Sensitized by month after month of bogus claims of jobs “created or saved” by government stimulus, the vast mountain of misleading Labor Day bloviation about government and unions as the source of jobs and Americans’ well-being struck me as ironic. After all, the rhetoric of job creation is used to justify a host of policies that actually harm workers.
How many times have we heard the refrain that every new increase in government spending creates jobs? If only it was true (for then our economy’s problems would be almost trivial to “fix”). In fact, government spending does create jobs where it is spent. But those same resources, spent elsewhere, would have created other jobs. Government has not created jobs; it has only moved them, because the taxes (or deficits, which are deferred taxes) to pay for them destroy other jobs currently and in the future. The effect of financing the government spending is to reduce productivity and income for other American workers, in a classic illustration of Frederic Bastiat’s “what is seen and what is unseen.”
Perhaps even more important, government spending moves jobs from where voluntary, hence mutually beneficial, market choices create them to where politicians and bureaucrats dictate, where there is no assurance of mutual advantage. Even a highly paid government generated job can produce very little useful output. And it is the value that jobs produce for others that is the key to Americans’ well-being, not some arbitrary and intentionally misleading measure of jobs created ex nihilo by government fiat (perhaps we should call government-created jobs fiat jobs, with the same assurance of value that fiat currency provides).
In fact, government jobs can not only provide less in value to Americans than they cost (since those arrangements are no more voluntary on the part of individual citizens than paying their taxes), they can produce costs rather than benefits. The primary function of the vast crazy-quilt of recent new government agencies, mandates and czars, as well as the massive extent of government control to which it was added, is to interfere with, and thus undermine, the improved social coordination productive jobs represent. Hiring people to add or enforce constraints on productive arrangements creates some jobs, but it acts like a massive regulatory tax on jobs that actually benefit Americans.
Further, the massive redistributive power that comes with increasing government control triggers more of what economists call rent seeking (better described as government favor seeking through influence over the political process). More lobbyists are hired to help special interest groups benefit at others’ expense, which, in turn, leads others to hire more lobbyists to minimize the extent of robbery they, as losers , will be forced to bear as a result. The fight to control the government theft involved creates more such jobs, but it destroys wealth everywhere except in Washington.
Another rhetorical trick used to support worker-harming government initiatives is the constant recitation of the “jobs and income” that they will add. The word “and” suggests that there are two sets of benefits which must both be counted — added income and added jobs. However, to do so counts the same thing twice (several forms of which are common in sales pitches for government “solutions, such as counting direct benefits produced and the higher property values that just reflect the increased direct benefits as if they were separate benefits). Jobs may represent the benefit of the income generated to many people, but jobs are not benefits in addition to the income earned. In fact, rather than being benefits, jobs are instead the often-unpleasant efforts and inconveniences that must be borne to earn the income (Just as yourself whether you would rather have a job or not if you would have the same lifetime income, a question my university students have no difficulty answering). As a result, counting both jobs and income is more misleading than double counting, because one of the benefits it counts is actually a cost.
“Jobs and income” misrepresentations are further compounded by the use of claimed multiplier effects. Government spending supposedly generates multiplier effects, because the initial jobs and income produce additional spending and jobs, which in turn leads to still more income and jobs, etc., so that extra secondary benefits can be claimed for each dollar spend on direct benefits. However, the taxes or deferred taxes necessary to finance the spending will have exactly the same kind of effects, but in the opposite direction. Those forced to pay will be left with less disposable income, which will lead to less spending and jobs, etc. — adverse effects that are equally multiplied. But by simply ignoring the symmetry of any effects that logic requires, multiplier effects primarily multiply other misrepresentations.
The many temporary forms of stimulus further compound the misrepresentations about jobs, because they largely represent offsetting shifts over time, rather than real stimulus. For example, my son was planning on buying a car in any event, but the temporary car stimulus induced him to buy a few months earlier than he was going to. While politicians claimed the initial boost in car purchases (and the jobs and income generated as a result) of which he was a part as proof that the stimulus worked, and the predictable slump that followed (as with home purchases, as well) only demonstrated the need for another stimulus, a more accurate description would be that while activity shifted from the near future to the present, evaluated over the entire period affected, there was virtually no stimulus.
