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Copyright 2009 by John T. Reed

A job is a civilian private sector job. A government job is nothing but the echo of a private sector profit that is partly taken as tax revenue then paid out for government expenses like salaries of government employees. If there were zero private sector jobs in the U.S., there would also be zero public sector jobs.

So the only jobs to be created are private sector jobs.

Government’s only involvement with private sector jobs is to get in the way of creating them or get out of the way of creating them. If they get out of the way, more will be created. If they increase the ways in which they are in the way, fewer will be created.

To say that Obama and his Democrat allies are getting in the way of private sector job creation would be the understatement of the year. Democrats love jobs, but they hate employers. They love jobs, but the hate the profits that motivate and enable private sector business owners to create new jobs.

Obama and his allies have either increased taxes on small business owners or promised to do so. He has promised unspecified change which translates to uncertainty in the minds of businesspeople and investors. Uncertainty, in turn, means “wait” to businesspeople and investors. Waiting means those seeking jobs must also wait until Obama stops confronting job creators with uncertainty that makes them afraid to expand or start new businesses.

Blue and red neon ‘OPEN’ signs

You know those blue-and-red “OPEN” signs you see everywhere nowadays in store windows? Those are the physical, visible manifestations of jobs created. Almost all private sector new jobs are created by brand new private businesses. A typical example would be a family of immigrants from China who work initially in the Chinese restaurants of others then save up enough to open their own. The new jobs created would typically be the waiters, cooks, and busboys they hire.

Do they encounter obstacles to doing that? Yes. They need capital equipment which often requires borrowing. They need permits to sell food and liquor. They may need zoning changes. Are all of the obstacles government? No, but many are. Are the obstacles necessary? Some are. Some are not. Can the federal government help? Yes, they can remove unnecessary obstacles to starting business caused by federal regulations and laws.

Is Obama doing that? Hell, no! He is doing the opposite.

The following are generally favorites of Obama and unfavorites of those who want to expand their business or start a new business:

• unions
• higher taxes
• increased regulation
• more mandates forcing business to adopt pet policies of the left like healthier eating, alternative energy, save the planet, higher mileage

What about those who say healthier eating and saving the planet are good things? So proselytize the public to do that. But don’t force them down people’s throats through those who create new jobs. Creating new jobs is a good thing, too.

No one is opposed to having officials at football games or umpires at baseball games. But sensible people are opposed to either too little or too much regulation of those games. Yet in the context of business, the debate changes to whether regulation, as a generic abstraction, is good or bad. The correct answer is that every human activity needs Goldilocks regulation: not too much, not too little, but just the right amount. Democrats are not seeking the right amount. They are seeking more. Republicans tend to want less, but not so mindlessly.

Going bankrupt

If all regulation were instantly eliminated—say, by the nation going bankrupt—there would instantly be more jobs. But we would also become Somalia.

By the way, I believe it is fair to say that the U.S. is headed toward bankruptcy. Obama himself said so, albeit as a scare tactic to get health care passed. He said we would go “bankrupt,” using that precise word, if his health care was not passed. He is right that the nation will go bankrupt if social security, Medicare, and Medicaid benefits are not cut drastically. But his statement that his health care reform would head off the bankruptcy is the opposite of the truth. His expansion of health care entitlements radically accelerates our financially suicidal path.

The number of observers and experts predicting U.S. bankruptcy is reaching a crescendo. In addition to describing the behavior of the Congress and White House using various words for “crazy,” I also hear words like “unsustainable.” Can it be a self-fulfilling prophecy? Yes. But, if anything, there appears to be a bias in the other direction. That is, people who believe it are reluctant to say it. No intelligent person believes we can continue doing this. No legislator nor Obama is willing to breathe the slightest hint of stopping it. If any Republican gives the slightest hint of reforming Medicare, the Democrats immediately smirk and ask, “So you’re going to cut Medicare?” The Republican instantly swears eternal allegiance to never cutting Medicare.

Medicare will be cut all right, but by the domestic and international bond markets who are currently financing it, not Congress or Obama.

Only a question of when

When will the U.S. go bankrupt? The consensus appears to be five to ten years from now—2015 to 2020. But such predictions are not an exact science. Obama, Pelosi and Reid keep dropping anvils on the camel’s back. At some point, the bond market is going to panic and there will be a run on the dollar and a run on U.S. bonds. You can already see the precursors in gold prices rising in relation to the dollar, foreign currency prices rising in relation to the dollar, China tongue-lashing U.S. fiscal policies and buying commodities instead of U.S. bonds.

What will the run on the dollar and U.S. bonds mean? Higher interest rates. Higher prices on imports which means almost every stitch of clothing on your body, many cars, a large percentage of our food. Probably a deeper, longer recession or depression.

Hyperinflation and financial repression

The U.S. government will probably resort to hyperinflation and financial repression to deal with their inability to deficit spend. Inflation is no longer a powerful enough scam—too many amounts that the government has to pay out (e.g., social security) and collect (e.g., tax brackets) are now indexed, which nullifies the government’s ability to surreptitiously steal from the taxpayers via inflation.

They now need to use hyperinflation which moves too fast for the CPI index to stop it.

Financial repression means force you to put your money in banks that pay below-market interest rates on deposits then force those banks to put your deposits into risky, below-market-interest-rate U.S. government bonds. Essentially, they will force you indirectly to put your cash into unacceptably risky, below-market-interest-rate U.S. bonds. Ultimately, the U.S. will have to eliminate Medicare and Medicaid and cut social security to keep government expenditures within tax receipts. They will try to raise taxes on the rich, but they have gone to that well about as many times as they can. They need to raise taxes on the people whose taxes they have been cutting: the middle class and lower class. It’s called broadening the tax base.

