What are the odds that yesterday’s White House jobs summit will lead to the creation of any real jobs? The summit was based on the magic theory of government: Say the right incantations and reality will be reshaped according to one’s desires. There are no economic laws. There is only will. If we all think good thoughts and exude the spirit of cooperation, we’ll end these hard times and get the economy moving again.
This is the sign of a primitive mentality. In reality economic laws exist, reality sets limits, and good feelings can’t create prosperity out of nothing, especially when government stubbornly stands in the way.
It seems odd that we should ever have to worry that there aren’t enough jobs. Have we all become ascetics? Did we all wake up one morning and decide we no longer want to consume? No, we all want goods and services that must be produced by human beings using capital equipment. Our wish lists exceed our budgets — which is to say we live in a world of scarcity.
Even if we reduce current consumption so that we can save, it’s because we want to consume more in the future than we could have consumed had we not saved. Entrepreneurs and investors know this and (if left free) can be expected to try to anticipate what we will want and to invest at early stages of production — and hire employees — so the final goods will be ready when we are.
Thus there should be a shortage of workers not jobs. In general, employers should be competing for employees and not the other way around. There’s always work to do, and it will be done if people are willing to pay enough to attract laborers. If things aren’t turning out that way, something is interfering with the operation of the market process.
What could that be? The visible fist of government, of course. Nothing else could create such a perverse effect as a nationwide job shortage in a world of scarcity.
Effect, Not Cause
The downward employment spiral we have witnessed is an effect, not a cause, of economic trouble. People were laid off and consumption slowed down, with rippling effect, because of earlier bad policies. In the current case, government housing policy and Federal Reserve conduct united to create unsustainable distortions in finance, construction, and allied industries. When the boom came to end and the bubble burst, what looked like rational investments were revealed as errors that needed to be corrected so that the market process could get back on its natural track. This takes time. Decisions cannot be instantly and costlessly reversed. There’s too much construction equipment and not enough of something else, but that cannot be rectified overnight. Capital was wasted in the boom, and new saving is needed not just to replenish the capital stock but to make sure it’s the right kind of capital.
But the policymakers won’t let the market heal itself. Why? Because letting it happen means doing nothing—or rather undoing lots of things—and politicians are incapable of that. Imperative No. 1 is to get reelected. Whether a politician understands economics or not, the electorate for the most part does not. So he caters to the economic illiterates by appearing to boldly take on problems that were created by his earlier takings-on. Almost any policy he backs will be opposite of what ought to be done.
The two things that government needs to do are exactly what politicians find so distasteful. It must 1) dramatically lighten its burden on the people and 2) abstain from causing producers to wonder what new burdens may be around the corner.
The burden of government is great. This is to be measured not in taxes alone, but in total spending, mandates, regulation, and Federal Reserve distortion. Politicians and special interests have lived as though the burden could be increased indefinitely with impunity. We see now that it can’t. Spending must be substantially cut — departments and agencies abolished — so that resources can be left in the productive sector. Taxes must be reduced sharply — better yet, repealed. The heavy hand of bureaucracy must be lifted from production. Government is a destroyer, not a creator, of value. It must stop.
The progressives don’t get this, but neither do many conservatives. They want to goose the economy with stimulative tax credits and payroll-tax holidays—without spending cuts. This would increase the already intolerably large budget deficit. Like the right-Keynesians so many of them are, they underestimate the budget-deficit danger, despite frequent rhetoric to the contrary. What we need are tax and spending cuts, for as Roger Garrison points out, deficit spending creates its own uncertainty (the “debt bomb”) about how the debt will be paid off in the future. Will there be new taxes? If so, on whom? Will the Fed monetize the debt? If so, what then? No one can say for sure who will bear how much of the brunt of the government’s fiscal recklessness. This affects decision-making.
Uncertainty about future government policy has a chilling effect on investment and job creation—that is, on serving consumers. Entrepreneurship is, first and foremost, risk-taking—the execution of a plan based on expectations about the uncertain future. Consumer tastes and other aspects of life are unpredictable enough without also having to worry about what crippling regulations, taxes, and inflation the State might set in motion with during the period of production. Will Washington enact cap-and-trade and a new financial regulatory regime next year? Why make commitments before we know? The only thing worse than uncertainty about future government impositions is certainty about them. With costly health-insurance nationalization almost surely in the offing, entrepreneurs have new burdens to keep in mind as they do their business calculations.