|
|
With today's unexpected decline in December
payrolls, the cry for more job-related stimulus will grow even
louder. But the sad truth is that any new stimulus or jobs bills
will ultimately swell the ranks of the unemployed, thereby raising calls for
an even bigger federal effort. If we are not careful, government regulations,
subsidies, and spending, all designed to fight unemployment, could push
the labor market into a death spiral.
Regulation acts like a tax on job creation. By subjecting employers to
all sorts of extra expenses when they hire people, regulations increase the
cost of employment far beyond the wages employers actually pay their
workers. In fact, some regulations are specifically tied to the number
of workers employed. This provides some employers with a strong
incentive to stay small and not hire.
The minimum wage law, which is really just a very visible workplace
regulation, actually makes it illegal for employers to hire certain
individuals and destroys entire categories of jobs. For instance, faced with high labor
costs, some restaurants will avoid hiring dishwashers by switching to
plastic utensils and paper plates. On a larger scale, factories may decide to
switch to robotic assembly lines if human labor gets too expensive.
Other types of regulations, such as those that prohibit discrimination,
create incentives for employers not to hire individuals that fall within the
protected class. This is the result of potential litigation costs that
may result from wrongful termination lawsuits. In other words, the more
expensive government makes it to fire workers, the less likely they are to
hire them in the first place.
Subsidies produce the opposite effect of regulation, but sometimes the results
can be just as harmful. Government subsidies divert resources towards
politically favored activities, resulting in more jobs in areas such as
health care and education, but fewer jobs in other sectors such as
manufacturing. The net effect of this transfer is to diminish the
productive capacity and efficiency of the economy, which lowers real economic
growth and diminishes employment opportunities.
Although not as visible as regulations and subsidies, government spending
also plays a large role in job destruction. The more money government spends, the more resources it drains from the private
sector. The fiscal 2011 budget proposed by President Obama contains $3.8
trillion in federal spending. Think of government as a cancer feeding
off the private sector. The larger it grows, the more jobs it kills.
Unfortunately, most politicians follow the misguided advice of economist John
Maynard Keynes, who advocated government spending as a means of job
creation. In reality, government spending merely results in government
jobs replacing more efficient private sector jobs.
Some economists point to taxes as the primary job killer, and
argue that lower taxes will boost employment. While I have sympathy for
this view, it misses the larger issue that the burden of government is not
what it taxes but what it spends. The proposed fiscal 2011 federal budget
contains "only" 2.4 trillion of taxes. The remaining 1.4
trillion of spending is borrowed (incredibly, for every dollar the government
collects in taxes, it now spends almost $1.60). I would argue that a dollar
borrowed kills more jobs than a dollar taxed. Therefore, cutting taxes
and borrowing the shortfall kills more jobs then it creates. This is
true because jobs require capital and government borrowing more directly
crowds out private capital investment than taxes do.
In the end, I fully expect the government to directly provide make-work jobs
to the armies of the unemployed. This will accelerate the pace of
private sector job destruction and make our economy even less productive than
it is today. This means that while the government may be able to provide
people with jobs, the wages they pay will provide little in the way of
purchasing power. In the end, we will become a nation of government
employees, with plenty of work but little to show for it.
|
|
|
|
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 tenuous position of the American economy, the housing
and mortgage markets, and U.S. dollar denominated investments, read my new
book : The Little Book
of Bull Moves in Bear Markets" (Wiley, 2008).
More
importantly take action to protect your wealth and preserve your purchasing
power before it’s too late. Protect your wealth and preserve your
purchasing power before it’s too late. Discover the best way to buy
gold at www.goldyoucanfold.com ,
download my free research report on the powerful case for investing in
foreign equities available at www.researchreportone.com
, and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp
|
|
