Jobs Bill is Populist Gimmickry, Not Sound Economic Policy

This post is in response to the CNN article of February 22, 2010 entitled: Senate Takes up Jobs Bill.

Based on the Sentate vote today, it seems virtually certain that the so-called "Jobs Stimulus" bill will shortly be on President Obama's desk. This is a classic example of seemingly well-intentioned legislation that, in reality, won't achieve its intended purpose and is fraught with opportunities for fraud and outright gamesmanship.

The purpose of the tax credits is to create incremental "new" jobs, not to reward employers for creating jobs that they would have created without the credits otherwise the legislation serves no purpose. And therein lies the problem. The tax incentive is not really sufficient enough to cause a rash of hiring amongst employers given the uncertainty of health care reform, cap and trade and other taxes. Consequently, an employer is only going to hire a new employee who is truly needed based on the demands of the relevant business and not to take advantage of a tax break. The jobs that will be "created" will likely be those that would have been created without any incentive and in the process the taxpayers are going to fund this "job creation" scheme which will result merely in found money to employers because the employers actions will not be driven by or changed due to the tax benefit. This type of "benefit" leads to gamesmanship because no one can say with absolute certitude whether a job would have been created but for the credit. This squishy reasoning behind this latest government giveaway permeates all government-sponsored attempts to reinvigorate the economy artificially.

Presumably, the Obama Administration will later argue that all or substantially all the new jobs created after the tax credits become law were a direct result of the credits. That is unknowable and unprovable and, for the reasons stated above, will likely not be true.

I can't blame any employer for taking advantage of a credit for a new job, whether or not the job would have been created anyway. There is absolutely no way to reasonably police the system and, again, politicians will claim credit for stirring economic growth while the private sector pockets the free cash via tax credits. This lack of causal connection, of course, will be cheered and occur with the full blessing of populist politicians who care more about public perceptions rather than sound economic policy.

Has this administration not learned that gimmickry is simply that? That it has no long-lasting effects and may actually create mini-bubbles (e.g., Cash for Clunkers). It only changes behavior on a short-term basis lest the unemployment rate -- the real one including discouraged workers -- wouldn't be hovering around 17% or more. But reality and politics are often disengaged from one another as evidenced by surreal deficits that continue to grow unabated.