The Myth of Government Jobs

I constantly see pundits saying "It will take years for the private sector to create enough jobs to bring down unemployment so the public sector has to step up." Les Leopold from Huffington asks outright for the government to start creating jobs. The problem is that government-created jobs may do more harm than good for several reasons.

Basic math says that you cannot create something from nothing. If the government creates a job then it has to pay for it somehow. The federal government has three options for this. The first one is to take the money from other people. The second is to print more money. The third is to borrow the money.

The first option is how government is supposed to work. Through taxation, the government takes enough money to pay its bills. This is a straight transfer of funds and can easily become burdensome. There are something like fifteen million unemployed right now. In order to pay them a living wage for a family of two adults and two children, the government would need to spend something like $40,000-$60,000 per year on wages plus Social Security and insurance. Some of that extra would come back in taxes to let's just look at raw wages. Giving everyone who is unemployed a job at $40,000 would cost $600 billion per year. That's $2,000.00 in additional taxes for everyone in the country including children, the retired, and the new additions to the government payroll. Fifteen million people suddenly being unemployed would boost the economy but everyone would have to economize to pay for it. The net effect would be a wash (some economists insist that there is a magic multiplier effect when government spends money but this is nearly impossible to prove).

To avoid the pain of taxing everyone $2,000 per year, the government might just print enough extra money to cover the expenses. That carries its own cost. It eventually leads to inflation. If the government prints too much money, it leads to hyperinflation. You still have the same amount of money but it is worth less than before. Anyone who lived through the 1970s knows how destructive this can be.

The ideal solution would be to borrow during the hard times and pay down the debt in the good times. This actually never happens. Even during the Clinton years, the government showed a surplus on the books largely because of creative bookkeeping involving Social Security funds. While it is on a different scale, government borrowing is not that different from using a credit card. There is a minimum payment that is required each month. With a credit card, that payment includes enough to pay down a small portion of the principal. With the national debt, we just pay the interest and let the principal accumulate. We can keep this up indefinitely as long as the national debt is not increasing faster than the economy is growing. If debt grows too quickly for too long it becomes unsustainable and the country's resources are diverted from being spent on its citizens to making interest payments. This is where Greece is now and where we might end up.

It used to be well-known that there is no such thing as a free lunch and that government spending in one area means pain elsewhere. With the resurgence of the Progressives, that knowledge has been lost or discounted. They have convinced themselves that government spending is benign or that taxes can be raised painlessly as long as they are aimed at the rich. In many cases they just want to help people and don't understand the limits of government power.