This past week was what my office refers to as a “Minus Ray Week.” I was in New Mexico, Missouri, Illinois, Tennessee, and New York, with four cities in Texas sandwiched in between. The flying faxes, calls, and emails as I seek to control my universe are dizzying—to say the least—and you haven’t really lived until you’ve had to decipher a fax of my messy, miniscule handwriting.
While on this sojourn, I noted that one small segment of the economy—that notable entity that I would like to (but can’t) control—was once again running amuck. First, the meeting of the World Trade Organization in Montreal was attracting its usual gaggle of protestors, but that’s nothing new. More disturbing, some of our well-intentioned but misguided leaders in Washington were seeking to enact measures to penalize US firms that moved jobs to other countries. Expressing legitimate concern over the “jobless recovery” amid layoffs in several key sectors, they were proposing a cure that was much worse than the disease.
Don’t get me wrong. I am all for generating new employment in the US. The long-term health of our economy depends on it. We cannot hope to achieve this critical goal, however, by artificial mechanisms. This notion of trying to force activity to occur where it doesn’t belong has been thoroughly discredited in both academic literature and the lessons of history for a couple of centuries, but that is nothing if not stubborn.
When we compel firms to make less-than-optimal decisions about where to produce goods and services, several things happen. First, the firm becomes less profitable and less competitive globally, thus limiting its long-term potential and quite often driving it out of business entirely. The end result is the essential loss of not only the “expected” jobs, but those that remained in the country and all of the supporting activity.
Second, we artificially divert our research into unproductive uses. As a result, we are unable to achieve our full potential in terms of both output and jobs. This practice constrains our future prosperity.
Third, we inhibit the potential of the global economy, as we prevent resources from seeking their highest and best use. This action both invites retaliation from other countries (thus eliminating even the illusions of short-term gains that drives this initiative) and restricts the capacity of our trading partners to purchase the goods from us that we should be producing. I could go on and on, but you get the picture.
The process of creating jobs is very simple in principle. Create taxing, spending, regulatory, and monetary policies and priorities at all levels of government that stimulate investment, innovation, and basic research. It is in this manner that the US enjoys its only true comparative advantage in the international economy. Complement these policies with the best education and training we can possibly provide at all levels (elementary, secondary, college, technical, and continuing). Finally, open up markets and get out of the way. These basic actions will ensure that we create jobs at a healthy rate and achieve sustainable prosperity doing what it is that we do best. All of the other policy matters we get so worked up about would just become “round off error” in the process.
In summary, constraining markets and breeding needless inefficiency is no way to run our economy, no matter how laudable the reasons may seem. It is a short-sighted, band-aid solution that is doomed to failure. The vulgarities of a sluggish period in business activity, despite the very real pain that comes with it, must not dictate policies that will only make it worse.