Tag: jobs

Government and Job Creation: Help or Hindrance?

I recently posted four charts eviscerating Obama’s record on jobs.

My Cato colleagues, Caleb Brown and Austin Bragg, have a good complement to those charts. They’ve put together a short video looking at how government spending and regulation undermine job creation.

Caleb says he will be doing more excellent videos like this, which is very encouraging since there is so much more ground to cover – particularly when trying to educate people in Washington.

One thing he should explain is that jobs don’t exist without profits. As I explained in a New York Post column last year, employers “only create jobs when they think that the total revenue generated by new workers will exceed the total cost of employing those workers.”

This seems like an elementary observation, but it’s one that most politicians don’t seem to understand. Or don’t care to understand.

That certainly seems to be the case at 1600 Pennsylvania Avenue. The president will speak tonight and supposedly will propose a $300 billion plan. He’ll claim, of course, that this new “stimulus” package will boost growth.

But a look at the various components that reportedly will be in his plan doesn’t create a sense of optimism. Especially since it appears that he’s mostly recycling proposals that already have failed at least once.

Maybe the President should copy the policies of a former resident of the White House, who also had to deal with a deep downturn, but managed to produce dramatically better results.

Grading the Likely Components of Obama’s New Stimulus Plan

President Obama will be unveiling another “jobs plan” tomorrow night, though Democrats are being careful not to call it stimulus after the failure of the $800 billion package from 2008.

But just as a rose by any other name would smell as sweet, bigger government is not good for the economy, regardless of how it is characterized.

Here are the most likely provisions for Obama’s new stimulus, as reported by the Associated Press, along with a grade reflecting whether the proposals will be effective.

  • Payroll tax relief - C - This proposal won’t do any harm, but it probably won’t have much positive impact because people generally don’t make permanent decisions on creating jobs and expanding output on the basis of temporary tax cuts.

    But, to be fair, if the tax cut keeps getting extended, people may begin to view it as a semi-permanent part of the tax code, which would make it a bit more potent.

  • Extended unemployment benefits - F - I agree with Paul Krugman and Larry Summers, both of whom have written that you extend joblessness when you pay people to be unemployed for longer and longer periods of time.

    And I recently produced a chart showing how long-term unemployment has jumped sharply since Obama entered the White House, a dismal result that almost surely is related to the numerous expansions of unemployment benefits.

  • New-hire tax credit - D - This proposal actually would subsidize employment rather than joblessness, so it’s an improvement over extending unemployment benefits, but it’s unclear how the IRS can effectively enforce such a scheme.

    This approach was tried already, as part of HIRE Act of 2010 (which was infamous for the FATCA provision), and it obviously didn’t generate great results. Simply stated, giving special tax breaks to companies with high employee turnover is not an effective approach.

  • School construction subsidies - F - The federal government should have no role in education. Period.

    That being said, the economic flaw of school construction spending-cum-stimulus is that government spending must be financed with either taxes or borrowing, both of which divert resources from the productive sector of the economy. Simply stated, Keynesian spending does not work.

  • Temporary expensing of business investment - B - The current tax code penalizes new business investment by forcing companies to “depreciate” those costs rather than “expense” them, thus forcing companies to artificially overstate profits. Temporary expensing mitigates this foolish bias.

    But temporary tax cuts, as noted above, are unlikely to have a permanent impact on growth. Temporary expensing, however, will encourage companies to accelerate planned investment to take advantage of better tax treatment, so it can lead to more short-term economic activity (albeit perhaps by reducing economic activity in future years).

The only good news - at least relatively speaking - is that Obama supposedly will propose to misallocate $300 billion of resources, significantly less than what was squandered as part of the 2009 faux stimulus.

But the bad news is that the AP story also notes that “Obama has said he intends to propose long-term deficit reduction measures to cover the up-front costs of his jobs plan.” Translated into English, that means the gimmicks and new spending in the plan proposed tomorrow night will lead to proposed tax hikes at some point in the future.

More taxes and more spending. Hey, it worked for the Greeks, right?

Obama’s Failure on Jobs: Four Damning Charts

President Obama may have a buddy-buddy relationship with big labor, but he’s no friend to ordinary workers. Here are four damning pieces of evidence.

1. The unemployment rate remains above 9 percent according to the Labor Department data released on Friday.

This is about 2-1/2 percentage points higher than Obama promised it would be at this stage if we adopted the failed stimulus.

This is a spectacular failure.

2. Black unemployment has jumped to 15.6 percent.

I’ve already commented on how Obama has produced bad results for the African-American community, and the joblessness numbers are rather conclusive.

What makes that figure especially remarkable is that the black unemployment rate during the Obama years is more than 50 percent higher than it was during the Bush years.

3. More than 40 percent of the unemployed have been out of work for more than six months.

These bad numbers almost certainly are caused, at least in part, by the unemployment insurance program – as even senior Democrat economists have acknowledged.

4. Millions of people have dropped out of the labor force, dropping the employment-population ratio to the lowest level in decades.

Here’s the chart I posted last month. It hasn’t changed, and it’s perhaps the clearest evidence that Obama’s policies are crippling America’s long-run economic outlook.

All four of these charts are bad news. But the economy periodically hits a speed bump. The real problem is not bad numbers, but the fact that bad numbers have persisted for several years.

And the really bad news is that there is little reason to expect a turnaround given the current Administration’s affinity for bigger and more burdensome government.

Obama Jobs Plan to Push More K-12 Bloat?

In a recent interview, President Obama hints at the core of his much-anticipated jobs plan:

PRESIDENT OBAMA: what we do have, I think, is the capacity to do some things right now that would make a big difference …

TOM JOYNER: Like?

