What's the single best idea to jumpstart job creation?
Since the beginning of the financial crisis and the recession, we have tried the usual methods for combating a weak economy and unemployment--principally, federal spending and an accommodative monetary policy. Indeed, we have gone to extremes in this respect, with spending at historic levels and a monetary policy that has lowered short-term interest rates to nearly zero.
Obviously, as shown by the latest unemployment data, none of this is working. In my view, the problem is that Congress has adopted policies--in the form of the Patient Protection and Affordable Health Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act--that have made it difficult for businesses to anticipate their future costs. Both enactments are enormously complex and require both substantial regulatory interpretation and a great number of new rules to carry them out. The uncertainties associated with these acts have led to reluctance on the part of businesses to hire or to invest in long-term assets such as plant and long-lived equipment.
As we know, corporations are now sitting on enormous piles of cash but are unwilling to deploy these resources, and the small businesses that are profitable are refusing to expand. The conventional interpretation for this is that there is little demand because of unemployment and a weak housing market. However, in our current straits I believe cause and effect run the other way. Successful businesses are always ready to expand and gain market share. That is a manifestation of the "animal spirits" that Keynes observed in a growing economy. There is a reason why those spirits are now dormant.