We’re in the midst of an intense series of debates between two candidates applying for the job of President of the United States.
For all of you watching (and participating) in these discussions, I ask you … can the President really create a significant number of jobs?
I don’t incorporate my political beliefs into my articles, because they are about you and your job search, rather than a sounding board for my opinions. This article isn’t going to be for one candidate, nor against another.
But you hear both candidates talking about creating jobs, so you’ve got to ask yourself – Is significant job creation really within any modern President’s power?
I don’t see how, short of the decade of massive government spending similar to the 1930’s (FDR’s New Deal), that Presidents have the ability or power to create enough jobs to turn around an economy or make a big difference in employment markets.
Because Presidents don’t create jobs outside of government positions, businesses create jobs.
Now some will come out shouting, what about taxes? Trade Policy? Monetary Policy? That big stimulus package? You’ll argue that the President affects all of those – in some cases the executive branch either sets or enforces these decisions.
Sure the President does … but do any of these have a significant long term effect on the job market?
- Tax Policy: It might seem that the less businesses pay in taxes, the more they can invest in hiring employees. However, it doesn’t work that way historically.
- Trade Policy: While the Commerce Department negotiates and enforces trade policies, major trade agreements and tariffs are decided by congress. While the President influences trade policy, he can’t control it – Congress controls it, via constitutional power over trade regulation and tariffs.
- Monetary Policy: The President doesn’t control monetary policy, money supply, nor the value of the dollar. Monetary policy and money supply are directed by the Federal Reserve, which reports to Congress, not the President. The value of the dollar is determined by market forces, based on foreign exchange trading.
- Stimulus Spending: This is one of the few areas where a President can affect job creation, to a point – by pushing congress to approve government spending to create jobs. However, short term spending isn’t enough, because it only brings short term job market effects … basically it’s job loss avoidance.
Perhaps when taxes are low, businesses pay more to shareholders, because taxes take less out of shareholder returns. But when taxes are high, businesses tend to take less in profits (because of the high taxes) and instead reinvest for future growth – reinvesting in workers, technology and equipment.
What about personal taxes? When personal taxes are high, especially for the upper tax brackets, investors are more likely to invest for the long term – since every time investors sell stock, it could trigger owing more tax. Shouldn’t this mean that when taxes are higher for the upper tax brackets, investments more likely to be long term … and therefore business decisions are also more likely to be long term? Long term business decisions often lead to hiring employees, while short term decisions tend to favor layoff/hiring cycles and offshoring.
Warren Buffet wrote an editorial piece for the New York Times last year and stated:
“And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.”
EconomicsOnlineTutor.com explains it like this:
” A tax increase will give them an incentive to invest in the business, because it is the cost of NOT investing that goes up, not the cost of investing. It won’t give them an incentive NOT to invest in job creation. This will not be an incentive for killing jobs – this will be an incentive for creating jobs – take money out of the column that is taxable, put it in the column that is not taxable. Simple mathematics. Not political rhetoric, but mathematics.”
If you want to prove it for yourself, compare historical tax hikes and cuts to job growth numbers. You’ll see that business innovation drives job growth, not tax policy.
… And the President doesn’t create innovation.
US trade policy is a double-edged sword when it comes to employment. When the US adopts protective trade policies, it reduces imports (so more of the goods consumed in the US are made here) … but exports are reduced also. The US doesn’t make trade policies in a vacuum – when we restrict imports, other countries react, increasing tariffs and reducing purchases of our exports.
Since trade policy has both an effect and counter-effect, plus since the President doesn’t directly control trade policy, it seems unlikely that the President can create significant jobs through trade policy.
Compare this to FDR’s New Deal – Over a decade of stimulus spending, through New Deal programs and the massive stimulus spending of WWII. Each year of New Deal and WWII stimulus spending was many times greater than current stimulus plans, adjusted for inflation. With that amount of continued government spending, creating jobs for unemployed workers to build bridges, dams, roads and buildings, the New Deal created enough jobs for a long enough period to lift us out of the Great Depression.
So unless we elect a President and Congress willing to create jobs with massive, long term, New Deal level spending, we’re only going to have short term effects. With deficits caused by the current recession and past decisions, a candidate that supports such a bold moves would have a tough time getting elected.
There are plenty of reasons to choose one candidate over the other. The current election features wide differences between the candidates, representing different personal and political beliefs. Just not different on jobs …
So what are we left to choose between?
We’ve got two candidates, neither of whom can create jobs at any meaningful level. Both give projections meant to inspire voter confidence, a light at the end of the tunnel – projections of job gains that neither candidate will be able to achieve.
Because modern Presidents don’t create significant numbers of jobs … business does.-------------------------------------------------------------------------------------------------------------------------------------
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