Job Creation, Job Destruction

As you have no doubt heard, Mitt Romney thinks he can end the recession and do a bang up job managing the nation’s economy because, as a successful former businessman, he “knows how to create jobs.”

Romney has taken a lot of flak about this claim from the Obama campaign, which discovered that Bain Capital, Romney’s former firm, in some cases acquired companies, fired their employees and still made money on the deal.   The President’s campaign has run ads showing the distress that these firings cost, with the clear implication that Romney was one of those greedy, thoughtless business types who destroy jobs in the name of profit, rather than being one of the good business people who create them.  At least one Democrat, Newark mayor Cory Booker, thought Obama was out of line and called the ads “nauseating.” And Bill Clinton even declared that Romney’s record at Bain was “sterling.”

What we have here is yet another example of campaign rhetoric running off the rails. But get used to it - there’s no doubt more to come.

I don’t know if Romney really believes, or wants us to believe, that businesses only create jobs. I would hope not.  But I would also hope that Obama doesn’t believe that only wicked business owners lay people off.  Because like it or not, people are in business to make money, not to create jobs. Good businesses are supposed to make money by producing at the lowest possible cost something people want and are willing to pay for.  And that, in principle, is what we want and expect them to do.

But when businesses create jobs, that is, hire people, they incur costs in the form of wages, training, payroll taxes, and the like. And since the whole idea is to keep costs low – and remember, we want businesses to keep costs low – they will hire as few people as they can get by with. Sometimes, when production can be profitably expanded, that means more workers get hired.  But other times it means they get laid off, as companies contract or send the jobs to China.

An awful lot of jobs are being lost all the time.  From the beginning of 2008 up through the end of April this year, 103 million workers lost jobs and filed for unemployment.  That’s an average of a little more than 455 thousand per week.  Of course all those workers didn’t stay unemployed.  As jobs were being cut in one place, about the same number was being created in another.  When times are good, more jobs are being created than lost, and we experience net job growth. But during recessions, when job creation falls short of job destruction, there is net job loss. From 2008 to 20010, for example, there were more than 5 million private sector jobs lost, on net. And during that time, business people were doing what it was expected of them, given the heartless logic of the market.

So, if “knowing how to create jobs” uniquely qualifies business people to manage the economy, does knowing how to destroy jobs about equally well uniquely disqualify them? No, because neither conclusion makes much sense.

Businesses respond to the macroeconomic environment that surrounds them - consumer and investment spending, inflation, interest and wage rates, international value of the currency, consumer confidence, financial system stability, and so forth – and  that means that sometimes they add jobs and other times they eliminate them. Business people like Mitt Romney may well know how to take advantage of favorable macroeconomic conditions to create jobs. But don't expect them to know how to create those favorable conditions in the first place. That’s the job of macroeconomic policy makers, and it requires political and economic expertise that business people don’t typically have. If you want to predict how well Romney would do managing the economy, you should probably look at his record as a policy maker when he was governor of Massachusetts. He doesn't talk about it much, but it's probably more relevant than all those years snapping up companies at Bain Capital.

Jobs That Mean Something

In the past several weeks I’ve been getting quite a few campaign emails from Neil Livingstone, who’s running for governor in a crowded Republican field. Livingstone and his running mate, Ryan Zinke, who are usually in high dudgeon about something, were upset last week because they think that Max Baucus, Jon Tester and Brian Schweitzer haven’t done enough to “ensure the continued viability of Malmstrom Air Force Base in Great Falls.” They’re worried that if the United States moves to reduce the size of its nuclear arsenal and eliminate its fleet of intercontinental  missiles, Malmstrom will be in “real jeopardy.”  And they’re fretting about the current proposal by the Pentagon to move the F-15 fighters currently stationed at Malmstrom to California and replace them with C-130 cargo planes. 

Now if you’ve been longing for the day when you no longer have to worry so much about nuclear annihilation, or if you think the Pentagon probably knows best what kinds of planes should be based where, you might wonder what all the fuss is about.  Well, in a word, it’s jobs. Livingstone and Zinke are convinced that reducing or changing Malmstrom’s mission would mean Montana would lose jobs, and they offer some numbers (no source cited) to prove it. Some of the numbers are pretty big and others quite small, but in the end it doesn’t make any difference because, in Livingstone’s words, “The loss of a single job is not acceptable.”

