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Monday, October 20, 2014
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Published: Tuesday, 7/22/2014

GUEST EDITORIAL

Grads, understand the politics of the marketplace

It is easy to see the new jobs associated with the federal stimulus; but to pay for the stimulus, taxpayers are left with less after-tax income

BY TODD NESBIT
SENIOR LECTURER IN ECONOMICS AT OHIO STATE UNIVERSITY
Nesbit Nesbit
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THIS spring, thousands of young adults across Ohio received their college degrees. Although this year’s graduates should celebrate their achievements, many are unfortunately on the cusp of a rude awakening: an under-performing economy and a lackluster job market.

Even as the national unemployment rate continues to improve, the percentage of Americans participating in the labor force continues to shrink, largely because of frustration over the inability to find jobs. The labor force participation rate for people between the ages of 25 and 29 has fallen to less than 80 percent — an all-time low since the Bureau of Labor Statistics began tracking such data in 1982.

Recent graduates may be tempted to turn to elected officials to reduce some of their financial strains. But before they do, they should remember the economic lessons that (it’s to be hoped) they learned in college:

We always face trade-offs. In the political marketplace, to generate a more-equal distribution of income or wealth, we often must be willing to sacrifice the size of the economic pie, or at least the growth rate of the economy. Over time, this means we will divide less national income than we would have otherwise, potentially reducing the well-being of those we intend to help.

Someone always pays for increased government spending. Sometimes, the costs are borne by those who benefit. Much if not most of the time, though, those who pay for the expenditures are completely unaware, or are too young to vote. Sometimes, the latter political approach may benefit you — at the cost of fellow citizens — and you will be tempted to support the policy.

In many other cases of special-interest legislation, others will benefit at your expense, leading you to oppose the policy and possibly condemn its supporters. Passing the cost to others for your own benefit is either morally acceptable or it is not, but it cannot be both. Be consistent.

.Incentives matter Changing the rules under which an economy functions will change people’s behavior, often in ways that were unanticipated and not obviously linked to the policy. It is easy to see the new spending and jobs associated with increased federal expenditures on highways and other public-works projects through the recent federal stimulus.

What often goes unseen is that to pay for the stimulus, taxpayers are ultimately left with less after-tax income. That has reduced their spending on restaurant outings, toys for the kids, baseball games, and other things. Many “job-creating” policies do little more than shift jobs from one sector to another, or from the future to the present.

Right or wrong, people commonly turn to the government for solutions to their financial difficulties. Young graduates must understand the pros and cons as they participate in the political marketplace, if our economy is to prosper and if the opportunities available to them and their children are to become more abundant than they are today.



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