Reading Matt Bai's piece in the New York Times Magazine about the Ohio economy, and reflecting on many recent discussions and debates, I found myself pondering the question posed above.
It's a big, portentous question, especially in an election year where the economy's center stage.
It's central to the Bai piece as he talks to the current and former governors, the mayor of Columbus, and the White House. It's not like Ohio's soaring ahead of the rest of the nation, but there's been a notable recovery there, particularly in autos. Unemployment, which peaked at 10.6%, above the national rate, is now below it, at 7.2% (the nation is at 8.1%).
Predictably, everybody wants a piece of the action. Ohio's an interesting case study, because it's a swing state and an autos state so there's a lot for the pols to squabble about. Bai points out that Gov. John Kasich (R) talks about his great jobs record, giving Obama little credit, while the President is all over the state reminding folks of his actions, while at the same time Romney surrogate Sen. Rob Portman (R) reminds Ohioans of the very un-Kasich-like message that they're really not doing so well at all.
Is there any way of sorting out who's right here?
In normal economic times, meaning business cycle expansions as opposed to recessions, there's a virtuous cycle of income growth, demand growth, consumption and investment growth, job growth, back to income growth, etc. Politicians at all levels-especially governors and mayors-don't have to do much at these times other than take credit for job growth on their watch that they didn't have a lot to do with (though, as I'll stress in a moment, there are important nuances here).
The President and Congress can, of course, make a difference in expansions, mostly by not screwing things up and watching out for market failures. It helps if fiscal policy is structured such that budget deficits that grew in the recessions shrink in the expansion. And there's always work to be done ensuring export markets are open to our businesses, workers are adequately trained, financial bubbles aren't inflating, fiscal cliffs are avoided (...ahem).
But when the economic chips are down, that changes, and the federal government matters a lot more than the state and locals. For one, only the federal sector can run budget deficits, which means states are highly unlikely to engaged in any job-creating Keynesian stimulus. To the contrary, as recession-impacted state revenues take a hit, states often find themselves in pro-cyclical versus counter-cyclical mode (doing things that reinforce the negative trend in the economic cycle rather than things that might reverse it). States are more likely to raise taxes or cut services in recession than not, which is one reason they've shed so many jobs in recent years even as private sector employment has consistently expanded.
So there's no question that the top-level answer to the question of politicians and job creation is, "in recessions, yes, and it's President (and Congress) that matter most." In this regard, note that both Presidents Obama and GW Bush implemented stimulus, the auto rescue, and the TARP. It's obviously a whole different discussion as to how effective they were under whose watch, etc., but governors and mayors were recipients of any jobs benefits from these initiatives, not originators.
But what about in expansions? Do governors and mayors have more to do with job creation when the economy is growing? Not so much here either, but that doesn't mean these electeds are irrelevant to job growth. While the aggregate quantity of job growth in a nation is largely driven by macro and global trends, there's a lot sub-national officials can do to try to encourage the jobs that are created to locate in their states and cities. They affect less the number of jobs than where those jobs end up.
There's a large literature on this, much of it evaluating the costs and benefits of "stadium/factory chasing," i.e., offering businesses tax and other breaks to come your way versus somebody else's backyard (see the work of my old friend Greg LeRoy and his group, Good Jobs First). Summarizing, what I think we now know is that just giving tax breaks isn't enough to make this work for either communities or the larger nation. Instead, we've learned two important lessons.
First, what matters more to thriving businesses is the quality of public goods, including physical infrastructure and the quality of the workforce. Yes, the tax base matters, but the success stories are not the places that offered the most sugar in terms of tax cuts. It's the ones that offered solid communities with world class infrastructure--the roads, airports, schools, and skilled workforce that businesses need to succeed.
In fact, Bai talks about the role played by the very forward looking Mayor Coleman of Columbus, Ohio, who actually managed to pull off a small tax increase to help improve the local services that he believed made an important difference to business location decisions.
...when it came to the recovery in Columbus, Coleman credited the way local businesses had come together around the idea that raising revenue could stave off cuts and preserve investments. "They understand that part of selling a local economy is selling the quality of life in that local economy," he said. "So if you don't have good streets and good parks, if you don't have a strong safety force and a strong fire department, if you don't have the ability to grow the economy locally, businesses will not locate there. They'll shrink and go somewhere else, because the quality of life is so bad. There are a lot of Ohio cities where that has happened, and it hasn't happened in Columbus."
