Posts Tagged ‘stimulus’


Re: Can the Federal Government Really Create Jobs?

   Posted by: Robert    in News

Over on Time Magazine, Barbara Kiviat asks the question, “Can the Federal Government Really Create Jobs?”  The answer she comes to is a bit surprising, in that it’s as close as I can imagine anyone from a major news outlet other than Fox News will come to saying that Obama is on a fool’s errand with his latest push to create new jobs.  In an article which is compellingly lucid, Ms. Kiviat concludes that “there are few obvious steps for a government looking to create jobs.”  Along the way, she things which are interesting, and which are certainly worth a closer look.

If we want firms to go out and hire, why not give them an economic incentive to do so? This could be done by flat-out paying companies to hire, or by reducing their share of payroll taxes (the money that gets withheld from workers’ paychecks to pay for Social Security and Medicare). Either way, adding a new worker becomes cheaper.

A position such as this one fits extremely well with what we know of the remarkable benefits of reducing taxes on businesses.  As we have seen repeatedly throughout history, lower taxes lead to a healthier and more productive economy.  There is, however, a noteworthy difference between lowering taxes and “paying companies to hire.”

Lowering taxes provides a sustainable benefit to businesses which they can rely on and pass along to employees in the form of greater hiring, higher wages, or to consumers in the form of lower prices.  “Paying companies to hire,” however, provides no such sustainable benefit.  Giving an incentive to hiring may cause a sudden rise in hiring, but it also keeps the tax burden high (indeed, probably higher, to pay for the payments) and encourages companies to hire people for terms which are effectively temporary, only permanent enough to qualify the company for the benefit.  Companies may profit, at the expense of greater noise in the job market and few new long term jobs.

Of course, what is certain is that the Texas approach of raising unemployment taxes is nowhere close to the right answer.  For companies which are already having trouble making payroll, adding additional costs will only further push businesses past the red line and generate further layoffs.  For companies that are uncertain whether or not to hire employees, the greater tax places a definite thumb on the “no” side of the scale as the penalty for overestimating their labor needs increases.

The conundrum: demand in the U.S. is overwhelmingly consumer-driven and people need to have jobs to feel like it’s once again safe to spend money. It’s a classic chicken-or-egg problem. Direct hiring by the government could, theoretically, sidestep the impasse. The question then becomes whether such a program creates more economic benefit than it does economic inefficiency by having the government dictate job creation. Consider that one criticism of the WPA was that it prevented people from moving to jobs where they would have been more economically productive — and actually slowed down the post-Depression recovery.

Much has been made throughout the recession of this so-called “chicken-or-egg” problem being a disaster of contrary incentives resulting in a death spiral to total economic collapse.  At every step along the way, that “conundrum” has been a justification for invasive government action: The only economic rules the federal government needs to follow are the ones that it doesn’t feel like ignoring.  By spending when nobody in their right mind would spend, by hiring when nobody in their right mind would hire, the government is in a unique position to prime the economy.  Or so the argument goes.

But like all good paradoxes, there are two sides to this story.  While the stock market downturn may have been a disaster for people who recently retired or who intended to retire in the near future, it was a boon to a younger generation of investors who are just beginning their economic journey.  In the age old adage of “buy low, sell high,” what better time could there be to buy than at the bottom of a recession?  What better time could there be for hiring than when labor rates are low?

In a free market, one person’s problem is another person’s opportunity.  As prices fall and investment becomes more attractive, new investors enter and prices eventually level off.  As the private sector creates value, that value fuels future growth in the economy.  From future growth comes future jobs, and long term recovery.

The government, by contrast, cannot participate in that process.  They produce no goods and they provide few services. Every dollar the government spends paying its employees came from taxing the private sector; taxing companies which could have given that person a productive, value creating job.  The idea of government hiring to create jobs is a broken window fallacy: Instead of having an employee who makes suits, you merely have an employee.  Nobody is better off.

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Jobs Saved?

   Posted by: Robert    in Uncategorized

Life is good for the federal government when they can make up whatever numbers they want to track the success of their stimulus money.  In an article which is making its way arond the news, it appears that the stimulus has created or saved around 650,000 jobs.  Though that sounds impressive, I am forced to wonder exactly what we have gotten for our money.

The new data released late Friday represents 156,614 federal contracts, grants and loans awarded to more than 62,000 state and local governments, companies, school districts, universities, non-profits worth a total of $215 billion.

So, that means 650,000 jobs were created on the basis of $215 billion in government spending.  Using simple division, that means each job cost the US government — and us, the taxpayers who are footing the bill –$330,769.23 per job.

Now, while $330k may sound like a pretty small sum of money to Wall Street tycoons, members of Congress, and the lovely Mr. Madoff, that is a rather large sum of money for the average American.  Recalling that the stimulus money was (supposedly) aimed at construction oriented infrastructure projects make the money per job seem even more excessive.  Even at union wages, I’ve never heard of a construction worker who makes that kind of money.

So where on earth is it all going?

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