With the 2010 mid-term election campaign season heating up it is a good time to look at where the two different major political parties stand on job creation.
It is clear that the economy is the most important campaign issue and the most prominent economic theme on most people’s minds is job creation. To the extent that law makers can affect employment, the parties have staked out strategic positions, which they hope will help them win in November. As someone who shares in the hope that everyone who wants a job can have one, here is my take on who offers the best hope.
To start with, job creation is largely a private sector and business responsibility. Although government financed jobs are just as valuable and valid as private sector jobs, the public sector cannot and should never expect to sustain the economy largely through tax payer based employment. From that premise, it becomes necessary to rate the parties on what they think the role of government should be in creating or facilitating the conditions by which the private sector can grow and create jobs.
True to tradition, the Democrats are looking for more interventionist and activist ways of involving government to stimulate the private economy, while Republicans are trying to minimize government involvement believing that business and entrepreneurism alone can improve economic conditions. Let us see how these approaches have fared in recent political history.
Essentially, Reaganomics have had their way for the past twenty-five to thirty years, by which I mean the Republican penchant for reducing taxes on wealthier Americans and reducing governmental regulations on business have held sway. Even President Clinton talked about the era of big government being over. The best that can be said from a jobs perspective is that employment followed the economic bubbles and busts of the 1990s and 2000s resulting in the Recessionary mess we now have. If the economic tide had lifted all boats, then the pulling of the economic plug in 2008 drained all of us and quickly.
Let us look at the last couple of years in particular. The current Recession began in December 2007. By the fall of ’08 with panic starting to set in we had the Republican nominee for president telling us the fundamentals of the economy were fine while the Democratic nominee was warning us of economic doom and gloom.
President Bush’s Treasury Secretary saw it imperative to begin a program of government funded bailouts to keep the country from plunging into another Depression. The newly elected president realized that government financial intervention needed to continue for the banks and extended it to two of the major American auto companies. Without those bailouts, unemployment would have been much higher.
In 2009 President Obama, having inherited a $1.3 Trillion deficit, and the congressional Democrats involved the government further in passing economic stimulus legislation. This seems to have maintained more jobs than it created, but it can be said to have kept the unemployment rate from getting worse than it did.
As we all know, the economic recovery has been slow and the high unemployment rate remains largely stuck between 9.5 and 10%. In response, the political debate seems to be between the Republicans who say that everything the president and Democrats attempt should be thwarted and the Democrats saying that increases in targeted expenditures along with more regulation, particularly in the financial industry, is needed. So whose approach can result in more jobs?
This Recession began largely because of unsustainable spending and speculation on behalf of many in the private sector who were able to get away with it. Had there not been government intervention we would now be experiencing the second Great Depression in our nation’s history with much higher unemployment than now. To prevent a Depression government essentially transferred the unsustainable spending from the private sector to the tax payer in the form of an increased budget deficit. A robust business climate is needed to seriously reduce that debt.
Republicans are still wedded to the belief that low taxes to the rich and a low regulatory climate will create a long-term healthy economy. There really is nothing new in their game plan except to cooperate even less than before with the Democrats.
The track record of this approach from the last three decades is not encouraging, however. The Democrats still believe that government should be a check and balance to the power of the markets so that excesses such as those that have led to the current Recession and that have hurt so many Americans are mitigated.
The power calibration between free markets and government spending and intervention is tricky and far from a guarantee that it can right the economic ship, but I prefer action over inaction. I will take my chances with President Obama and the Democrats.
