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Bill Kennedy: Development or dependency?

Right Here Right Now

Posted: October 22, 2009 9:31 p.m.
Updated: October 23, 2009 4:55 a.m.
"Give a man a fish and he will eat for a day. Teach a man to fish and he will eat for a lifetime."

When it was released with great fanfare last February, President Barack Obama's economic stimulus package was heralded as the answer to what he described as our greatest economic crisis since the Great Depression.

The stated objective at the time was that it would save or create some 3 million jobs.

At this point we might ask, "Is it working?"

A review of the data indicates it is not. Since January, we have suffered a loss of 4.2 million jobs in this country and every major sector of our economy has suffered job losses except one - government, which is up about 11 percent!

The problem with this is that government is not good at valued job creation. Government is an activity-based entity, not a productivity-based enterprise, and thus there is little or no incentive for efficiency.

"But wait," you might say, "what about the jobs saved in the private sector as claimed by the White House?"

Here, the results are more a matter of faith than fact. Much like the joke character who proclaims he is keeping elephants at bay by snapping his fingers, the government seems to be conjuring data about saving jobs. Though government spokesmen may claim 150,000 to 300,000 jobs saved as though they were actually counted, in reality they are merely estimates using what may well be faulty logic.

According to a recent CBS Evening News report, the White House uses what's called "macroeconomic methodology" to give the president a formula for the jobs that should be created, not a tally of jobs actually created.

Thus, they use historical productivity rates to calculate the number of people that is required to produce current products and services and the difference between that number and the actual number of people employed is presumed to be "jobs saved."

The weakness of this approach is that there is no credit for advancements in productivity of the existing labor force, though those who have not lost their jobs are likely above average in productivity.

Further, during downturns, companies are highly motivated to tap into technology and the creativity of their workers to improve efficiency. These factors virtually assure that government estimates of "jobs saved" will be overstated - perhaps by a wide margin.

This is a pity, because job creation is what we need for sustained economic development and the administration's efforts to soft-pedal the numbers distracts our focus.

Further compounding the problem is the administration's propensity to give money away in the form of extended unemployment benefits, Social Security COLA offset payments, stimulus refund checks and the like.

In economics, such handouts are known as transfer payments, because they merely transfer wealth form one entity to another without creating meaningful productivity output or economic development. These payments may temporarily raise people's spirits or hopes for the future (sound familiar?), but they do not have a meaningful, enduring effect. Moreover, repeated transfer payments can have a harmful long-term effect by nurturing dependency on the government and exacerbating the budget deficit.

Unlike transfer payments, money directed toward job creation actually contributes to economic development. Workers turn out needed goods and services and pay taxes on their wages to sustain our government. It should be the wish of all of us that the current administration put as much emphasis on job creation as it does on redistribution of wealth.

There are many ways to do this. Expenditures on public works create contracts for firms and provide short to medium-term employment opportunities. Investments in the U.S. energy grid could pay off in the long run by making consumption cheaper for everybody for decades to come. Investing in more education for the unemployed and bolstering the budgets of our community colleges would prepare them for new careers. Granting businesses tax credits for creating real jobs is another good investment.

It is time for people to demand that our government stop making handouts and place more emphasis on a hand up.

In the choice between dependency and development, let us choose development. Working on working will make us all better off ... Right Here, Right Now!

Bill Kennedy lives in Valencia and is a principal in Wingspan Business Consulting. He serves the community as Planning Commissioner, chairman of the SCV Chamber of Commerce and is a member of the following boards: Valley Industrial Association, College of the Canyons Foundation, and Habitat for Humanity SF/SCV. His column reflects his own views and not necessarily those of these organizations or those of The Signal.


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