@ FutureChallenges: Jobs, Jobs, Jobs: It's the Fundamentals

My newest article at FutureChallenges has just been published. Linked to the content package, Work in the Developing World, the article, Jobs, Jobs, Jobs: It's the Fundamentals, explores the current economic issues faced by the United States and offers a discussion on a possible way to attack the jobs problem.

It is clear, to even the most casual observers of American politics, that one of the most pressing problems of the past several years and a poignant issue in the 2012 election cycle is jobs. With unemployment rates at dismal levels—8.5% as of December 2011—and not having fallen below 8.0% since January 2009, Democrats and Republicans have been slogging it out over who is to blame and what steps need to be taken to ameliorate the situation.

This marks a significant change in the focus of the American electorate. Following 9/11, security and terrorism were, for at least a decade, the primary issues on most Americans’ minds. However, as Eurasia Group, a political risk consultancy, argues, the 9/11 era is over. Over the next few years, economics—especially jobs—will be the driving force behind politics, both in the United States and abroad.

But while politics shift to an economic focus and politicians and pundits began to scrutinize, bolster, and tear-down each others’ and their own job-creating records, many gloss over the fact that governments are rarely directly responsible for creating actual jobs. This is particularly true in free-market systems with relatively small public sectors such as the United States. Instead, governments can indirectly facilitate job creation by generating a favorable economic environment, thus establishing the foundational prerequisites needed for the private sector to flourish.

To see the remainder of the article, please click here.

The Economic Harm of OWS

For a movement that professes to be protesting the dismissal state of the economy, including the lack of jobs, Occupy Wall Street (OWS) appears to believe that hampering the mechanisms of capitalism is a smart move. Yesterday, members of Occupy Portland shut down the Port of Portland, preventing any trade from proceeding. The Port of Portland is the fifth largest port (by tonnage) in the United States and is thus responsible for an enormous amount of trade and jobs, both at the port and in markets that rely upon the trade.

Why the Occupy movement thinks that stopping economic flows is an intelligent tactic is beyond comprehension. Not only would it seemingly undermine any potential support they could garner from those who do not sit on the far-left of American politics, but such strategies undermine attempts to improve the economy. It is nonsensical to prevent people from working and interrupt economic activity in this economic climate.

OWS has had pernicious effects on small businesses, particularly those located in the vicinity of the protests. Shops, for instance, have been forced to close as protesters have driven away paying customers. Other businesses have had to lay-off employees in order to stay afloat. And many banks have been forced to close their doors for fears of potential violence. None of this helps the economy or the newly minted unemployed.

But the follies of OWS do end there. There have been reports, admittedly isolated for the time being, of Occupy protesters attacking banks, stores, and other institutions of "capitalism." While not yet the mainstream of the movement, which has largely been peaceful, such violent trends are worrisome. The last thing this country needs is to descend into further turmoil.

Just Another Stimulus Package

Obama's "jobs bill," announced last night, is just another stimulus package, plain and simple.  But not only is it just another Keynesian^[1] spending package, it is the same old policy proposals cloaked (poorly) in a new garb.  The Wall Street Journal said it best:

If President Obama's economic policies have had a signature flaw, it is the conceit that by pulling this or that policy lever, by spending more on this program or cutting that tax for a year, Washington can manipulate the $15 trillion U.S. economy to grow. With his speech last night to Congress, the President is giving that strategy one more government try.

It seems that Obama has the vision of a new New Deal - the same type of stimulus; filling potholes, building infrastructure, and the like, that has already been attempted twice with little success during the Great Recession.  This is the same Keynesian economics that has, for some, justified profligate spending since World War Two.  Its record is, of course, highly debatable - after all, it was not so much the New Deal that brought America out of the Great Depression but World War II.  And while the staunchest defenders retort that military expenditures are government spending and thus justify Keynesian economics, there is a qualitative difference insofar as WWII spending occurred amid massive domestic and international structural changes.

But even if one concedes that Keynesian stimulus worked during WWII, it is the only event in American history that can make this claim.  Subsequent attempts have largely failed - most clearly demonstrated in the two most recent stimulus packages.  It is time to jettison this outmoded economic philosophy.  A simple enough reason is that Americans are catching on to the reality - any stimulus has to be paid by the taxpayer down the line.  Obama may wish to paper over this by claiming the "jobs bill" is fully funded, but the reality is if he is able to squeeze a few more billion out of the Super Committee, it should be used to further reduce our debt, rather than pay for new programs.

The truth is that the economy is failing to right itself because of fear.  Business owners and entrepreneurs have little certainty as to what is going to come out of Washington - more taxes or less, greater spending or austerity, increased or decreased regulation, downgrades, debt or solutions.  This has led to a near paralysis as a wait and see mentality has set in.  The volatility of the stock market says it all.  We have all become manic-depressives.

If Obama is serious about jobs, he has to allow business to do what it does best - get to work - by creating the stability it needs to properly function.  This is not even a call for decreased regulation or taxes [some regulation, as Obama pointed out is necessary to protect the safety and security of workers and consumers], but a need for businesses to know that their operating environment tomorrow will be the same as it is today.  This small thing, renewed confidence, will allow them to go forward and make long-term plans.  It is an easy solution - maybe too easy for a Democratic party beholden to the notion that complex government programs are needed to solve man's everyday problems.

The Republicans shouldn't even consider the bill; it is a waste of time.  Sure Obama will try to peg them as obstructionist and thus the Republicans should avoid grappling in the mud.  Their response so far - no response - is perfect.  There is no debate here, just political theater as Obama launches he reelection campaign. [But if one feels compelled to see what's economically wrong with his proposal the Heritage Foundation has put together a concise list.]

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[1] Keynesian economics is the economic philosophy that government spending is sometimes needed to support the economy.  First developed by John Maynard Keynes in the early 20th century, it has often been used to justify countercyclical deficit spending (i.e. during recessions) by the government to stimulate the economy.  Largely beyond its original intent it has been argued by some (most notably following the Kennedy administration) that it should not solely be used during recessions but during other times of non-full employment.  This argument has led to deficit spending during economical booms to increase employment.