Where is Truth?

John Tamny on politicians and unemployment.

Some points made by Tamny:

1. Employment is a means to an end, not the end itself. Jobs are constantly destroyed in an economically vibrant country, but this is overall a good thing. Bad jobs (for lack of a better term) are destroyed (by technology, outsourcing, etc...), but better jobs, in the long run, result, due to the freeing of capital, time and other factors that stem from growth and production.

2. The benefits of a job (wages) are a cost (capital) to an employer (investor). So an investor will only invest in labor if he feels he will get an adaquete return on his investment.

This paragraph sums up these points nicely:

Harsh as it may sound to some, businesses are only in business thanks to investors willing to support their operations. But what this means is that if businesses successfully destroy jobs on the way to profitability, the act of doing so enables them to attract the capital necessary to enter into new lines of work that almost as a rule will require them to hire people. Production is always the end, while employment is frequently the means to that end.

The part concerning politicians and investors' reactions to said politicians interference in the market gets a bit tricky. Tamny claims:

Corporate bailouts are supported by politicians owing to their belief that they'll save jobs. In the near-term that's true, but over the long-term bailouts repel the capital necessary for true job creation for keeping human and physical capital locked in the hands of failed managers. Investors as a rule invest to make money, and as such, they're logically unwilling to commit capital to the prominent business concepts of the past.

President George W. Bush foisted no less than two stimulus packages on the economy to President Obama's one (so far?), and both did so in name of job creation. But the obvious problem beyond stimulus merely redistributing wealth is that it too is anti-investment.

Investors correctly see that only the politically connected will receive stimulus funds, and they deduce that those in receipt will forever be in thrall to governments who seek to achieve social goals over profits. Stimulus similarly repels investment for those with capital being well aware that far from generating productivity, stimulus rewards the indolent at the expense of the productive.

Lastly, the Obama administration is mimicking the Bush administration in its support of a weak dollar, once again in the name of jobs. Sadly, Obama like Bush before him is failing to consider the investor in possession of capital in pursuing this most foolish of policies. Indeed, investors have to consider inflation before committing job-creating capital, and if monetary debasement is going to erode any returns, they logically invest elsewhere. It seems nearly every politician and economist believes in the power of debased money to create jobs, but reality and rational investors keep proving them wrong.

What this boils down to is supply-side assumptions vs Keynesian assumptions:

Is the private actor rational and emotionless in his decision-making, responding to institutional incentives in the most sensical manner imaginable?

Or is he dominated by his 'animal spirits', the tides of fear and greed, a mere lemming in a herd of irrational exuberant behavior?

No doubt both theories play a role in examining the ever complex human mind. But to what degree does each play a role?

That is the ultimate question.