OBAMA: For example, putting people to work rebuilding our roads, our bridges, our schools all across America…

We’ve got the capacity right now to help local school districts make sure that they’re not laying off more teachers. We haven’t been as aggressive as we need to, both at the state and federal level.

So we haven’t been aggressive enough with our hiring at the K-12 level, hmm? Perhaps I’m an unusually timid sort, but the trend below looks pretty darn aggressive to me: k-12 employment has been growing 10 times faster than enrollment for forty years.

And the $300 billion question is: what impact has doubling the workforce had on the cost and performance of America’s public schools? According to federal government data, the answer is this:

We’ve nearly tripled the cost of sending a child all the way through the K-12 system, while performance near the end of high school has been stagnant (reading and math) or even declining (science). Just returning to the staff-to-student ratio of 1980 would save almost $150 billion annually—and somehow students weren’t performing noticeably differently in the ’80s than today.

And yet President Obama apparently wants more hiring and more spending. I wonder if voters will want more of President Obama if he indeed continues to flog the failed policies of the past two generations?

Trade Helps Explain Texas-Sized Job Growth

As its governor, Rick Perry, weighs a run for the White House, Texas has drawn attention for its healthy job growth. Since the recession ended in June 2009, Texas has accounted for half of the net new jobs added to the U.S. economy, according to the lead story in this morning’s USA Today. That’s quite a record for one lone state.

We’ll leave it to others for now to argue over how much credit Gov. Perry can claim. Some credit surely goes to high oil prices, fueling job growth in a sector important to the Texas economy. Another reason for its relatively strong job growth is a friendly business climate, including no state income tax and relatively light regulations. And for those who scapegoat trade for the nation’s persistently high unemployment rate, consider that Texas is the nation’s number one trading state. As the USA Today story notes:

Overseas shipments by Texas’ strong computer, electronics, petrochemical and other industries rose 21% last year, compared with 15% for the nation, according to the Dallas Federal Reserve Bank. The state also benefits from its proximity to Latin American countries that are big importers of U.S. goods … The surge creates jobs for Texas manufacturers and ports.

As I can attest from recent speaking engagements in San Antonio and Laredo, Texans have embraced their state’s position as the nation’s leading gateway for trade with NAFTA-partner Mexico and the rest of Latin America.

While politicians and union bosses from other states grumble about allegedly unfair trade, the latest trade and job numbers show that the people of Texas are making the most of the opportunities created by our more open economy.

 

The Fatal Conceit Continues

President Barack Obama recently sat down with the Today Show’s Ann Curry to discuss jobs and private sector hiring.  Curry asked him why during a time of “record profits” for corporations they had only spent 2% more toward hiring new workers but 26% percent more on new equipment.

Obama explained how structural economic changes have shifted businesses toward using more equipment and technology, explaining how “businesses have learned to be more efficient with fewer workers” in response to the recession. He provided some examples: “You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”

Much coverage of the interview falsely claimed that Obama blamed technology, or ATMs for high unemployment. This is simply untrue. He did not claim that technology is driving unemployment, but instead that employment is changing as technology increases the productivity of labor.

The interview did reveal that his alleged solution to the problem is more government control of the economy, administered by a panel of experts: “What we have to do now, and this is what the jobs council is all about, is identifying where the jobs for the future are going to be, how do we make sure that there’s a match between what people are getting trained for and the jobs that exist, how do we make sure that capital is flowing in those places with the greatest opportunity.” This may sound good in theory, yet the question remains: how does he know where the jobs of the future are going to be, and how can he determine which job training will prove most valuable, and how can he know which areas have the greatest opportunity, and how can he know where to send capital?

It is not likely that the President’s Council on Jobs and Competitiveness, made up of about two dozen bright and capable business men and women, will have sufficient knowledge either to determine where capital should flow or where the future jobs will be, or what job training will be best rewarded. Private investors, risking their own capital, cannot consistently predict what markets will succeed or which technologies will flourish. How can we expect a council of political appointees wagering other people’s money to do any better?

Nobel laureate FA Hayek discussed the problems associated with central economic planning in his seminal American Economic Review article, “The Use of Knowledge in Society” and in his book The Fatal Conceit. Hayek argued that the economy is a very complex system, fueled by the knowledge and actions of millions of independent actors. Hayek warned that any plan to centrally control production would be doomed to inevitable failure because central planners lack sufficient information to ensure that supply equals demand in every market in the economy. The abysmal standard of living and collapse of the Soviet Union validated Hayek’s theory of the impossibility of planning something as complex as a country’s economy.

Clearly, Obama is not suggesting anything nearly as extreme as centrally planned production. Nevertheless, President Obama makes his assumptions clear in this interview that he believes this jobs council holds the capacity to gain sufficient knowledge to help guide capital investments and encourage job creation in the areas they identify. Instead of having our President and a few smart individuals making decisions with limited information, we could allow the market mechanism, made up of millions of individual decision markers, to transmit the information and knowledge necessary for market actors to guide capital appropriately.

For President Obama to assume that he and or his council have the knowledge sufficient to make these determinations is a fatal conceit.

Heckuva Job on that Stimulus!

Based on this morning’s numbers, I’ve updated my chart showing what the Obama Administration said would happen with the so-called stimulus compared to what actually has happened. As you can see, the unemployment rate is about 2.5 percentage points higher than the White House claimed it would be at this point.

Since I just did an I-told-you-so post about Greece, I may as well pat myself on the back again (albeit for another completely obvious prediction). Here’s the video I narrated a couple of years ago on the Obama faux stimulus.