President Obama's Jobs Proposal Misses the Point
The most interesting point to be made about Obama's jobs proposal is not whether it will pass, nor if it will "work," but rather if it's sound public policy based on firm economic footing. It is not.
President Barack Obama unveiled his $447 billion package of spending initiatives and tax cuts to a joint session of Congress on Thursday September 8. About $250 billion of the package is tax cuts. Another $200 billion comes in the form of spending increases. Economist Mark Zandi wrote soon after the plan was made public that he expects, if the plan were passed as is, that GDP growth in 2012 would be 2% higher than what it would otherwise be. Also, 1.9 million jobs would be created and the unemployment rate would drop by 1%.
Will the Plan "Work"?
Economists, and politicians for that matter, are split on the expected impact. Certainly there are items of the plan that both parties can get behind and there are fairly divisive items as well. However, too much has been written about whether the plan can pass. It will not pass as written, case closed. Also, too much has been written about expectations of the efficacy of the proposal. The rather polar views are summarized nicely in the Wall Street Journal's "Economists React: Gauging Impact of Obama Jobs Proposal." Bottom line, a short-term boost (read "saccharine high") is likely from passage of the plan as written.
We Will Pay Somehow
Unfortunately, this bill represents another case of political necessity trumping economic common sense. But before getting into particulars, let's talk about realities. This $450 billion will be paid for somehow. It will not be free. And while those on the right might want to argue that the tax cut portions of the bill may provide a good deal of supply side stimulus, the cuts in payroll taxes are temporary. We cannot continue to decrease our funding for social security and expect there not be a social security solvency crisis down the road. Therefore, these cuts to payroll taxes will eventually end out of simple necessity. So the bill is unlikely to fund itself through economic growth. How will it be funded?
It can only be funded in one of two ways: taxes or inflation. Sure, we could pay for it with debt. But that debt will have to be paid for in taxes or inflation. And inflation is really just a stealth tax. So we can simplify everything into one all-encompassing statement about paying for public spending:
"Public spending must be paid for in taxes."
So make no mistake, all government spending requires payment. The tax cuts, because they are not really government spending, are different. They will not necessarily work given their temporary nature, but they will not require a future tax to pay for them.
Not Economically Coherent
This plan is economically ignorant. How is it that we arrive at this conclusion?
First, if we know jobs must be paid for through taxes, every dollar given to a "jobs program" will come from a taxpayer. The cost of every job "created" by the public spending will be extracted from the private sector, leading to at least one fewer job in the private sector. You net out at 0 job creation at best.
Second, and less important, is the very notion that national policy ought to be directed at creating jobs in the first place. National policy ought to be concerned with national prosperity or national wealth, both of which come from national production. We do not need jobs to have these things. In fact, all of human history is a lesson in how to work less to get more. We would rather do other things with our time than work our fingers to the bone. The difference between countries with much wealth and countries with little wealth is exactly the difference in how people have gone about getting more from less work.
Full employment is not an end in itself. The Soviet Union claimed full employment. Nobody is unemployed in a slave labor camp. Employment is simply the means of producing more wealth. Obviously, everybody needs to have money and the best way to do that is to get a job. When there are no jobs, this is a huge problem. And the government can still help these people.
While viewing jobs as a means or viewing them as an end unto itself may seem trivial, it is important to public policy. Jobs plans suddenly become production plans. It changes the goals and objectives of the policy. Now government officials are looking at means of producing national wealth and asking questions like, "Why are production levels so low?" Or, "What can we do to increase the willingness to produce?" Then the answers become a little bit more clear. If you take away the barriers to production, employment follows.
Economics used to be the science of trade-offs. Sadly, economists today have followed the lead of the politicians in presenting policy options as if there were no trade-offs involved. We have been told we can have our cake and eat it too. That's never been true and it is still a falsehood today. Nothing is free. We have to pay for it somehow. Viewing President Obama's jobs proposal in terms of trade-offs shows that the net gain from a jobs program will be negligible, at least longer term. A much better policy would focus on jobs as a means to an end, not the end itself.