What Creates Jobs

I took a camera to Times Square this week and asked people, “What creates jobs?” Most had no answer.

I suppose it’s natural that people think government creates jobs because politicians always say that.

“We’ve now created more than 10 million,” said President Obama. But that just meant that he took office at the start of the recession, and finally job creation resumed.

He didn’t cause that. In fact, his taxes and complex regulation slowed job creation.

His 2012 presidential election rival, Mitt Romney, was a little more free-market-oriented, but he sounded like Obama when he talked about jobs. He had “a plan” to add 12 million. Don’t assume his plan was just to get government out of the way of the private sector -- Romney said it’s a bad idea to cut government spending during a recession.

FDR’s New Deal was the dawn of belief that jobs flow from government. FDR didn’t seem to care whether jobs people did were productive or sustainable. He just wanted something done about the “armies” of unemployed. If they weren’t given jobs, they might become a real army and revolt.

Now that government has lots of power, people look to it to create jobs. Communist countries had five-year plans. They didn’t work.

That’s because jobs come from government getting out of the way and letting employers produce goods.

Every new layer of regulations sounds nice -- protecting the environment, providing more health care, forbidding discrimination against disabled people -- but most rules do more harm than good.

Humans have needs and desires. Entrepreneurs see those needs as opportunity. They hire people not out of generosity or because government told them to -- but because it’s profitable to employ people if they produce valuable goods.

If it’s not profitable, that means those people would be better employed doing something else. The prices customers are willing to pay and the wages workers accept are the best indication of which jobs can be done profitably and therefore ought to be done.

But politicians don’t trust business owners to make those decisions. Some also resent it if entrepreneurs succeed without kissing the politicians’ ring.

President Obama famously said, “If you’ve got a business, you didn’t build that. Somebody else made that happen.”

I’d think Hillary Clinton would have learned from the outcry that followed, but no -- she then said, “Don’t let anybody tell you that it’s corporations and businesses that create jobs! That old theory, trickle-down economics, has been tried. That has failed.”

But it hasn’t failed. Free markets lifted a billion people out of poverty during Hillary’s career. She just won’t acknowledge it. Lawyer-politicians aren’t comfortable with creative destruction they don’t control. They prefer central planning.

That’s why Hillary also said, “I voted to raise the minimum wage. And guess what? Millions of jobs were created.”

This, too, is absurd. Politicians act as if they can wave a magic wand and grant everyone more money. But minimum wage laws don’t create jobs. They just make lower-paying jobs illegal. Some of those jobs go away. That’s basic economics.

The effect on the economy is small because 95 percent of American workers earn more than the minimum. But the more employers are forced to pay, the fewer people they’ll hire. McDonald’s responded to recent demands for higher wages by making plans to replace cashiers with automated services. Once more, political “solutions” create new problems.

People need jobs, and millions find dignity in work, but not from jobs that others are forced to provide. People want to be genuinely useful. They don’t just want to go through the motions.

More and more, Americans want jobs that have meaning and “purpose,” says John Havens, author of “Hacking Happiness.” “Purpose” usually means creating actual wealth.

Governments talk about five-year plans and false guarantees of stability, but truly futuristic thinking happens when governments leave people free to explore, innovate and profit. If the politicians don’t screw that up, that process will create jobs we haven’t even imagined yet.

Job creation the old way:

An entrepreneur has an idea. Raises capital, produces a product with parts and materials made in the USA. Product sells, he begins hiring local people in the community to produce more. As he sells more units, he builds a factory employing more people for production, sales, marketing, accounting. His American suppliers see an uptick in business from supplying this small growing company and begin hiring more employees to meet the demand. The local community benefits from the growth of the company and the nation benefits as a national supply network feeds the American factories producing the product.

Then come the 1990’s and job destruction. A multinational corporation buys the entrepreneur’s company. The local headquarters is shut down and the employees are “downsized” as the operations are integrated into the corporate structure in another community. Finance people determine the product can be made for less in third world countries where labor rates are low, there are no unions, there is little government regulation, and there are no environmental restrictions. Plus the foreign governments will provide funding to local entrepreneurs to build a new factory as well as export incentives to lower costs. The multinational won’t even have to invest capital in the production process. The multinational spreads money around Congress resulting in “free trade” bills being passed which eliminate import tariffs and quotas. The multinational closes down its US factories resulting in the loss of jobs, loss of tax revenue, and blight from abandoned factories. US citizens go on welfare or resort to crime. Communities deteriorate. The economies in the third world countries where production is no located prosper.

Job creation today. American entrepreneur dreams up idea for new product. She purchases foreign parts on the internet to build a prototype. Once the prototype is proven she raises capital and contracts production to an overseas factory. She imports a few containers of product from the offshore supplier, is successful selling the new product and then sells the concept to a multinational corporation. No local jobs are created. The multinational plugs the new product line into its infrastructure requiring few new jobs to be created because the multinational uses its existing sales people, existing purchasing people, existing distribution centers, and existing offshore production facilities.

Under the current mega multinational model, there is no need for new companies to form creating hundreds and thousands of new jobs. Any new jobs formed will be production jobs in another country.

We chose to stop enforcing anti trust laws allowing the creation of huge corporations with tremendous wealth and through that wealth buy our politicians. Doing the bidding of their corporate masters, the politicians negotiated free trade deals eliminating tariffs and quotas. The multinationals quickly dismantled US manufacturing sending millions of jobs overseas permanently.

Without a healthy manufacturing sector there will not be enough jobs to employ the population. There will not be upward mobility for the poor unskilled laborer. There will not be a middle class. Ultimately the entrepreneurial spirit will die as well.

Solution - return to the tariff structure that allowed the US to industrialize in the 1800’s and its manufacturing economy prosper until the 1990’s. Use anti trust law to break up the “too big to fail” banks and the multinational corporations controlling our economy and our political process. Consider the US economy grew and prospered once the oil, steel, and other monopolies were broken up in the early 1900’s. When organizations become too large, whether government or private, they limit freedom.

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