Government Make Work Programs
Why is it politicians think they can create jobs were none existed before? Take for example Barack Obama’s claim that he’ll create 5 million new jobs,
Help create five million new jobs by strategically investing $150 billion over the next ten years to catalyze private efforts to build a clean energy future.
John McCain is no better,
John McCain Will Commit $2 Billion Annually To Advancing Clean Coal Technologies. Coal produces the majority of our electricity today. Some believe that marketing viable clean coal technologies could be over 15 years away. John McCain believes that this is too long to wait, and we need to commit significant federal resources to the science, research and development that advance this critical technology. Once commercialized, the U.S. can then export these technologies to countries like China that are committed to using their coal – creating new American jobs and allowing the U.S. to play a greater role in the international green economy.
Here is the problem. If we take money from Peter and Paul and give it to Patrick, have we created any wealth? No. Suppose we take money from Peter, Paul, and Patrick and give it to XYZCorp to build a road, have we created any wealth? Technically yes, but there is a slight problem. The money that Peter, Paul and Patrick had taken wasn’t likely to “sit idle”. Peter, Paul and Patrick would have likely spent it or invested it themselves. Even if they put it in the bank the bank would have likely turned around and lent it out to someone. All of these things create wealth, or at least resulted in production of either goods or services and thus employ people.
Not only that but taxes come with a deadweight loss.
In economics, a deadweight loss (also known as excess burden or allocative inefficiency) is a loss of economic efficiency that can occur when equilibrium for a good or service is not Pareto optimal. In other words, either people who would have more marginal benefit than marginal cost are not buying the good or service or people who would have more marginal cost than marginal benefit are buying the product.
While this sounds a bit dry, what it is saying is that certain trades that would have taken place absent the tax (monopoly pricing, externalities, etc.) are no longer taking place an hence that economic efficiency is lost (this economic efficiency comes in two flavors, consumer surplus and producer surplus and is of value to both consumers and producers). In short, things are worse off in the presence of the distortion (tax, etc.). This is an additional burden of taxes, monopoly prices, etc. This is why such policies rarely, if ever, have any lasting permanent benefit on employment.
There is another problem as well. Government run projects are not like privately run projects. Start up a small company to explore the profitability/practicality of plug-in hybrid vehicles and you fail to turn a profit for a period of time and you will go out of business. Start up a multi-billion dollar bureaucracy for a similar purpose and it fails…why that is justification for an even bigger budget. There wasn’t enough money to begin with. The break through is just around the corner (and if not this up-coming corner, why it will be the next one). Once a bureaucracy is in place there are powerful interests to see that the bureaucracy stays in place. The politicians who supported the bureaucracy don’t want to admit to being wrong/failures/wasteful. The bureaucrats themselves like getting their paychecks. And heck there are lots of people employed there! Why if we shut down the bureaucracy those people would never ever find another job anywhere ever, ever again.
Now it is possible that government projects can be beneficial. But for a government program to to do better than private actions the benefit has to outweigh not only the private benefits people would have derived from their income, but also the loss associated with deadweight loss. That is a fairly high bar to clear, and I doubt many politicians could explain the concept of deadweight loss, and those that could just don’t give a damn about it. Bring home the bacon to your constituents so you can get another term.
The nonsense that government will create jobs is by and large mostly nonsense. The government competes with private interests in the same labor market. It isn’t all clear that there would be less jobs if the government wasn’t hiring people. In fact, there might actually be more people hired with less government. And again, this isn’t to say that there is no role for government, just that the current role is likely bloated, inefficient and more of a problem than a solution. But both McCain and Obama think that they can make government work right. Elect them and they’ll fix it and get it juuuusst right.