Just a Few Budgeting Lies that my President Told Me

For thousands of years, society subsisted on barter and gold coins. The vast majority of the population struggled to feed themselves. Farming, hunting, and self-defense were the great occupation of the human race.

But there had always been trade, and shops, and towns…from Ancient times through the Middle Ages, and on through the Enlightenment. Eventually, there was enough data in place that wise people could study it, and could begin to grasp how commerce worked, so that public policy could be crafted, and societies developed, in manners that would foster something greater than subsistence, perhaps even something like prosperity.

The data was in by the eighteenth century. Adam Smith wrote “The Wealth of Nations” in Scotland in 1776, and he shared his findings with the world: that an invisible hand guides a free market, producing prosperity when government respects and supports free economic action rather than restraining it.

In the 200-plus years since, the brightest economists the world has seen have produced article after article, book after book, so that officials and voters alike would understand how economies work, and could act accordingly. But sadly, it hasn’t always happened that way. Too many in power, and too many in the voting booths, are either woefully ignorant of how economies operate, or they intentionally work to undermine the economy for their own personal short-term gain. It can only be one or the other – ignorance or malicious greed.

Consider, for example, these comments from the president’s address on August 2, 2011 A.D., upon the passage of the 2011 debt ceiling extension bill.

“This compromise guarantees more than two trillion dollars in deficit reduction.” - B. Obama, 8-2-11

It does no such thing. For generations, the federal government has practiced the concept of baseline budgeting, wherein huge increases, often several times the rate of inflation, are automatically built into every new year’s “budget.” With this massive and unnecessary, even unjustifiable, automatic increase, a reduction in growth is viewed as a cut.

The compromise that Washington passed to avert a default in August, 2011 included a schedule for cuts in planned increases, in what they call the “out years” – years in the future, which are actually in the control of future Congresses, not this one. A current Congress cannot bind a future Congress. These cuts certainly “may” occur, just as pigs “may” fly and lead “may” turn to gold… but it’s not something to bet the farm on.

The only way to ensure a cut would be to close down the department that would otherwise have spent it. And there are no agency shutdowns in this bill.

“It also allows us to keep making key investments in things like education and research that lead to new jobs...” - B. Obama, 8-2-11

Excuse me, but… NO. No, no, no, no, no. When this president says “investments” he means “the spending of tax dollars,” and since we are spending more than we are taking in, it actually means “both the spending of current tax dollars and the borrowing of future tax dollars.”

But a larger lie is the claim that these expenditures in education and research lead to new jobs. The only jobs created by such spending are the government workers whose jobs are directly funded by these programs. If the federal government pours a million dollars into a school district to employ a teacher or two, or pours the same money into a college to fund a researcher and his lab, it is employing those people and those people alone… at a horrific cost.

When a private company hires an employee at, say $50,000/year, it is because that private company has the money in hand to do so (at a real cost of about $70/000, since employment has considerable other costs besides the employee’s salary, usually estimated at around 30 to 40 percent), and the private company expects that employee to provide a profitable return to the company through his work. His work is therefore, presumably, worth much more to the company than it pays him, because his output, his productivity, will create greater value for the company’s stockholders, for their products’ brands, for their community. Win-Win, as they say.

When government funds a public employee, on the other hand, it does not produce genuine profit for the government (with a few rare exceptions, such as the ticket takers at a national park). Rather, it produces a cost. It spends money that the government has to borrow. Since we no longer honestly expect to ever eliminate our crushing national debt, the borrowed portion of that employee’s salary and costs is actually incalculable.

Using the current commonly-used proportion split of 58/42 or so, this means that what looks like a $70,000/year government employee cost actually uses up $40,600 in current tax dollars, and $29,400 in borrowed funds. So we’re taking $40,600 away from the private sector today so that some current business (one that would LOVE to hire an employee) is less able to hire people because of his crippling taxes… and we’re taking another $29,400 away from the future, where it will become $40,000, or $50,000, or $60,000, so that some future employer is less able to do so because of his crippling taxes as well.

Every current private sector employee costs less than it appears, because of the value they bring to their employers, while every public sector employee costs more than it appears, because of the way that government employee costs bleed the rest of the economy.

Also remember this little-remembered tidbit: that ever since the Depression-era creation of Davis-Bacon clauses, federal matching funds usually require that jobs getting federal funding must pay what they call “the prevailing wage” – the non-competitive union scale of that locality. This means that even when the federal government isn’t directly employing the person – it’s just sending a contribution for half the salary paid by a city, county, or state government to their teacher or researcher – the deal has raised the cost of the job for everybody. Yes, even if the locality had competitively bid the project in the first place, accepting bidders who pay less than union scale; now that there’s federal money in the purse, those workers must get paid more.

Remember the old saying, “take the king’s shilling; dance to the king’s tune?” Well, today, when a city, county or state takes the king’s shilling, it’s likely to cost them much more than that generous Washington assistance was ever worth.

