Conservative Criticism of Obama's Jobs Plan

Still Killing Jobs
by James Sherk
December 10, 2009 |

In his economic speech yesterday, President Obama made it clear that his administration will take a step forward on job creation. Unfortunately, it's also taking three steps backward -- which all adds up to more unemployment.

The good news is that Obama understands why unemployment has risen so sharply.

Media coverage strongly implies that joblessness has risen because layoffs are up -- but that's only part of the equation.

The number of jobs lost by firms rose 15 percent from the start of the recession to the first quarter of this year. These layoffs are real and painful for the workers involved. But they're not the driving force behind the doubling of unemployment.

The US economy usually loses millions of jobs each month as technology and consumer preferences change. But in normal times, new and expanding businesses create millions of new jobs -- more than replacing those that disappear. Twelve years ago, for example, Google didn't exist; today, it employs 20,000 Americans.

In regular economic times, most workers who leave jobs find new ones in two or three months. On balance, job creation offsets job losses, keeping unemployment under control.

In this recession, however, those new jobs aren't being created. Business startups have dropped 18 percent. Expanding or startup companies are creating 25 percent fewer jobs than before the recession. That represents 1.9 million jobs not created in the first quarter of the year.

Rather than investing in new projects that would create jobs, businesses have retrenched wherever they can.

In other words, unemployment has risen mainly because of the new jobs that entrepreneurs haven't created.

Obama understands this: "We are not creating jobs at a [sufficient] pace," he said yesterday; to reduce unemployment, America needs to "accelerate the pace of private-sector hiring."

So he announced one small step toward doing that: eliminating capital-gains taxes on small businesses and extending write-offs for small-business investment. Both these moves will indeed encourage entrepreneurs to take the risk of investing in their businesses -- and thereby create new jobs.

But then there are those three large steps back.

First, the president announced another stimulus (though without calling it that). He wants to use hundreds of billions in unspent TARP funds on more government spending: more highways and "cash for caulkers" home-weatherization funds.

And, despite Obama's rhetoric, most of his "pro-employment" proposal consists of such government spending to create more taxpayer-funded jobs.

This government spending doesn't make new businesses more likely to succeed. So it won't encourage entrepreneurs to invest, unless they receive the federal contracts. Bigger government doesn't encourage entrepreneurs to create jobs.

Worse, it discourages them. The more resources Washington consumes, the fewer entrepreneurs have to invest in their own projects.

The academic research is quite clear that government jobs are created at the expense of a greater number of private jobs -- with the one reliable study (Algun et al, in Economic Policy, April 2002) suggesting that for each 100 jobs "created" in the public sector, another 150 private-sector jobs vanish.

So it should surprise no one that private-sector hiring has remained low -- and unemployment has kept rising -- since the last stimulus became law.

Second, Obama reiterated his support for the health-care reform bills before Congress. But a trillion-dollar government health-care takeover won't create jobs. Indeed, these bills would raise taxes on employers and make providing health coverage (i.e., employees) more expensive while penalizing employers who don't offer it. Such laws would make businesses more likely to fail.

Yet the president yesterday signaled his determination to press forward with health "reform" no matter what it does to business prospects. How are entrepreneurs likely to react?

The third step back came Monday -- an administration action that's guaranteed to make businesses fear the future. The Environmental Protection Agency announced it had classified carbon dioxide as a pollutant under the Clean Air Act. Unless stopped, the EPA will start regulating CO2 -- giving it enormous power over every business in the country. Energy will grow far more expensive, and business costs will rise -- and no one knows just how bad the damage will be.

Obama yesterday did nothing to relieve the confusion or assure businesses that EPA's actions won't destroy jobs en masse. Waiting to see what the EPA does is the rational choice for many entrepreneurs. Why risk millions on a business project that might become unprofitable under new regulations?

Unemployment has risen because private-sector job creation has fallen. It won't fall until private-sector investment and hiring return to normal rates. Obama's tax breaks for small business are a small step forward. But his plans for spending hikes and health-care "reform," plus the EPA's impending carbon regulations, are three large steps back.

