Friday, December 11, 2009

Obama's 2008 Campaign: A Job Creation Lesson




By John Tamny

With the federal government's measure of unemployment in the double digits, President Obama has unsurprisingly moved job creation to the top of his list of initiatives. And while his priorities could surely be worse, his approach has been contradictory to that which might actually lead to the creation of new jobs.

Some will no doubt say Obama's propoals on job creation are evidence of his lack of private sector experience, but it could be argued that his success in raising money for and running a national presidential campaign speaks to intimate knowledge. There are some similarities to say the least.

Indeed, when Obama sought financial support for what was at the time a long shot bid for the Democratic presidential nomination, he surely didn't wax poetic to potential supporters about all the workers he was hiring and equipment he was purchasing in order to run the campaign. More realistically he pointed to a lean operation (including voluntary workers) and polls suggesting he had a chance to secure the nomination; those polls and subsequent primary wins the "profitable returns" that campaign donors were interested in given their desire to achieve a return on their investment in him.

As every politician knows, there are no donors without promising polls and victories. Sadly, those same politicians - including Obama - haven't seen how clearly this correlates with businesses and jobs.

To use but one example, last weekend Obama talked up a recovering economy while at the same time expressing concern that rising business profits were a function of layoffs and businesses generally doing more with less. But had he applied his significant campaign experience to what businesses are presently doing, his outlook might have been more sanguine.

Just as campaign funds dry up due to a lack of success at the ballot box, so do investors shun businesses that aren't profitable.

As opposed to altruistic public goods created to employ those looking for work, businesses exist thanks to the self-interest of investors seeking profits. In that sense company heads don't mesmerize investors with tales of all the jobs they're creating, instead they do their best to exhibit their ability to generate the greatest amount of profits with the least number of workers possible.

Paradoxically, their skill when it comes to running lean, profitable businesses is what ultimately leads to job creation. Just as Obama's rising success in the Democratic primaries emboldened him to ask donors for more money to expand his campaign, business profits embolden company CEOs to ask investors for more capital in order to expand their operations.

With businesses, the efficiencies and profits wrought by painful layoffs are the "seen", but the positive "unseen" is the investors those profits attract who will fund company expansion, and with expansion, job creation. There is no investment without profits, and there are no jobs without investment.

This is important when we consider looming healthcare legislation. President Obama has made plain that he would like all Americans to be insured. But whatever one's opinion of Obama's healthcare views, the simple truth is that healthcare is a cost, and a significant one at that.

Applied to his initially cash-strapped presidential campaign, imagine if in addition to all of his other expenses, Obama had to buy health insurance for his employees? If so, he would have had to divert significant funds from television ads and get-out-the-vote initiatives that would have made funding his nascent presidential bid more risky. When donors are considered, healthcare costs would undeniably have factored into their willingness to support Obama altogether.

Investors in businesses of all sizes must think the same way. Quality healthcare has myriad benefits, but looked at objectively, it is a cost that diverts what is limited capital from potentially profitable initiatives. Healthcare mandates placed on businesses will not only raise the cost of hiring workers, they will also weigh on future returns on capital so important to investors.

Some might reply that a "public" healthcare option would free businesses of those costs, but there it must be stressed that there's no such thing as public healthcare. With governments lacking any resources other than those they tax or borrow from the private sector, businesses will either pay for the public option through taxes, or through reduced investment thanks to the federal government vacuuming up capital to fund its initiatives. With regard to "stimulus", the same scenario applies.

Considering small businesses, President Obama has regularly said that they are the source of the majority of new job creation. And while there's some truth to his assertion, it's also true that by virtue of being small, the businesses founded in the nations' garages are the riskiest kinds of investments. Much the same, Obama's campaign was at least in the beginning the proverbial small, risky business.

This looms large when Obama's tax plans are considered. He's made it clear that he would like the richest Americans to pay a higher percentage of their incomes to the federal government in taxes. The problem there is that if higher taxes reduce the amount of disposable income among those who have it to dispose, small businesses and quixotic political campaigns will suffer the most.

Indeed, rare is the individual who will take a flyer with limited savings on unproven businesses or politicians. But when money is plentiful thanks to low levels of taxation, there's a greater willingness among those with means to speculate on business concepts and politicians possessing potential, but slim track records.

Long before President Obama came onto the scene, politicians have suffered the perception that their lack of real world experience makes them unsuited to pursue economic policy of any kind. No doubt there's some truth to the assertion, but it should also be said that their rise as politicians speaks to real knowledge of how businesses grow and create jobs. If they would take the time to analyze what drove their success in politics, they might become better at fashioning policies that lean toward economic freedom, and which foster a business climate characterized by growth and low unemployment.

John Tamny is editor of RealClearMarkets, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He can be reached at jtamny@realclearmarkets.com.

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