Thursday, September 29, 2011

The Key to Creating Jobs and Warren's Voodoo Economics

Both Stossel and the Reason piece on Elizabeth Warren.

via Dissecting Leftism by JR on 9/29/11

The Key to Creating Jobs

By John Stossel

Politicians say they create jobs, but they really don't. Or rather, they rarely create productive jobs. Government has no money of its own. All it does is take resources from one group and give them to another.

The pharaohs might have claimed they created work when they ordered that pyramids be built, but think how much richer (and freer) the Egyptians would have been if they'd been allowed to pursue their own interests.

It's individuals in the marketplace who create real jobs -- when they have the protection of life and property under the rule of law.

Economic freedom is the key. The theory couldn't be more clear, and at this late date in human history, it shouldn't be necessary to rehearse the abundant evidence. Look at the various indexes that correlate economic freedom with economic growth. The healthiest economies are those with the most economic freedom. Unemployment is low in those places -- 3 percent in Hong Kong, 2 percent in Singapore, 5 percent in Australia. Alas, the United States places ninth, behind Canada, and those countries with the least economic freedom have few real jobs and no prosperity.

Unfortunately, most politicians still don't understand -- or have no incentive to understand -- that economic freedom, and therefore less government, creates prosperity.

Well, maybe that's changing. This year is first I've heard so many presidential candidates talk about the private sector. Indeed, one candidate, former New Mexico Gov. Gary Johnson, told me he created "not one single job. ... Government does not create jobs."

The truth is we have too few jobs today because government stands in the way. If I'm an employer, why would I want to hire someone when Congress and the Labor Department have so many rules that I might not be able to fire that person if he can't do the job? Why would I take a risk on an investment when still-to-be-written rules about ObamaCare, financial regulation and the environment could turn my good idea into a losing venture?

Last week on my Fox Business show, I refereed a debate on whether government creates or impedes economic activity. "Government can spend and create jobs," said David Callahan, co-founder of Demos. "If government steps up and provides stimulus money to hire people, what we get is more people spending money in this economy, more hiring, and we get that virtuous cycle going."

Yaron Brook, president of the Ayn Rand Institute, replied: "It is ridiculous to assume you can tax the people that are working and give the money (to people) who are not working and somehow this creates economy activity. You are destroying as much by taking from those who are working and creating."

Callahan then invoked the magic I-word: "One place we need more government spending is for infrastructure. Drive down any road, go across any bridge, you are likely to see dilapidation. There was a bipartisan panel that said we need to spend $2 trillion or more on infrastructure."

"Don't pretend that stimulates the economy," Brook rebutted. "That money has to come from somewhere, that $2 trillion that you would want to spend on infrastructure is taken from the private economy."

"This is a fallacy," Callahan replied. "Twenty million jobs were created in the 1990s when we had higher tax rates than we do today. After World War II -- also a period of high tax rates, also incredible job growth.

And, by Keynesian logic, war can stimulate the economy: "World War II was the great stimulus. ... That kind of external crisis can inject a lot of new capital."

"This is one of the worst fallacies of economics," Brook said. "This is called the broken-window fallacy." The fallacy comes from Frederic Bastiat's story of the boy who breaks a shop window, prompting some to believe that replacing the window will stimulate a ripple of economic activity. The fallacy lies in overlooking the productive things the shopkeeper would have done with the money had the window not needed replacing.

"World War II did nothing to promote economy growth," Brook said. "Blowing things up is not an economic stimulus. Destruction does not lead to progress."

Don't expect most politicians to learn this any time soon.



Elizabeth Warren's Voodoo Economics

The liberal Senate candidate sets fire to a straw man

Elizabeth Warren is cheesed off.

Received wisdom says conservatives are the ones driven by anger—Republicans took the House last year because 2010 was another "year of the angry white male," and all that. But in August remarks about class warfare that have gone viral, the Democratic candidate for a Senate seat from Massachusetts is visibly seething.

That's okay; everyone gets worked up now and then, and most of us are lucky enough not to be caught on camera at the moment. Funny thing is, Warren's comments—her rage and resentment and sarcasm—have made her an overnight heroine.

In the video, she addresses an imaginary captain of industry:

"There is nobody in this country who got rich on his own," she lectures. "Nobody. You built a factory out there? Good for you! But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that maurauding bands would come and seize everything at your factory . . . .Now look, you built a factory and it turned into something terrific, or a great idea—God bless! Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."

A few points.

(1) This is a pretty powerful takedown—of a position nobody holds. Or at least nobody outside an Ayn Rand novel. If Warren can find someone who thinks he does not live in community with other people, then she might have an argument. But don't sit on a hot stove waiting.

(2) For someone who objects to the term class warfare, she sure draws a mighty bright line between "you" and "the rest of us."

(3) The question is not whether a captain of industry should pay taxes—but how much. Reasonable people can debate where to set marginal tax rates. But when the richest fifth of Americans pay 64 percent of federal income taxes while the bottom two-fifths pay less than 3 percent, the case for even greater progressivity is not beyond rational debate.

(4) Outside of a few anarchist collectives, there isn't a soul around who minds paying taxes for roads, cops, firemen, or schoolteachers. It's the jillion other things government does—from corporate welfare to the Iraq war—that people object to.

(5) Plenty of smart, well-meaning people also think even government's core functions could be delivered better and for less—just as the Obama administration has used the Dartmouth Atlas to argue for greater efficiency in medical care. E.g., since 1970 inflation-adjusted per-pupil spending in public K-12 education has doubled. Class size has been cut in half. Neither change has produced any substantial effect on academic performance. Why don't we have the equivalent of a Dartmouth Atlas for public education?

(6) Warren's remarks epitomize the caricature of a progressive as someone who loves jobs but hates employers. She implies the captain of industry is simply sponging off society and hoarding the proceeds. But hiring workers is a huge social good. So is providing a funding basis for pensions, which generally rely on stock returns. So is creating products people want. Five bucks says Warren has a smartphone and a DVR and a bunch of other modern conveniences, and that she didn't buy any of them with a gun to her head. So why is she so mad at the people who offered to sell them?

(7) Warren suggests the principle of fair play means the industrialist owes society a debt, to be repaid in steep taxes because his other contributions do not count. But this argument is one of the weakest of all the arguments for political obligation, for reasons most people can figure out after a few minutes' thought. (E.g., Suppose I mow your lawn without asking, then demand payment because it's "only fair.") Why hasn't she given them any?

(8) Perhaps, like film critic Pauline Kael, who famously didn't know anyone who had voted for Nixon, Warren doesn't know anyone who believes government and taxes should be small. And, therefore, perhaps she does not understand their reasoning. She certainly doesn't give any indication that she does.

So for the record, the reason is that—as Sheldon Richman wrote recently in The Freeman—"government is significantly different from anything else in society. It is the only institution that can legally threaten and initiate violence; that is, under color of law its officers may use physical force, up to and including lethal force—not in defense of innocent life but against individuals who have neither threatened nor aggressed against anyone else." Many of those who truly love peace prefer to live in a society where the use or threat of violence is minimized. Maybe that idea simply hasn't crossed Warren's mind.

Maybe that's why she looks like she's ready to haul off and hit someone.


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