How Government Spending Kills Jobs


The Wall Street Journal ran an editorial today from Alan Blinder, a professor of economics and public affairs at Princeton University, who also once served as vice chairman of the Federal Reserve.  Blinder’s piece is provocatively titled “The GOP Myth of ‘Job-Killing’ Spending,” and his goal is to debunk the idea that government spending leads to job destruction.  He finds the idea patently absurd.

“The claim is that employment actually declines when federal spending rises,” explains Blinder.  “Using the same illogic, employment should soar if we made massive cuts in public spending – as some are advocating right now.”

I hate to rip off Blinder’s blinders right at the outset, but when Republicans “rail against job-killing government spending,” they’re talking about the destruction of private-sector jobs.  His whole piece, which is remarkably silly for someone who teaches economics, is premised on ignoring that distinction.

Even so, the rest of his argument is pitifully weak.  “Even building bridges to nowhere would create jobs, not destroy them, as the congressman from nowhere knows,” he sneers, presumably referring to House Speaker John Boehner, the only congressman he previously named.  Does Blinder really not understand that the value lost in transferring huge amounts of money to the public sector, for the construction of unnecessary boondoggles, results in lost job opportunities?  What would the people involved in building the “bridge to nowhere” be doing, if they were not being paid in tax dollars to waste their time?  Where would the people who coughed up those tax dollars have preferred to invest them?

Blinder addresses the idea that “taxes necessary to pay for government spending destroy more jobs than the spending creates,” but says this would “require extremely inept choices of how to spend the money and how to raise the revenue.”  Isn’t he the one who was just talking about “bridges to nowhere?”  Does he not understand the economic impact of the actions taken by potential job creators to avoid high taxes and regulations?

Not to worry, though, because the spending we’re all concerned about these days is deficit spending, which means nobody had to pay for it, or something.  “The large fiscal stimulus enacted in 2009 was not ‘paid for,’” Blinder assures us, and yet it created “at least 1.3 million net new jobs, and perhaps as many as 3.3 million.” 

Don’t expect a Princeton professor to look up the actual figures when he’s on a roll.  For that matter, don’t expect the government to produce any reliable figures for him to consult.  The performance of the stimulus is always measured with the nonsense “created or saved” metric.  Nobody really knows how many jobs the stimulus “created.”  But by all means, let’s give them fresh piles of money and let them create jobs all over the place!

Just for the sake of argument, let’s give Blinder the high end of his guesswork, and say the stimulus created 3.3 million jobs.  The stimulus money is all spent now.  What happens to those jobs?  Blinder is very cavalier about rampant deficit spending.  Why don’t we just blow, say, $10 trillion more, right now, and create jobs for everyone?

The sad thing about Keynesians is that they remain in a perpetual state of bafflement over the existence of time and motion.  Blinder is the kind of academic who puckers his lips over the latest “unexpected” job numbers, and wonders why unemployment is so bad.  Let me take a stab at explaining it to him:

Government spending ultimately “kills jobs” because jobs are not a static commodity to be purchased and put on a shelf.  They are commitments, created in response to demand. 

Rampant government spending conceals demand.  Government subsidies and bridge-to-nowhere projects create false “demand” where none truly exists.  The blizzard of imaginary deficit dollars blowing through our economy disrupts the normal feedback mechanisms used by the private sector to detect and exploit opportunity.  It’s hard to listen for the elusive sounds of profitable demand when a government-funded symphony orchestra fills the air with deafening nonsense.

Diverting free-market resources to the government destroys much of the value from free exchange, which produces robust employment.  At the same time, we do not give the State the kind of authoritarian power it would need to actually “put everyone to work,” by compelling them to perform jobs assigned by the government, and compensating them as the government sees fit.  The environment resulting from such an exercise of power cannot be described as “prosperity.”  Americans are not hungry for full employment in labor camps.

Few serious analysts would dispute that the private sector hires, on balance, more people with the same amount of money than the government.  Does not transferring control of that money to the government therefore result in a loss of jobs?  Or are we supposed to pretend that the crazy deficit spending can go on forever?

Blinder thinks the answer to our unemployment woes, which included double-digit real unemployment despite that job-creating stimulus bomb he praises, would be “a modest fiscal stimulus program specifically designed for maximum job creation.”  His personal favorite is “a tax credit for firms that add to their payrolls.”  It’s always fun to listen to the ramblings of a Keynesian who thinks a subsidy for wedding rings will lead to more marriages. 

Few employers will be strongly motivated to make the long-term commitment of hiring and training new staff, and paying their increasingly costly benefits, because of a little one-time tax credit.  Tax credits for new hires do little to stimulate businesses that see no compelling reason to expand.  They offer no incentive for entrepreneurs paralyzed by real and threatened government regulations to form new businesses.

Blinder makes a great show of mocking the “illogic” of believing “employment should soar if we made massive cuts in public spending.”  What say we give it a try, and see how things work out?  I’ll bet all the fashionable academics will be surprised by the “unexpected” results.