“Since you can’t close the deficit with just spending cuts, we’ll need a balanced approach.” - B. Obama, 8-2-11

Excuse me? This standard Democratic Party talking point has been their mantra for a century. They’ve used it to justify the implementation of the income tax and the capital gains tax, every tax hike in every state, and their opposition to every tax rate cut ever proposed by the Republicans. But it’s patently untrue.

In the first place, of course you can close the deficit with spending cuts. Considering how quickly economic growth causes federal tax receipts to climb, even without tax rate increases, merely freezing spending at current levels would eliminate deficits within four or five years at most, and set us on the road to finally paying down the national debt itself, which we haven’t begun to do in years.

Second, what kind of spending is causing this deficit? Sure, some of it is the wasteful walking-around money that the president liberally tossed around in the 2009 “stimulus package,” but most of it is entitlement spending – the massive expansion of welfare and unemployment and food stamps and housing assistance and Medicaid and so many other countless programs for people who can’t afford food and rent and schooling and shelter without assistance, precisely BECAUSE the government’s share of the economy is crowding out the employment picture.

When we address the problem of growth – when we end this stubborn four-years-and-counting recession and return to a growth-oriented economy – more and more of those people will no longer need this costly federal assistance (if in fact they do now). And that brings us to the third problem with this sentence: the balanced approach.

The president calls for a balanced approach, which he defines as “putting revenues on the table.” He can’t quite bring himself to say that he’s veritably salivating at the prospect of breaking his campaign promises to cut taxes for all but the richest Americans, unless you define the richest Americans as everyone who still has a job.

This president is calling for tax increases. Whether they are accomplished through rate increases or through the removal of deductions is immaterial in this context. When you collect a higher amount from the same individual taxpayer, it’s a tax increase. He wants to further raise taxes at a time when the economy remains in deep recession, despite his own acknowledgement, as recently as December 2010, that tax increases during a recession will cost jobs, cost businesses, cost the economy.

Part of the beauty of the capitalist system is that most problems solve themselves, if you just let them, without meddling.

Lowering tax rates enables businesses to grow, which enables them to hire more people and ultimately pay more in tax revenues. By hiring more people, they reduce the burden on government to provide safety-net support. By the government having fewer indigent to support, the government spends less, and therefore needs to suck less money from the economy, enabling the economy to thrive further.

Just as running the economy the wrong way will cause a downward spiral of ever-worsening statistics, running the economy the right way will cause an upward spiral of ever-better statistics. Growth means ever more revenue at less cost-per-taxpayer, enabling the government to pay down its massive debt… exactly what we need.

The functioning of an economy has been explored and explained by Mises, Hazlitt, Sennholtz, Hayek, Read… there are libraries’ worth of books explaining these issues in terms that even a Democrat could understand, if only they would open the covers and open their minds to the information.

So why is it that this president, his party, and their sycophants in the media, continually insist on measures that are clearly calculated to make everything worse, rather than better?

Why must they lie to the public about what must be done, what can be done, and what their true intentions are?

Is power so sweet, is authority so pleasurable, that elected public servants feel no twinge of conscience in violating their oaths of office, in lying to their constituents, in intentionally driving what was once the greatest economy on God’s green earth off a cliff?

John F. Di Leo is a Chicago-based Customs broker and international trade lecturer. He doesn’t pretend to be an economic genius or a psychologist, but it doesn’t take either expertise to be able to accurately evaluate the speeches of Barack Obama; you just have to have seen or read the story of Pinocchio sometime in your childhood.

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He said a lot more than that. He also said

when national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid...
...the liberation of the public revenue, if it has ever been brought about all, has always been brought about by a bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment.

and, in support of fractional-reserve currency:

When, therefore, by the substitution of paper, the gold and silver necessary for circulation is reduced to, perhaps, a fifth part of the former quantity, if the value of only the greater part of the other four-fifths be added to the funds which are destined for the maintenance of industry, it must make a very considerable addition to the quantity of that industry, and, consequently, to the value of the annual produce of land and labour.

As Daniel Webster pointed out so eloquently, credit is the enabler of what we know as prosperity:

Credit is the vital air of the system of modern commerce. It has done more, a thousand times, to enrich nations, than all the mines of all the world. It has excited labor, stimulated manufactures, pushed commerce over every sea, and brought every nation, every kingdom, and every small tribe, among the races of men, to be known to all the rest. It has raised armies, equipped navies, and, triumphing over the gross power of mere numbers, it has established national superiority on the foundation of intelligence, wealth, and well-directed industry...
...Credit is to money what money is to articles of merchandise. As hard money represents property, so credit represents hard money; and it is capable of supplying the place of money so completely, that there are writers of distinction, especially of the Scotch school, who insist that no hard money is necessary for the interests of commerce. I am not of that opinion. I do not think any government can maintain an exclusive paper system, without running to excess, and thereby causing depreciation.

Credit is a hard-earned privilege. And like any privilege, its abuse renders it a curse.

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