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White House Fails Econ 101. Seriously.

Oh no. I knew that at the root of the failure of President Obama’s economic policies is a failure to understand fundamental economics.

You remember a few days ago when the Congressional Budget Office found that Obamacare will induce people to work fewer hours and quit their jobs because with the new benefit – basically a form of unearned salary from the government – it will be less sensible to work at all.

And so White House economic officials, who also have degrees in Spin Theory, took to the podium of the briefing room and the North Lawn of the White House to plow new economic ground – this could get them all the Nobel Prize – by declaring that disincentives to work are A GOOD THING!

You know, people now have “choices,” like they can stay at home and take care of children – while others who are supporting them work and ignore their children – or even somehow, though they couldn’t afford health care, scrape together enough money to start a business!

Well, you can only get to such illogical theories when you are having trouble with economics 101, as did White House National Economic Council Director the other day.

“I think that, you know, people are taught in Economics 101, that, you know, if price goes up, there must be a little less supply,” he said.

W w w w w w w w.

W w w w w w what? How do run the White House economics shop and even accidentally make such a mistake.

Below is a supply curve. It’s actually the second things you learn in Economics 101, after you learn the demand curve. It states that price goes up as supply goes up. That is, as demand increases, producers can make more stuff and charge more for it.

Here’s a supply curve.

pizza_supply_curveAs you can see, in the real world, outside the West Wing, the owners of Tony’s Pizzeria satisfy growing demand not by sweetly charging less, but by raising the price as much as they can possibly get away with it.

People will work harder – make more pizzas – for more money. But then, that’s a mystery to a White House that thinks, you didn’t build that.

Speaking of working harder for more money, Sperling also thinks that increasing the minimum wage will induce people to work less:

But they also know what it’s like to see a friend, a neighbor, where one spouse goes back to work, who would prefer maybe not to work. Maybe they’re working part-time just to supplement the family’s income. And they think, if that family member is making that sacrifice — spending less time with the child — then they should be making a decent living or be able to work less because they’re getting a decent wage.

Here’s the silliness capture by video cameras:

Wo wo wo wo woah.

Wo wo woah.

Higher wages are an incentive to work. Do these Obama folks have any idea how normal people’s brains work? The appetitive nature? The bedrock of economics?

This is something called called a labor supply curve. It shows that, at the lower level of wages we’re talking about at least, as wages increase, the amount of work performed rises.

Labor supply curve

 

Because if you pay people more they work more, not less.

Given the kind of thinking we’re hearing out of the White House, we can begin to understand why they believe open-ended government largesse is going to improve the economy.

Economics is at its heart about human nature. The White House doesn’t understand human nature. And so it doesn’t, whether its officials have PhD’s or not, understand economics either.

H/T to Dr. Tony Lima at Gonzoecon.com, who alerted me to Sperlings problems with the supply curve.

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42 Responses to White House Fails Econ 101. Seriously.

  1. How disappointing to have been born too soon to enjoy the wonders of Obamaworld. 50 years of the work-a-day grind just to pay for food and shelter, to raise the children, and prepare for old age is so yesterday in the new Obamaworld.
    Instead of working as accountants, sales agents, truck drivers or wait staff in a dingy restaurant, today’s knuckleheads can layabout on the couch and write poetry or bounce children on their knees. They can relax knowing that all their worldly needs are taken care of by the purveyors of largess from the vault at Obamaworld.
    A new world awaits the young knuckleheads in Obamaworld.

    • Amen Srdem.. What were we thinking playing by the rules of the good ol days? Sad sign of the times for the name Ms O has assigned our future generation.

      • Plus even at $10.10 no one is starting a business or retiring with 10 cents in their pocket for essentials such as food, clothes, a roof, and kitty litter. This whole debate is so skewed it makes my teeth grow hair…and that Sperling character is a mouthbreather.

    • Also, as these knucklehead’s lounge about, chances are high they have their bong on the coffee table where said children can sneak a hit as they get older.

      • Agree. I can’t imagine not wanting to end the day with some satisfaction, some sense of accomplishment, some progress, some new idea, even some praise, or something to think about. There is an inborn urge in most people, I think, to be useful, valuable, help others, DO something, and this includes providing for one’s family..

  2. They don’t care about real economics, they just keep spouting these things hoping we’re really not paying attention. They have to justify the “Hope and Change” agenda somehow. It’s called the new math, Mathemagicals.

  3. If a Fotunate 500 CFO or CEO projected such nonsense the SEC or DOJ would be shaking them down for a fine because no one gets arrested.

    President Obama was accurate when he stated his administration would be the most transparent. It is quite easy to see they are a group of inept group of amateurs that destroying everything in our government. Pretty Transparent to me…….no gray area whatsoever!

  4. Let’s make economics fun with words. Heck, I am no maven at economics either.

    Gene: a unit of heredity.
    Gene, also a male’s name, is inherently ignorant.

    Sperling: This is a little trickier because I am making up some of the explanation. (Just taking a cue from Washington). LOL

    The etymology is from the Latin word spurious.
    Mr. Sperling is not genuine or authentic. If he was a $3.00 bill he’d be called counterfeit.

  5. As he was speaking the three people at the table sat in silence. One had his finger on his lip. They looked like they really wanted to disagree with him. Someone was in their ear saying Shut Up, don’t disagree.

