Reason TV: So where are the jobs?
posted at 1:33 pm on October 29, 2010 by Ed Morrissey
That’s the question at the forefront of the midterm elections, of course, and Democrats have no answers. Reason TV has an explanation for why the private sector has not begun to create jobs on a meaningful scale while generational highs in unemployment persist: uncertainty. Ted Balaker takes a look at the depressing effect (in more than one sense) of an administration and Congress running amuck with regulatory expansion. Businesses cannot possibly plan for the future, and instead have decided to hunker down with their capital — and that’s very reminiscent of the last catastrophic economic period in American history.
Today many Americans credit FDR with rescuing our nation from the Great Depression, but there’s plenty wrong with that view, says Lee Ohanian, a UCLA economics professor who specializes in economic crisis. “What’s wrong with that view is that private-sector job growth did not come back under Roosevelt,” says Ohanian, who notes that Americans often forget how long the Great Depression lasted. Unemployment stood at 17 percent in 1939, a decade after the infamous stock market crash, and, although times were much worse back then, Ohanian sees troubling parallels between the Great Depression and the Great Recession. In both instances our nation emerged from a severe downturn with strong productivity growth and the banking system largely restored. “So the key puzzle for both today and the 1930s is why aren’t private-sector jobs being created at a much more rapid rate?”
Uncertainty may have something to do with it. “Uncertainty is an enemy of job creation,” says Ohanian, “Because in a world with a lot of uncertainty there’s a tendency to ‘wait and see.'” Our nation’s job creators wait and see what Washington’s next experiment will be.
CEO Joanne Garneau has spent a year waiting for the Federal Trade Commission to announce a new regulation that will determine whether her company hires more employees or even stays in business. It’s just one regulation, a tiny one by Washington standards. How will businesses end up being affected by ObamaCare or the 2,300-page financial overhaul? What if taxes go up? Today, like the 1930s, uncertainty reigns.
According to research conducted by Ohanian and fellow UCLA economist Harold L. Cole, FDR’s anti-market policies actually prolonged the Great Depression by seven years. And what about Obama’s policies? When the unemployment rate finally does improve will he receive credit for rescuing America from the Great Recession or blame for prolonging the crisis?
The problem in this case is twofold. First, rather than incentivizing capital investment in the broad market by lowering tax rates, the Obama administration has signaled just the opposite by keeping the tax hikes due at the end of the year on the table ever since taking office. If capital investment will carry added risk and income will carry higher penalties, the smart option is to shelter capital until a more attractive environment arrives. At the same time, the uncertainty in regulatory expansion means that businesses can’t even conduct a rational cost-benefit analysis on expansion, which essentially puts off those decisions entirely.
The jobs will not return until regulatory uncertainty vanishes and the tax regime is changed to encourage investment. It doesn’t get any more clear than that.