American Elephants

President Obama’s Really, Really Bad Math. by The Elephant's Child

President Obama held a press conference today, and managed to commit a terrible gaffe. He said “the private sector is doing fine.” Here’s the whole quote:

The truth of the matter is that, as I said, we 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, you know, 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.

James Pethokoukis, who is very good at this kind of thing, says:

Private-sector jobs have increased by an average of just 105,000 over the past three months and by just 89,000 a month during the entire Obama Recovery.

In 1983 and 1984, during the supply-side Reagan Boom, private sector jobs increased by an average of 292,000 a month. Adjusted for population, that number is more like 375,000 private-sector jobs a month.

(Aside:) I wonder how many people are just turned off, at this point, by more numbers. The efforts to make American students love math have not been very successful, and it may be hereditary. When your kid brings home some math problems that he can’t figure out — how many parents just make the situation worse, and continue a distaste for math in another generation?

To keep it simple, I wrote down this number from a reliable source, I just don’t remember who it was. To keep up with population growth, we would need to add 125,000 new jobs each month. So we would need 1,500,000 new jobs in the last year, so Obama’s job creation came up 700,000 short. Or to take James Pethokoukis’ average number of 89,000 a month — Obama would have needed 1,068,000 jobs in the last year to keep up with his own average.  800,000 just won’t cut it.  Somebody’s math here is wrong.

Somebody apparently alerted Mr. Obama to what he has said in the press conference, so he rushed back for the nearest microphone to say no, he didn’t mean that “the private sector was doing fine.” What he meant was that Congress had to stop being lazy and not doing anything and pass his jobs bill. Congress has no interest in passing his jobs bill, and has rejected his budget unanimously.

The President has held 16 ‘campaign events’ over the last 7 days and flown in Air Force One to 6 states.  More campaign events that all previous presidents, but he likes campaigning, it is the actual job of being president that he doesn’t seem to care for.

Is It A Company’s Responsibility to Create Jobs? by The Elephant's Child

An article in the Wall Street Journal today (subscription barrier) tackles the question : Are Companies Responsible for Creating Jobs?, and posits that question as one particularly raised by the Occupy Wall Street protests. Writer John Bussey stipulates that the agenda of the demonstrators is a fuzzy one “ranging from income inequality to poor housing to executive pay.”

 I am, thank goodness, far removed from the protests, so I know only what I have seen in photographs and videos, but the common conception of the protesters as young people and students is inaccurate as well. Lots of old-line communists, middle-aged sixties leftovers, socialist literature and Ché tee shirts, but they may not be camping out. Pavement is hard on old bones.

There is an enormous amount of confusion about creating jobs. President Obama clearly believes in government as a job creator. Others complain about American businesses sitting on mounds of cash, yet not observing their social responsibility to create jobs. Mr Bussey’s article is quite fair and states what the polls show as well as Milton Friedman’s take on the question:

Milton Friedman, the Nobel laureate economist, blasted the very idea of corporate social responsibility four decades ago, calling it a “fundamentally subversive doctrine.” Speaking for many capitalists then and now, he said, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.”

Companies shouldn’t spend profits on unrelated job creation or social causes, he said. That money should go to shareholders—the owners of the companies. Pronouncements about corporate social responsibility, he added, are the indulgence of “pontificating executives” who are “incredibly shortsighted and muddle-headed in matters that are outside their businesses.” And that indulgence can lead to inefficient markets.

If a job is created, who pays the bills?  Each job comes with a salary or pay scale, and most add the cost of assorted benefits and taxes. When a new government job is created, it does indeed put food on the table of the new worker, but that salary, those benefits and the food on the table are paid for with taxpayer dollars — not ‘government money’ for in America there is no such thing as government money — for it all comes from taxpayers, and is a drain on the economy.

Who pays for jobs in the private economy? The job is a cost to a business. It is paid out of the profit. Profit is not a bad word, it is the only reason for a business to exist. If a business does not make a profit, someone still has to pay for the costs. That is the reason behind layoffs and the reason behind bankruptcy. Companies create jobs when they expect growth in the economy that will pay for the ongoing cost of the job, and when there is a real need for someone to do the work that the job entails.

