The political gaffe aspect of Obama’s recent “the private sector is doing fine” comment has been exhaustively analyzed. With employment still over 8%, and only that low due to the large numbers of people who have given up searching for work altogether, the statement reads as absurd and shows a disconnect from reality all on its own.
More interesting, however, is how perfectly the statement in context reveals the president’s flawed economic understanding, which envisions the government as calibrating policy to reach an ideal balance between public and private employment. Here’s what he followed his gaffe with:
Where we’re seeing weaknesses in our economy have to do with state and local government — oftentimes, cuts initiated by governors or mayors who are not getting the kind of help that they have in the past from the federal government and who don’t have the same kind of flexibility as the federal government in dealing with fewer revenues coming in.
But the public and private sectors are not sub-elements within a governmental economic framework in which government-determined and politically motivated balances between the two sectors are decided upon and kept. Obama’s inability to make this elementary connection is why he’s so willing to tax and borrow to infuse large stimulus packages and introduce quantitative easing into the economy. If Obama’s initial statement is true, and the private sector is “doing fine,” then it would naturally follow that the public sector is doing fine as well. If the public sector is not doing fine, then the private sector must not be doing fine either, otherwise the revenues would exist from private sector to continue the current levels of public sector funding.
Let’s break this down to four basic points:
1. The one and only way the government can get money is through taxation, which takes money directly from the private sector. Even if the government via the Fed prints more money, it’s a stealth tax, because it redistributes the value of every privately held dollar in the country and transfers that taken value to the added money supply. And borrowing does not ‘gain’ the government money, because it has to pay that money back.
2. Public sector salaries are paid for by private sector funds.
3. The public sector itself has value, but its value is determined by the private sector’s need (e.g. maintaining the rule of law for the private sector to operate in), not through how many people it employs.
4. If public sector employees are being laid off, it’s because there is insufficient revenue (i.e the private sector is NOT doing fine) to continue to pay them at their current levels or the voters, through their elected representatives, have decided on different priorities.
When, like Obama, you’re a proponent of the “government-centered society”, those four points get missed.