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Government doesn’t create (real) jobs

Posted by Jeff (ILoveCapitalism) at 2:51 pm - April 9, 2013.
Filed under: Economy,Free Enterprise

Just saw this on Zero Hedge.

You can view it in just a few minutes, but here’s the gist.

  • Government is great at creating ‘make-work’ (jobs which are a net economic loss).
  • Government is terrible at creating real jobs (jobs which are a net economic gain[1]).
  • People need to understand that having a free enterprise system, which eliminates jobs by economizing on human labor, and which then creates new jobs (if allowed to) in unforeseen new areas, is what raises a country’s living standards.

I often hear left-wingers argue that it doesn’t matter if government ‘jobs’ are unproductive, because the recipients will spend the money on something else which is more productive. So let’s even pay people to do nothing at all: benefits for the unemployed, for street addicts, adult babies, nepotism/graft, etc.

Their argument is deeply wrong. It’s a recipe for a society where corruption, laziness and incompetence are rewarded, and a recipe also for a de-valued currency, leading over time to hyperinflation. Were it otherwise, then government spending would lead inexorably to prosperity, and Zimbabwe would be the wealthiest of nations. Neither is so.

([1] A subset of government jobs are, of course, necessary – and thus ‘real’ – even though they are ‘overhead’ to the rest of the economy. Example: police, courts, military.)

From the comments: A pingback from Religio-Political Talk puts us onto this video, wherein Prof. Lee Ohanian explains how FDR worsened the Great Depression:

Here, the point is not about FDR’s make-work policies (which also inhibited recovery), but about his efforts to fix prices and wages at artificially high levels (which prolonged the high unemployment).

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20 Comments

  1. left-wingers argue that it doesn’t matter if government ‘jobs’ are unproductive, because the recipients will spend the money on something else which is more productive.

    How well did that work in the Soviet Union? How well does it work in Cuba?

    What if the Government make-work job is working as bureaucrat, promulgating and enforcing regulations that make it harder for productive businesses to conduct commerce?

    Comment by V the K — April 9, 2013 @ 4:29 pm - April 9, 2013

  2. “I often hear left-wingers argue that it doesn’t matter if government ‘jobs’ are unproductive, because the recipients will spend the money on something else which is more productive. So let’s even pay people to do nothing at all: benefits for the unemployed, for street addicts, adult babies, nepotism/graft, etc.”

    I never heard Anyone ever make such a stupid argument. – Makes me wonder if you are creating strawmen again…

    Comment by mike — April 9, 2013 @ 7:38 pm - April 9, 2013

  3. mike, I love how easy you make it. I guess you don’t pay much attention to Nancy Pelosi:

    Here’s more from Pelosi. Quote: “Let me say, unemployment insurance is one of the biggest stimuluses –” the correct word is stimuli, but she said stimuluses “– to our economy. Economists will tell you,” she said, “this money is spent quickly. It injects demand into the economy, and it’s job creating. It creates jobs faster than almost any other initiative you can name.”

    If you don’t accept that source, you can find a better one yourself; the quote is absolutely real. Now, what she’s saying is that unemployment benefits are stimulative because, even though the person is of course not paid to do anything, they quickly spend the money elsewhere. Which is as I said. You also appear unfamiliar with so-called Modern Monetary Theory, whose followers often make similar claims.

    C’mon guy, challenging me is fine – but then please make it challenging *for* me.

    Comment by ILoveCapitalism — April 9, 2013 @ 7:51 pm - April 9, 2013

  4. Ha! Concern troll burn!

    And here’s the left’s favorite living economist, Paul Krugman, making the same “who cares what Government spends money on as long as it spends” argument.

    http://krugman.blogs.nytimes.com/2012/03/03/reagan-obama-austerity/

    Comment by V the K — April 9, 2013 @ 8:01 pm - April 9, 2013

  5. What doesn’t occur to dimwits like Pelosi, Obama, and Krugman is that an economy that *has to be propped up by Government spending* is, de facto, a sick and dysfunctional economy.

