John E. Schwarz: Tax. Spend. Create great jobs |

John E. Schwarz: Tax. Spend. Create great jobs

John E. Schwarz

The mantra of the free market has gained such a hold on Americans that Sen. John McCain recently aired an ad exclaiming, as if it’s a given: “Higher taxes, more government spending, so fewer jobs.” A similar obvious “truth” for many Americans these days, in the words of Rush Limbaugh, is that “the government can’t create wealth; it can only destroy it or confiscate and redistribute it.”

If it is true that higher government taxation depresses job creation and that the government can’t create wealth (only the free market can), it becomes rational for struggling workers to vote Republican on economic grounds. They don’t need cultural issues to get them to vote that way, as author Thomas Frank famously says occurs in Kansas, and across the nation.

Democrats have failed to provide a compelling counter-mantra about the economy. For all their emphasis on connecting with the middle class, they will have a hard time winning votes until they have a narrative that competes effectively with the GOP’s.

The facts are clear enough: When the presidency was under Republican control during the past 40 years, 1.4 million net additional jobs have come into being per year on average. Under Democratic control, 2.5 million net jobs have come into being in an average year ” 78 percent more. Jimmy Carter actually surpassed Bill Clinton’s highly praised job-creation performance.

Similarly, real wage gains for all non-managerial workers, who constitute nearly 80 percent of the labor force, have suffered more, on average, during Republican than Democratic administrations. Even the stock market has not done as well on the whole under Republicans as under Democrats.

There are many reasons for all this. Among them is this simple truth: While minimalist government may be necessary for a free market, that doesn’t necessarily mean minimalist government is good for the growth of the economy, or for job creation, or even for generating private wealth.

Consider the kinds of industries usually associated with the modern economy: jet aviation, semiconductors, computers, the Internet, global positioning systems, laser technology, MRI technologies, high-strength steel alloys, fiber-reinforced plastics, nanotechnologies. Tens of millions of new jobs ” well-paying jobs with good benefits ” were created through these innovative industries.

Each of them arose out of government-funded research, initial development by government, requirements established by regulation, large-scale governmental demand and purchasing to provide initial markets, or some combination of these. Every one of them.

Free-market advocates want voters to believe that government dampens the growth of opportunities that a free market would otherwise generate. The history of today’s economy demonstrates that, to the contrary, governmental activism has been indispensable to the growth of many of our most prosperous industries and well-paying jobs in the United States.

In so doing, it has laid the foundation for the creation of substantial private wealth as well.

Serious lapses beset the private market that the free-market mantra simply glosses over. Not many rational investors will step up when there is no clear prospect of ready consumers for a new technology and the costs of research, development and initial production of that technology run into the billions. Often the start-up costs for a technology are so high and market prospects so vague that few private investors, even venture capitalists, are interested. Sixty years ago, the first computers were practically room-size ” and were so expensive that even most banks shied away from purchasing them.

In such situations, government can, at the outset, supply a market that is otherwise missing and also help defray up-front costs for research, development and production. That is how the computer, semiconductor, laser and space communications industries got off the ground, to name just a few.

Yes, engaging in these activities requires the government to tax and to spend. Yet such activities simultaneously spur innovations that often greatly reduce private-sector costs elsewhere. It is even better, of course, when government engages in these activities while also carrying out other primary responsibilities, such as those involving national security and defense, protecting public health, providing education and the like.

A pivotal role for government is to offset lapses of the free market that confine the market’s ability to generate basic, large-scale innovation on its own.

By filling voids that these lapses left in the past, the federal government has arguably been as important to the creation of new technologies, industries, jobs and wealth within the private sector over the past half-century as has the private sector itself.

Democrats must figure out how to tell this crucial story simply and effectively. Only then will rational voters become fully convinced as to where their real economic interests lie.

John E. Schwarz, a professor emeritus at the University of Arizona, is most recently the author of “Freedom Reclaimed: Rediscovering the American Vision.” He is a distinguished senior fellow at Demos, a public policy group in New York. This column is distributed on the L.A. Times-Washington Post News Service.

Support Local Journalism