CBS News recently reported a Gallup poll asking Americans what they believe to be the most important problems we face today. By a wide margin people responded that the economy, unemployment and jobs are our biggest problems. When I ran for the state senate last year I knocked on over 3,000 doors and had conversations with literally hundreds of people. It became clear to me that New Mexicans are, in fact, very concerned about the economy and jobs as well. I also learned that my fellow Las Crucens believe that government is the best source for jobs and economic growth. But, is this true?
There are only two sources of jobs in the universe: government and private sector. Generally speaking, private sector businesses create jobs by using available capital to expand their products. This expansion requires increased human resources, and thus jobs are created. Assuming there is a market for their product, increased sales provide the cash necessary to sustain the new jobs.
On the other hand, when the government creates a job it must first collect money from the private sector in the form of taxes. This capital is then used to fund the job. But that is not the end of it; since the government cannot operate in the marketplace it does not turn a profit, and therefore the job is not self-sustaining. In fact, the only way for this newly created government job to last is through further tax collections year after year. Since government requires private sector wealth to create a job, there is no overall gain in wealth. Therefore, the government job is actually a net drag on the economy. This makes the private sector the best source for creating jobs if you want to increase wealth and grow the economy.
Please don’t misunderstand; some jobs are the unique responsibility of the government. For example, national defense could never be accomplished by the private sector. However, aside from this and other government roles specifically spelled out in our Constitution, the private sector should be our primary vehicle for job creation.
Now, some economists believe it is not possible for the private sector to create a significant number of jobs when “demand” is low. Therefore, in economic times such as this the government must jump-start the economy through “stimulus”. But, does it make sense to tax the private sector then give some of this money back in the form of “stimulus” and expect growth? This would be akin to taking a bucket of water from a river, walking a few paces upstream, dumping it back in and declaring that the river has more water. It simply does not work.
Furthermore, is it even possible that consumer demand can be lost? Does a person’s desire to “keep up with the Joneses”, be entertained, or simply want more, ever go away? No, but those desires could be suppressed due to the amount of money (or lack thereof) in his/her pocket. On the other hand, if the consumer experiences an increase in their money supply they generally tend to spend it. For example, when someone finds a job, gets a raise or wins the lottery they will most likely spend much of the additional funds; whether there is “demand” in the economy or not. So it is not the ever-present desire of consumers to spend, but the actual (and/or potential of more) money in our pockets that drives spending.
So, in order to grow the economy the real question should be: What is the best way to get more money into the hands of the consumers? As previously mentioned, congress could pass a “stimulus” package. But, again, this would not actually grow the economy; plus it is inefficient, temporary, and only leads to bigger deficits. So the obvious choice would be to concentrate on the supply-side of the equation (i.e. private sector) in the form of lower taxes and regulations.
Currently, there is a great deal of uncertainty in the marketplace due to taxes and regulations. Thus, the “potential” amount of capital is in question (BTW, this is why banks and corporations are sitting on $2 trillion that could otherwise be used for job creation). Specifically, the United States has the highest corporate tax rate in the world and a president who is promising more taxes. This makes us a less attractive destination for job creation. Additionally, our private sector deals with over 170,000 pages of federal regulations that would stand over 20 feet tall if stacked one on top of another, and Obamacare threatens thousands more. These regulations cost job creators an astounding $1.7 trillion dollars annually. Not only does this stifle economic growth in our country, these high taxes and regulations are the main reasons why we outsource so many jobs overseas nowadays.
Rather than rely on the government we should force them to remove uncertainty and unnecessary burdens to the private sector through reduced taxes and regulations, and unleash the American entrepreneurial spirit with hundreds of billions of dollars worth of additional job creating capital. If we did, we wouldn’t be experiencing the slowest economic recovery since the great depression.