January 12th, 2009

Job Creation Through Fiat


photo credit: Dorothea Lange

President-elect Obama, reacting to a turbulent economy and increasing unemployment, has promised to create one two three four million jobs, the majority of which would be in the private sector. Focus on this initiative has been aimed towards crumbling roads, antiquated school buildings, and other items of American infrastructure.

I pause, though, to ask a simple question, and one that has been oft-repeated in different circumstances: since when did we elect a President to create jobs in the “private” sector? Isn’t that the domain of a socialist central-planning autocracy?

Even so-called conservatives are clamoring for this money, eager to keep their constituents well-fed and fully employed. Few, it would seem, have any strong moral objection to one man creating jobs through fiat.

As can be expected, one of the voices in the wilderness—Texas congressman Ron Paul—has sounded off on this issue, correctly noting the farce of government attempting to create “private” sector jobs:

Contrary to the belief of many, the goal of the economy is not job creation. Jobs can be a sign of a healthy economy, as a high energy level can be a sign of a healthy body. But just as unhealthy substances can artificially give the addict that burst of energy that has nothing to do with health, artificially created jobs just exacerbate our problems. The goal of a healthy economy is productivity. Jobs are a positive outcome of that. A “job” could be to dig a hole one day, and fill it back up the next, or perhaps the equivalent at a desk. This does no one any good. But the value in that paycheck ultimately has to come from taxing someone productive. Some think this round-robin type of economic model is supposed to get us somewhere.

Since the security blanket of government administration reduces (or eliminates) the impetus for productivity, accountability, and demonstrable results, we can expect that any attempt to create jobs simply to provide employment and satisfy a clamoring electorate will not increase the productivity of the nation in the aggregate. Rather, like the bulk of government leeches, these new jobs will simply drain resources from what would otherwise be productive and fruitful ventures—those created through the free market in response to a perceived need and without burdening taxpayers in the process.

Any attempt to create wealth or employment through government distorts reality by obfuscating it, as illustrated in Bastiat’s broken window fallacy. While people readily see new jobs being created, what is rarely apparent is the many ways in which the capital, resources, and labor might have been otherwise directed if left to pursue their own course. Philosophy aside, Obama has history against him in this battle; this same type of make-work program has previously had the opposite result than the one proclaimed at the outset:

[Obama’s stimulus package] is part payoff to the urban political machines, labor unions, and other special interests that helped get him elected, and part vote-buying (with federal tax dollars) scheme as the first step in his 2012 re-election campaign. It will no more “stimulate” the economy than Herbert Hoover’s 1929 “stimulus package” did, despite the fact that it accounted for 13 percent of the entire federal budget. Hoover continued to increase “public works” spending by massive amounts, accompanied by massive tax increases to pay for it all. FDR did the same, increasing the amount of spending and taxes by orders of magnitude. All of it had no positive effect whatsoever on the overall economy; the primary economic effect was to balloon the size of federal, state, and local governments at the expense of shrinking the private sector — and to create more private-sector unemployment.

Job creation through fiat is ultimately more destructive than it is productive. The person who most benefits from such a policy is not the unemployed individual but the (always) vote-seeking socialist president.

22 Responses to “Job Creation Through Fiat”

  1. January 12, 2009 at 3:34 pm #

    An interesting situation. So we are going to put cash in the hands of the masses, who are supposed to spend it, boosting profits for companies to invest in increasing productivity to eventually have the infrastructure to be able to afford to hire that consumer. I feel like we are breaking some laws of thermodynamics here.

  2. Reach Upward
    January 12, 2009 at 4:32 pm #

    The money will go to the politically connected rather than to those that provide a good/service that people purchase of their own free will. That is how these things always work out.

    Yes, people in select groups — the ones chosen by government — will benefit with jobs. But the cost of this political favor system will be widespread and heavy.

    But, luckily for the political class and its benefactors, that cost will be largely unseen, because it comes as opportunities lost. Since these opportunities and their results have not yet been seen, few will realize that they are being taken.