    Comment by V the K — April 9, 2013 @ 8:02 pm - April 9, 2013

  6. V, exactly.

    As to Krugman, there is a quote out there where he suggested a basic meaning (if not in these exact words) that if world governments were to concoct a false threat of alien invasion to make people do useless work in building armaments to resist it, it would be good for the economy. (mike – I “dare you to dare me” to look it up.)

    Comment by ILoveCapitalism — April 9, 2013 @ 8:05 pm - April 9, 2013

  7. (continued) Krugman’s Big Error is, again, that having people do a bunch of make-work does nothing to raise society’s actual living standards. If anything, it will lower them.

    Comment by ILoveCapitalism — April 9, 2013 @ 8:18 pm - April 9, 2013

  8. Let’s look at how Democrats treat the private sector:

    1. Enact regulations to make it harder to do business.
    2. Raise taxes to make it less rewarding to do business.
    3. Expect people to just suck it up and keep working.

    The left is insane.

    Comment by V the K — April 9, 2013 @ 8:54 pm - April 9, 2013

  9. [...] Via Gay Patriot, [...]

    Pingback by Religio-Political Talk (RPT) Job Creation Best from Free-Market or Government? — April 9, 2013 @ 9:22 pm - April 9, 2013

  10. Mike, to add to the list — check out prominent MMT arguments (there are a number of them out there). They will blatantly say that any government spending (productive or unproductive) is good because it stimulates spending. All left loves these guys because they are helping their narrative. There are a number of heated debates on the internet where Austrians all over the planet keep arguing with them (and Keynesians) that spending in itself does not create wealth.

    Jeff, great video! Don’t know how I missed it given how much I infest zerohedge. Thrilled to see that organizations like learnliberty.org exist! I was beginning to give up hope that young people in the country can be broken out of the brainwashing done on campuses!

    Comment by Jane Austen — April 9, 2013 @ 10:07 pm - April 9, 2013

  11. Oh, a funny example. I travel a lot for work. And every time I fly into a small airport, I am astonished at the higher number of TSA people per traveller and more extensive security check processes. Until a colleague pointed out to me that in small towns, this is a jobs creation program :)

    I laugh and at the same time feel bad for these people. I really want them to have jobs, but…

    As much of a believer as I am in free enterprise, I am acutely aware of the fact that free markets carry with them the curse of short-term pain (every time industry restructuring happens and people align themselves to the new normal). We are feeling that pain right now in the growing knowledge economy — Peter Drucker wrote a piece as early as in 1990s where he hypothesized the widening income gaps because of knowledge-centric wealth creation.

    Comment by Jane Austen — April 9, 2013 @ 10:26 pm - April 9, 2013

  12. JA – Although the Industrial Revolution eliminated countless jobs in agriculture as well as personal service, our farmers and janitors today have some of the highest living standards in the world.

    The Knowledge Revolution (or whatever) will be no different. Real wages are determined by a process of supply and demand in the various labor markets. As some new labor market sucks people up with its excess wages (which BTW are then curbed by the number of people entering that market), the other labor markets become tight, and their real wages rise to keep pace. Even unskilled labor!

    That’s assuming, again, a free enterprise system, including free markets in labor. If government interferes with job creation, or with natural processes of wage adjustment, the value of money, and so forth, then you get Great Depressions and… oh, I don’t know… Great Recessions from which we barely recover. The world of today.

    Comment by ILoveCapitalism — April 10, 2013 @ 2:22 am - April 10, 2013

  13. In Silicon Valley, the largest employers — Apple, Cisco, Facebook, Yahoo!, Google, Intel, etc. — were all created in the last 30 years. Chevron, Clorox, Wells Fargo have reduced jobs on a net basis over the same period. What is the lesson ? What is best way to create jobs ? New companies. What is the single best way to get new companies ? Encourage capital formation and decrease the perception of risk associated with new ventures.

    Simple … to anyone who cares to pay attention.