  6. Good work pointing this out Keith. Economics isn’t all that hard. But Government sure does complicate things.

    A market consists of a buyer and a seller who then agree on price. These three things in aggregate are an economy. Whenever the government interferes with any of these they distort the market. Most people understand laws in the original intent are there to protect the “market”. But government just can’t get out of their own way, so they are compelled to interfere.

    Most common form of distortion is taxes followed by regulation. Laws that protect these distortions rather than the market are ill conceived. Most popular example right now is Obamacare/healthcare but it started long before then. For some time in healthcare, Federal, State, and Local government have interfered with the buyer, seller, and pricing function which has really made a mess of things. Taxes on this, subsidies for that, all the while regulating and limiting the seller. Point is the healthcare market is so pretzeled; i.e., twisted up, it will never get better.

    To your article, now these bright minds want to turn the screws on the profit motive? It used to be the more one works the more one makes in profit which is the essence of capitalism. And “Capitalism” isn’t about the rich getting richer it’s about who can best use the capital available to them. Ants and Grasshoppers…ants and grasshoppers. We are ruled by the grasshoppers. Jees…this stuff makes my hair hurt.

    • Agree.
      So, how do the elites in government assume that their ideas are workable and a good thing? They look around the whole DC area and see prosperity, high wages paid, rising property values and a content population enjoying the good life.
      For the most part, all of this wonderfulness comes from the government spreading it’s money around, but the elites never really understand how this money comes to be in their control. It just appears in their “budget” waiting to be spent. If the “budget” runs out of funds, they just appropriate more …from somewhere.
      Washington economics. Just print or tax more.

      • Totally agree….perspective is important and you are right: they do not see things as they are. These bright minds in DC see the relationship between government and business in some perversion of symbiosis not the parasitic relationship that it is.

        Why stop a pint of blood ($10.10)? Why not a gallon ($50)?

        • Thanks. However, if I’m to continue with covering the briefing, people here are going to have to compensate me. It’s like work sitting in that teeny room listening to all that drivel. And, it’s stinky there; flop sweat and expensive cologne..yuk.

          I’m not talking about cash, or 2 for 1 coupons from Denny’s, but some serious..um..refreshments… Maybe even an Apple-tini or such.

    • It started way back when they allowed mortgage interest to be deducted. Home prices and mortgages are over inflated due to this. When you have otherwise intelligent people saying that it’s better to have a mortgage so they can get a deduction on their taxes, you know the whole industry is screwed up.

      • And the biggest stupid part of this is the health part–who can afford even $80 a month, with a $6K deductible or cap, on a bliss job salary–maybe quit one of three jobs? It’s just saying black is white (raaacist) to say not working, not having a need for work and accomplishment, is a good thing.

  7. OT: CNN.com
    Their website is featuring a sob story about deportees thrown back into Mexico who are living in “tunnels and makeshift tents” because they don’t have anywhere to go in Mexico, such as family or friends there. They were all deported for being in our country illegally and caught committing crimes.
    This is CNN, not some conservative news site, so it’s not surprising that their sympathy is with the deportees, and simply ignores the question of how these people eat or find money to support their drug habits.
    There are thousands of comments on this story, and remember that this isn’t FOX or your favorite website so that you might expect some harsh words for the treatment of these pathetic people.
    Imagine my surprise after reading about 200 or so comments that everyone of them is in favor of deporting all illegal aliens, and against any attempt to legalize their presence here in the US.

    One of the comments suggested that only illegal aliens would pick the grapes or harvest the crops in the fields, but would cease doing that kind of work if they were to be deemed US citizens. Why? because of all the government benefits they could legally claim.
    Which brings us right back to the Obama economic theory that less work is more..better, and the government will provide for all their needs.

  8. Sperling told an outright lie at 00:47 second mark of second video.

    Data shows the vast overwhelming majority of jobs created in this Obama “Recovery” have been part time!! In 2013, for example, 77% of all jobs created were part-time. Sperling has to know this but tells an outright lie!!! How could a senior Economic advisor not know this?

    No wonder this moron had to threaten Bob Woodward for daring to tell the truth. They can’t afford for the truth to be known about how lousy Obama policies have lead to a subpar economy.

  9. What do you expect from someone whose sole business experience was stealing ice cream from his employer and handing it out to his friends in order to gain their favor?

  10. I think your illustration is missing its demand curve. In a free market, where demand is not increasing for other reasons, an increase in supply will lead to a drop in price, which will shift the equilibrium point to induce more people to buy and take up the otherwise-excess supply. What is happening under Obamacare is not an increase in supply, it’s actually a decrease in the supply of the product that people wanted to buy. The government would be happy to supply more of its overpriced, underdeveloped product, but people aren’t buying. And that will lead to price increases as has already been noted.

    • I’m agreeing with you as I’m first reading. It.
      When he says. “I think that, you know, people are taught in Economics 101, that, you know, if price goes up, there must be a little less supply,” he said.
      He is partially correct. When there is not enough supply (such as less doctors when they are forced out of the industry.) then prices will go up. But if prices have gone up then it doesn’t mean it has to do with less supply. It could be because of more demand. Or inflation or govt regulations or because of higher costs or taxes. There are. Plenty of reasons why prices go up. Not necessarily because supply is less.