won’t stay low forever which will only make the problems worse.

People know this, and it is keeping them from taking risks, launching ventures, creating jobs.  Giving certain other people money so they can spend more won’t significantly change this.

So it turns out there are lots of ways in which government spending adds to the deficit but doesn’t do much to increase jobs – and in fact is a drag on job creation.  That Blinder so blindly asserts that spending – more spending, in fact – is the way to address the current unemployment crisis leaves me with just one thought: remind me not to let my child study with the Princeton economics department.

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One Response to You Think You’re So Smart — 4 July 2011

  1. Pingback: One Man’s Ceiling is Another Man’s Floor | thefundamentalthingsapply

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