The Sunday editorial page of the New York Times has an article titled “Wanted – Leadership on Jobs“. This article describes the current unemployment situation as bleak and requests “leadership” from politicians to arrest this trend. The brief editorial is nine paragraphs long; 8 of them describe the problem, and then the 9th (summary) paragraph includes their recommendations:
If successful, ambitious goals like health care reform and energy legislation may generate jobs, but officials have not persuasively linked them to job growth. Congress and the administration also have not done enough to directly create jobs. That could be done with more stimulus to spur job creation, or a large federal jobs program, or tax credits for hiring, or all three. Or surprise us. Just don’t pretend that the deteriorating jobs picture will self-correct, or act as if it is tolerable.
Often times our debate with the NY Times is presented as a left / right political view issue. However, in this case, the differences are even more profound – the NY Times simply has no idea what the problem set is, so they can’t even fathom a solution.
Job Creation
The first and most profound misunderstanding is that jobs are not “created”. They don’t come about from a fiat by government and can’t be “willed” into existence.
Jobs are a by-product of:
– Either a successful (profitable) business or a business in growth mode
– That has a need for services or labor to meet a business requirement
– That they can profitably sell to a third party, or leverage as part of a broader business venture
The issue of whether or not to hire additional employees is an issue that all of the employers that I have worked with or consulted for over the last two decades have wrestled with continuously. If government or the NY Times wants to increase the number of jobs, they need to peer inside the head of a business executive and work to push the levers that would make them more likely than not to hire. Thus the first and most significant problem with the lack of understanding of the NY Times is that they don’t even frame the problem correctly – if they want to create jobs, they need to think like a business person.
From a business point of view, the first issue is whether to automate systems or add additional labor. Hundreds of billions of dollars have been invested in productivity boosting items such as computers, automated production, systems for coordinating with suppliers, and the like, basically to reduce headcount in tasks where automation is feasible. Many of these efforts have been successful; there are fewer individuals performing manual labor at many companies and other rote tasks have been automated. Web sites and IVR systems replace phone operators; and the web eliminates entire distribution channels.
A parallel issue is WHERE to invest. The United States is not a “closed” system. The United States has the least favorable corporate taxation regime in the developed world. The United States has the most unfavorable legal climate in the developed world, as far as the likelihood of being sued and hit with an unfavorable judgment (although this is still superior to the risk of property simply being stolen or copied in the developing world). Unions are also on the rise under the current administration; it goes without saying that virtually all businesses view unions as a detriment to profitability and seek to expand where union power is weakest.
If you choose labor over automation and can even overcome the hurdles of investing in the United States, which has a hostile tax and legal environment, why would you hire permanent staff when you can hire temporary staff, or outsource to a foreign nation? These options are often financially compelling and / or offer flexibility that permanent staff can’t match.
Another element in hiring considerations is uncertainty. “Cap and Trade” and “Health Care Reform” will (likely) place big burdens on business and / or potentially change the hire / don’t hire / offshore / temporary equation. Thus if you are on the fence about hiring, uncertainly is going to reduce your chances of “pulling the trigger” on a new hire. Plus all of the Federal programs and borrowing will likely lead to higher taxes (plus virtually bankrupt state and local municipalities) which needs to be factored in for long term planning, as a significant negative item to come.
A parallel item is that most job creation doesn’t come from large enterprises, it comes from smaller companies. These companies have been hammered by the recession, and find it difficult to raise capital. These companies are also very likely to be impacted by items like the probably rise in estate taxes, and the continued increase in marginal tax rates, which reduce the payoff to match the significant risks taken by entrepreneurs. Minimum wages are higher, and any sort of employer mandate on health insurance will be a body blow that has to color any sort of hiring decision on the horizon.
The overall summary isn’t that I have the answers to the “job creation” conundrum; the summary is that at least I understand that jobs don’t “exist” independent of a need for labor by profitable enterprises that overcomes all the uncertainty, other options, and hurdles involved in this sort of decision in the current difficult business climate.
The NY Times apparently doesn’t understand that at all.
Cross posted at LITGM
Well,it is not all bad;the NYT did understand that it is wrong to excuse drugging and raping a 13 year old girl. There is sometimes common sense there.