Really?  Does Livingstone really believe that the decision to decommission part of the world’s largest stockpile of nuclear weapons should turn on the loss of a single job? Does he really think that the loss of one job is too high a price to pay to use the nation’s military and fiscal resources more efficiently and effectively?  In his emails, Livingstone promises that when elected he will cut taxes, balance the state budget, and reduce costs.  Does he really think he can do that without cutting a single job?

Well, probably not. Chalk it up to the desperation that comes at the end of a long and not very promising primary campaign.  And understand that what Livingstone is saying is not a lot different from what a lot of other politicians, from both parties, are saying as well.  At times like these, in a recession that we just can’t seem to climb out of, job creation tends to emerge as one of the first, and sometimes the only, things we consider when we’re making decisions about how to manage public resources.  In the process we tend to downplay the other important values at stake in these decisions – after all, it’s jobs that really count – and the result can be that we fail to do right by ourselves.  We forget that it makes a difference what the people with the jobs are producing.

Livingstone may go particularly astray here, but we all do to some degree. In debates about the environment, or natural resource development, or funding education and the arts, or, well, almost anything,  both sides assail each other with claims and counterclaims about jobs gained or lost depending on whether we do one thing or another.  And the fact that human health and quality of life, or climate stability, or civic, social and cultural vitality may be at stake  tends to get lost in the shuffle.

Don’t get me wrong. I shouldn’t have to say this, but just to be on the safe side, I will: jobs and job growth are very, very important. We all want to live in a country where anybody who wants a decent job can find one, and where when a worker does get laid off, it doesn’t take her months to find a new job and get back to work. That’s not the country we have right now. Too many workers are unemployed and too many who have lost jobs stay unemployed for far too long. It’s Americans’ number one concern as we approach the 2012 elections, and they expect government to do something about it.

And government should do something. But the solution lies in firm and effective macroeconomic management. Even Livingstone and Zinke, despite their pledge to be fiscally conservative, argue forcefully  that government can and does  generate job growth through spending.  In fact, almost any kind of spending will do that. But in spending money to stimulate the economy and sustain job growth, we should use our fiscal resources wisely and efficiently.  That means putting people to work in not just any jobs, but in jobs that build a more just, healthy, secure, and prosperous nation.

A Student Loan Driven Education Bubble?

Sen. Art Wittich argues in the May 10 Missoulian that university students will graduate this spring with a mountain of debt because, despite ever increasing state funding, the Board of Regents has tapped into excessive student borrowing to capture new tuition revenue. The Regents apparently used all this money to pay for “esoteric degree” programs and a wasted effort at “being all things to all people.” And students are borrowing so much because the terms on Federally subsidized student loans are so easy (and will continue to be, unless Congressional Republicans are successful in their current attempt to double student loan interest rates). Reminding us of the dreadful specter of imminent financial collapse in Spain and Greece, Wittich asks “Is easy credit for college loans now creating an education bubble?”

Well, Senator, no it isn’t.

As any reasonably well informed legislator should know, over the past 20 years, state support for higher education in Montana failed to keep pace with the combined effect of enrollment growth and inflation. Take a look at this chart, which shows real state support per resident student over the period 1992 to 2012.*

Except during Brian Schweitzer’s first term, real state support fell almost constantly over the period, from $8,185 in 1992 to $5,129 this year, for a net decline of 37%. Given these cuts, the Regents had no choice but to raise tuition to offset the loss of public funding, which went from making up 76% of system revenue to 36% over the same period. In effect, public higher education in Montana was being privatized, which should have tickled Sen. Wittich pink, if only he’d known about it.

The Regents raised tuition largely to make up for lost appropriations, and there’s no evidence to support the notion that they jacked up tuition revenue so they could add unneeded or impractical programs to the University curriculum. On the contrary: Montana now has just about the leanest university system in the country. In 2010, Montana got by with total revenue per student 19% below the national average and only three states - Florida, California and Washington – managed to make do with less.**

Given these limited resources, the University system should receive greater public support and offer a broader and richer curriculum. We owe it to our children not just to train them so they can get jobs in Montana and satisfy the labor force needs of Montana businesses. Rather, we should educate them so that they can compete and prosper anywhere in a rapidly changing world, and contribute creatively to the social, political, cultural and civic life of their communities.

*State support here is expressed in real (2012) dollars and equals ongoing general fund appropriations plus revenue from the six mill levy.  One-time-only appropriations are not included. Figures are from the Office of the Commissioner of Higher Education, Montana University System.

** Revenue here is the total of tuition and state and local appropriations. Figures are from the State Higher Education Executive Officers.