Down with Gold
U.S. Unemployment is Cyclical After All


Jonathan B. Wight

It's embarrassing when a candidate makes grandiose claims. Last night, Mitt Romney stated: "I have a plan to create 12 million new jobs." If a Democrat had said this Republicans would rightly pounce: presidents don't create jobs, only the private sector can. Of course, this statement is false if some public investments enhance productivity in a way private investments cannot (the classic "public good" argument).

Right now the private sector is creating jobs but the public sector is shrinking and pushing up unemployment (see chart).











What constrains private job creation at this point is not the crowding out of big government. Interest rates are miniscule and there is plenty of capital sitting idle. Nor is it labor shortages. Nor is regulation listed by businesspeople as the key factor limiting investments. The key problem is unemployment, continued foreclosures, and generally anemic demand (see, for example, Bernanke's speech today). Uncertainty about policies (e.g., stonewalling on the budget) is likely also a factor.

Romney would like to spur small business development; but a bizarre statistic is that small business formation is much higher in Europe—where there is portable universal health insurance). The best argument for universal health care is that it would allow people to leave their corporate jobs and undertake risky small-business start-ups.

Minor aside: Romney also said: "Everywhere I go in America, there are monuments that list those who have given their lives for America…. They lived and died under a single flag, fighting for a single purpose. They pledged allegiance to the UNITED States of America."

Apparently, Romney did not pay attention the last time he visited Richmond. Monument Avenue is famous for its statues of Robert E. Lee, J.E.B. Stuart, "Stonewall" Jackson, and Jefferson Davis, men who led the Confederate states in seeking to abandon the United States.


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