Radioactive Communist Zombies

Government Doesn't Create Jobs Updated

Back in August I wrote a piece about how government doesn't create jobs.  It was my usual brilliant analysis and explanation of why government jobs kill private sector jobs.  At least until the end when, I don't know, maybe I was tired, but I wrote:

Government doesn't create jobs. Oh, it can hire people, but always at a cost to the economy that will result in jobs being lost. It probably isn't a one-to-one correlation. Maybe ten government jobs to one private-sector job lost. But there is a causation. Shrink the government and watch the economy flourish.

Recently (okay, Thursday) I re-read that and realized I'd made a huge error.  If my statement above is correct that you can hire 10 government workers and only kill one private sector job, then you're up nine jobs and we can tax and spend our way to prosperity. But the empirical evidence is that we cannot.

So where did I go wrong?  I didn't do the math.  Let's think about this.  Let's say you are the city manager of a small town and you want to hire a new dog catcher.  And you have to pay him a living wage or the newspaper will write articles about how mean spirited you are.  So you have to pay him $50,000 a year plus benefits which comes to $75,000 total (based on my experience in business).  Then you have to administer that job, i.e., hire someone to do the payroll, pay the payroll taxes, managed the health care benefits, etc.  Maybe that takes one person per 100 city employees.  And the dog catcher needs a supervisor so that's another person who can supervise maybe 10 people.  And the supervisor needs a supervisor (this is government after all) who can supervise another 10 people.  So we're up to 1/10th of a Full Time Equivalent (FTE) for the supervisor, and 2/100ths of an FTE for the payroll/benifit person and the supervisor's supervisor.  That's 12/100ths of an FTE.  Assuming all those people make $50,000 a year, too ($75,000 with benefits) that's $9,000.  Add that to the $75,000 to hire the dog catcher and that's $84,000 to hire one dog catcher.  And I ignored the benefits person's supervisor and their supervisor.  But let's stick with that $84,000 number.  Oh, and then there's the government money sausage factory that can't do anything cheap so you're probably up to $100,000 by the time all is said and done.

Now, let's say you're a small businessman in this town and you want to hire a laborer.  That pays $25,000 plus benefits so about $33,000.  And you have other expensises, too, like payroll clerk and supervisors so let's guess a total of $40,000.

But guess what, the city is taking $100,000 out of the local economy to pay for a dog catcher.  That means there's at least two laborers or one supervisor who won't be getting a job (I forgot to mention, you're the only business in town).

Now, that's a vast over-simplification.  But because government pays more than the private sector when benefits are included, works people less, and does less with the people they have, a government job might cost one and a half or two or maybe even more jobs in the private sector that have to be taxed to pay for them.

And that's why government job programs don't work!

Romney's Stupid Idea

Just when I start to get slightly comfortable with the idea of Mitt Romney being the presidential GOP nominee, he comes out and says something stupid.  No, not that he doesn't care about poor people (which was stupid to say but not stupid per se).  No, what Romney said that is economically stupid (but perhaps politically astute) was that he would like to see automatic raises in the minimum wage to match inflation.

This is asinine as we are learning in Washington State.  We have that system in place and it has resulted in the highest state minimum wage in the country at $9.04 per hour.

First of all, the minimum wage is just a bad idea.  As Thomas Sowell writes, the actual minimum wage is zero because that's what you'll be paid if you aren't capable of being worth $9.04 per hour to an employer.

I've written about this before (see here and here, for example). Any minimum wage is going to price some inexperienced workers out of the market unless it's $1 and hour, maybe.  A high minimum wage prices a lot of unskilled, inexperienced workers out of the job market.  It increases unemployment especially among the young and minorities.  It is not a compassionate thing, it is a boon to organized labor who can keep cheaper competition from pricing them out of an over-paid job.  And (not to sound like Ron Paul) where in the Constitution does it say the government can interfere with the private contracts between employers and employees?

Tying the minimum wage to inflation is like eating more the more you weigh.  it's a positive feedback loop and it will cause the minimum wage to increase and increase until youth and miniorty unemployment reach a breaking point.

This is just a bad idea, Governor Romney.  I don't know if he actually thinks this is good economic policy or he's pandering to blue collar workers and the majority of people in this country who don't understand economics.  In either case, it makes me wish someone else was going to be the GOP nominee.

