The two routes to job creation
Friday, February 06, 2009 7:00 AM
I recently saw a con man and his accomplice on a Chicago elevated train. They were running the old thimblerig game, in which the con man would place a pea under one of three thimbles, then rearrange them. The unwary could try to identify which thimble covered the pea. The game is a perfect metaphor for politicians who promise to create jobs.
Politicians love to boast that their legislation creates jobs. This boast ranks with saving lives and kissing babies as their favorite activities.
Legislators can easily create jobs. Using the government's police power, they could compel people to dig ditches at below-market wages. Even better, they could order people to dig ditches and then fill them in, or in our white-collar, service economy, to add numbers and then subtract them.
John Maynard Keynes, a famous dead economist whom few people have read but whose often misinterpreted ideas continue to cause mischief, argued that government jobs that produced nothing useful, such as Egyptians building pyramids, were better than inaction in the face of dire circumstances. No wonder people don't listen to economists.
Current federal politicians, including President Barack Obama, resort to more subtle tactics. They claim their policies will create millions of jobs. They will impose taxes or debt upon the citizenry in order to hire people to improve our infrastructure. Now I've nothing against infrastructure, if it is economically beneficial, but the conceit that the politicians are creating net jobs needs to be exposed as the sham it is.
Instead of taking dollars from or imposing debt upon taxpayers, the government could have left the money in taxpayers' pockets. Taxpayers would then spend it on things they really like. The government-created jobs essentially displace potential jobs in the private sector.
Of course, the potential jobs in the private sector are abstract and diffuse, and require imagination to visualize. News reporters flock to government construction sites, where it's easy to tell a visual story about the newly employed workers.
Reporters rarely congregate around Joe's Hot Dog Emporium and Bar, but Joe could discuss how he had to release a bartender and a couple of service people because patrons had less money to spend after taxes.
Similar to thimblerig, the political process is rigged. The construction companies hoping to get government contracts are concentrated and will reap many of the benefits; the many smaller businesses are diffuse and their losses, while collectively large, are individually small. Guess who has the greater incentive and the greater ability to organize?
Governments have frequently resorted to this variation of the shell game. The key question, though, is whether citizens would prefer to have the products created by the government or the products created by private industry. Now, where's that pea?
David Surdam is an assistant professor of economics at the University of Northern Iowa.
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