President Obama made two strategic mistakes last Friday

President Obama made two strategic mistakes last Friday

President Obama made not one but two strategic mistakes last Friday. Everyone paying attention picked up on his first mistake. The President said “The private sector is doing fine,” a quote that Republicans will use to great effect during the remainder of this election cycle.

The President’s second mistake is as important but less obvious. President Obama spoke a second time Friday afternoon. He did not, as reported by some, correct his earlier statement. He instead reinforced it. The President’s second mistake was his decision to stick with an economic argument that is unsupportable by facts, easy to disprove, and politically damaging to him. President Obama will never again say “The private sector is doing fine,” but it appears he will continue to make an economic argument that Republicans can easily rebut.

In addition to the specific deadly quote, this second Presidential mistake presents a significant election opportunity for Governor Romney and other in-cycle Republicans, but only if they treat the President’s argument as serious and seek to debate him, not just to hurl invective. The President is sticking to his guns about what ails the economy and how to fix it. Republicans should relish the opportunity to debate this question extensively.

President Obama’s argument has two components.

  1. Diagnosis:  Employment weakness is principally a problem of too few government jobs.
  2. Prescription:  Despite record high deficits and debt and while private sector unemployment is high, the federal government should give States and localities money to protect the jobs of existing government workers and hire new ones.

President Obama’s diagnostic error

The President’s diagnosis is incorrect. The principal drag on U.S. economic growth is high unemployment, but the bulk of that unemployment is among people who previously had private sector jobs. The President is correct that private sector employment has been growing slowly over the past 2 1/4 years, while government employment has been shrinking slowly. And yet laid off government workers are still a small fraction of the unemployment problem.

I covered this in detail in yesterday’s post. For today here is the key statistic:

For every net lost government job since employment peaked in January 2008, the U.S. economy has lost more than eleven private sector jobs.

President Obama’s prescriptive error

Since his diagnosis is wrong it’s not surprising that the President’s policy prescription is misguided.  Yes, police officers, firefighters, and teachers are valuable members of their communities. One can like these kinds of public servants and still think the President’s policy is a bad idea.

First, the loss of government jobs over the past few years is almost entirely a local phenomenon. Outside of a steadily shrinking Postal Service, there are 142,000 more federal government employees today than when the President took office.

Police, firefighters, and teachers are all local government employees, traditionally funded by localities from local revenue sources. Localities vary widely. They have different needs, their tax and spending priorities differ, and they express different degrees of fiscal responsibility. Federalizing this local spending forces taxpayers in one area to subsidize high cost, inefficient, or fiscally irresponsible local governments in another.

Second, it’s not like the federal government has money to spare. Federal budget deficits and debt are at record highs. Even if Congress were to pay for increased grants to localities, the spending cuts and/or tax increases used to offset this spending would then be unavailable for other federal priorities.

Third, the President is arguing that government job growth is the engine of the U.S. economy. Here is the President last Friday:

The folks who are hurting, where we have problems and where we can do even better, is small businesses that are having a tough time getting financing; we’ve seen teachers and police officers and firefighters who’ve been laid off — all of which, by the way, when they get laid off spend less money buying goods and going to restaurants and contributing to additional economic growth.

The President’s prescription is to spend more federal taxpayer dollars (that government must borrow) to subsidize localities hiring more government workers, in the hopes that those government workers will then spend their income in ways that will help private sector growth.

The President is wrong. The private sector, not expanded government payrolls, is the path to faster economic growth. Policies should prioritize creating conditions under which private firms choose to expand and hire. This relates closely to recent debates in Wisconsin, New Jersey, and other States.

Fourth, even if you think increased local government hiring is a good idea, temporary federal subsidies don’t create long-term government jobs. Three years ago the President and a Democratic Congress juiced local budgets with the stimulus bill. Now that those funds have run out, they are seeking to do so again. If Congress says yes they’ll be back again and again each time those funds will run out. Temporary subsidies will become permanent.

Fifth and finally, the President argues that government employment should not decrease when the economy is weak. He contradicts what I call the Christie Principle of Shared Sacrifice. This is my wording but the Governor’s concept:

At all times, and especially during a difficult economy, it is unfair to exempt government and government workers from the difficult financial decisions that privately employed and unemployed citizens must make. Sacrifice should be shared and include government cutbacks.

The Republican response

Republican responses to the President’s Friday comments have been aggressive and clumsy. Some have attacked the President for arguing that the economy is doing fine, but he did not say that. Others have attacked him for saying that he prefers government jobs to private sector jobs, or at least sees them as morally equivalent. He might, but again he didn’t say that either. Still others link “The private sector is doing fine” to an assortment of economic woes, including indirectly related problems like high budget deficits and debt.

These are poorly targeted responses to the President’s first mistake last Friday, the devastating quote that we know he will never repeat. Republicans would be more effective if they rebutted his specific claim, that the private sector, and specifically private sector employment, is doing fine.

The President’s second strategic mistake presents an additional and ongoing opportunity that Republicans should not miss. Policymakers and candidates should seek to debate the President’s intellectual premise, to engage him in a serious public discussion about both his diagnosis and his prescription.

Doing so requires hard work of the kind involved in battling the health care and stimulus laws. This hard work will pay off. The President’s intellectual premise is so weak that Republicans can win this debate with both elites and voters, but only if they treat it as a serious policy matter and not just a sound bite. Engaging in and winning this debate will advance good policy and increase Republicans’ chances of victory on Election Day.

(photo credit: White House video)

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