How Well do Wind and Solar Work? Nobody Knows!

(Hat tip: Instapundit)  As President Obama and the Democrats with their green allies push us into more and more "green" energy with massive taxpayer subsidies, no one seems to be asking how efficient are these technologies.  Which would be, in a rational world, the first thing asked.  The problem is, according (pdf file) to the Science and Environmental Policy Project, no one still knows even after Europe has invested billions in new renewable energy:

Someone experienced in analyzing potential investments in innovative industries may be surprised by the lack of hard data on the performance of solar and wind in generating electricity. Certainly, it is understandable that solar and wind companies may wish to keep certain trade secrets from the public, such as manufacturing design and techniques. But if the results are as solid as the promoters claim, than one would expect the promoters would give the hard data on performance. Yet these are being withheld on the claims that such data is proprietary – confidential.

So were can we look to see how well wind and solar work in supplying electricity.  How about the countries in Europe that have heavily invested in it.

Slowly, information is leaking from nations that have spent heavily on wind and solar, such as Germany. This information should give pause to those touting solar and wind, including politicians. England is pulling back from wind, Germany has announced drastic cut-backs on its subsidies to solar, and Spain has announced the elimination of subsidies for renewable power. These actions are not the result of success. The erratic nature of these sources is well established.

And further more:

According to reports, no coal plants have been de-commissioned in northern Europe rendering the claim of lower carbon dioxide emissions questionable.

Why?  Because electricity cannot be stored and so wind and solar when they don't work (i.e., the wind doesn't blow or the sun doesn't shine as it doesn't about 50% of the time)  you need to generate electricity by some method.  And that means you need backup generation.  And those plants must be kept fired up and idling when the electricity comes from renewables so when the renewables stop, they can immediately jump in and take up the load. Other wise there'd be brownouts and blackouts (which while some greens may be okay with that, must of us wouldn't be).

Oh, and pollution controls don't work as well when a fossil fuel plant is changing it's heat output, like from idling to full running.  So renewable energy could be causing more pollution.

I don't know why Obama can't look at the experience of Europe and learn from it.  But he can't even look at the experience of his stimulus plan that failed and learn from it.

Federal Workers Are Overpaid Says CBO

Tax season is upon us (I'm still awaiting some 1099s) but as you're making out your tax forms and calculating what you owe, I'm sure you're glad to know your tax dollars are going to over-pay federal workers.

Federal workers are overpaid?  Yes, says the Congressional Budget Office (CBO).  You know, the CBO, the arbiter of all things bipartisan.  According to the CBO, if you have a high school degree you can make 36% more in wages and benefits working for Uncle Sugar.  And if you have a college education, you can make 18% more working for the government.  The only level where working for the federal government is not a good plan is if you have a doctorate or professional degree (a lot of those doctorates are probably working for universities making too much).

So why should those who's wages are paid through taxes make more than those who pay the taxes?  I don't know.  Seems something is wrong here.

Be Poorer to Save the Planet

Environmentalists rarely are so honest about their goals: to make you poorer. They believe the poorer you are, the less damage you'll do to the planet. Now a group called the New Economics Foundation (NEF) has come right out and said you need to be poorer by working less hours. Michael Coren of something called Fast Company seems to agree:

The NEF argues we need to achieve truly happy lives, we need to challenge social norms and reset the industrial clock ticking in our heads. It sees the 21-hour week as integral to this for two reasons: it will redistribute paid work, offering the hope of a more equal society (right now too many are overworked, or underemployed). At the same time, it would give us all time for the things we value but rarely have time to do well such as care for our family, travel, read or continue learning (as opposed to feeding consumerism).

Not to mention, it may be the only way a modern global society won’t overwhelm the earth’s resources. Creating EU-level living standards for the entire world by 2050 would require a six-fold increase in the size of the global economy, with potentially devastating consequences. Instead of growing the economy, maybe we need to recalibrate society to make everyone happier and successful with less.

"With less" i.e., poorer.  This is the fallacy of the zero-sum game economy.  If everyone on the planet has EU standard of living (which is, by the way, less than the U.S. standard of living), we'll rape the planet's resources.  So people need to stay poor.

Are Earth's resources finite?  Yes.  Are econmics finite?  No.  Who knows what will create wealth without requiring more resources.  Or maybe we could mine asteroids (where have I heard that before?).