Bai emphasizes this point further, stressing the connections between investments in public goods and the economies major growth industries:
...banking and insurance and management consulting, state-of-the-art medical facilities, high-tech manufacturing and research. These industries thrive on the kinds of major investments in infrastructure and quality of life that only government can make, in schools and transportation and fiber optics and parkland. How politicians think about these kinds of investments, and how they intend to pay for them, would probably make for a more relevant debate this year than arguing over who created 1,000 new jobs in Canton last May.
The second thing I think we know about the role of sub-national politicians in job creation has to do with regional aggregation or clustering effects that are often very important to local job growth. Cities can develop as research hubs with a quality university at the core; a port city can develop transportation infrastructure that creates lots of new opportunities, and so on. These clusters can develop organically, like the old railroad and river-confluence cities, but these days such developments tend to be more strategic.
In sum, pols will always take credit for jobs on their watch -- and try to point elsewhere re job losses. But outside of recession, I wouldn't take it too seriously. In recession, the President is very important, and President Obama comes across as effectively stepping up to this plate in the Bai story re Ohio. In expansions, govs and mayors don't have much at all to do with the number of jobs the economy generates, but if they're smart in terms of investments in public goods, they can draw more of those jobs to their states and cities.
This post originally appeared at Jared Bernstein's On The Economy blog.
Follow Jared Bernstein on Twitter: www.twitter.com/@econjared
When we buy things, companies hire workers, as a last resort, to keep up with demand.
Want to create more jobs, get more money in the hands of the middle class. We spend it.
http://www.businessinsider.com/corporate-profits-just-hit-an-all-time-high-wages-just-hit-an-all-time-low-2012-6
Unfortunately, corporate profits and productivity are at an all time high, and wages are at an all time low. Over the last 30 years, employers have been paying employees a smaller and smaller piece of the pie. The wealthy have enjoyed all of the income growth while everybody else has remained flat.
The greedy wealthy need to decide: are they just going to keep taking more and more for themselves, or are they goint to start paying a more fair wage, sharing more of the company success, so that they have a steady stream of middle class business?
The current wealth inequity will not sustain itself. The last time it was this bad was right before the great depression. It can be fixed.
When the middle class does better, the rich do better in the long run.
A rising tide lifted all ships, up until 30 years ago. It can happen again.
These are definately job killers.
You could have removed the qualifier "in expansions" and stopped right there.
The federal government can do four things to help the economy:
1) Maintain the value of the currency,
2) Keep their budget in balance unless we are at war,
3) Keep the tax code flat and broad to minimize its destructive effect,
4) Enforce contracts, patents and criminal laws against theft and fraud.
Otherwise, politicians need to resist the temptation to run an economy they do not understand and keep the government out of the way.
We are currently living the economic consequences of failing to follow that advice.
If those limits are exceeded, then the USA's economy will self destruct and the USA will evolve into something resembling Greece, then Mexico, and then Somalia!
Do you remember the "imaginary numbers" from mathematics?
There are economic limits to the numbers and the expense of police, firefighters, sewer workers, street repair workers and school teachers that the local taxpayers can afford.
Were our elected presidents and congressmen ignorant, stupid, dishonest, or some combination of these factors?
How do you think that these "FREE TRADE AGREEMENTS" were created?
Do you think that maybe the foreign product manufacturers that export consumer products to the USA might have paid professional US lobbyists to spend hundreds of thousands of US dollars on wine, food, women, song, vacations, cash, sexual services, corporate jobs for the (otherwise unemployable) children/wives/girlfriends on enough of the US senators and US congressmen (and their congressional aides who actually control the members of congress) plus campaign contributions to influence/entice (bribe) enough of our Republican and Democratic US Presidents, Congressmen and Senators for the past 20 years to create all of that "FREE TRADE AGREEMENT LEGISLATION" to ratify various trade agreements that allowed, caused, and ECONOMICALLY REQUIRED our businesses to take advantage of the lower labor costs, lower electrical energy costs, lower business taxes, lower payroll taxes to pay for health care costs, lower unemployment insurance costs, lower environmental manufacturing costs and other anti-business costs that are not required in various foreign countries with fewer anti-business laws that are/were applicable to businesses in the USA?
Only after the early pioneers and settlers could produce enough necessities of life (food, shelter, clothing) for themselves and had an excess to also support a (rudimentary) civilization, they would then combine their meager resources/or and confiscate taxes themselves to hire public sector bureaucrats as teachers, soldiers, water system operators, police, firefighters, and other services but they limited the cost of these bureaucrats to the number and the bureaucrats pay that the wealth producers could afford and/or wanted to support.
