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A Few Ways to Kill Economic Growth

Posted By Guinevere Nell On October 24, 2008 @ 4:09 pm In Economics | Comments Disabled

It appears more and more likely with each passing day that we’ll wind up with an Obama administration. If Obama is elected, we will face a lengthy list of policy proposals that are supposed to help the less fortunate but in fact just kill economic growth. He would expand the welfare roles through tax credits to those who pay no taxes, restrict the freedom of employers to pay workers what they are worth, grant unions and government officials power over workers and business, and put government in the business of employing the out-of-work. Each of these proposals has been proven in the past to kill jobs and drag the economy down. Here are just a few examples:

  • Additional credits to tax filers paying nothing in taxes would amount to about $33 billion per year and constitute almost 15% of the total cost of Obama’s tax plan (including extension of current rates). They make up 40% of the cost of his new tax cuts. He would add about 24 million new net-recipients of IRS money, taking these people out of the work force. In fact, he would greatly shift the burden to the rich [1], even though the tax code is already highly progressive [2]. Of course, higher taxes on the successful reduce their incentive to work and invest. This kind of redistribution can only be a drag on growth.
  • Obama has promised to sign the Employee Free Choice Act [3], which would strip workers of the right to vote in secret ballot elections before joining a union, and give the National Labor Relations Board the power to negotiate wages and employment contracts in the event of any dispute. This takes power from workers and employers, and gives it to unions and government. Unionization is known to be a drag on productivity, and to concentrate industry and kill entrepreneurship.
  • Obama wants to raise the minimum wage and index it for inflation, despite overwhelming evidence [4] that a higher minimum wage causes unemployment among the low-skilled workers it aims to help. Minimum wages also favor established business over start-ups, hurting entrepreneurship and growth.
  • Obama also advocates “Transitional jobs” which are government funded jobs for people who can’t find employment. “Transitional jobs” is just a new name for a public works scheme. Public works programs compete with private industry but are much less efficient, so they are well known to kill economic growth. They are based on the old “broken window fallacy” in which any kind of make-work is better than no work. In fact, as Frederic Bastiat pointed out [5], there is “what is seen” and there is “what is not seen.” When government tells you they created so many thousand of jobs with their program – that is what is seen. All those private sector jobs which were killed – they are what is not seen.

If Obama wins, the economy will face a huge onslaught of regulation. In addition to whatever bailouts, subsidies and regulations on business pass in the name of escaping the financial crisis, Obama will try to pass these pro-labor and anti-poverty programs. But, he should not be allowed to introduce stagflation and European style unemployment in the name of the workers and the poor.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2008/10/24/a-few-ways-to-kill-economic-growth/

URLs in this post:

[1] greatly shift the burden to the rich: http://www.taxfoundation.org/publications/show/23319.html

[2] tax code is already highly progressive: http://www.american.com/archive/2008/october-10-08/america-has-a-highly-progressive-tax-system

[3] Employee Free Choice Act: http://www.heritage.org/research/Labor/bg2027.cfm

[4] overwhelming evidence: http://www.house.gov/jec/cost-gov/regs/minimum/50years.htm

[5] Frederic Bastiat pointed out: http://www.fee.org/publications/the-freeman/article.asp?aid=3227

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