A Recovery Only Washington Could Love

HERITAGE FOUNDATION

Today the Labor Department's Bureau of Labor and Statistics released its monthly jobs report showing that the nation's unemployment rose to 9.9% in April despite the addition of 290,000 jobs, 66,000 of which were temporary Census 2010 jobs. The rise in unemployment was driven by the entrance of 195,000 previously discouraged Americans reentering the workforce. In total, the U.S. economy has now lost a net of 2.6 million jobs since President Barack Obama signed his $862 billion stimulus plan. We are 7.6 million jobs short of the 137.8 million he promised the American economy would support by 2010.

It is encouraging to see the American economy beginning to recover, but these numbers again indicate that the Obama administration's heavy government hand has retarded and deformed what otherwise would have been a more robust recovery. The White House may tout Congressional Budget Office (CBO) reports showing their $862 billion stimulus created jobs, but the CBO has also admitted their computer simulation didn't take any actual new real world data into account. To the contrary, an independent study of real world stimulus facts found: 1) no statistical correlation between unemployment and how the $862 billion was spent; 2) that Democratic districts received one-and-a-half times as many awards as Republican ones; and 3) an average cost of $286,000 was awarded per job created. $286,000 per job created.

And what kind of jobs were created? According to Gallup the federal government is hiring at a significantly faster pace than the private sector. And data from BLS confirms that governments are increasing public sector pay at far faster rates than the private sector. None of this should be a surprise. President Obama specifically designed his stimulus to preserve government union jobs.

Not that President Obama's agenda has failed to produce any private sector jobs. The Washington economy is booming as private firms have been forced to hire legions of lawyers and lobbyists to both protect their firms from Obama's new agenda and find ways they can turn it into profit. This is why energy companies are spending millions on lobbyists to shape legislation instead of on scientists to find energy. It is why software companies are spending millions on lawyers to get federal government business instead of on engineers to develop new technologies. Back in 1994, columnist Jonathan Rauch explains what happens when Washington becomes a center of profit for the private sector:

Economic thinkers have recognized for generations that every person has two ways to become wealthier. One is to produce more, the other is to capture more of what others produce. … Washington looks increasingly like a public-works jobs program for lawyers and lobbyists, a profit center for professionals who are in business for themselves.


What happens when big government, and the big businesses best capitalized to influence it, are the main drivers of economic recovery? The recovery is slower and smaller than it otherwise would have been. A recent study by the Kaufman Foundation found that small businesses have led America out of its last seven recessions, generating about two of every three new jobs during a recovery. But under this Obama recovery, not only are government jobs growing faster than private sector jobs, but jobs are rebounding faster at large employers than small businesses.

And the Obama agenda is only set to make the environment for small businesses worse. The Obama budget plans to raise taxes on the small businesses that earn 72% of all small business income. Taxes on capital gains are set to increase to 20% while taxes on dividends are set to rise to 39.6%. Obamacare not only inflicts $503 billion in new taxes by 2019, $87 billion of which come from employer mandate penalties, but also burdens small businesses with new 1099 IRS paperwork every time they do more than $600 in business with another entity. Oh, and Obama is proposing more IRS funding and a change in law that will make it harder for small businesses to hire independent contractors.

There are far more types of small businesses engaged in more kinds of economic activity than Congress can devise special policy to help. This sort of one-off, micro-managing, tinkering policy may gain a headline and support, but it will not help small businesses broadly. The more Washington taxes and regulates, the harder it is for small businesses to innovate, force big businesses to be more productive and create new jobs. The more the Obama agenda is implemented, the slower our recovery will be.