Why the President’s Jobs Plan Won’t Create Jobs
An interview with Cato’s Daniel Mitchell: Why he’ll argue against the motion, “Congress should pass Obama’s jobs plan – piece by piece,” at the Oct. 25 Slate/Intelligence Squared U.S. debate.
Slate: What do you think is most commonly misunderstood about the Jobs Act among average Americans?
DM: The average person in the country probably has several misperceptions about what the president is proposing. Not because ordinary people are stupid, but rather because they make rational choices to spend their time focusing on things such as work, family, and community. I wouldn’t be surprised to learn, for instance, that conservatives automatically assume that the president’s plan is nothing but new spending. Heck, some of them may think it is nothing but new income-redistribution outlays. The folks on the left, by contrast, are probably more likely to make conceptual errors, such as failing to realize that government can’t spend a dollar with first taking that dollar out of the economy by taxing or borrowing.
Slate: You've spoken, and written, a lot about the dangerous reliance the Jobs Act has on Keynesian economics. Why is Keynesian spending so deadly?
DM: Keynesianism is the economic version of a perpetual motion machine. It assumes you can take money out of the economy’s left pocket, put it in the economy’s right pocket (probably spilling a lot of it in the process), and somehow be richer as a result. A major problem with the theory is that supporters focus on how an economy’s output is allocated. Is it better for more of the economy’s output to be used for consumption? Or for investment? Or, as Keynesians often argue, should more of our output be used for government spending? But economic growth isn’t boosted by redistributing how gross domestic product is allocated. Economic growth happens when we get more gross domestic product. That is why policies that focus on incentives and disincentives are more likely to generate positive results.
Slate: Is there anyone else right now—in either party—who you think has a good jobs creation plan? Or have you heard about any bills or proposals that might be in the works?
DM: This may be a good opportunity to say that there is no difference between good short-run policy and good long-run policy. Moreover, policies that are good for growth are the same as policies that are good for job creation. With this in mind, lawmakers should focus on the policies that will make it easier for people to work, save, invest, and be entrepreneurial. But not by giving them handouts, subsidies and special favors. They way to generate growth is by removing government-imposed impediments.
This is why tax reform, such as a flat tax, would be so helpful for job creation and competitiveness. But interim measures also would help, such as lowering the corporate tax rate (especially since the U.S. is tied with Japan for the highest corporate tax burden in the industrialized world). Implementing policies to restrain the burden of government spending also would be critically important. On the macro level, some sort of cap on government spending would help, such as the plans proposed by Sen. Corker of Tennessee and Rep. Brady of Texas. On the micro level, it’s important to figure out the programs, agencies, and departments that should be mothballed, both because they are not appropriate functions of the federal government and because they hinder prosperity.