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.