Jim Clark: Do Democrats understand economics?
August 28, 2013
I am convinced that the Democratic Party only registers and recruits people who refuse to take a basic course in economics.
A prime example is former House Speaker Nancy Pelosi (D-Calif.) who once told Fox News' anchor Chris Wallace: "We need growth with jobs. And if you have spending cuts … where you are hindering growth, you're not going to reduce the deficit."
Pelosi claims that every dollar of public spending results in new jobs being created. While that may be true for stimulus spending the jobs created are not permanent. They are tradeoffs, because spending has to be paid for by increasing taxes or borrowing.
If you increase taxes you smother private enterprise job creation and if you borrow you have to increase taxes at some future date to repay the borrowings with interest. The longterm economic effects are the same.
Moreover government spending is a highly inefficient way to create jobs. The Congressional Budget Office recently reported that each job created by the Obama stimulus spending cost between $500,000 and $4 million per job.
It's unclear whether wasted dollars such as the Solyndra experiment which ended in bankruptcy were included in the CBO estimate.
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Contrast the effect of private capital spending on or the economy. Cypress Semiconductor founder and CEO T. J. Rodgers recently wrote in the Wall Street Journal: "A couple of years ago I decided to invest in my hometown of Oshkosh, Wisconsin by building a $1.2 million lakefront restaurant. That restaurant now permanently employees 65 people at an investment of $18,000 per job. If progressive taxation … had taken my extra $1.2 million and spent it on a government stimulus program would 65 jobs have been created?"
"On the other end of the capital intensity scale," he continued, "Cypress Semiconductor required huge investments to create jobs in its chip-manufacturing plants. Between 1983 and 2003 those investments totaled $797 million and led to the creation of 4,033 jobs at an investment of $198,000 per job created. Thus my own experience on the cost of job creation ranges from $18,000 to $198,000 per job compared with $500,000 to $4 million per job created by the Obama stimulus program."
At the end of the day the $897 billion the Obama Administration spent on the stimulus program is gone and must be repaid with interest by this generation or some future generation of taxpayers.
I'm sure there are some bridges and highways somewhere that got built but even they now require periodic maintenance and repair.
However, the $797 million Mr. Rodgers and his fellow investors paid to get Cypress Semiconductor up and running had, as of close of business August 23, 2013, a market value of $1.76 billion. That is a profit on investment of $963 million.
Not only that but the investment created a tax paying corporation with 4,033 permanent highly paid taxpaying employees where there was nothing before 1983.
Rodgers continues: "Even European socialist democracies are starting to understand that tax-and-spend policies kill jobs. For example both Italy and Spain have repealed their incentive programs for solar energy (along with their "green" jobs) because the countries have calculated that for every job created by government investment in green energy somewhere between 4.8 jobs (Italy) and 2.2 jobs (Spain) are lost because of the reciprocal cuts in private investment."
He concludes: "The horrible irony is the government keeps telling the very people whose jobs it destroys that if we only tax the rich more everything will be better."
Thank you Mr. Rodgers for making your explanation simple. Maybe even Ms. Pelosi and Mr. Reid will be able to understand this.
Jim Clark is president of Republican Advocates, and has served on the Washoe County and Nevada state GOP Central Committees. He can be reached at firstname.lastname@example.org.