Saturday, December 13, 2008

The Folly of Government Job Creation

Job creation has become the new watchword in Washington, highlighting our leader's ignorance of economics and signaling, again, how this depression is going to be worse than the first.

The economic truth is that all jobs are not good for the economy, because not all jobs produce wealth. For example, the government could give 1 million people the job of digging ditches, and another million people the job of filling them in. 2 million people would go home with a paycheck, but zero good would be done for the real economy. It would be better just to give those people their daily wage and send them home.

In fact, such jobs are actually hurting the economy. Those workers could be looking for jobs in productive industries, but instead are spending their day wasting their economic time. Because they are otherwise employed, it also shrinks the pool of labor for the productive economy.

But what about the stimulus effect? Isn't the problem in a depression that people and businesses have closed their wallets, lowering demand, thereby crushing production, and so government has to step in an stimulate demand on its own? If government's job is to stimulate demand, then why doesn't it do so directly? It could buy as much stuff as it wanted on its own, then give it away. Why "employ" people at meaningless jobs at all? More to the point, government could just give people money directly, and let them spend it, without requiring them to waste their time on a government job. That would have the exact same stimulus effect.

Can government create jobs that are actually good for the economy? They could, but almost certainly won't. The current focus is on creating jobs that are politically important, not economically important. Fixing infrastructure, for example, sounds nice, doesn't it? The problem is, repair work is not economically productive. Fixing all the potholes on our nation's road's may be nice for our nation's motorists, but economically, it is a zero. Why not create a million jobs for people to repaint our houses and fix the holes in our walls? Lots of people's houses need touching up, both inside and out, right? That would probably also be a popular program, wouldn't it? But most people would see right away that fixing up their houses is not an economically productive job.

They are fooled by "infrastructure" proposals because the subject is transportation, which is an "industry", connected to the process of going to work and moving goods around. So fixing roads must therefore be good for industry, so the false logic goes. Creating cheaper transportation alternatives would be good for the economy, but fixing the current one we have is a wash. Sure, it needs to get done, but it is not good for the productive economy. In a Depression, we have to get our productive economy going, not just get various postponed things done.

Here is an example of a productive infrastructure project: creation of a national network of high speed electric trains, inter-city and intra-city. By providing a cheaper transportation option, we would be accomplishing a long-term good for economy, decreasing transportation costs across the board. We would also lessen our dependence on foreign oil and lessen our negative impact on the environment. In short, repairing our current transportation infrastructure is economically neutral, at best, while creating a better infrastructure would be economically positive.

Subsidizing "green" power, invariably called "investing" to fool the masses, is also an economic loser. Subsidizing anything is an economic loser. If something cannot pay for itself, that is a sign that it wastes more than it produces. During a Depression, why should we "invest" in things that lose money? That would fit the very definition of insanity, working against your own purposes, undermining your own efforts, and making your own situation worse. Due to a couple decades of environmentalist brainwashing, supporting green technology is a political winner, but we need to be helping our economy here, now more than ever. Throwing money away on moral posturing is nice when you are rich, but it cannot be done when you are poor. In fact, it only makes you poorer.

Creating a bunch of nuclear or coal power plants is an example of an economic good, because it would lower the costs of electric power, as well as decreasing our reliance on imported oil. Investing in unproven technology is the work of economic speculators. Supporting proven money-makers is the requirement when you don't have money to waste and you want to get your economy going again.

After all, all this government "investment" money has to come from somewhere. Under all these proposed bailout schemes, economically productive activities are forced to subsidize activities that aren't. How much sense does that make? In a word: Zero. In times of economic trouble, the goal is to shed unproductive jobs and invest more in activities that produce wealth. That is the only way the economic downturn will ever come to an end, as money-making industries expand to absorb available labor. Continuing to prop up unproductive jobs will only make it harder or impossible for the economy to recover. When forced to subsidize government jobs, productive industries have smaller profit margins, and are unable to expand. Additionally, marginally productive industries are forced out of businesses because of the extra costs they are forced to bear.

Thus, the best thing for a government to do in times of economic trouble is lower its burden on productive businesses, to allow the profitable the room to expand, and allow the marginally profitable the room to exist at all.

The worst economic policy for a government to adopt during a depression is "job creation", because it shrivels the labor pool, drives up labor costs, and hampers or eliminates productive industries, while subsidizing unproductive activities If job creation must occur for political reasons, it should be focused only on activities that create wealth. Manufacturing activities do create wealth, but should not be subsidized by government when competing with domestic industries. Instead, manufacturing should be subsidized in industries that are in competition primarily with foreign industry.

Education subsidies should also be targeted towards fields that are wealth creating. Subsidies for arts and literature, for example, do not help the economy. Subsidies for engineering and science programs, as well as industrial and technical training, will pay off, with inventions and innovations.

As you can see, there are many positive steps government can take to help our national economy to get going. Bailing out banks and subsidizing non-productive jobs represents the absolute worst case scenario.

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