On Thursday, December 3, President Obama held a “jobs summit” to which he invited various business executives, union leaders, and academics. The ostensible purpose of the summit was to provide the president with ideas on how to create jobs. However, this exercise was a public relations measure to make it appear to the public that President Obama is actively engaged in reducing unemployment and seeking non-political assistance in doing so.
It also served as a way for supporters of the administration to feel included in the formation of economic policy. While Google CEO, Eric Schmidt, who campaigned for Obama, and the major labor unions were at the summit, noticeably absent were such organizations as the U.S. Chamber of Commerce, National Federation of Independent Business, and the National Association of Manufacturers, that have been opposed to major pieces of the Obama agenda.
The very idea of a jobs summit does not make sense. To begin with, we don’t wish to create jobs. It is possible to create jobs by hiring people to dig ditches and fill them up again. The strength of the economic system of market capitalism is that it allows people to be productive, much more productive than any other economic system. So the very title of the summit is misguided.
As Don Boudreaux, chairman of the economics department at George Mason University, has pointed out we really should be asking how we can let people become more productive. If someone is unemployed, we can make them more productive by creating an incentive for others to hire them and allow them to produce goods and services that are of value or for them to start their own business. The real problem to be solved is how to limit the government intervention that is creating the inefficiencies in the economy that result in idled productive capacity.
Focusing on job creation rather than increasing the productive capacity of individuals leads to wrong-headed proposals. Recent scholarship on the New Deal by my colleague Burt Folsom and by Amity Shlaes, among others, demonstrates that the make-work programs of the Roosevelt Administration did not reduce unemployment nor did they lessen the drop in Gross Domestic Product. Yet we heard from summit participants, such as Lawrence Mishel of the Economic Policy Institute, that more federal spending on infrastructure and public service jobs, a replication of the New Deal, will solve the problems of our economic stagnation.
The jobs summit is in reality a statement by the President that his administration does not have a clear vision of how to deal with a recession. Any of the proposals from the summit have certainly been offered already and will have been known to the Administration. What would have been more comforting is a clear statement from the administration on how the policy offerings of the administration are affecting and will affect the economy, since much of our economic woes are the result of uncertainties created by the Obama administration.
Small businesses, which employ a majority of workers, could hire people and create opportunities for greater production if they knew what the medium to long term costs of hiring would be. However, if passed, the health care plans might costs several thousand dollars per year in taxes or health care mandates per employee.
The Heritage Foundation has shown that small businesses will face significant increases in energy costs should a cap and trade bill pass. Expiration of the Bush tax cuts will add significantly to the tax burden of small business owners. This is what is dampening the productive activity of small business and leading to high unemployment. In addition, uncertainty in how the administration will alter the regulation of financial institutions is at least partly responsible for the massive build up in excess reserves, which tightens the credit markets for those small businesses that are willing to expand in the face of this massive buildup of uncertainty.
The all day media show was just one more opportunity for special interest groups to lobby for their favorite programs, be it the construction industry pushing for more infrastructure spending or the AFL-CIO asking for aid to states to preserve the jobs of their union members.
We really don’t need to gather one hundred and thirty-five people together in hopes that a brilliant idea will come forth. Any undergraduate economics student should be able to explain that the way to increase the productivity of the economy, including providing productive opportunities for the unemployed, is to establish a clear and stable regulatory environment, lower taxes on productive activity, and stabilize the currency. Unfortunately, the Obama administration is doing the opposite of this and the jobs summit is not likely to change things for the better.
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