The Government Can’t Actually Create Jobs

I love all the analyst talk lately about how the government has to do something to create jobs.  My boy John Stewart (of “The Daily Show” fame) said it best the other night when he said that members of various levels of government from both parties now use “more jobs” the way they used to use “terrorism.”  In other words, whenever someone is making a point you don’t agree with, or succeeding in winning a debate against your side, you simply can’t loose by saying, “Why are we talking about _____, we should be talking about jobs/terrorism, that’s what really concerns Americans.”

The Private Sector Is The Key – No Matter Where You Fall On The Political Spectrum

I watched President Obama’s speech last week and I was glad he mentioned that it will be the private sector that leads the USA out of the recession (and by extension, Canada’s private sector).  I also agree with him that government can sometimes provide some useful regulations.  Where I disagree with apparently almost everybody is the whole idea that government can “create jobs.”  I put the phrase in quotation marks because the definition of creating jobs might be different for various people.  If you look at a short term projection, the government can sign more pay checks to people who would be paid to do infrastructure work, or hire more teachers/police/firemen etc.  To many people this counts as creating jobs, but this is a faulty definition in the true sense of the word “creation.”  You see the government cannot truly create jobs.  They can shift jobs around in the form of tax dollars, but they aren’t going to really innovate or create new industries.

Create Jobs When Is New Wealth Through Job Creation Actually Achieved?

Create Jobs

Think about this new infrastructure spending (which the President was very careful not to call stimulus, because we all know that would have radically changed the package), where does that money come from?  In a best case scenario it comes primarily from large businesses and the personally wealthy people that own them.  Every few thousand dollars taken from Apple is a job that could have been created.  For every Warren Buffett who doesn’t mind paying a little extra to the taxman there are wealthy people who will decide to move somewhere that has a lesser tax burden.  This all has negative long-term effects on REAL job creation that can only occur in the private sector.  The far worse case scenario is that we borrow to fund this spending.  This forces the government to pay more of the budget each year to interest payments, instead of investing the money in industry-supporting ways such as better job training, or lowered tuition fees.

A job is only truly created when NEW wealth is fashioned in some way.  By definition this means that some sort of new innovation or industry must spring up and pave the way for these government spin-off jobs to come about.  Having parties yell at each other to make new jobs is ridiculous.  Yes, there are some various ways that government can create jobs.  Keeping interest rates low, figuring out which tax cuts which ultimately generate the best incentives for the country, and providing training and relocation grants all help support the private industry.  But ultimately, in the Capitalism model that the Western World has subscribed to it has to be the private sector that creates new wealth.  I think it is worth repeating that the government cannot directly create jobs, it can only shift tax dollars around into the pockets of other people.  I think it is a pretty important distinction to make.

Ask Not What Your Government Can Do For Your Mortgage…

I believe that the end result of this conclusion is unsatisfactory to most people.  We want to believe that the government has some financial magic potion that can be used to avoid recessions, keep gas prices low, and reduce the unemployment rate.  The truth is that there are strict limits on what the governments can do to drag us out of this mess, especially if we keep badgering them to give each of us our own special handout.  As long as we keep growing this culture of entitlement from cradle-to-the-grave, tax rates or debt rates have to keep going up.  The more this happens, the more restrictions you put on private industry that should be innovating its way out of this mess.

“It’s About How Hard You Can Get Hit and Keep Coming Forward” – Rocky

I keep coming back to the fact that the USA survived two World Wars and a Great Depression.  Every time the country was down, entrepreneurs and political leaders with a will to compromise on tough issues fought their way to the forefront in order to propel the entire Western World forward.  Even with things looking a little bleak, I still can’t bring myself to bet against a country that has fought its way back from the brink on several occasions that seem to be more challenging than this one.

BTW, I am semi-aware of how ironic it is for a teacher to be arguing that his job isn’t a true wealth-producer in an immediate sense.  My union may just take their card back now (hopefully they’ll at least give me my dues back too!).

About Teacher Man

TM is a self-professed nerd about all things related to personal finance. He can be found writing for My University Money, Young and Thrifty, and Canadian Personal Finance Blog. TM blogs in order to continue his quest for lifelong learning and hopefully to help others along the way.

13 Responses to The Government Can’t Actually Create Jobs

  1. krantcents says:

    I have very low expectations of our government and yet I am disappointed repeatedly. The government is supposed to be the employer of last resort in a bad economy. They are supposed to spend when everyone else either cannot or is unwilling. I wish they would stop fighting over political viewpoints and solve the problem. Instead they are fiddling while the country is burining!

