If it only were that simple. What’s wrong with it? Oh, just the usual. Negative side effects and unintended consequences of government action.

When the government stimulates the economy, it spends money, and that money has to be taken from somewhere. It’s all too easy to ignore the negative effects on whomever of whatever the money was taken away from and just focus on the wonderful things that happened to those who were given the money. That’s the fallacy of the stimulus!

This post presents some definitive evidence of the failure of government spending as a tool for stimulating the economy, and it is intended as a direct rebuttal to anyone claiming that Obama is such a great president because he “saved or created” X number of jobs, or that the economy would have been so much worse had Obama not done __________.

Let’s begin…

A 2010 Harvard Business School study set out to investigate how businesses benefit as their state’s congressional delegation grows in stature and is therefore able to bring in more Federal spending to the state.

Using data compiled from a 40 year period, the researchers discovered, to their great surprise, that as more Federal money flows into a state, its “companies experienced lower sales and retrenched by cutting payroll, R&D, and other expenses.”

And here’s why:

Some of the dollars directly supplant private-sector activity—they literally undertake projects the private sector was planning to do on its own. The Tennessee Valley Authority of 1933 is perhaps the most famous example of this.

Other dollars appear to indirectly crowd out private firms by hiring away employees and the like. For instance, our effects are strongest when unemployment is low and capacity utilization is high. But we suspect that a third and potentially quite strong effect is the uncertainty that is created by government involvement.

All throughout 2009 and 2010, president Obama could not stop bragging about how many jobs he had “saved or created.” But of course, it’s very easy for the government to “save or create” a job. It’s a no-brainer. Just borrow, say $100,000, and pay a man to dig some holes and fill them back up again. And bingo, you’ve created a job. And if you contract a private company to do it, you can even be so bold as to call it a “private sector” job. Easy as pie.

So what’s the problem? The negative side effects and unintended consequences of course. What if, due to government action, for every job “saved or created” there are even more jobs “forestalled or destroyed”?

And this is exactly what happened, says another academic study, which you can read here.

The study concludes that at best the stimulus created no private sector jobs. The only thing it “save or created” were government jobs. The study further concludes that the stimulus has likely destroyed one million private sector jobs to create 450 thousand government jobs.

Here’s the abstract:

This paper uses variation across states to estimate the number of jobs created/saved as a result of the spending component of the American Recovery and Reinvestment Act (ARRA). The key sources of identification are ARRA highway funding and the intensity of state sales tax usage. Our benchmark point estimates suggest the Act created/saved 450 thousand government- sector jobs and destroyed/forestalled one million private sector jobs. The large majority of destroyed/forestalled jobs are in a subset of the private service sector comprised of health, (private) education, professional and business services, which we term HELP services. There is appreciable estimation uncertainty associated with these point estimates. Specifically, a 90% confidence interval for government jobs gained is between approximately zero and 900 thousand and the counterpart for private HELP services jobs lost is 160 to 1378 thousand. In the goods- producing sector and the services not in our HELP subset, our point estimate jobs effects are, respectively, negligible and negative, and not statistically different from zero. However, our estimates are precise enough to state that we find no evidence of large positive private-sector job effects. Searching across alternative model specifications, the best-case scenario for an effectual ARRA has the Act creating/saving a (point estimate) net 659 thousand jobs, mainly in government. It appears that state and local government jobs were saved because ARRA funds were largely used to offset state revenue shortfalls and Medicaid increases (Fig. A) rather than directly boost private sector employment (e.g. Fig. B).

If this is not enough, we now have another case study on how to get out of a recession by deploying opposite policies to the big government stimulus.

While the U.S. under Obama was attempting to get out of the recession by increasing government spending and expanding social programs, Germany has been cutting taxes, cutting spending, and restructuring its social programs.

This New York Times article from August 2010 details Germany’s economic recovery:

During the recession, Chancellor Angela Merkel resisted the palliative of government spending that the United States and some European partners felt was crucial to restoring growth.

By paring unemployment benefits, easing rules for hiring and firing, and management and labor’s working together to keep a lid on wages, Germany ensured that it could again export its way to growth with competitive, nimble companies producing the cars and machine tools the world’s economies — emerging and developed alike — demanded.

I’d like to weigh in on a few points… First of all, I am an immigrant ACTUALLY living in Denmark and there is quite a bit those on the other side of the world will actually never know until they live here.

- The “happiness” argument…if you ask any Dane on the street he will tell you he is happy. Happiness is subjective and fleeting for all human beings. However, their perception of reality is a bit off centered. The average Dane walks around like a deer in headlights, mentally-checked out, completely oblivious to preventing certain accidents, walking into people, and having no concept of personal space. They live a simple, small life equivalent to rural or town, off the beaten path living. Happiness is derived from simply knowing their Dankort will work, the weekend will arrive, sex is easy to obtain (but why is it so difficult to wear condoms, boys?), and they will have money to maintain their metrosexual look. It is equally so with the women who maintain bottled blonde coloring. Happiness is easiest for those who ask for nothing of life but this. If you have no goals, no hopes, or ambitions, you fit right in with Jante’s Law.

