Sunday, March 8, 2009

Democrat Senator Max Baucus Takes Note of Obama's Trickery

From Tom Raum of AP :

"You created a situation where you cannot be wrong," the chairman of the Senate Finance Committee, Montana Democrat Max Baucus, told Geithner last week.

"If the economy loses 2 million jobs over the next few years, you can say yes, but it would've lost 5.5 million jobs. If we create a million jobs, you can say, well, it would have lost 2.5 million jobs," Baucus said. "You've given yourself complete leverage where you cannot be wrong, because you can take any scenario and make yourself look correct."

The dishonesty was built right into Obama's metric for success on jobs with his too-clever-by-half addition of those two little words : "or save".

I imagine most intelligent people saw right through that laughably self-serving and phony premise as soon as the words were uttered. I mean, think about it. By this measure you could argue that the president is to be credited for almost anyone who still has a job when he is through.

The use of specific numbers is a ploy to obscure this rhetorical legerdemain. Clearly they are pulled out of thin air. When someone forecasts in the millions (like '"3-5 million") and the range of measure has swung anywhere from 50-100% low to high, let's face it they're either guessing or just bullshitting everyone.

Somehow I doubt that those who remain employed during the Obama regime, while their assets devalue and government avarice implodes the nation's wealth base, will be falling all over themselves to thank Barack for "saving" their job....unless, of course, they have a government job.

When I ponder those two little words just one word comes to my mind : charlatan.

15 comments:

Anonymous said...

Tyler,

Do you think anybody can predict the precise behavior of the U.S. economy and unemployment given the huge number of uncontrolled variables ranging from weather to war? Of course, nobody can. You have to make estimates based on assumptions and probabilities, which is what government administrations and businesses do everyday.

Democrat Max Baucus' complaint that Obama "created a situation where [he] cannot be wrong" is incorrect. If Obama can clearly point out where the stimulus created X million jobs through direct government spending that would not have been created otherwise, then Baucus is simply wrong.

On the other hand, if you can't show the direct jobs-to-stimulus benefit, then you need to agree on a performance benchmark to compare U.S. employment numbers against. Only then can you can evaluate performance.

This is how it is done in businesses all the time. For example, if John's company loses 10% in sales in a given year, his Board of directors might think that he is doing a terrible job. But if every other company like John's lost an average of 25% in sales in the same year (the benchmark companies), his Board of directors will give him a bonus for being 15% above benchmark because he outperformed his benchmark.

Unless you or Baucus can come up with a benchmark for comparing U.S. unemployment changes against or prove the disconnect between stimulus spending and job creation, calling Obama a "charlatan" is just more repubertarian smoke.

It isn't trickery. It is Business and Investment Management 101

anonone

Tyler Nixon said...

The whole premise that the government/president "creates or saves" anything other than government jobs is the real farce here.

Forget about the rabbit-out-of-his-hat projections/predictions/guesses.

Anonymous said...

Tyler,

So you say:

The whole premise that the government/president "creates or saves" anything other than government jobs is the real farce here.

Which is a different topic than calling Obama a "charlatan" but OK.

When the Delaware Economic Development Office provides seed capital in the form of a grant or loan guarantee to a start-up company that would not otherwise have funding, how is that not creating jobs?

When Delaware offers tax incentives to attract new businesses in competition with other states, how is that not creating new jobs in the state?

When the federal government commits to large project, like building highways, that require lots of private contractors, how is that not creating or saving jobs?

And if the infrastructure created by the government allows a private business to prosper and grow where it otherwise would not, how is that not creating or saving jobs?

And when the government subsidizes education and job training so that people who couldn't otherwise afford it can fill open positions that would otherwise go unfilled, how is that not creating or saving jobs?

It is your premise governments cannot help to create or save jobs in the private sector that is demonstrably farcical.

anonone

Tyler Nixon said...

The only jobs government creates or saves are government jobs. It's just that simple.

Anonymous said...

I just gave you 5 examples where private sector jobs would not be created and/or saved without government involvement.

Your reply:

The only jobs government creates or saves are government jobs. It's just that simple.