James Sherk is Bradley Fellow in Labor Policy in the Center for Data Analysis at The Heritage Foundation.

First Appeared in the New York Post

Conservative Criticism of Stimulus Spending

http://www.heritage.org/research/economy/upload/Heritage_stimulus_spending_2_11.pdf

February 11, 2009
It ain't over 'til it's over: Two Wrongs Don't Make a Recovery
by heritage.org
Fact Sheet #6

Economists Do Not All Agree

200 and Growing: The Obama Administration has claimed that virtually all economists support their approach to "stimulus" spending. Nobel Laureates Ed Prescott, James Buchanan, and Vernon Smith recently joined 200 other economists signing a letter opposing the legislation.
Even the CBO: When their own budget office says, "In the longer run, the legislation would result in a slight decrease in gross domestic product (GDP) compared with CBO's baseline economic forecast," Congress has a problem.
Even the President's Advisors: Council of Economic Advisors Chairwoman Christina Romer wrote, "Countercyclical fiscal policy is not achieving its intended purpose." Economic advisor Jason Furman said, "In the past, infrastructure projects that were initiated as the economy started to weaken did not involve substantial amounts of spending until after the economy had recovered."
Even Larry Summers:Last year, the National Economic Council Director wrote, "Poorly provided fiscal stimulus can have worse side effects than the disease that is to be cured.... Fiscal stimulus, to be maximally effective, must be clearly and credibly temporary--with no significant adverse impact on the deficit for more than a year or so after implementation. Otherwise it risks being counter-productive by raising the spectre of enlarged future deficits pushing up longer-term interest rates and undermining confidence and longer-term growth prospects."
Even Peter Orszag: The President's budget director oversaw a 2008 CBO report stating, "Large-scale construction projects of any type require years of planning and preparation. Even those that are 'on the shelf' generally cannot be undertaken quickly enough to provide timely stimulus to the economy."
Experts Do Not All Agree

Protecting Spending: The price of this spending bill, including interest, is currently $1.16 trillion. Under President Bush, America racked up $3.3 trillion dollars in deficits between 2002 and 2009, including the full cost of TARP and '09 spending. At his current pace, President Obama is projected to be responsible for $8.4 trillion in deficits if he has a two-term presidency.
Protecting Welfare: Aside from creating $787 billion in extra welfare costs, both versions of the "stimulus" bill would abolish the historic welfare reform of the mid-1990's that led to a dramatic reduction in welfare dependency and child poverty.
Not Protecting Jobs: The President has said, "I think my initial measure of success is creating or saving 4 million jobs." How do you measure a job saved?
Not Protecting Religion: Both versions of the "stimulus" bill deliberately censor religious speech and worship on school campuses by prohibiting use of any "stimulus" funds for facilities that are used for sectarian instruction, religious worship, or a school of divinity.
Americans Do Not All Agree

62% of Americans Want Less Spending: According to a Rasmussen Poll released on Monday, 62% of Americans want the plan to include more tax cuts and less government spending.
Twice the Jobs at Half the Price

Check out Heritage ideas for providing twice the jobs at half the price at: http://www.heritage.org/news/economic-stimulus.cfm.

Philanthropy and Movements

In the July 15, 2002 American Prospect editorial "Philanthropy and Movements," Robert Kuttner outlines the relationships between "organized business, ideological conservatism, advocacy research, and the Republican Party."

Recently I was invited to be the token liberal at a major national conference of conservative foundations. The invitation was to debate Bill Kristol, The Weekly Standard editor, TV pundit, and conservative grand strategist, as the after-dinner entertainment. Presumably, conservative donors wished to view the face of the enemy, close up. The better I did, the deeper they would dig into their ample pockets.

The dinner was held at one of New York's most elegant hotels, the Pierre. The sponsors put me up at the nearby Hotel Roosevelt, a spartan midtown hostelry one cut above fleabag. I gamely accepted this lesser billeting not as demeaning confirmation of the right's two-class vision for society, but as recognition of my esteem for FDR. But I digress.