-Denmark is no stranger to exploiting foreign workers. If you find places under construction in Copenhagen and speak to the workers, you’d be surprised to learn many have no certificates for construction and do not speak Danish.

-Denmark still claims not to be socialist but it is fine. A small percent is rich, and I mean very rich. But the majority of them are middle-class with “working class” mentalities. Their education is free and mediocre and does not guarantee one a job in Denmark. They are not an imaginative, avante-garde, purposeful, people. They are successful in terms of Scandinavian culture, but the individual Dane lives a mediocre existence. What makes them successful is that there country, economy, or currency hasn’t been tested, but if it is, or should ever admire too much the democratic way, the sheep of Denmark will perish. Their society is not set up for change. This is evident in how nationals and foreigners ignore each other. They are collectivist maintainers by nature, not innovators. I guess if it is fine to go through life and not make any real achievements and not be motivated to. Oh, but hey! Where are you getting wasted Friday night?

- As for immigration, they have opened their doors to darker skin foreigners, which they show their “tolerance” by ignoring and speaking derogatorily in Danish about. This is how they show they are peaceful, they won’t hit you but they will condescend you. It is awful to be a muslim here, because in Denmark, it is *socially acceptable* to publicly hate Muslims or people from the east. They simply label foreigners as, and I quote by many, “Stupid immigrants who are too dumb to learn the Danish way.” They think foreigners are robbing their system when many are not even eligible for benefits excluding healthcare. They blame crime and the depletion of welfare on immigrants, whom must have citizenship/permanent residency in order to reap any of the benefits many of the Danes receive, even though they are out of, and/or refuse to work. Danes are blatantly intolerant, but it is considered bad taste to admit it. And unless you know them, they definitely won’t admit to it publicly.

– Strangely they live, as if oxygen for the brain, to compare Denmark to the US, and with Europeans, the UK. It is the worst display of envy ever. They don’t bother to research how US government is set up, only to compare their iddy biddy city nation to a monstrous sized nation. The reason the US is a superpower is because of capitalism, its military, GNP, GDP, and the strength its multicultural nation contributes. Denmark has specks of other nationalities, but cannot be considered cosmopolitan in this decade. They do not have the mentality for it.

-They are financially thriving above the UK and US––NOW, only because these two are in a recession, which the US has proven its ability to bounce back like no other nation and the UK, well, will take a bit of time. They lose their “educated” to other countries, which many of them must take a standard of living reduction, in order to survive in those other countries. If you are not used to competing in the workforce, earning your wealth out of skill, talent, or being better than the next man, how will they survive when there is no handout and hundreds who are better educated and more talented with cultural experience who apply for the same job? What was your GPA? And how does your university rank with the top in the world? In Europe? What are your conversational skills? How will you treat clients who are from different cultures? Who are Muslims or from the Middle East? If you dislike the US so much, why are you here asking us for a job? And blah, blah, blah,

I don’t mind the Danes at all. I just think the idea of success is subjective, and what it measurable needs to be measured equally and properly compared. Denmark needs to stop envying the US because they will never be the US…if nothing more than just not producing world leaders of industry. However, as long as their mentalities stay confined to this tiny glacier and doesn’t infect the rest world, all will be just fine.

That article carries a prime example for one of the reasons why taxing the so called rich will never amount to a significant revenue boost to the government, let alone generate enough revenues for an expansive welfare state. And of course, there are many, many more reasons why taxing the “rich” does not work out as advertised.

Any politician (ahm Obama ahm) promising to expand the welfare state, while reducing the deficit, and doing it all at the expense of families making over $250,000 a year, should be laughed at, ridiculed, and driven out of town in shame for the fool that he is. Or rather, those who believe him should be laughed at, ridiculed, etc.

And in the mean time, while we’re discussing taxes on families earning $250,000 plus, this is the type of thing the truly wealthy (and liberal leaning) are doing with their money: The Tax Haven That’s Saving Google Billions

And yes, the U.S. Treasury’s share of money kept off shore because of high corporate taxation in the U.S. is exactly zero dollars.

The Obama Administration represented the moratorium as a safety recommendation suggested in a report drafted by Interior Secretary Ken Salazar and peer reviewed by experts associated with the National Academy of Engineering. However, those same experts are saying that they have been misrepresented, and that the moratorium was added to the report after they had signed off on it. They noted that they agreed to a moratorium on drilling of new wells, but not on shutting down existing operations.

A June, 17th Wall Street Journal op ed piece chronicles this and explains why the drilling moratorium is actually detrimental to safety:

A big reason why those experts would have balked is because they recognize that the moratorium is indeed a threat to safety. Mr. Arnold offers at least four reasons why.

The ban requires oil companies to abandon uncompleted wells. The process of discontinuing a well, and then later re-entering it, introduces unnecessary risk. He notes BP was in the process of abandoning its well when the blowout happened.

