November 24, 2014

The Government Can’t Create Jobs (And It Shouldn’t Try To)

As the November elections approach, politicians are doing what politicians do best: making promises. President Obama’s anti-business image, justified or not, will not score points with voters this year as unemployment continues to court 10% on the government’s math and 20% in the real world. With these figures virtually unchanged since he took office, the president has been unable to sell the idea that his economic policies have created any jobs. So, he is doing the best he can with the hand that he has dealt himself and trumpeting the millions of jobs his policies have “created or saved.” In addition, he has rolled out yet another boondoggle from the Keynsian toolbox in the form of a $50 billion infrastructure package designed to stimulate the economy and finally create some actual jobs.

Meanwhile, the Republicans are gearing up for what should amount to shooting fish in a barrel in the coming mid-term elections, getting incredible traction on criticizing Obama policies which largely mirror those of George W. Bush, for which he and the Republicans were tossed out of office just two years ago. They correctly point out that Obama’s policies haven’t created a single job. Americans must put them back into office or face economic Armageddon. Polls show that Americans are largely buying what the Republicans are selling, having apparently forgotten the “jobless recovery” of the early part of the last decade, which occurred while the Republicans controlled the White House and both houses of Congress.

The truth is that neither the Republicans’ “supply-side economics” nor the Democrats “demand-side economics” have ever really created any jobs. Certainly, the housing boom successfully put some people to work in the homebuilding industry for a few years. However, when that bubble popped there was nowhere for those people to go. The Democrats’ success seems to have been limited to the 600,000 or so people that took jobs with the census bureau. Unfortunately, the demand for people counting won’t sustain a census-driven recovery. Obama’s latest act of political desperation isn’t getting much traction with anyone – even liberal talking heads are finding it hard to get behind another supposed “infrastructure” program, especially one that pales in comparison (in terms of dollars) to the American Recovery and Reinvestment Act, which was long on investment and short on recovery.

So, if neither supply-side nor demand-side economics work, if neither the Republicans nor the Democrats have a program that will actually create jobs that will outlast the average car loan, where else can we look for an answer?

Perhaps we should reconsider exactly what it is that we are asking the government to do. People of all political persuasions talk about “creating jobs” as if there were no question that the government should be trying to create them, the only question being what program will create the most jobs, the highest paying jobs, or the longest lasting jobs. This is just another in an endless series of false dichotomies that accompany every election year, when voters are served up a “debate” that is framed to include two undesirable alternatives, with no acknowledgment that there may be a third. On job creation, that third alternative is this: the government can’t create jobs, regardless of whether conservatives or liberals are at the controls, and moreoever, it shouldn’t try to create jobs.

Amidst the noise surrounding an election year, it is easy to forget the obvious. Before deciding what to do about unemployment, let’s answer a few fundamental questions. The first one is, “What is a job?”

A job is an agreement between a buyer and a seller that involves an exchange of private property. The buyer is the employer, the seller, the employee. The two parties reach an agreement wherein the buyer will purchase a specific service from the seller at a mutually agreed upon price. This simple fact does not change whether the employee is selling his services as a brain surgeon or a custodian. In each case, the buyer has a need for the seller’s services and the seller is willing to sell those services to the buyer if the buyer is offering the market price or better. The most important aspect of this transaction is that it occurs with the mutual, voluntary consent of both buyer and seller. This is the only way in which a job can be created.

When people are perfectly free to dispose of their labor as they see fit, including their unconsumed labor in the past (their savings or capital), there is a natural coordination in the labor and capital markets that results in people and resources being used most efficiently to meet the demand of consumers. People are not employed to produce products that consumers don’t want or can’t afford because employers are risking their own money and livelihoods and therefore must invest their capital (savings) in projects that will be profitable. Neither do most employers prefer to invest in temporary projects that will end in six months or a few years, because they would then have to take the risk of starting a whole new business. Neither employers nor employees are ever 100% correct, but for the most part they make the right choices because they stand to gain or lose personally based upon those choices. These natural market forces regulate the market, based entirely upon the voluntary choices of employers, employees, and the consumers who buy their products.

