Tuesday, January 26, 2010

What matters in the end? Jobs, Jobs, Jobs

Those of you who read Constitutional Guardian with some regularity know I am a proponent of smaller government and greater economic freedom. Already I know there are some who will see this as a call for free-wheeling, unbridled capitalism. The kind that brought us Enron they will say. And to them I say: Never mind. Don't bother reading any further. Pull up a chair and turn on MSNC--better for your blood pressure.

If you are still reading... well, good. Here's my point.

Economic incentives-no matter how poorly conceived-are effective. Cash for Clunkers increased sales for the auto companies dramatically. The incentive worked by borrowing from future sales, providing an incentive for consumers in the form of a tax credit. When the program ended automotive sales plunged. Sales increased thanks to the incentive and decreased for the same reason. In other words, Cash for Clunkers did not necessarily increase demand for cars, it simply accelerated purchases that would have taken place anyway.

Economic growth--new demand that is--produces real, sustainable demand for products and services. There is no substitute.

Fast forward to the housing tax credit, originally the first-time buyer credit now expanded to include repeat buyers. So effective it was perceived (by our friends in Washington) to be, the deadline was extended to prop up the sagging housing market. Yet, the latest numbers reveal that despite the tax credit extension, sales fell off a cliff in December. According to The Wall Street Journal: "Regionally, December sales fell 19.5% in the Northeast, 25.8% in the Midwest, 16.3% in the South and 4.8% in the West."

The Obama Administration and the Democrat controlled Congress can incent people to spend money all they want. But until they solve the jobs problem, these programs will provide a temporary burst at best, but no long lasting growth. And, I have a little to share with the bureaucrats, people without jobs don't spend money they don't have. Unlike the government.

Rather than fiddle with our health care or our energy consumption, piling tax upon tax onto the backs of small business and individuals trying to provide a decent life for their families, this Congress and this President would do well to grab a copy of the Federalist Papers and Art Laffer's book, The End of Prosperity and hunker down for a good read. At the very least it will keep them away from Capitol Hill and the temptation to pass more ill-conceived legislation. And it just might cause them to consider what their real responsibilities are and why we sent them there in the first place.

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