photo by mrsrichardson823

A couple days ago I heard President Obama say that he wanted input on how to create more jobs. Here is my input.

I’ve mentioned in previous posts that I do my best to look at things from a neutral perspective. I really don’t care who is in charge as long as they do not complicate my wealth management practice too much.

The Obama administration has made that difficult.

Dear Obama,

In my past 23 years of money management, politicians haven’t had much effect on our investment strategies. As a general rule, the less they do, the better the free market functions and that is usually positive for the stock market.

On the other hand, the more they do, the worse the free market functions, and that is usually negative for the market. The offset this time is that the stock markets were so extraordinarily undervalued that they really had nowhere to go but up.

Now that unemployment has skyrocketed, our politicians have decided that jobs are important.

Unfortunately, they did not decide that before they allocated $787 billion towards their “stimulus” program that we bought for them earlier this year.

Last week they held a job summit, also know as a “PR stunt”, to show how much they care about jobs. Then on Tuesday, five days later, they announced their plans to “save and create” more jobs. It’s amazing to me that you can go from the information gathering summit stage to the implementation stage in five days. Aside from that anomaly, let me explain.

Businesses create jobs. Politicians do not.

On a national level, some studies claim that it cost the government, which is code for the taxpayers (since the government does not actually have any money), $242,000 for each job they created with their stimulus bill. In Utah County, they claim it cost $147,000 for each job created by bill. Contrast that with business that spends nothing to create a job. In business a job is created when it adds value to and helps a company make more money. Any way you cut it, it is silly for government to spend billions of our money artificially creating temporary jobs.

So what can government do to help create jobs?

It is simple. First, create an environment where business can prosper. Second, let businesses keep more of the money they earn so they can use it to expand and hire additional employees.

The pot of money that businesses have to work with is limited in size. So when government takes the business owner’s money for extended unemployment coverage, which originally started at 16 weeks, and is now up to 99 weeks. Then you asses them with workman’s comp, social security and then another 40% cut of their income for state and federal taxes. It does not leave a lot to work with.

But, that is not enough. Then you propose punitive taxes on “the rich” ie. business owners (since they do not pay their fair share) followed by additional significant taxes on business for health care and cap and trade.

Since they do not have unlimited resources (like the government thinks they do) businesses cut back on hiring. Because they are afraid they are going to be taxed into oblivion and there is no real benefit for them to take risks (since they do not get to keep the money they earn) they stop expanding.

It really is simple. Get government out of the way of the free market. Reduce the ineffective and burdensome regulatory bureaucracy. Provide an infrastructure that allow businesses to prosper. Let businesses keep what they earn.

This is basic economics and a lot more effective than spending $242,000 to create a $45,000 temporary job. This is the way to see employment expand and create millions of jobs. Just like it did throughout the 80’s and 90’s.


David Young
President of Paragon Wealth Management

What do you think? Feel free to leave comments.

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