The Make Work Stimulus

Ceiling Hassan II Mosque Casablanca - photo by JoAnn Sturman

Scott Sturman
fliesinyoureyes.com

In a bureaucratic system, useless work drives out useful work.
Milton Friedman -- US economist (1912 - 2006)


Now with the unemployment rate over 10%, the administration has reversed course and determined this problem is first priority. For the past few weeks the President has used the word “jobs” almost as much as his favorite pronoun “I.” The unemployment rate is the report card of the administration. Failing grades mean failure at the ballot box, so an artificially inflated grade is acceptable, if it perceived favorably by the public.

The quality of the job is no less important than the quantity. In the former Soviet Union unemployment statistics were not published, since the government declared unemployment was abolished in the 1930's. There was a substantial price for 100% employment and a centrally directed economy: rationing, poor quality consumer goods, poverty, alcoholism, and life expectancy similar to the third world.

In the private sector an employer does not create a job for the sake of the job. A job is only useful if it enhances the productivity of the company – its creation produces a benefit in terms of efficiency and profitability. The converse holds, as well. It is preferable not to increase employment if that act is detrimental to organization's financial health. If employees do not perform adequately, the organization's well being is improved by terminating their services.

The government is under no such restraint. Since profitability is not a consideration and efficiencies are defined by bureaucratic standards, there is no limit to the amount of jobs which can be added in this sector. All that is needed is a willing President and obliging Congress to keep the programs funded. Overall performance is eroded by inflexible regulations and rules which make it exceedingly difficult to fire marginal workers. This system fosters powerful employee unions whose expectations may not be congruent with the best interests of the country. Government employees are a reliable reservoir of political support who can be counted on at the ballot box. (See “Power Steering” http://flies-perspicuity.blogspot.com/2010/02/power-steering.html)

When I was in the Air Force, my friends and I used to joke about the “diggers and the fillers.” One morning a hole would be dug in the ground for no apparent reason only to be filled later that week by another crew for equally curious reasons. Jobs do keep people busy and mollify the unrest associated with idle citizens. The foremost proponent of deficit financing, John Maynard Keynes, extolled this employment option under certain circumstances. Eventually, these types of “make work” jobs lead to the Sovietization of the labor force – 100% employment rates with a surfeit of meaningless jobs.

There are strings attached to the jobs stimulus package. All the “grants” are determined by politicians and bureaucrats, few of whom have run successful businesses or understand the complexities of the problem. They cannot resist the opportunity to dole out tax revenues or borrowed money in order to get something in return. When one reads the headlines of the Fresno Bee, our local newspaper, the announcement of these entitlements is stated in such a way as to make one think it is manna from heaven. If one accepted the report at face value, it would be easy to think, “How did our city get so lucky? Our President really care about us.” Over a period of time this redistribution of assets leads to gross inefficiencies in the economy and encourages corruption as billions of dollars are wasted. This manner of allocating resources is slow and does not create the type of jobs which over the long run are sustainable and add wealth to the economy.

Over the past year the administration bungled the chance to blunt the employment crisis quickly when it all but ignored the private sector. One has to wonder why small businesses which employ most Americans were treated as a distasteful afterthought. No stimulus money was necessary. No government committees or czars were required to decide how much, when, and to whom the stimulus money should be paid.

I recently interviewed a number of successful small business men and women all of whom offered the following solutions to the unemployment crisis:

1. Reduce the employers' tax to provide a broad based, immediate solution at the grassroots level.
2. Provide tax credits to businesses that increase employment. The administration's current proposal is paltry and will do nothing to spur employment.
3. Reinstitution of tax credits for research and development. Innovation is crucial to the formation of high value jobs, and without it business performance languishes.
4. Capital gains tax relief. A comparison to world-wide capital gains rates can be found at: http://en.wikipedia.org/wiki/Capital_gains_tax
5. Implement aggressive depreciation schedules, so losses can be amortized in the first year rather than the current seven year period
6. Complete revamping of the small business loan program which is so cumbersome that it is the loan of last resort
7. Tort reform not only applies to the medical industry but to small businesses as well. The threat of unchecked litigation drives up costs and negatively impacts employment rates.
8. Reduction of health insurance costs. (See “Health Care Made Simple” http://flies-perspicuity.blogspot.com/2010/02/healthcare-made-simple-part-3.html
9. Scrapping oppressive, illogical rules and documentation requirements that “look good on paper,” but serve only to drive up businesses costs, provide jobs for bureaucrats enforcing them, and give politicians the impression they can micro manage every aspect of the business climate.

As a practical matter, these changes need to be implemented expeditiously and continued over a long term business cycle, so business people can function without the uncertainty of these programs abruptly being discontinued. Some of the solutions offer businesses instantaneous advantages while others are mandatory for long term economic health, but in both cases a template is constructed which enhances the formation of worthwhile jobs provided by men and women who know their organizations and the bottom line better than anyone else. But this, of course, is not what government control is all about.