Further, in addition to the increased regulatory burdens (with more to come), the recent stimulus efforts, with their massive expansion of deficits, have been combined with claims that the government would soon get its fiscal house in order with substantial increases in tax rates. So to the extent that people take into account both the spending, which often provides benefits worth a fraction of the cost, and the much more permanent future fiscal burdens which they will bear fully, the net effect may well be to contract the economy, as worsened incentives undermine all long-term productive commitments, including investment and permanent jobs.
Because it was Labor Day, it was not just the beginning of serious campaigning for November, but also a day for similar union misrepresentations of the labor market.
Unions claimed that others’ wages were pushed up by unions, when, in fact, higher union wages reduce the number of jobs available, harming other workers by worsening their alternatives and lowering their wages. They ignored that increasing productivity and income would result in improved working conditions without coercion, to claim their coercive tactics deserve credit. They denigrated the fact that the source of increasing compensation has largely been savings, which funded investment and advances in technology, which raised workers’ productivity, in their class warfare against capital and capitalists who make higher wages possible.
Union mouthpieces pooh-poohed the obvious unemployment caused for lower-skill workers by higher minimum wages (which benefit union workers by raising the price of unskilled workers relative to union workers) and living wage laws. They pretend away the fact that once employers have time to adapt, new mandates are not free to workers, but will come out of other parts of their compensation packages that they value more (or they would have chosen a different compensation bundle beforehand). They push for protectionist measures to protect American jobs, which really protect overpriced American union jobs at the expense of other workers ‘ jobs and income prospects. They hold attempts at employer-worker cooperation hostage to union control. And they are pushing hard to make it easier to force unionization on others, to expand their influence.
It turns out that there are many ways misrepresentations about jobs are used to support policies that harm workers. Transfers of jobs from where people value them more to less valued jobs where government controls dictate are counted as job creation. Government jobs that interfere with the creation of mutually beneficial labor arrangements are counted as if they are beneficial rather than a massive regulatory tax on jobs that are productive. The lobbyists that government favoritism creates are counted as if they were socially valuable, rather than offsetting investments in mutual theft. “Jobs and income” phraseology is used to not just double-count benefits, but to count costs as benefits. All of this misrepresentation is multiplied by multiplier effects. Temporary shifts in economic activity from the near future to the present are counted as stimulus, ignoring the predictable negative future consequences. People’s anticipations of the future burdens to pay for wasteful and inefficient jobs, which may well transform supposed stimulus to its opposite, are assumed away. And the panoply of union misrepresentations are piled on top.
Labor Day rhetoric about jobs shows how hard some work to distort reality for their own benefit. But if benefitting workers (and all of us are workers) was the point, there is an easier and more logical way — relying on the fact that freely chosen arrangements between workers and employers guarantee benefits to both parties in ways further government interference only undermines. If we would just accept self-ownership and rely on voluntary arrangements, which have always been central to real human progress, we could all rest from the strenuous and many-faceted Labor Day efforts to mislead others.
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As a business owner that has had between 1 and fifty employees over a 25 year entrepreneurial career I can tell you that the government’s attitude about employment has made me very wary of hiring. The government sends a clear message that the employee is my liability, my responsibility, rather than a participant in a mutually beneficial, consensual relationship between the parties that can be severed at any time. There was a time when I relished the idea of providing jobs, but I won’t do it out of a sense of obligation to another or to society.
“How many times have we heard the refrain that every new increase in government spending creates jobs? If only it was true (for then our economy’s problems would be almost trivial to “fix”). In fact, government spending does create jobs where it is spent. But those same resources, spent elsewhere, would have created other jobs. Government has not created jobs; it has only moved them, because the taxes (or deficits, which are deferred taxes) to pay for them destroy other jobs currently and in the future.”
Of course, a dollar spent by the government generally results in very close to a dollar being spent on payroll. Whereas in the private sector, an increasing number of dollars have been going into the financial industry, which concentrates money into a small number of hands rather than creating many jobs.
One bond trader can make $100 million a year, while 2,000 construction workers, each making $50K, can more fully utilize that same $100 million. That is, they might buy 2,000 cars, while the one bond trader will buy one very expensive car.