At least this New Economics Foundation comes right out and says they want you poorer by working less and then you won't have the money to consume so much, you heartless bastard.  But how will wealth be created if people work less?  Because that's what a job is: wealth creation.  And when you create wealth, everyone benefits.  And think what it would do to the Federal budget if everyone worked less.  They'd pay half the taxes they now do.  That would cut the revenue into the government by about half.  Of course we could just double taxes, then you'd have even less to spend on raping the planet.  It's a win-win!

How about we release the entrepreneurial spirit of people and let them create wealth as best they can?  Then we can all live better.  We'll get the resources, or invent ways around them.  You don't see a lot of whale oil being used for lighting these days because whales became scarce.  Who knows what next thing might be invented to replace the finite resources of the planet.

Government Exaggerates Benefits and Minimizes Costs of Obamacare

It seems most liberals think regulations have no costs beyond the paper they are printed on.  This is, of course, not true and the costs are often higher thant he benefits.  For example, see here. Government agencies in the U.S. are required by law to do cost/benefit analysis.  Unfortunately, they have every incentive to minimize the costs and exaggerate any benefits.  And this is happening again with Obamacare.

As Peter Suderman reports at Reason.com:

[T]he [cost/benefit] analyses tended to overstate the potential benefits. For example, based on state insurance data, the authors report that the number of children projected to benefit from the law’s pre-existing condition limitations was overstated by a factor of three to five. And in preparing the high-risk pool rules, regulators cherry-picked studies to inflate the mortality benefit of being insured far beyond minimal to nonexistent improvement most comprehensive reviews and syntheses report.

Meanwhile, an easy way to prove that the benefits are worth the cost is to downplay the cost. And that seems to have gone on too. The authors also conclude that the analyses were also “more likely to understate the magnitude of costs than to overstate them. All eight regulations appear to have understated the costs. In some cases, costs are understated by billions of dollars. The net effect of this pattern is to further contribute to the bias favoring regulation.”

Why would a government agency do this? Simple: the more regulations a government agency gets to administer, the more power it has, the bigger budget it gets, the more people it can hire.  It is like manna from heaven to these agencies.  Everything that makes an agency "successful" is driven by getting itself more power.  That is why government is so scary and controlling it so necessary.

An honest cost/benefit analysis of most regulations would find they are doing more harm than good.  But that would reduce the power or government agencies.  And that's ananthama to the government.

Is Rick Santorum's Tax Plan Too Radical?

Did you even know RIck Santorum had a tax plan?

According to Kevin A. Hassett writing at National Review Online, Santorum has a tax plan that has problems.  In fact, the conservative Tax Foundation gave it a D+ grade.  Why?

The good news is that much of Santorum’s plan is centered on lowering taxes. The bad news is that much of his tax relief is either welfare in disguise or social engineering.

And trying to have a populist appeal, I would add.

So what's the problem?

All that has much to recommend it, but Santorum would also triple the personal exemption for dependent children while maintaining the earned-income tax credit and the child tax credit. This move would radically reduce the percentage of taxpayers paying any federal income tax whatsoever. Since he would retain most of the other major individual tax deductions, complexity would not be reduced, but revenue would be radically lower.

Making it a lose-lose proposition.  And his corporate tax plan, while cutting the tax rate (a good thing) gives so many breaks to "manufacturers" that it would invite fraud while distorting the tax code further.  Yes, we'd all like to see more manufacturing but any economist worth his salt will tell you that manufacturing needs to be done where it's most efficient, and that may not be in the U.S.

(Am I beating up on Santorum too much?   Nothing like the Obama attack machine will.)

Santorum's individual tax plan favors families too much at the expense of everyone else.  His corporate tax plan favors manufacturing at the expense of other businesses.  And it reduces revenue at a time of massive deficits.  We need a neutral, flat, broad tax that is fair to all, not pro-family and pro-manufacturing social engineering.

Health Care Costs are Hurting Middle Class

Back in June I embeded a video from Robert Reich supposedly "connecting the dots" on the economy.  I then refruted most of his points in his lie-filled video (e.g., we are NOT spending less on education). But one of Reich's "dots" was that middle class incomes have been stagnate for about 25 years.  Which is unfortunately true.  The problem is, incomes plus benefits have increased but health care costs have eaten up all or most of those benefits.