However, when the government attempts to create a job, all of these natural forces are removed. The market has produced no demand for the government-created job. In other words, no buyer has voluntarily agreed to purchase those services, because to do so under current market conditions would be unprofitable. Were it profitable to hire someone to do the government-created job, an employer would have done so voluntarily. So, the government steps in and forces the taxpayer to purchase those services against his will. In additional to violating the taxpayer’s rights, the entire coordination that existed between employer, employee, and consumer is disrupted.

A typical response to this argument from the left would probably revolve around how the profit motive and the greed of employers is what kept the person unemployed. However, this argument begs the question: Why were these greedy employers unable to make a profit from employing this person?

The answer is that the services of the employee were not demanded by employers because the products that would be produced as a result were not demanded by consumers. If consumers were willing and able to buy the products that the employer and employee would have produced together related to this job, then there would be no need for the government to create it. By overriding the choices of consumers and forcing them to purchase those services for the employer, the government not only engages in a theft, but causes vast resources to be devoted to producing products that no one will eventually buy. Thus, when the government “investment” in the job is spent, the job no longer exists. It generates no revenue on its own to allow it continue to exist.

To use one of the favorite buzz words of the progressive left, government-created jobs are unsustainable. They are all doomed to fail by their very nature because they attempt to set aside economic laws that cannot be set aside. Commerce cannot exist without voluntary choice. Government job programs attempt to override the choices of capitalists on what to invest in and the choices of consumers on what to consume. This is what produces millions of empty homes, food shortages born of miracle energy programs, and mass amounts of people unemployed. Worst of all, these programs destroy the capital that otherwise would have created real jobs that were demanded by the market. This is not because private investors are more noble creatures than government bureaucrats, but because their own livelihoods depend upon investing that capital wisely and profitably.

While it is easy to see how this argument applies to the government spending programs that are presently more associated with the Democrats, one should not forget that the Republicans’ ideas are no less wealth redistribution and no less destructive to the economy. Most arguments made by the Republicans involve targeted tax cuts that will either stimulate specific areas of the economy or merely leave more money in the hands of private investors in general. While this sounds like the exact opposite of what the Democrats are proposing, it is really just the same strategy dressed up in “free market clothes.”

In the present paradigm, where the supposedly free market is already distorted by a thousand government interventions and taxes are sky-high for everyone, decreasing taxes for a particular class of people is merely a back-door way to try to override the free choices of investors and consumers. If the cuts are targeted at specific industries, such as the oil industry, then more oil will be produced regardless of the true demand for oil by consumers. If the cuts are general in nature, then whatever that capital is invested in will be investment not by private decision but by government central planning.

One might ask, “How can this be?” Aren’t the investors spending their own money? Not really. The Republican plan never involves a reduction in spending to go along with reductions in taxes for the investor class. In fact, every Republican administration in the past forty years has increased government spending while cutting taxes, leading to large deficits that are funded by debt or inflation. This merely transfers the tax burden of that government spending to other taxpayers.  In other words, the jobs “created” through supply-side economics are really funded by taxpayers – by present taxpayers through the loss of their purchasing power due to inflation or future taxpayers through government debt. This explains why the artificial booms accompanying Republican administrations never last either.

The only real answer to the economic malaise is to stop asking the government to create jobs in the first place. Real jobs can only be created by individuals agreeing to exchange their labor and capital by mutual, voluntary consent. The use of force cannot create a job any more than it can create freedom, either here or anywhere else in the world. Furthermore, it represents violation of the very rights that government exists to protect. Instead of voting for candidates that claim that they can create jobs, Americans should demand that government get completely out of the job-creating business in particular and central planning of the economy in general. Only a massive decrease in government spending, leaving capital in the hands of the people who earned it and allowing employers, employees, and consumers to make their own choices can stimulate true job creation. Anything else is just another government program that is destined to fail.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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© Thomas Mullen 2010