Where Will New Jobs Come From? The Election’s Central Question
Sometimes, the closer to Election Day we come, the more heated the language. While some Americans are actually under fire in Afghanistan, the hyperbolic rhetoric about a “Republican War on Women” is simply silly. Seriously, a WAR? And then the media works itself into a lather cycling and recycling diversionary “gotcha” video clips of the candidates.
This week’s Presidential debate helped reframe the conversation back toward the central question on Americans’ minds:
Where will new jobs come from?
On this point, the two Presidential candidates offer distinctly different choices.
Obama proceeds from a government-centric, Keynesian theory that an activist government can borrow and spend an economy out of economic downturn. The belief is the spending produces more of a “multiplier” than money left in the private sector. Keynes feared private money would be saved or used to reduce debt, rather than to increase demand.
This economic theory was reflected in the ill-fated Stimulus program. It is the same theory that led Nancy Pelosi to claim “that unemployment insurance… is one of the biggest stimuluses (sic) to our economy. Economists will tell you, this money is spent quickly. It injects demand into the economy, and it’s job creating. It creates jobs faster than almost any other initiative you can name.”
Non-Keynesians economists question the existence this supposed “multiplier effect.” They observe that markets are less responsive to short-term measures in part they anticipate the withdrawal of the temporary policies. They also argue that government spending simply displaces resources that would available for other uses. The economy’s underperformance for years after the Stimulus program will provide ample data for a generation of PhD. candidates to attack the Keynesian “multiplier effect” theory.
Despite all the evidence to the contrary, President Obama and his supporters continue to cling to their Keynesian theory in more government spending, and that it will “eventually” trickle down from government to the private economy.
Contrast the Obama’s record with Ronald Reagan’s. When he became President in 1981, he faced far worse economic challenges than Barack Obama did in 2009. Unemployment had soared into double digits with a peak of 10.8%. Reagan followed the exact opposite of the Keynesian model: spending reductions amounting to 5% in the Federal budget in 1981 and cuts to permanent tax rates to restore incentives for economic growth. By 1984 Reagan’s success was convincing enough that he ran for reelection with a theme of “It’s Morning Again in America.” The Romney Five Point Plan to create 12 million new jobs in his first term tracks the same successful Reagan model of encouraging more private investment. (See http://www.mittromney.com/jobsplan)
The differences between the candidates – and the parties – on macroeconomic is one dimension of the contrast. The second involves their understanding of the investment process at the enterprise level.
Private risk investment involves uncertainty. No business plan or business case can anticipate all the unexpected twist and turns a new business undertaking will encounter. Business success usually comes far more from being able to adapt and adjust to changing circumstances than it is about having a great idea at the outset.
Compare this with public “investing,” the favored term Obama and Democrats use to mask their government spending plans. Invariably their assumption is these public investments must work out because they simply should. Even in the face of clear failures, such as the green energy investments, no apparent recognition exists for a need for a mid-course change or adjustments. They believe that because the public “investment’s” objective is well intentioned, the “investment” must therefore be sound as well.
This misunderstanding of what an “investment” actually is reflects a fundamental difference in the parties and the candidates. Obama appears to believe that private investment as simply another form of spending, unconnected with considerations of risk and reward. This failure to understand how a private enterprise economy function lies at the heart of his inability to promote polices that produce more jobs. His lack of appreciation of the role of risk-taking and for the consequences of failure in investing also is at the core of his infamous “You didn’t build it” gaffe.
Where will new jobs come from? The past four years demonstrates, not from Barack Obama or his policies.
Montgomery County Republican Chairman