A repost of a classic in that unemployment is still around 10% and I'm guessing some of you might like jobs about now.
Jobs, it seems is becoming a very important issue as we seemed to have shed 5 million of them recently and are on the precipice of the worst recession since 1929. But fear not, for our president elect has a plan and it’s quite simple;
Yes, that’s about it, we’ll just “create” more jobs.
Now 3rd grade logic would tell you something is wrong. You can’t put your finger on it. Maybe you can’t full explain it. But you have this twingling sensation in the back of your head that you know something just ain’t right. That it ain’t as simple as;
“Just creating more jobs.”
It’s the same kind of twingling sensation you got back in school when you said, “Well why don’t we just print off more money.”
You intuitively knew something had to be wrong with that solution, but you perhaps couldn’t explain why. And thus it’s the same thing with Barack’s plan to create new jobs.
His idea for this massive infrastructure (and Keynesian) investment gives us all the same twingling sensation in the back of our heads. Why, if it was that simple, to just build roads, bridges and splurge more on education, what were we getting all worried about in the first place? Why are the stock markets so low? Why don’t we create jobs right now today? And so, since we all intuitively know it can’t be that simple, let me explain why. Let me explain to you where jobs come from.
Jobs come from one thing; demand.
Demand for goods and services currently existing or yet to exist. For example I demand food, a good that already exists. I also demand a hovercar and a clone of Jennifer Anitson, a good and service that have yet to exist. Regardless, if the product or service exists or can be created, and there is demand for it, then there is the potential for jobs to be created.
But demand must be met with supply and here is where the actual jobs are created. In order to supply these goods and services an entrepreneur or a company must hire people to help provide those goods and services. This includes everybody from the head of the company managing the firm to the suppliers, vendors, laborers, admins, marketers, accountants and anybody else required to bring these services to reality. However, there is a key element to make this all happen and that is profit.
Oh yes, that “evil” profit.
For you see, no entrepreneur, nor company, nor corporation is even going to bother going through the trouble of setting up the venture in the first place unless they are actually paid for it. And before you start berating these “evil capitalists” to have the temerity to demand recompense so that they may earn a living, you might want to look at yourselves in the mirror because no laborer (let alone you) is going to work unless they are compensated too. So just accept the fact we’re all financial whores, not out of evil or greed, but because it’s necessary for us to live and survive.
Regardless, immediately we see a problem with, not so much Obama’s infrastructure plan, but his fiscal policy in that he is going to raise taxes on not only the rich who employ the majority of people, but also corporations. Envy them and hate them all you want, increasing taxes on them will lower the incentive for them to invest, let alone start a new venture in the first place. And with the rapidly integrating global economy, if they really do have a great idea, why would they set up shop here in the first place?
The good ol’ US o’ A has a 39% corporate tax.
So even though we haven’t addressed Obama’s specific infrastructure jobs creation plan, it’s quite possible other parts of his fiscal policy will impair it or destroy more jobs than it creates, simply because it destroys the incentive to create jobs in the first place; profit.
As for the specific plan itself, it’s not an issue of whether it will create jobs as much as it is a question at what cost.
Understand that to finance this infrastructure plan Obama has two choices; taxation or borrowing. And both options are going to cost jobs as well as efficiency.
In taxing people (no matter how “rich” they are) that takes money that would have been invested or spent anyway which would have created jobs as well. So if you tax the “rich jewelry dealer” an extra $50,000 so 2 employees in Obama’s Civilian Conservation Corps can pour concrete for a bridge, that’s all fine and dandy except for the fact the jewelry dealer now had to lay off his assistant and his admin to compensate for the cut. Congratulations, you created a big fat zero net new jobs.
Borrowing is no better in that the money borrowed by the government to finance the infrastructure jobs creation plan could have been borrowed by a company, an entrepreneur or even an individual to be used to create a new company, expand a factory or just plain spent, all of which would have created jobs too. Congratulations. You not only borrowed money and destroyed as many jobs as you created, but you’ve managed to increase interest rates as well! Thanks!
But the real cost is this, and is often the forgotten about or never-thought about aspect of economics, and that is efficiency. Specifically, as it relates to production.
If the money was left in the hands of the people, the people could then spend or invest that money as they saw fit and to their best benefit. Allowing people to make their own decisions as to how to expend their resources is the best way to make sure the goods and services produced in the economy are those that most benefit the people and increase standards of living the most. Of course, people make mistakes. The sickening, gluttonous binge of using one’s home equity as an ATM machine which has brought upon this financial crisis in the first place is a perfect example where the people will make mistakes. However, for all their flaws, recessions and depressions, free markets, ie- the people have historically been proven to be the best determinants of what to be produced.
Governments have not. And herein lies the flaw in Obama’s advisor’s plan; taking massive amounts of resources either through taxation or borrowing, takes money out of the hands of individuals and puts it in the hands of government. People now no longer get to decide what to spend their now dwindling resources on, and are instead forced to spend it on roads, infrastructure, and schools they may not need.
Now people may rightfully point out that things like roads, bridges, infrastructure, etc., are hardly foolish investments, and they’re right. But again the question is at what cost? Who would be better judges of how to spend this money and who would do more to help the economy out of recession;
A handful of bureaucrats and former Fannie Mae and Freddie Mac advisors now consulting a no-real-world-experience-president-elect determining what the best use of your money is?
300 million Americans who are intricately familiar with their own personal financial situation and the problems/opportunities they face?
This is where the real costs come in that what determines our standards of living is whether we use our resources efficiently to produce the goods and services we NEED. We just promised $700 billion (more like $2 trillion) to bailout those same Harvard ef-ups who ran Wall Street and the government into the ground. Could the people not have used a $700 billion tax cut? Would that not have solved our little economic growth problem? No, we’re stupid, we don’t know what we’re talking about, now shut up and give us the money.
Obama’s infrastructure plan is no different (although, I will admit spending the money on bridges and roads is infinitely wiser than bailing out Ivy League deadbeats). We don’t know what’s best for us. You don’t need that money. Give it to us and we’ll build shinny new roads and bridges. Just what you wanted. No, not that new icky gross
It is this that is the true cost to this Keynesian nightmare. The loss of productivity and efficiency causing American’s standards of living to go down. Not because of a loss of jobs (for I’m optimistically assuming this infrastructure plan will ONLY destroy one job for each one it “creates”) but because the stuff we’re producing with it is not what the American people optimally want.
And finally, permit me a third point.
I know building bridges, though not optimal, is not a waste of money.
I know roads, albeit not optimal, are not a waste of money.
But notice how education was thrown in there?
Please. Please, just stop with the “we don’t spend enough on education.”
It’s a sickening lie and you’re not fooling anyone. By every measure, every stretch of the imagination we spend WAY TOO MUCH on education and the fact education is part of Obama’s jobs creation plan shows me just how inefficient this plan will be. Bridges, fine. Roads, fine. But more money for education would be on par with bailing out the losers of Wall Street and sub prime deadbeats.
Alas, appetizing as new roads and bridges are, it was the inclusion of education, above all else, that made me supremely confident the stork will not be bringing any new jobs to Obama with his little infrastructure plan.