Public Assets Institute > Policy Areas > Family Economic Security > Job cuts create jobs? I don’t think so

Job cuts create jobs? I don’t think so

“[B]usiness is run for the benefit of its owners, its shareholders, its customers and its employees. It’s not run for the benefit of the country.”  That’s according to venture capitalist and Competitive Enterprise Institute Senior Fellow Bill Frezza in an NPR interview on Tuesday.

His point, which he laid out in a blog post a few weeks earlier, was that business views jobs as a necessary evil, a cost that reduces profits, not as a social responsibility.

It isn’t news that the goal of business is to make a profit, or that cutting costs helps do it, but the stark truth of Frezza’s statements may help to explain why prosperity isn’t reaching middle class Vermonters.

Over the 20 years from 1989 to 2009, while Vermont’s overall economy (income and gross state product) grew about 60 percent in real (inflation-adjusted) dollars, real median household income grew only 2 percent.  In essence, average Vermonters did not get ahead despite plenty of economic growth.

Business job- and cost-cutting strategies over those 20 years included new computer technology and offshoring–the practice of having manufacturing or services done less expensively overseas.  These strategies cut costs and boost profits, but they also boost unemployment.

While it’s not business’ fault, the fact remains that unemployment is a social ill.  People without jobs don’t have a productive role in society and don’t have the means to live.  So if it’s not the responsibility of the private sector to create jobs, whose responsibility is it?  The answer has to be the public sector.

But state government, chided to operate more like a business, has been cutting jobs, too.  So how does all this job cutting create jobs?  It doesn’t.

If the state wants to create jobs, it should take two steps based on the analysis in PERI economist Jeff Thompson’s August 2010 paper:

•  Reduce public money give-aways to business that supposedly create jobs.  Estimated at over $300 million each year in Vermont, these funds do little to create jobs; they simply increase profits for the lucky businesses.

•  Increase investment of public funds in public infrastructure and citizen education– both have the short-term benefit of job creation and both provide a solid foundation for the state’s economic future.

This simple shift in the use of existing public funds would have a profound impact on job creation and begin to restore Vermont’s middle class.

Posted by Paul Cillo on October 6, 2011 at 8:18 pm

3 Responses to “Job cuts create jobs? I don’t think so”

  1. Ralph W Howe says:

    O Paul, how can you allow the facts interfere with well entrenched opinion!
    Keep up the good work–the hard work of speaking truth into the vortex of loud opinion.

  2. Al Salzman says:

    Governor Shumlin has bamboozled us with what is essentially ‘supply-side’ nonsense, made all the worse by his hypocracy in increasing the pay of his minions while bad mouthing public employees demanding fair treatment and cutting vital programs for the poor. Paul Krugman and joseph Stiglitz, both noble Prize winning economists, have exposed the lie of austerity as a way out of the recession. They believe Keynesian ‘pump priming’ is the better way to go. Shumlin and other fiscal conservatives callously fight to protect the excessive wealth of the rich by screwing the rest of us. Shumlin shows that he is unmindful of the clear historical record by ignoring the futility of balanced budgets as a mechanism to get the economy moving. The distinction must be made between productive deficit spending i.e. The GI Bill, Interstate Highway System, Pell Grants, Infrastructure repair and pouring money down a rat hole i.e. Afghanistan, Iraq, Subsidies for agribusiness, Military spending. For the umpteenth time I quote Republican Governor Richard Snelling: “When grandma is sick, if you have to, you borrow money to get her well!” Now that Shumlin has shown his true conservative colors, I’m waiting for the other shoe to drop – his sabotaging single-payer health care.

  3. RALPH W HOWE says:

    Sometimes it is better to turn aside a running horse by gently pointing the direction you want it to go and congratulating it for making such a wise decision.
    Alternatively, we might try holding a “We Demand Real Jobs for Real Pay NOW!” rally and invite the Pols, business and wealthy folks to come and tell a thousand un/under-employed people how they will do this NOW.