Productive,
private-sector jobs – the lifeblood of a sound economy – are
under assault by politicians in the United States and Western Europe, who
have unwittingly taken a number of steps that make future job losses a
foregone conclusion.
In the 1980s, as
a member of the British parliament and elected chairman of the Conservatives'
small business committee, I led discussions on the issue of job creation. At
that point, the British labor market was dealing with technological advances
that threatened traditional industries and an influx of highly competitive
Eastern European workers who drifted westward in the waning days of the Cold
War.
Pushing back
against those who wanted to preserve an untenable status quo, the
Conservatives recognized that defensive measures like excessive regulation,
high taxes and favored bidding for government contracts were antithetical to
business growth. Fortunately, Margaret Thatcher was prime minister. Her
understanding of economics, combined with her ability to communicate and
lead, resulted in the adoption of pro-business polices. The British economy
soon flourished, creating many profitable new jobs.
Despite the
rhetoric of President Barack Obama, his administration is actually leading
the US in the opposite direction. By raising taxes on business owners,
monopolizing credit and increasing business regulations at a frightening pace,
present policy is turning the employment landscape into a rather sterile
promontory.
Meanwhile, the
media have selectively focused on the recently passed jobs bill, which
includes meager tax credits for new job hires. If this bill has any effect,
it will be to encourage cash-strapped entrepreneurs to make hiring decisions
that are unjustified by current business activity.
In reality,
employment's future is being decided in the credit markets. Here, the US
Federal Reserve's zero interest rate policy is redirecting investment capital
towards government. When banks can borrow from the Fed at zero percent and
buy long-dated US Treasuries yielding 3% to 4%, there is little incentive to
take the risks inherent in business lending. Business credit is, therefore,
tighter than even a severe recession would ordinarily dictate. This lack of
credit is starving the private sector's ability to create jobs.
Furthermore, the
"progressive" activism on display in Washington is breeding great
uncertainty in the board room, making businesses even more cautious in an
exceptionally difficult planning environment.
In fairness, the
seeds of job destruction in America were sown years before Obama rose to
power. In recent decades, in response to intense lobbying by big banks and
corporations, some key changes were made that reduced market flexibility.
These included abolition of the Glass Steagall Act and the weakening of
anti-trust laws, without concurrent efforts to remove preferential treatment
for those companies deemed "too big to fail". These moves appeared
to extend the free market, but in reality they allowed big banks and
corporations, like Citigroup, AIG and GM, to squeeze out smaller competitors
in good times and fall back on government support in bad times.
The increased
powers of the crony capitalists were used to drive down the prices of
suppliers, many of whom were small businesses or farmers. At the same time,
financial profiteering created ownership wealth on an unprecedented scale,
greatly increasing the wage gap between owners and workers.
Finally, the
creation of the largest speculative asset boom in history by former Fed
chairman Alan Greenspan led inevitably to a massive bust, causing economic
hardship and dislocation for millions. If the likely double-dip recession
occurs, even more jobs will vanish.
Most American job
losses in recent decades were due to outsourcing to more competitive
economies because of the harmful effects of our domestic government policies.
Big spending by government now is unlikely to cure this deleterious
situation. The only realistic solution is to shrink government and remove
subsidies and guarantees to big business.
The United States
must become fundamentally competitive once again by unleashing the power of
the entrepreneurial spirit. Otherwise, the "giant sucking sound" of
good jobs heading overseas, as Ross Perot famously described it, will only
grow louder.
Peter D. Schiff
President/Chief Global Strategist
Euro Pacific Capital, Inc.
20271 Acacia Street, #200 Newport Beach, CA 92660
Toll-free: 888-377-3722 / Direct: 203-972-9300 Fax: 949-863-7100
www.europac.net
pschiff@europac.net
For a more in depth analysis of the
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