Tuesday, January 25, 2011

Govt And Job Creation

Someone said, "It's not congresses job to create jobs, the market creates jobs."
It is the govt's job to stabilize job creation. Too much growth can be bad (bubbles, inflation). Too little growth is very bad (unemployment, etc.). When the market is over-performing, we need the government to step in and put on the brakes with rate increases and such to limit inflation. When the market is under-performing -- such as now -- we need the govt to step in and do everything it can to accelerate the economy.

The only time the govt should avoid having an impact is when things are humming along at a healthy pace. We're not there right now.
Someone replied, "I disagree, the free market manages job employment, the bubbles and depressions are caused by the government dicking around with the market. Just like how the government pushed sub-prime lending and artificially dropped interest rates, which helped lead to the housing crisis."
History does not seem to agree. When left to itself, the free market has shown itself to be perfectly capable of creating its own bubbles and depressions (see the "Panic of 1857" for starters, but there are plenty of others).

While it seems convenient to blame the govt for "pushing" sub-prime lending, plenty of get-rich-quick lenders were perfectly happy to gamble before getting any "push" from the government. All many of them needed to dive in head first was to see the pool and get the government to step out of the way ... to deregulate and/or avoid sufficiently regulating new products such as CDOs. Indeed, Fannie and Freddie did not lead the charge into risky lending. Fannie and Freddie came late into that game, after the private lenders were aggressively pushing them to the sidelines of the lending market with their sub-prime feeding frenzy. Fannie and Freddie might have been better off staying on the sidelines, but that wasn't the conventional wisdom at the time. Those voices in the wilderness calling out for caution were marginalized by the private sector zeal for profit. Claiming that they only did it because the government was pushing them is like saying a football team would sit in the bleachers for the entire game if the cheerleaders didn't call out for them to score.  Did govt missteps make it worse?  Probably.  That doesn't mean the private sector wouldn't have formed the bubble on their own.

Yes, the government can take the wrong steps and bungle into making matters worse. But that doesn't change the fact that -- whether specific administrations and Congressional sessions do it well or not -- it is the govt's job to strengthen and stabilize the economy, which generally means job creation.

Should you need proof of the govt working to create jobs in our early history: Among the more obvious examples from way back in history to gain any sort of current renown is the 1798 "Act for the Relief of Sick and Disabled Seamen" passed by the 5th Congress (featuring Thomas Jefferson as President of the Senate) and signed by President John Adams. The primary point of the law was to encourage the growth of American commerce (jobs and wealth) by reducing the loss of that specific labor pool to poor health. It also served as an incentive to join that labor pool by making it easier to get health care as a member thereof. More mariners meant more commerce. More commerce meant more American jobs. VoilĂ . Good job, 5th Congress.

No comments:

Post a Comment