    Comment by Kurtis Fechtmeyer — April 11, 2013 @ 12:39 am - April 11, 2013

  14. “They will blatantly say that any government spending (productive or unproductive) is good because it stimulates spending.”

    I have never seen such stupid arguments!

    I have seen lots of people say what Pelosi said but…in my mind I don’t think its fair to classify safety net spending as “wasteful” spending. I know of more than a few people who used unemployment exactly as she said. They used that aid to avoid declaring bankruptcy until the found a new job. In the process they were able to avoid walking away from their mortgage, keep buying food, in one case keep buying medication, and not becoming a further drain on the spending through other assistance programs.

    Comment by mike — April 11, 2013 @ 2:53 am - April 11, 2013

  15. “every time I fly into a small airport, I am astonished at the higher number of TSA people per traveller and more extensive security check processes. ”

    I think this is because in the pre 9-11 world, the small airports were considered weak points. So…in the spirit of “never again” this is the result. The jobs is just a result of this because nobody is going to do that job for free.

    Comment by mike — April 11, 2013 @ 3:28 am - April 11, 2013

  16. mike: Perhaps Pelosi made your version of the argument above at some point, but it is not in her quote that I provided.

    You wanted an example of somebody making the argument, which you call stupid (though many leftists would disagree with you – especially those who know and believe MMT), that any government spending is good spending because of its alleged *direct* stimulative effects (direct meaning, apart from secondary results like having spared someone a bankruptcy or having kept them off some other form of aid).

    We gave you 2 examples. You can keep saying that you’ve never seen anyone say it, but that’s not true anymore, is it? Neither is it our problem.

    I could say a lot more about your new comment. For one thing, you’re making an argument which is either circular or contradictory: that the government should give people financial aid, so as to not give people financial aid. Hello! Either way, the government is giving those people financial aid. And probably, if we dug into the details, it costs society more to keep subsidizing their mortgage.

    For another thing, your new argument fails to touch the meat of my argument. I’m pointing out that the recipients of the aid are not being paid to produce much of anything, thus illustrating a more general point that government is great at paying people to do little or nothing, and terrible at paying people to create new, genuine wealth. (Even when government tries to pay people to create some sort of wealth, it usually overpays. And/or creates non-wealth in the end, as with Solyndra.)

    And finally: So what if government aid helped some people avoid walking away from a mortgage? I call that a bad thing. I’m in favor of honest markets: markets that reflect (and implement) economic and financial realities. Not government-hyped Potemkin markets that give false signals, keeping some people enslaved forever to mortgages that they still can’t afford, while others remain shut out of the housing market due to prices being artificially propped up.

    As V said:

    an economy that *has to be propped up by Government spending* is, de facto, a sick and dysfunctional economy.

    Point untouched. Let me add that the government spending is not going to make the economy better; instead, it ensures that the economy will remain sick. As we can see today.

    Comment by ILoveCapitalism — April 11, 2013 @ 3:40 am - April 11, 2013

  17. I know of more than a few people who used unemployment exactly as she said. They used that aid to avoid declaring bankruptcy until the (they) found a new job. In the process they were able to avoid walking away from their mortgage, keep buying food, in one case keep buying medication, and not becoming a further drain on the spending through other assistance programs.

    This is too confusing to parse. It would be easier if mike attributed this to one person rather than mix a salmagundi of people and situations together and obscure any possible point to be made.

    There is, however, a basic flaw in mike’s narrative and that is the beneficial and extremely kind treatment of the person declaring bankruptcy by the courts. Chapter 7 Bankruptcy would go a long way toward helping the person with his housing, medicines, work related tools, mortgage, food and the rest. mike should visit the site.

    Furthermore, drawing unemployment is an open door for Section 8, food stamps, Medicare, and all manner of assistance. Many among the 47% understand this and play the system like Atlantic City card sharks. If they do not know the tricks, ACORN and its derivatives are in the business of leading the “victims” to the welfare trough. That is the primary job description for being a community organizer.