Tyler, repeating something again and again does not make it true. No matter how "simple" you think it is.

Although I must say it is an interesting and explanatory view into your psychology.

anonone

Tyler Nixon said...

LOL. Thanks, anonymous Freud.

Government doesn't create or save anything but government jobs. A government contract is a government job.

None of your other examples applies to job creation. All your examples, as you note, are created by private interests.

So repeat after me : Government doesn't create or save anything but government jobs.

Anonymous said...

You wrote:

All your examples, as you note, are created by private interests.

They are all private sector jobs that would not have been created, saved, and/or filled without government help and funding.

You wrote:

A government contract is a government job.

Now you're just making up your own definitions.

A government contract with a private sector firm is NOT a government job. The people employed by that firm get their paychecks from the firm - not the government. Furthermore, private sector firms with government contracts need to get supplies, parts, materials etc. from other private firms to fulfill the contract - and that means even more job creation.

It would serve you well to study about the velocity of money.

Just 'cause you repeat it and believe it doesn't make it true. Maybe you should paste that on your mirror.

anonone

tom said...

All of your examples, with the possible exception of the 2nd, are merely misdirection and shell games.

When the government taxes it eliminates jobs. But it does so in an extremely distributed and mostly invisible way. Consider the company you work for. How much would its income have to drop or its expenses increase before plans to hire additional staff were scaled back or canceled and/or before the marginal employees started getting laid off? Taxes decrease income by reducing the money that customers have to spend. Taxes on businesses may be passed on to customers or absorbed as increased expenses.

When the government borrows it eliminates jobs both now and in the future when it must increase taxes to pay off the loans. Borrowing is a zero sum game - Governments and the private sector borrow from the same pool of available funds. When the government borrows the money it means less is available for private sector use. If they turn around and hand out that money as business loans or incentives, much of it will be consumed as overhead, which would have been usable by private sector borrowers.

The farce is that the President or Governor or Mayor can point to a project and say "see, I created (or saved) X jobs," while no one really notices that X + 5% quietly disappeared one or two at a time from many other companies. And by the time the BLS releases statistics a year or three later showing that all this job creation was really a wash or a net loss, the people's attention will be focused on the new promises and lies.

Henry Hazlitt explained this very clearly and refuted most of your examples in his book Economics in One Lesson.

As for your examples, point by point:

"When the Delaware Economic Development Office provides seed capital in the form of a grant or loan guarantee to a start-up company that would not otherwise have funding, how is that not creating jobs?"

This money has to come from somewhere. If said start-up company had a more convincing business plan, it probably would have come from a bank or VC firm. So in addition to crowding out private spending or lending, and introducing inefficiency, the State is also directing the funds to a company that is less likely to succeed.

"When Delaware offers tax incentives to attract new businesses in competition with other states, how is that not creating new jobs in the state?"

As long as they do this in a way that reduces the overall level of taxation while not increasing deficit spending your point stands. Otherwise it suffers from the defects noted above. It also merely transfers those jobs from other states, and though you did say in Delaware, we exist in a global economy where things that happen elsewhere affect Delaware.

"When the federal government commits to large project, like building highways, that require lots of private contractors, how is that not creating or saving jobs?"

Se above. Also, these are temporary jobs, lasting only until the project is finished, while the distributed losses are likely to be permanent.

"And if the infrastructure created by the government allows a private business to prosper and grow where it otherwise would not, how is that not creating or saving jobs?"

See above.

"And when the government subsidizes education and job training so that people who couldn't otherwise afford it can fill open positions that would otherwise go unfilled, how is that not creating or saving jobs?"

See above. Also note that the government is subsidizing the development of skillsets required by yesterday's jobs tomorrow when they may no longer be needed. Further note that during recessions, there are not usually a plethora of jobs going unfilled for want of qualified applicants.

Anonymous said...

Tom,

I appreciate your thoughtful points, but I think your fundamental argument that "Borrowing is a zero sum game" is wrong from both a government and a business perspective. Here is why:

First a business example: If I am running a business and I need capital to expand to make more money over and above the cost of borrowing that capital, then I should do it. For a simple example, if I can borrow money at 5% and get a return of 7%, then I should do it. I have created wealth.

