3 steps will get us back to work

If the Obama administration would like to know why all its efforts to improve the economy have accomplished approximately nothing (except transferring a large amount of money from taxpayers to favored interest groups like autoworkers, teachers and road pavers), they need only look at a program like the homebuyers tax credit.

Because the tax credit was available only for a limited period of time, it had the main effect of changing the timing of sales more than the actual amount of sales. Thus, we now see that what looked like a program that effectively increased home sales actually only shifted sales forward in time so as to take advantage of the free money. No more free money, no more home sales.

Many of the programs that have been implemented or are being considered currently fall into the same category.

Temporary programs will give you temporary effects at best. If employers are offered a payroll tax holiday (as some are suggesting), that does not change the decision on whether or not to hire a permanent employee.

It might make the worker temporarily more attractive, but given the cost of hiring, training, and then firing a worker when the program expires, it is doubtful such a program can make the worker attractive even temporarily.

Instead of using political power to reward Democratic Party funders (read: union members), perhaps the administration could try some policy making to get the economy going and help unemployed Americans get back to work.

The key to economic policy making is to provide permanent (at least in the political sense of more than a few months) structures that make entrepreneurship and business attractive again. The Obama administration can go a long way toward that goal with three easy steps.

First, don’t increase marginal income tax rates. This provides a disincentive to work and create jobs. If you want to attack the deficit, do it by cutting federal spending. Start by not spending the remaining stimulus funds. Then ask your economic advisers to suggest the spending cuts that would have the least impact on employment and use that as a ranking system to reduce spending back to 2007 levels. Now is the time for encouraging job creation, not class warfare.

Second, make some rules and stick to them. Uncertainty is the worst of all worlds. Economic studies have shown that even rules unfavorable to an industry are better than uncertainty over what rules may be imposed in the future.

Because nobody knows what legislation may be passed, they cannot design new business to minimize the harm of the new regulations. Generally even bad regulation is not as bad as it might have been, so resolving the uncertainty makes investment more attractive (if still less so than if no harmful regulations were implemented).

If businesses know the rules, they can make decisions; without the rules, they just wait. While businesses wait for rules, the unemployed wait for jobs.

Third, sign an executive order that all federal legislation passed for the remainder of your term must include an analysis of its impact on employment before you will sign it. Just establishing that jobs are the No. 1 priority would do immense good to the business climate and would encourage businesses to invest and create jobs.