Obama’s freeloaders, Obamacare, put a drag on economic growth

Obama’s freeloaders, Obamacare, put a drag on economic growth

President Obama / Used under United States Government Work license
President Obama / Used under United States Government Work license

WASHINGTON, February 18, 2014 — The Obama Administration is now, according to President Obama’s own spokesmen, in the business of giving people a reason not to work, to instead pursue their dreams, whatever those may be. Hence the 2.5 million jobs that are essentially erased by Obamacare, according to the Congressional Budget Office, are not a loss, but a gain. We gain 2.5 million people unfettered by work.

President Obama is disincentivizing work, and his administration is proud of that fact.

The President’s economic policies are resulting in fewer people contributing to the economy and leaving each person who contributes supporting a larger number of freeloaders. The Obamacare job losses are just an amplification of policies that, for the past five years, have produced annual economic growth in the 2 percent range instead of the 5 percent range we saw during the 1982 to 1984 recovery. Here’s why.

Suppose 100 people get together, form a society and all contribute to the economy.  The 100 people, working together produce 1000 units of output. How do we divide the output, which will determine each worker’s income? There are basically two options.

We could divide the output evenly, so that each worker receives 10 units. This represents an equal distribution. This is division based on need; because we all have the same basic needs, each receives the same income. This system has had only mild success in the real world, and only in satisfying very basic needs like food and shelter.

Beyond the basics, the system fails. There is no incentive for individuals to work harder to produce more. Anyone who works harder to produce extra receives only a hundredth of that extra output; there is an effective tax of 99 percent on extra work beyond the average. There is no incentive to do more than average, and the economy stagnates. Welcome to North Korea.

The alternative is to divide the output according to contribution. Who contributes more, gets more.  Pay is for performance, and is linked directly to performance, so there is a direct and immediate incentive to perform. The economy grows.

Some people cannot or will not contribute. Of the 100 people, suppose five do not contribute because they are physically incapable. The remaining 95 people are compassionate and give up some of their income to support the less fortunate.  Now 95 people are contributing, not 100.

Ten others who contributed little to the economy and received little income decide they are better off not contributing at all. They ask for the same level of support as those who cannot contribute. Now we have only 85 people working to support 100.

The Obama Administration says, stop contributing. Spend more time with your family. Another ten people stop contributing. Now 75 support 100, and the economy contracts. Go on to treat those 75 like filthy thieves for not supporting those 25 in the same style enjoyed by the most productive workers: Income inequality is theft, they say, and bad for the economy. Take away more and more of the marginal output of the biggest producers, taking away their incentives to produce, and turn it over to the non-producers. Eventually you will turn the system that rewards work into the system that divides equally among all.

Is this where the U.S. is going today? Obama is delivering change, as he promised, change that erases jobs and tells people not to work, because they don’t have to. That path leads to destitution. Welcome back to North Korea.

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