Today, as Dan Mitchell points out in his blog, Cato's Peter van Doren shows that the reason health care costs are eating up the middle class' wages is because of government.  And if you add in the cost of Medicaid, Medicare, and private health insurance, the poor are getting more benefits than the middle class and the so-called rich.

The problem is, government is distorting the system by being too involved in health care.  As Mitchell says (links orginal):

This is the problem, not inequality. As I’ve explained before, American healthcare suffers from a third-party payer crisis caused by too much government intervention.

And because this distorted system leads to ever-higher costs, the increase in total compensation for lower-income and middle-income people does not translate into an increase in their living standards. Ordinary people feel like they’re on a treadmill.

Lower and middle class income earns are seeing their take-home pay stagnate while they are paying more and more for health care either through taxes or private insurance.  The solution is not more government involvement in health care but more market-oriented health care solutions.  Unfortunately, Obamacare is a step in the wrong direction.  As nearly every other country with government-run health care can tell you, costs spiral out of control while patient care diminishes.

Well, maybe with President Romney and a GOP majority in Congress we can fix that.  Just don't count on it.

Obama the President with the Worst Deficits

Not all deficits are created equal (as I read once toward the end of the Reagan Administration).  What isn't important isn't so much the aggragate number, but the size of the deficit as a share of GDP.  That is why, despite Reagan's then-unprecedented deficits (caused by budgets written by Democrats), they weren't crippling to the economy because as a share of GDP (which increased thanks to Reagan's economic policies), they were not bad.

So how does President Obama stand on that scale?  As the follow chart shows (click for a larger view), Obama's deficit spending is at unprecedented levels probably since World War II, and certainly for the past 50 years.

Remember how you screamed about Bush Jr.'s awful deficits?  They were (as a percentage of GDP) lower than Reagan's (but Bush didn't have the excuse of a Democrat congress for six years of his term).  But look at Obama.  He is looking at 8.3% of GDP. This poses serious economic threats and is unsustainable over very long.

Has Obama reduced deficit spending as a percentage of GDP?  Sure, after hiking it to over 10% his first year in office, it has come down to "only" around 8%.  But that's like being pulled over by a cop in a 40 mph zone for going 80 and saying "Hey, I'm slowing down from 100!"

Unfortunately, there aren't a lot of Republicans willing to tackle the reforms needed to bring these numbers down, either.  This can't end well.

Political Not Economic Considerations Drove "Green" Agenda

Those of us on the right say the market, not government, should pick winners and losers.  Why?  Because government is very bad at picking winners (viz. Solyndra) while the market is very good at it.  But why is the government bad at picking winners? Because while the market uses economic considerations (i.e., the "invisible hand") to pick winners and losers, government invariably uses politics to pick winners.  That is, usually the firm or person with the best political connections and the biggest lobbying budget.

The Washington Post (!) has an article yesterday showing the failures of the Obama Administration in picking winners was exactly due to politics.  As the WaPo puts it, politics "infused" every part of the Obama Administration's "Green" programs:

The Washington Post found in an analysis of thousands of memos, company records and internal ­e-mails. Political considerations were raised repeatedly by company investors, Energy Department bureaucrats and White House officials.

Of course the poster child for this is the more than half-billion dollars that went down the Solyndra rat hole:

[Documents] show that as Solyndra tottered, officials discussed the political fallout from its troubles, the “optics” in Washington and the impact that the company’s failure could have on the president’s prospects for a second term. Rarely, if ever, was there discussion of the impact that Solyndra’s collapse would have on laid-off workers or on the development of clean-
energy technology.

“What’s so troubling is that politics seems to be the dominant factor,” said Ryan Alexander, president of Taxpayers for Common Sense, a nonpartisan watchdog group. “They’re not talking about what the taxpayers are losing; they’re not talking about the failure of the technology, whether we bet on the wrong horse. What they are talking about is ‘How are we going to manage this politically?’”

They "bet on the wrong horse." In other words, they gambled with $500 million taxpayer dollars and made their decision politically.

Yes, private investors sometimes bet on the wrong horse and end up poorer but wiser.  That's how the market works.  But when governments bet on the wrong horses, they drag every taxpayer to the betting window with them to subsidize their bet.  And using politics is the worst way to decide what company should be invested in.  But it's the only thing Washington knows.

Which is why keeping governmnet out of the business of business is so important.