Productive, private-sector jobs - the lifeblood of a sound economy - are under
assault by politicians in the United States and Western Europe, who have
unwittingly taken a number of steps that make future job losses a foregone
conclusion.
In the 1980s, as a member of the British parliament and elected chairman of the
Conservatives' small business committee, I led discussions on the issue of job
creation. At that point, the British labor market was dealing with
technological advances that threatened traditional industries and an influx of
highly competitive Eastern European workers who drifted westward in the waning
days of the Cold War.
Pushing back against those who wanted to preserve an untenable
status quo, the Conservatives recognized that defensive measures like excessive
regulation, high taxes and favored bidding for government contracts were
antithetical to business growth. Fortunately, Margaret Thatcher was prime
minister. Her understanding of economics, combined with her ability to
communicate and lead, resulted in the adoption of pro-business polices. The
British economy soon flourished, creating many profitable new jobs.
Despite the rhetoric of President Barack Obama, his administration is actually
leading the US in the opposite direction. By raising taxes on business owners,
monopolizing credit and increasing business regulations at a frightening pace,
present policy is turning the employment landscape into a rather sterile
promontory.
Meanwhile, the media have selectively focused on the recently passed jobs bill,
which includes meager tax credits for new job hires. If this bill has any
effect, it will be to encourage cash-strapped entrepreneurs to make hiring
decisions that are unjustified by current business activity.
In reality, employment's future is being decided in the credit markets. Here,
the US Federal Reserve's zero interest rate policy is redirecting investment
capital towards government. When banks can borrow from the Fed at zero percent
and buy long-dated US Treasuries yielding 3% to 4%, there is little incentive
to take the risks inherent in business lending. Business credit is, therefore,
tighter than even a severe recession would ordinarily dictate. This lack of
credit is starving the private sector's ability to create jobs.
Furthermore, the "progressive" activism on display in Washington is breeding
great uncertainty in the board room, making businesses even more cautious in an
exceptionally difficult planning environment.
In fairness, the seeds of job destruction in America were sown years before
Obama rose to power. In recent decades, in response to intense lobbying by big
banks and corporations, some key changes were made that reduced market
flexibility. These included abolition of the Glass Steagall Act and the
weakening of anti-trust laws, without concurrent efforts to remove preferential
treatment for those companies deemed "too big to fail". These moves appeared to
extend the free market, but in reality they allowed big banks and corporations,
like Citigroup, AIG and GM, to squeeze out smaller competitors in good times
and fall back on government support in bad times.
The increased powers of the crony capitalists were used to drive down the
prices of suppliers, many of whom were small businesses or farmers. At the same
time, financial profiteering created ownership wealth on an unprecedented
scale, greatly increasing the wage gap between owners and workers.
Finally, the creation of the largest speculative asset boom in history by
former Fed chairman Alan Greenspan led inevitably to a massive bust, causing
economic hardship and dislocation for millions. If the likely double-dip
recession occurs, even more jobs will vanish.
Most American job losses in recent decades were due to outsourcing to more
competitive economies because of the harmful effects of our domestic government
policies. Big spending by government now is unlikely to cure this deleterious
situation. The only realistic solution is to shrink government and remove
subsidies and guarantees to big business.
The United States must become fundamentally competitive once again by
unleashing the power of the entrepreneurial spirit. Otherwise, the "giant
sucking sound" of good jobs heading overseas, as Ross Perot famously described
it, will only grow louder.
Peter Schiff is president of Euro Pacific Capital and author of The
Little Book of Bull Moves in Bear Markets. Euro Pacific Capital commentary and
market news is available athttp://www.europac.net
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
