Wednesday, September 07, 2011

Another Economics Lesson

(originally posted 9/6/11--now updated and bumped to the top)

Sometimes you have to pull a Ross Perot and explain things in a folksy way--when speaking about the economy, doing this helps liberals understand:
Think of it this way: our cell phones have operating systems built into them. There's no Republican way to make a phone call with your iPhone, and no Democratic way to do it. There's no conservative approach to checking your email with a BlackBerry or an Android, and no liberal approach to doing it. You just do it the way your cell phone's operating system requires.

It's the same with an economy. Broadly speaking, there are two kinds of economic operating systems: a free-market economy and a command economy. In a free-market economy, the government sets the rules and enforces them, but otherwise stays out of the way and allows individuals and businesses to call the shots. In a command economy, the government's role is so large that it not only sets and enforces the rules, but also calls the shots...

In a free-market economy like ours, it's the entrepreneurs who create jobs. They do this by starting new businesses, and by expanding businesses that are already up and running. If you want to create more jobs, you create an environment in which entrepreneurs will thrive. They'll take it from there, because creating jobs by starting and expanding businesses is what thriving entrepreneurs do.

Think of it this way: if you want more milk, create an environment in which cows will thrive. And just as it makes no sense to say you want more milk but oppose cows because they're smelly, dirty, and leave their droppings all over the place -- it makes no sense to say you want more jobs but oppose entrepreneurs because when they succeed they often wind up with more money than the rest of us. You cannot have it both ways...

Let me give you one example to illustrate this point: in the course of my lecture business I meet a great many owners of small- and medium-sized companies -- precisely the men and women we depend upon to create jobs for all the rest of us. One evening, when my lecture to a group of these entrepreneurs had ended and we were all having a drink in the hotel bar, the CEO of a rock-solid manufacturing company said something that stopped the conversation cold: "I'll be damned before I start hiring people now, just in time to send the unemployment rate plunging so it re-elects the president next year. In a second term, this guy'll kill my business." There was a dead silence, and then every other business owner at the table nodded in agreement.

The point isn't whether these CEOs are right or wrong. The point is that this is what they've come to believe, and their actions will be based upon their perceptions. For all of us who depend on our country's entrepreneurs to create jobs -- which is to say, for all of us without safe government jobs -- this is more than depressing. It's terrifying.
I'm just saying.

Update, 9/7/11: The link above was for the big picture, this link demonstrates the smaller picture:
From consumers to investors to voters, everywhere you look these days, confidence is falling over the state of the U.S. economy. And now a new scorecard by SurePayroll, the leading online payroll service, shows that small business confidence is lagging as well...

Just like the rest of us, small business owners have lost faith in any sort of government solution to the country's economic problems. Herein lies the real concern. "Small businesses are the ones that have traditionally grown us out of every recession we've had," says Alter. If this pessimism persists, it seems the country could be in this economic downturn for the foreseeable future.
I have a hard time believing they've lost faith because they expect lower taxes, less regulation, and a government that sees them as more than just social program contributors.

Update #2, 9/7/11: Why might business people be pessimistic? A possible answer:
It has now been a little over two years — and eight full economic quarters — since the end of the recession Obama inherited. It's time to ask: How does his record of economic growth in the wake of a recession stack up against the records of other presidents?

The National Bureau of Economic Research (NBER) defines a recession as "a period between a peak and a trough" during which "a significant decline in economic activity spreads across the economy and can last from a few months to more than a year."

By consensus, the most recent recession ended in June 2009, less than six months after Obama took office...

Some might argue that the anemic post-recession growth rate under Obama has resulted from his having inherited a worse recession than most. There's little doubt that he inherited a particularly long (18-month) and significant recession. But the historical record suggests that, pre-Obama, the general rule was: the worse the recession (or depression), the better the recovery...

Average real quarterly GDP growth in the two years coming out of those recessions was 6.2%. The 2.4% figure under Obama has been a mere 39% of that — which, come to think of it, roughly matches Obama's current approval rating.
Only the willfully partisan can defend this president and his record.


mmazenko said...

