Putting the Jobs Cart Before the Growth Horse

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Among the colossal fallacies that keep our economy mired in unemployment, few loom as large as the notion that "creating" jobs leads to growth and prosperity, rather than the other way around. In fact, when jobs are treated as ends rather than means, the perverse effect of pursuing policies designed to artificially inflate employment figures only serves to make things worse.

This conflation of cause and effect lies at the heart of entire schools of economics - a science made more dismal by the fact that whenever policy prescriptions fail to deliver their promised benefits, the proposed remedy is to increase the dosage. How many times would you go back to the same doctor if the medicine he prescribed kept making you sicker?

Yet after watching untold hundreds of billions of dollars in federal stimulus spending evaporate into the ether, here we are at the cusp of a recessionary double dip listening to the president berate us for a lack of willingness to tax, borrow, and spend even more to "create" jobs. Hey, if he walks like a quack and talks like a quack, might 51 percent of the voters eventually figure out that he is a quack?

As impolitic as it is to say out loud, we need to face the fact that jobs are a necessary evil. In any rationally managed business the payroll is a burden, not a benefit. Entrepreneurs and hiring managers only add staff if they think additional employees will produce more value than they consume. This happens as a matter of course in healthy, growing businesses when the amount of work that needs to be done exceeds the number of hands on deck to do it. Increasing the number of hands when the amount of work is unpredictable, stagnant, or declining is a recipe for bankruptcy.

The challenge gets compounded when companies are forced to devote ever more of their employees' time to activities that deliver no benefit beyond keeping the expanding army of federal bureaucrats and regulators at bay. According to a recent report from the White House Office of Management and Budget, Americans spent 8.8 billion hours filling out government forms in fiscal year 2010. These are hours sucked out of the productive economy. OMB estimates that, at $20 an hour, the annual dead-weight loss of these compliance activities would come to $176 billion. Yet, when was the last time you were able to hire a lawyer or accountant for $20 an hour? At the rates most of us pay, this government-induced bloodletting exceeds the size of latest infusion the quack-in-chief is trying to flog through Congress.

Note that this is just the cost of filling out the paperwork, never mind the cost of complying with whatever regulation the paperwork is intended to monitor. How many more thousands of pages of regulations are coming next? Even your legislators don't know for sure as they dodge their constitutional responsibilities and delegate the job to unaccountable agency bureaucrats.

"What about all that cash being hoarded on corporate balance sheets?" quacks the leader of the free world. "Why don't corporations use that money to hire more workers?" Does this really merit an answer? Obviously, if corporations thought that hiring more workers was the best way to earn a proper risk-adjusted return on their investments, then that is exactly what they would do. Instead they are parking it in short-term securities earning, what, a percent or two in interest.

What does that tell you? The business community has become so whipsawed, bludgeoned, and bewildered by the epic incompetence and bloviating hostility of our political leaders that they are keeping their powder dry until they can size up the next set of leaders the electorate foists on them. Fourteen months is not too long to hunker down and hope for change when you consider the cost of getting caught in a cash crunch when the global sovereign debt house of cards comes tumbling down.

"But what about the positive effect on aggregate demand when the formerly unemployed rejoin the workforce, even through artificial stimulus?" chirp the court economists, determined to find a justification to spend ever more of other people's money. "Doesn't an increase in overall demand generate more work for employers, inducing them to hire more hands to get it done? Isn't this analogous to pouring a bucket of water into a pump to get it primed?"

It depends on where you get the water. Drain the water table by trying to prime too many pumps at the same time and you'll find a lot of pumps running dry.

So the next time you hear a fevered pitch for government-backed job "creation," take a moment to think like the guy who actually signs the payroll checks - because, as a taxpayer, you are that guy. Would you belly up for more hiring then?

Bill Frezza is a fellow at the Competitive Enterprise Institute, and a Boston-based venture capitalist. You can find all of his columns, TV, and radio interviews here.  If you would like to have his weekly columns delivered to you by e-mail, click here or follow him on Twitter @BillFrezza.

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