November 1, 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

Comments

  1. MattXL says:

    >I do not subscribe to the faith based initiative of "The Market is All in All". Governments have employed people since the dawn of civilization. From building pyramids to cathedrals to dams to highways to putting a man on the moon, govt's have employed millions in huge, often worthwhile projects. Also government distorts by preventing and suppressing, as well.
    Further, there has been a long term, concerted, multi-layer, bipartisan effort at work to destroy the middle class and denude America of manufacturing. It will take overt govt action to stem the bleeding let alone reverse course. This will only happen when enough people from William Buckley's phone book are put in charge and govt of the people by the people for the people is revived once again.

  2. liberranter says:

    >Well said, Tom (as always)!

    While your message here is pure, unadulterated common sense, I'm afraid that it's time to remind ourselves of the old adage that "common sense isn't common at all." To expect the message that you repeat here to have any impact requires that two things be true, neither of which there is any evidence for:

    1. That the governing classes under whose thumbs we suffer have any interest whatsoever in our economic well-being as a nation, or have any intention of allowing a genuinely free, unregulated market outside of their control to take root.

    Or

    2. That the majority of Americans truly believe in, or even want, a genuinely free market unencumbered by government regulation or subsidy. Such a market would require them to plan carefully, save, make economic use of scarce resources, and in general behave like self-sufficient adults who take responsibility for their own lives and actions.

    Even a casual glance around us tells us that neither of the two conditions I mention above exist. You do, however, hit the nail on the head with your reference to immutable laws of economics, something over which both the reigning classes and the sheeple majority are in deep denial and seek to repudiate at all costs. That such denial and repudiation are doomed to failure is a foregone conclusion. It's just a matter of how much socioeconomic destruction we as a society suffer before people wake up and see the light.

  3. Claire M says:

    >To liberranter, why are you so pessimistic? This is a crucial moment in our history, and in order to turn our country back around we will need, imho, an unprecedented amount of energy and optimism. While it would certainly be a mistake to take a victory for freedom in November for granted, and while we must guard against complacency in order to to keep up our efforts in the years to come, it is NOT productive or appealing to be cynical and negative.

    Tom is trying to educate people. Maybe those who read his posts are "the choir", but then we go out armed with more confidence and persuasive arguments than before to spread the word to our friends and neighbors, who may be leaning to the left for purely irrational reasons, reasons they don't understand and have never really questioned. We should think of multiplying efforts like Tom's, instead of quashing them with hopelessness and cynicism.

    You imply that there is a growing majority of Americans who consider government enforced wealth redistribution to be in their best interest. I would argue that a majority within that majority only feel that way because they do not see what the ultimate effects of redistributive policies will be. As Tom pointed out, the #1 most important issue today is unemployment. Why would this be the most important issue if the majority of Americans want to let others do the work and pay for them to be idle? Americans WANT to work, and if we can get them to understand that the free market is the only way for true jobs to be created, we will indeed win many of them over to the cause of liberty.

    Ours is a many pronged attack. Yes, philosophy is important, principles are important, and this is a great way to appeal to some people, but for others who couldn't care less about ethics (those who wish for forced wealth redistribution) it may be worthwhile to point out that the policies they currently support are not ultimately in their best interest, even narrowly defined, that these policies will make them worse off, even in the short run, and that they are better off relying on themselves in a thriving free market economy than begging for scraps from a bankrupt government that will soon have no scraps left to hand out.

    I think we have gotten to the point where enough people are ready to see the light, that we have a chance to reform government. But this will not happen on its own. People like you, me and Tom, and countless others, have to get out there and speak the truth, to shake people out of their comfort zones, to break through any remaining denial by correcting misconceptions and explaining economic facts. We can do it (I was doing it just yesterday at a birthday party). Be optimistic, be strong, work hard. That is the American way, and it generally yields good results :-)

  4. Claire M says:

    >To liberranter, why are you so pessimistic? This is a crucial moment in our history, and in order to turn our country back around we will need, imho, an unprecedented amount of energy and optimism. While it would certainly be a mistake to take a victory for freedom in November for granted, and while we must guard against complacency in order to to keep up our efforts in the years to come, it is NOT productive or appealing to be cynical and negative.

    Tom is trying to educate people. Maybe those who read his posts are "the choir", but then we go out armed with more confidence and persuasive arguments than before to spread the word to our friends and neighbors, who may be leaning to the left for purely irrational reasons, reasons they don't understand and have never really questioned. We should think of multiplying efforts like Tom's, instead of quashing them with hopelessness and cynicism.

    You imply that there is a growing majority of Americans who consider government enforced wealth redistribution to be in their best interest. I would argue that a majority within that majority only feel that way because they do not see what the ultimate effects of redistributive policies will be. As Tom pointed out, the #1 most important issue today is unemployment. Why would this be the most important issue if the majority of Americans want to let others do the work and pay for them to be idle? Americans WANT to work, and if we can get them to understand that the free market is the only way for true jobs to be created, we will indeed win many of them over to the cause of liberty.