  3. Rick
    January 12, 2009 at 4:59 pm #

    I agree with what you have posted, and very well articulated too. Having spent the first 28 years of life in socialist England I was surprised at the economic dynamism of the United States when I emigrated. I much prefer living within the economy of the U.S. Over the years my socialist experiences have been an advantage. Why? Because the U.S. is marching down the path where I have already lived, so most of the time I know what to expect. But a question for you. What should the government do, if anything, about the increasing number of unemployed? Should it just step aside? If it were me I would want to cut spending and get out of the way, and not increase unfunded projects. Thanks, I enjoy your blog very much.

  4. Justin
    January 12, 2009 at 6:19 pm #

    The government’s only source of real income is taxation.
    Taxation shrinks the economy because it takes money away from people.
    How do “government solution” proponents believe that taking money away from the economy only to put it right back in is going to grow or jolt anything?
    Does no politician remember the “give a man a fish” maxim?

  5. January 12, 2009 at 7:29 pm #

    The problem is that the government has come to be seen as the problem solver extraoridnaire. Government is not allowed to just sit back and tell the citizens that it will eventually sort itself out in its own, because the citizens absolutely will not accept that as the response.

  6. January 12, 2009 at 8:52 pm #

    Opportunity cost is the sacrifice made when selecting one product or service over another.

    The popular political slogan ‘Guns or butter?’ suggests that national defense is the price to be paid for not fulfilling high consumer expectations, and vice-versa.

    ~J M Buchanan, Cost and Choice (Chicago, 1969)

    One might argue that government pays the ultimate in opportunity costs, since it has no competition…… (nor, in this case real demand or real profits)

  7. Daniel
    January 12, 2009 at 9:12 pm #

    Focus on this initiative has been aimed towards crumbling roads, antiquated school buildings, and other items of American infrastructure.

    I pause, though, to ask a simple question, and one that has been oft-repeated in different circumstances: since when did we elect a President to create jobs in the “private” sector?

    The jobs you have mentioned are not private sector jobs. Roads and schools fall under public works.

  8. Connor
    January 12, 2009 at 9:59 pm #

    Rick,

    What should the government do, if anything, about the increasing number of unemployed? Should it just step aside?

    First of all, I hope we all agree that the federal government has no authority to “create jobs” or do anything similar. The states (and the people) retain this power, and depending on each state’s Constitution, some might have the authority to interfere in the economy in this way, and others might now.

    I believe that the ideal, though, is to let the market figure itself out. Government (properly instituted) exists only to secure rights and protect individuals—not to ensure they are well-paid, well-fed, and living a comfortable lifestyle.

    Any action on the government’s part to provide jobs further exacerbates the entitlement mentality where individuals think that Uncle Sam exists to give us what we want, when we want it. I have no idea where these people get their delusions of grandeur, but it certainly isn’t in the founding documents that created this great nation and allowed for its prosperity to flourish.

    In short, yes, I believe that government should completely step aside and let people suffer the consequences of their own actions.

    Just as a child will not learn and grow without being allowed to take risk and to fail, so too will grown adults not become more productive and independent until they are allowed to forge their own path free of socialist central-planning.

    This ever-applicable quote once again comes to mind:

    Government is a disease that masquerades as its own cure. (Robert Lefevre, via Quoty)

    Daniel,

    The jobs you have mentioned are not private sector jobs. Roads and schools fall under public works.

    Not all public works are done by salaried government workers. Private contractors take up a substantial chunk of labor-intensive, government-mandated projects. The post-Katrina debacle showed evidence of the nature of this relationship:

    JEFFREY KAYE: The extent of the government’s reliance on private contractors can be seen in microcosm at this support center near the French Quarter. Although managed by the U.S. Forest Service, businesses from around the country keep the place running. They wash clothes, run the phone and Internet services, and provide beds. They also cook for 7,000 hungry people– all cops, aid workers, manual laborers and government officials trying to put the city back together. This operation has cost taxpayers $6 million over the past three weeks. Dennis Neill says his agency, the U.S. Forest Service, regularly relies on the same contractors to provide support services.

    DENNIS NEILL: I won’t say we can’t do it. I will say it would be a lot more expensive and it would be very difficult and it would take us some time to get geared up to do it. So they are a lifeline for us. It is a partnership. You know, they make a living, there is no question about it. They are well paid for what they do; they deserve every penny of it.

