Job creation in the real world

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Senate Majority Leader Harry Reid is already catching heat for saying:

We feel the American people need a message. The message that they need is that we’re doing something about jobs.

This comment comes on the heels of news that a bi-partisan jobs bills has fallen through, and Reid is now plowing ahead with a slimmed-down four-point plan. Yes, what Reid said is a bit tone-deaf. The American people don’t need a message that Congress is doing something about jobs; they need jobs.

At the same time, Reid’s framing is one of the most honest I’ve heard yet in the discussion about job creation. The American people may not need a message, but that’s pretty much the most Congress has to offer on the jobs front—at least in the short run.

As I’ve said before, creating jobs isn’t exactly in the federal government’s wheelhouse. Yes, we all want jobs to come back quickly, but we lost more than 7 million of them, and it’s going to take some time. As two McKinsey executives recently pointed out in the Washington Post:

The country would need to create more than 200,000 net new jobs each month for the next seven years to get unemployment back to what was once considered a normal 5 percent. Quick fixes focused on 2010 alone won’t be enough.

The reason it’s so tough for the government to simply whip up jobs, of course, is because the fundamental thing that drives companies to hire is an increase in demand for their products and services. The government has already done a lot to bolster demand in the economy. For example, stimulus spending. Parts of the jobs bill that remain would again push in that direction—for instance, a program to encourage spending on infrastructure and an immediate tax write-off for up to $250,000 of business equipment purchases. But with the economy’s biggest spenders—American consumers—still reeling from the downturn, not to mention too much debt, such efforts will only go so far.

The other chunk of the jobs bill that remains is a tax break for hiring. The bill would temporarily exempt employers from paying Social Security payroll taxes for new hires, and give a $1,000 tax credit for new workers kept at least a year. This type of move isn’t really about creating jobs, but about accelerating those that would have been created anyway. (I’ve yet to find a businessperson yet who has said he or she would create a job out of thin air just to grab a tax break.) Noble effort, and if you don’t mind paying $13 billion over 10 years to do it, fine, but it’s not going to be a game-changer.

But, again, that’s because the government doesn’t have any game changers when it comes to job creation. At least not in the short term.

What the government can do effectively is create policy to engender job growth in the long term. We are having a conversation about selling more of our wares overseas, yet oddly not a larger one about trade barriers or H1-B visa reform. No one is really talking about simplifying regulation or the tax code—both of which would make companies more prone to hire. (To be clear, I’m not saying less regulation or lower taxes, just simpler versions of each so that when you go to start a business you don’t have to hire three lawyers.)

In fact, one of the most important things the government is doing right now to create jobs is figuring out how to get more Americans super-quick Internet access. In the long-run, quality infrastructure is key to job growth. Just ask anyone who drives a UPS or Wal-Mart truck around the nation’s fine interstate highway system.

Of course, for people currently out of work and struggling to pay the bills, prospects of job creation over the next half-century are probably little consolation. Which is why the folks in Washington are focusing on the short-term—albeit misleading—message.

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