Fixing the economy requires a lot of undoing

Opinion: September 8, 2011 at 12:00a.m.

By David R. HENDERSON

McClatchy Newspapers

President Barack Obama is slated to lay out his jobs plan tonight. But what can he and Congress really do to help sustain and strengthen the economic recovery? I propose the following.

First, distinguish between bad jobs and good jobs. An example of a bad job is hiring someone to dig a hole and then fill it in. The person’s time is totally wasted. An example of a good job is one created by Steve Jobs: hiring someone to produce a product, say the iPad, that someone else wants to buy and is willing to spend his own money to buy. The person doing the work gives up his time but is paid for it by someone who wants the product.

My example suggests that bad jobs will tend to be those created by government with the goal of making work; good jobs will tend to be those created by people in the private sector creating value.

Second, get rid of barriers to good jobs. That means letting people who want jobs get them without putting government restrictions in the way. University of Minnesota economist Morris Kleiner and Princeton University economist Alan Krueger, President Obama’s designee for chair of the Council of Economic Advisers, found that 35 percent of U.S. employees are in jobs that are either licensed or certified by governments. That’s what is seen. What is not seen are the people who, because of the requirements for government approval, do not get those jobs. It’s true that most of these restrictions are at the state or local level. But to the extent they are federal requirements, get rid of them or at least modify them.

Minimum wage

One barrier to good jobs for unskilled workers is the minimum wage. By letting it rise from $6.55 to $7.25 an hour in July 2009 at the start of a weak recovery, President Obama and Congress consigned about 200,000 unskilled workers to further unemployment. Cutting the minimum wage back to $6.55 an hour or, even better, abolishing the minimum wage, would open up job opportunities for people who can be productive but whose productivity is less than $7.25 an hour. As the late Paul Samuelson put it in 1970, in discussing a proposal to increase the minimum wage to $2 an hour, “What good does it do a black youth to know that an employer must pay him $2 an hour if the fact that he must be paid that amount is what keeps him from getting a job?”

Third, repeal the good-job-killing health care law passed in 2010. Employers right now are sitting on the sidelines waiting to see how costly that law will be. We now know that President Obama was incorrect when he reassured us that those who like their health insurance as it is would be able to keep it. Of all the regulatory policies Obama could follow, this one — total repeal — would have the biggest positive effect.

Fourth, quit criminalizing the actions of everyday Americans. The government’s recent attack on Gibson Guitars because they might use wood that a law in India forbids them to use is one of many such actions the Obama administration has taken in the last 31 months.

Money supply

Fifth, call on Federal Reserve chairman Ben Bernanke to increase the money supply. But wouldn’t that increase inflation? Yes, and that’s the point. Many people remember my late Hoover colleague, Milton Friedman, for his opposition to inflationary monetary policy during the 1960s and 1970s. Many of these same people forget how he made his academic reputation earlier with his data-backed case that one of the main causes of the Great Depression was a too-tight monetary policy. Friedman argued that if the Fed had prevented the money supply from falling, the Great Depression would have been mild. Friedman also pointed out countless times that you cannot judge the looseness or tightness of monetary policy by the level of interest rates. What matters is the growth of the money supply. Just as Friedman advocated a higher growth rate of the money supply to get Japan out of its 1990s doldrums, a policy that the Japanese central bank did not follow, I’m confident that he would have advocated higher growth of the money supply today. Mild inflation causes real wages to fall somewhat, making hiring labor more attractive to employers.

I don’t expect President Obama to take my advice. But if he followed all the policies I advocate, the unemployment rate would fall and he would probably be re-elected in 2012.

David R. Henderson is a research fellow with the Hoover Institution and an economics professor at the Naval Postgraduate School. He is also the editor of The Concise Encyclopedia of Economics and blogs at Econlog. He wrote this for the Sacramento Bee. Distributed by McClatchy-Tribune Information Services.