Connections: The Missing Factor

The lack of jobs growth in the US’s economy is perplexing the experts and the not-experts (the politicians). Republicans have their pat-answer: lower corporate taxes and the jobs will come. While that has its ever popular consumer attraction appeal, it is an answer that is not really based on any statistical or historic evidence. Democrats have a less monosyllabic and more varied approach with their guesses: tax-credits, more stimulus/investment, infrastructure, training, and the list goes on. There is a reason that the politicians are clueless, aren’t they always clueless! The economists on the other hand have N*(N-1)/2 possible theories on what is preventing slow or no job growth under whatever circumstances exist at the time; where N is the number of economists questioned. The problem is that the economists are almost as bad as the politicians when it comes to guidance on what to do to turn the job situation around. If one of them (or a small group of them) is right there is unfortunately no way to figure out which one it is.

As for the politicians, since they don’t know what to do anyway; they fall back on their preferred decision making method: do what their respective special-interest contributors tell them to do. This may benefit the special-interests, but these special-interests are not concerned with jobs or anyone else for that matter. They are just seizing the opportunity to gain some monetary advantage at the expense of everyone else.

The nation’s problem is that unless the politicians begin to understand just a little about what is causing our jobs problem and what needs to be done to effectively do something about it that the economy will continue to limp along and suffer from the drag that unemployment puts on all facets of our economy.

Let’s take a look at the “tried and true” adage that small businesses create most of the new jobs in the economy. Even if you look at that in a simple-minded manner, you know like a politician, the data is questionable on that ‘fact’. In ‘fact’, it may be that small businesses hinder job creation. The real fact is that size of company is not the determining variable. Newness of company is much more salient, as both a creator of jobs, and as a destroyer of jobs (almost half don’t last five years). So using the big “small” word is one of the many ways that politicians miss the ‘fact’. All in all, politicians shouldn’t get the job based on their interviews so far.

But even if politicians and policy-makers began to appreciate this part of the equation, they still wouldn’t be able to do the math required to impact job growth. Just knowing that new businesses create new jobs doesn’t really tell you what to do that would actually help get more new businesses started; and one might ask “why is the government trying to create jobs” shouldn’t the market place do that? Just another political-economic concept that the politicians don’t know what they’re talking about.

What do politicians need to start learning? Thought it is beyond their innate abilities, we can hope that they have someone on the staff and advisory committee that is sufficiently competent to find some expertise to train the politician to stop making political plans and start supporting plans and policies that are prepared by more knowledgeable and accountable people. The accountable part is critical.

First lesson, jobs are created due to a number of factors in any economy; but in our economy there is more than just the number of factors. While each factor contributes to or detracts from job growth, there is also a higher math facet to the equation; in addition to adding its own contribution to the equation different factors may influence the effectiveness of other factors. So it can get very complex, very fast. So in the real world it is important to understand the most powerful factors, particularly those that you can influence, and construct your “influencing” policies and programs around them. You also want someone monitoring the one’s you can’t and looking into the impact that the middling and minor factors are having which may undermine all your good intentions.

Now here is a thought provoker: Big businesses create jobs (B-jobs), which cause middle-size businesses to create jobs (M-jobs), which cause small businesses to create jobs (S-jobs). The number of S-jobs is typically going to be greater than the number of B-jobs and maybe M-jobs. The number of M-jobs is likely to be as great as or greater than B-jobs. Now before you jump off the cliff that your political leaders have already flung themselves over, while they are shouting that you should jump now before you are left behind, don’t conclude that is therefore best to emphasize S-jobs. You know why of course.

Yes, that’s right; the majority of S-jobs and even M-jobs are created because of the B-jobs. This is one of those intertwined relationships in the jobs creation equation. Now please, don’t go running off thinking that all you have to do then is create B-jobs. You would be right if you could just go do that, which you can’t without understanding many of the other factors. And, you would also have to make sure that you were creating B-jobs that were; well, valuable. This is not a job for politicians; you need a group of people of at least modest intelligence for this and you need to set up your economic systems to support and not inhibit beneficial results.

So yes, you don’t want to tax businesses beyond rational levels; but equally important you don’t want to be rewarding businesses to do things that are disadvantageous for our economy but benefit the business. You know, exactly what politicians do.