Tuesday, November 02, 2010

"Create jobs" idiocy

If I see another politician claiming that they'll "create jobs" I'll probably cry. How did the electorate become so mentally decrepit that such a line doesn't get tossed back in their face every single time they utter it? *sigh* Businesses create jobs. Small businesses do a better job of it than large. Individuals start small businesses. Individuals with capital. Capital comes from savings.

You want to destroy job creation, then destroy savings. Here's a good recipe for doing just that, steadily drive down interest rates. Even better, inflate the cost of necessary goods (food, energy, housing) at the same time so that even the frugal have a harder time saving money.

Make a person have to be foolish in order to accumulate the 6 to 12 months worth of necessary savings in order to be able to take the risks inherent to starting a new business. After all, what sane person will scrimp and save for the prerequisite 3 to 5 years when the real return on saving their money is essentially zero to negative? In that environment, the incentives are towards spending, buying cars, houses, dinner out, bigger and better TVs, vacations on the coast, new clothes that are "in style", etc. Or, if they actually want some return on their investment, it makes them have to chase risky assets like stocks or high yield bonds.

Even better, keep inflation going while driving interest rates down. That makes the value of their savings worth even less.

In that environment, the only practical way for most entrepreneurs to have the capital to start a small business is to borrow it. Now, instead of having to earn just enough to get by on their savings, they have to earn enough to service their debt. Oh, and since they're a small business, in order to get that loan they've had to pledge whatever equity they have in their house or autos or whatever. Now, when their small business tanks (and 9 out of 10 do in the first couple of years), they lose everything instead of just losing their savings.

What semi-rational person would start a business when this is the fiscal environment? Not many. Which is sort of unfortunate since the actual unemployment rate (if you measure it the way it was measure up until around 1994) is right around 22%. We sure could use those small businesses starting up.... Unfortunately, we've spent 20 some years absolutely killing the necessary pre-conditions for small business creation and therefore job creation.

At some point, we just might see candidates that actually understand this. I lost hope years ago of the Democrats ever fielding such a candidate, unless they're in a state like Wyoming, Colorado, Montana, or Idaho. It's taken me a few decades to conclude that the Republican party doesn't really get this either.

Economically, the real difference between the two parties really does seem to boil down to who their economic corruption favors. For Republicans, this has been the ultra-large businesses. For Democrats, it has been the labor unions. Neither approach does anything but buy votes and campaign dollars from the favored constituency. Hmm... that's actually not quite true. Both approaches also align nicely to destroy the fundamental incentives for small businesses -- because handing out cash that the Federal government doesn't have to ANYBODY both drives down interest rates (as a matter of necessity otherwise the US Treasury couldn't afford the interest payments on the growing debt) and increases inflation by pumping more dollars into the economy.

So, economically, they're both worse than useless. I'm not sure which approach will kill the nation's economy faster. :(

So, off to vote. :)

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