January 6, 2010

January 6, 2010 | Commentary on Economy, Labor

Obama Should Foster Entrepeneurs

Politicians in Washington are talking a lot about creating jobs. Their dark secret is that none of them know how to do it.

Look at the centerpiece of President Barack Obama’s newest proposal: spending billions on home weatherization. If Obama had better ideas for creating jobs, he would have proposed them.

In fairness, no one should blame Obama for lacking a good plan to create jobs. No president – Democrat or Republican – could do much better.

Consider where jobs come from. An entrepreneur has an idea. Investors provide that entrepreneur with funding. The entrepreneur then hires workers to help put his idea into action. If the business competes successfully, those jobs last.

A decade ago, two graduate students at Stanford, Larry Page and Sergey Brin, had an idea for a better way to search the Internet. They persuaded venture capitalists to invest $25 million in their new company: Google Inc. Today, 20,000 employees work there. Page and Brin’s successful idea created thousands of jobs.

Of course, no one knows what business ideas will work before an entrepreneur tries them. Google might not have succeeded. Remember Pets.com? The economy works through decentralized trial and error as millions of entrepreneurs try to make their ideas work.

During this recession, however, this entrepreneurial activity has slowed. Job creation has fallen by 25 percent since the recession began, much more than the 15 percent increase in job losses. The credit crunch and the uncertainty of the recession have made starting new businesses less rewarding and more difficult. Unemployment has doubled primarily because fewer entrepreneurs now take the risk of putting their ideas into action.

That’s why Obama can’t create jobs. What politician could come up with even 20 good business ideas, much less the tens of thousands needed to get millions of Americans back to work? No one person has that expertise.

The president can help create a business environment that encourages entrepreneurship. Or he can create an environment that discourages it. Unfortunately Obama has chosen the latter path.

Many longstanding liberal policy goals make businesses less profitable. Rather than holding off on this agenda until the economy recovers, Obama and congressional Democrats have pressed full speed ahead. They have chosen to advance their ideological goals at the expense of entrepreneurship and job creation.

The health care bills in Congress raise taxes on employers while making health coverage (i.e., employees) more expensive. The Environmental Protection Agency has announced it intends to begin regulating carbon dioxide – that would make energy more expensive. What does that do to the incentive to start a business?

The $787 billion spent on the stimulus has also reduced private business investment. The more resources Washington consumes, the fewer businesses can use for their own projects. For each 100 public jobs the government creates, 150 private sector jobs disappear. Obama’s spending has deprived many entrepreneurs of the funding to expand their businesses.

The fact that the House just passed a second stimulus tacitly concedes that the first one failed. But doubling down on more spending won’t encourage entrepreneurs to start or expand businesses. So it will also fail. This means a long, slow, jobless recovery for American workers.

Just to keep pace with population growth, employers must create 100,000 jobs a month. Obama’s attempts to centrally plan a recovery with government spending will mean long months on the unemployment rolls for many workers.

If Obama wants to create jobs, he should start by admitting that no president knows how to do it himself. Instead he should pass policies that encourage the millions of potential American entrepreneurs to take the plunge and their potential investors to fund them. That’s the not-so-dark secret of how jobs are created.

James Sherk is the Bradley fellow in labor policy at The Heritage Foundation, a conservative think tank in Washington, D.C.

About the Author

James Sherk Research Fellow, Labor Economics
Center for Data Analysis

First Appeared in The News Tribune