Grijalva originally urged boycotts of Arizona but said the judge's recent ruling demanded a refocus.
Democratic presidential candidate Sen. Barack Obama, D-Ill., speaks at the Ronald Reagan International Trade Center in Washington, Tuesday, July 15, 2008. (AP Photo/Pablo Martinez Monsivais)Government is not the solution to our problem; government is the problem.
-Ronald Reagan
What should the attendees at the White House "Jobs Summit" on Thursday be advising the president? Unlike Ronald Reagan, President Obama was schooled in the law, and not in economics. Thus, he may not understand that there is really no mystery as to why we have our current unemployment, and how we can regain full employment.
Therefore, a jobs summit is really unnecessary. The following is also known to, at least, some of the president's economic advisers, including Paul A. Volcker and Lawrence H. Summers, who have been acquaintances for several decades. Given Mr. Obama's heavy travel and speaking schedule, it is understandable he may have not had time to chat with them about the jobs matter.
First the basics: Employers will hire more workers of any given experience and skill level when the cost of hiring them is lower rather than higher. More people are willing and able to work when their take-home pay is higher rather than lower.
Economists refer to this as the supply and demand for labor. At some wage, the demand and supply of labor meet, which equals full employment in a properly functioning economy (i.e., an economy without government-induced credit bubbles).
A major reason we have unemployment is that the government taxes both employers and employees, thus driving a "tax wedge" between what it costs the employer to hire someone and what the employee actually receives. The employer must pay payroll taxes, unemployment taxes, and other taxes for each worker he or she hires - thus reducing the demand for labor. The employee must pay payroll taxes and income taxes, thus reducing the supply of labor.
If the president's goal is truly to reduce unemployment, the fastest and most straightforward way to do it is to reduce the tax wedge on hiring people. Unfortunately, the administration has been doing just the opposite and has endorsed and advocated many policies to increase the labor tax wedge, which will lead to much higher unemployment than would otherwise occur.
Temporary tax credits, particularly to specific industries and groups, and other gimmicks do little, if anything, to increase the general level of employment. There is considerable empirical evidence showing that both employers and employees respond most strongly to permanent or long-term changes in taxes, regulations and government spending.
For instance, in an October 2009 National Bureau of Economic Research paper (No. 15438), Alberto Alesina and Silvia Ardagna, using empirical evidence in the Organization for Economic Cooperation and Development countries from 1970-2007, summarized their findings as follows: "Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt ... than those based upon tax increases." These conclusions are in line with most other empirical studies.
