Otherwise His Opinion Would Count For Little
As far as I can tell, Obama has no knowledge of economic theory. He is saturated with opinions he apparently absorbed in his prior life from whatever influences informed his development. But I see no evidence that he has an espalier of theory and data on which to structure his analysis (if you can call it that) of the causes of and solutions to the problems in the U.S.
If you extrapolate his prescription for solving the current severe unemployment in the U.S. to its logical end, the foolishness of his recommendations becomes clear.
Hire more public sector (i.e. government) workers - this is his solution. Okay, let's do that.
Let us hypothesize an unemployment rate of 100%, to take the logic to its extreme conclusion. Now give all the unemployed citizens government jobs.Now pay these people their salaries. Where do you get the money to pay them? From taxes, the government's only source of revenue (as opposed to borrowing, which is not revenue because it has to be paid back).
Okay, now, where do we source tax revenue? From taxpayers. But if everyone is unemployed, the government will be collecting no taxes from these folks. Now, if the government employs them, it will pay 100% of their salaries and receive back a percentage of their income in taxes. Let's say 30% (way too high, realistically, but let's just say...). So now the government pays $100 in salary and recoups $30 in taxes. How long can that go on? The government loses on every transaction.
Bottom line, you cannot take a pool of money (that the government collects as income tax from employees), pay employees from the pool and replenish it with a percentage of what you paid out and EVER come out ahead. Of course it is more complicated than this. The employees will spend their income and create jobs in the private sector. But even that will not result in a net gain. Spend $10 on a shirt. Employee at shirt store gets $1 in salary, store makes $3 profit, material supplier receives the other $6 and keeps some as profit. The government taxes the profit and the salary. Still just a percentage of the original spending.
Revenue and profit must be generated outside of government because government only uses money. It does not produce profit.
Let us hypothesize an unemployment rate of 100%, to take the logic to its extreme conclusion. Now give all the unemployed citizens government jobs.Now pay these people their salaries. Where do you get the money to pay them? From taxes, the government's only source of revenue (as opposed to borrowing, which is not revenue because it has to be paid back).
Okay, now, where do we source tax revenue? From taxpayers. But if everyone is unemployed, the government will be collecting no taxes from these folks. Now, if the government employs them, it will pay 100% of their salaries and receive back a percentage of their income in taxes. Let's say 30% (way too high, realistically, but let's just say...). So now the government pays $100 in salary and recoups $30 in taxes. How long can that go on? The government loses on every transaction.
Bottom line, you cannot take a pool of money (that the government collects as income tax from employees), pay employees from the pool and replenish it with a percentage of what you paid out and EVER come out ahead. Of course it is more complicated than this. The employees will spend their income and create jobs in the private sector. But even that will not result in a net gain. Spend $10 on a shirt. Employee at shirt store gets $1 in salary, store makes $3 profit, material supplier receives the other $6 and keeps some as profit. The government taxes the profit and the salary. Still just a percentage of the original spending.
Revenue and profit must be generated outside of government because government only uses money. It does not produce profit.
posted by alison @ 4:06 PM
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