The debate itself was good fun, but the real treat was the before-dinner event: a panel discussion of four presidents of major right-wing research factories, titled, "Philanthropy, Think Tanks, and the Importance of Ideas." The heads of the Heritage Foundation and the Cato, Manhattan, and American Enterprise institutes were there to tell their patrons what political gains a billion dollars had bought. This session I would have paid to attend.

The panel was chaired by none other than Roger Hertog, a mega-rich center-right philanthropist and new part-owner of The New Republic recently profiled in these pages as exemplar of a new kind of "velvet conservatism." But there was nothing velvet about the discussion that followed. Most foundations, Hertog began, spend their money on brick-and-mortar institutions -- museums, hospitals, symphonies, universities. These are all fine, Hertog continued, but the four panelists have achieved something far more consequential. They have changed the course of American politics, and they "only" cost, collectively, $70 million dollars a year. "You get huge leverage for your dollars," Hertog affirmed. The panelists smiled.

The first to present was Ed Crane, head of the Cato Institute. Crane complimented his patrons in the audience for recognizing that these battles of ideas take two or three decades. Cato has been pushing Social Security privatization since 1979, Crane noted. Cato allies such as the Federalist Society labored long years in the wilderness before they became powerful enough to literally pick the Bush's administration's federal judges.

Edwin Feulner of the Heritage Foundation emphasized his institution's strategic planning in building a conservative movement. He emphasized "the four M's": mission, money, management, and marketing. Heritage places hundreds of op-eds, all devoted to reinforcing the conservative message. On the money front, Feulner raises millions not just from conservative foundations, but from corporations and individuals. Like the Republican Party, the conservative think tanks use big money to raise small money. Heritage, for instance, gets contributions from 200,000 small donors.

Christopher DeMuth, president of the American Enterprise Institute, spoke of how the right-wing think tanks had reframed national debate by investing in and then promoting idea-mongers for the long term. The right has been investing in Robert Bork's challenge to antitrust since the 1970s. By the 1990s, his contention that antitrust enforcement often backfires had become conventional wisdom. Charles Murray's claim that welfare actually caused poverty was widely viewed as an outrage when Murray's 1985 book, Losing Ground, was first published. Though Murray's arithmetic was dubious and his timing backward (poverty came first), the message had a willing audience. The right-wing publicity machine turned the obscure Murray into a policy celebrity. Soon, said DeMuth, Democrats as well as Republicans were saying that Murray was right. Investment in ideas and ideological marketing changed the course of politics.

"There are three lessons," DeMuth told the conservative benefactors in the audience. "First, things take time. It takes at least 10 years for a radical new idea to emerge from obscurity." DeMuth pointed to school vouchers and Social Security privatization as still incomplete revolutions. But his funders got it, and were with him for the long haul.

"Second," DeMuth added. "Unintended consequences are not enough." For years, a staple of conservative ideology has been the claim that liberal social engineering backfires: Welfare makes people poorer, antitrust enforcement retards competition, safety regulations make people behave more carelessly, etc. "But nobody claims EPA makes the environment worse," DeMuth cautioned. So the conservative movement also needs affirmative ideas. It needs better ways, conservative ways, to achieve popular social goals.

"Third, all fundamental changes are bipartisan when they happen," DeMuth concluded. So the right makes great efforts to co-opt New Democrats. Right-wing think tanks such as the Center for Strategic and International Studies make sure their ventures include (safely conservative) Democrats. The bipartisan CSIS National Commission on Social Security Reform had no official standing, but with high-profile Democrats as well as Republicans it successfully masqueraded as a bona fide national commission, and received extensive press coverage.

The final panelist, Larry Mone of the Manhattan Institute, spoke of the importance of targeting opinion-elites. The Manhattan Institute underwrote Charles Murray's work, but the institute focuses mainly on New York City, as a lab to advance policies such as school vouchers and getting tough on crime. Mone claims credit for Mayor Rudy Giuliani's embrace of the George Kelling-James Q. Wilson "Broken Windows" thesis -- that a crackdown on minor lifestyle crimes would also reduce major crimes.

