Jason's Log

Governments do not create jobs - but product demand does

With the release of the dismal May 2011 jobs and unemployment report, the news has been filled lately with stories asking the question "What has/can/should the government do to create jobs?"

Some suggestions that I've seen mentioned:

• An employer payroll tax reduction or holiday
• Reduced corporate income tax rates
• Corporate hiring vouchers or other incentives

One of the best answers to this question came from a recent Planet Money Podcast: "How many jobs has Scott Walker created?" The answer was "It is almost impossible to tell."

As the owner of a technology company, I wanted to comment on the one and only factor that will ever factor into my decision to hire a new employee:

• Demand for my product (or service) is likely to grow in the near future, and the business will need additional employees in order to meet that demand.

That's it. No amount of reduced payroll taxes, vouchers, incentives, or decreased regulations will be the deciding factor in my hiring decision. Those programs may make it easier, simpler or less expensive for me to add a new employee, but only after I have made the decision that I need to hire based on an increase in product/service demand.

The only direct impact that a government agency could have on my decision to hire would be to buy my product. The only indirect impact the government could have would be to induce my customers to buy more of my product (a bit like health insurance companies and the individual mandate).

So if the hiring decisions are driven by product demand, can the government do anything to impact that across the economy? Probably. Anything that puts more disposable cash (not debt) into the hands of a large number of US consumers would likely lead to increased product/service demand, and thus to increased hiring.  

But businesses won't hire unless they believe the increase in demand will persist for more then the moment/month/season. We need to be sure that the increase is sustainable over the long term. 

The only federal-level change that I could imagine meeting these requirements would be a multiyear decrease in the tax or SS/Medicare contribution rates for the largest possible number of consumers.

The Impossible Politics of Immigration Reform

Long time friend and all around smart guy Steen Simonsen recently pointed out to me an excellent article published by the Cato Institute: "Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform" (summary available on-line, and full PDF available for download). The conclusions drawn by the authors are similar to most macro-economic analyses of immigrant labor that I have read: Immigrant laborers have a net positive impact on both the national US economy as well as the local economies in which they are employed.

While reading through the paper, I found myself once again nodding in agreement with the analysis and recommendations. According to their modeling, a program of legalized immigrant labor combined with a moderate visa tax (paid for by employers) would have a net impact on the US GNP of +1.25% over the next decade. Policies that instead stressed border protection or employer punishment resulted in -0.55% decreases in the GNP.

This led me to ask "If the macro-economic models are so strongly in support of increased legalization of immigrant labor in the US, why did Arizonans just pass such a draconian anti-immigration law?"

My answer is that macro-economic effects are too abstract to factor into the micro-economic decision making process of the average US voter. In other words, it is impossibly hard for an individual US citizen to directly observe a 1.27% increase in the GNP. It cannot be seen or heard, making it all but impossible for most people to wrap their heads around it. Myself included.

As the recent list of Nobel Prizes in Economics emphasizing the importance of human psychology indicates, the behavior of economic participants (real people like you and me) is often far from purely rational. Rarely does anyone think to themselves "Well, this political decision will have a net positive economic impact on my life in the next ten years, therefore I will support this policy despite the undesirable economic conditions I find myself in today."

Instead, people make their political decisions based on the micro-economic environment they find themselves in on a daily basis. Unlike an increase in the GNP, they can 'see' the Mexican day laborers waiting outside their local Home Depot. They can 'see' the number of Mexican children in the classrooms at their local elementary school. They can 'hear' the Spanish conversation from the people in front of them at the grocery checkout line. These are all very observable effects, and because of that they exert a much stronger political influence on the voting preferences of the people in these situations.

Rightly or wrongly, many people will correlate these visible signs of Mexican immigration to their current undesirable economic situation. They do not need proof of causation, just what their senses tell them is a preponderance of correlation. "My life sucks, I see more and more Mexican immigrants in my community, therefore illegal immigration must be the cause of my crappy economic situation."