Obama’s failed American Jobs Bill proposed to deliver a $4,000 tax credit, one time, for businesses that created a job for someone who had been unemployed.  Even if the job paid only around $25,000 a year, the employer is on the hook for benefits, FICA, unemployment insurance, as well as all the office space, equipment and amenities that the job requires. Why would Obama believe that a one-time $4,000 tax credit would be an incentive for a cost that continues for years?

Jobs are created by a growing economy, not the other way around.

So the question is not how do you create jobs— the question is how do you create a growing economy? You don’t do it with infrastructure banks, nor with government jobs programs, nor by turning government into a venture capitalist to support fledgling businesses that real venture capitalists find too risky.  Creating jobs does not lead to growth and prosperity.  Growth and prosperity create jobs. A growing company has more work than its employees can complete. A growing company needs more hands, more experience and more ideas.

According to the White House Office of Management and Budget (OMB) Americans spent 8.8 billion hours filling out government forms in fiscal year 2010. Those hours are sucked out of the productive economy — whoever filled them out was paid for their time. A new regulation for grocery store food labels to indicate which foods are healthy foods would entail endless hours complying with the regulation and endless dollars in expense for producing new lables.When you have government offices full of people who have never worked in a business, they do not understand the costs their ideas involve. At $20 an hour, those 8.8 billion hours wasted on compliance activity would come to $176 billion, which is way more than the cost of stimulus jr. that Obama is trying to flog through Congress.

We have a president and an administration that want to create jobs for the unemployed; they just don’t get how it is done, and they have a mindset that refuses to accept the ways to create a growing economy. They despise corporations, think they have too much power, and cannot conceive reducing the corporate income tax (the world’s highest), reducing regulation (corporations are evil and must be controlled), cannot conceive of a corporation that would not pollute unless forced (by wise regulations) to save the planet.

Conservatives keep explaining how growth is created, and liberals keep turning it down. Go figure.

What About the “Fat Cats” in the United States Congress? by The Elephant's Child
December 15, 2009, 1:00 am
Filed under: Capitalism, Domestic Policy, Economy, Taxes | Tags: , ,

Obama met with Wall Street Bankers after announcing on 60 Minutes that he “did not run for office to be helping out a bunch of fat cat bankers on Wall Street.” Obama has made it clear that he prefers to blame Wall Street for the financial crisis; ignoring the real cause — which began with the Community Reinvestment Act passed in the Carter administration and was often amended to force banks to make more home loans to people who did not qualify for loans under normal prudent banking rules.

Those mortgages were bundled as in large packages as investments which were rated by the agencies that rate bonds who said they were good investments.  A big part here was played by misguided computer models  in the risk management area; the same sort of computer models that have been predicting the future of climate.

The Prudent Bear explains:  “Investment banks managed their risks based on the “Value-at-Risk” risk management paradigm, which assumed that the distribution of securities’ returns was approximately …normally distributed, with a very low probability of high losses.  The “Basel II” system of global capital adequacy standards for banks, which came into effect in 2008, just in time for the crash, was so impressed with these models that it ruled that any bank using such obviously sophisticated and superior modeling techniques could calculate risks on its own, without reference to the crude guidelines deemed appropriate for smaller, less mathematically attuned houses. The Securities and Exchange Commission (SEC) essentially agreed with the Basel Committee; from 2004, it allowed the largest U.S. investment banks to manage their own leverage, under the theory that no mere regulator could match the exquisite precision of a modern VaR-based risk management system.”

The gist of that is that predicting the future depends on very complex models, and nobody really knows enough to program adequate models.  Doesn’t work for investment banks, doesn’t work for climate science.  There are simply too many unknowns, and the math is too complicated.

In Wall Street’s case the faulty models led to losses in the financial system in excess of $1 trillion; and the costs to governments of moneys wasted in the futile attempt to stop “global warming” haven’t even begun to be totaled up.  It will reach shocking sums even if we manage to avoid cap-and-trade or the EPA’s ridiculous attempt to regulate carbon dioxide.

The banks should have known better, for they have had prior experience with faulty financial models, and governments should have known better than to bet their GDP on controlling something that we all exhale.