The Manhattan Institute is especially nimble at co-opting liberals, who are regularly invited to its events both as foils and potential converts. How much money, Mone pressed me, would conservatives need to put into city schools for liberals to support vouchers?

The Philanthropy Roundtable, which sponsored the conference, also likes to include a few token liberals. One observed that liberal funders would never speak a language of movement building. "We promote policies piecemeal," he said, "but we don't think of it as building a progressive movement."

What was impressively revealed here was precisely the right's movement consciousness. When I was young, the people who spoke of "the movement" and who used "radical" as an affirmative word were progressive. The movement, at first, referred to the civil-rights movement; by the mid-1960s, it referred to a generalized movement for social justice. "Movement people" boycotted nonunion grapes, worked on voter registration, opposed the war in Vietnam.

Today, one hears the phrase "movement conservatism." The right's think tanks and philanthropists alike understand that the enterprise is -- above all -- political. IRS rules for foundations and research institutes don't allow them to be partisan or primarily legislative, but don't mind if they are ideological or politically strategic. Heritage, which pushed the envelope about as far as one prudently can, got an extensive IRS audit in the 1990s, which Heritage claimed was politically motivated. Eventually, the IRS relented. The nonprofit right is also perfectly willing to use the Republican party as its vehicle, and let the lawyers worry about how to do it legally.

By contrast, mainstream foundations have a tradition of emphasizing research and reform. Often, the social-change goals are impeccably liberal -- empower the poor, clean up the environment, improve the welfare of children -- but the political dimension leaves many senior foundation executives uneasy. My tablemate was right: You would never hear senior officers of big mainstream foundations talking about building a movement. The enterprise is rather understood as philanthropic. If you research and model good policy, social change will somehow occur. This tradition harkens back to the Progressive Era conceit that social problems have technical solutions. By some alchemy, the research findings will lead to policy reforms through a messy political process whose ignition is somebody else's affair.

This propensity is also reinforced by the composition of mainstream foundation boards, which tend to be patrician and corporate. Activist grantees need to shade their purpose to reassure even liberal program officers, who find themselves looking over their shoulders at their presidents, who in turn must answer to their boards. It is anomalous, after all, that large private fortunes should be looked upon to underwrite progressive politics. On the right, by contrast, the advocates, strategists, and funders march to the same tune.

Lately, liberal funders have been more willing to acknowledge that their enterprise is necessarily political, and to underwrite core progressive infrastructure for the long term. The progressive counterparts of the big right-wing strategy groups -- such as the Economic Policy Institute, the Center for Law and Social Policy, or the Center on Budget and Policy Priorities -- no longer have to justify their existence de novo each time they apply for a grant. But the gold standard of grants -- long-term general-operating support -- is still hard to find on the liberal side, and the institutions that the big foundations support are far smaller and less numerous than their conservative counterparts to begin with.

Of course, intellectual energy and political energy feed on each other. And it has been a while since a progressive idea, per se, transformed politics. A generation ago, activists in the streets were energized by books such as Betty Friedan's The Feminist Mystique, Rachel Carson's Silent Spring, Ralph Nader's Unsafe at Any Speed, and Mike Harrington's The Other America. These in turn transformed national policy. Earlier in the century, progressive foundation-sponsored reports, from the Flexner Report on medical education to Gunnar Myrdal's groundbreaking work on racial relations, An American Dilemma, led to changes in the national discussion and, eventually, policy.

Still, it was breathtaking to see the policy strategists of the other side preen for the edification of their steadfast funders -- the culmination of a 25-year strategic alliance between organized business, ideological conservatism, advocacy research, and the Republican Party. Hertog was right: $70 million a year is chump change to the American elite, but invested strategically in the battle of ideas, it yields a bountiful political harvest. On our side, though strategic foundation support would be most welcome, it may be that we need to rekindle the politics first.