Republican Myth #3 Government Spending Hurts the Economy

As I noted in Republican Myth #1, I am not an economist.  I recognize that Ayn Rand and John Maynard Keynes pursued economics academically and came to substantially different theories.  I don’t know which, if any, is the most correct.

However on the topic of government spending and its effects on the economy, GOP ideology contains such an obvious contradiction in logic that it must be called out as a MYTH!  It can be debunked with two words, defense spending.

GOP talking points often include such phrases as “every dollar the government collects in taxes is a dollar taken out of the economy” and, “the government does not create jobs”.  These statements are of course patently false.  When the government hires a contractor to build a bridge, the payments go straight back to the private sector of the economy and, a good number of jobs are created.  Even when the government “gives” a tax dollar away through an entitlement program, that dollar is almost always spent, thus going back into the economy and certainly helping to create or at least keep jobs at the place it was spent!  (Have you ever heard of a welfare mother, or fixed income senior “investing” [sic gambling] their US Treasury check on a collateralized debt obligation?)

In the case of defense spending, the Republican politicians make the point for us.  Currently Republicans are up in arms about the potential mandatory trigger cuts that could take place at the end of this year.  As usual, they contend that cutting our defense spending will harm national security.  But this time, in the depths of the Great Recession, they are also screaming that it would cost jobs.  They say that cutting military spending could harm the fragile economic recovery and possible send us back into recession.

I’m sorry but the last time I checked, military spending was paid for with tax dollars.  You just can’t have it both ways.  If building bombs helps the economy and creates jobs, then so does building bridges, or schools, roads, and even prisons.

The simple fact of the matter is that government spending is simply one sector of our economy.  It always has been and it always will be.  Or, at least it should be.  The amount, or percentage of GDP that it represents will always be debated, and it will rise and fall continually over time.

So the next time you hear one of the GOP candidates proclaim “the government does not create jobs, only the private sector creates jobs”, think about that guy you knew that works at Lockheed or General Dynamics.  The next time you hear “government spending hurts the economy” try to remember that is only a myth.


Republican Myth #2 The Myth of “Job Creators”

Just because you say something over and over again, does not make it true.  Political pundits have been “spinning” common terms to suit their political bias for many years.  In the Bush (43)/Karl Rove era, the practice reached new heights.  Reluctantly, I have to admit that the Republicans have been very effective over the past decade.  Again “reluctantly” I must admit to a certain amount of admiration for how disciplined party members have been at sticking to the prescribed “talking points” and repeating them over and over.

(One example:  Over 60% of voters that re-elected Bush in 2004 still believed that Saddam Hussein had direct ties to Al Queda and the 911 attacks, even though it had been widely disproved by then.  Certainly carefully worded and often repeated talking points contributed to this misconception.)

This election year has produced a number of new Republican created idioms in an attempt to “spin” common terms to their political advantage.  Today’s beef is the use of the term Job Creators to replace “the wealthy”.  Using the term Job Creators when unemployment rates are still high during the worst recession since the Great Depression is most likely a smart move.  The year 2012 will prove if it is also effective.  Unfortunately, it’s just misdirection!

The truly wealthy are not the true job creators in this economy.  The entrepreneurs are!  That is to say, it is the small business owners just starting to grow that create the new jobs.  Once they get wealthy, they make their money by using their money to make more.  In the past, there was a strong argument that using their money, or “investing” it, actually did create jobs.  However, over the past 15 year’s more money has been “created” on Wall Street via speculation and creative derivative products which have not produced true goods or services, and thus NOT JOBS!  In other words, “investing” can create jobs, but “gambling” does not.

Employment/Labor costs are typically the highest cost in operating a business.  The large corporations have trimmed down to very lean levels and out-sourced a lot of labor.  They are efficient, and corporate profits are at historic highs and have been for the last few years of “recovery”.  Yet, unemployment remains stubbornly high.  Think about it.  If CEO’s can produce a dividend and rising stock prices, they get bigger bonuses.  They are not interesting in “creating jobs”.  Employees cost money!

The “Bush Tax Cuts” went predominantly to the wealthy.  If you don’t believe this fact, you don’t understand the difference between INCOME and WEALTH and why the capital gains rate is so critical to this entire argument.  (Future postings will expand on this topic.)  However, if you exclude government jobs, the number of jobs in the U.S. economy remained essentially flat during the entire Bush presidency.  Where are the jobs?  How can you call the wealthy job creators?

We tried that approach in earnest with the 2001 tax cuts.  It didn’t work.  No matter how many times you say it, you can’t replace the word wealthy, with the words “Job Creators”.  It’s a myth!