Understanding Economic Prosperity

It’s economic growth, stupid.

Economic growth makes good things possible—better learning and jobs for those with limited educations, health for children, security for old age, funds to preserve the environment and save great architecture, public safety, fine arts, transportation that works. Grow the pie. And what makes the economy grow? Competition, with profit the reward.

Michael Boskin, Stanford economics professor and one-time chair of Bush 41’s Council of Economic Advisors, just commented on President Obama’s 54-minute speech on the economy, delivered June 14:

Obama suggested that the profit motive is somehow ignoble, an opinion shared by many on the far left. But every student learns in introductory economics class that the pursuit of profits is essential to a successful economy, allocating resources to the use consumers value most. This is not exactly a new insight. Writing in 1776, Adam Smith noted, "It is not from the benevolence of the butcher, the brewer, or the baker that we can expect our dinner, but from their regard to their own interest."

Boskin says Obama should have “set aside his big-government social-engineering agenda, from energy to health-care reform,” because the current weak recovery is “the worst possible time to add such a cost burden and uncertainty to the economy.” Instead, Obama gave the country 13 consecutive quarters of economic growth below 4%, the longest such string since World War II, with growth during the period averaging only 1.4%.

On unemployment, Boskin quoted Obama’s saying, "the private sector is doing fine" as he called for subsidizing state and local government jobs. That’s because Obama believes government is where the jobs problem is centered. The truth, as Boskin says, is “there are 11 unemployed private-sector workers for every unemployed government worker.”

In Boskin’s view, “President Obama should put Adam Smith's The Wealth of Nations at the top of his summer reading list.”

Robert Tracinski, conservative editor of the “Intellectual Activist,” is similarly intrigued by Obama’s apparent economic illiteracy. Tracinski asserts that Obama sees the beneficial effect of government employment—prosperity for those bringing home a state or municipal paycheck. But Obama doesn’t visualize all the private-sector jobs never created because tax collections re-channel that money to government. To Tracinski:

This . . . reflects a deeper ideological agenda: a suspicion of private-sector economic activity as being driven by greed and profit, while public-sector employment is noble, selfless, and public-spirited. . . Consider. . . the moral inversion of this perspective: those who consume wealth produced by others are assumed to be good, while those who actually produce the wealth in the first place are . . . the bad guys. . . Obamanomics [is] focus on government action, government spending, government hiring as the key to everything—while disparaging private profit-making. It is also the reason why Obamanomics is failing.

One could say Western Europe has profitable industry and a healthy public sector. Obama is merely trying to move America in a social democratic direction (without using the words). Though he won’t say so now, Obama would use a European-style “Value Added Tax” to finance our new universal health insurance. That’s all. Don’t we want to raise taxes to pay for needed big government?

O.K. So how is big government social democracy working for those in Greece (-3.5% GDP, World Bank, most recent year), Cyprus (1.0%), Spain (-0.1%), Italy (1.5%), Portugal (1.4%), Ireland (-0.4%), Belgium (2.3%), and France (1.5%)? In the United Kingdom (2.1%)?

Pollster Scott Rasmussen of “Rasmussen Reports” has a twist on capitalism’s importance to America’s future. He writes,

Individual Americans recognize that they have more power as consumers than they do as voters. Their choices in a free market give them more control over the economic world than choosing one politician or another.

Conservatives are forever asking government to get out of the way and to allow the free market economy to work. Rasmussen is hinting government itself should operate as a free market, offering people a range of choices, empowering the voter again and again.

America is still home of the dynamic, healthy private sector, of the world’s most advanced health care, of competitive higher education. Adam Smith, 1776. America, 1776. Exceptional America, 1776-2012.