Monday, February 13, 2012

Not how to create jobs

I was watching a guest on the Nightly Business Report tonight speak about employment not increasing in America the last couple years. He went on to say that the way to increase employment is to make it easy for job creators to get credit and to reduce regulation. You would think that being a business show, the guest would not be so wrong.

Let's break this claim down to see how wrong it is, starting with the idea that extending credit to employers would make them hire more employees. It's possible that it would in some economic environments but not in this one. Right now, businesses are flush with cash, so credit is not what they need. If they really wanted to hire employees, they would just dip into their retained earnings. But they're not because there's not enough demand to make businesses confident about hiring. And the businesses that do need credit don't have retained earnings for the same reason -- there's insufficient demand for their products. So extending credit to them would not make them hire more employees either.

Reducing regulation isn't going to create jobs either, and for pretty much the same reason -- reducing regulation doesn't have any impact on demand. It might make it easier for a company to operate or make more profit but that's not why businesses hire more employees. They hire more employees because sales are going up and they need more staff to make more widgets or provide more service. Again, regulation does not fit into that equation but, again, demand does.

So, even though the guest was on a business show, he was wrong -- making it easy for job creators to get credit and reducing regulation is not how to create jobs. To increase employment, there needs to be an increase in demand, which is accomplished by stimulus in this economic environment.

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