In the second week of Mike vs Mike, the Mesquite Citizen Journal's new point/counterpoint column, the MCJ staff asked this question:
Which entity, the public or private sector, is the best option to create jobs and give the economy a jump start by getting people back to work, off welfare and restart money flowing through the economy? This is not a question of long term, but to get the economy back on track quickly.
Michael McGreer's Turn
The current debate in Congress over the payroll tax is a prime example of a multi-party agreement to use government funds to stimulate private side investments in the short run. The approaches between Republicans and Democrats underscores the different views on who should carry the burden.
Nevada's Republican Dean Heller proposed legislation to put the burden on middle class federal workers. Specifically, Heller wants to add another three years to the two-year federal pay freeze that currently exists. He also wants to cut the work force by ten percent. So much for creating jobs.
Joe Davidson, writing in the Federal Diary, (Washington Post) points out that federal workers have already given up $60 billion over 10 years through the current freeze.
The Democrat's would pay for the plan by slapping a 3.25 percent surtax on income exceeding $1 million.
Neither approach has currently passed the Senate.
The government debt to the Gross Domestic Product (GDP) ratio now stands at 100 percent for the first time since World War II. The GDP, which measures the output of goods and services produced by labor and property in the United States, was at 1.9 percent in 2007. In 2008 it was zero. In 2009 it was down (-2.6) and in 2010 it grew by 2.9 percent. In the second quarter of 2011 it was up 1.3 percent and in the third quarter it has risen to 2.0 percent.
Even a small percentage point increase (2.9,1.3 and 2.0 percent) shows the productive potential of government stimulus in a depressed economy.
Certainly we need to worry about government debt. According to Nobel-Prize winner economist Paul Krugman, slashing spending and tax revenues while the economy is still deeply depressed is both costly and ineffective. The approach depresses the economy further and as a result reduces future tax receipts.
Krugman estimates that cutting spending by 1 percent of GDP raises the unemployment rate by .75 percent but only reduces future debt by less than 0.5 percent of GDP.
It's Krugman's view, that it's necessary to continue government stimulus plans in the short turn, and focus on the reduction of spending and raising revenue after the economy has recovered. When the economy is strong enough, monetary policy will offset the contractionary effects of fiscal austerity.
For now sustaining an upturn requires stimulating private sector interest in specified types of capital expenditure, and encouraging investments in areas of high unemployment. These incentives may take the form of direct subsidies (investment grants) or corporate income tax credits (investment credit) that compensates the investors for their capital costs.
Mike Young's Turn
Some people actually believe that government creates jobs outside the government. Yet time and time again governments try to stimulate the economy by increasing spending and nothing happens, except government gets bigger. So in a way government does create jobs, in government, and the beast gets bigger and needs more money to feed itself, thus increasing taxes or borrowing to pay the new bills.
In the Great Depression the New Deal was supposed to cure unemployment. Government spending more than doubled in the 1930s but unemployment stayed high through the decade (over 15 percent). Henry Morgenthau (FDRs Treasury Secretary) testifying in front of the House Ways and Means Committee in 1939 said, “We have tried spending money. We are spending more than we have ever spent and it does not work.”
In Japan, during the 1990s and early 2000s they tried eight different stimulus programs, spending the equivalent of 1.4 trillion dollars. The results were stunning. In 1991 the Nikkei stock index stood at 30,000 and by 2007 it was at 12,000. About 60 percent of the country’s financial wealth had vanished.Given the total failure of big spending government programs to stimulate the creation of jobs, why would we consider that losing strategy? As government agencies grow they impose new rules and regulations that stifle business.
Look at the EPA, as they get bigger, they add more rules and more people to enforce them. Take the proposed dust rule, how many farmers will we take out, or should I say, the EPA will take out? Perhaps enough so we will need to import food?
Government spending to create an economic stimulus is an illusion. Government spending does not create any new wealth or jobs. It just redistributes the money from people who earn it and pay taxes, to those who don’t or are government workers.
In the 1970s, conventional wisdom said that America’s time had passed. We experienced Vietnam, Watergate, high interest rates, high unemployment, and double-digit inflation. We were told ours was a future of scarcity and sacrifice, and that what we really needed was increased government control and higher taxes. Sound familiar? President Carter led during this a period of “malaise.”
Yet, in the midst of this “malaise,” a different future was being created. Entrepreneurs in the private sector were busy founding new companies. Some of the companies founded during this period, when supposedly America’s best days had passed: Apple, FedEx, Microsoft, and Southwest Airlines. All four of these companies were listed on Fortune’s 2009 List of the 10 Most Admired Companies in the world.
The efforts of today’s entrepreneurs hold the same promise for America’s future. They are not looking to the government to create jobs. They are out there creating jobs for themselves and others. These Americans are generating the innovations that will refresh and renew our economy, not the government. These men and women make the wheel of progress spin faster. Big government only slows the wheel.