Government Force or Market Forces? – What's Better for the Job Market . . .

By all accounts, future job growth is going to be sluggish at best and we can expect double digit unemployment at least through next year. The Democrats’ response is a $300 billion jobs program. Many Republicans would rather rely on the private sector to fuel the recovery and job growth. So what’s better, Government Force or Market Forces?

shell-game

The use of the phrase Government Force is based on the nature of government programs. The vast majority of the people would prefer to pay little or no taxes. They are literally forced by government to pay those taxes. As it relates to a jobs bill, the Democrats will tax one set of people or businesses (taxpayers) and/or borrow money (a delayed tax) and then transfer a portion of those collected/borrowed funds to other people or businesses. In that manner, the Democrats believe they have created a job – or in today’s vernacular, saved a job. But have they?

In the process of taxing some and transferring to others, the government force has taken money away from a business/taxpayer in California and perhaps given it to someone in Alabama. That means the business in California cannot hire someone (or save a job) with the money transferred to Alabama – a type of zero sum game. Actually, it is worse than a zero sum game because government always manages to waste money in the transfer and so Alabama is never helped so much as California is hurt.

Put another way, in an effort to fill Alabama’s bucket, the government forces the emptying of California’s bucket through tax and spend transfers. Perhaps that is why Churchill famously said “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

Market forces, on the other hand, are far more efficient and are not a zero sum game. When the California businesswoman keeps her money, and responds to actual demands for her product, then she voluntarily hires a worker without the inefficient transfer of money from California to Washington to Alabama – less government carrying charges. Moreover, when market forces dictate the hiring of employees, it is based on sustainable demands, i.e. true consumer demands for large TVs. Government force, on the other hand, arbitrarily commands the production of products or services politicians think people may want – a process which is guess work and not sustainable.

The problem today, of course, is consumer and business demand is low. The Democrats want to “stimulate” demand through a tax and transfer scheme. The correct measure is to “grow” that demand and that can only be done through recognizing what is holding that demand back, i.e. a lack of money brought on by high taxes, high regulations AND the threat of even more in the form of the expiration of the Bush tax cuts, health care mandates, Cap and Trade and income tax surcharges in California (13% of the US economy) and nationally.

It stands to reason that if people are not buying now because they don’t have the money or are worried about the future, threatening with less money in the future (tax increases or higher regulatory costs) will convince them to spend even less now and in the future thereby exacerbating the problem for everyone.

In order to avoid such worse-than-zero-sum games, Democrats should stop enacting new laws and rely on the laws of economics. In other words, they should unleash efficient market forces by cutting taxes and regulations so people have more and have the expectation of more money. Only then will purse strings truly loosen and sustainable job growth occur.

If Democrats insist on government force, then a different type of consumer will exert their force in the market place of ideas – that would be voters in November 2010.

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