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Jobs: The Hot Potato of Industrial Policy


The Hot Potato Too Many Beltway Wonks Avoid:
The Need to Tie Job Creation to Industrial Policy

By Carl Davidson
Keep On Keepin' On

If you want to be a good policy advocate for jobs these days, two starting points will help you a lot. One is to take off your national blinders and see the economy globally. The second is to grasp how the need for revenues to finance the creation of new jobs can best be filled by increasing taxes on unproductive wealth.

A good example of the problem is Robert's Samuelson's 'Job Creation 101' op-ed column in the Sept 12 Washington Post. If we simply follow his lesson plan, we would end up creating new jobs in the third world–and doing so mainly at the expense of the wrong people at home.

Samuelson begins his argument wisely enough by stressing how increasing demand for goods and services creates jobs, and government has to have a hand in it. But then he goes astray:

"If government taxed, borrowed or regulated less, that money would stay with households and businesses, which would spend it on something else and, thereby, create other jobs. Politics determines how much private income we devote to public services.

"To this observation, there's one glaring exception. In a slump, government can create jobs by borrowing when the private economy isn't spending."

On the first point, tweaking taxes so both people and businesses have more cash to spend glosses over the matter of where and how the money is spent. Using extra income to pay down your Visa Card doesn't help job creation much. And if you spend it at Wal-Mart or other big box stores, you'll create some demand to hire more workers in China or Malaysia, but not much here.

On the second point, it's not always wise to create jobs simply by borrowing. It certainly adds to the revenues of the banks and bondholders.  But it's much smarter to go after unproductive pools of capital with progressive taxation. The proposal for a financial transaction tax on Wall Street speculators is an excellent example.

The rule-of-thumb is to tax activities you want to discourage, such as unproductive gambling in derivatives, while subsidizing efforts you want to encourage, such as new green manufacturing startups. It's called 'industrial policy,' and it's why some countries that have one, like China and Germany, are weathering the economic storms better than others.

If Obama's new jobs program is going to be thwarted by a hostile Congress anyway, those politicians who are serious about creating jobs would do well to fight for the best options-direct government programs that fund increasing local demand for local labor and raw materials.  If we had every county in the country funded to build a wind farm or solar array as a public power utility, it would be a good start. So would the building of the new and massive 'Smart Grid' power lines for clean and green energy.

When finance capital's opposition in Congress rears its head to crush something that makes perfect sense to everyone else, then we'll learn exactly who is part of the problem and who is part of the solution. If we get political clarity here in a massive way, we'll be in a much better position to assemble the popular power required to get what we really need.

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