Prime the Pump, or Fill the Tank?

As the electoral silly season heats up, it's always interesting to listen to Liberals/Progressives/Democrats argue with their Republican opponents about how to fix the limping economy.

Republicans try to sell the idea that a reduction of government spending and the maintenance of moderate tax rates for a definite and reasonable length of time will do more to grow the economy and generate job growth.  

Democrats will demand that we spend more and more money to "stimulate" the economy, citing a Keynesian economic multiplier. Questioning the fact that we don't actually have the money that they want to spend is answered by their standard rhetoric of tax-the-rich.

Republicans, conservatives, libertarians, and their like-minded allies think that the private sector is perfectly capable of determining how to invest the money that they have earned. They feel confident in the judgment of the citizens and voters. They even think that the voters can make intelligent decisions without any input at all from Congress, the White House, or the Supreme Court. 

Voters agree because they tend to feel that the 545 people that make up the three branches of government have an almost universal ignorance of how business actually operates or how self-sustaining employment is created.

Liberals/Progressives/Democrats think that the private sector is populated by those who need to be told what to do, since they are incapable of prioritizing spending imperatives. In simpler terms, they think the average American is an idiot and must simply do what he is told to do by the elites such as themselves.

The L/P/Ds respond to Republican calls for spending reductions by painting Republicans as the reincarnation of Ebenezer Scrooge. They say that if we listen to the Republicans and don't spend tens of billions on jobs stimulus, all our children will be uneducated, criminals will run amok in the streets, and medical care will be reduced to nothing more than your mother kissing your "boo-boo." 

L/P/Ds refuse to recognize that there are innumerable other government employees who could be laid off to free up payroll dollars for schools, police, and firefighters. Of course, this refusal to recognize the obvious might be because these other government employees are also union members, so they too are campaign contributors.

Apparently, when it comes to, as they phrase it, saving or creating jobs, L/P/Ds have a remarkable ability to rationalize to themselves that employment with a police force and employment with a philharmonic orchestra are equivalent. As they see it, both are necessary for the republic to function. Firefighters are equated to grammar school art teachers. Nurses are interchangeable with animal control personnel who clean up roadkill. So none can be sacrificed. It appears that any job classed as essential is, by pure coincidence, a union job.

Now, if some L/P/Ds have convinced themselves that cleaning up roadkill and administering a transfusion are equivalent, that's just fine. Everyone is entitled to an eccentricity or two. (Avoiding the hospitals that those particular L/P/Ds choose for their medical procedures might be advisable, though.)

Most Americans would agree that a philharmonic orchestra is a great thing to have in any community. The overwhelming majority would also say, "Yes, it's nice...but it's not necessary." 

That simple sentence is the key to the entire dilemma that we face. It is the crux of the critical choice that must be made in November. 

Liberals/Progressives/Democrats refuse to recognize the validity of the nice-versus-necessary issue. The only time that they seem to admit something might be nice, but that we could do without it, is when it is something that they cannot use to reward important constituencies, which is their code for big-dollar campaign contributors.

Even their use of the word "stimulus" reflects on the L/P/Ds lack of understanding. Any true economic stimulus must be self-perpetuating. The example of priming a pump is a useful analogy. You use water to prime a pump so that you can get more water out of the pump than you ever put in. It appears that when any L/P/D fills the gas tank of his car, he would call it stimulus spending. Yes, it allows a car to move, but you'll never get more gasoline out than you put in. You periodically have to refill the tank. This means that any money that is spent now to "stimulate" the car will have to be spent again. And again. And again. 

Private-sector stimulus, through investment with a healthy profit motive, will produce more output than the initial input -- if the investment succeeds. If not, then it is not self-perpetuating. 

This doesn't mean that it can be confused with government spending. The difference between failed government spending and a failed private-sector investment is that when a private-sector investment fails, the private sector stops spending. The phrase "throwing good money after bad" comes readily to mind. 

Studies have indicated that something on the order of nine out of ten start-up companies close down within the first five years of being in business. The people who founded the new company determined that they had reached that "good-money-after-bad" point and stopped. This doesn't mean that they failed. On the contrary, in the private sector, investors are quite optimistic. But they are also realistic and prone to objective self-analysis. Entrepreneurs look carefully at why they failed, rework their business plans, and then move on to a new, and improved, business.

On the other hand, again using the gas tank analogy, when the government refers to spending as investment, it seems to be based on the belief that if one tank full doesn't get the car running in perpetuity, all that needs to be done is to install a much bigger tank, fill 'er up, and you're all set. When the second, larger gas tank runs empty, in their view, it is simply proof that they didn't install a big enough tank!

This, unfortunately, crosses the line between being eccentric and being a full-on delusion.

As we approach the final weeks of the campaign season, we must constantly listen carefully to how the candidates describe what they believe will generate jobs and help put the country back to work. 

If we hear a candidate explain that the government will somehow create jobs by making an "investment" in police, firefighters, medical personnel, or teachers, we should immediately think of the fabled gas tank. Once we let Congress and the Obama administration start filling that gas tank, there will no end in sight. 

Jim Yardley is a retired financial controller, Vietnam veteran, and libertarian (small "l").  He can be contacted at james.v.yardley@gmail.com.

