Obama, the anti-jobs candidate

Topics: Labor
26 Oct 2008

From: Ervan Darnell





"There is nothing more fundamental than a job" [e.g. 1] is an
often repeated Obama line. He has it exactly wrong. The rest
of his argument is that preserving jobs is the strength of the
economy. This is the broken window fallacy [2]. He's also
playing to the emotional make-work bias[3] of foolish voters.

If you want full employment, there is a trivial way to achieve it: outlaw
farm machinery. We'll be employed 80 hours/week for our whole
lives. But we all know that's worse than some unemployment.
The same is true of any make work/job preserving program. It does
more harm than good, but it's easy to point to the winners while the
losers are harder to find, and so it has an emotional appeal. It's
a bit like minimum wage. The logic normally used to support it
("everybody deserves at least $x") clearly doesn't work at the
$50/hour level. It doesn't work at the $8/hour level either, but
the harm is minimal enough we convince ourselves it does [4].
Artificially preserving employment will be a lot more painful though as
we keep people doing the wrong thing.

What the economy was doing six months is now seen to be a chimera, a
state of affairs that cannot continue because it was based on bad
assumptions of value. In particular, a lot of people were doing
jobs that didn't need to be done (like building new homes, or writing
fancy loans for new homes that didn't need to be bought, or catering
sushi to the brokers that were writing loans for homes that didn't need
to be bought, etc.). Unemployment, in the short term, is essential
to moving people into new jobs where they really can be productive.
The Obama prescription is to preserve their doing the old useless things
(or perhaps instead to create new useless things). Ironic that his
mantra is "Change".

But what's his plan? To raise corporate taxes[6] (and while he
equivocates on this, he has consistently attacked McCain's plan to lower
corporate taxes, which is tantamount to he, Obama, endorsing raising
them). This is surely a job killer[5]. McCain has it right
when he points out the U.S. has the second highest rate (albeit with lots
of individual company exceptions) for corporate taxes in the OECD.
Obama's plan is to tell all new or growing companies to move to
Ireland. What's Obama's answer to that? Penalties for companies
that move jobs offshore (in the form of tax breaks for those who
don't)[7]. That will just send the whole company overseas, and is
ultimately just a subtle version of his anti-trade policies (another
Caplan fallacy). Or, Obama's plan becomes meaningless as companies
divest their foreign operations as a separate unit.

If that's not bad enough, he wants to raise capital gains taxes in
particular (and above the nominal corporate income tax rate after failing
to correct for inflation), which will hurt new companies, after he just
finished hammering existing ones, just the opposite of the policy we need
to lower unemployment with productive new jobs as we rearrange the labor
force coming out of a recession. Ah, but he has another
"fix", give a break to some businesses from his new tax [7,
again]. There is a statist arrogance in assuming one can pick which
jobs are the winners and which are the losers, not to mention the new
rent seeking potential of lobbying Congress to be on the list. I
don't know the magnitude of his tax break versus his tax increase, but
either he is left with a new tax increase on business (bad) or the same
taxes as now but a lot more bureaucracy to keep it that (bad). It's
a loser either way.

Then there are the union handouts. The EFCA[8] is a gem. It
allows unions to use non-secret ballots for unionization votes, thus
creating a winking and blinking arrangement to tolerate threats to gain
unionization votes. We're watching UAW's decades of sloth and
corruption just about to drive GM to bankruptcy, and Obama wants more of
this. Even if you think that union jobs pay more in the long run,
they generally achieve that only by creating a government protected
monopoly that locks people out of a given labor market, which definitely
decreases employment.

-----------------------

[1]

http://www.americablog.com/2008/10/obama-on-economy-theres-nothing-more.html
[video]

http://elections.foxnews.com/2008/10/02/obama-slams-mccain-claiming-economys-fundamentals-strong/
[excerpted quote]
[2]

http://en.wikipedia.org/wiki/Broken_window_fallacy
[3]

http://en.wikipedia.org/wiki/The_Myth_of_the_Rational_Voter
[4] Vince has argued before that low-wage employment is inelastic for
a small pay range, and data is uncertain, so this might be true, but the
logic used to support it clearly won't extend to a large enough scale for
it to be meaningful.

[5] A couple of links that explain the argument:

http://www.heritage.org/research/Taxes/wm1891.cfm


http://www.taxfoundation.org/blog/show/23478.html
[6]

http://www.capitalgainsandgames.com/blog/pete-davis/363/mccain-vs-obama-tax-policies

[7]

http://www.barackobama.com/issues/economy/#invest-for-jobs
[8]

http://en.wikipedia.org/wiki/Employee_Free_Choice_Act



====================================================
Ervan Darnell,

http://www.kelvinist.com

"An election is nothing more than the advanced
auction of stolen goods." --- Ambrose Bierce




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