Capitalism and Creating Jobs

This was published in the WSJ by Bill Burbage on Thursday 20090730. I thought it made alot of sense and rather insightful. Perhaps it was obvious but sometimes the obvious needs to be restated.

No entrepreneur has ever had an objective of “creating jobs.” Everybody, employers and individuals alike, constantly seeks to eliminate jobs. As Adam Smith put it in “The Wealth of Nations,” all of the tools and machines that we use are designed to “facilitate and abridge labour,” i.e., to reduce jobs. People go into business to make a profit. If any jobs are created in the process, they are created because there is no way to avoid it. Employees are expensive.

To create more jobs, the sovereign must remove as many obstacles as he can between the entrepreneur and his ability to make a profit. No other stimulus is necessary. As Smith says: “The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security is so powerful a principle that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations.”

In his wildest nightmare Smith could not have imagined the “impertinent obstruction” of a 15.3% payroll tax—not on profits but on total revenues. Mandates by the federal government have made the hiring of an employee more akin to adopting him and his family.

To those who think that a recovery is automatic based on historical or cyclical experience, consider that Cuba has not recovered in 50 years. It will not recover in another 50 years unless it restores an environment that is not hostile to entrepreneurial activity; neither will the U.S. Instead of eliminating the obstacles that already exist, we are preparing to pile on even more with the carbon tax and health-care reform.