Thursday, July 22, 2010

Obama's Jobs Fantasy

In a column in today's New York Post, I mock White House unemployment calculations and then explain why companies are not anxious to hire more workers.

The White House last year released a supposedly scientific analysis that claimed to show that adopting the "stimulus" bill would cut unemployment. Indeed, the report specifically estimated that the unemployment rate today would be down to 7.5 percent. Something obviously went wrong. The actual unemployment rate is 9.5 percent, a statistic that doesn't include the millions who've given up looking for work or can only find part-time jobs. What were President Obama's biggest mistakes? ...the bigger stumbling block is the folks in the White House seem to have no clue how the real-world economy works. Critics have noted that the Obama Cabinet sets the record for the lowest-ever level of private-sector experience. That doesn't necessarily mean people who don't understand how and why jobs are created -- but that seems to be the case with this administration. Let's start with two common- sense observations. First, businesses are not charities. They only create jobs when they think that the total revenue generated by new workers will exceed the total cost of employing those workers. In other words, if it's not profitable to hire workers, it's not going to happen. ...Unfortunately, almost everything Washington's done the last 18 months has sent the opposite message. The "stimulus" boosted federal spending, thus draining funds from private-capital markets and diverting resources from the productive sector of the economy. The main jobs that it "saved" were employees of state and local governments -- shielding the public sector from pain even as it inflicted more agony on the private sector. ...The health-care law is a cornucopia of new taxes, mandates and regulations -- directly increasing the cost of hiring new employees (as well as of keeping old ones on). By telling employers that the cost of hiring is set to rise sharply in the years ahead, it makes them far more cautious about hiring. ...Investors, entrepreneurs and other job creators also look into the future. If they think economic conditions will improve and that they can make money by expanding employment, they're more likely to take that risk. But what's happening in Washington gives them little reason to feel optimistic. A big challenge is that tax rates are going to rise. The 2001 and 2003 tax cuts are scheduled to expire as the ball drops in Times Square on New Year's Eve. This means higher income-tax rates, higher dividend-tax rates, more double-taxation of capital gains and a reinvigorated death tax. Each provision will increase the cost of productive behavior and specifically make it more expensive to provide the capital needed for job creation. ...The good news is that the economy is creating some jobs. This is to be expected -- the private sector is naturally self-correcting and capable of withstanding lots of bad policy. It takes a lot of missteps in Washington to keep an economy in recession. The bad news is that the United States is gradually becoming a European-style welfare state. This means that we'll have growth in most years, but it will be tepid growth. It means jobs will be created -- but probably not enough to move the unemployment rate from its unacceptably high level. To get truly robust job creation, we need to stop growing government and start getting it out of the way.

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