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Wednesday, February 17, 2010

A Jobs Bill? Please, No

Washington ignores basic economics.

As Barack Obama’s legislative agenda continues to sink into the D.C. snowdrifts, we see that Washington now is debating a “jobs bill.” The idea is that Congress throws a bunch of money (that it does not have) into the mix, hires people, or provides incentives for private employers to hire unemployed workers. Unfortunately, we are speaking of an act of foolishness masquerading as “compassion,” as though it is compassionate to engage in activity that will extend this economic depression even further.

Not that economic logic matters to the political classes and their allies. For example, the New York Times, which apparently operates on the premise that progress comes only with extension of the State, recently pronounced official outrage at the fact that a “bipartisan jobs bill” would shell out only a mere $15 billion:

With 14.8 million Americans unemployed — more than 40 percent of them for more than six months — the smaller package is so puny as to be meaningless. Most of the $15 billion would cover the cost of a payroll tax holiday in 2010 for employers that hire unemployed workers. Since there are more than six unemployed workers for every job opening, a tax break for hiring is worth a try. But the proposed credit is too small to have a noticeable impact. At best, it would create about 250,000 additional jobs from April through the end of the year, according to an analysis by Moody’s

Here is the real problem: The bill, on net, will only destroy wealth. In fact, we safely can say that in the long run it will reduce the number of jobs in the real economy dedicated to producing goods and services that consumers want and only will make things worse. To understand this point, however, we have to understand the role of a job.

Most people gain their income by providing services to others. Thus when one loses a job, one loses a source of income. In my family, for example, I work and my wife stays home with the children and provides homeschooling for them. If I were to lose my job tomorrow, our income would be reduced to near nothing, and obviously we would have a personal crisis on our hands.

Multiply that across an economy and one can see that a lot of individuals are suffering from a loss of income because their employment sources dried up. However, the political and media classes seem to believe that all that is needed to reverse this situation is for government to gin up a new stash of money, send it to others, and – voilá! – jobs will be created, thus righting the imbalances.

Here are the problems. First, the politicians fail to understand why jobs are disappearing. Jobs are going away because the malinvested assets of the boom no longer are in demand. Nor can a new injection of cash change the fact that there is a real imbalance in the economy among factors of production and the demand for finished goods. No “jobs” program can change that, but the injection of new money into the system will further upset the balance.

Second, the only way Congress can obtain the “funds” to pay for these “new jobs” is to take it from productive people via taxation, borrow in the credit markets (further distorting them), or create new money through inflation. All those actions make the country poorer, as no politician can avoid the laws of scarcity and opportunity cost.

Thus the only way for Congress and the President to “create jobs” is to cannibalize profitable firms and stick it to the taxpayers in order to fund employment for which there is, economically speaking, no demand. Furthermore, one can be assured that the new “jobs” will be targeted toward those people and groups that are politically connected.

Am I alleging that this “jobs bill,” whatever its form, is a fraud? You might say that. Here is a bill that will damage the real economic recovery by diverting assets from productive to unproductive uses. That’s not a “jobs” bill. It is a jobs-killing bill.

  • Dr. William Anderson is Professor of Economics at Frostburg State University. He holds a Ph.D in Economics from Auburn University. He is a member of the FEE Faculty Network.