Who Creates Jobs (and Other Critical Questions)

The web is abuzz with TED’s decision not to let a former Amazon.com investor make his case for middle-class job creation. Meanwhile Facebook founder Mark Zuckerberg gets ready to watch his $20 or so billion become liquid when his company opens trading this morning. The French and Greeks have elected liberal leaders who campaigned against austerity as the answer to the Euro debt crisis. And here in the United States the general election is kicking into high gear with the Romney campaign releasing this ad yesterday in key swing states.

Let’s try to get a few things straight here before resorting to mud slinging.

1) Any way you slice it we have a debt problem threatening to kill us.

Government spending here in the United States and across much of the developed world is completely out of control. As of March 2012, debt held by the public was $10.85 trillion or approximately 70% GDP, while the intragovernmental debt was $4.74 trillion or approximately 30% GDP. These two amounts comprise the national debt of $15.6 trillion, roughly 100% GDP.The public debt has increased by over $500 billion each year since fiscal year (FY) 2003, with increases of $1 trillion in FY2008, $1.9 trillion in FY2009, and $1.7 trillion in FY2010.

In addition, the Federal government took over Fannie Mae and Freddie Mac. The on- or off-balance sheet obligations of those two independent GSEs was just over $5 trillion at the time the conservatorship was put in place, consisting mainly of mortgage payment guarantees.

The U.S. government is obligated under current law to mandatory payments for programs such as Medicare, Medicaid and Social Security. The GAO projects that payouts for these programs will significantly exceed tax revenues over the next 75 years. The present value of these deficits or unfunded obligations is an estimated $45.8 trillion.

State and local governments face equal challenges.

The situation in Europe is frankly a lot worse.  And with the inter-dependence of the world economy, the domino effect is a real concern for us here in the United States.

There is a reason some of my best friends–otherwise rational human beings with wives and families and careers–have moved to New Zealand to build self-sustaining farms. They believe that our financial infrastructure is headed for a global melt-down. And soon.

Spending your way out of a recession/depression may make sense to Keynesian economists. But not when the debt already in place is equal to the GDP (before looking off balance sheet) and growing way faster than any recovery could support.

2) Any way you slice it wealth inequality is unfair and crippling.

Warren Buffet and Nick Hanauer point out the obvious: you can’t have 10,000 people in a country of 350 million gobbling up all the wealth. It just won’t work. In a stagnating economy, employment is the issue not the incremental dollar to the already wealthy. A tax policy that doesn’t recognize that is borderline insane. Somehow we have gotten the size of our national debt and marginal tax relates on the wealthy confused. I understand that the wrong-headed logic is that we need to lower taxes on the wealthy so they can create jobs, grow the economy, and thereby generate more IRS revenue. It just doesn’t work that way. Whether Mark Zuckerberg makes 20 or 21 billion will have no impact on national debt.

In looking at the developing world, a key factor in determining success or failure of a modernizing economy is the breakdown of polar extremes of wealth and poverty and the rise of the middle class. In Mexico, for instance, contrary to what you read in the papers about the drug war, the economy has been progressing nicely (solid GDP growth, low inflation, stable currency backed by big reserves) to the point where a recent study showed more Mexicans were leaving the United States to go home than Mexicans leaving Mexico to come here. Amusingly, a large portion of the Mexicans going home were born in the United States and don’t know Spanish. But a job is a job.

Clearly our country is looking more and more like a third world nation in terms of economic disparity between rich and poor and unless we do something about it there will be class warfare, and rightly so.

3) Job growth is dependent on a combination of innovation and purchasing power.

If no one has any money it’s hard for an economy to grow. But at its core, a capitalist system is about innovation. Bringing new products to market that are better than what was there before–designed better, produced more efficiently, offered at a better price. Just saying we need more middle class people to buy shit isn’t enough. To create jobs you need to create companies who need to hire people. And you need smart, educated, qualified people to fill those jobs. Employees who are capable of innovation. Our last great hope in the United States in our intellect. We have always been the world leaders when it comes to technology, to industry, to seeing the future before it gets here and creating amazing products (which create jobs) to capitalize on that forward vision.

Tax incentives to the rich are not correlated to innovation. There is no reason that a millionaire or billionaire should pay less marginal tax than a line worker because his income is classified as capital gains. The thing that is most correlated to innovation is education.

