Maynard meanders over some bits of economic theory

Obama’s lackeys are still screaming about Bain, and whether it created or destroyed jobs. As so often happens in political discourse, both sides are getting drawn into a ridiculous argument. This is why politics is inherently dysfunctional: To address a problem, you must first be willing to name the problem accurately. But the political discussion rarely gets to that point. The number of jobs isn’t the key to a sustainable recovery; only if those jobs are productive can we pull out of this nosedive in a meaningful way. Fixation on the job count alone may get you through an election, but it’s a sure way, in the long run, to destroy the economy and kill jobs.

Here’s a simple conceptual example to illustrate the problem. Imagine a farmer who runs a failing farm. Let’s say the farmer plants a hundred pounds of seed a year, but only harvests ninety pounds of grain.

This farm is running a deficit. So we could subsidize that farmer with ten pounds of grain a year, and at least he’ll break even.

If we were to do that, would we be doing a good thing or a bad thing? With the subsidy, the man can keep farming. Without the subsidy, he’ll lose his farm and his livelihood.

The politician is tempted to subsidize or somehow assist. That keeps the farmer working and on his farm. He’s a happy farmer, and the publicity is good. Everyone is lauded. What a compassionate society we are!

But consider the numbers. If the farm stays in business, it sucks ten pounds of grain out of the rest of the economy every year. If the farm goes out of business, it costs the greater economy nothing. (I’m assuming the shortfall is a recurring issue, not a one-time aberration.)

In other words, the nation as a whole is richer if the farm shuts down and the farmer instead spends the year sitting on his rocking chair. But the nation becomes poorer if the farmer keeps the farm and works it.

The principle here is that, in order to be economically viable, a job must produce more than it costs. Otherwise, that job is merely a drag on the economy.

That’s the economic argument, and it’s a sound one. It can be pointed out that humans are not simply economic animals, and that not everything is about production and money. This is true and important; however we’re talking about the economy here. Within that context, it shouldn’t be presumed that all jobs are good.

This is my concern about all the government distortions of the marketplace. A well-meaning subsidy or mandate may very well, as a practical matter, simply result in the public treasury being drained while at the same time invisibly exacerbating the problem that is supposedly being solved. The politically unspeakable truth is that some enterprises simply ought to cease to exist. This is not evil or indifference; it’s the path to greater prosperity for the nation.

This is all obvious enough when you hear it, isn’t it? Consumption without production means deficit, and deficit must be filled by someone else’s productivity. This is why conservative economists tend to advocate “supply side economics”. Focus on production, and prosperity will follow. But politicians love to invert the equation. They pay scant attention to production while encouraging consumption. Ah, if only we could consume enough, we’ll be prosperous! Thus do our leaders justify their endless payoffs and boondoggles. The practical policies that come out of this thinking run along these lines: If we consume, they assure us, then you’ll have to produce to meet our demands. We (us and our cronies) will be saved from leading a deprived lifestyle, while you will be spared from idleness as you toil so you can surrender to us the fruits of your labors.

Thus do our leaders justify their parasitical avarice. (And you didn’t even do the work anyway. As the man said, “If you’ve got a business, you didn’t build that.” This is yet another reason he gets to take it away.)

On the bright side, the spending keeps those factories in China humming, at least so long as the generous Chinese keep lending us money. America may be racing towards the poorhouse, but at least we’re going there in comfort and style. The cronies are, anyway.

Getting back to some practical examples of economic self-destruction…Consider ethanol as fuel. Analysts tend to conclude that the resources put into the production of ethanol (growing and processing corn) barely cover the energy output of the final product. In other words, we effectively burned a gallon of gas to produce a gallon of ethanol. Thus we spend taxpayers’ money to create the appearance of a wonderful energy program, and we keep lots of farmers and laborers busy, but in fact our energy situation is in no way improved.

Do the math. This is a zero-sum game. If the nation as a whole is no richer, but the ethanol producers are richer, then the rest of us are poorer. This is because, in total, no goods or services were created; we merely shifted money from one party to another party. We just did it in a manner that’s so sneaky that nobody knew what happened. Anyone that objects can be dismissed as anti-Green, and the moral equivalent of a Holocaust-denier.

If the country is to survive, its businesses must show a profit. A real profit, a natural profit. Otherwise they’re dragging the economy down.

Back to the farmer on his failed farm. As I said, the nation would be better off if that farmer spent the year sitting on his rocking chair. But what politician would have the chops to say that out loud? Our leaders, the ones that aren’t stupid, tend to be cowards. That’s why most politicians are going to do the wrong thing, the hurtful thing.

As a practical matter, the farmer in the chair has the opportunity to get off that chair and look for a real job. I don’t want to be cavalier about this; it’s an unenviable position to be in. But it’s a situation adults had better face. Because the economy and the nation will grind to a halt if too many jobs consume more than they produce.

Apply this consumption/production question to everything the government does. Maybe it’s Solyndra, which cost half a billion dollars of “invested” taxpayer money, and produced nothing. (By the way, those Solyndra boys deserve a prize for making half a billion dollars vanish in about two years. Heck, I can’t imagine how I could squander that much money that fast. I guess I’m lacking in imagination.)

