Thursday, October 08, 2009

Jobs Government Creates, and Destroys

In Jobs Government Creates, and Destroys, Anthony Gregory does a good job of explaining why attempts by the government to create jobs often has a net effect of hurting the economy. Here's the start of the post:

From the International Herald Tribune: "The United States lost almost 600,000 jobs last month and the unemployment rate rose to 7.6 percent, its highest level in more than 16 years, the Labor Department said Friday."

As the government-created recession commences, we can expect more unemployment. The Obama administration argues that its stimulus package will address the problem: "This plan will save or create over three million jobs -- almost all of them in the private sector,"
the president declared. As for the critique that this stimulus bill is nothing but a big spending spree, Obama said, "What do you think a stimulus is? That's the whole point. No, seriously. That's the point!"

Funny, but will it work? The idea is the Keynesian principle called the "multiplier effect." As the government spends more, consumers have more money, they spend more and jobs are created.

The major flaw with the theory was summed up by humorist Dave Barry, who once wrote, "See, when the Government spends money, it creates jobs; whereas when the money is left in the hands of Taxpayers, God only knows what they do with it. Bake it into pies, probably. Anything to avoid creating jobs."

And there's the rub. The idea that government spending creates jobs ignores the jobs that are lost in the process. If Americans have more money that represents actual wealth, then jobs will be created and society will become richer. But if the government simply prints the money, effectively reducing the value of the money they already have -- or if it takes the money directly through taxation -- that money has simply been sent to Washington and back again.

I love the line by Dave Barry.

Remember, every time the government spends money to "create" jobs, it is taking money from us so that we can't spend money that would have been available to create jobs. By sending money through Washington DC some of the money will be used to create bureaucratic jobs, which doesn't help the economy. The net effect is government attempt's to stimulate the economy are more about politics, for their attempts are less effective than those done by private individuals.

(Hat tip: Instapundit)

Technorati tags: Jobs, Government, Creates, Destroys, Anthony Gregory

1 comment:

Luke said...

Fascinating. And I'm glad he talks a bit about the New Deal. However, I'd have liked to see some further exploration of the economic outcomes of things like the CCC which have given us many beautiful parks and such that my family has enjoyed camping in. But, it's true: The numbers don't make much sense. So, I'd love to see a further exploration into the money, effects, and costs/outcomes of all of that.

Otherwise, I fear, I'm not learning from history and so we are likely to repeat it, for good or ill.