RALEIGH – When presented with the usual Keynesian drivel about economic stimulus and the standard left-wing diatribes about government layoffs, many conservatives have responded that “government spending creates no jobs.”
This is incorrect as a matter of economic fact, and unwise as a matter of political rhetoric. It’s important to understand why.
To start with, however, we must distinguish between two different measures: “jobs” and “economic value.”
There is no question that government creates a large number of jobs. It can simply tax or borrow money and hire legions of unemployed people to shovel dirt on the side of the road.
If you look at the gross number of jobs created at the roadside, this policy may look successful. But if you consider the jobs lost by taxing or borrowing the money – the opportunity cost to producers and consumers who would otherwise have used those scarce resources – then there may well be no net jobs created.
Still, what really matters is not how many jobs appear to be created but instead what economic value is added from the activity. If the government employees are helping to build new lanes to a congested highway, that creates value. Commuters and truckers will move more quickly and safely than before.
If on the other hand half the government employees are digging a trench down the side of the road and the other half are filling in the trench behind them, there is no value created. The economy takes a deadweight loss.
When government performs its limited responsibilities well, it creates economic value – and, if you want to put it that way, net new jobs. For example, the adjudication of disputes and the protection of lives and property create a foundation for business confidence, investment, and job creation.
That means that when policymakers reform existing government programs to improve their effectiveness, or eliminate government programs that are inherently ineffective, they also maximize economic value and, thus, create net new jobs.
Most of what the Left wants government to do to create jobs, however, has the opposite effect. It destroys economic value and results in net job losses. Even in areas where properly structured government programs can add value, such as infrastructure improvement, today’s programs are so poorly conceived that routing more tax dollars into them to “stimulate the economy” is a fool’s errand.
Consider the area of transportation policy. I am convinced that North Carolina and most other states have underinvested in highway capacity and maintenance in recent years. I think that increasing our investment in valuable roads, bridges, and related infrastructure would increase economic growth.
But that doesn’t mean we should adopt the Obama administration’s latest Infrastructure Bank initiative. Before putting any additional money into our creaky system of transportation finance, it needs a radical overhaul.
Too much of the existing revenue flow is squandered on passenger rail, special subsidies, and little-used roads in politically favored areas. Not enough of the existing revenue flow is invested in highway maintenance and new capacity in the heaviest-traveled corridors, such as North Carolina’s urban and suburban interstate mileage.
The best policy would be to redeploy existing transportation dollars to a more effective use. After we do that, we’ll be in a better position to compare the costs and benefits of increasing user fees or other revenue sources to improve the transportation network further.
In sum, government spending should not be thought of as some sort of macroeconomic tool for manipulating aggregate demand and offsetting human irrationality. Instead, government exists to perform a small number of discrete tasks that are difficult if not impossible to perform through voluntary means. These include defense, courts, and the finance or provision of true public goods (which doesn’t mean “anything that may be good for the public”).
If those limited, constitutional tasks are accomplished, there is a net economic benefit. Beyond that, government is a liability, not an asset. If we really want to stimulate the economy, we need to get that governmental cost off our balance sheets as soon as possible.
Hood is president of the John Locke Foundation.