4) The problem is the degradation of our human capital.

You know why I despise Osama Bin Ladin? Yes he killed thousands of innocent people on 9/11. Yes, he organized credible threats against us as a people. But those are not the reasons that I hate him so much.

We’ve spent the last decade focussed on a war on terror, in wars in Iraq and Afghanistan, on hunting Bin Laden down, when our people have been falling through the cracks. Maybe that was his master plan. I don’t know. And nothing here is meant to minimize the courage and service to our country of our military men and women. The issue is one of national policy and priorities.

More than a country of have and have-nots in terms of material wealth, we have a country of have and have-not when it comes to the critical driver of our national economy, education. Harvard and Stanford have endowments the size of small countries. But these are private institutions still primarily for the rich, or for that small sliver of poor people who find their way through the war zone of public education.

Class mobility in our country has stopped, not because of tax policy but because of educational policy. While we’ve been keeping the world safe by spending trillions on drones and high tech explosives to get the bad guys, the screams of very own people have gone unheard. Public education on every level is a failure. Companies in the segments of the economy that are growing and producing good jobs can’t find qualified candidates, while general unemployment continues on at historic highs.

What do we do with our people instead of educate them? We put them in prison. Over two million, over half black or Hispanic.

Again, when looking at the development of Third World countries a key metric is how many people are locked up compared to how many people are getting educated. We are going profoundly in the wrong direction. Apparently the ability of an elite group of Navy Seals to get a bad guy half way around the world is way more important than the ability of the average 10th grader in our country to read or do math.

5) Democracy, and prosperity, depends on a Democratic Economy

There is no magic bullet. Pointing fingers at rich guys won’t do it. Even if you stripped all 10,000 of the richest Americans of all their wealth and poured it all back into the current broken system it would have no lasting impact.

Yes, we need a fairer tax code.

Yes, we need to reduce the size of government and get realistic about entitlements.

The most important thing we can do is treat our human capital in this country as our most precious national resource. The most imminent threat isn’t terrorists its our inability to educate our own people. Facebook doesn’t make up for the souls rotting in prison. Not even close.

Collective prosperity depends on innovation. And innovation on having a country of smart, educated, and motivated people.

 

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About Tom Matlack

Tom Matlack is the co-founder of The Good Men Project. He has a 18-year-old daughter and 16- and 7-year-old sons. His wife, Elena, is the love of his life. Follow him on Twitter @TMatlack.

Comments

  1. The link between country prosperity and individual innovation has never been more apparent, and this article begins to remind and revive the compelling innovation concepts of John W. Gardner (The Individual and the Innovative Society). One of my favorite books and this is one of my favorite articles I have recently read. Gardner’s book Self-Renewal, The Individual and the Innovative Society, should be required reading for politicians and college students alike. Well done, Tom, for weaving Gardner’s themes into your article whether you meant to or not! “Men and women innovate such that they may be free.”

    • Tom Matlack says:

      Thanks Drew. Will definitely check out John W. Gardner. Do NOT know his work. Sounds like I should.

  2. (Does anyone else have an issue where the website refreshes and deletes your comment as you’re typing it?!?!? Ugh)

    Pointing fingers simply doesn’t work in this situation. Both Left and Right work in the interests of private companies instead of their constituents. The only difference is what those companies produce. Both sides choose not to address the entire problem. Taxation alone will not fix it, neither will cutting spending not fix it. We as a nation need to face a true hardship in order to have a real recovery. Some of our countrymen are already facing them, as economic ‘recovery’ isn’t felt equally. If we make the difficult choice now to make a flat percentage tax for everyone making over the poverty level and drastically cutting excessive spending (I vote for mostly the military budget), we can get a head start on the real recovery. Otherwise, when the artificial recovery gives way to the next major ‘Great Depression’ (I’m convinced its coming) it will be 10x worse.

