As gaffes go in election seasons, the widely-ridiculed statement from Barack Obama on Friday that "the private sector is doing fine" certainly qualifies as a prize-winner. With 23 million Americans unemployed or underemployed in the hangover from the recession, President Obama instantly gave credibility to claims from Mitt Romney that he has fallen out of touch with middle America. The line will live a thousand lifetimes in political ads between now and November, and it might end up being a defining moment in Obama's career.

That's not to say that the White House and the Obama campaign haven't tried to undo the damage. Within hours, Obama tried to walk back his statement by telling the press that "it's absolutely clear that the economy isn't doing fine." Over the weekend, Obama surrogates such as David Axelrod tried, with little success, to shift attention to Obama's larger point about the economic recovery. White House press secretary Jay Carney griped on Monday that the media focused too much on the sound bite rather than the context of Obama's remarks.

Obama's entire argument shows that he has lost touch with an electorate that clearly wants some budget discipline.

Perhaps they should leave well enough alone. The full context of President Obama's remarks would put him even more at odds with the anti-establishment temperature of the American electorate — perhaps as much as with the actual facts. In response to a question from the press, Obama insisted that the problem with the economy was that we don't have enough government workers:

"The truth of the matter is that, as I said, we've created 4.3 million jobs over the last 27 months, over 800,000 just this year alone. The private sector is doing fine. Where we're seeing weaknesses in our economy have to do with state and local government — oftentimes, cuts initiated by governors or mayors who are not getting the kind of help that they have in the past from the federal government and who don't have the same kind of flexibility as the federal government in dealing with fewer revenues coming in."

If this sounds familiar, it should. It's the same argument the president made in demanding that Congress provide him with an $800 billion stimulus package at the beginning of his term. The package, drafted entirely by Democrats, consisted of some tax rebates, funding for supposedly "shovel-ready" government projects, and block grants to states that would be used to save the jobs of teachers and first responders  in the aftermath of a financial crisis that had nuked tax revenue for states and localities.

The stimulus package was passed into law within days of Obama taking office. More than three years later, Obama wants more money to save the same jobs all over again. Why? How many times must federal taxpayers bail out states to keep payrolls afloat? There may have been a good reason to backstop states once during the crisis, but more than three years later, states have to learn to live within their own budgets. Taxpayers in states with sensible budgets shouldn't have their tax dollars redirected to states with poorer budget discipline, especially since they have no way to impact how those budget decisions get made.

On top of that, state budgets aren't suffering from a revenue problem at all. According to a report released by the Rockefeller Institute the same day that Obama declared the public sector in crisis, state tax revenues rose 4.1 percent in the first quarter of 2012 — the ninth straight quarter of increases. By comparison, the national GDP increased only 1.9 percent in that same quarter.

Of course, state and local governments have shed jobs. According to federal data, local government employment is down 511,000 since the stimulus bill passed, and state government jobs have fallen by 125,000 in the same period. But that isn't due to revenue issues. It's all about the massive increase in costs for government workers. Bloomberg's Josh Barro analyzes why voters in San Jose voted last week to reform the pension plan for city workers, and discovers that while city revenues went up 19 percent over the last decade, the cost for a full-time worker increased 85 percent. No wonder local budgets are in crisis.

Wisconsin had similar problems prior to Gov. Scott Walker's public-employee reforms. He shaved more than $1 billion off the budget by getting tough with unions, and more importantly, he avoided having to lay off significant numbers of public-sector workers in the state. That's why he got 125,000 more votes in the recall election than he did in 2010 — against the same opponent he faced last time around, too. In comparison, San Jose cut 28 percent of its workforce over the past decade, and now diverts 27 percent of its operating budget to pension-fund obligations. Much of that money could instead be used to employ people who actually deliver expected services.

Small wonder that voters have grown disenchanted with ever-increasing demands for more spending on government workers. Wisconsin voters sent that message loudly and clearly last week. And Obama's entire argument shows that he has lost touch with an electorate that clearly wants some budget discipline and a focus on private-sector job growth — and that's "fine" with Republicans.

Read more political coverage at The Week's 2012 Election Center.