    Ours is a many pronged attack. Yes, philosophy is important, principles are important, and this is a great way to appeal to some people, but for others who couldn't care less about ethics (those who wish for forced wealth redistribution) it may be worthwhile to point out that the policies they currently support are not ultimately in their best interest, even narrowly defined, that these policies will make them worse off, even in the short run, and that they are better off relying on themselves in a thriving free market economy than begging for scraps from a bankrupt government that will soon have no scraps left to hand out.

    I think we have gotten to the point where enough people are ready to see the light, that we have a chance to reform government. But this will not happen on its own. People like you, me and Tom, and countless others, have to get out there and speak the truth, to shake people out of their comfort zones, to break through any remaining denial by correcting misconceptions and explaining economic facts. We can do it (I was doing it just yesterday at a birthday party). Be optimistic, be strong, work hard. That is the American way, and it generally yields good results :-)

  5. Tom Mullen says:

    >@Claire – I agree that spreading the message is the only way, although I think there is a little more nuance to liberranter's comments. I agree that most people want to work, but I believe that most people assume that if they want to work, that they are entitled to a job, and that if one is not available, that the government should do something to make it available. That is where they don't really want a free market.

    However, I believe that they hold these beliefs because they are taught them from an early age and have never heard another argument. Ultimately, I agree with you that you, me, and liberranter have two choices: do nothing or try to persuade the majority, little by little, to change their thinking. The majority can't take away our rights, but they do decide whether or not our rights will be respected and defended.

    I would also add that there will never be a "do or die election," wherein we win or lose our freedom. We have lost our freedom over many decades, and it will likely take twice as many to get it back, and inch at a time. I also don't agree that the problem is that people are "leaning left," because "leaning right" is not going to help either. Neither conservatives nor liberals offer a system based upon a philosophy of freedom. The conservative philosophy has never been about free markets, even when it was launched in America by Alexander Hamilton.

  6. liberranter says:

    >Claire:

    I'm sorry if you misunderstood the intent of my post. I do not mean to imply that spreading the gospel of liberty is a wholly lost or futile cause. I merely believe that most of our society is STILL not receptive to the notions of private property, free markets, and individual liberty, despite the dreadful and destructive fruits of nearly a century and a half of central government tyranny that are in plain sight for all to see. Our "national institutions" have done their jobs all too well, and on too many generations of this nation's citizens to expect an immediate rollback to the status quo ante (i.e., the nation bequeathed us by the Founders). It will take years, even decades of "real-world education" to undo this damage, to have any hope of recreating a society composed of critically thinking, self-reliant, liberty-loving individuals.

    There is both despair and hope in the knowledge that we are on the verge of unprecedented socioeconomic turmoil; despair in that people we know and love (even we ourselves) will suffer hideously, but hope in the idea that perhaps, just maybe, our society will FINALLY wake up to the truisms Tom describes in this article and learn and behave accordingly. Pessimistic? Perhaps, but to cling to blind optimism and hope for the future while ignoring real-world obstacles is both counter-productive and dangerous.

    Tom:

    Your point on jobs is well taken. More crippling, I think, than the expectation that government "create jobs" is the formidable (and deliberate) obstacles thrown up into the paths of would-be entrepreneurs by the State, obstacles designed to protect the handful of state-corporate monopolies that are patrons of the ruling cabal from competition and to prevent the emergence of a truly creative capitalist class that will successfully challenge, and ultimately shake off the status quo. All of the State's hollow propaganda to the contrary, the powers-that-be HATE entrepreneurs. Why? Because people of entrepreneurial bent don't "go with the flow," are self-reliant, question authority and conventional wisdom, and are, in short, a bone in the throat to the established order. The only reason the State tolerates the entrepreneurial class at all is because it can parasitically exploit them by confiscating huge amounts of their wealth and shackling them with onerous regulations (in other words, the State lets them be just productive and profitable enough to feed the beast, but NEVER grow strong enough to upset the established order). In order for their to be any remote hope of recovery, this situation MUST change. Freedom of expression and association and sanctity of private property without economic liberty are both meaningless!

  7. Anonymous says:

    >The government can't _______ (and it shouldn't try to).

    Come on over to anarcho-capitalism, Tom, the water's fine!

  8. Anonymous says:

    >Tom been reading your blog via Campaign for Liberty for quite some time, I appreciate your no nonsense views, as you say it's common sense.

    This depression (it is here) is going to be a really tough one. Primarily due to the high degree of specialization induced by excessive government created demand and supply in the eCONomy. As an engineer who was involved in the housing boom, now bust(ing) my only hope was for capital improvement spending from local governments in infrastructure. But, that spending would be based on taxes and accumulated capital from previous taxes which of course has been spent already by high government employee salaries, benefits and sundry spending programs.

    For a true free market to develop a huge restructuring of our entire eCONomy is necessary, which of course can only come at the expense of a painful and severe depression. I hope others are preparing for the worst.

  9. rashid1891 says:

    >the major news in the mortgage mess related to a bankruptcy case in new jersey, where testimony revealed that countywide (now a unit of BofA) had not been conveying the notes to MBS trusts for at least 5 years; according to mortgage law experts testifying before congress,

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