Jobs! Jobs! Jobs!

If I asked you the question, “How can the government create jobs?”, what would you answer?  It’s an important question.  More and more people are out of work. Many have given up looking for work.  Many others have taken jobs that are completely out of their fields in an effort to keep food on the table and not rely on government hand-outs.  This question of how the government creates jobs is pivotal in the coming elections this November.  Each candidate says they have the key.  The question is, do they really?

In order to figure out what the key is, we need to ask a simple question:  What would the conditions for maximum employment look like and how do they differ from today?  To answer this question, we need to come up with a baseline scenario – a ‘test-world’, if you please, to experiment on:

1.       In our world, the people need the products and services that the companies (small businesses, large businesses, self-employed people, farmers, ranchers, factories, bakeries, retail sales, etc) produce.

2.       There is zero influence coming from outside of the company by any governmental agency.  In other words, the only influencers of the company’s products and services are from its own internal governance and from the people who purchase the product or service.  This means no regulations, no taxes, no OSHA, no EPA, no working conditions requirements, no healthcare mandates – the only outside influence or impact on the company is the customer.  The company produces the products/services and the people either buy or don’t buy the product.

3.       Companies hire people based on the need of the company to produce the goods or services.  In our perfect scenario, they hire good people with the appropriate skills and abilities, and pay them fair wages to make sure they keep those good people.

4.       A company that does not pay a fair wage or treat its workers well will lose its workers to other companies that do.

5.       If a company produces a product or service that isn’t needed, they will either go out of business or have to change their product or service into something that is needed.

6.       If the companies want their product or service to sell, the people need to have enough money to buy the product or service.  Competition between companies and demand for the best people leads to good salaries.  This leads to people buying more products and services, thereby driving the output of companies to whatever level the economy will sustain.

7.       None of the money that the company makes is sent to any government agency.  No lawyers are needed to deal with regulations, rules or mandates.  Lawsuits related to product issues are strictly handled between the customer and the company through the court system.  No government interference or fines.

In this world, driven completely and totally by demand and supply (of products and people), we can imagine pretty close to maximum employment.  Companies have only a single goal that they need to deal with:  getting more customers with their products.  This is the basis of a capitalist system.  I either need a product or want a product or am convinced by someone that I need/want a product, and someone produces this product for me and I pay them for it.  As any kid who has mowed lawns in the summer can attest, the system works pretty well.  My neighbors have yards.  I have a mower.  I want money.  They want their grass cut.  I undercut the competition or offer some other incentive for them to use me to cut their grass.  I trade my time and effort and resources (my lawnmower and gasoline) so that I have money to spend for the products and services that I want.  If I do a good job, money continues to come my way and life is good.  If I do a bad job, my competition will take over for me and get the money.  It’s simple and it neatly falls into the description above.

So let’s take my example lawn service and play with it a bit.  Let’s call it “Doug’s Lawn Care”.  I start out with a single employee:  myself.  Let’s say that I can comfortably mow 3 or 4 lawns per day by myself.  I’m charging a fair price and providing a good service.  Let’s say that I’m charging $20 per lawn.  People really like how I mow their lawns.  They tell their friends and pretty soon, I’m completely maxed out on lawns.  I’m now mowing 4 lawns per day, 7 days per week.  I really don’t want to mow any more lawns since I want to have time to spend with my friends and enjoy the money I’ve made.  However, demand for my services is so high, I hire a friend to help me.  This friend and I agree about how much we will each get along with a small amount of each lawn charge going into a savings account that we can use for growing the business (advertising, parts for the mowers or new mowers, and that kind of thing), and our goal is to double the number of lawns we cut, since there are now two of us.

This works well.  Now, instead of 28 lawns per week, we are able to cut 54 lawns per week and still be able to enjoy life.  Things are great!  Pretty soon, we are able to hire more friends and we are now mowing nearly every lawn in the neighborhood.  We have achieved maximum employment!  There are no more lawns to be mowed (demand) and we have exactly enough people to mow them all (supply) and our cost of doing business (maintaining the mowers) is managed by the money we put aside.

At this point, the neighborhood association comes to Doug’s Lawn Care and says, “We don’t like the fact that you’re using gasoline powered lawn mowers.  It’s too noisy and the smell makes us sneeze.  Also, the planet gets sick when you use gasoline.  To cut the grass in our neighborhoods, you must use these special electric mowers that cost 5 times as much but are environmentally friendly.”

Whoa.  Now we have to buy a bunch of expensive electric lawn mowers and extension cords?   The electric mowers don’t last as long, are more expensive to maintain and have to be replaced regularly.  The electric mowers are smaller and much harder to use, so we won’t be able to cut as many lawns anywhere near as fast.  Our savings money isn’t anywhere near enough to deal with these new costs.  These regulations and ‘taxes’ reduce the ‘pool’ of money that we have.  To meet the new requirements, we will either all have to take a pay cut to pay for the new equipment or we’ll have to reduce the number of people cutting lawns.  Nobody wants to take less money, so the only way to deal with this is to reduce the number of people cutting yards and/or increase the cost of the yards we cut, but still cut the same number of yards.  We can’t get more yards, since we already have all of the yards.  Hiring more people in other neighborhoods to cut more yards isn’t possible, since we already don’t have enough money to cut the yards we have. 

Pretty soon, to meet the requirements, I’ve reduced my staff by half, raised the price of a yard to $30 and we’re each cutting 8 yards per day and it’s taking a lot longer per yard.  Nobody but the Association is happy.  The workers hate the longer hours and less play-time, the laid-off workers are unhappy since they don’t have any money and the homeowners don’t like the higher cost and their electric bills are going up.  Some of them begin to cancel their contracts with Doug leading to even more layoffs and fewer yards mowed.

