Red Herring Alert

Last week, I heard a local liberal radio talk show host repeat, with gusto, the claim that President Obama has the lowest spending growth since Eisenhower.

Several places have addressed this claim. Here’s one and another. They raise some good points.

But I think spending growth is a red herring. The issue is actual government spending, not spending growth.

As Arthur Laffer and Steve Moore pointed out in the Wall Street Journal, President Obama took over after the grandest public spending binges of all times, one that was supposed to be temporary.

Claiming that locking that temporary spending binge into the budget going forward is a sign of conservative fiscal management is spin.

Consider a CEO who gives himself a $300 million bonus and draws the ire of the Occupy Wall Street types. He gets fired and the next CEO gives himself a $301 million bonus and tells Occupy friends not to worry because the growth in his salary is the lowest in recent history. I don’t think many people would fall for that.

“My wealth does not create your poverty.”

In Russ Roberts’ take on Occupy Wall Street he points us to P.J. O’Rourke characterization of wealth:

But as the writer P.J. O’Rourke has said, wealth is not a pizza. If we’re sharing a pie, and you get a bigger piece, that does not mean that I have less to eat. It depends on what happens to the size of the pizza. Ten percent of an enormous pizza is more filling than all of a tiny one.

For those who think of wealth as a fixed pie, I don’t think the ‘pizza-size’ analogy helps them see what’s really happening with wealth, because they still view it as one pizza to be divvied up somehow.

What P.J. O’Rourke actually said (btw, I recommend his book On The Wealth of Nations) is better than the ‘pizza-size’ analogy (emphasis and numbers added):

Wealth is not a pizza where, if I have too many slices, you have to eat the Dominos box. [1] My wealth does not create your poverty. Your wealth does not create my poverty. They’re separate questions. [2] And we can generate more wealth.

O’Rourke makes two excellent points, as numbered.

Point 1:  Your wealth does not mean I have less wealth.  This is the point that the ‘pizza-size’ analogy misses.

Point 2:  We can create more wealth, which is the ‘pizza-size’ analogy again.  But, it’s helpful to understand point 1 before thinking about point 2. Instead of thinking about the size of the pizza, though, maybe we should just say that we can make more pizzas.

Unfortunately, both points are counter intuitive and that’s why we have such debate on the issue of wealth.

When you hear someone say things like ‘wealth is concentrated’ or ‘1% controls some large percent of wealth’, ask yourself where did that wealth come from?

Occupy Wall Street

A friend asked what I thought about Occupy Wall Street.  I directed him to John Stossel’s latest column, Wall Street Protesters Half Right, because Stossel does a great job of summing up my views.

I hope that the OWS protesters learn to better distinguish between the free market and the rent-seeking profits that seem to bug them.  Right now, they confuse those concepts.

Here’s another post on this distinction.