Where Will Economic Growth Come From?

The federal and state governments seem to believe that the U.S. automakers, solar and wind power, and road-building industries will lead us out of the current economic malaise.  That is why the governments are spending hundreds of billions of dollars on those industries.  Can the government really predict the future and accelerate the path out of recession by investing hundreds of billions of dollars in what these governments call the industries of tomorrow?  If these industries hire several tens of thousands of workers is this the solution to the economic crisis?  Not likely, but it makes great headlines and buys tens of thousands of votes.  It does indeed put people to work — select people who are lucky enough to get jobs in those chosen industries.  It also causes a lot of unemployment if the government has to tax the populace to get the money to shower on its anointed industries.  The reason for the unemployment is that those tax dollars are not spent elsewhere (like buying food, building a house, sending a son or daughter to college), and thus, employment does not expand in those areas.  

Real growth — not government shifting around jobs to chosen industries (often directed by campaign contributions and where elected representatives can buy the most votes — but you will not hear that in the speeches trumpeting the hogwash of “new jobs created”) — will come from new companies and industries developed by entrepreneurs whose creativity creates new innovations that people will want.  Those companies and industries will expand and hire employees without the need for the government to take resources from one sector of the economy through taxation and give those resources to well-connected donors in other industries.  How can governments accelerate the birth of new companies and new industries?  Mainly by getting out of the way by lowering taxes, reducing regulation, and lowering the costs of labor.  This means lower business and individual income taxes to encourage business starts; repealing obstructing legislation and regulatory rules; and repealing legislation that makes labor more expensive than it should be.  Mandatory employment paperwork, mandatory paid time off, mandatory benefits, mandatory inflexible wage and hours laws, all discourage hiring employees.  (See my article entitled the Idiot’s Guide to Creating Jobs and Increasing Employment (at http://www.socyberty.com/Work/The-Idiots-Guide-to-Creating-Jobs-and-Increasing-Employment.606803) for more on this topic.)

Creating the Google’s, Amazon’s, and Facebook’s of the future is simple for governments — get out of the way and stop trying to pick winners.  It is hard to understand why governments make it so difficult for themselves and the citizens.