The Gov’t Job Creation Fallacy

08/28/2012

Before you cast your vote this November, please try to see through the rhetoric just a little bit. There is a lot of talk about job creation, one way or another, coming from both sides of the aisle. It’s important to consider this: the government “creating jobs” is akin to an accounting trick.

The textbook example demonstrating the job creation fallacy is that of the baker. Suppose someone throws a brick through the front window of a small bakery. “Poor baker!” you might say, while someone trying to think outside the box says “The economy is really going to benefit from this!” After all, the baker has to pay someone to fix the window. As more windows are broken and more business comes in for the glass shop, more money changes hands. With this increased business, the glass shop buys new trucks and opens up new retail locations and warehouses. The shop also buys more supplies and hires more workers, who go out and spend their money on other goods and services. But this all comes at the expense of the shop owners with the broken windows. While someone is making money, someone is losing money.

When the government “creates jobs,” they are taking money away from people who would spend it somewhere anyway. Whether the bakery shop owner spends his money dining out, or at department store, or on investments, money continues to change hands. Sure, the broken glass might visibly give more people work, but that’s at the sake of other industries that would benefit from the bakery shop owner having the freedom to choose what he or she wants to spend money on.

It’s one thing to collect taxes and use that money to pay for services we all use, like building roads and bridges and providing police and fire department services. These industries still need to be sensibly regulated, however. We all were to pay for Alaska’s famous “Bridge to Nowhere” project, and I firmly believe that, here is Los Angeles, the police department does NOT (and will likely NEVER) need a fleet of 19 helicopters.

While government officials tout what an economic boon to the economy some programs are/were, things usually aren’t as they seem. The “Cash for Clunkers” auto trade-in program in 2008 was no government success story. According to a University of Delaware study, the program cost taxpayers an estimated $1.4 billion overall. But it was a noble effort to get all those polluting vehicles off the road, right? Well, if you consider that the Cash for Clunkers/Car Allowance Rebate System bill was originally crafted by a Representative from Ohio (home of GM factories and other major auto parts manufacturing), and a Senate version of the bill was co-sponsored by a Michigan Congresswoman, the real intention of the bill seems to be more of a local stimulus program.

For another example of central planning and “job creation” gone wrong, consider Solyndra. If you read some background on the company, the design of its solar technology was unlike any other in the industry. Right off the bat, this can’t be a safe bet, right? After all, investing in a unique product sounds a bit like what investors would call “speculation.”

Well, as you probably heard in the news, after the government loaned Solyndra $527 million, the company had a hard time competing in the market and filed for Chapter 11 bankruptcy.

Even if you don’t see an issue with the government taking in taxes to give people work, consider that the government actually has very little to spend. If the government keeps spending/investing in such great ideas, how has the deficit swollen to a number larger than all the money in circulation? You see, many of our political leaders are experts at nothing more than being politicians. That’s why lobbyists come knocking on their doors and manage to convince them that the petroleum industry “really needs continued subsidies,” as do the defense industry and farmers.

Speaking of farming, while small, family operations may be more sensitive to market fluctuations, corporate farming ventures (with stable finances) are reaping the rewards of government handouts. Are you familiar with Cargill – the multinational, multi-billion dollar food and agricultural producer? That corporation accepted a total of $17 million in subsidies between the years 1995 and 2011. Last year, Cargill’s net income was over $4 billion, yet the government continues to collect taxes and, you know, provide help to those corporations that need it most.

Another massive industry that government funds is defense. Of course, we need to maintain some level of military, but considering the U.S. recently finished up an eight-year tour of duty in Iraq, with none of those elusive WMDs ever to be found, what purpose did it serve? Well, for one, it was a great opportunity to pump money into the military-industrial complex that’s so well integrated into Washington politics. Conspiracy? It absolutely became one! Don’t worry, I’m not going to say “9/11 was a government cover-up” and blah, blah, blah. I don’t believe that and, if I did, there is no evidence to prove such a thing. What is certain, though, is that lots and lots of tax dollars were spent on military vehicles, aircraft, and ships (plus regular maintenance and replacement parts), fuel, clothing, armor, food, weapons, tools, field medical supplies, generators, and, of course, medical treatment for our injured (mentally and physically) soldiers for the rest of their lives.

If you’ve ever seen the movie “The Aviator,” you might remember how Howard Hughes was grilled by Senator Owen Brewster over allegations of war profiteering. That’s a phrase you don’t really hear anymore. These days, you have former CEOs become Vice Presidents, who then award half-a-billion dollar, no-bid contracts to the companies they ran. The “revolving door” between high-profile public service and corporate leadership positions is a problem and is well-documented. It’s that kind of conflict of interest that results in a hammer costing $436 and $640 for a toilet seat procured by the government.

As you can see, a lot of baggage comes along with government “job creation.” Though we are often fooled into thinking this money reshuffling is an investment for our future, what actually results is greater deficit spending. It’s important to note here that we never really operate with any kind of budget surplus. And a lot of the money that’s moved around and redistributed ends up in the hands of special interest groups and friends of the higher-ups in the public sector.

Next time you hear some mumblings from the government about creating jobs, consider the hidden economics and who the beneficiaries truly are.

 

_____________________________

Further reading and cited sources:

John Stossel’s Broken Window Fallacy –

The Broken Window Fallacy- How hurricanes, war, taxes, welfare, green job subsidies, and stimulus don’t actually create jobs –

Wikipedia – “Parable of the broken window” –
http://en.wikipedia.org/wiki/Parable_of_the_broken_window

Burton Abrams and George Parsons – “Is CARS a Clunker?”
http://www.relooney.info/0_New_5687.pdf

Environmental Working Group – “Cargill Turkey Products – EWG Farm Subsidy Database”
farm.ewg.org/persondetail.php?custnumber=004497123

Cargill reports fourth-quarter and fiscal 2011 earnings
http://www.cargill.com/news/releases/2011/NA3047889.jsp

CNET – “Case study: A simple tool” –
http://news.cnet.com/2009-1009_3-5404307.html

Frédéric Bastiat

Henry Hazlitt

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