Or consider the Chevy Volt, with an underlying cost (it’s being reported) of maybe a quarter of a million dollars per vehicle, and they still can’t sell them at $41,000, even with hefty direct and indirect subsidies. Or the California plan to spend $10 billion to build a high-speed rail line from Bakersfield to Fresno. Yes, all of these boondoggles are justified because “they create jobs”. (It seems a “train to nowhere” is better than a “bridge to nowhere“.) But, while a few individuals and companies are enriched, the nation is depleted. Our expensive taxpayer-funded and debt-funded infrastructure serves nobody; our expensive taxpayer-subsidized and debt-subsidized factories are tooled to build stuff that nobody wants. Our children will be paying back the principle and interest on this idiocy for all their lives, but they’ll reap no benefits.

The “Cash for Clunkers” programs was likewise suicidal. The government borrows money from China and uses it to pay people to destroy their perfectly-good cars. Then they buy new cars (many of them imported, and all containing imported parts) to replace those cars we destroyed. At the end of the day, we’ve got the same number of cars, but they’re shinier. And we owe a hell of a lot more money. It was a sweet arrangement for some car dealers and car makers. But, in the big picture, we merely spent money, ran up the debt, and destroyed perfectly good stuff. Not to mention making it a lot harder for poor people to find an affordable used car, because we destroyed them. As a nation, we dropped another few rungs down the ladder.

Do you get the point? Our government is paying us to commit suicide. It’s paying us with our own damn money, and the money of kids too young to vote. No wonder China is so willing to lend us money; it’s cheaper than going to war against us, and just as effective.

Hey, here’s one I just saw, a story from last year. “DTE installs $3 million solar array at Chevy Volt factory”.

A $3 million solar energy installation to help power General Motors Co.’s Detroit-Hamtramck assembly plant was formally announced Wednesday by GM and DTE Energy Co.

The project is expected to be the largest photovoltaic solar array in Southeast Michigan and generate 516 kilowatts of electricity at the plant, home to the Chevrolet Volt electric car.

The array will be built on six acres on the south side of the plant and is expected to save the plant about $15,000 annually, under a 20-year agreement…

Okay, let me get this straight. Government Motors spends $3 million to build a solar plant that will save $15,000 a year in power costs for 20 years? I’m sure there are nuances and clarifications in the financing, but that would seem to be the general shape of the arrangement.

$15,000 per year is a half-percent return on a $3 million investment. It’s like saying, you give me $100; I’ll give you 50 cents a year for 20 years. Then we’re done.

If you took that deal and you could afford the $100, you’d be a moron.

If you took that deal and you were already broke, you’d be a moron and a criminal.

If you took that deal and you were already broke and you wanted the electricity to power a new factory to assemble a ridiculous line of cars that catch fire but it doesn’t matter because nobody buys them, then you’d be…well, you wouldn’t live long because you’d forget to breathe.

These are the sort of decisions that GM makes.

The problem isn’t that the GM people are morons and criminals, but Obama’s merry band of lunatics that control GM are morons and criminals. And these morons and criminals actually believe they’re saving America and helping the working people.

God protect us from salvation such as this.

Then Obama curses Romney for his success in business management. Oh, that awful, heartless Mr. Romney! Such an indecent man, compared to the angelic Obama. No, nobody can accuse Obama of the terrible sin of ever having met a payroll or run a profitable business.

In sharp contrast to Romney, Obama never got his hands dirty making those tough decisions to survive in the real world. It’s this pristine record that qualified Mr. Obama to be promoted from “community organizer” to being CEO of the largest corporate entity the world has ever seen. Ain’t America grand?

Has America had enough of this incompetent insanity? Or must we ride this catastrophe all the way down to the ground, assuring ourselves every step of the way that Obama’s about to turn it around?

I guess we’ll find out.

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2 Comments | Leave a comment
  1. Alain41 says:

    A topic that sparks my long-windedness, so I’ll try to restrain a little.

    Part of problem is the 80% principle. Eg, you can likely ‘improve’ an issue the first 80% at a reasonable cost but beyond that the cost will usually exceed what citizens can pay; however, politicians start saying it’s worked up to now, we are just lacking the will so I’ll pass legislation to mandate more action. That’s how the first CAFE req’ts for cars were reasonable but now are mandating 54mpg. It’s also how reducing pollution can initially be achieved at a reasonable cost but when you get down to parts per billion, you need multi-million dollar systems that break down.

    And anyone who questions continuance is branded as a friend of polluters, an opponent of the poor and infirm, etc.

    So it’s hard to stand up to someone who promises sunshine and roses while you say it’s unaffordable (and then you get the reply of, We can’t not afford to do it. (I hate that unanalyzing comment.)) This is what budgets are supposed to do, balance income with outgo. And not only have we not had a budget under BHO, but politicians keep increasing the deficit limit which makes a budget not very meaningful.

    Thanks for post, Maynard.

  2. Shifra says:

    Scary stuff, Maynard. For now, I am clinging to Tammy’s theory that the WH internal polls indicate a looming disaster for O, and that he is engaging in a scorched-earth policy.

    Yes, I guess we will find out, very soon….

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