PrintJune 11, 2009
How to Really Create or Save Two Million Jobs
President Obama has spoken recently of "creating or saving" 600,000 jobs at a mere expense of $787 billion. Sixty thousand of these, he claims, have already been created or saved. Just last month, of course, it was a million jobs that were to be created or saved. The month before, I believe, it was three million jobs. The number seems to be declining.
Let's be clear. Creating 60,000 jobs is an action that can be verified. If there were 100,000,000 jobs on Monday and 100,060,000 jobs on Friday, that is an increase of 60,000 jobs. The idea, however, that 60,000 jobs have already been "saved" as a result of the stimulus bill, at a time when nearly half a million are being lost every month, is absurd. It's like losing half a million bucks in Las Vegas and claiming how much you saved because you could have lost a million. Is that the kind of thinking that prevails among the brilliant Harvard-educated economists in the Obama administration? If so, it doesn't say much for the Ivy League.
If those economists were thinking straight, they would find all sorts of ways to actually create jobs -- none of which involve more government spending. Lowering the capital gains rate on American corporations would create jobs. Making the Bush tax cuts permanent would create jobs. Eliminating some of the millions of pages of government regulation on businesses would create jobs, millions of them.
Unfortunately, Team Obama doesn't seem to get it when it comes to lowering taxes and reducing regulation. So let's make it easy for them. Here's a simple plan that will create a mere two million jobs. These are actual, honest-to-goodness new jobs, not the "created or saved" jobs touted by the president. And the great thing is, they require no new legislation or administration action.
As reported in the Wall Street Journal on June 9, the Waxman-Markey climate change bill has cleared a key House of Representatives panel. According to the Congressional Budget Office, this legislation will cost the American people $846 billion dollars over a ten-year period from 2010 to 2019. Yet only $25 billion of this amount would be used for energy-related projects. An astounding $821 billion would go into programs such as welfare or job training.
Notice that the bill making its way through the House is not a "global warming" bill. It would be impossible to argue that the climate is currently "warming" because for the past decade the earth's climate has actually been cooling. So what was once a global warming bill is now a "climate change" bill. Presumably, this means that the efforts of Messrs. Waxman and Markey are intended to prevent the earth's climate from either warming or cooling, a remarkable feat that has never been accomplished during the 4.5 billion years of the earth's geologic history. I did not realize that the Democratic Congress of the United States possessed such alchemical powers.
In any case, the Waxman-Markey bill does not even pretend to raise money to address climate change. It raises money to spend on income transfer programs that will secure a larger base of Democratic voters. To put it bluntly, it raises money to distribute in return for votes. Now this is something that politicians can understand, even if they cannot understand tax cuts and deregulation.
But what if the House were to reject the Waxman-Markey bill? American corporations would be spared $846 billion in new taxes, and the American people would be spared paying for these taxes in the form of higher prices on energy and on everything manufactured, serviced, or transported. That $846 billion would then remain in the hands of the private economy where it could be used to create jobs.
How many jobs would $846 billion create? $846 billion over ten years is $84.6 billion per year. (I'm doing the hard math in case our Treasury Secretary, who had some difficulty figuring his taxes, has troubling following along.) $84.6 billion just happens to be $84,600 times one million, or $42,300 times two million. $42,300 is a figure that is remarkably close to the national wage plus benefit package (wages alone averaged $36,764 in 2002, according to the Bureau of Labor Statistics). So by simply not spending $846 billion on a climate change bill (a bill intended to either warm or cool the atmosphere -- Congress doesn't seem to know which), we might enable the free market to actually create two million jobs.
In reality, this analysis understates the jobs potential of not spending $846 billion. Over the past 200 years corporate profits in America have averaged 8% above inflation (as measured by average inflation-adjusted stock market return over the same period). This return on investment within the private sector, if compounded over fifty years, yields $46.90 for every dollar invested. Over a 200 year period a single dollar invested at 8%, if untaxed and reinvested, earns $4.8 million. All of those reinvested dollars would be put to work in the economy, thus creating jobs.
By contrast, a dollar "invested" in government spending on welfare, wealth transfer, inefficient alternative energy schemes, and make-work programs soon disappears. It disappears because these programs disregard market efficiencies. The programs fund windmills in districts where the wind rarely blows and solar farms where the sun doesn't shine, simply because some congressional donor must be rewarded. They mandate larger ethanol subsidies because corn-growing states have votes in the House and Senate --despite the mounting scientific opinion that ethanol contributes to increased levels of CO2. In addition, every new government program carries with it the burden of bureaucratic and administrative costs, and sheer corruption. It costs the government 13 cents just to collect one dollar of taxes. It then may cost another 50 cents to administer an inefficient program that produces no tangible benefit and, indeed, that produces further government regulation, leading to additional costs in the private sector.
As if this were not enough, all new government spending is now financed through debt. That debt entails interest payments that continue indefinitely, and these interest payments remove more capital from the private sector, thus creating a vicious circle of lowered wealth creation.
The problem, of course, is that neither President Obama nor Congress wants to create jobs by reducing taxes and regulation. They want to "create or save" votes, not jobs, and they believe that the old patronage system, based on unprecedented new levels of government spending, is the way to garner votes. They believe that the American people wish to be made dependent upon government for every crust of bread, but what Congress and the Obama administration alike fail to recognize is the mounting outrage that their policies are creating among the American people. It may be necessary to wait until 2010 to reverse these policies, but there is little doubt that they will be reversed. Perhaps then we can actually create jobs, not just "create or save" them.
Dr. Jeffrey Folks taught for thirty years in universities in Europe, America, and Japan. He has published nine books and over a hundred articles