As the electoral silly season heats up, it's always interesting to listen to Liberals/Progressives/Democrats argue with their Republican opponents about how to fix the limping economy.

Republicans try to sell the idea that a reduction of government spending and the maintenance of moderate tax rates for a definite and reasonable length of time will do more to grow the economy and generate job growth.  

Democrats will demand that we spend more and more money to "stimulate" the economy, citing a Keynesian economic multiplier. Questioning the fact that we don't actually have the money that they want to spend is answered by their standard rhetoric of tax-the-rich.

Republicans, conservatives, libertarians, and their like-minded allies think that the private sector is perfectly capable of determining how to invest the money that they have earned. They feel confident in the judgment of the citizens and voters. They even think that the voters can make intelligent decisions without any input at all from Congress, the White House, or the Supreme Court. 

Voters agree because they tend to feel that the 545 people that make up the three branches of government have an almost universal ignorance of how business actually operates or how self-sustaining employment is created.

Liberals/Progressives/Democrats think that the private sector is populated by those who need to be told what to do, since they are incapable of prioritizing spending imperatives. In simpler terms, they think the average American is an idiot and must simply do what he is told to do by the elites such as themselves.

The L/P/Ds respond to Republican calls for spending reductions by painting Republicans as the reincarnation of Ebenezer Scrooge. They say that if we listen to the Republicans and don't spend tens of billions on jobs stimulus, all our children will be uneducated, criminals will run amok in the streets, and medical care will be reduced to nothing more than your mother kissing your "boo-boo." 

L/P/Ds refuse to recognize that there are innumerable other government employees who could be laid off to free up payroll dollars for schools, police, and firefighters. Of course, this refusal to recognize the obvious might be because these other government employees are also union members, so they too are campaign contributors.

Apparently, when it comes to, as they phrase it, saving or creating jobs, L/P/Ds have a remarkable ability to rationalize to themselves that employment with a police force and employment with a philharmonic orchestra are equivalent. As they see it, both are necessary for the republic to function. Firefighters are equated to grammar school art teachers. Nurses are interchangeable with animal control personnel who clean up roadkill. So none can be sacrificed. It appears that any job classed as essential is, by pure coincidence, a union job.

Now, if some L/P/Ds have convinced themselves that cleaning up roadkill and administering a transfusion are equivalent, that's just fine. Everyone is entitled to an eccentricity or two. (Avoiding the hospitals that those particular L/P/Ds choose for their medical procedures might be advisable, though.)

Most Americans would agree that a philharmonic orchestra is a great thing to have in any community. The overwhelming majority would also say, "Yes, it's nice...but it's not necessary." 

That simple sentence is the key to the entire dilemma that we face. It is the crux of the critical choice that must be made in November. 

Liberals/Progressives/Democrats refuse to recognize the validity of the nice-versus-necessary issue. The only time that they seem to admit something might be nice, but that we could do without it, is when it is something that they cannot use to reward important constituencies, which is their code for big-dollar campaign contributors.

Even their use of the word "stimulus" reflects on the L/P/Ds lack of understanding. Any true economic stimulus must be self-perpetuating. The example of priming a pump is a useful analogy. You use water to prime a pump so that you can get more water out of the pump than you ever put in. It appears that when any L/P/D fills the gas tank of his car, he would call it stimulus spending. Yes, it allows a car to move, but you'll never get more gasoline out than you put in. You periodically have to refill the tank. This means that any money that is spent now to "stimulate" the car will have to be spent again. And again. And again. 

Private-sector stimulus, through investment with a healthy profit motive, will produce more output than the initial input -- if the investment succeeds. If not, then it is not self-perpetuating. 

This doesn't mean that it can be confused with government spending. The difference between failed government spending and a failed private-sector investment is that when a private-sector investment fails, the private sector stops spending. The phrase "throwing good money after bad" comes readily to mind. 

Studies have indicated that something on the order of nine out of ten start-up companies close down within the first five years of being in business. The people who founded the new company determined that they had reached that "good-money-after-bad" point and stopped. This doesn't mean that they failed. On the contrary, in the private sector, investors are quite optimistic. But they are also realistic and prone to objective self-analysis. Entrepreneurs look carefully at why they failed, rework their business plans, and then move on to a new, and improved, business.

On the other hand, again using the gas tank analogy, when the government refers to spending as investment, it seems to be based on the belief that if one tank full doesn't get the car running in perpetuity, all that needs to be done is to install a much bigger tank, fill 'er up, and you're all set. When the second, larger gas tank runs empty, in their view, it is simply proof that they didn't install a big enough tank!

This, unfortunately, crosses the line between being eccentric and being a full-on delusion.

As we approach the final weeks of the campaign season, we must constantly listen carefully to how the candidates describe what they believe will generate jobs and help put the country back to work. 

If we hear a candidate explain that the government will somehow create jobs by making an "investment" in police, firefighters, medical personnel, or teachers, we should immediately think of the fabled gas tank. Once we let Congress and the Obama administration start filling that gas tank, there will no end in sight. 

Jim Yardley is a retired financial controller, Vietnam veteran, and libertarian (small "l").  He can be contacted at james.v.yardley@gmail.com.