Are You Smarter Than A 20th Grader?

The magic number is $50,000 – the median compensation rate in the private sector.  The math is simple: for every $50,000 of cost laid on business by government, one job must be cut.

Government burdens businesses in three ways: taxes, mandates, and regulations.  Ultimately, these costs are passed to consumers in the form of increased prices; but in the short run, increased government burden must be offset with cost reductions elsewhere in the firm, and elsewhere these days almost always means job cuts.     

Who is surprised that businesses are cutting jobs again?  Are taxes going up or down?  Are regulations being added or removed?  Are mandates increasing or decreasing? The U.S. Chamber of Commerce estimates the 20 new mandates in the Health Care Reform Bill will increase employers’ benefit costs by 20% to 60%. What does that mean for jobs?  Let’s do the math.     

For a firm with 1,000 employees, a 20% increase could mean more than $1 million in additional benefit costs.  Divide by our magic number of $50,000 and you have 20 jobs that will be cut as a result of HCR.  That doesn’t seem like very many until you realize there are 80 million workers whose employers are learning the details of ObamaCare this “recovery summer” and buzz-killing Joe Biden’s victory lap. 484,000 Americans lost their jobs last week.    

Government economists don’t use simple math; they forecast employment changes using computer models that are vastly more intricate and complicated – and wrong.  This is why we constantly read news stories about economists being surprised at the dismal jobs numbers month after month.  Businesspeople are only surprised that the economists are surprised. 

The magic number works for new government spending too, as funds for public sector programs are taken from the private sector. Last week Congress passed a $26 billion bailout of states to “save” 160,000 government jobs.  That is $162,000 per government job “saved”.  How many private sector jobs will it cost to “save” them?  You know the magic number – do the math.  Plus one minus three is a net two jobs lost, so get ready to read about the President’s economists being surprised again.  

Fortunately, the knife cuts both ways - for every $50,000 of government burden removed from business, one new job will be added in the private sector.  President Kennedy knew this, President Reagan knew this, Prime Minister Thatcher knew this, and the American people know this; a recent Rasmussen poll showed that 2/3 of us think Obama’s economic policies have us headed in the wrong direction. 

Want to solve the jobs crisis?  Use the magic number.  Lighten the load on business by $500 billion – we would create 10 million jobs and drop the unemployment rate below 4%. Cut taxes, repeal mandates, and de-regulate; start by eliminating the corporate income tax, and try to avoid getting trampled by the millions of people going back to work.  It will be a beautiful thing.

And when that happens, the President’s Keynesian economists will once again be dazed and confused; according to their models, this shouldn’t work.  Reason enough to do it - these nimrods have been wrong about everything.  They are giving us 20^th graders a bad name.

Mr. Obama’s economic “Dream Team” has spent trillions after billions on one blunder after another that have only made things worse. Biden quit trying to spin it; Romer simply quit. Last Tuesday’s headline, “Dems Pass $26 Billion Jobs Bill” was followed by Wednesday’s, “Stocks Fall Sharply As Investor Gloom Grows.”  Ouch.    

Why did investor gloom grow?  Think of the economy as a family of four children:  three of them have paper routes, pick strawberries, run lemonade stands, shovel snow, mow lawns – they earn their own money and exchange with each other to build wealth.    

Then there is the fourth kid – he gets an allowance with money taken from the earnings of the first three. He spends all of his allowance on gifts for his friends, and then he borrows 60% more to buy even more gifts for his friends, racking up debt that the first three children must pay off.

When that fourth kid’s allowance is increased by $26 billion, do you think the other three children will be happy or gloomy?  Will they rush out and hire some neighbor kids, or cut a few of their current helpers to come up with the $26 billion?  

Congratulations, you are smarter than a 20^th grader.      

“Moment Of Clarity” is a weekly commentary by Libertarian writer and speaker Tim Nerenz, Ph.D.  Visit Tim’s website www.timnerenz.com to find your moment and order his new book, “Tooth Fairy Government.”