Wednesday, December 4, 2013

Commentary—Debating Jobs is Wrongheaded

“The circulation of confidence is better than the circulation of money.” James Madison

There has been endless debate and angst over the government’s failure to create jobs. This is a dangerous and highly inappropriate debate.

Goals are important. They can mean the difference between success and failure. Improper goals destroy people, organizations, or even nations. The most common error is to set goals based on effect, rather than cause. This is why the jobs debate is dangerous. The government cannot create jobs. It’s true government can hire a person, but the process only shifts money from the private sector to the public sector. Nothing was created.

The public sector has no innate growth potential. It doesn’t invent, innovate or drive productivity. This is because there is no profit motive to drive entrepreneurship. In fact, the only way to gain personal wealth in government service is through corruption.

When government grows, the economy does not, only the public sector’s share of the economy grows. Keynesian theory says otherwise. What is seldom mentioned by Keynesians is that public spending to create growth depends on a multiplier effect. This is actually an admission by Keynesians that direct government spending does not create economic growth and job creation. The scheme depends on government workers or beneficiaries spending their money on private sector goods and services. Theoretically, this is where government spending is supposed to create economic growth.

This is wrong. Jobs are a byproduct of an economy. The economy is the cause, jobs are the effect. When politicians blather about jobs, they end up believing that jobs drive the economy, instead of the other way around. Why is this distinction important? Let’s look at the different actions a Washingtonian might take if he thought the goal was job creation versus economic growth.

Government Creates Jobs

If it’s the governments duty to create jobs, then you hire at the federal level, send wheel barrels of money to the states so they will hire, initiate untold number of job training programs, perpetually extend unemployment benefits, search high and low for shovel-ready jobs, keep kids in college with low-cost loans, and throw food stamps around like confetti. If you believe jobs are the government’s duty, then when the economy slows down, the governments must do everything in its power to prop it up so people won’t lose their jobs. Since there are no rational rules of accounting in government, debt is piled up in a futile effort to put the economy on an upward ascent. If jobs are the goal, profit is the enemy. If government goes on a hiring binge, taxes go up and wealth creation (profit) is reduced.  Either way, politicians see profits as interfering with jobs. This is a long-winded way of saying if jobs are the goal, then a politician becomes an apostolate of Keynesian economics.

Government Promotes Economic Growth

In economic terms, the government’s duty is to assist economic growth. If the government accepted this premise, then politicians would keep the government lean because growth can only come from the private sector. They would keep taxes at a minimum to increase profit and incent entrepreneurship. Profit would not be a sin; it would be the great engine of economic growth. Officials would restrain debt so interest costs don’t overwhelm the economy. Congress would eliminate employment as a goal of the Federal Reserve— making a sound dollar the sole function of the Fed. The government would make it easy to employ youths, so they could learn to become more productive and make ever larger contributions to the economy. Necessary regulations would be made easy to understand and fairly enforced. Unnecessary regulations would be eliminated. The government would not interfere with natural recessions so that the economy could quickly clean out excesses and get back on a growth trajectory. Safety nets would catch only the truly needy and give them a bounce into another form of employment. K-12 education would provide the skills necessary for a fulfilling life in a vibrant economy. Washington would quit keeping the unemployed occupied with useless job training, and allow employers to train for the jobs skills they actually need. If economic growth is seen as the goal, politicians would become apostolates of supply-side economics.

Economic downturns can be shallow and swift, followed by a spurt of employment generating growth if the government doesn’t muck it up by trying to rescind the laws of economics. When governments interfere with market-clearing actions, you get what we see now—a slow agonizing economy with periodic backsliding.

Roosevelt, Carter, and Obama set jobs as their goal. Eisenhower, Kennedy, Reagan, and Clinton set economic growth as their goal. One approach creates misery … the other hope. The United States did not become the largest economy in the world through government actions. It became a huge engine of growth for the entire world by following the path of hopereal hope, the kind that comes from knowing our country will be better tomorrow than it was yesterday.

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