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Government the Job Killer

Comment

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.

John Stossel is host of "Stossel" on the Fox Business Network. He's the author of "Give Me a Break" and of "Myth, Lies, and Downright Stupidity." To find out more about John Stossel, visit his site at <a href="http://www.johnstossel.com" <http://www.johnstossel.com>>johnstossel.com</a>. To read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

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Comments

9 Comments | Post Comment
I agree that there are too many regulations but I have to ask; what is the alternative? No regulations? One reason why we have so many regulations is because many businesses abused the system causing the government to react. We got Sarbanes-Oxley and Dodd-Frank for those very reasons. I shudder to think what might happen to my investments if there was no SEC or broker oversight. Granted the system is abused still but I have to wonder how much would I actually have left if companies were free to use stock holder money as they saw fit and brokers were able to use my money whatever way they wanted to without having to follow any rules. Yes the bad apples would be weeded out by the marketplace but the initial customers of such brokers would be screwed.
Comment: #1
Posted by: Aardvark
Wed Oct 12, 2011 9:19 AM
Aardvark, you are not thinking straight. Do you truly believe that the only altenatives are smothering regulation or no regulation at all? Get serious. That's like saying the only alternative to overeating is starvation.
Comment: #2
Posted by: Bereasonable
Wed Oct 12, 2011 10:19 AM
The alternative is market regulation and using courts to prosecute fraud and malfeasance based on common law. Brokers would have to follow rules outlined in the contract that they enter into with you. If they don't and you suffer as a result, you have the courts at your disposal.

You also missed this part: "In a truly free market, when private companies make bad choices, investors lose their own money. This tends to make them careful." Also, in a truly free market, there would be no corporations because corporations are founded according to laws of the state.
Comment: #3
Posted by: Grant
Wed Oct 12, 2011 11:08 AM
A certain amount of regulations are necessary. There are two things that need to be considered. First, companies must act within the legal and regulatory environment in which they operate. When the government requires private companies .. yes requires ... companies to engage in activities that are always unprofitable, those same companies will search for any means necessary to loose less money or still make a profit. The initial problem was the government intervention and distortion of the market, NOT regulation, but manipulation. The second major point is that the most recent bubble showed that the regulators were asleep at the wheel (you know .. doing drugs, watching porn ..). We need to find a good balance as a previous poster indicated.
Comment: #4
Posted by: EJR, MBA
Wed Oct 12, 2011 11:10 AM
How utterly asinine to blame government for companies not hiring. We've had far more regulations and hirer tax rates in the past, when unemployment was much lower and wages were much hirer. Tax rates are at their lowest in 5 decades, loopholes and deductions allow giant corporations to pay virtually no taxes at all, and the wealthiest individuals who've been allowed to hoard record profits can skirt taxes altogether by borrowing against their stock options.
Another fallacy of the 'government interference' argument is that suppose regulations were wiped off the face of the Earth, what makes anyone think that companies will immediately start hiring? There has to be demand. What sane person believes that companies will voluntarily create demand for themselves by hiring more workers? I don't know of any. And if there's no demand, there is no spending, and if there is no spending, who's burden does it become to keep money flowing through the system? Guess.
Comment: #5
Posted by: luvbrothel
Wed Oct 12, 2011 11:41 AM
Re: luvbrothel
There is demand out there, but only Adam Smith knows what it is for. By the way "higher" is spelled with a "g".
Comment: #6
Posted by: Simple
Thu Oct 13, 2011 9:00 AM
I sell integrated accounting and automation software to small-medium manufacturers and wholesale distributors across the country, and have done so for the past 28 years. My customers are not spending money on hiring...they are automating wherever they can. And, for one reason: Obamacare.

A good many of my customer self-insure. That is, the company pays for the first $50,000 of an employee's medical bills, then, a catastrophic policy kicks in. The employees of the these self-insured companies do not have to worry about whether a doctor is in a network, etc...the company pays. And, the companies benefit from drastically reduced insurance premiums because the company pays the bulk of the medical expenses. It is a win-win situation.

Unfortunately, Obamacare has these companies' employees petrified they are going to lose their insurance because companies that self-insure must be certified by Obamacare in order to continue to provide the employees with the existing plan. The problem is, the mechanisms to certify don't even exist, and, who knows when they will. As such, these companies cannot plan, and are holding onto their money because they have NO IDEA how much Obamacare is going to cost them.

Say what you will about regulation, but it is precisely this sort of crap that has frozen the spending of the private sector. I hear it every day, from all over this country.
Comment: #7
Posted by: Jimmy Jingo
Sun Oct 16, 2011 8:16 PM
I might add, I have read in numerous places it takes 5 private sector employees to support a single federal employee. A couple of months ago, I did the math, using one of my own wholesale distributor customers as the example. For a federal employee making $60,000 per year, it takes 5.7 of my customer's employees to generate the taxable profit to pay that salary.
Comment: #8
Posted by: Jimmy Jingo
Sun Oct 16, 2011 8:20 PM
Who is John Gualt ?
Comment: #9
Posted by: YadaYa
Tue Nov 1, 2011 9:02 AM
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