Nurturing government spending won't create real jobs

August 23, 2010
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We have this big battle being waged over generating new jobs and who should do it.

The problem is that the people in government who believe they can create jobs don't understand where jobs come from. Politicians believe the jobs can be bought like hamburger at a grocery store. If they spend enough money, jobs will materialize automatically.

The person eating a hamburger at McDonald's gives no thought to where the beef between the buns came from. The politician gives little thought to the source of the money they spend so easily. They don't consider how hard the person worked for the money when the taxpayer earned it.

There is a limit to the number of government jobs because someone must produce something or perform a service unrelated to government in order for the cycle to complete itself.

As I read newspapers and watch the news on television, I am struck by the lack of understanding of private industry jobs. The nurturing of jobs by government is a strange concept. Generally, government makes job creation more difficult. By adding burdens of paperwork, taxation, liability and inflexibility, government discourages businesses from hiring. Then, lamenting the lack of jobs, they spend money to enhance government employment at the expense of private employment, not understanding that they are creating an unsustainable cash flow.

Creating a government job is taking money out of the government’s right pocket and putting it in the left pocket. Government then stands back and says “What a good thing we have done.” The only people who believe it are those who have jobs that are far removed from the marketplace.

One of my concerns in the job creation business is that Michigan has done a good job of creating employment for accountants and attorneys. Our legal and tax system has become complicated beyond belief.

The problem is that accountants and attorneys need a healthy business climate to create a market for services. The Michigan Business Tax is incredibly difficult and convoluted. A lot of additional time is spent by accounting firms preparing these returns. In the long run, a complicated tax system dampens economic growth almost as much as a high tax rate. Fewer businesses mean less work.

I simply cannot see how anyone benefits from a complicated tax system. High taxes benefit those whose income comes from government or politicians gain control of their own agenda. That is understandable. No one benefits from a complicated tax system. Complicated tax formulas make tax planning and managing taxes extremely difficult. That's not good for anybody.

As long as hiring someone is made more expensive and difficult than buying a machine, the machine will be bought and the employee left in the unemployment line. This is well understood in manufacturing, retail, wholesale and service business. Much is made of the number of jobs that moved overseas. I don't see much being said about the number of machines that are bought to replace people. The automatic checkout machines in your grocery store were not placed there for your benefit. They were placed there to fulfill a function more cheaply than having a person do it.

As cold as it may seem, to survive in business you must control labor costs. Labor is the cost that has a human factor to it. You can scrap the machine with little impact outside of the workplace. Scrapping a person affects their children and spouse and has a ripple effect that is hard to measure.

As government continues to make it more difficult to employ people, machinery becomes more attractive.

The best way to generate jobs is for people to spend money on goods and services. Taxes take money away from individuals and also take away their options as to how to spend it. The higher the tax, the more power government has to make spending decisions. If a wealthy person wants to expand their business, they will expand payroll. When government wants to spend more money, it will almost assuredly be done wastefully. An individual having earned the money most likely will spend it wisely. A government having confiscated the money has little emotional investment in results.

Jobs are paid for by employers who make the goods and provide services. We are currently nurturing government spending and discouraging money being spent by the individuals through taxation. It is so hard to understand how at state and federal levels this concept is somehow lost on the people making laws.

As I look back over what I have written, I am struck by how simplistic it is. It appears to be a classic case of BFO — a blinding flash of the obvious.

There are many politicians who would argue with this concept. They believe that the best decisions regarding spending are made by bureaucrats. In reality, the best decisions regarding spending of money personally or in business are made by the people who earned it, simply because they earned it. It was not given to them; therefore, they value what is done with it.

Paul A. Hense, CPA, is president of Hense & Associates, a local accounting firm. He also is past chairman of the National Business Association and the Small Business Association of Michigan.

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