The NYT is thinking about jobs as objects instead of relationships. Jobs exist only when an economic-creative figures out where and how a task needs to be done and then forms a relationship with others to perform that task. Jobs disappear when those relationships disappear. You create jobs by routing resources to economic creatives. Everything else is at best just a stop gap measure.
Spot on. There is a cognitive disconnect between productive people, who work mostly in the private sector, and the media and political classes. When pols talk about increases in tax rates and regulation as somehow benefiting business formation and employment, most serious people in the private economy understand immediately that this is fantasy talk — it makes no economic sense and cannot be taken at face value. Moreover, such fantasy talk is itself economically destablizing because it increases uncertainty and thereby diminishes incentives to invest and otherwise take risks. I don’t think the pols or media people get this. Many of them appear to believe that facile rhetoric is sufficient to close the sale and get business people to invest, even if the rhetoric is disconnected from reality.
These people have never run a small business and have never considered what it takes to run a business and hire employees. Now doctors are not the most common small business in the country but they have been around for a while. There is a lot of talk on medical web sites about dropping out of Medicare and insurance schemes and practicing for cash. Sermo, a web site for physicians, has been running a thread on this subject and has over a thousand comments. More than a third are by physicians who have done this or are planning to do so. Most non-physicians have no idea what is going on. They will find out about this only as they try to find Medicare primary care docs and they aren’t there. This is not a threat but a statement of what is going on very quietly. I think they call it “going Galt.”
That is me. For some reason it became anonymous.
Dr. Helen’s post on related topics is very good, particularly the comments.
It’s easy to “create jobs.” You can pay people to dig holes and fill them up again. Or ban automatic elevators and therby give jobs to at least half a million people as elevator operators. The trick is creating jobs that are actually economically productive.
This would also be an issue in a completely socialist economy. Even with total government control of the economy, there is a distinction between jobs that produce useful goods/services and those that don’t. From what we’ve see of Obama/Reid/Pelosi, we can be pretty sure that their version of a command economy would be devoted to paying off favored groups and implementing fashionable theories. The “back-yard blast furnaces” of Maoist China would probably look economically rational by comparison.
I had one of the Sunday shows on last weekend and the Olympics and Obama came up. One commenter in particular, Katrina Vanden Heuval, kept bringing her comments back to her main talking point that Obama needed to concentrate on jobs. She even mentioned that her preferred route would be through a ‘strong industrial policy.’ (I guess Japan’s experience with that over the last 20 years doesn’t deter her).
It really is odd that so many think [real] jobs are so easily created.
The thing I noticed about Ms Vanden Heuval on that same show was her repeated comments about how people are afraid of debt and debt is just not a problem. Even Cokie Roberts, who is no economic maven, expressed horror at the huge levels of debt being created by Obama. I don’t think the Vanden Heuval types and Obama ever plan to repay that debt they are creating or wish to create.
If this is improper ‘netiquette’, please excuse.
Coyoteblog has a post that describes his circumstance as a private operator of state parks here:
Coyote Blog:love story
tom
“That could be done with more stimulus to spur job creation, or a large federal jobs program, or tax credits for hiring, or all three.”
Or none of the above, since all three of these will actually destroy opportunities for employment.
“Or surprise us.”
Actually considering fewer regulations and taxes? Would the resulting boom in investment and employment “surprise” you?
Oh, the NYT understand all of that.
That’s why they are NOT creating jobs, rather they are shedding jobs.
They just don’t want to believe it’s their fault that “good payin’, blue collar, everyman” jobs are disappearing. And they don’t want the guilt of recognzing that the editors who write this drivel for six-figured salaries, are the very overpaid executives they rant about.
If they want leadership on jobs, then go find the small business owner who’s putting in 18 hr/day trying to get his company in the black so he can pay off that 2nd mortgage.
I posted the wrong link to Coyoteblog.
it should have been:
Why my business has ceased
Sorry.
tom
Liberal Economics: Money falls from heaven for everyone to use. But, the immoral and sneaky rich gather more than their share. The government’s purpose is to redistribute the money the way God intended. Or, if you wish, the way Gaia, or the Tooth Fairy, or whoever intended.
Taxes remove the excess income of the rich and give it to the voting poor, through a fair and organized bureaucracy. The rich oppose this action by selfishly and spitefully decreasing employment. Government responds by increasing grants and spending, to boost employment. The government incurs a deficit while it discovers the “knack” for creating the jobs that the rich are hiding.
The Political Dictionary