    Economic cheerleaders try to mask our problems and ignore them publicly, so as to feign off any negative effects for the investment companies who would lose money otherwise. We’re in a manufactured recovery period, which will not last much longer. The Federal Reserve is not actually part of the US Government, it is a private bank led by the worlds largest banking organizations. They do not require any Congressional Approval for their decisions and more often than not inject banks with “stimulus” without publicly announcing it. Its estimated that right now we are risking 300-1000% inflation over what our money was worth 10 years ago! This hasn’t hit our markets yet because the Fed has managed to keep interest rates down and their secret funding mostly quiet. On occasion, there will be quiet reports (not reported on MSM) in small town newspapers, that announce a $100M loan default to a bank that failed. I’ve shared these stories, but they’re never mentioned on MSM. Call it global conspiracy or whatever you’d like, but its actually happening.

    On many news websites you’ll see a link at the bottom for “paid sponsor sites” and often one of those sites will be for “Aftermath: Global Economic Meltdown” or something to that effect. I’ve read the entire book and checked into some (not all, who has the time) of the sited sources, and they’re there. As small 1 column articles pushed to the back of the NY Times or Forbes or other financial media power houses. They aren’t usually very detailed, but the authors then elaborated on those stories and explained what they meant. They spelled out all of the signs of the Global Economic Recession. They predicted the financial collapse that happened in 2008… in 2003! They were way ahead of the game and were exactly correct on everything that happened, predicting the bubbles and how they would impact our economy. Now, they’ve predicted the biggest bubbles of all are on their way to collapse. The public debt bubble and the US Dollar bubble. Our debt vs GDP is greater than Greece’s. And no one seems to like to mention that… Regardless of who is the next president, the economic fall is going to hurt!

    Asia has already started to slow imports AND exports, they are hording precious metals and manipulating their own currency to prepare for a worldwide slow down. Europe is being effected by this, because Asia was their biggest market, as their largest factories sell manufacturing equipment. America is going to be hurt the least, because we have the least globally dependent market. Asia, Central and South America all rely heavily on their exports to America and other ‘Western’ nations. The USA has the infrastructure (though it is in decay) to self-sustain better than any other nation. Banks will fail, though the heads of those banks will certainly have their cushions to fall back on… I find no surprise in the documented facts that Bill Gates and other uber-rich men have invested heavily in the “doomsday seed vault” and private bunkers, etc. I think the biggest fears are that when Wall Street crashes, the economic disparity may further strain social tensions and create violent outlashes nationwide. Its very easy for something as sincere as a OWS ‘sit-in’ to turn violent. We can look at the non-violent marches that happened in the UK last year and turned violent after the actions of a few fringe elements.

    Keep peace and good luck!

    • Tom Matlack says:

      Gordon despite my generally progressive politics I too am in favor of a flat tax over the poverty level and deep sixing the IRS. It’s better than wasting all that energy on a massively complex tax code that actually favors the wealthy.

  3. One of my favorite posts on this site ever. But then again, my wife’s a public school teacher, so what do I know?

  4. wellokaythen says:

    I largely agree with your perspective, though I think #2 is a little overstated:

    “2) Any way you slice it wealth inequality is unfair and crippling.”

    “Unfair” is more of a political and social value judgment, one I agree with for the most part, but it is not really an economic description.

    As far as inequality being economically “crippling,” I think that’s imprecise. Here is where I think political ideology is shaping economic theory – “inequality” and “poverty” are being used interchangeably, when they are not exactly the same thing. If someone gains more wealth, that does not automatically mean that wealth has been taken from someone else. Increasing the gap between the rich and poor does not necessarily mean that poor people have less money. The income gap and the plight of the poor may be connected, but they are not the same thing. Just because the rich get a larger share does not automatically mean that poor people are worse off, not in absolute terms.

    If we assume that there is a finite amount of wealth in the world from year to year, which is what people generally assumed before capitalism, then of course it’s a zero sum game. If I have more assets this year than last year, that must mean someone else is now poorer, and rich people get richer only at the expense of poor people. (All property is theft?) However, economies grow. On the whole, there is more wealth in the world today than there was 10 years ago. There has been a redistributive shift, but it’s in relative terms, not a simple matter of sharing the same amount over and over again.

    On #4:
    I’m glad to hear someone come right out and say that about Osama bin Laden. If his goal was to undermine America’s economy by drawing it into a wasteful, costly war, his strategy has been overwhelmingly successful. He has to be reckoned by far the most successful terrorist in history, possibly the most successful person of the early 21st century. Horrible, but unfortunately true. Did we really get him, or did he get us?

