Five Short Economics Lessons For the Age of Obama

John Hawkins
Friday, December 12, 2008

"If all we want are jobs, we can create any number -- for example, have people dig holes and then fill them up again, or perform other useless tasks. Work is sometimes its own reward. Mostly, however, it is the price we pay to get the things we want. Our real objective is not just jobs but productive jobs -- jobs that will mean more goods and services to consume." -- Milton Friedman

Barack Obama and the Democratic Party seem to have fallen in love with the idea of "make work" jobs. In other words, they're going to take money from taxpayers and then use it to "create green jobs," work projects, and other marginally useful government programs. Then, to add insult to injury, these very same politicians who've taken the money out of working people's pockets will pat themselves on their backs for being compassionate enough to put people to work.

What shouldn't be missed is the other side of the equation: much of the money paid in taxes to the government would otherwise be spent, thereby creating jobs. Furthermore, since the government is less efficient than private industry and because in most cases, people are better able to fill their own needs with their own money than the government can, the "make work" job process is inherently inefficient.

That's why one of the worst things the government can do, particularly in a recession, is to try to create "jobs programs."

"Were we directed from Washington when to sow, and when to reap, we should soon want bread." -- Thomas Jefferson

The federal government is inevitably slower, dumber, and less competent than private industry. Moreover, just about every truly catastrophic economic event that has occurred in the last century -- from the depression to the savings and loan crisis to the current housing crisis -- all have at their root government intervention in the market.

That's why the partial nationalization of this country's banks and auto industry should absolutely terrify people. There is absolutely nothing that should make anyone think that an "auto czar" or some other bureaucratic flunky who's answerable to Congress would do anything to help make these businesses more viable over the long-term. It's quite the opposite, actually.

Over the long haul, the more intimately our government is involved in the market, the more damage it will do to our economy.

"Suppose I hire you to repair my computer. The job is worth $200 to me and doing the job is worth $200 to you. The transaction will occur because we have a meeting of the mind. Now suppose there's the imposition of a 30 percent income tax on you. That means you won't receive $200 but instead $140. You might say the heck with working for me -- spending the day with your family is worth more than $140. You might then offer that you'll do the job if I pay you $285. That way your after-tax earnings will be $200 -- what the job was worth to you. There's a problem. The repair job was worth $200 to me, not $285. So it's my turn to say the heck with it. This simple example demonstrates that one effect of taxes is that of eliminating transactions, and hence jobs." -- Walter Williams

The Democrats' answer to every problem is "raise taxes" and now that they have a large majority in D.C., they will get to do exactly that over the next few years.

However, the more you raise taxes, the more economic activity is retarded, and the more the economy slows. We cannot massively expand the size of the federal government and erase the deficit almost entirely on the backs of the rich without dramatically slowing down the growth of our economy over the long term.

Since the current and future prosperity of this country hinges on the economy continuing to grow, we need to do everything we can to keep taxes as low as possible for everyone -- poor, rich, and middle-class.

"We don't have a trillion-dollar debt because we haven't taxed enough; we have a trillion-dollar debt because we spend too much." -- Ronald Reagan

It's ironic that Reagan mentioned a "trillion-dollar debt" in that quote because we've thrown away far more than that on the bailout so far and are on pace to run trillion dollar deficits over the next few years.

We are selling our children into slavery via debt -- to give seniors more comfortable retirements, to hand out goodies to interest groups, and to bail out failing companies.

Worse yet, the majority of our political class in D.C. doesn't seem to care that we're selling our nation's economic birthright for a bowl of porridge.

"It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy...What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage." -- Adam Smith

Because our tax rates are creeping ever higher and the number of regulations on businesses is continuing to expand, American companies are become less competitive with our overseas rivals in an increasingly global world.

There's a right way and a wrong way to handle this.

The right way is to cut taxes, decrease regulations, and work to open up more foreign markets to our goods. This would help keep goods here cheap, help American businesses become more competitive, and help spur job growth.

The wrong way to deal with this problem would be to increase the cost of foreign goods through trade barriers in order to keep them uncompetitive with American products. That would make goods we buy more expensive, make it more difficult for American companies to compete globally, and slow job growth.

For the United States to remain an economic super power, we need to have competitive businesses that employ productive workers. The American people have proven up to the task for over 200 years and will remain so as long as the government doesn't get in our way.