  9. Daniel
    January 12, 2009 at 10:47 pm #

    My point is that roads and schools are perfectly appropriate areas for government to work.

    I’m getting the feeling that not only do you not want the government to take over the public sector, you don’t even want government to do its own jobs.

  10. Clumpy
    January 13, 2009 at 2:30 am #

    Good for Ron Paul. The fact that this guy exists warms the cockles of my heart.

    Leaving aside the question of government interference if I may:

    I think sometimes we fall into the trap of living through numbers, and somehow thinking that (for example) the GDP is a measure of how happy we are. The goal of life isn’t to work as hard as you can and then consume as much as you can. That’s a recipe for an unhealthy, stressed-out life with no time for introspection.

    Wouldn’t life be more happy and healthy if businesses enforced 30-hour, four-day workweeks? What about four-hour schooldays with less wasted time? Pay the teachers the same, maybe even keep the same curriculum, and let everybody have a few more hours a day to pursue their own interests. Seriously, what a great idea.

    (More facetiously, what if people took their time and cooked their own meals from scratch, got eight hours of sleep every night and had a good hour to talk to their significant other every day with no distractions? They wouldn’t be directly contributing to the economy but the world would be quite a bit better.)

  11. Carissa
    January 13, 2009 at 9:39 am #

    Doesn’t Obama want about 600,000 of the new jobs to be federal employees? Some of these positions taking over existing state and local jobs? In addition to what we already have now, that is a LOT of people employed by the federal government. I’m not very comfortable with that. I think it would make it harder to return to a small central government, as so many would be dependent on big government for their employer.

    Also, I worry about the diminishing power of state governments. Would the federal government be taking over responsibilities that should be left to each state by way of the job transfers?

  12. Carissa
    January 13, 2009 at 9:55 am #

    My point is that roads and schools are perfectly appropriate areas for government to work.

    Let’s be mindful of the distinction between state and federal governments. State governments (not the federal) have authority over their schools and many of their roads.

  13. January 13, 2009 at 3:10 pm #

    On the subject of roads and schools:

    Government schools have already been debated elsewhere on this blog – to no avail.
    Government roadways appear to be closer to acceptance by most who frequent this blog.

    I’d like to look at the third side: Is the spending going to PRODUCE anything?

    Schools: The upgrading of schools is make-work. Some teachers will get an increase in salary. I can consider that an inflationary adjustment and be ok with it. The facility upgrades in some cases might be needed, but the level that we are talking about is mostly make-work.

    There might be a case for roads (especially some of the bridges we keep hearing are falling down). But are ALL of the projects really that necessary? After you take care of all the projects that really need to be done, then what?

    I don’t know about schools. But I do know about construction. Here are my very round estimates:

    300M people @ $1B per Million for reconstruction = $300B
    Only about ¼ are past their useful service life, but I could be off by a factor of 4 (worst case).
    So, $300B for interchanges. Let’s double that to take care of side roads, etc. $600B.

    This should be enough to make most of us cringe.

    But we aren’t even near $1Trillion. How are we going to justify the $7 to $10 Trillion that they are eventually looking to spend? Well, they could be interchanges with hovercraft ramps and fruit trees to feed the homeless. That tree thing isn’t such a bad idea.

    The vast majority of this spending is make-work and waste, it won’t produce anything.

    You have to see they are only using this as a front to carry on their real objective – to destroy the economy so we’ll be crying out for a dictator who can fix everything. That is how Hitler got his power.

  14. January 13, 2009 at 3:23 pm #

    I just found a source at how much we spend per student in public schools $6000 per child per year.

    It would be safe to assume that to “upgrade” all the facilities and books for each student would not exceed this much that we spend on everything else per child. (Unless someone has data saying otherwise?).

    Keep in mind this is a very generous estimate. We ourselves buy everything a child needs for an entire year (food, clothing, shelter, books, toys, school supplies, some luxuries) for about $4500/year.

    About 1/3 of the US population is under 18. So . . .

    100M students x $6000 per student = $600B.

    Gee, same number as the roads. Total $1.2 Trillion. How are we going to spend the rest of the money when this is a very generous estimate? IT’S MAKE-WORK!!!

  15. January 14, 2009 at 8:00 pm #

    Those who will not learn from history are doomed to repeat it.

