Government the Job Killer

Government the Job Killer

Wednesday, October 12, 2011

President Obama says government will have to build the nation out of the economic trough.

"We're the country that built the intercontinental railroad," Obama says. "So how can we now sit back and let China build the best railroads?"

Ironic that he mentions the Chinese. Progressives used to complain that to build the railroad, bosses abused Chinese workers — called them "coolies" and treated them badly. Now this is big success?

I guess Obama doesn't know that the transcontinental railroad was a Solyndra-like Big Government scandal. The railroad didn't make economic sense at the time, so the government subsidized construction and gave the companies huge quantities of the best land on the continent. As we should expect, without market discipline — profit and loss — contractors ripped off the taxpayers. After all, if you get paid by the amount of track you lay, you'll lay more track than necessary.

Credit Mobilier, the first rail construction company, made enormous profits by overcharging for its work. To keep the subsidies flowing, it made big contributions to congressmen.

Where have we heard that recently?

The transcontinental railroad lost tons of money. The government never covered its costs, and most rail lines that used the tracks went bankrupt or continued to be subsidized by taxpayers. The Union Pacific and Northern Pacific — all those rail lines we learned about in history class — milked the taxpayer and then went broke.

One line worked. The Great Northern never went bankrupt. It was the railroad that got no subsidies.

We need infrastructure, but the beauty of leaving most of these things to the private sector — without subsidies, bailouts and other privileges — is that they would have to be justified by the profit-and-loss test. In a truly free market, when private companies make bad choices, investors lose their own money. This tends to make them careful.

By contrast, when government loses money, it just spends more and raises your taxes, or borrows more, or inflates. Building giant government projects is no way to create jobs. When government spends on infrastructure, it takes money away from projects that consumers might think are more important.

When government isn't killing jobs by sucking money out of the private sector, it kills jobs by smothering the private sector with regulation. I talked to Peter Schiff about all this. Schiff is a good authority because he was one of the few people to warn of the housing bust. Now he's had a run-in with the federal government over job creation.

Schiff, who operates a brokerage firm with 150 employees, recently complained to Congress that "regulations are running up the cost of doing business, and a lot of companies never even get started because they can't overcome that regulatory hurdle."

Schiff claims he would have hired a thousand more people but for regulations.

"I had a huge plan to expand. I wanted to open up a lot of offices. I had some capital to do it. I had investors lined up. My business was doing really well. But unfortunately, because of the regulations in the security industry, I was not able to hire."

So if he wants to hire an analyst, he can't just hire him?

"I had to get permission to publish their research, which I didn't get for years. And so I can't pay analysts if I can't sell their research.

People don't appreciate the number of regulations entrepreneurs face. Schiff pays 10 people just to try to figure out if his company is obeying the rules.

"You can't just act very quickly, because everything has to be done through this maze of compliance. Even my brokers … find out that maybe 20 percent, 30 percent of their day is involved in compliance-related activity, activity that is inhibiting their productivity. … All around the country, people are complying with regulations instead of producing, instead of investing and growing the economy. They're trying to survive the regulations."

This is no way to create jobs or wealth. Keynesian pundits and politicians can't understand why businesses sit on cash rather than invest and hire unemployed workers. It's really no mystery. Government is in the way.

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