    • Teacher Man says:

      Yah, I’m not sure when we slipped from “employer of last resort,” to “give me, give me, give me,” the best way to get a comfortable life is live off the government. You don’t need to be an economics major to see that is not going to work out long-term from an incentives perspective!

    • I agree with you Krantcents. I think the government has a very unreal idea of what ‘real life’ is really like for most people.

  2. I agree that government can’t create job in the long term, but I don’t know if corporate tax cut is the way to go either. The corporations have tons of cash in the bank right now and they are not hiring. Giving them more tax cut will just put more money in the bank. Until the consumer gets more confident and start spending again, the corporations will sit on their war chest. The government can help in the short term by spending on infrastructure, but in the long term this is not a solution as you pointed out. I don’t know the answer, but it seems like we’ll be in this tough situation for a while….

    • Teacher Man says:

      Yup I agree, I’m not sure if that is the answer. I think maybe targeted tax incentives of some kind? I’m sure they’re smarter people than me (god I really really hope so). Maybe give targeted tax breaks, and definitely don’t freeze up the funds for venture capital like we are now. Small and medium-sized companies are the lifeblood of much of the USA no matter how many people say, “Apple Apple Apple.” We can’t cut their innovation off at the knees by freezing their loans. I think we also need to start being real students, and subsidizing specific livelihoods that there is a need for. We need more engineers, so offer to pay down people’s student debt if they achieve top marks in engineering courses. Stuff like that. There must be a way of using the money to provide specific incentives and definitely to improve on infrastructure (making it sustainable where we can afford it is probably another great long-term solution) like you were saying.

  3. The problem I have with government is that people are asking for immediate help when it comes to the unemployment issue. (I think the expectation is ridiculously unrealistic.) So, what’s a large segment of Congress say the solution is – reduce the nation’s debt. How do we reduce the nation’s debt? By cutting taxes for corporations who are flush with cash yet have steadily increased the hiring of overseas workers, and thus the firing of American workers. That doesn’t make ANY sense. Yes, we should reduce the nation’s debt, but that is a long-term solution that’ll get resolved over decades. And, no you do not increase overall tax revenues by taking in less tax revenues during a period of what will probably be slow, long-term economic growth.

    I do NOT believe government can create jobs. They’re not the answer to all of our problems. Both political parties consist of arrogant, selfish people who are more concerned about getting reelected than serving the Americans who got them into office. At the very least these idiots should be able simplify the tax code so that we don’t have an upper income wage earner paying more in taxes than a multi-billion dollar corporation.

    And another thing. I’m particularly disgusted with how reasonable environmental regulations are labeled as job killers. It’s important to put Americans back to work, but I’m not interested in rolling back progress to the point America looks like a third world country. I’ll take clean, breathable air and non-polluted waters any day over a thousand or even a million jobs. I don’t agree with everything President Obama said during his jobs speech (unemployment benefits have been paid out long enough), but America should not be in a “race to the bottom.”

    • Teacher Man says:

      Thanks for the insightful comment Shawanda! I completely agree with you. At the end of the day I truly believe that Americans, Canadians, and the rest of the Western World will have to get used to a slightly reduced lifestyle. In order to compete with some of the lower costs abroad, we simply have to be competitive in those sectors. Yes, innovation and commodities can still power our nations, but in general, there is going to be some wealth shift in the world, and this is not really a bad thing! Do we really need 2400 sq. homes when most of India lives in shacks?

  4. Little House says:

    Big government is definitely not going to solve our problems. Individuals have to make a difference; stop spending more than you earn, stop buying houses you can’t afford, start taking responsibility for your own darn debt! I think this recession has been a wake up call for some, but not all. I anticipating a long recovery.

  5. I totally agree that government can’t create jobs, not do I want them to because it would result in an inefficient bureaucratic mess. As much as I’d like to think tax cuts would help, I agree with RBF that large corps are hanging on to cash. At the same time small businesses are strapped for cash.

    I honestly believe the government just needs to get out of the way of small businesses and let them be entrepreneurial. Instead the gov’t keeps on with their almighty self-proclaimed charter as the creators and shepherds of all things for the American people. And by them doing what they think is so great, they mess things up even worse.

    Oh, and I’d like a simple tax code too, but that would result in a lot of accountants and IRS employees losing their jobs so I’m sure no politician will go all the way with true reform there.

    • Teacher Man says:

      Haha you don’t have to tell me about the IRS and bureaucratic nightmares. As an American citizen who has never lived in the USA, I have recently found out that my unfilled responsibilities may soon have the IRS targeting me!

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