Whenever you hear politicians talking about ‘creating jobs’, you know at least one thing: they have no clue whatsoever about economics. Ideally, you should not pay too much attention to them. But since jabbering about new jobs is part of most politicians’ rhetorical equipment, the point deserves a brief review.
Whenever the government decides to ‘create jobs’, the decision implies rising government spending. The money needed is either borrowed or collected through taxes. In both cases, the same money is no longer available in the private sector. Thus, even if state-run programs create some new jobs, this is done at the expense of other, private-sector jobs. The net effect is almost certainly in the negative.
A simple example of this misleading policy can be found in Obama’s humongous stimulus package. Despite spending almost a trillion dollars, unemployment rates have remained very high. After a tiny drop of one percentage point, the rate is already increasing again.
US unemployment rate - 1950 to 2011 / US Bureau of Labor Statistics
Before some claim that without a stimulus package the rate would have reached 15 or 20%, well, this is an old trick. Whenever politicians’ favored programs fail, they try to justify their mistakes by arguing everything would have been far worse without the program. But just as in the courtroom, the onus lies with the spenders. They have actively (mis-)used coercion to get and spend other people’s money. They have to prove the net benefit.
And finally, for the Keynesians among us, two minutes of ingenuity on government spending:
Swiss Economist 
Before some claim that without a stimulus package the rate would have reached 15 or 20%,
Nobody claimed that, but the CBO claimed it would have topped 11% without it. If you can’t make your point without lying, you have no point.
First, I have heard politicians arguing with those high and probably unrealistic figures. Second, if CBO’s 11% was your worst case scenario, well, despite the gigantic stimulus package it was more than 10%. And given that unemployment statistics are always subject to manipulation (I don’t think I have to expand on that), we have 11% of unemployment.
Besides, compare the original plan with the actual development. Instead of 3-4 million new jobs, the packacge ‘created’ just 150,000 (http://www.time.com/time/business/article/0,8599,1910208,00.html). Doesn’t it bother you that almost a trillion dollars have been spent without remotely reaching its goal?
The point is that many people try to justify their failing programs (or hide their real intentions) by drawing some horrific counterfactual. We have seen this over and over again in history, from rent controls over affirmative action to criminal justice. And currently, banks in the Euro zone use this to method to get rid of bad loans. The result is that politicians buy the rhetoric and taxpayers will bear the costs. A second time.
Besides, compare the original plan with the actual development. Instead of 3-4 million new jobs, the packacge ‘created’ just 150,000
That article was written in July 2009.
Doesn’t it bother you that almost a trillion dollars have been spent without remotely reaching its goal?
The stimulus was $787 Billion. $260 Billion of that was tax cuts (to garner a few Republican votes). $185 Billion was unemployment benefits. Only $215 was discretionary spending.
Don’t tell me what I already know. Please provide some evidence of the effectiveness of the stimulus package.
The unemployment rate is 9.2%, GDP growth is expected to slow down, federal deficit is $14.3 trillion. And government spending is approaching 50% of GDP.
And you are suggesting what?
Please provide some evidence of the effectiveness of the stimulus package.
The Stimulus created or saved 3.3 million jobs as of a year ago. Source
From that, we have a great deal of infrastructure improvements, which were needed anyway.
The layoffs in the public sector are partially responsible for the high unemployment rates. You can also thank all the outsourcing of U.S. jobs to China.
Don’t forget that the discretionary spending part of the Stimulus was only $215. The $260 in tax cuts did very, very little to stimulate the economy.
And government spending is approaching 50% of GDP.
Spending as a percentage of GDP during Bush’s final fiscal year was 41.76%. Last year, at the end of Obama’s first fiscal year, it went down to 39.97%.
Gee… the facts don’t seem to support your arguments. 🙂
Well, let’s have a look.
Your “3.3 million new jobs” statement is based on the “Congressional Budget Office”. Hilarious. Did you really want to convince me by showing this “evidence” by a federal agency? Besides, since you seem to love nit-picking: the report actually says “Increased the number of people employed by between 1.4 million and 3.3 million”. Put aside the enormous range, 3.3 million is just the upper limit.
Next, layoffs in the public sector played a role. Correct. But that’s inevitable and people need a couple of months to find new private sector jobs.
Outsourcing to China. That does not explain why people don’t have jobs. It just shows the comparative advantage of China with respect to some labor-intensive tasks.
Next, “The Simulus was only $215.” Uh, you forgot the ‘billion’. It is $215 billion. This is almost $700 per capita. The effect has been disappointing. And as I predicted, you would come up and say ‘we should have spent more’. Policy A hasn’t worked, let’s do more of policy A. Hilarious.
And finally, government spending has been increasing for the last one hundred years. Just interrupted by brief periods of stagnation. And because there is neither a constitutional limit nor any incentive to hold it down, this figure will increase. Whether you have a Republican or a Democrat in the White House. Whether the president is called Reagan / Bush (focus on military spending) or Obama (focus on welfare).
Don’t forget that the Republican tax cuts were $866 per person, which did very little to stimulate job creation.
We will never know the exact net effect of the stimulus package. But I state two things: First, it did not achieve its goals. Second, except for tax cuts it was based on coercion.
Cutting taxes means less coercion, thus it is good even if it didn’t stimulate the economy.
Your reasoning is purely emotional.
So this is where your whole theory collapses. You cannot escape the simple fact that your whole set of policies is fundamentally based on coercion. And that is where we disagree.
I favor liberty, you favor coercion.
Actually, it’s based on democracy.
Democracy is just a method of forming a government. It doesn’t say anything about what the government is allowed to do.
If 51% of the people voted to kill somebody, that doesn’t justify the killing. Maybe you should read the constitution more carefully. Here’s a starting point:
https://swissecon.wordpress.com/2011/07/06/why-the-constitution-still-matters/
It doesn’t say anything about what the government is allowed to do.
That would be the role of the Constitution.
Good job, sir. Not only did you win the argument, but you understand the founding principles of the American republic better than the American Mr. Hoffman does!
Thanks, man.
Best wishes from Europe!
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