Presidents Don’t Magically Create Jobs

Politicians love to talk about job creation. In the midst of a recession, politicians need to talk about job creation (preferably while wearing hardhats). Businessmen do not care about job creation.

A savvy businessman does not go into business to create jobs, but rather to create wealth. In fact, a savvy businessman is dragged kicking-and-screaming toward job creation, because people—“human resources” with all of their highfalutin expectations about a regular paycheck, healthcare coverage, and retirement planning—typically account for the largest categories of expense in a business. A well-managed business does not hire willy-nilly; a well-managed business first looks at how technology, infrastructure, and incentives can increase the productivity of the existing workforce. As they say in the technology business, “People don’t scale.” So profitable companies are slow and methodical in their hiring. Facebook, for instance, boasts of its ever-growing user-to-engineer ratio of 1.2 million-to-1.

Mitt Romney did a bang-up job as managing director of Bain Capital. The proof: he made his investors (himself included) bazillions of dollars. Mitt, like every other private equity CEO, had two basic goals at Bain Capital: (1) don’t go to jail, and (2) generate astronomical returns on invested capital. The way he did it (and the way private equity works) is by acquiring underperforming or mismanaged companies at a steep discount, cutting expenses (i.e., downsizing and/or shuttering or selling laggard divisions) and other “fat” (weak products and other low-ROI activities) and then “flipping” them for a sizable profit. Mitt may have created jobs along the way—although net-net I would guess he created about as many as he eliminated.

The President of the United States cannot create jobs outside of his organizational chart. What the President can do is work with Congress and the Federal Reserve to create more favorable economic conditions that could lead to job growth.

When a presidential candidate promises to create jobs, he or she is either (A) deluded, (B) squishfully thinking, or (C) lying. Moreover, a rah-rah, “If I’m elected” speech that promises a job for every adult and a puppy for every child is an indicator of a candidate’s thin understanding of how the presidency works and how jobs are created.

Jobs are not created by cutting personal income taxes, because wealthy people with decent accountants make as little money as possible in the form of high-tax wages. They make their money in investment income that is taxed at the capital gains rate. The next time a politician tells you that he will create jobs by lowering your personal income tax rates, call it what it is: he’s subtly bribing you to vote for him.

You want to create more jobs? Create more entrepreneurs.

Jobs are created by growing small businesses. Small businesses are created by entrepreneurs. When I say “small businesses,” I do not mean wink-wink SBA-defined “small businesses,” which can have, depending on their industry, revenues of up to $35.5 million and up to 1,500 employees. I mean real small businesses: firms and shops and practices and apps and teams. Businesses going from 0 to 1 or in the early stages of going from 1 to n.

For there to be jobs, there must be work to be done. Someone has to identify a market and pursue a vision bigger than herself, an ambitious goal that will take a team to accomplish. Rampant unemployment is an indicator of a culture’s creative bankruptcy.

But the past four years have not been about job creation or even about economic recovery. They have been about economic triage.

Obama’s economic performance should not be measured by how much the economy has grown over the last four years but by the degree to which its catastrophic collapse has been averted.

The goal of an economic stimulus plan is not to create jobs. The goal of an economic stimulus plan is to keep the economy from cratering while we wait for a real recovery. Roosevelt’s WPA and CCC initiatives did not save American from the Great Depression, but they allowed a lot of people to survive until the WWII industrial boom jumpstarted the nation’s economy again. Obama’s ARRA and TARP programs had the same intent but have met so far with more tepid and less hopeful results.

Had the social darwinist agenda of the Tea Party been followed, and government remained aloof while the economic foundations began to crumble, what would have been the result? If most major Wall Street banks, domestic automakers, construction firms, and real estate companies had gone belly-up in 2008 and 2009 (as some claim they should have), what would the unemployment rate be like today? Would the scarcity of capital and the seizing up of public markets have impacted every business, school, and municipality in America? The answers to these questions do not require conjecture: they require history. The laissez faire, “don’t touch my money” economic agenda of the rightest-of-the-right GOP would have been as successful as Herbert Hoover’s do-nothing response to the stock market crash of 1929. We know how that ended. Or we should. “Now in theaters: Great Depression II: The Ignorance of History.”

(As a sidenote, it is curious to me that the strongest proponents of social darwinism are the strongest opponents of biological darwinism.)

To be clear: I do not think President Obama has done enough to create jobs. I think he made an earnest, if overly technocratic attempt to stop the bleeding in a situation of grave economic trauma. Whatever the outcome is in November, I hope that phase two of the recovery will begin soon. The ingredients of that phase will be simple, if elusive: a widespread spirit of hope/optimism/opportunity, financial regulations that provide incentives and protections for entrepreneurs and investors, an education system that promotes creativity and inventiveness, and a cultural celebration of hard work, diligence, humility and thrift.

Until then, we either wait or we create.

About Ben Ponder, Editor-at-Large

Ben Ponder, PhD, is Editor-at-Large at Media Rostra. Ben has received decorative pieces of paper conferring upon him an unnamed set of “rights and privileges accorded thereto” from the University of Arkansas, Regent College, and Northwestern University (where he was a Presidential Fellow). He studied (in alphabetical order) architecture, classics, communication, history, political science, rhetoric, and theology. He is the author of American Independence: From Common Sense to the Declaration (“Sizzling.” – TMZ) and the co-editor of Making the Case: Advocacy and Judgment in Public Argument (“Six-pack abs-olutely great!” – US Weekly). Ben is currently an executive in the educational software industry. He and his organic wife, Amy, live with their four free-range kids in a farmhouse Ben designed and built. His personal site on the Interweb is benponder.com, and he can be reached on Twitter @ponderben.