That is so over-simplified as to be laughable. Except it's really sad. America has a free market that employees legal regulation to maintain a safe, equitable, and progressive system. Corporate America - even manufacturers - are in good, even great, shape. They have been for thirty years and counting - and nothing is standing in their way. GE posted $150 billion in revenue and didn't pay a dime in taxes. Then the president named one of their top guys to an executive role on trade. And you think these guys are afraid that Democrats are going to kill their business? That's hilarious.

Darren said...

That you choose to be struthious doesn't mean the situation's not real.

BTW, some of us don't *want* the country to be "progressive", especially when defined the way the "progressives" do.

Mike Thiac said...


It’s not progressive, but more accurately described as regressive. A centralized planned economy has been tried multiple times. It never has worked, it never will.

Corporate America - even manufacturers - are in good, even great, shape. They have been for thirty years and counting - and nothing is standing in their way.

Can I drill for oil now? Trust me having the federal “boot on the neck” of the oil industry doesn’t exactly encourage production. And without more of a product on the market, the higher the price. How about farming in California’s central valley? Oh yes, we shut down the central valley for a snail. How about offering health insurance in California? Oh yea, I can’’s a closed shop. How about a factory to make light bulbs? Oh yea, they were outlawed.

GE posted $150 billion in revenue and didn't pay a dime in taxes. Then the president named one of their top guys to an executive role on trade. And you think these guys are afraid that Democrats are going to kill their business? That's hilarious.

Yes, if they will kill their businesses with they don’t keep up the payola. Is it just a coincidence over which companies are getting exemptions from Obamacare? Do you want to make a bet if (God forbid) B Hussein wins in November 12 the waivers are gone and if businesses go under. And do you think he really care.

I don’t know what to make of you mazenko. Are you simply that oblivious to the facts...or are you trying to justify a mistake?

maxutils said...

Well, the premise ignores the fact that there are two other types of economies that our generally excepted . . .traditional, which tends to be ignored, and mixed which represents every single economy in the world other than traditional. We lean free market, but as long as the rich get tax loopholes and the government provides welfare we aren't free market. Mixed is somewhere between free market and command . . .you can't be bailing out the auto industry in a free market economy. you can't insure banks. etc., etc, etc.

mmazenko said...

That's the sad thing.

You have lived and prospered all your life and know nothing other than you progressive system. You don't even know enough to know how well good you have it and how well the system functions.

And, the term in my sentence was not referring to the progressive political movement.

Darren said...

If the best you've got is to attempt to insult my intelligence, I accept your capitulation.

W.R. Chandler said...

Uh, Mazenko,
GE is definitely not afraid that the Democrats will kill their business because they are on the Dems' favored list. They get all kinds of government swag because they produce a product ("green energy") that the current administration favors.

Oil companies who produce the energy that our country truly uses are abused and demonized by the Dems at every turn.

This is the problem: We now have an economy where an overreaching federal government is using its taxing and regulatory power to pick winners and losers in the supposedly free market.

You sound like you are OK with this. Or am I wrong?

mmazenko said...

Really, you think the oil companies are hurting? Wow.

Left Coast Ref said...

Where did anyone say the oil companies are hurting? We ALL are hurting because of the Leftist fiscal policies that *obviously* haven't worked these last almost 3 years. The oil companies aren't hurting (in fact, they are doing well because they can raise prices and we kinda have to pay it if you are going to drive) but the rest of us are. The oil companies ARE demonized by the left, for what? For being committed to their capitalistic ideals of making money for their share holders. I am so tired of hearing "Fair Share". If it's truly fair share, then how about a flat tax or sales/use tax that has ZERO loopholes so EVERYONE pays their fair share?

allen (in Michigan) said...

You have to cut mazenko, and all lefties, some slack. Their ready answers only apply so long as the right questions are asked.

If you're rude enough to ask the wrong questions then you're also on the hook to ignore how poorly the canned answers apply to your questions.

Maxutils, what's a "traditional" economy? As far as I know there's only free trade that's more or less encumbered.

W.R. Chandler said...

Mazenko - Point taken: You can't refute any of this can you?