    • If I have more assets this year than last year, that must mean someone else is now poorer, and rich people get richer only at the expense of poor people. (All property is theft?) However, economies grow. On the whole, there is more wealth in the world today than there was 10 years ago.

      But when all of the growth (or even a bit more) is ending up in the hands of the already wealthy then it for most people is no practical difference between a growing economy and a zero-sum economy. For the middle class experiencing the middle class squeeze ( ht tp://en.wikipedia.org/wiki/Middle_class_squeeze ) there is no practical difference and a little comfort in knowing that there is a growth economy. Slowly(?) eroding the middle class spending power is not a growth strategy.

      Ad Bin Laden:

      Did we really get him, or did he get us?

      Well, I thik it is more fair to say that you got yourself. In fact I would rather describe the US in this context (the response and fall-out from 9/11) as unsuccessful rather than Bin Laden as successful). Perhaps he correctly guessed what the US would do in response to such an attack, but the choices made afterwards were made by your own government.

  5. Excellent piece, Tom. I am glad to see you dipping a toe into the political waters like this. And I agree with your final assertion that what we most need are smart, well-educated, innovative, and motivated people–both men and women equally. How we allocate our resources (and increase national revenue) is essential to achieving that goal. And national resource allocation is inescapably a political question.

    A great topic to explore further, it seems to me, is what is the link between the current challenges to men and political action?

    • Tom Matlack says:

      Larry I agree. We need a completely different kind of political action since the current parties and systems are not working.

  6. Jonathan G says:

    I’ve only skimmed bits of this article because I’m at work now– I’ll read it more thoroughly later.

    But I just had to say that I DO know that bankrupting the United States was Osama bin Laden’s master strategy. How do I know? He said so. Repeatedly.

    In his propaganda videos.

    The ones that Pres. Bush and the mainstream media dismissed out-of-hand out of some warped belief that understanding the enemy is the same as sympathizing with the enemy.

    Half of the Federal discretionary spending goes to military and security spending. From macroeconomics I learned that there are two kinds of spending: 1. Investment spending, which increases a society’s future productive capacity, and 2. consumer spending, which meets people’s present needs and desires. I would add a third kind: The kind that actively decreases a society’s future productive capacity (over and above the usual opportunity costs), e.g. current U.S. military and security spending.

    The U.S. wouldn’t have to fight against people who fight us because they dislike us fighting them, if only we stopped fighting them. So, we’re not as broke as we think, if we would only decide not to be.

    • Tom Matlack says:

      “The U.S. wouldn’t have to fight against people who fight us because they dislike us fighting them, if only we stopped fighting them. So, we’re not as broke as we think, if we would only decide not to be.”

      Amen.

  7. Like!

  8. “You know why I despise Osama Bin Ladin? Yes he killed thousands of innocent people on 9/11. Yes, he organized credible threats against us as a people. But those are not the reasons that I hate him so much.
    We’ve spent the last decade focussed on a war on terror, in wars in Iraq and Afghanistan, on hunting Bin Laden down, when our people have been falling through the cracks.”

    I know this isn’t the main point in your article…but this paragraph really stuck out to me. I’m wondering if you really blame Bin Laden for the U.S.’s wars in the Near East…

    • Tom Matlack says:

      Heather of course not. We allowed ourselves to get sucked in. We invaded Iraq based on non existent intelligence about WMD (Bush) then Obama ran on a platform of the getting the hell out of Iraq but then doubled down in Afghanistan. OBL certainly baited us, but it was within our ability to focus on our own people rather than wars that we could not win and were far less important (IMO). But we failed to see the forest for the trees.

  9. Wirbelwind says:

    All right, I have a little story to tell.
    You have five guys visiting a certain pub often; because two of them don’t earn much the other guys pay for them; 2 other guys pay 30 % for the beers; and the last guy pays 70 % of the bill.
    Then, one day, a bartender announces that because they are regular patrons, the beer for them will be cheaper. Then, those two guys drinking for free cry “It’s not fair, we ain’t getting anything from this ! Give us some money !” ; the two guys that actually pay something are (silently) celebrating.
    Guess what the last guy, who has been paying for his two friends for several years, does after witnessing his “friends” obnoxious, rude, entitled behavior ?

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