The Things Obama Says….

This recent speech from President Obama really bothered me.   Specifically, two big things jumped out.  I’ll dive in briefly:

1)   The first comment that bothered me was this one which implies that the Clinton surplus was a good thing:

“So I’m going to reduce the deficit in a balanced way.  We’ve already made a trillion dollars’ worth of cuts.  We can make another trillion or trillion-two, and what we then do is ask for the wealthy to pay a little bit more.  (Applause.)  And, by the way, we’ve tried that before — a guy named Bill Clinton did it.  We created 23 million new jobs, turned a deficit into a surplus, and rich people did just fine.  We created a lot of millionaires.”

If you just finished section 6 in Understanding the Modern Monetary System then you understand a lot more about the monetary system than Barack Obama.  Because once you understand sector balance economics you understand that the three sectors (public, private and foreign) must always add up to zero.  So, since we have a foreign sector that equates to a 4% demand leakage, and a public sector that is running a 8% deficit that leaves the private with a 4% surplus.  Not bad.  But it’s also obviously not great since the private sector remains burdened by excessive debt and is trying to crawl out of this debt hole.

More frightening is the idea that getting back to a budget surplus is somehow a good thing.  As if the government needs to “tighten its belt strap” just like a household does because it might go bankrupt.  Of course, the government doesn’t have a solvency constraint so the entire analogy is void of value.  So when the public sector gets back to that surplus range we end up having a 4% demand leakage from the foreign sector and a 4% deficit for the private sector (see the image below).  This is precisely what led up to the crisis and helped contribute to the current economic malaise.  It is not what we need right now!  In a deleveraging cycle within a nation running a trade deficit the private sector needs helps deleveraging.  And since the public sector has no solvency constraint it is the only sector that can provide the deficit that is necessary to ease this burden.  Otherwise, we risk repeating the mistakes of the late 90’s that caused this whole mess to begin with!

2)  The second part that irked me was this comment:

“There are a lot of wealthy, successful Americans who agree with me — because they want to give something back.  They know they didn’t — look, if you’ve been successful, you didn’t get there on your own.  You didn’t get there on your own.  I’m always struck by people who think, well, it must be because I was just so smart.  There are a lot of smart people out there.  It must be because I worked harder than everybody else.  Let me tell you something — there are a whole bunch of hardworking people out there.  (Applause.)

If you were successful, somebody along the line gave you some help.  There was a great teacher somewhere in your life.  Somebody helped to create this unbelievable American system that we have that allowed you to thrive.  Somebody invested in roads and bridges.  If you’ve got a business — you didn’t build that.  Somebody else made that happen.  The Internet didn’t get invented on its own.  Government research created the Internet so that all the companies could make money off the Internet.”

Again, if you just finished reading the MR paper then you understand economics better than President Obama.  You know that supply and demand are two sides of the same coin.  You know that there can’t be a growing economy without strong demand for goods and services.  But you also understand that better goods and services don’t just magically appear from nothing.  Yes, we are all in this together and we all rely on one another.  There is no such thing as someone who is purely “self made”.  But let’s not go on saying crazy things like “If you’ve got a business — you didn’t build that.”  Only a man who didn’t ever build a business could say such a thing.  Because building a business is hard work.  I know.  I am in the process of doing it right now.  Somebody else doesn’t make that happen.  Somebody else might have helped make that happen.  But somebody else didn’t make that happen.

If you’ve digested this piece you understand how entrepreneurs are the backbone of our economy.  They take risks in the desire to generate a profit that streamline our economy.  Essentially giving us more time to do more things by making our lives more efficient.  This creates more demand in the future, improves living standards and helps us grow the economy (and yes, it helps create jobs!).  And it takes someone with initiative, vision and the desire to take on that risk to build a business.  Yes, I am building my company with other people, but it’s my vision.  It’s me who is taking the capital risk.  And that’s how the process of entrepreneurship works.  Of course we rely on the demand of customers and we need help in many different ways to build that vision.  But ultimately it starts with that person who is willing to take the risk to offer goods and services that will hopefully be in high demand.  If what I build fails then I am the one who takes the loss.  Not the government.  Not society.  Me.  So it’s wrong to say “you didn’t build that”.  Because I am building that.  And if it comes crumbling down I am certain that Obama will not say “well, we built that so here’s a bailout for your efforts”.  No, I will be crushed.  More importantly, it’s damn hard work and it costs a lot of money and it’s an enormous risk.  I’m not the first person who has gone through this process and I am certainly not the most innovative or important entrepreneur (far from it!), but it’s patently absurd to downplay the importance of the entrepreneur in our economy or imply that there isn’t a large degree of individual drive, motivation, initiative and creativity that goes into the process of evolving an economy.  Yes, we’re all in this together, but without this individualism we’re destined for stagnancy in living standards.