Growing Ourselves Out of a Recession

Now, there are two ways to create jobs: either government does it or industry does it. Government "make work" jobs can be created more quickly, but they only transfer wealth, not create it. Moreover, research has found that this kind of job creation has little systemic impact in the economy (the "multiplier" effect). But, as the New Deal showed us, government jobs are good for rebuilding infrastructure and restoring hope.

By comparison, industry-created jobs have the benefit of both creating new wealth and creating still other jobs. But they take longer to develop and they are harder to target (but ultimately do a better job of filling real needs).

Unfortunately, and contrary to the common view, Big Business doesn't create jobs, it merely protects them. Almost all new jobs -- and thus all new wealth -- is created by small businesses and entrepreneurs. Unfortunately, this is the one group that has almost no influence in Washington.

On the contrary, as we've seen over the last few years, new and small businesses are the whipping boys of Washington; the target (or at least the victim) every new regulation, tax or other form of state control. And if that hasn't stopped them – entrepreneurs are a plucky group – there's also the fact that, in the words of marketing executive Tom Hayes, who helped engineer Silicon Valley's competitive turnaround in the 1990s, "our legal, regulatory, patent and tax structures are decades behind the curve."

In other words, we've taken the one proven effective mechanism for growing ourselves out of this recession … and, with obsolete regulatory agencies and years of misguided, intrusive government policies, we have effectively hobbled it. This means that we haven't taken the wrong medicine this time; we've poisoned ourselves in advance. That doesn't bode well for our economic future.

But we can still get out of this. With a little care and a flexible approach, we can still have the patient up and walking in no time.

What we need is a three-tiered approach. Short-term, it's time to break out the defibrillator paddles: The Obama administration needs to continue what the Bush adminstration began by shocking the economy of out its current cardiac arrest. And that may well mean the creation of a Virtual WPA or CCC. On the other hand, it doesn't have to mean a bailout to every industry that's whimpering right now and begging for a hand-out – frankly, some badly-run companies just need killing. But if we are going to create government make-work jobs, we need to recognize their limitations -- and put limitations on their duration. I'd say two years, half a business cycle, then the Feds need to get out of the jobs business.

That's short term. Middle term, we need to unleash the unmatched power of small and new enterprises. President Obama should start by convening a Summit on Small Business and Entrepreneurship in Washington. We've haven't had one on the national level since the first Reagan term, when the hot topic was the impact of the fax machine. We are long overdue. Gov. Schwarzenegger called just such a conference in California a couple months ago – and it's already having an impact in Sacramento.

But a summit is nothing if it doesn't have teeth. So, coming out of the summit should be a bipartisan task force to make binding recommendations regarding regulations, paperwork, taxation and all of the burdens and impediments placed upon new and small businesses.

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