    The Great Depression and the post-WW2 recession aren’t the only times such a Keynesian-pump priming experiment has been tried, and failed.

    For some pretty hard numbers and analysis, see this article in the NY Times, about the Japanese recession in the 90’s. It was published way back in December
    http://online.wsj.com/article/SB122938932478509075.html

  16. January 14, 2009 at 9:24 pm #

    Here is a video which goes in depth about the U.S. monetary system, and world monetary systems. I am not about to endorse it as ‘the truth’, but it is very interesting. I will forwarn you that in the end its anti-religion. But its pretty equal in that respect. It also calls for the ending of many artificial distinctions between people, such as nationality, race etc…

    http://video.google.com/videoplay?docid=7065205277695921912

  17. January 14, 2009 at 9:27 pm #

    Reach upward,
    “political favor systems” unfortunately exist amoung any organized group of people, no matter what political and economic system.

  18. January 14, 2009 at 9:31 pm #

    I think it ought to be job creation through Ford and Chrysler, it certainly didn’t happen through the banks.

  19. Connor
    January 16, 2009 at 11:49 am #

    More from Obama:

    “The way I see it, the first job of my administration is to put people back to work and get our economy working again,” he said.

    He quickly ticked through the basics of his plan, saying that it would “save or create 3 to 4 million jobs in businesses large and small across a wide range of industries — and 90 percent of these jobs will be in the private sector.”

    “I want to be clear — we’re not looking to create just any kind of jobs here,” Obama stated. “We’re looking to create good jobs that pay well and won’t be shipped overseas. Jobs that don’t just put people to work in the short term, but position our economy to be on the cutting edge in the long term.”

  20. January 16, 2009 at 1:19 pm #

    I love how the “President in training” is giving such grand promises without knowing any of the details.

    Can anyone tell me why he is acting like he’s president even before he his inaugurated? Did any other presdient do this? I’d like to know if anyone has any info.

  21. January 16, 2009 at 10:55 pm #

    Carborendum,
    Here is a speech by President Elect George bush, Aired January 17, 2001 on CNN. (link to transcript below) Feel free to compare with Obama, and come to your own conclusion.
    http://transcripts.cnn.com/TRANSCRIPTS/0101/17/se.13.html

    There are a number of commentaries on the Obama ‘Pre-Presidency’, here is one below.

    “Barack Obama is definitely not President of the United States yet. But, to be sure, how he is operating as president-elect, is gaining more scrutiny than any other newly elected chief executive since FDR. Like Roosevelt, the times are determining the level of intense interest.”
    http://www.everydaycitizen.com/2008/12/observing_a_prepresidency.html

    Here is a brief video clip of the Obama ‘pre-presidency’.
    http://www.efluxmedia.com/video_Obamas_pre_Presidency_07496.html

    Its my guess that these are critical and unusual times which mandate new approaches. Maybe Obama feels more comfortable setting the stage before hand. Not being an Obamalalogist I don’t know if he always does such things. Hes clearly operating from a different set of rules than most people. I would say from Stage 6 on Kohlbergs moral developement.

    “Kolhberg’s final level of moral reasoning is based upon universal ethical principles and abstract reasoning. At this stage, people follow these internalized principles of justice, even if they conflict with laws and rules. ” Or perhaps as they conflict with conventional or past understandings of how a President Elect is supposed to act. It could also be how Obamas personality functions. This could be very powerful, or it could really disappoint in the end.

    After the election I heard some peoples comments on the radio. I never realized that some people really expect Obama to act something like ‘god on earth’. That just isn’t fair to expect that from a single person, even if its the president, especially given the number of severe problems the country is facing. The video link “Zeitgeist: Addendum” points out the limitations of a president. Many people expect more than what any President can actually do. As an aside interest, Ron Paul is also featured in the video. Its quite lengthy and very interesting to view, even if you don’t agree with anything.

Trackbacks/Pingbacks

  1. President of the United States, Teacher-in-Chief | Richard K Miller - January 25, 2009

    […] Obama. I strongly dislike much of his agenda, including the expansion of abortion rights, the “creation” of jobs by government fiat, and the expansion of government to which he alluded in his Inaugural […]

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