I watched the Sunday news shows yesterday, since I was out of town this weekend. And the argument I kept hearing from the Obama representatives on different channels was this:
1. Mitt Romney touts his major qualification as his experience in the private sector working for Bain Capital.
2. But private equity companies like Bain don’t have the goal of creating jobs — it’s only about creating wealth and profits for its investors.
3. Therefore, Mitt Romney doesn’t know how to create jobs better than President Obama.
This entire argument hinges on point #2 above. In a speech in Iowa, Obama said of private equity companies: “The people who work in these firms will tell you that’s [creating jobs] not their goal.”
I don’t know any economist who would disagree with that. The goal of a private company is almost never to create jobs — that’s the goal of stimulus programs that spend other people’s money to dig ditches or create unneeded alien defense forces. To Obama, a company that doesn’t try to create jobs is a horrible thing. In fact, private companies have an incentive to try to downsize, streamline, cut labor costs, and actually reduce labor. For shame! The government should be the ones creating jobs because they can pick and choose and have “smart” growth and an “economy that lasts.” To see how well that’s worked out so far, read this brilliant piece by Kim Strassel.
President Obama seems not to have noticed that private companies have existed for decade after decade in this country, and have done remarkably well at creating jobs. Not because that’s the stated goal, but because the only way someone can bring a new product to market is to start a business, and those businesses inevitably need people around to help with all kinds of things, from janitorial services to clerical work to manufacturing to website design. Even when sectors of the economy fall away, new ones spring up. We lament the loss of manufacturing jobs or textile jobs, but what about the growth in medical implants, web design, and a host of other industries that employ people in jobs that 20 years ago weren’t even imaginable? If you told people 10 years ago that firms would hire people to manage their Twitter accounts, and pay them well to do so, they’d think you were from another planet. Is the goal of a company who hires a Twitter manager to create a job for that person? No — it’s to increase profits. Oh, the horror!
When my father started his construction business a few decades ago, he didn’t wake up one day and say, “I want to start a business so that I can employ some people.” He said, “I want to do something I’m good at, that will help provide for my family.” Creating jobs for others was incidental. His business was successful because he put in a lot of hours and didn’t cut corners. Now at least a dozen people depend in large part on my father’s business for their income. Private companies don’t start out trying to create jobs, but despite that, they are remarkably good at it.
The argument happens at the consumer end also. I don’t set out to create jobs when I decide which goods I’m going to buy. If I did, I’d buy the most expensive things I could and buy lots of them, so I could create all kinds of high-paying jobs for everyone around me. No, I do the exact opposite, and if you’re rational you probably do too. I look for the best value for my money, which sometimes means going with the cheapest product and sometimes it means paying a little more for better quality. I do everything I can to spend as little money as possible. And guess what happens? The market system rewards companies that can produce something better or cheaper, because millions of people like me will buy the product. And those companies grow and…wait for it… they create jobs!
The market economy has been creating jobs for centuries, and now we’re being told that unless you specifically try to create jobs (which no business explicitly does) you’re some kind of “bad” business? And unless you’ve had a job in a company that tries to create jobs, like a Keynesian government does, you don’t know how to run an economy? That kind of “first-stage” thinking (to use Thomas Sowell’s terminology) explains a lot of the economic policies that have been in place over the last 3 years, that have left us with a 3-year slow recovery and an extra $5 trillion in debt.