When President Barack Obama was sworn into office, the U.S. economy employed 134.6 million people and the unemployment rate stood at 7.6%. In response to growing job losses, President Obama passed an $862 billion stimulus plan that his economic experts promised would help the United States employ at least 138.6 million people by 2010. Reality has not been kind to President Obama’s hope. Today, the Bureau of Labor and Statistics released its monthly jobs report showing the U.S. economy shed another net 20,000 jobs, leaving only 129.5 million jobs, almost 10 million short of the President’s promises.
Anticipating this bleak job news, the President announced in his State of the Union address last week: “That is why jobs must be our number one focus in 2010, and that is why I am calling for a new jobs bill tonight.” It is understandable why the President wants to call this new legislation a “jobs bill” instead of what it really is: his second stimulus. But that would mean admitting that his first stimulus completely failed, which both the objective evidence and the opinion of the American people show it has.
And why did the President’s first stimulus fail? For the same reason his second stimulus is destined to fail: Only the private sector in pursuit of opportunity can create jobs on net. The best we can hope from government is that it keeps to a minimum the jobs it prevents and the income and wealth it destroys.
And the specific policies being talked about on Capitol Hill for this second round of stimulus are particularly pernicious. The $5,000 tax credit for any business that hires a new worker not only does not create any incentive for already-struggling companies to begin hiring, it could even result in some currently unemployed individuals remaining unemployed until the tax credit is passed into law, or similarly, some companies firing some workers and then re-hiring once the tax credit is passed into law.
The President’s TARP-funded government-subsidized loans for small businesses are also terrible policy. Besides the fact that unspent TARP funds ought to be used to pay down the deficit, the Small Business Administration has a terrible record of effectively allocating capital to the private sector.
There is one sector of the economy that is thriving under President Barack Obama: government. This week, the Obama administration announced that the number of government employees will grow to 2.15 million this year, topping two million for the first time since President Clinton declared that “the era of big government is over.” And today, USA Today reports “the lobbying industry is humming along in the nation’s capital” as the top 20 trade associations and companies increased their lobbying expenses by 20% in 2009. ConocoPhillips spent $18.1 million dollars lobbying Congress in 2009, up from $8.5 million the year before, while it also laid off 1,300 people.
This is a perfect example of what happens to an economy when government becomes “the focus” of job creation. Jonathan Rauch explains: “Economic thinkers have recognized for generations that every person has two ways to become wealthier. One is to produce more, the other is to capture more of what others produce. … Washington looks increasingly like a public-works jobs program for lawyers and lobbyists, a profit center for professionals who are in business for themselves.”
The real way Washington could create jobs is by getting out of the way. Fred P. Lampropoulos, founder and chief of Merit Medical Systems Inc., told the President in December that businesses were uncertain about investment because “there’s such an aggressive legislative agenda that businesspeople don’t really know what they ought to do.” That uncertainty, he added, “is really what’s holding back the jobs.”
Quick Hits:
- Stocks worldwide suffered sharp losses as the cost of insuring Greek and Portuguese sovereign debt soared.
- The House voted Thursday to allow the federal government to go $1.9 trillion deeper in debt, an increase of about $6,000 for every U. S. resident.
- The Senate health care bill would raise effective marginal tax rates on lower and middle-income singles and families up to 41%.
- Windmills installed by Minnesota cities to meet the state’s new mandated global warming renewable energy requirements are failing to provide any power thanks to the snow.
- The White House is preparing for the possibility they will have two Supreme Court vacancies to fill on news that Justices John Paul Stevens and Ruth Bader Ginsburg both may retire.
Last Friday the Bureau of Labor and Statistics released its monthly jobs report showing that the U.S. economy shed 85,000 jobs in December, but due to the fact that 661,000 individuals left the labor force, the unemployment rate stayed at 10.0%. The Obama administration again spun the report by stressing that the rate of job loss continues to decline. But as Heritage fellow James Sherk explained last year, it is not job losses but lack of job creation that is driving our double digit unemployment rate.
Unemployment is unlikely to drop significantly until entrepreneurs increase investment in their ventures. However, surveys of business owners show that they do not plan to increase hiring or investment in the near future. But as Sherk and Heritage’s Rea Hederman note in their analysis of the latest jobs report, firms still are not ready to hire:
Chart 2 shows responses from the monthly National Federation of Independent Business (NFIB) survey of small and independent business owners. It shows that business owners have put their expansion plans on hold. Only 16 percent of businesses plan to make capital investments in the next three to six months, just half the rate before the recession. Unsurprisingly, hiring has also stalled. More small business owners now plan to cut jobs than to increase them over the next three months.
As long as entrepreneurs remain skeptical about their expansion prospects, job creation will remain low and unemployment unacceptably high. The NFIB asked small business owners about the single most important problem they faced. Their three most common responses were poor sales (32 percent), taxes (24 percent), and government regulations and red tape (11 percent). While Congress can do relatively little about poor sales, it has direct control over both the tax and regulatory burden businesses face.
To encourage small business to start hiring again, Sherk and Hederman recommend:
- Pass legislation placing a moratorium on any tax increases until unemployment falls below 5 percent;
- Rescind the unspent “stimulus” spending to reduce the deficit and allay entrepreneurs’ concerns about future tax increases;
- Not vote on the financially harmful cap-and-trade or card-check proposals in this session;
- Prohibit the regulation of CO2 under the Clean Air Act, which would place another burden on small and medium-size businesses;
- Cap punitive damages, limit the ability of lawyers to file class action lawsuits, and prevent jury shopping to obtain favorable verdicts;
- Repeal Section 404 of the Sarbanes-Oxley Act;
- Reduce energy costs by reducing the regulatory burden on domestic energy production; and
- Suspend the Davis-Bacon Act until the unemployment rate falls below 5 percent, stretching federal construction funding further and enabling small construction contractors to bid on federally funded projects.