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 “Government, government, government. Government does not create jobs. It\’s very simple how you create jobs. An entrepreneur takes a risk.”       Linda McMahon


Friday, October 8, 2010, 2:09 PM EDT,  2:09 PM EDT from James Best

Economists and entrepreneurs deal with reality—and from what I’ve been reading lately, quite different realities. I’m too simple to grasp parallel universes, so I’ve got to pick one to believe. Do I trust an economist that has studied job creation, or the entrepreneur that has met a payroll?  

I should tell you, I’m prejudiced. I was trained in economics, but I made a living as an entrepreneur and by advising entrepreneurs. I have to go with the entrepreneurs. When economists are wrong, they do the two-step and muddle up their previous pronouncements. When entrepreneurs are wrong, they hire bankruptcy attorneys.

What are economists saying? On October 7th, the Wall Street Journal reported that some Federal Reserve officials want to “lift inflation,” that is force real interest rates negative (interest minus inflation), so that businesses and people will stop saving and start spending. Government spending hasn’t done the trick, so they want us all to spend like there’s no tomorrow. I presume these officials are the same economists and bankers that told the government that a near-trillion dollar stimulus was faint-hearted. Only someone tenured or ensconced in a cushy government job would think that piling on even more spending makes sense.

But that’s not all. These wizards are also telling the government to ramp up the taxes on anyone that still has money, heap massive regulations onto business, and take away the brass ring. Oh, and by the way, don’t worry about small business because we’ll give banks some earmarked money to lend to these poor creatures. (I’m sorry, but I don’t believe small businesses are not hiring because they haven’t been able to increase their debt load.)

I won’t blame economists for the demonization of business and profit. That comes natural to progressives. But I do fault economists with supporting the premise that government creates jobs. They know better. On second thought, perhaps they don’t. They seem completely befuddled on how to get us out of this economic mess.

It might help if they understood how an entrepreneur looks at the world. It’s dead simple. They assess whether their market is going to expand or contract. If they believe the market will expand, they’ll take a risk and hire people in front of demand. If they become convinced the market is contracting, they’ll lay off people. I told you it was simple.

Uncertainty over personal taxes is not the reason entrepreneurs don’t hire. The ones with enough money to do real hiring have CPAs and lawyers to take care of their personal affairs. No, entrepreneurs know higher taxes depress economic growth, which signals a contracting market. Add exploding debt, regulatory fervor, the corrupting influence of pay-to-play, banking shenanigans, relentless demonization of business, and a desire to drive energy costs through the roof and any entrepreneur worthy of the title will hunker down for the duration.

To get the economy going again will require a restoration of confidence. That won’t happen until our leaders face the real real world. Economics is called the dismal science for a reason. True practitioners constantly remind political leaders that there is no free lunch. Unfortunately, too many people with PhDs in economics have abandoned their discipline for the thrill of having important people pretend that they’re important as well.

How dire is the situation. Grim. Entrepreneurs have gone from dealing with a contracting market to preparing for a collapsing market. We don’t have a lot of time to reverse course before we descend into even darker terrain. Remember to vote—and remind your neighbors, friends, and relatives to vote. It’s time to get back to the things that work.

James D. Best is the author of Tempest at Dawn, a novel about the 1787 Constitutional Convention.