President Barack Obama celebrated the one-year anniversary of
his election with a speech to a Wisconsin middle school earlier
he began by congratulating himself for a job well done in
addressing the financial crisis. If he meant that it was his
plan for the U.S. dollar to tank and gold to keep hitting new
record highs, then he is indeed well on his way to being able to
raise his very own "Mission Accomplished" banner.
Most painful for many,
though, is the administration's apparent plan to drive up the
unemployment rate. Whereas it hovered below five percent two
the U.S. jobless rate hit a whopping 10.2% in October, a 26-year
high and only the second time in sixty years that it has topped
the ten-percent mark. By another measure, which includes those
no longer actively searching for a job and those unable to find
full-time work and settling for part-time work, the numbers are
even worse, hitting 17.5% in October.
Of course, Obama and his
crew cannot accept all of the blame for the mile high
unemployment. This mess was created under Bush Jr.'s watch, and
long before that, even. With central banks like the Federal
Reserve free to pursue inflationary policies unrestrained by a
gold standard, major boom and bust cycles are inevitable. What
goes up with the help of easy money will come crashing down at
some point. The only questions are when, where, and how hard—and
how long it will take for the malinvestments of the boom to be
That Which Is Deliberately Hidden
It is on this last point that Obama and company can shoulder a
lot of the blame. In pushing for and signing a near-trillion-dollar
stimulus bill in February, the President explicitly accepted the
notion that governments can create jobs. But every dollar
government officials spend on stimulating the economy is a
dollar taken away from taxpayers—more, actually, thanks to the
fraction skimmed off the top to pay tax collectors, tax
accountants, and the legislators and bureaucrats who decide
exactly how to spend it all. This is what Bastiat explained all
those years ago in
That Which Is Not Seen. Left in the hands of taxpayers,
those dollars would be spent on things
actually want, or saved and invested by someone else on things
the public actually wants. The stimulus effect would be even
stronger, as more real work would actually get done, and
malinvestment would be liquidated and redirected.
Bloomberg News columnist
Caroline Baum dissected the folly of all this talk of government
job creation just a few weeks ago, before
the latest numbers came out. In addition to making the link
to Bastiat, Baum mocks the idea of "jobs created or saved,"
which she calls "a made-up metric if there ever was one." She
also rightly points out that for the country's small businesses,
"the government's increased and changing role in the economy
isn't a confidence builder. Businessmen have no idea what health-care
reform will mean for their cost structure or what whimsical tax
policies the government might impose when it realizes those
short-term deficits are running into long-term unfunded
liabilities." Uncertainty is not a recipe for renewed hiring.
But the President is
committed to trying to micromanage the economy, just as his
predecessors Hoover and FDR did in the 1930s, delaying recovery
and causing unemployment rates to skyrocket. In response to the
October numbers, Obama signed an extension of jobless benefits,
which will have the effect of further reducing the incentive for
the unemployed to get back to work, especially if they can
expect lower wages than they enjoyed before the current crisis.
This more generous cushion interferes with the necessary
adjustment process, just as the Fed's easy money policy
encourages yet another round of malinvestment.
Of course, some spending on infrastructure may be long overdue,
and therefore not entirely squandered—although private actors on
a free market would be far more efficient at keeping
infrastructure maintained in the first place. The President also
said he was considering tax cuts for businesses in order to
encourage employment, a step that would mitigate the negative
effects of his other policies at least somewhat.
Indeed, with so many
factors at play, it is difficult to predict whether or not the
unemployment rate will peak early next year, as many are hoping.
And regardless of when things really do turn around, Obama's
defenders will doubtless say that it would have been even worse
without the stimulus, just as we free market folks will say that
the adjustment would have been quicker with less interference.
Such is the difficulty with counterfactuals, which plague
economics and all of the social sciences in which actual
laboratory experiments cannot easily be carried out.
All the more important,
then, to get the theory right, to make sure that it is
internally coherent and externally helpful in explaining real
world events. Austrian business cycle theory does a better job
than other models of explaining booms and busts. The booms of
malinvestment are caused by loose money, and the painful busts
that sometimes drag on so long are caused by interference with
the adjustment process, of which spurious job "creation" efforts
are one example. This was the real story behind the Great
Depression, and it is the real story now. If more members of
Congress understood this, they would have had a better chance of
saving their own jobs come next November's midterm elections.