Jobs, jobs, jobs: the government's misdirected attempts to create jobs

By Wickham Skinner | Mar 24, 2010
Wickham Skinner

Two hundred years of U.S. economic history demonstrate that the economy grows in giant steps stimulated by investments in new technologies. Between those upward leaps it stagnates at a new level while settling down to a steady state of getting and spending. When new investment is attracted by the next new technology, the economy explodes upward in a whole new surge. The growth is marked by a larger gross domestic product, improved standards of living and, (hello!) the massive creation of new jobs!

Beginning in the 19th century, new technologies have steadily led to new products, new industries and new jobs. The parade of new job-stimulating technologies includes: textile factories, the steam engine, railroads, electric machinery, the telephone, the automobile industry, the radio, television, the computer industry and the Internet.

It's easy to list about 20 major innovations spread over about 200 years, but at an accelerating pace. So the message of history is clear: new jobs at a significant level derive from new technologies that attract new investments. Paul Samuelson, one of our great economists, said it straight out in 1958: "Investment opportunities depend on new discoveries, new products, ... on elements outside the economy itself: technology ..."

And the role of government?

Washington's big-talk and gobs of money aimed at resolving the nation's unemployment problems have produced minuscule results. The government's scenario is like a carpenter with only a hammer and a saw trying to build an apartment building while the owner demands occupancy, and the carpenter repeatedly cries out "I'm trying. I'm trying!"

We plead to Washington and Augusta to take action and "do something about unemployment." Politicians respond with speeches about bills and policy changes that they are promoting and that will surely create jobs. If it were not so serious, it would be an outright pathetic comedy, for history shows that new laws and regulations have never produced many new jobs.

The "stimulus money" thrown out around the country by a panicked Congress who voted on the American Recovery and Reinvestment Act added up to about $100 billion. The general consensus is that the ARRA may have produced about 750,000 jobs maximum, at a cost to the nation of $133,000 per job. At best this "restores" only about 9 percent of the 8.5 million jobs cut by the recession, and those are largely short-term jobs. No apartment building there.

Low interest rates and the president's exhortations to encourage consumer spending are counteracted by proposed tighter banking regulations to avoid unwise borrowing and mandated revisions of credit card terms. Laws to federally guarantee loans are minuscule in effect. Tighter regulations for commercial and investment banks, designed to prevent future financial crises, impede the loosening up of credit for business expansion. The government's increasing intrusions into corporate management, such as the angry name-calling tirades from the White House vilifying "greedy" investment bankers and "dishonest" health insurance executives, and government officials now empowered to limit certain executive salaries offer no encouragement to investors to take risks in an increasingly hostile government environment.

Of course presidents can, must and do speak out publicly for their government to fix things, and politicians will never stop proclaiming: "Jobs are our number one priority!" Like the carpenter: "We're trying!"

But the elephant in the room is the question: What can Washington actually do beyond cheerleading? I submit that any president is like a mechanic with few tools when it comes to job creation. All he can do is superficial, just talk. He can only kick the tires.

So what it comes down to is that while polls constantly evaluate presidents for their handling of the economy, presidents have little effect on the economy in the short term. And while Congress may borrow to spin money out to the states to avoid state government layoffs, the arithmetic is dismal. The payoffs are too small relative to the size of the problem.

The jobs outlook appears so discouraging that even the most optimistic economists are saying that high unemployment is bound to last for many years. And this will prove to be true if Washington continues to tinker with small changes at the margin. Experience demonstrates that little can be accomplished by making changes in government regulations or throwing money at creating too few jobs and of a short-term duration.

But hold on! Does not our economic history repeatedly demonstrate that we have regularly benefited from periodic bursts of growth that create millions of new jobs? And the job of government? Is its job not to foster and protect an environment in which technological development thrives?

The legitimate, powerful role for the government is to energize these surges by nurturing new ideas with investments in technology development at the pre-commercial stage.

The shouting and political posturing will probably go on, but we should send word to Washington to cool the rhetoric and, instead, open the pages of economic history to remind us that it is new technologies that make an economy explode and surge to a healthy and prosperous new size.

And what might be the next wave of technology that will provide the major step up in jobs we now need? And when may we expect it?

Well, how about the technologies attracting so much attention right now, those of alternate energy sources and distribution?

Could that be the answer to "Jobs, jobs, jobs?"

 

 

 

 

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