Tuesday, July 20, 2010

Where Did All The Jobs Go?

The NYTimes was recently holding forth on the "missing jobs" that are no longer in the economy.  Glenn Reynolds links to a few reasonable explanations.

The best explanation is that governments do not run economies efficiently.  Government policies distort the economy.  Sometimes those distortions work out well. [Think EPA air and water pollution regulations.]  Sometimes they do not. [The Depression Era restrictions on working hours in the National Recovery Act come to mind.]

We have had a bit of both recently.  The 2009 stimulus bill included up to $8,000 for new, first time home owners.  The purpose of that money was to help sop up the newly created surplus in homes created by the housing bubble.

Quite frankly, I thought this was one of the few occasions of masterful law-making by Mr. Obama.  New home owners buy a lot of things; lawn mowers, refrigerators, stoves, washers, dryers, etc.  Getting those homes out of the market helped slow the fall in home prices while at the same time created demand for other goods.

Another example of positive legislation is the spending of money on road projects.  If we are going to throw money at the labor market, we may as well do so in a way that results in real improvements to our infrastructure.

A negative example would be the "cash for clunkers" program that took a lot of very serviceable vehicles off the market and then junked their motors.  Essentially, it was a subsidy for people with enough money to be able to confidently afford a new car purchase.  Their used cars might have served as good upgrades for second tier car owners that cannot afford to buy a new car.  [Like me!!]

So where did the jobs go?  Health Care Reform and Banking Reform.

Those two laws have created a great amount of uncertainty among employers.  They simply do not know how much these laws are going to cost.  We are already seeing even greater increases in health care insurance costs due to government action.  We have no idea how much the banking reforms are going to cost our banks....and in turn cost us.

I talk to business owners and managers everyday as a part of my usual employment.  Whenever the subject of the economy comes up....and it does....the insecurity of the current regulatory and tax environment is almost always identified as being the prime cause for companies to not hire new workers.  I have had business owners tell me that they have more work to be done, but they won't hire any new workers because they don't know how much it is going to cost in the long run to hire them.

Governments don't run economies.  They ruin them.  It is a hard lesson that we are going to have to re-learn.

Unfortunately.

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