The neighborhood association gets together and says, “We know what the problem is!  Doug’s company is greedy and they don’t hire enough people.  We want them to hire more people.  We need to figure out how we can stimulate the number of jobs that Doug’s Lawn Care provides.”  They come up with all kinds of answers:

1.       We’ll ask each homeowner to give us some money and we’ll ask Doug’s Lawn Care to give us some money that we can give to a bank, so that Doug can go borrow the money to pay for the new employees.

2.       We’ll ask each homeowner to give us some money and we’ll ask Doug’s Lawn Care to give us some money that we can give to a bank, so that Doug can go borrow the money to pay for the new lawnmowers.

3.       We’ll ask each homeowner to give us some money and we’ll ask Doug’s Lawn Care to give us some money so that we can create a fund that is managed by the association that can be loaned out to Doug so that he can pay for new employees.  Of course, some of that money has to be paid to the managers of the fund.

4.       We’ll ask each homeowner to give us some money and we’ll ask Doug’s Lawn Care to give us some money so that we can pay the difference in cost between the original $20 and the new $30 lawn fee so that everyone’s lawn looks nice and nobody has to go without lawn service.

5.       We’ll make rules that all lawn mowers must be union workers so that Doug can’t lay them off and so the amount of money they make can’t be reduced and so the amount of work they do is not too high.  Doug will have to make homeowners pay more.  As more homeowners cancel their service, Doug will have to raise the price on the other homeowners to keep paying the people he can’t afford to keep.

6.       Oh.  I guess one other option might be that we could eliminate the electric mower requirement, there-by reducing the cost of doing business, but this makes us sneeze and polar bears are drowning!

Of course, all of the options they come up with, with the exception of the last one, require the homeowner to pay.  The difference is that the homeowner can decide he doesn’t want to pay Doug and he can cut his own grass.  However, they can’t decide to not pay the homeowner’s association!  They break kneecaps!  Ultimately, Doug goes out of business and files bankruptcy since he can’t pay the loans off that were given to him to keep him afloat.

I think you can see the point I’m trying to make:  the ONLY reason government can improve on the jobs numbers is because the government is the one that limited the jobs in the first place.

During this economic downturn, the response of our elected officials is that there must not be enough regulations, taxes, fees and such on the corporations and job creators.  Therefore, the fix to the problem is to tax and regulate everyone more (especially those companies and small businesses that won’t/can’t hire) so that the money can be given or loaned to ‘stimulate’ hiring.  In what world is this sane?

Ironically, the politicians are at least partly right:  Government does have a role to play in creating jobs (or perhaps more accurately, in RE-creating jobs), but only in-as-far as they created the loss of jobs in the first place.  Unfortunately, like our fictitious homeowners association, they keep coming up with the wrong answer.  Thinking that you can increase the cost of doing business and that somehow that will ‘punish’ or push companies into doing more hiring is not just wrong-headed – it’s stupid.

The answer to the jobs problem is simple and it involves several approaches:

1.       Reduce the burden on the company.  This means fewer regulations, lower fees, less taxes

2.       Reduce the burden on the customers.  This means reducing taxes on the people who would buy the products and services and reducing government interference in the market overall.

3.       Create a stable environment for business.  This means adopting a pro-business attitude in all aspects of government oversight.  It means not demonizing corporate profits, which ultimately are the main reason a company is in business!  Ideally, most business regulations would roll over to the states.  Most issues can be dealt with at the state level without federal interference.

Politicians like to make us think that what they do is way above us mere mortals; that we just don’t understand the issues or the complexities.  I think they are at least partially right, in that I really do NOT understand the politician’s response to most things.  However, just because I can’t understand their moronic ideas doesn’t mean I don’t understand the issue or how it can and should be handled.   If you think about it, it really is simple:  If the number of jobs is reduced because government has imposed costs and restrictions on companies, then the only way to improve the jobs numbers in any meaningful way is to get government out of the way.  Unfortunately, since doing this does not benefit government, it’s likely to be an up-hill battle.  It requires them to reverse the things they did to limit the jobs in the first place and accept responsibility for screwing things up initially.

One last thing:  I have heard several democrats make the same idiotic charge lately:  Reducing taxes on corporations will reduce the money coming into the government thereby imperiling social programs and other vital needs.  Why do we accept such drivel?  If we accept for a moment that all of those social programs are actually needed (and I don’t), then think it through:  If we reduce the cost and difficulty of doing business, then business will grow.  When business grows, people are hired.  When people are hired, consumerism/demand increases.  When consumerism/demand increases, companies have to produce more.  When companies produce more, they have to hire more people.  Voila! It’s the great circle of prosperity.  Everyone, including government, benefits, because:

-          People are hired – they pay taxes

-          People have money to buy things.  The things they buy are taxed at every point from raw materials through point-of-sale.  More things made and sold = more taxes paid

-          Companies produce products and services – they pay more taxes and hire more people

-          More people hired, better pay for work =more taxes

Finally, I can hear some of you screaming at your monitors: “We don’t want the government to get all that money!  You’re playing into their game!”  Trust me:  I believe we are ALL over-taxed.  We need a fair tax system (as in everyone pays – even the poor.  We all need some skin in the game and an understanding of what government costs us).  In my ideal world, it would be a flat rate tax established in the constitution and only changeable by a constitutional amendment, with zero deductions.  In my less than humble opinion, it is NOT the job of government to incentivize or penalize any person’s legal behaviors.  But this is a discussion for another day.