When you say something obvious, people go, “Duh.” Here goes anyway.
Politics is about jobs. People with jobs pay their mortgages and buy things. They support families. Roosevelt in the Depression understood the importance of jobs, putting people to work, getting them off the dole. Ever since, we treat the unemployment rate as the most important measure of economic health.
Amity Shlaes, in her readable, important book The Forgotten Man, turns rightside up the conventional wisdom about the Depression. Roosevelt’s “forgotten man” was the poor guy left out when business and its business-influenced friends in government made profit-oriented decisions that put average people out of work.
Shlaes maintains over 400 pages that the chief Depression headline wasn’t that the war (wartime spending) ended it, it was instead the tragedy of the Depression lasting eleven long years. It lasted, and lasted, and lasted because Roosevelt didn’t know how to create jobs. Roosevelt’s real “forgotten man” was the person left out when A and B pass a law to help X, and their law takes resources from A, B, and (mostly) C to help X (Shlaes, p. 12). “C” is the real “forgotten man.” And forgetting C is particularly dangerous when we need “C”’s talents and capital to create jobs.
Shlaes’ thesis is that the Depression is a history of constant government interference with the private sector that left business unable to plan for and invest in the future. And of course it’s private investment that creates jobs. So of course business didn’t create the jobs it could have, and so unemployment during 1940, the Depression’s eleventh year, averaged a today-staggering level of 14.5%.
If we understand unemployment in the Depression, we will understand better what’s happening in 2010. CNBC’s Larry Kudlow notes the household survey, which captures small owner-operated business employment, dropped 300,000 following a decline the previous month. Jobs are declining at the very place we look for jobs growth. Kudlow points out that Roosevelt-type pump-priming isn’t working today. Government transfer payments don't contribute to the output of goods and services. In the last three quarters, GDP growth has averaged 3.5%, with the federal contribution just 0.2%, while state and local government’s contribution is worse—a negative 0.3%.
Businesses create investment and jobs. . . In a watershed study, former Treasury economists Gary and Aldona Robbins showed tax cuts aimed at capital and business produced the biggest economic benefits. For . . . every tax-cut dollar on capital gains, $10.61 of new GDP is created. For every dollar of accelerated business-investment tax write-offs, $9 of new GDP is created. And for every dollar of corporate tax cuts, $2.76 of new GDP is created. [This] contrasts sharply with [White House] estimates [that for] every dollar of new government spending [we generate only] $1.50 of new GDP . . . And the White House analysis looks like a stretch. The International Monetary Fund has a model that says every additional dollar of government spending creates only $0.70 of new GDP. So you have to borrow a buck to get 70 cents back[!]
“Businesses create investment and jobs.” Job creation for dummies.