Amid all the confusion in our current economic situation, one thing is clear–we need more jobs. The Administration is all but clueless as to how to go about such a thing, choosing to arm itself with Keynesians and other big-government type economists. Their inclinations are squarely demand-side, which translates into priming the economic pump by stimulating demand. And how, one might ask, does a government stimulate demand? Usually, by injecting more money into the economy or something akin to it.
Keynesians believe, contrary to the old saying, that there really is such a thing as a free lunch. Their thinking is that by giving people work on public projects or by giving them money to spend, they will prompt businesses to create more stuff for them to buy. Astute readers will recognize the flaw in this daisy chain of logic. The money for those public project wages and government handouts has to come from somewhere–money that would have been spent in other ways.
The Keynesian answer to this challenge is to invoke the “multiplier effect.” Arguing that sometimes there is a “liquidity trap” in the economy wherein excess money lies unproductively, they think that increasing demand will shake loose the locked up money and that on the whole, the economy will benefit. They admit that the money for these programs has to come from somewhere, but argue that in the end we get more out than we put in.*
Since that tack has failed miserably, the Administration is reluctantly becoming aware that there exist things called “businesses” and that somehow they create things and jobs for people to help create those things. Thus Obama’s magnanimous gesture of proposing tax cuts–for a few months–for those (what are they again?) businesses. Yeah, that’s it. This is about as far as he will ever get in realizing the limitations of government in creating wealth and jobs.
Which is why I do not get too excited when a sensible suggestion emerges, as it did this summer with the Kauffman Foundation’s Start Up Act proposal. Mr. K, as the founder was called, thought that the heart of prosperity lay in the entrepreneur. An entrepreneur creates new wealth, a difficult enough task without needless hindrances. For example, the Act proposes:
- Welcoming immigrants capable of building high-growth companies to the United States by providing “Entrepreneurs’ visas” and green cards for those with degrees in science, technology, engineering and math.
- Providing new firms with better access to early-stage financing, creating capital gains tax exemptions for long-held startup investments, providing tax incentives for startup operating capital, facilitating access to public markets, and allowing shareholders of companies with market cap below $1 billion to opt-in under the Sarbanes-Oxley Act.
- Accelerating the formation and commercialization of new ideas by creating differential patent fees to reduce the patent backlog and providing licensing freedom for academic innovators.
- Removing barriers to the formation and growth of businesses through the introduction of automatic 10-year sunsets for all major rules, establishing common-sense and cost-effective standards for regulations, and making assessments of state and local startup and business policies.
*Some argue that there is evidence for a multiplier effect, others that we never get out as much as we put in.