Obama’s anger is misplaced.  He voted for expansion of  sub-prime lending, he worked with ACORN, encouraging them to demonstrate and protest, to force banks to make more loans to unqualified borrowers.

What Obama is angry about are bonuses awarded to investment bankers.  He claims to be angry because it is so unconscionable when so many Americans are unemployed, but this is sheer hypocrisy when the government is spending money in the trillions of dollars in completely unaccountable ways.  The excesses of government salaries, often twice as much as the wage for the same work in the private sector, are all over the front pages.  The left has always been angry with Capitalism, their name for the Free Market.

The bankers listened politely, but they have no intention of making new loans to risky borrowers, in spite of the President’s urging in the hopes that they will loan to small business, getting the economy that Obama is doing so much to destroy, creating jobs again.  The left has never understood how to create jobs, but they sure know how to destroy them.

How Jobs are Created, Part II. by The Elephant's Child
December 10, 2009, 3:50 pm
Filed under: Capitalism, Economy, Politics | Tags: , ,

I have just been listening, on the radio, to a conversation between Minority Leader John Boehner and Michael Medved concerning a meeting of Congressional Republicans about jobs with President Obama.  Republicans urged the president to put a freeze on spending, for the EPA Endangerment Finding and  the Health Care bill are huge job killers.

The president was aghast. Everyone knows that to create jobs we have to spend lots of money.  Borrowing it makes no difference.  It was Republicans and Business that were holding employment down.  Boehner said they used the examples of some of the truly wasteful 200 earmarks to show how spending was ineffective, but that the President  just didn’t get it. The president said that the problem with the economy was that the GOP was scaring people. He said angrily, “Name me one economist who wants to cut spending now!”

The Republicans in the meeting were shocked at the extent to which the Democrats simply didn’t get it.  The president sees Republicans as evil people who are working against him, which certainly does pretty much eliminate any bipartisanship.  Interesting.

There is Nothing New in the Obama Administration, Just More of the Same Old Tired Ideas. by The Elephant's Child

President Obama seems to have much the same view of money as some of his most ardent supporters.  The government has money, and he gets to spend it, with the help of Congress.  And where does the government get the money?  The government takes the money from undeserving rich people, and it needs to be spread around to people who need it more.

The White House is finally beginning to realize that in spite of their well-intentioned Stimulus Plan, somehow it isn’t working.  The jobless rate keeps going up.  Teenage unemployment is over 50% (we told you that would happen if you insisted on raising the minimum wage).  California’s great Central Valley has unemployment rates reaching 40% in some areas.  Michigan has double-digit rates of joblessness. Christina Romer and Jared Bernstein, White House Economists, estimated that the spending of the Stimulus plan would keep the jobless rate below 8%, but that was then and this is now.

Alarmed by the rising rates, Democrats are rushing to “do something;” after all, there are elections next year.  The White House solution seems to be to bribe employers to hire new workers — only for a couple of years.  The current rate is 9.8% and may well continue to rise or at least stay high well into the election campaign of 2010.

Few things so concentrate the minds of politicians as the threat of very angry voters.  The Wall Street Journal reports:

The tax credit would also inevitably go to some employers already planning to hire, or reward companies that lay off some workers only to hire others to take advantage of the tax credit. And it would reward parts of the country that are growing, such as Texas, at the expense of those that aren’t, such as Michigan. In other words, it is a very inefficient business subsidy.

We know all this because a new jobs tax credit has already been tried—in the Carter Administration. In 1977 as he entered the White House, Jimmy Carter proposed a jobs credit and a Democratic Congress passed it. Its unfortunate history was recounted in 1980 by then-Treasury official Emil Sunley in a chapter of “The Economics of Taxation,” a book edited by Henry Aaron and Michael Boskin for the Brookings Institution.

The lack of job creation is a huge problem.  The misconceptions of the White House about America’s small business job-engine are really quite astounding.  When you keep imposing financial burdens on hiring, you are not going to get very much of it.  When government is imposing new taxes, raising health care costs, raising energy costs and at the same time demonstrating government’s interest in controlling business, taking over companies, imposing new mandates and regulations that limit what a businessman may do; any desire to expand, hire, take new risks is dampened down by cold hard fear.

A small temporary bribe is really not going to help.  Don’t Democrats ever learn from history?

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