What an actual jobs bill looks like

President Obama continues to campaign for his jobs bill, laboring under the delusion that it will create jobs.

Amity Shlaes looks back at the late ’70s to show what actually did create jobs:

In the late 1960s, Congress had raised the tax rate on capital gains dramatically, to 49%. The received wisdom behind the increase was that mainly wealthy people realized capital gains, and that, a la Warren Buffett, the wealthy ought to pay a larger share of social programs for lower earners. But venture capital dried up so much that by 1977–78 even the Carter administration nursed doubts about high rates.

Voices advocating a rate cut soon grew louder. The idea found a champion in 40-year-old Rep. William Steiger, whom Time magazine profiled as “a baby-faced Wisconsin Republican who has the gung-ho style of a JayCee president.” Time worriedly reminded readers that in Steiger’s capital gains tax-cut plan “the benefits go to people with incomes of $100,000 or more”—back then, the rich.

Steiger nonetheless found dozens of co-sponsors. He succeeded in getting Congress to pass the Steiger Amendment, which halved the capital gains rate, to an effective 25%.

Many wealthy people did indeed make more money as a result, including some of those less-lovable billionaires on Wall Street. But they then invested in companies like Apple [Computer]. The revenues from the rich-man’s rate cut were stronger than expected, so the federal government got more money to spend—more money than expected for those social programs.

A second policy change came in pension law. In 1974, the Employee Retirement Income Security Act, known as Erisa, codified the common law prudent-man principle by warning pension investors that they might be neglecting their fiduciary responsibilities if they invested in risky projects like Apple. The pension funds and portfolio investors duly stayed away. That changed when the definitions were relaxed later in the 1970s, as Josh Lerner and Paul Alan Gompers have noted in The Money of Invention. Pension funds could again tell themselves and their clients that they were acting responsibly when they invested in start-ups. The funds began to put more cash into venture capital.

A third factor, and one that ensured the boom would continue, was a law passed in 1980. Sponsored by Sens. Birch Bayh of Indiana and Bob Dole of Kansas, the measure clarified murky intellectual property rights so that universities and professors, especially, knew they owned their own ideas and could sell them. That knowledge gave professors and lab teams an enormous incentive to put to commercial use plans and ideas for inventions that they had long ago shelved in their minds and offices. …

When it comes to taxes, the 1970s takeaway is that taxes on capital should always be lowered, and dramatically. Cutting a rich man’s tax can serve the lowliest citizens.

The second takeaway is that an administration’s choices matter when editing, interpreting or enforcing statutes and regulation. The Erisas of today are Dodd–Frank and Sarbanes–Oxley; subtle clarifications in their rules can affect the overall gross domestic product. A third is that property rights matter; today’s Bayh–Dole should be patent reform.

Dodd–Frank and Sarbanes–Oxley are also examples of the Law of Unintended Consequences. The former is the reason that Bank of America and other banks are charging $5 per month for ATM card use, because Dodd–Frank restricted banks’ ability to make money in other areas. The latter is why the number of public companies is dropping, which is not a good thing for the economy, independent of what Occupy Wall Street thinks.

Other than possibly patent reform, none of these initiatives will be part of an Obama-touted jobs bill, of course. The only way those will happen will be if voters fire Obama and other Democrats in November 2012.



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