I doubt anyone currently in Congress or the White House is capable of that. If so, the U.S. government will force you to buy its bonds directly or indirectly, then default on them.

The right amount of regulation reduces jobs somewhat, but it gives us an appropriately civilized country. Too much regulation, as now, gives us 10% unemployment. The additional regulation and taxation pushed by Obama in health insurance mandates and cap & trade would dramatically reduce the number of existing jobs and the number of new jobs created.

The government, at all levels, needs to remove all unnecessary or not cost-effective barriers to entry (starting a business) and barriers to exit (going out of business). They need to remove all barriers or discouragements to hiring (like minimum wage, mandatory employee taxes and insurance) and to firing (like requirements that a plant give notice before closing).

What Obama really wants

Obama does not give a rat’s rump about job creation. All he cares about is persuading the American people to believe that he has created jobs. It’s not that he believes perception is reality. He just thinks reality, truth, and all that are irrelevant. FDR wrecked the U.S. economy and turned a recession that would normally have last a year or so into a permanent depression that only ended when World War II arrived. 75 years later he is still beloved by tens of millions. Obama looks at that and concludes that the mere perception of job creation is close enough for government work to actual job creation.

Obama wants the U.S. public to believe he has created millions of union jobs. He talks about private-sector jobs, but if he can get away with it, he will create nothing but government jobs for SEIU members.

Economist Milton Friedman once observe thousands of Indians with shovels digging at some government construction project in India. He asked why they were not using more efficient motorized backhoes, bulldozers, road graders, and so on. The official wearily explained that it was a jobs program. Using heavy construction would reduce the number of jobs. Friedman then suggested they replace the shovels with spoons.

If Obama thought he could get away with it, he would switch to union spoon-ready, rather than shovel-ready, government make-work projects. That’s what FDR’s Civilian Conservation Corps was. It was out in the boondocks only because the unions demanded that no such non-union jobs be near populated areas where their unions were. My Uncle Frank was killed when he was in the CCC by a truck backing over him—in Sitka, AK—far from any objecting union.

Poor countries recover faster

Page 169 of the 2009 book This Time Is Different: Eight centuries of financial folly, says developed countries take longer to recover than poor ones. Why? During crises, like wars and depressions, rich countries turn socialist with stimulus packages and such which they finance by borrowing.

Why don’t poor countries do that? They can’t.

In one of his movies, actor Richard Burton had a memorable line,

She believed in free love and, at the time, it was the only kind I could afford.

Poor countries resort to free-market solutions to crisis because it’s the only kind they have the money to pay for. They get better faster than rich countries because socialism doesn’t work.

If Obama really wanted to create jobs, he would emulated the poor countries who lack the credit cards to play welfare state. He said he was going to make sure not one dime of taxpayer money was wasted. In fact, Obama is more interested in making sure he does not leave one dime of unused credit on the United States credit card for his successor.

Productivity growth

The sole source of prosperity in the post war U.S. has been productivity growth. That’s an economist word. It just means learning more efficient ways to do things. For example, I attended a panel discussion on stopping piracy in Somalia. They said one of the problems was the merchant vessels have tiny crews. The government-run ship the U.S.S. Ronald Reagan has a crew of 5,700. It is 1,000 feet long. The biggest oil tankers are five times as big as the Ronald Reagan in terms of weight. If I recall correctly, the panel said those huge oil tankers have a crew of 28 or so. At least one-third are sleeping at any given time. Pirates attack at night.

But I digress. The fact that modern, private enterprise, non-union, non-U.S. flag ships can operate with 28 guys contrasts dramatically with the lack of productivity improvement on the government navy ship. Socialists would say that the U.S.S. Ronald Reagan is more of a job creator. Actually, the opposite is true. Wasting money on too many people doing a task inefficiently raises prices of the goods or service in question which, in turn, means less money to hire more workers elsewhere. America and the world are far more prosperous than 40 years ago precisely because it now only takes 28 guys to staff an oil tanker and similar productivity gains have occurred all over our economy. (In the interest of full disclosure, some new U.S. Navy ships have much smaller crews than they did several decades ago. Fletcher class WW II 3,000-ton destroyers had 330 men. The proposed DDG-100 class of new 14,000-ton destroyers will have 150 crew members and in some respects are more powerful. On the other hand, I believe all navy surface ships have been obsolete since about the mid 1950s. But I digress again.)

So how do we improve productivity? Innovation. Automation. De-unionization. Stronger patent and copyright laws. Grant more H1b visas. Make it easier to fire workers (productivity means doing more with fewer workers). Treat capital expenditures more favorably taxwise for businessmen who invest in productivity-enhancing plant and equipment (generally, productivity gains come from employing more capital, that is, plant and equipment and automation, per worker). Get rid of tariffs and other trade barriers to maximize competition thereby giving our businesses more incentive to innovate than any other country in the world. Reduce penalties for business failure and barriers to entry into and exit from business.

Any of that sound like Obama? No. It is all the opposite of Obama. He is the president of the unions who are Luddites. They hate productivity gains. They want to be paid more for less work. Productivity gains mean more production from fewer workers. They hate almost everything on this list and Obama’s attitude is the enemy of my friend is my enemy. Same is true of Democrat politicians in general. They love jobs but they hate employers. And they cannot, or will not, see the big picture that free trade and innovation and the rest of it ultimately mean more jobs for all in spite of the creative destruction that it causes to specific easily identified small vocal unionized groups.

John T. Reed