The Political Class And Job Creation - Always A Day Late and A Dollar Short

As most of you know, unemployment has been a very depressing fact of life during the economic crisis and the tepid recovery. The official, low ball unemployment estimate has lingered around 10% for the longest time and every week there are hundreds of thousands of first time claims for unemployment insurance. Despite their supposed attention on this problem, the Obama administration and the rest of the political class has failed to generate any significant job growth at all.

Of course they tried, but in just about every instant they have failed miserably:

• Last year we computed what it cost to create a "job" as a result of the Obama stimulus legislation. As you may recall, using the administration's own numbers regarding jobs created/saved and the amount of stimulus money that had been spent, the average cost per job created by the government was almost a quarter million dollars. This figure was calculated by taking Obama's jobs created/saved estimate and dividing it by the stimulus amount that the Obama administration said it had spent. The numbers were not from Fox News, the Republicans, the Tea Partiers, or George Bush, they were Obama's numbers. You cannot create jobs effectively or long term when it initially costs you over $200,000 to create one via government spending.
• The reality is government stimulus spending does not create jobs, it creates work. It sets aside money so that people can do some temporary work (temporary in the sense that the job lasts as long as the government money lasts) and when the government funding is used up, the "job" goes away. Work was created, an incremental job was not.
• Some would say that in some branches of economic theory, it is good that the government created work, if it not real/long lasting jobs, it helps jump start the economy and the hiring process. I think we can say after fifteen months of this type of economic gibberish, that theory is seriously flawed. Remember our post from about a week ago regarding the end of the second world war. Rather than "create" jobs for the millions of returning servicemen and women, the Truman administration, a Democrat by the way, slashed government spending by over 50% almost overnight but the economy, i.e. the private sector, easily expanded to create enough jobs to keep the post war unemployment figure at about 4.5%. What do think Obama would do today to get unemployment down to that figure, a figure accomplished in a very short time with no government stimulus money. Remember, most of the economists supporting stimulus spending were the same economists that did not see the biggest economic catastrophe coming since the Great Depression until it hit them in the face, why would we give them so much credence going forward?
• The other argument for the stimulus package is that it would repair our crumbling infrastructure so that when the economy did recover, the repaired infrastructure would facilitate an even greater recovery. Unfortunately, as reported by the Associated Press late last year as an example of wasteful spending, about half of the nation's bridges repaired with stimulus money did not not any repair work done at all, i.e. we spent money to repair stuff that was not broken, therefore torpedoing this argument for the stimulus in the first place. What happened? It is pretty obvious that each member of the political class lined up at the stimulus trough to fight for bridge stimulus funding for their states and districts even though half of it was completely wasted.
• And my favorite job creation argument/fallacy from the Obama administration, they were going to create a whole new industry of people going around to caulk and insulate buildings around the country. How's that idea coming along? Given that unemployment is still around 10%, I would say not too well. Whatever gave them the idea that they could create jobs in an industry that basically does not exist? These people have obviously never worked in the real world or the private sector. Customer demand creates demand which creates jobs and functions to fulfill that demand. You cannot top down dictate what a new source of jobs will be. Pathetic.

Thus, the political class has gotten very little right when it comes to job creation. But while they were wasting hundreds of billions of dollars and failing to create permanent jobs, something interesting is happening right under their noses that they never anticipated. Consider some facts from a May 24, 2010 in Fortune magazine, written by Sheridan Prasso and titled, "American Made, Chinese Owned":

• Chinese companies have already invested $280 million and created more than 1,200 jobs in South Carolina.
• Since last year, Chinese firms have announced or acquired more than 50 U.S. companies.
• In 2009, Chinese companies invested close to $5 billion in the United States.
• Corpus Christi, Texas is about to become the home of a $1 billion factory owned by Tianjin Pipe Group which will eventually hire 600 Texans.
• Chinese companies will build a wind turbine plant and wind farm in Nevada which will create about 1,000 jobs.
• A Chinese company bought a tool manufacturer in Georgia which will result in a $13 million upgrade investment which will result in an additional 120 jobs.
• The article estimates that the Chinese have made over 1,200 investments in this country in the past few years but believes that number may be low for a number of reporting reasons.
• A lot of the products made in America are actually exported back to China.

Why do the Chinese want to create manufacturing jobs and products in the U.S.:

• Land is cheaper here relative to China in many cases.
• Electricity is usually much cheaper, and reliable, than in China.
• Much of the market for Chinese goods is in the United States and thus, by manufacturing those goods domestically, transportation costs are slashed.
• The Chinese products made domestically can avoid any import tariffs.
• Chinese products made domestically can honestly say that the products were "Made In The USA," an excellent marketing strategy.

Nowhere in the national political class discussion of jobs have I heard about this Chinese contribution to fixing our unemployment problem. While the Obama administration was trying old and failed economic stimulus projects to create jobs, that have failed miserably, the global market place has chugged along with smart private sector managers looking for costs and competitive edges, edges that have led many of them to production in the United States. In the process, they are creating a multitude of real, long time jobs, without wasting hundreds of billions of taxpayer dollars in the process. The world has passed this political class by, they are a day late (the Chinese are already creating real jobs vs. the politicians' failed economic policies) and are definitely a dollar short since they already wasted untold billions of dollars in stimulus ideas that flopped.

The difference between the two approaches is that the Chinese understand markets and how markets create bottom up economic demand and this need to fulfill market demand requires workers. The political class erroneously still thinks that a government policy can create demand and that will result in jobs. Nowhere in the article did I see anything about the Chinese wanting to get into the caulking and insulation market in a big way like Obama wants to. The reason: the Chinese understand that there is no overriding demand for such services and products, the government does not understand. And that is why you do not see long lasting government funded jobs in the caulking/insulation industry or anywhere else.

I applaud the foresight of the Chinese to find the best operating conditions for their companies which fortunately is resulting in many more permanent U.S. jobs being created vs. the feeble Obama efforts. My only concern is that the political class will get involved and screw up a good thing. The article interviews local citizens, workers, and politicians about the Chinese influx of jobs and they are all quite happy with the results. The Chinese have been good corporate citizens and employers.

The best things the political class can do is:

• get our national financial house in order, i.e. get the deficits under control
• keep inflation under control.
• keep a lid on corporate taxes.
• allow for the free flow of materials, both finished and unfinished, to and from China, keeping tariffs and trade barriers under control and reasonable.

The last thing we need them to do is get to this job creation party late and waste more taxpayer dollars in ways that ruin a good thing for American workers. In other words, think like a freedom loving American for once and let Americans, in cooperation with their Chinese partners, continue to do the good work that is employing a great many more Americans in real jobs than the Obama administration could ever dream of.

Step 36 of "Love My Country, Loathe My Government" would be a good thing to have in place in this matter since it would require all members of Congress and the administration to take and pass a basic course on economic theory. Not the failed voodoo economics of the present administration and their fatally flawed stimulus approach, but basic economic theory on supply and demand, learning that demand is created first in the market place and jobs then follow. Demand is not dictated by some bureaucrats.


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