Obama's Keynesian Advisors Don't Get It

by: David Goldman

What if we built runways like the amusement park ride that tilts upward into an eventual 180-degree climb? Every plane would crash. That’s how dumb it is to offer payroll tax cuts for small business. Small business doesn’t create jobs. Small business that turns into big business creates jobs. Start-ups created most of the new jobs in America in the past 40 years, and the absence of employment growth this time round is due to the missing entrepreneurs.

But it isn’t the entrepreneur who necessarily does most of the hiring; the entrepreneur risks his capital and above all his time building a business and proving the concept. In turn, he sells the idea to venture capitalists, and they sell it to private equity investors, who then sell it to the equity market. Each stage in the process involves a bit less risk and a bit less upside. The point at which an entrepreneur’s project becomes a major company is where the big kick in employment comes in.

Obama’s Keynesian advisers don’t seem to get this. Obamacare, which imposes tough penalties for non-compliance at 55 employees, presents a formidable hurdle. Now Obama is proposing a payroll tax increase after firms start to get big. This won’t do anything.

We’ll have to wait for the next administration to get economic sense.