PrintDecember 15, 2010
It's Production, Stupid
President Obama, Nancy Pelosi, Joe Biden, Rachel Maddow, various economists dependent on government funding, and other die-hard Keynesians all proclaim that unemployment-compensation payments promote economic growth. Just yesterday, President Obama told Tampa station WFLA that "[i]t's probably the biggest boost that we can give an economy because those folks are most likely to spend the money with businesses, and that gives them customers."
In July, Speaker Pelosi (D-CA) said of this measure that "[i]t injects demand into the economy, and is job creating. It creates jobs faster than almost any other initiative you can name[.]"
Earlier this month, Pelosi repeated this mantra, adding that unemployment benefits help "reduce the deficit" and that "history shows" that tax cuts do not create jobs.
It is no wonder these "friendly fascists" ardently defend these expenditures, considering that the number of unemployment check recipients has quadrupled since Rep. Pelosi was sworn in as Speaker of the House. And since that date -- January 4, 2007 -- the unemployment rate has more than doubled, and our national debt has ballooned by 59.6%.
Unemployment compensation falls in the realm of government-administered anti-poverty programs. While most people generally support the idea of this "safety net," the details -- how it's funded, who qualifies, for how long, for how much, and other terms -- are points of dispute. Unemployment benefits are transfer payments, where government takes from A and gives to B. Transfer payments, whether constitutional or not, are a cornerstone of Obamanomics and currently constitute over two-thirds of all federal outlays.
In touting the macroeconomic benefits of unemployment compensation payments, Obama, Pelosi, et al. display ignorance regarding -- or at least discount the importance of -- production, the process of converting factors of production (inputs) into goods and services (outputs). Instead, their focus is misplaced on consumption and finding ways to increase our desire to consume. They act (and legislate) as if employment has no connection to production.
As economics professor George Reisman once wrote, proponents of the Pelosi-endorsed philosophy proceed "as though the problem of economic life were not the production of wealth, but the production of consumption." In the words of economist Henry Hazlitt, they have "lost sight of the conditions and institutions that are necessary to create wealth and income in the first place." Of production, Hazlitt wrote, "The only real cure for poverty is production. The way to maximize production is to maximize the incentives to production[.]"
The productionist view is that of Adam Smith and other British classical economists and their successors, such as Milton Friedman. The consumptionist view has its origins in the mercantilism of the 1600s and was espoused most notably by John Maynard Keynes last century. The interventionist economic theory that bears Lord Keynes' name has a penchant for government spending, deficits, and debt to "stimulate" aggregate demand.
Productionists understand that production precedes and begets consumption. It provides the means for consumption; we work so we can consume. As humans, we don't lack demand for goods and services and never will. As economist John Tamny wrote of this recently:
... the simple truth [is] that demand never needs to be stimulated. As humans our wants are unlimited, so when economists say we must stimulate demand, they're ignoring the greater reality that all production is engaged in with an eye on consumption. Demand is the easy part ...
Human capital (labor) is necessary for production. Maximizing production is the end; employment is the means. Translated, this means jobs, precious jobs -- for entrepreneurs, executives, managers, hourly workers and everyone in between. And job creation is not a problem because, as Mr. Reisman wrote:
At all times ... there is as much work to be done -- as many potential jobs to be filled -- as there are unsatisfied human desires which could be satisfied with a greater production of wealth; and as these desires are limitless, the amount of work to be done -- the number of potential jobs to be filled-is also limitless.
Fundamentally, President Obama, Speaker Pelosi, and their ilk fail to understand wealth and how it is created. Our well-being depends on wealth. Wealth, as Mr. Tamny wrote, "results from the matching of good ideas and hard work with capital." Capital comes from savings. Savings come from delayed consumption. The more government extracts from the private sector, the less we have to save, invest, spend, or donate. And not incidentally, improvident spenders are more likely than penny-pinchers to end up on the government dole. Redistribution of wealth via transfer payments, per Mr. Tamny, "fosters no new production, and with that, no subsequent demand."
The policies to promote maximization of production are no mystery. It's pretty straightforward, really, if this government would quit meddling in markets and bashing business and focus instead on essential services, the safeguarding of production, and private property being among them. On this, Peter Ferrara at American Spectator recently wrote:
What actually drives economic recovery and growth is increased production, which results from increased incentives to produce, and reduced costs burdening production. That involves reduced tax rates, which allow producers to keep a higher percentage of what they produce. It also involves reduced regulatory costs and reduced costs of government spending ... But Obama refuses to consider any of this because it involves reducing rather than expanding the power of government, and he is rigidly opposed to that ideologically ... This doesn't mean we should not extend unemployment benefits. It just shows that Obama and the Democrats have no understanding of how to promote economic growth and recovery.
On one of Mr. Ferrara's excellent points above, tax rates, it should be noted that the U.S. imposes "the second-highest overall corporate rate among industrialized countries." Lowering tax rates -- permanently, not temporarily -- on American businesses and income earners (read: wealth producers) would be a good place to start down the road to higher production and employment.
K.E. Campbell is certified public accountant. He resides in the Southeast.
