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Monday, June 11, 2012

The Wealth Redistribution Game


Last Friday Obama said "the private sector is doing fine" shown in the clip at 0:20. This ridiculous statement is followed by Obama trying to walk back his comments with a conversation on how we need to hire more firefighters, police, and teachers to improve the economy.

This is a gleaming pinnacle of immense stupidity.  Rather than just state the obvious and refute him, I want to delve deeper into what the core problem really is: Liberals do not understand the concept of wealth creation. I am hoping this post is not too technical, and you really try to understand, because I am dissecting one of the key cornerstones of liberalism.

When a product is created by a private company, it is something that is worth more than the raw materials that went into it. For example, bread is worth more than just the dirt, water, and seeds that were needed to create it. When bread is produced, each step adds value. Wheat is grown, which is worth more than seeds and dirt, harvested into a pile, which is worth more than an unharvested field, processed into flour, which is worth more than pile of wheat and baked into bread, which is worth more than the flour. Labor creates value at each step, which is wealth.

When government hires firefighters, policeman, and teachers, what does this have to do with wealth? Firefighters protect wealth from being burned into ash, Policeman enforce the law to allow an environment for wealth production, and government teachers ostensibly teach the new wealth creators of tomorrow. These services are necessary in one form or another, therefore, government is a necessary evil.

Economics 101 says there is a limited supply, and unlimited demand to all products and services. In the private sector, the forces of supply and demand will balance out. If a company sells something and makes a profit, it is because the company has produced wealth. By definition, the product is worth more than it costs to make it, and the consumer bought the product because there is still more value in the wealth of the product than the price they paid to buy it. For example, if an Apple Ipad costs Apple $300 to produce, and someone buys it for $600, Apple made a profit of $300. The wealth created is worth more than $600 to the buyer otherwise they wouldn't have traded the money for it! The money, of course, comes out of the individual's pocket to suit the needs of the individual, with a transparent relationship with the buyer and the seller. Meanwhile, Apple continues to hire more employees which help to create even more wealth to keep up with demand. These jobs are self-sustaining because the employees are paid out of a portion of the wealth they created.

What about government? Le'ts pretend your town only needs 5 fireman who together make a total of  $250,000 a year to put out 100% of the fires in the town, which saves $1,000,000 a year in wealth from being burned to ash. What does Obama want to do? He wants to hire 10 fireman, because he says it will spur the economy. Is $1,000,000 in wealth saved suddenly doubled to $2,000,000 because twice the number of people were hired? No, it still saves 100% of fires which saves $1,000,000 per year. Instead, what happened is, for no additional benefit, the same service now costs double!

The claim from Dear Leader that hiring more government employees will spur the economy is pandering to ignorance. It's that age old argument "Everyone loves fireman, policeman, and teachers." In the above scenario, he is basically redistributing $250,000 from your pocket to government employees, and unnecessarily having two people share the workload of one! What is even worse is the average taxpayer only knows the work is being done, but has no idea they are being swindled!

I picked fireman out of a hat as an illustration, but the same scenario can go for teachers, police, pencil pushers, bureaucrats, and government political hacks. Government jobs cost money, and since Obama wants to send his never ending gravy train of printed and borrowed money back to the states appropriated for these expenditures, it just digs the US deeper into debt, and edges us toward inflation or monetary collapse.

I hope after reading this you have a deeper understanding of what the creation of wealth is and its relation to the private sector and government.  Private sector companies survive as long as they create wealth for the consumer, while government, which creates no wealth, can survive bloated until the country goes bankrupt. Liberals believe that the amount of wealth in the world is limited and do not believe wealth is created. They think capitalism is a big redistribution game where the "little guy gets screwed." Following this logic, wealth would need to be redistributed "back" to the "rightful owners" so it can be spent again to spur the economy. Liberals have no idea that in the private sector, wealth can be used to buy capital and create more wealth, (known as capitalism, duh), which also results in more sustainable jobs for everyone. Is it a wonder why a liberal maniac like Obama would believe that somehow hiring more government employees will improve the economy when in effect all it does is redistribute tax dollars?




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