Fed Member Jordan Says Government Shouldn’t Undertake Jobs Programs

When governments seek to manipulate economies to accomplish political or social goals - such as job creation or wealth redistribution - the result almost always detracts from overall economic performance.

That was the message Jerry L. Jordan, president of the Federal Reserve Bank of Cleveland, brought to the Pacific Northwest Regional Economic Conference in Spokane Friday.

His topic: “Government’s Role in Job Creation.” His conclusion is that there shouldn’t be one.

“The dominant view of economic policy makers, at least since the 1930s, has been that a competitive marketplace will fail to generate adequate employment opportunities, and this belief justifies state ‘jobs’ programs,” Jordan said.

“It is my hope that in the 21st century, creating work for people will not be viewed as a primary goal of government policy. Fostering an environment for wealth creation will be.”

Jordan’s observations come at a time when federal welfare reform will force many former welfare recipients - who lack skills, training, and the foundation of a cultural work ethic - into an economy that many observers fear will be unable to create enough jobs to absorb them.

But, Jordan said, jobs programs are not the solution.

“Markets create jobs,” he said.

The role of the “economic infrastructure” - which he defines as both public and private institutions and their policies that either encourage or discourage the creation of wealth - is to “get the conditions right for those markets to be able to do that.”

After 50 years of assuming that a central federal approach is the best solution to providing for the welfare of society, Jordan said, the federal government has finally decided that perhaps that assumption is erroneous. Perhaps the 50 states can do it better.

The states, he said, now will each be forced to search for solutions, creating 50 laboratories. Those that succeed will be imitated.

During his speech Friday, and in a brief press conference afterwards, Jordan declined comment on questions concerning the Fed’s actions on interest rates or expectations about future economic performance.

“There’s no lack of commentary about economic statistics available elsewhere,” he said.

On the subject of job creation, Jordan said that in almost all instances government policies that seek to modify the market’s performance only detract from the market’s ability to create jobs.

This economic “policy activism,” he said, implies promoting an allocation of resources that would not have occurred in the absence of political intervention.

The danger, he said, is that the policy activists then think in terms of the success or failure of the programs they promote, rather than thinking in terms of the success or failure of the overall economy.

Economic incentives offered by states or local communities seeking to lure new companies and keep old ones fall into this category, he said.

What you gain on the one hand through the incentives, he said, you lose on the other hand when other segments of the community must pay higher taxes in order to compensate for the cost of the incentives.

He likened such incentive programs to an arms race in which communities on both sides of the competing borders would be economically better off if the race wasn’t undertaken at all.

Sustainable long-term prosperity at any level, he said, occurs when “human action is focused on converting productive resources into marketable goods.” Any time governments step in to divert that focus, “the general welfare is necessarily reduced.”

“The government’s relationship to its citizenry is not that of an architect, engineer, carpenter, or any other metaphor implying activism,” he said. “I think of the state as a nurturer of an economic garden. It cultivates a soil that allows growth to take root, wards off pests who seek to feed off the budding crop, and keeps weeds from suffocating the plant before it achieves its potential.

“Simply planting one seedling in the middle of infertile ground is like moving a factory or business to an area without the proper economic infrastructure. We wouldn’t expect either one to survive for very long.”

, DataTimes