As the presidential election continues on, I have been hearing a lot of rhetoric about “jobs.” For example, many of the ubiquitous flyers placed by the College Democrats around the time of Sen. Kerry’s speech on campus promised that he would create “three million jobs in his first 100 days in office.” That’s a pretty ambitious goal; it would cause unemployment to fall significantly below the record-low level of about 3.9 percent. Instances like these are part of a very troublesome trend in America: it appears there are a vast number of people, perhaps including Sen. Kerry, who do not appear to have a basic grasp of economic principles.
Contrary to Sen. Kerry’s belief, the American economy – or any free market economy, for that matter – does not run off of the principle of maximizing jobs. Also, it is not the government’s role to create jobs. If it was, there would be much less of an incentive for people to work and produce goods and services. Having too many jobs also drives wages down. Believe it or not, but a certain amount of unemployment is perfectly natural and in fact necessary. Economists disagree slightly about what the exact number of “natural” unemployment is – that which is caused by voluntary job changes and a mismatch of information and skills between workers and firms – but the average is about 5 percent. Any unemployment lower than this causes heavy competition between firms and workers, driving up wages, but making inflation soar. Macroeconomic stabilization policies target this level of unemployment, and Kerry would be wise to consider the ramifications of his stated creation of “10 million jobs in his first term,” especially considering that there are only 8.2 million Americans unemployed this quarter. It’s unfortunate that the manufacturing jobs Kerry laments so much have been lost, just as it was unfortunate that jobs building railroads and operating telephone switchboards were lost when their respective technologies started to become obsolete. But propping up failing industries is to work against the main factor behind innovation and dynamic growth in America.
The deficit is another example of a common economic misconception. Many people are up in arms over the $521 billion budget deficit for this year; however, with 2004’s GDP estimated to be $11.5 trillion, the deficit is at a relatively healthy 4.5 percent. Another basic economic principle is that running a government deficit is healthy in the short run. Critics will charge President Reagan with running up the debt – and he did, going from 2.6 percent of GDP in 1981 to about 5 and 6 percent from 1983-86. However, in his last two years in office, the deficit was back down to 3 percent, and we were booming past the stagflation and recession from the Carter era into unprecedented prosperity. The economic resilience that Reagan’s policies created also helped the economy bounce back from the recession near the end of the first President Bush’s term.
Obviously the government will not be able to run a deficit forever; it must be cut. And raising taxes is not the answer Democrats would like it to be. But both parties are guilty here, while the Republicans are busy trying to cut taxes, they appear to be unwilling to do anything about the country’s rampant and often wasteful spending. Like Governor Tim Pawlenty (R-Minn.) said in his 2003 State of the State address, “The state is simply spending more than it is taking in. And now we need to do what any innesota family who faces a financial challenge would do – sit down together at the kitchen table and figure it out. Families can’t raise taxes to get out of a jam – and we won’t either.” This just makes good sense.
The beauty of a free market economy is that it is just that, a free market. The role of the government should be to let the free market be free, except for when it comes to regulating or breaking up monopolies. Unfortunately, politicians such as John Kerry are willing to put politics over the health of the economy by playing up misleading statistics and inciting class warfare in an effort to take advantage of the apparently limited national awareness about economic policies – without even having mentioned the minimum wage or privatization of social security here. Ten million jobs indeed, that’s a lot of workers to add to the Heinz payroll .
Eric Rodawig is a freshman in the College and Viewpoint Editor of THE HOYA.
