Newt Jumps Onto Romney’s Anti-Jobs Bus

Mitt Rom­ney’s suc­cess in the pri­vate sec­tor was at Bain Cap­i­tal where he made lots of mon­ey by buy­ing and break­ing up com­pa­nies, destroy­ing jobs in the process. Now Newt wants us to know that he was part of the effort to change the laws to allow Mitt to do what he did.

So nei­ther of them care a whit about jobs.

Why Jobs Are Created

There is, late­ly, lots of noise from var­i­ous Repub­li­can politi­cians blam­ing Oba­ma’s poli­cies for the slow job growth. They think less gov­ern­ment spend­ing, few­er reg­u­la­tions would lead to more jobs.

Imag­ine you own a busi­ness. Let us imag­ine that your prod­uct is such that one employ­ee can pro­duce 100 units of your prod­uct per year. At the end of the reces­sion, you have 100 employ­ees and turn out 10,000 units of your prod­uct a year. This num­ber was arrived at because it is the num­ber that you are selling.

Now, if the gov­ern­ment offers you a tax cred­it if you hire some­one, are you going to hire some­one? No. You are still only sell­ing the 10,000 units that your exist­ing staff can produce.

If the demand for your prod­uct increas­es and now you can sell 11,000 units a year, then you are going to hire ten more employ­ees to meet that demand.

There are employ­ers who are man­ag­ing to meet the demand by work­ing their staff over­time (cheap­er than the ben­e­fit costs of anoth­er hire) and in a few instances a tax cred­it of some kind might tilt the equa­tion towards hir­ing. But an increase in demand will also.

Jobs are cre­at­ed by demand. Demand is the spend­ing of mon­ey. When the gov­ern­ment is cut­ting spend­ing it is cut­ting demand. Since the Repub­li­cans won the House, fed­er­al spend­ing has been cut. More impor­tant­ly, there has been no more stim­u­lus to the states, so state and local spend­ing has been cut includ­ing the lay­off of many employ­ees. This is what has been hurt­ing job creation.

July 18, 2011 Update: Here is the Wall Street Jour­nal in appar­ent agree­ment with me. Appar­ent since one must be a sub­scriber to read the entire arti­cle, but the first para­graph says:

The main rea­son U.S. com­pa­nies are reluc­tant to step up hir­ing is scant demand.