Next a government example: If the government can borrow money at say 5% that it can invest in ways the private sector can't (roads, bridges, R&D, infrastructure, etc.) that will lead to a return in GDP over and above the cost of borrowing, it should do it. Higher GDP means wealth creation and a stronger economy, which is better for businesses and means additional tax revenue for the government to payback the money it borrowed, all without raising tax rates.

So governments borrowing money to invest to create wealth (increase GDP) over and above the cost of capital is a good thing.

In regards to your other points:

Private venture funding and state economic development offices have different goals. Private venture capital will not fund most small businesses because they don't represent high growth and profit opportunities. States will fund businesses that are not high profit and growth opportunities if they create jobs that will provide long term revenue to the state over and above the cost of funding or loan guarantees. For example, if a business needs $100,000 to add space to hire 20 new workers, that represents an excellent investment for the state in terms of wealth creation and long term additional tax revenue stream from the new jobs. Banks and VCs don't care about job creation.

In regards to Delaware using tax incentives to attract jobs; I was only using it as an example. The federal government could do the same thing in global competition.

In regards to large federal government projects, your complaint is that "these are temporary jobs, lasting only until the project is finished." Guess what? Almost all jobs today are becoming temporary in one way or another. A government project that builds infrastructure can help create jobs because infrastructure helps businesses prosper and grow. One reason that more jobs haven't left this country for cheaper labor markets is because infrastructure, like electricity, roads, sanitation, and communications, is often much poorer than in the U.S. New roads can lead to new construction in the private sector that would not happen otherwise.

In regards to job training, there are jobs in certain areas, such as nursing, that go unfilled even during recessions. If "the government is subsidizing the development of skillsets required by yesterday's jobs tomorrow", the problem then is with the implementation not the goal. Education creates wealth.

Again, economics is not a zero-sum game. If it were, wealth would never be created, only redistributed. We know this is not the case. When the government can borrow money to create wealth and jobs in the private sector over and above the cost of borrowing, it should.

Anonymous said...

Tom,

I forgot to sign my note. Sorry.

anonone

tom said...

Once again, I recommend that you read the Hazlitt book. He devotes entire chapters to refuting the economic fallacies behind your examples 1 & 3-5 in great detail.

In short, you are seeing only the benefit side of the ledger and ignoring, intentionally or unintentionally, the cost side.

This is easy to do because you can see the bridge (or new company employing 1000 people, or whatever) but it takes a bit of imagination to visualize all of the other things that would have happened instead if the government had not diverted the capital to building the bridge.

Another serious problem with public works projects is that people who see them as vehicles for job creation don't care if we need the bridges or roads or monuments. there are only interested in where they can build them. This kind of thinking tends to create huge boondoggles like the Springfield Monorail

"but I think your fundamental argument that "Borrowing is a zero sum game" is wrong from both a government and a business perspective."

I should have realized that you would find a way to misinterpret that statement. What I meant by zero-sum was that at any given instant there is a certain amount of capital available to borrow. For example, say project A requires 2/3 of it and project B needs 1/2. If the government sponsors project A, B won't happen. It was not meant to encompass the effects of time, but only to describe the size of the capital market at any given moment.

"Private venture funding and state economic development offices have different goals."

And more importantly, they are gambling with other people's money so they can take stupid risks that no sane banker would.

"Banks and VCs don't care about job creation."

Neither do politicians; they care about winning elections.

Nevertheless, banks & VC's can and do create jobs far more effectively than government, in spite of (or perhaps because of), only being interested in their own profit.

"In regards to Delaware using tax incentives to attract jobs; I was only using it as an example."

I gave you this one, or at least partial credit. Accept it and move on.

"A government project that builds infrastructure can help create jobs because infrastructure helps businesses prosper and grow. ... New roads can lead to new construction in the private sector that would not happen otherwise."

That has a lot to do with whether or not said infrastructure is actually necessary. If its primary goal is job creation you often end up with nearly useless projects and wasteful spending.

