Sunday, February 28, 2010

The Value of Efficiency

Carpe diem. Seize the day. With all the rushing around we do, I'd say we take this phrase to heart. But why do we hurry to get things done? Why do we take on so much in a day? Well, there's a good reason: we know the value of efficiency.

Efficiency means getting desired results without wasting time or effort. We hurry to get things done so we have time left over for fun and relaxation. We take on so much in order to live life to the fullest. Efficient allocation of time leads to healthy and impactful lives.

Similarly, efficiency strengthens economies. Distinguished economist Thomas Sowell cites history to support this claim. For example, China's departure from Mao's heavy-handed government control led to an economic growth rate of 9 percent per year between 1978 and 1995.1 As we discuss America's economy, it's important to understand that efficiency is the lifeblood of free enterprise, yet the antithesis of government.

Companies must be efficient to survive. Successful companies produce desired goods and services without wasting resources. This lowers production costs, which lowers prices for consumers. Thus we get what we need for less, and have money left over for spending (which creates jobs) and charitable giving. The free market system of companies cutting costs to survive has given us our world-class standard of living.

Contrastingly, government does not need to be efficient to survive. In fact, government is often motivated to waste. Take the 2009 Stimulus Bill, enacted to create jobs via shovel-ready projects. The bill's success is defined by the number of jobs created (number of workers used) for a given project. As a result, success is achieved by wasting workers! To illustrate this, imagine that 20 people are needed to build a bridge. The government could do the job with 20 people, but why not hire 100? Sure, manpower would be wasted, but more jobs would be created! This inefficient approach certainly helps the 80 extra workers, but ultimately prevents them from working to meet real needs in America.

This inherent difference between business and bureaucracy is the reason why free enterprise is the backbone of a strong economy. As America faces its highest unemployment in decades, Americans should support policies that promote efficiency.

1. Thomas Sowell. Basic Economics, pg. 27.

Sunday, February 21, 2010

Taxes and Job Creation

Can the government create jobs? Absolutely. But it's important to examine how these jobs are created in order to understand the economic impact of government job creation.

Creating a job requires money, for the worker must be paid. Government dollars come either from taxation, printing money, or borrowing money. As printing and borrowing are unsustainable options, it's apparent that government job creation requires higher taxation. Ironically, raising taxes is the surest way to stifle overall job creation and hurt the economy.

To see this, consider that the overall number of jobs created is the amount created by government plus the amount created in the private sector. Jobs created by the government are made possible only by taxing the private sector, which results in fewer jobs created in the private sector. For example, say that the government uses $1 million in taxes to create 10 jobs. What if that $1 million hadn't have been taken away from the people? Those 10 jobs wouldn't exist, but the public would have had $1 million more to spend on desired goods and services. The companies providing those goods and services would have made more money, allowing them to hire more workers to handle the increase in business. So the $1 million in taxes created 10 jobs, but prevented an untold number of jobs from coming into existence.

Two other factors further demonstrate why raising taxes to create jobs is counterproductive. First, taxes discourage people from starting their own businesses. People already face the daunting fact that two-thirds of small businesses fail within five years; higher taxes let them keep less of what they earn, lowering the likelihood of expansion and their incentive to try in the first place. Second, bureaucracy means inefficiency. To create jobs, government workers are paid to collect and redistribute the taxes and to organize and oversee the jobs. Money intended for job creation must first pay for more government! This problem is bypassed by letting the free market create jobs where they are needed.

Government job creation is made possible by raising taxes, which ultimately suppresses overall job creation. Today, administration officials boast of the jobs that they've created, even as the overall job market plummets. With more government intervention on the horizon, let's hold our leaders accountable for the prosperity their policies are preventing.