The producers would also pool their resources and hire contractors to construct roads, bridges, water systems, sewer systems, and other infrastructre that allowed the producers to become more productive.
Tax supported government bureaucratic employees including teachers, soldiers, water system operators, police, firefighters, and government contractors do not create taxable WEALTH, but they do allow the WEALTH producers to become MORE PRODUCTIVE of new wealth by relieving the producers of having to worry about providing those services for themselves (and for the producer’s families), but the producers limited their expenses for bureaucratic provided services to the limitations governed by the amount of tax revenues that they wanted to pay.
“As Americans, we realize that there is no taxpayer money that wasn’t first earned by the sweat and toil of one of its citizens. That’s why we reject this president’s unbridled fixation on taking more money out of the wallets and pocketbooks of American families and employers and giving it to a central government.”
Only the private sector businesses and corporations generate taxable wealth and create non-taxpayer supported JOBS for US citizens to create new NATIONAL WEALTH for those same US businesses, and that new NATIONAL WEALTH is then available as business profits, private personal income, property taxes and personal inheritance to be CONFISCATED through taxation TO PAY FOR GOVERNMENT BUREAUCRATIC EMPLOYEE PAYROLLS, GOVERNMENT CONTRACTS, OTHER GOVERNMENT EXPENSES, at every federal, state, county, and local level.
Paying for Government contracts and grants consume the US economic capability, resources and strength the same as GOVERNMENT BUREAUCRATIC EMPLOYEE PAYROLLS and other government expenses consume and/or DESTROY the economic capability and strength of the USA.
The government can take some wealth from those that created the food, shelter and clothing through taxes and then distribute that money to those without food, shelter and clothing to buy the food, shelter and clothing. Those without food, shelter and clothing would otherwise become beggars on the street and obtain some food, shelter and clothing from the people that create food, shelter and clothing.
In a macronomics sense, the most profitable and hence the most likely to grow the economy is manufacturing. Yes, that's right, making something out of nothing because it brings NEW money into the system which then flows and creates a whole bunch of other smaller industries that make larger somethings out of smaller somethings.
Can politicians influence the economy? You BET they can by either reinforcing or rejecting baseline manufacturing with the enabling laws that create and empower VERY negative economy KILLERS like outsourcing and shipping industries out of a nation wholesale. America needs to get back into the business of building something out of nothing and in a BIG way! America needs to stop bowing and scraping before CORPORATE outsourcing of our future to slave-wage countries.
Question:
How likely is any board of directors to rehire a CEO who leads a multi-million dollar corporation into bankruptcy and blames it on the man he replaced four years ago"?...Only government.
Link:
Tax Payers Kiss Nearly 50K Goodbye for each Government Motors ...
Link:
Reuters: GM Is Still Losing As Much As $49,000 On Each Volt It ...
Link:
Holy Crap! GM losing $49k on Chevy Volt, more than double what ...
Link:
Gov't Motors Loses $49,000 On Each Chevy Volt - ...
the most dangerous citizen is not armed, but uninformed
Furthermore, Obama did NOT drive the economy into the ground. Things are better now than they were when he took office, and he's the one to credit much of that improvement to!
Sure they do!
The litmus test is easy!
All politicians have to do is ask the question, "Is this Bill good for Main Street?"
If yes vote for it!
The opposite appears to be, "Is this Bill good for Wall Street?"
If the answer is yes then block it, filibuster, Veto it!
Is it not obvious!
Those sectors that our system favors are vitally dependent on federal funding. The hi-tech industry depends largely on funding from the Pentagon. The health care industry relies on a wide array of sources, whether R&D through the National Institute of health or the roughly $250 billion handed to insurance companies every year through the exemption for employer based insurance. The financial industry received roughly $15 trillion in total bailout aid.
We've developed the absurd consensus- completely detached from reality- that our economic system developed completely independent of governmental funding or protectionism and as such, the private sector has absolutely no obligations towards the public.
In reality, our politicians have promoted some of the most harmful and predatory practices over the last 4 decades. They've deregulated finance to promote risky innovations while allowing banks to ignore what laws remained on the books. We've subsidized a healthcare system costing twice per capita that of any other industrialized nation. And more generally, we've put profit over economic security or basic worker protections designed to give workers a say over their working conditions.
Our economy doesn't function in a vacuum and any real debate has to take this into account.