Issue Position: Jobs

Issue Position

Job creation is not a topic for which there is good quantitative evidence in favor of a specific program. However, there is qualitative evidence that makes some general approaches reasonable and others unreasonable. It is the issue of the day, and sometimes we must make decisions when we do not have all the evidence we would like.

Sometimes people don't have evidence for a position they support. It's just a good idea. So, they frequently make up data. When we must make decisions in the absence of good data, we are better off admitting the limits to our data than making something up.

Step 1 - EVIDENCE

Three pieces of evidence are relevant to the discussion that follows.

At the time this was written, unemployment was above 8%. The policy conclusions will still apply to a future which will, hopefully, have lower unemployment.
For as long as there has been an income tax, every decrease in the tax rate has been followed by an increase in unemployment.

Since 1970, the number of civilian federal employees has increased 38% while the population has grown by 51%. All of the growth has been in Homeland Security, Justice, and Veterans' Affairs. These agencies have expanded because of 9-11, the need to secure our borders, and the wars in the Middle East. For all other branches of government growth has been only 0.9% in 52 years. (Source: U.S. Office of Personnel Management.)

Step 2 - EVALUATE the EVIDENCE

8% unemployment is unusually high for the United States, and we probably do not have to conduct a poll to discover that Americans think it should be reduced. Unemployment rates this high are not the fault of the unemployed, and we find it morally unacceptable that people who want work should suffer from poverty.

Step 3 - LIST the OPTIONS

Job growth depends in large part on growth in demand for products and services. It does not ordinarily depend on the availability of capital. (See Don't Tax the Job Creators.) The Federal Reserve sees to it that sufficient capital is available through the banking system to support economic growth.

As of this writing, major U.S. corporations have roughly $3 trillion in capital they could use to create jobs but have not done so. They haven't done so because the demand for products has not justified the investment.

Growth in one sector of the economy tends to produce jobs in other sectors for the simple reason that employing people in one sector increases the demand for products in other sectors. Conversely, loss of jobs in one sector of the economy tends to produce loss of jobs in other sectors of the economy.

How can government create jobs?

1. Government could create jobs by decreasing taxes on those who spend the largest part of their income on products -- America's poor and middle classes. (The wealthiest Americans spend most of their income on acquiring more wealth.) Taxes on the poor and middle classes could be reduced without increasing the national debt if taxes were raised on the wealthiest Americans. (See "Wealth and Taxation".)

2. It would also make sense, and might be more effective, for the government to create jobs directly. For example, it could rehire teachers, police, fire fighters, and other government employees laid off in the panicky response to the recession of 2008. Alternatively, it could create jobs by paying the private sector to repair or create infrastructure. In its effort to end the great depression, the government even hired mathematicians to create math tables needed by engineers, and writers who produced both the great literature of the period and practical guides to everything.

The government cannot create jobs in this way without spending money. Spending money requires either an increase in taxes or an increase in the national debt. As a return to taxation policies of the 1950's nd 60's would finance increased government driven employment while reducing the national debt, it seems reasonable to return to those taxation policies to fund any of the above policies. (See "Wealth and Taxation".)

Step 4 - PRIORITIZE

The obvious policy that conflicts with government creation of jobs is the "shrink government -- make government small" policy. The idea, here, would seem to be that small government with lower taxes gives people more control over how their money is spent. It is an issue of autonomy, and personal autonomy is an important ethical concern.

There is, however, a lot of myth surrounding this policy. There is a belief that shrinking government would create jobs. Let us assume that policies would be adopted that would move the salaries of government workers into the hands of people who would spend that money on products and services. It could be that the additional cash in the hands of taxpayers would produce new jobs in the private sector. However, is it in any way likely that giving the salary of one government worker back to the taxpayers would create enough demand for goods and services to create one new private sector job?

The answer is clearly, "No." Spending one salary cannot possibly produce enough profit to cause any business to hire one new employee.

Of course, shrinking government does not only save the taxpayers the salaries of government workers. It might, for example, save them the cost of a truckload of asphalt. However, letting taxpayers spend the money on a new roof instead of the truckload of asphalt does not create any greater demand for goods and services, and does not create any jobs.

Clearly, shrinking government will decrease employment. That does not mean it's a bad idea. It may be that the increase in autonomy is worth the loss of jobs. However, it seems apparent that a time of high unemployment is the wrong time for shrinking government. Let it wait.

It isn't really relevant to this discussion, but I would like to make one more point and ask a question.

To live in a civilized society, we must give up some of our autonomy. We must give up some of our autonomy in exchange for the services government provides. The question is, "How much autonomy are we willing to give up for what size government?"

We have been shrinking government relative to the size of the population for half a century. (The number of non-911 employees has grown 0.9% while the population has grown 38%.) If we want to shrink it further, we must get beyond slogans. We must tell who it is we want to fire.

Few people seem to want to fire teachers, police officers, or fire fighters, but those are the people we have been firing in response to the recession of 2008. We are firing them because we have shrunk other parts of government to the point at which both Democratic and Republican politicians see no other way to shrink government. If not teachers, police officers, or fire fighters, who? Don't say, "welfare workers". There isn't enough money there to make a difference.

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