    Apparently, however, there is some nobility to be gained in choosing your welfare over just throwing yourself into the greater welfare society. OK. I wouldn’t label it as rugged individualism, but I get the inference of pride involved.

    I am on welfare. I receive Social Security and Medicare. I have no choice. I was forced, by law, to join both groups. Now the law is morphing and welching on what I was promised when I was forced to join. Somehow, liberals can find a way to make that “fair.” Liberals love to whine and whimper about “fair.” (Hint: “Fair” is what benefits the liberal and makes him feel good.)

    Government spending through welfare payments is the least efficient way to make money flow in the economy. The dollar poured into the welfare bureaucracy comes out in pennies to the recipient. The bulk of the dollar is spent on “administering” the dollar. Sure, those administrators get their salaries and they go forth and spend in the marketplace, but those dollars are tax dollars stolen from the general economy and redistributed in another bureaucratic mess in which the tax dollar paid in turns to pennies of the salaries paid out because of more government administration. And on it goes.

    What mike does not seem to understand is that he claims some sort of government “trickle down economics” works like a charm. However, mike belongs to the pack that says that “trickle down economics” from rich guys buying and maintaining yachts has not positive effect on the economy. Go figure. Only government bureaucracy bloated trickle down spending stimulates the economy. Ask Krugman. We need to borrow three times as much and piss it across the land in order to make corn grow.

    So, mike, if $10 per hour is a good minimum wage, why isn’t $25 an hour a whole lot better? Maybe, mike, you have some sort of inclination toward understanding diminishing returns. If so, why isn’t the economy better off with 27% on welfare (down from 47%) and the unemployment rate at 4.5% (down from 7.6%) and fuel prices at $2.00 a gallon? Careful, any answer you make in agreeing that the economy would be better is a tacit vote for lowering taxes, cutting government bloat and govlernment spending and goosing the job creating machinery of the private economy. Capitalism, I think it is called.

    Comment by heliotrope — April 11, 2013 @ 10:28 am - April 11, 2013

  18. Chapter 7 Bankruptcy would go a long way toward helping the person with his housing, medicines, work related tools, mortgage, food and the rest.

    Exactly. Keeping people from bankruptcy isn’t necessarily a good thing – not if the person honestly ought to be in it; that is, not if they have taken on much more debt than they can ever repay.

    So, “I know of more than a few people who used unemployment…to avoid declaring bankruptcy” – That argument does not impress me. In the end, government still paid a bunch of people to do nothing.

    And the more generous a government’s unemployment benefits are, the higher the country’s unemployment will tend to be (over time). In public policy as in anything else, “you get what you pay for.”

    government “trickle down economics”

    … does not work. That must be why lefties put such effort into ridiculing the private-sector version, which would be more accurately called entrepreneurship (or gainful, profitable job creation), and which does work – if the government lets it.

    Comment by ILoveCapitalism — April 11, 2013 @ 10:50 am - April 11, 2013

  19. Today, my workplace announced they were laying off 25 people in my office.

    So, naturally, I thought about how I would deal with that.

    I reasoned that my savings would keep the mortgage paid and the lights on for about six months before I had to dip into retirement funds. I have a supply of freeze-dried food in storage, and could rely on church programs for food. I could take a job working for less money while I found something more remunerative. And, if things got really bad, could sell the house and move.

    So, you see, it is possible to get by without Government dependency.

    Comment by V the K — April 11, 2013 @ 8:51 pm - April 11, 2013

  20. One more thing: Isn’t the Keynesian multiplier theory, in itself, one giant argument that it doesn’t matter what government spends the money on?

    It claims that the real benefits of government spending come in “priming the pump”, the money that circulates (adding to “demand”) *after* the government’s initial act spending.

    So, again mike: How can you claim that you’ve never seen the argument made, that all government spending (even paying people to do nothing) stimulates the economy? I mean, where have you been? Or, when you heard all the Keynesian multiplier / “stimulus” arguments, did you not understand what they were really saying?

    Comment by ILoveCapitalism — April 16, 2013 @ 12:58 pm - April 16, 2013

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