Putting the Jobs Cart Before the Growth Horse

The idea that creating jobs will lead to growth and prosperity is a fallacy that is at the heart of our unemployment problems, according to venture capitalist Bill Frezza, who appeared on National Public Radio today.

According to Bill Frezza, "It puts the cart before the horse. It’s actually the other way around. Growth causes employment, employment doesn’t cause growth.   

The best way to think about that is to take every political statement that has the words “job creation” and substitute the words “expense creation,” and you said you’re going to go out to businesses and want them to enhance their “expense creation,” how do you think they would react?"

In the NPR interview, Bill Frezza discussed many of the points he made in a recent Real Clear Markets article "Putting the Jobs Cart Before the Growth Horse."  Here are some excerpts:

 

"As impolitic as it is to say out loud, we need to face the fact that jobs are a necessary evil. In any rationally managed business the payroll is a burden, not a benefit. Entrepreneurs and hiring managers only add staff if they think additional employees will produce more value than they consume. This happens as a matter of course in healthy, growing businesses when the amount of work that needs to be done exceeds the number of hands on deck to do it. Increasing the number of hands when the amount of work is unpredictable, stagnant, or declining is a recipe for bankruptcy.

"What about all that cash being hoarded on corporate balance sheets?" quacks the leader of the free world. "Why don't corporations use that money to hire more workers?" Does this really merit an answer? Obviously, if corporations thought that hiring more workers was the best way to earn a proper risk-adjusted return on their investments, then that is exactly what they would do. Instead they are parking it in short-term securities earning, what, a percent or two in interest.

What does that tell you? The business community has become so whipsawed, bludgeoned, and bewildered by the epic incompetence and bloviating hostility of our political leaders that they are keeping their powder dry until they can size up the next set of leaders the electorate foists on them. Fourteen months is not too long to hunker down and hope for change when you consider the cost of getting caught in a cash crunch when the global sovereign debt house of cards comes tumbling down."