Thursday, September 30, 2010
Job Creation is a Function of the Private Sector, Not the Government
The woeful state of the US economy (particularly unemployment) will have a huge impact on November's mid-term election. Elections are won and lost over the state of the economy. Remember the famous 1992 Clinton campaign slogan, "It's the economy, stupid?"
However, the nation's dire unemployment problem has spurred a strange political response from the GOP, which is blaming it all on President Obama. After the $787 billion stimulus program, the Republicans are asking, Where are all the jobs?
That because Christina Romer, head of the White House Council of Economic Advisors, claimed that the stimulus would keep unemployment at 8%.
Swing and a strike.
But it is very curious that the GOP is calling on — even expecting — the government to create jobs. It flies in the face of their core belief that government is the problem and should get out of the way. Republicans have always espoused the notion that job creation is best left to the private sector. And rightfully so.
After all, with more than two million civilian employees, the Federal Government, excluding the Postal Service, is the nation's largest employer, according to the Bureau of Labor Statistics.
That surely isn't something the Republicans endorse. No one should. It's a drain on the private sector, meaning the productive economy.
The hard truth is that there's little Washington can do to spur the creation of permanent jobs.
Aside from additional stimulus spending for our nation's crumbling infrastructure (an option Republicans strongly oppose), which would create temporary construction jobs, the government can only affect the unemployment problem by hiring even more federal employees to its already bloated roster.
Hiring more federal employees clearly isn't the solution. The federal government could also increase its purchase of goods and services, but it is already running unsustainable deficits. And once again, that is supposed to be the function of the private sector in a capitalist economy.
The great American job-creation machine always has been, and will continue to be, a private enterprise. As it should be. The Republicans surely know this. It has always been their mantra.
Ultimately, what creates jobs? Profits. The government does not create jobs. And neither does the Fed. Profitable companies create jobs and expand their capacity to hire more workers when they are optimistic about the outlook for profits.
But, right now, employers are not feeling particularly optimistic. And that is why private sector hiring is occurring at a glacial pace.
Another unfortunate reality is that job creation has been slowing for decades.
According to the Economic Cycle Research Institute, during periods of American economic expansion in the 1950s, ’60s and ’70s, the number of private-sector jobs increased about 3.5 percent a year. But during expansions in the 1980s and ’90s, jobs grew just 2.4 percent annually. And during the last decade, job growth fell to 0.9 percent annually.
So, we are in the midst of a rather ugly trend.
Nearly 15 million Americans are presently unemployed. According to economist John Williams, when part-time workers who want full-time work are added to the number of unemployed, the under-employment rate reaches 22%. Millions of those jobs are never coming back. They are outmoded and have been permanently outsourced.
Sadly, we are years — perhaps a decade or more — away from what was previously perceived as normal or acceptable unemployment.
The government may view a 5% unemployment rate as "full employment," but short of hiring 15 million Americans in an FDR-like Works Progress Administration program, there is not much the government can do about the unemployment problem.
However, Republicans have spent the last 75 years criticizing, discrediting, and trying to dismantle FDR's New Deal. Yet, what they won't admit is that they have no plan of their own, no alternative.
There is nothing they can do about unemployment either — other than blame it on Obama.