I wish there were a more visceral appeal that could be made to voters - a way to more directly demonstrate the positive impacts of increasing legal immigration. But until someone comes up with a solution to that problem, the inherent human xenophobic tendency will continue to win the political debate.

New Scientist Magazine: Making it as hard as possible to buy their product

I really do enjoy many of the articles available on-line from the British science mag New Scientist. I have no desire to subscribe to a printed edition - I know I won't read the paper version, and don't want it. So I attempted to find an 'on-line only' subscription.

Nope. Nada. Nuthin. 

In order to gain unlimited access to the on-line articles, you must subscribe to the printed edition. So instead of allowing me to just pay them money for on-line access, they lose an on-line reader. Too bad. So sad.

The iPhone App Store and the Lament of the Mobile App Developer

Apple has taken many well deserved punches for the opacity of the iPhone App Store approval process. However, Apple deserves major credit for finally breaking the suffocating control of the mobile service provider over the set applications that can be installed on a mobile device.

In my three years as an engineering manager at Motorola's Mobile Devices business unit, I was approached dozens of times by energetic mobile application entrepreneurs who all asked the same question:

"How do I get my application onto your phones?"

The only answer available at the time was:

"Talk to the mobile network operators (carriers). You'll need to negotiate the pre-installation of your application with each operator for each device they support. One at a time. It will be impossibly hard and likely to fail, so you should probably give up now."

At the time, I had no useful advice on how they could achieve the widespread distribution their business plan depended on. It was depressing.

I am now convinced that Apple and the iPhone App Store have finally cracked that nut. This article from the NYTimes triggered my change in attitude:

To quote:

"Still, the App Store is markedly better than the alternative, says Peter Farago, a marketing executive at Flurry, a mobile analytics company in San Francisco. Gone are the days when mobile developers had to negotiate with major telecommunications companies if they had any hopes of publishing their applications on a mobile phone.

“It took six to nine months to build a relationship with a carrier, maybe a quarter-million to get the infrastructure built, and the company took 50 percent or more from each dollar,” Mr. Farago says, a process that limited access to mobile platforms. “Apple has helped create a much healthier middle class of developers and expanded the pie for everyone.”

This is indeed a watershed period for the developer of mobile applications. The break between carrier and application control (AT&T + iPhone) now has the momentum. We already see signs of this spreading from carrier to carrier (Verizon, Sprint) and platform to platform (Android, WebOS, Blackberry).

Finally, a nice dose of free (free as in speech) in the world of mobile devices. 

Understand how breakdowns in the Commercial Paper and Credit Default Swap markets got us here

Over the past few weeks, I have been searching for a good resource to help me understand the chain of events that started with the sub-prime mortgage crisis evolved into a $700B federal bailout. Although I do not claim to be any sort of expert on the subject, this episode from This American Life featured quite a few of them:

365: Another frightening show about the economy

Ira Glass and friends do an especially good job of linking the collapses of AIG and Lehman Brothers into the bigger pictures of the mortgage crisis and credit crunch. Definitely worth listening to, and really very frightening at times.

Is 1.9% GDP growth a good sign or a bad one?

My Netvibes home page gave me a chuckle today in the titles each chose for their headline story on the recently released GDP value (1.9%). Notice the slight difference in tone between the two:

Did the CEO of Ford Motor Co. just admit to peak oil?

In the press release accompanying Ford's announced production cutbacks was this little gem from Ford CEO Mulally:

"We view the move to smaller, more fuel-efficient vehicles as permanent, and we are responding to customer demand," Ford CEO Alan Mulally said in the statement.

Permanent? I read this as an indicator that Ford believes the price of fuel is going to remain high for the foreseeable future. In the automotive industry, for which product cycles are in the half-dozen-year range, this statement implies that Ford does not see gas prices dropping any time in the next decade. The only thing missing from this announcement is any mention of a next-generation vehicle from Ford - plugin-hybrid, hydrogen fuel cell  or all-electric.  By the time Ford figures this out I should be driving my Aptera Typ-1!