The Government Creating Jobs Myth

Latest headlines: OBAMA ECONOMIC PLAN AIMS FOR 2.5M NEW JOBS BY 2011

WASHINGTON – President-elect Barack Obama promoted an economic plan Saturday he said would create 2.5 million jobs by rebuilding roads and bridges and modernizing schools while developing alternative energy sources and more efficient cars.

Obama stated "We must do more to put people back to work and get our economy moving again."

Instead of reacting to this news with the usual knee-jerk reaction of applause and support, we need to ask this question. Does government possess the means to create jobs?

THE BIG MYTH: Government Can Create Jobs

The majority of people actually believe government can create jobs. It is apparent they accept this myth without reasoning it through. They never question where the government receives the funds to begin their job creation projects.

Let’s say you want to create a start-up business. Obviously, you need capital. Either you have saved up the funds or you must borrow them. Also it is possible to receive some of the funds from investors—investors who see the possibility of profiting from your venture.

Now assume the government claims it is creating 2.5 million jobs. This is what President-elect Obama wants to accomplish. Now ask "Where is government getting the capital for its job creation scheme?" Obviously, it isn’t using accumulated savings. Gee, in your wildest dreams, can you imagine government saving money instead of running deficits? The truth is government has no wealth of its own. So, where does it find the money to fund any project?

Governmental Methods of Raising Capital

Governments have basically only three methods to acquire the capital needed to create jobs.

1. They raise it through taxation.
2. They create money out of thin air.
3. They sell bonds on the open market.

It should be evident that the government method of raising capital siphons it from the marketplace. If it raises capital through taxation, it diminishes the taxpayers’ ability to consume goods and services—and decreases their ability to save money. And you know what? Economic improvement is only possible through more savings and investment per capita—the only method of job and wealth creation.

If government inflates the money supply to create jobs it causes artificial booms on the marketplace. All artificial booms divert production from the consumers’ most urgent desires into projects that are lower on the consumers’ scale of values. In other words, inflation fosters mal-investments—projects that can’t be sustained. The boom suddenly transforms into a bust, causing widespread unemployment.

Inflation also devalues the purchasing power of the currency. This means a person’s savings is worth less. Less savings and investment per capita means diminished prosperity resulting in the job creation process slowing down.

When the government sells bonds on the open market it is removing money from the marketplace. The result: It diverts savings from profitable free enterprise ventures into government coffers—a tragedy that is occurring as investors seek “safety” in government T-Bills (Treasury Bills).

A Secondary Consequence

Let’s go to the extreme and assume that government can invest each dollar as efficiently as entrepreneurs and capitalists. I know—this is far-fetched. Would it then be even-steven? Is it possible that it doesn’t matter if the government or the free enterprise system is creating jobs?

Bureaucratic endeavors are expensive and wasteful because bureaucracies do not operate by profit and loss. They operate by bureaucratic rules and regulations. Business operates by the profit motive. If they satisfy the consumers’ most urgent desires they earn profits and remain in business. If they defy the consumers’ most urgent desires they suffer losses and are soon removed from their position of wasting scarce resources.

Have you ever seen a government bureaucracy go out of business because they were losing money? In fact the opposite occurs. They always claim the problem can be cured with more money. Instead of being removed from their position of defying consumers they are rewarded with an increase in funding—thereby thwarting the desires of the consumers and wasting more scarce resources.

Once you figure in the cost of bureaucratic waste there is actually a net decrease in the amount of jobs created. In other words, government meddling in the job market eliminates more jobs than it creates. And the jobs it does “create” are ones that aren’t desired by consumers.

The Solution

Well, one quick solution works — get government out of the job market. In his masterpiece on economics “Human Action” Ludwig von Mises states “A government can no more determine prices than a goose can lay hen’s eggs.” I’m sure that he would apply this statement to the prospect of government creating jobs. I’m using Mises words in this context. “The government can no more create jobs than a goose can lay hen’s eggs.” However, it definitely possesses the means to eliminate jobs—to permanently hamper the market’s ability to create employment for all.

All government intervention on the marketplace eliminates jobs. Government created inflation, excess taxes, minimum wage laws, tariffs and so-called socially “beneficial” legislation imposed on employers cause unemployment and are not in the interest of the worker.

Laissez faire (unhampered) capitalism is the only social system that can guarantee jobs for all who desire employment.

WASHINGTON – President-elect Barack Obama promoted an economic plan Saturday he said would create 2.5 million jobs by rebuilding roads and bridges and modernizing schools while developing alternative energy sources and more efficient cars.

Three questions:

1. Do the consumers actually demand the above services as displayed by their consumption and savings patterns?

2. Are the funds available to support these projects?

3. And if the two previous conditions exist, who is better equipped to embark on these projects. Profit seeking entrepreneurs and capitalists—or government bureaucracies?