David Post: Government can help, but it won't

Published 12:00 am Monday, September 12, 2011

By David Post

Jobs. Jobs. Jobs. These days, it’s all about jobs. President Obama and Republican presidential candidates are spelling out their visions on how the economy can create more jobs.
In 2008, the United States lost more than 8 million jobs; very few have returned.
Can the government create jobs? In fact, yes.
Will the government do anything to create new jobs this year? Not a chance.
Why not? With a presidential election around the corner — which now means within two years — the Republican-controlled Congress doesn’t want the economy to improve. An improving economy re-elects presidents. An ailing or stagnant economy is a fast lane out of the White House.
Governments have two powerful tools to create jobs, fiscal policy and monetary policy.
Fiscal policy is about taxes and government spending.
Government can raise or lower taxes. In theory, lower taxes put more money in the hands of workers who spend more, so businesses hire more people to make and sell their products. The other side of that theory is that raising taxes takes money out of the economy and reduces national employment.
Does that happen? President Clinton raised taxes, and the economy created 23 million new jobs with unemployment dropping from 7.3 percent to 4.2 percent. President George W. Bush cut taxes, 3 million new jobs were created in eight years, and unemployment grew from 4.2 percent to 7.8 percent. His father, President George H.W. Bush, broke his “Read my lips: No new taxes” pledge and raised taxes. He lost his re-election bid, but the economy created 3 million new jobs during his single term as president.
So much for theory.
Governments spending creates jobs several ways. It can hire people. Today, 21 million people, or 15 percent of the workforce, are employed by state, local and federal governments.
Government can provide unemployment benefits that generate spending and jobs immediately, or it can spend on infrastructure, which creates jobs immediately and in the future, or it can support education and research, which tends to create jobs in the future.
Government can cut spending. Local governments have been firing teachers and policemen across the nation. That, of course, reduces both jobs and tax revenues, though supporters suggest that fired government employees will start businesses and create jobs. Over the past three years, that hasn’t worked.
The jobs debate, like the extension of the Bush tax cuts last winter and the debt ceiling debate last month, involves the same arguments. One side says, “Cut taxes, get government out of the way, and the economy will fix itself.” The other says, “Supporting those in need and investing in infrastructure and education will create jobs immediately and into the future.”
Despite the urgency, there will be no meeting of the minds. Continued political gridlock will ensure that fiscal policy has little impact on the economy in the coming year.
Monetary policy is about interest rates and money supply. Lower rates and more money create more spending and, therefore, more jobs.
The Federal Reserve has 12 governors with no political agenda. It controls interest rates and the amount of money floating through the economy. Rarely does the Fed disagree publicly, but now there is a split in its ranks, and with interest rates near zero, it has fewer tools available.
Let’s face it. None of those government policies will work unless the consuming public feels good about spending. People are afraid to buy houses even with low interest rates because housing values are continuing to decline. Companies are reducing health care benefits, shifting more of the cost to employees, and somehow, the consumer has been made to feel guilty about the high cost of health care. For three decades, wages have been stagnant, and employee retirement benefits have been shrinking.
So, the real jobs problem is low consumer confidence. Since falling to its all-time low of 23 in 2008, the Consumer Confidence Index has been in the 40s for the past three years. Normal is 100, using 1985 as the baseline.
Washington needs to realize that political gridlock, consumer confidence and the economy are kissing cousins. President Reagan and a Democratic Congress cut deals. President Clinton and a Republican Congress cut deals.
If only Washington could do the kindergarten thing — be nice and get along — the country would feel better. Get that back, and jobs will return.
That’s not going to happen. We’ve got that pesky election just around the corner, so the economy will be placed in a deep freeze for another year.
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David Post is a co-owner of the Salisbury Pharmacy and an adjunct professor at Georgetown University.