Vice President Joe Biden gave a stark assessment of the economy today, telling an audience of supporters, “there’s no possibility to restore 8 million jobs lost in the Great Recession.”
I say we can restore those 8 million jobs and a lot more. But first, the government has to do something it is not used to doing: get out of the way. Given the chance, the American people will work hard and smart. We will succeed, but only if the government lets us. All we ask is that the government leave us be to work and earn the wages of our success and assume the costs of the risks we take.
First and foremost, government needs to reduce its share of economic output. In reality, government produces very little, but it does take money and redistribute it, a small percentage of which goes into goods and services that Americans want, though most of these could have been produced by the private sector. Look at this chart I posted earlier. Government’s share of the economy has steadily grown over the last hundred years. Every year, government creates more jobs, but this means fewer people available to work for private businesses, fewer people started new businesses, and fewer areas where private business can work without competing with government-run agencies or publicly subsidized organizations. Private business is being crowded out of the marketplace and it should be no surprise that they are not laying people off. Government needs to reverse this dynamic and enable the private sector to create jobs, take risks, and earn a profit.
Everybody knows that higher prices leads to less demand. Everybody except the politicians in Washington. High income tax rates discourages people from working. Taxes on dividends, interest, and capital gains discourage savings and investment. As a result, Americans are “going Galt” and going into debt. Why work hard to have most of your income taken away from you and given to somebody who doesn’t work? Why save and invest, risking a loss on your investment and paying taxes on any gains, when you can go in debt and have the government bail you out? To encourage work, government should lower income tax rates. To encourage new businesses and increased production, government should eliminate investment income. In fact, why not move to a consumption tax as Alexander Hamilton argued for in Federalist #21:
It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end proposed—that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty that, “in political arithmetic, two and two do not always make four.” If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.
While the working public pays exorbitant tax rates, the government has increased the incentives to not work. The government now provides 99 weeks of unemployment benefits. The government has expanded the food stamp program. The government has been “modifying” loans for those who were underwater. While I certainly believe we should be helping those hard hit by the recession, why not do it smartly? Instead of paying people not to work, let’s spend that same money encouraging business to hire more people and invest capital. In other words, lower taxes and reduce regulation. That is the best way to help those who are unemployed.