"In regards to job training, there are jobs in certain areas, such as nursing, that go unfilled even during recessions."

And there's a clown shortage in England, but I'll refrain from descending to the level of suggesting that you seek employment there.

"If "the government is subsidizing the development of skillsets required by yesterday's jobs tomorrow", the problem then is with the implementation not the goal. Education creates wealth."

If jobs such as nursing go unfilled, it is because they are undervalued. Subsidizing education for jobs with salaries that do not justify the investment of time and money required will only exacerbate the problem, not solve it. Unfilled demand OTOH will eventually force higher salaries to be offered.

"Again, economics is not a zero-sum game."

Oh please. I never even came close to implying that it was.

tom said...

"... like the Springfield Monorail"

sorry, my bad...

the link is just a 30 second clip. the full episode doesn't seem to be available.

Anonymous said...

Tom,

When you make any investment decision, using your own or borrowed capital, you always compare the expected return with a risk-free return. When you choose to invest in one area, there is always the opportunity cost, that is, the cost of lost opportunity that come from choosing one investment over another. I get that. I also know that in real life neither individuals nor businesses, nor governments make optimal investment choices largely due to the inability to calculate risk and probabilities or properly value other opportunities.

And in the private sector, 90 - 95% of venture capitalist funded enterprises fail. So much for your claim about "banks & VC's can and do create jobs far more effectively than government." Seems that they create a lot of "temporary jobs," too.

The point of this whole discussion is whether or not the government can create or save jobs in the private sector, not whether or not it is an optimal use of capital over private sector spends. You seem to agree that the government can create or save jobs, but I think your point is that it is inefficient. Fine, it may be in some cases. But when the government spends one dollar, even if it is a lousy inefficient spend, it is only the first spend – the velocity of money shows that it will be spent another 5 – 6 times that year in the private sector. Hopefully, it will create more wealth there.

To say that politicians and governments don't care about job creation is pretty ridiculous. Of course they do; high unemployment will cost them elections, and it is a pretty clear performance metric that most of the public understand. It also has a direct impact on their revenue (tax) base.

And you're wrong about states "gambling with other people's money so they can take stupid risks that no sane banker would." States are trying to grow their economies, and can use loan guarantees, grants, or discounted loans to help businesses grow, attract new businesses investments, and hire new people. All of these things can help create and save jobs. They aren't gambling with other people's money.

Banks and V.C., on the other hand, are out to maximize their profits, not create jobs, as they should be. They have different incentives from the government. And high interest rates paid to banks takes money from businesses just like high taxes do.

By the way, to even write about so-called "sane bankers" not taking "stupid risks" after the major banking collapses we have been witnessing is just laughably ridiculous.

anonone

Tyler Nixon said...

Hey Tom, want to come write for Delaware Libertarian?!?

You have way more patience and tolerance for entering the anonone spin zone than I can stomach any more.

My hat's off to you.

tom said...

"The point of this whole discussion is whether or not the government can create or save jobs in the private sector"

The point of this whole discussion was the sheer hypocrisy of Obama's using the words "or save" to create a standard by which he can claim success no matter how badly his programs fail.

We have wandered quite far from that point.

"You seem to agree that the government can create or save jobs"

I agree with Tyler that government has no trouble creating government sector jobs, but I think that those should be treated like any other harmful parasite and exterminated.

I do believe that there are two ways that government can create private sector jobs: 1) keeping a balanced budget that cuts both taxes and spending; and 2) eliminating or simplifying regulations and firing regulators.

Unfortunately, not many politicians find either of those alternatives palatable.

"But when the government spends one dollar, even if it is a lousy inefficient spend, it is only the first spend – the velocity of money shows that it will be spent another 5 – 6 times that year in the private sector."

You can mumble about stuff like velocity or multipliers all you like, it doesn't change the fact that that dollar is worth $1, or less if it was created via inflation. All velocity does is measure whether or not the money supply is recycling fast enough to prevent deflationary effects.

It's pretty clear that we're not going to agree on much more, so we may as well stop barking at one another for now.