The ban is going to push drilling rigs to take jobs in other countries. “The ones that go first will be the newest, biggest, safest rigs, because they are most in demand. The ones that go last and come back first are the ones that aren’t as modern,” says Mr. Arnold.

The indeterminate nature of this ban will encourage experienced crew members to seek other lines of work—perhaps permanently. Restarting after a ban will bring with it a “greater mix of new people who will need to be trained.” The BP event is already pointing, in part, to human error, and the risk of that will increase with a less experienced crew base. Finally, a ban will result in more oil being imported on tankers, which are “more likely” to spill oil than local production.

This is a prime example of how those who control government operate to perpetuate their own self interests rather than act for the “good of the people.”

Numerous people have come to this site and complained about its logo because it contains a communist symbol, which according to them, has barely anything to do with socialism, or perhaps nothing at all.

Let’s see indeed what are the differences between socialism and communism…

From the Encyclopedia Britanica’s online entry on communism:

the political and economic doctrine that aims to replace private property and a profit-based economy with public ownership and communal control of at least the major means of production (e.g., mines, mills, and factories) and the natural resources of a society. Communism is thus a form of socialism—a higher and more advanced form, according to its advocates. Exactly how communism differs from socialism has long been a matter of debate, but the distinction rests largely on the communists’ adherence to the revolutionary socialism of Karl Marx.

(I added the bolding.)

Communism is thus a form of socialism, and its distinction rests mostly on its revolutionary tactics.

Let’s see what Britanica has to say about Karl Marx, the father of communism:

revolutionary, sociologist, historian, and economist. He published (with Friedrich Engels) Manifest der Kommunistischen Partei (1848), commonly known as The Communist Manifesto, the most celebrated pamphlet in the history of the socialist movement. He also was the author of the movement’s most important book, Das Kapital. These writings and others by Marx and Engels form the basis of the body of thought and belief known as Marxism.

(Again, I added the bolding.)

So the Communist Manifesto is “the most celebrated pamphlet in the history of the socialist movement.” If communism were only scantly related to socialism, Karl Marx would have pulled off quite an impossible feat writing a pamphlet on communism to become the most celebrated among those who believe something very different.

Modern socialists distance themselves from the revolutionary and dictatorial aspects of communism, but in fact, people who still support communism today do the same, claiming that what happened in the Soviet Union was not true communism.

In terms of implementation, all forms of socialism, communism included, seek to enact (1) strict government control and ownership of industry and (2) redistribution of wealth.

And they all fail due to exactly the same things, (1) their inability to efficiently and properly manage and allocate common resources and (2) their inherent disincentive for achievement.

In conclusion, communism and socialism work toward achieving the same ends. Only their methods of achieving those ends are different. Communism uses revolution, while socialism uses evolution, manipulating the system into accepting it over time.

New Jersey cannot solve this problem by raising taxes. “[W]e have revenue going down, not up even though we’ve raised taxes every year,” says NJ Gov. Chris Christie.

A major contributor to New Jersey’s bloated budged is state worker benefits. A state worker could retire after 25 years at age 49, contribute $124,000 toward retirement, and get back $3.8 million in pension and health benefits over the rest of his lifetime.

The money to finance this excessive retirement plan isn’t exactly money that’s going to save the poor from the evils of capitalism. Then why is a liberal state such as NJ spending it? Could this be because of socialist greed? Or perhaps it’s because once a state acquires money in the name of the poor it just spends it which ever way…

Watch the interview with Gov. Christie here:

The core explanation for why this is so, is that a tax increase discourages people from engaging in the taxable activity, (earn income in the case of income tax,) and it encourages them to avoid the tax (by shifting money around, taking it out of the country, etc.) or even illegally evade it, thereby reducing the tax base. At some point, the increase in tax rate is not enough to compensate for the reduction in tax base, resulting in a reduction of tax revenues despite the rate increase.

Now, it is debatable at which point tax revenues start decreasing with increasing rates. However, it is apparent, that there is no tax rate for “the rich” sufficient to support a significant expansion of the welfare state. The evidence is the tax structure of the social democracies in Europe, whose tax rates are considerably higher than those in the U.S. for lower income brackets. In addition, sales taxes, which are paid by all regardless of income, are considerably higher in Europe than in the U.S. Those tend to hover around 20% in most of Europe, a figure which is twice as large as that of the highest sales tax state in the U.S., California. If anyone could figure out how to support a large welfare state by soaking the rich, it surely is a Western European socialist, but no one did!

Therefore, any politician claiming he/she will soak the rich for “social justice” is being very dishonest, to put it delicately.

To learn more about the Laffer curve, watch the following series of videos. They do a great job explaining these concepts.

Some government spending for safety and order does facilitate prosperity, but further spending turns the relationship between the size of government and prosperity around, resulting in more government for less prosperity.

The following video from the The Center for Freedom and Prosperity does a great job explaining this and compares economic performance among Denmark, France, Germany, Sweden and the U.S.A.