Not to mention that the result WE enjoy is roads without holes and patches, and bridges that don’t fall down. As opposed to investment strategies that tend to disappear one day in a puff of dust. We get a tangible gain, when a government acting responsibly does the investing.
First off, what would the financial sector look like if the state didn’t exist? It’s easily the most distorted sector of the economy.
Secondly, what matters is not money but wealth! Once again, is what the state spends its money on more valuable to society than what would have been done with the money otherwise? How do you even know this? If it is, then why do people not spend their money on it voluntarily?
‘Wealth’ is nothing more than the accumulating product of labor plus capital. And to me, the production of tangible goods like a road grid in good repair is worth far more than are all the collateralized debt obligations on earth.
They create nothing, they just move money around until it disappears… in the closing seconds of the latest round of musical chairs. Are you seriously considering that collapsing house of cards to be the wealth equivalent of millions of miles of highways and bridges, in good repair?
As usual my question’s been completely dodged.
If the roads are so useful why does the state need to use force to pay for them?
Also it seems you have no idea what the function of investment actually is.
I have a street level condo. Why should I be forced to pay for fixing the roof several floors up?
What value is a road in good repair if you don’t use it, or rarely use it? Perhaps someone else would value it, but its value to you is little to none, less than your tax dollars that were spent on it. Perhaps you would like to think that it evens out, since some of the government roads are heavily used and valued by you. Such a calculation would be difficult or perhaps even impossible to determine. Why shouldn’t all of your money go directly to the roads you use, instead of being diffused across all roads? How do you know if you’re paying too much or too little for the roads you use?
Add to this the fact that for some people the sheer disutility of forced financing of goods will never be exceeded by their supposed utility. Subjective value theory, caustic when applied to socialist pipe dreams.
Nope, wealth is the sum of economic goods in one’s possession. The rest has nothing to do with what Seattle even asked and is so flawed and ridden with your own personal, subjective valued judgements as to be worthless. Seriously, just stop polluting this site with your inane, pointless commentary.
In fact, considering the government is insensitive to the structure of capital and the needs of the economy (at the consumer end) and merely funnels money in wherever it may fall, how do you know its activities are not themselves the cause of gross malinvestment in labour?
Basic scenario.
A citizen pays $5 000 in taxes.
With this money the government hires a construction worker.
With this money the citizen would have also hired a construction worker if he did not have to pay that $5 000 in taxes.
When it is the government who spend the $5 000, there is creation of 1 job.
When it is the citizen who spend the $5 000, there is creation of 1 job.
There is no more jobs created when it is the government, instead of us, who hires peoples with our money.
Another thing to note here is the productivity of these jobs. Demand for jobs in the labor market is driven by the value of the additional unit of goods produced by employing another worker. But if you have the state employing people to collect census, make bridges and dams for no other purpose than keeping the wage recipients occupied, then quite obviously, it’s difficult to determine the actual value of their output in the economy.
Socialists immediately assume that EVERYTHING the government does is valuable and productive simply due to the virtue of it being non-profit, but more sensible people generally see the problems with that view. In fact it would be no different than simply paying everyone 5000 dollars for doing nothing. Of course then, due to the magical money multiplier, private spending in the economy will go up tenfold.
The only problem with that scenario is if a citizen spends $5000 to hire a worker to get something done it cost the citizen $5000 and they will get $5000 worth of work completed. If the government spends $5000 of the tax payers money to get a job done it will probably get half the work done for the same $5000. If you consider the cost of the government employee managing the new worker, and considering the contractor will charge more knowing it is a government job (government jobs have more bureaucracy to contend with and in my real life experience the jobs do not run as efficiently) as I mentioned you will get half the work as the citizen.
Another way to say it, is that less than $5 000 will be left to hire the worker. How much less is another question. Just paying peoples to collect the taxes and to decide where to spend it, and you already have less than $5 000 to pay to the worker, so even if the worker is as much efficient as the other, the production will be less. We may also assume that the worker is the same in both cases.
Well stated. When ever a third party is spending money it will be less efficient. If you or I spend money we are looking to get the best value for the dollar. When a third party is spending they are less concerned with the value because they are spending other peoples money. That is one of many reasons big government does not work.
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