President Obamas highly touted $300 billion jobs bill is a non-starter. It is unlikely to get through the Republican House of Representatives and even if it did, it would not create viable private sector jobs. After three years of sluggish economic growth and meager private sector jobs growth, politicians in Washington D.C. still insist on playing smoke and mirrors with the American people.
Can government spending create jobs? Governments can certainly create jobs in the public sector; they do it all the time and Obamas bill will do more of it. Governments can hire school teachers, social workers, and millions of other bureaucrats to administer its thousands of programs and regulations. Importantly, however, the funds for these jobs must be provided by either taxation or by borrowing from the private sector. Thus as almost all economists recognize, public sector employment comes (in some real sense) at the expense of opportunities for private sector employment.
To see why this is so, assume that $1 million dollars is raised by taxation to, say, fund new staffing at the Environmental Protection Agency. No debate; public sector jobs get created. But note that the very same $1 million cannot be spent by taxpayers on new washing machines or trips to Las Vegas or newspaper subscriptions. Thus for every job created by government spending there must be a tradeoff of jobs NOT created (or maintained) in the private sector of the economy. In economics, there is no free lunch.
Private sector jobs, on the other hand, are created in an entirely different manner; if they are sustainable, they are self-financing. Private employees are hired with the expectation that their wages will be paid by the additional revenue or value that they generate for the employer. Individuals that work for washing machine retailers or for a travel agency or for a newspaper must generate a stream of benefits for the company that compensates for the wages they are paid (or they will be fired). In short, private firms can hire workersthat is create jobsif and only if it is profitable for them to do so.
It is now easy to understand why the Bush and Obama stimulus programs of the past did not create jobs and why the current bill, if enacted, will also fail. First, government programs that loan taxpayer money to private firms with poor profit expectations (like Solyndra) are recipes for disaster. The $528 million that was wasted on Solyndra could have been spent by consumers supporting local retailers and their employees. Instead it was pure crony capitalism with money and jobs down the drain.
Second, almost all of the funding for so-called public works programs in the Obama jobs bill is temporary. Even if the taxpayer money is paid to private firms to, say, pave roads or repair bridges, the money is short term and provides no long-run sustainable jobs. When government funding runs out so do the jobs.
Finally, as we have already explained, federal government spending for health-care professionals or for infrastructure improvements must come from either taxation or borrowing (or reductions in other government programs ) and that means that new public sector employment must come at the expense of older public service jobs and/or private sector jobs not created. Thus the notion that government spending can engineer a net increase in employment is dangerous political nonsense.
Private firms create sustainable jobs when management and employees generate profitable benefits for their consumers. Absent the expectation of profit, no firm will hire anyone to do anything; would you? Running a profitable business is already difficult enough (due to competition and changing consumer tastes) but it becomes even more difficult when taxes, regulations, and health care costs create strong disincentives to start a business or hire additional employees.
America doesnt need another political jobs bill but it does need a dramatic change in public policy. We need sound money and a balanced (and far lower) budget; we need a moratorium on any new taxes and business regulation; and we need the Supreme Court to step up and declare Obamacare unconstitutional.
Americans have always survived and prospered despite corrupt political management. We will again if we can get our public affairs in order.