Job Creation: The Seen and Unseen

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With data on November's unemployment rate and payroll jobs creation due to be released Friday by the Labor Department, President Obama convenes a meeting today at the White House to discuss what many Americans worry about more than health care, Afghanistan, or anything else-jobs.

Mr. Obama's challenge is that his legislative and regulatory agenda dampens overall job creation. Mr. Obama's priorities, namely health reform, green jobs, high speed rail, climate change legislation, and increased unionization discourage employers from hiring. Until he abandons this interventionist agenda, the economy won't produce the jobs needed to reduce unemployment significantly.

Naturally, these projects' supporters claim they create jobs. They may create some, but they displace others.

The American Clean Energy and Security Act, sometimes known as the cap-and-trade bill, would raise energy prices, impose strict new efficiency standards on automobiles and appliances, require firms to use nonexistent technology, and mandate greenhouse gas emissions per person back to 19th century levels by 2050.

Yet its cosponsor, Massachusetts Democrat Ed Markey, said the bill would "create jobs by the millions," and Speaker Nancy Pelosi said it was about "jobs, jobs, and jobs."

Yes, the cap-and-trade bill would create jobs building more expensive energy, such as solar panels and windmills, and inventing the technology to comply with the government's new requirements. But the bill's $800 billion plus price tag comes from new taxes, higher prices for cheaper energy such as oil and gas, and increased borrowing. This reduces jobs elsewhere, leading to almost certain job losses.

This problem is not new. In 1850 the French economist Frédéric Bastiat wrote an essay entitled 'That Which Is Seen, and That Which Is Not Seen." That which is seen are the jobs directly created by the government, and that which is not seen are workers displaced by the effects of increased taxes, tariffs, and government regulation.

Bastiat wrote, "When an official spends for his own profit an extra hundred sous, it implies that a taxpayer spends for his profit a hundred sous less. But the expense of the official is seen, because the act is performed, while that of the tax-payer is not seen, because, alas! he is prevented from performing it."

With resonance today, he explains, "The State opens a road, builds a palace, straightens a street, cuts a canal; and so gives work to certain workmen - this is what is seen: but it deprives certain other workmen of work, and this is what is not seen."

Health Reform. Take health "reform," which has dominated Congress and the White House for most of 2009. Higher insurance premiums and taxes on income and payrolls would leave individuals less to spend on goods and services and businesses less to spend on hiring workers.

Green jobs. No one has properly defined a "green" job (a vague term now in vogue), the kind that Mr. Obama wants to encourage, but many believe such jobs include installers of insulation and energy-efficient windows, and producers of renewable energy, as from sunshine and wind. Tax revenues used to subsidize the manufacture of these products create jobs in those sectors, but leave less to be spent on other activities.

In Spain, economics professor Gabriel Calvado of the Universidad Rey Juan Carlos has calculated that his country has spent $860,000 per green job. Higher energy costs have driven away jobs in metallurgy, mining, and food processing, so over two jobs have been destroyed for every job created. Even in sunny Spain, solar power did not account for even one percent of 2008 electrical production.

Employee Free Choice Act. This legislation attempts to raise union membership by making it easier for unions to organize. The bill would take away the secret ballot in elections for union representation, and impose mandatory two-year contracts through political arbitrators on newly-unionized firms if they and their union could not reach an agreement. Increased unionization discourages U.S. job creation and encourages businesses to move offshore. Michigan, one of the most highly-unionized states, had October's highest state unemployment rate, 15.1%.

High speed rail. High-speed rail is an expensive form of transportation that will reach small segments of the country and will not substitute for highways. Mr. Obama's initial payment for high speed rail would be funded partly through $8 billion from the $787 billion stimulus plan, and partly through a separate five-year, $5 billion investment proposed in the 2010 budget. Whereas this would create some jobs building rail lines, $13 billion taken from the private sector is taking away a lot of jobs.

Since businesses and consumers don't know what legislation Congress will pass, economic activity is slower than it would be otherwise. The uncertainty is killing jobs. Businesses are hiring a few more temporary workers, but not permanent workers. Consumers are wary of spending because they're afraid of tax hikes and further shrinkage of the values of their homes and their retirement savings.

What is needed is a whole new approach to job creation. Approximately $234 billion of the $787 billion stimulus has been spent, leaving $553 billion more. There's still time to reallocate the remainder. Congress could establish some certainty by making current tax rates permanent. Or it could reallocate the funds towards payroll tax cuts divided between employers and workers, giving employers an incentive to hire and consumers more money to spend.

As Mr. Obama ponders job creation at the White House, he could do worse than recall, in Bastiat's words, those unseen, disappearing jobs that would be the collateral damage from his policy proposals.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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