Tax, Spend, Create Jobs?

That is the mantra that John Schwarz is backing in the Washington Post. His back up for this is this.

The facts are clear enough: When the presidency was under Republican control during the past 40 years, 1.4 million net additional jobs have come into being per year on average. Under Democratic control, 2.5 million net jobs have come into being in an average year -- 78 percent more. Jimmy Carter actually surpassed Bill Clinton's highly praised job-creation performance.

Similarly, real wage gains for all non-managerial workers, who constitute nearly 80 percent of the labor force, have suffered more, on average, during Republican than Democratic administrations. Even the stock market has not done as well on the whole under Republicans as under Democrats.

There are many reasons for all this. Among them is this simple truth: While minimalist government may be necessary for a free market, that doesn't necessarily mean minimalist government is good for the growth of the economy, or for job creation, or even for generating private wealth.

Now, comparing Republican to Democratic Presidents over the last forty years is totally misleading. That's because over the last forty years Republicans have controlled the White House for 28 years and Democrats 12. Furthermore, Clinton's economic boom was set up by the tax cuts put together during the Reagan years. That spawned the technological investment that blossomed in the nineties. Again, when Bill Clinton entered office, ten percent of the population owned cell phones and internet. When he left it was nearly 100%. It's silly and misleading to proclaim that Clinton had anything to do with this dynamic that began long before he entered office. It is furthermore misleading to proclaim that this wasn't the main reason the economy boomed during that period. Such misleading statistics hold weight on those with little economic background, but they must be challenged by those that don't.

I would argue that the statistics are misleading and so far the author has not pointed to anything that connects government spending, more taxes, and more economic growth. Here is his attempt.

Consider the kinds of industries usually associated with the modern economy: jet aviation, semiconductors, computers, the Internet, global positioning systems, laser technology, MRI technologies, high-strength steel alloys, fiber-reinforced plastics, nanotechnologies. Tens of millions of new jobs -- well-paying jobs with good benefits -- were created through these innovative industries.

Each of them arose out of government-funded research, initial development by government, requirements established by regulation, large-scale governmental demand and purchasing to provide initial markets, or some combination of these. Every one of them.

Free-market advocates want voters to believe that government dampens the growth of opportunities that a free market would otherwise generate. The history of today's economy demonstrates that, to the contrary, governmental activism has been indispensable to the growth of many of our most prosperous industries and well-paying jobs in the United States. In so doing, it has laid the foundation for the creation of substantial private wealth as well.

Serious lapses beset the private market that the free-market mantra simply glosses over. Not many rational investors will step up when there is no clear prospect of ready consumers for a new technology and the costs of research, development and initial production of that technology run into the billions. Often the start-up costs for a technology are so high and market prospects so vague that few private investors, even venture capitalists, are interested. Sixty years ago, the first computers were practically room-size -- and were so expensive that even most banks shied away from purchasing them.

It's even sillier to proclaim that innovators and entrepeneurs need government research and breakthrough before they take a chance. Did Thomas Edison wait for government research before he invented and marketed (by creating General Electric) the light bulb. Did Orville and Wilbur Wright need government programs to invent the airplane. There was no government program for the assembly line before Henry Ford made it a staple of automaking. There is no doubt that government has lead the way in many innovations, but it is totally misleading to say it is necessary for innovation, expansion, and evolution.

Mostly what expanded spending and taxes create is more bureaucracy. More bureaucracy leads to more government, and all that leads to is more corruption. While I think that government spending can certainly lead to innovation, the baggage that goes with it is not worth it. More often than not government is a roadblock to innovation, not a highway. Extra taxes make an extra burden to innovation. Government spending is NOT necessary for innovation. Our greatest entrepeneurs throughout our history prove that they don't need the government to lead the way for them. In fact, it is an indictment of the human spirit to say that government must lead the way to innovation.