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June 19, 2012

Debating Jobs Is Wrongheaded

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

There’s a lot of talk about which presidential candidate can create the most jobs. President Obama says Romney had a dismal record of job creation while he was governor of Massachusetts, and Romney has called Obama jobs record a failure.

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 does not create jobs. The government can hire a person, but the process only shifts money from the private sector to the public sector. Nothing was created.

Here is the basic truth: when government grows, the economy does not, only the public sector’s share of the economy grows. 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 get wealthy while in government service is through corruption.

Jobs are a byproduct of an economy. The economy is the cause, jobs are the effect. When presidential candidates blather on about jobs, they end up believing 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 instead of economic growth.

If it’s the governments duty to create jobs, then you hire at the federal level, send wheelbarrows 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 starts to slow 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 the private sector is forced to retain people it does not need or pay a government dictated wage rate, then profit is squeezed. 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 that if jobs are the goal, then a politician becomes an apostolate of Keynesian economics.

On the other hand, if government’s duty is to assist economic growth, then politicians would keep the government lean because growth only comes 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 the sole job of the Fed a sound dollar. The government would make it easy to employ youths, so they could learn to be 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 the economy could quickly clean out excesses and get back on a growth trajectory. Safety nets would catch only the truly the 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.

All economic activity can run to excess. 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 have now – a slow agonizing recovery 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 hope – the kind of hope that comes from knowing our country will be better tomorrow than it was yesterday.

The presidential debate on jobs is wrongheaded. There is some politics in all of this. Probably a belief by the candidates that they are speaking in a language the average American can understand. But Mitt Romney keeps claiming that he knows how to create jobs. Let’s hope he really means that he knows how to get the economy growing again.

James D. Best is the author of the Steve Dancy Tales and Tempest at Dawn, a novel about the 1787 Constitutional Convention. Look for his new book, Principled Action, Lessons from the Origins of the American Republic.

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