No Growth Trap and How to Create Jobs

New jobs are created by above average economic growth.

The creation of additional government jobs will not create sustainable economic growth.

Jobs, therefore, are an input cost and not a goal.

Employment growth is derived from economic growth, or the the private sector's growing output.

Hence, the current focus on creating jobs is misplaced. Instead the focus must be on creating the conditions which will support sustainable economic growth. That and only that will result in more permanent jobs.

Can Anyone Really Create Jobs? addresses this jobs issue in a rather straightforward manner. Describing the relatively new focus on how jobs are created, it says this:

". . . an economy is truly healthy only when its people know how to make and do things that others will pay them a decent amount for. Jobs, in other words, are not the cause of a healthy economy; they’re the byproduct. And that’s another thing most national politicians know but will never say.

So perhaps instead of (or, at least, in addition to) arguing over plans that aren’t going to happen, we should focus on what almost certainly will come true. The economy that emerges from this recession is going to be different. Without the distortion of a credit bubble, it is clear that far too many Americans don’t know how to do anything that the world is willing to pay them a living wage for. No economic theory offers them easy salvation."

We clearly have a stagnant economy today with high unemployment, too little growth, high deficits and an expanding national debt. We've been at stall speed for some time now, and there's no apparent end in sight.

In The Gridlock Where Debt Meets Politics the root of the stagnation problem that we don't want to face is described as follows:

"This cycle of bureaucracy and gridlock has been repeating itself for months now. It is tempting to blame feckless politicians on both sides of the Atlantic, and that would not be entirely wrong.

But the frailty of politicians is not the full story. The fact is that most of the industrialized world — Europe, the United States, Japan, too — is in a difficult economic bind. There are no simple solutions that would quickly win the approval of citizens if only politicians were willing to try them.

Most voters in these places have yet to come to grips with the notion that they have promised themselves benefits that, at current tax rates, they cannot afford. Their economies have been growing too slowly, for too long, to pay for the coming bulge of retirees."

Here's the punch line. We have a stagnant economy and high unemployment. The demographics don't help either as we have an aging population taking most of the government spending. We've made promises to the elderly of today and tomorrow that we simply aren't funding sufficiently. To do so will require substantial tax increases across the board and not just directed at the wealthy.

Substantial tax increases will keep our economic growth subdued for years to come. In that case, the needed jobs won't come either.

In the meantime, the U.S. has become weak financially due to continuing government budget deficits and the resulting enormous federal debt levels.

It's reached a point where we now have only difficult choices before us as a society.

If we choose to raise taxes and keep the elderly benefits intact (primarily medicare, social security and medicaid nursing home subsidies), the U.S. economy won't be able to resume private sector growth at a healthy enough rate to reduce unemployment.

On the other hand, if we choose to curtail elderly benefits, we're likely to believe we've somehow failed the elderly and done something immoral.

As I said, we have no easy choices.

But the absolute worst choice would be to continue to do nothing. This is in no way a short term problem that will go away if we continue to ignore it. It will only get worse.

This isn't a Democrat-Republican political issue either, and benefits for the elderly should not be a partisan issue. Besides, coming right behind these already elderly Democrats and Republican voters are lots of middle aged members of each political party as well.

While we oldsters don't want to saddle the next generation with insoluble problems or deprive them of the opportunities we were given by our parents, we're on the verge of doing just that.

We all want to give the economy a chance to grow and create jobs in the process, but we're afraid to finance that chance with a reduction in funding for future entitlements.

But that's the best way to avoid excessive tax increases, a stalled economy and high unemployment for another decade or so.

So that's the no-growth trap we're in today.

Just thought I'd mention it, since nobody else seems to be saying much about it.

Thanks. Bob.