Want to Create Jobs? Don’t Pass the President’s Jobs Act.

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Oct. 21 2011 4:52 PM

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.

Daniel J. Mitchell will argue against the president's jobs bill
Daniel J. Mitchell

Photograph courtesy the Cato Institute

Daniel Mitchell was puzzled when he first heard about President Barack Obama’s decision “to double down on a failed approach and advocate more government spending” with the American Jobs Act. The Cato Institute senior fellow contends that the president’s new legislation will neither boost the economy nor create jobs. That’s 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. “For reasons we can only speculate about, the president has not relented at all in his view that Greek-style fiscal policy will help America,” Mitchell told me in an email this week. Read on for excerpts from the rest of our email conversation about Obama’s job creation propositions and what he thinks Americans don’t understand about the President’s legislation. 

Slate: As an opponent of the act, what do you propose the government do instead to help spur job creation?

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Daniel Mitchell: The folks in Washington should focus on removing government-imposed barriers to growth. Lowering tax rates and reforming the tax code would reduce penalties on productive behavior. Restraining the growth of federal spending would allow resources to remain in the private sector where they are far more likely to be used productively. A more rational approach to regulation—such as cost/benefit analysis—would lower the burden of red tape.

Slate: Of course, the American Jobs Act in its entirety died in the Senate last week. Now, the President vows he'll try to get it through the chambers piecemeal. Are there any elements of the act, you think, that will be adopted?

DM: The president’s payroll-tax holiday is something that Republicans presumably will support (although it’s unlikely to help the economy since temporary tax breaks don’t have much if any impact on long-run incentives to create jobs and expand output). It’s also possible for there to be a compromise package. Republicans in the House and Senate have various proposals for tax relief. Some of these plans are gimmicky while others are laudable, but what matters from a political perspective is that both the White House and congressional Republicans may decide at some point that it is politically useful to combine their respective plans into one big proposal. The self-styled deficit hawks would probably be upset since the “cost” of the plan would soar, but this type of agreement would sail through both the House and Senate. I hope this doesn’t happen, though, since I fear such a package would combine more spending with gimmicky tax provisions.

Slate: In a 2010 article forthe New York Post, you wrote that the key issue of jobs creation is getting companies to believe they have a reason to invest—that if they spend money and hire workers, they'll earn money. Is there any way that the current jobs act could be altered to promote or support that central idea?

DM: At the risk of being snarky, the answer is yes. Simply take the president’s proposal, remove everything after the introductory “Whereas” and replace it with a simple and fair flat tax. But let’s focus more on the premise of the question. One of the problems with Keynesian-ism is that it assumes the economy operates like some big machine and that government spending is fuel for the motor. If we want the economy to grow faster and generate more jobs, we need to realize that people respond to incentives. Companies only create jobs when they think that a new employee will generate profits. This may sound heartless to the Occupy Wall Street crowd, but employers only create jobs when they think the total revenue generated by a new worker will exceed the total cost of employing that new worker. This is why taxes and regulation can be so harmful to job creation.

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