Robert Samuelson has a good piece on why blaming Bush for job losses is dishonest. As he notes:
We are having a ferocious jobs debate, most of it fraudulent. If presidents could easily create jobs, the unemployment rate would rarely exceed 3.5 percent. But all they can usually do is influence the economy through taxes, spending and regulatory decisions — and hope that job growth follows. In our market system, private employers play the pivotal role. They will add jobs only if: (a) demand justifies new workers; (b) labor costs aren’t at unprofitable levels; and (c) they think healthy economic conditions will last. Electing a president based on job creation makes as much sense as selecting a doctor based on palm reading.
Indeed, Samuelson is right – the President can influence events in the economy, but the economy isn’t some machine that needs a driver to steer it, it’s an organic and adaptive system that is constantly changing to millions of independent stimuli. The President can aid job growth, but he can’t create it. It’s like trying to wish to grow taller – you can take your vitamins and exercise, but you can’t make yourself grow just through platitudes.
Samuelson continues:
Facing a weak economy, a government can do three things: cut interest rates; run a budget deficit; and allow — or cause — its currency to depreciate. The first two promote borrowing and spending; the last makes a country’s exports cheaper and its imports costlier. All these weapons have been deployed. Bush’s policies are mostly standard economics; based on past patterns, these policies should have produced stronger job growth. But private employers have resisted hiring. “Economists are scratching their heads,” says Randell Moore, editor of the monthly Blue Chip Economic Indicators, which surveys 50 economic forecasters.
Some jobs have moved abroad. Slow foreign growth and (until recently) the high dollar have hurt U.S. exports and encouraged imports. Mark Zandi of Economy.com estimates that almost 900,000 manufacturing jobs have been lost to the higher trade deficit. By contrast, he reckons that “offshoring” of service jobs — call centers, software design — has cost only about 200,000 jobs over the same period. That’s out of more than 130 million jobs. There are other theories. By one, higher fringe benefits (mainly health insurance and pension costs) have deterred companies from hiring. Although wage increases are slowing, total labor costs including fringes are actually rising. They grew 3.8 percent in 2003, up from 3.4 percent in 2002. Another theory is that employers have delayed hiring because they worry that the recovery will falter.
Samuelson has a very good point here. The President’s economic policy doesn’t have much effect on the economy (although both sides would like to say it does, for different reasons), but microeconomic factors have a great influence on job growth. The regulatory climate, the tax climate, labor costs, and other effects can alter the rate of job growth. Right now the cost of labor in the US is very high – not only in wages, but in regulatory costs, insurance, and healthcare. (With healthcare being a major expense.)
The way to increase employment isn’t by raising taxes – that would only make the situation worse. It isn’t be fostering protectionism, which would destroy the economy. The way to increase job growth is to allow the system to work for itself. That means loosening the regulatory shackles on our economy, instituting tort reform, keeping health care costs lower by fostering more free-market competition, and reforming our educational system. Of course, in all of these cases powerful union and government interests stand in the way of doing what’s right, which is why while the President cannot create jobs, he can create the environment where they can grow – which is why we simply cannot afford someone who would introduce many negative stimuli into the economy like John Kerry has already promised to do through tax cuts, protectionist trade measures, and deficit expanding social programs.
Funny thing, though, is that Mankiw doesn’t agree.
Mankiw notes that, when taxes are cut or deficits are run, consumers tend to increase savings and decrease consumption in anticipation of future fiscal problems brought by current conditions. If business behave the same way (and there is little to suggest otherwise) then the expected increase in investment that accompanies tax cuts could be offset at least in part by fear on the part of investors and administrators.
I’ll either have to find my notes on Mankiw from way back when or my purloined copy of Principles of Economics for a citation, but iff anyone else has a copy….
There been very little evidence to support Mankiw’s theory over time – the fact is that most consumers don’t think that far ahead – and consumer spending has been up for months now to prove it. The 1960’s tax cuts led to increased revenue, as did Reagan’s tax cuts, and the more recent Bush tax cuts.
The central idea is that businesses are somehow paying attention to larger macroeconomic trends, which in all of my years working with small businesses, I’ve never seen. Most business owners are aware of things like the national debt, but it doesn’t effect them personally, and it isn’t a consideration in their daily lives.