Can the Government create jobs?


“It is true that we cannot depend on government alone to create jobs or long-term growth. But at this particular moment..only government can break the cycle that is crippling our economy.”

~Barack Obama

I read this in my paper this morning, and I am not sure where to begin with regard to this incredibly fallacious statement. I am at a loss. The very idea that government is necessary to mend a broken economy like a plumber fixing his pipes and drainage system cannot be true; if the government could fix the economy and is, indeed, the best solution to carry that out, then why doesn’t the government keep the economy fixed to begin with? Why do we come across these “hiccups” where massive amounts of wealth is destroyed and people are left unemployed and poorer and poorer? Why does this continue to occur repeatedly? People say, oh the Depression could never occur again. I stare at them blankly and ask them, “What has changed?” What is truly so different now that this mystical thing called a “depression” would never again rear it’s ugly head?

In order to investigate, let’s look at the idea that government can create jobs. This is illusory; it is not so much that the government creates these jobs so much as it diverts capital, or resources, away from the private sector of the economy. That means for every new government job, a private sector job is sacrificed because that capital has now been extracted by taxation. Government does not “create” jobs because they don’t do anything to produce wealth.

In the private sector, man mixes his labor with capital goods or higher order goods such as oil, car parts, metals to make the car parts, unwoven cloth, backhoes, tractors and gardening equipment and land, etc. This is called production, and the result is lower order goods or consumer goods. People around them recognize more value with a fully grown bag of grain which can be made into bread as opposed to a tractor and a bunch of seeds which would result in the grain but would require labor to create. This is what jobs are made up of; if I spend 3 years working the land and harvesting grain, I have saved up enough grain in my silo to go out and find people to help me grow more food. I pay them with the grain I have collected, and I end up collecting more grain and hiring more people and making more profit.

The government cannot do this task of creating wealth through labor and production. It is incapable because people would buy their services if they wanted them, but the government just takes the money whether or not the consumer thinks that their product is better or worse than the other things they could be purchasing. They are restricted to the redistribution of wealth and the destruction of wealth. Redistribution occurs when the government takes wealth from one sector of the economy and gives it to another. This action benefits the special privileged class who spend all day lobbying government to get these favors and accept the redistribution at the expense of the people paying it, the taxpayers. Destruction occurs when any of this money is malinvested by spending it on things that are of no use to the consumer like public works that don’t benefit the public. There are scores of examples of useless buildings, roads, bridges, etc left over from the “New Deal” that supposedly helped us out of the last depression. These goods are malinvestment; capital was spent where it was not necessary to have been spent. The consumer was not served.

The government cannot fix the economy. The government has broken the economy due to this malinvestment and destruction of wealth. In a capitalist economy, capital goods are constantly switching hands until they find the most capable hands. If I buy a tractor and some shovels and a bunch of seeds and fail at using them in the best way to produce grain, then I will lose money on my investment and my business model will become unsound. Bankruptcy must eventually be declared because only so much capital can be loaned from people willing to expect a return on their investment, and other, more suitable entrepreneurs will move in and buy up my tractors and shovels and the employees will follow the new employers to a job that will be of higher pay and more beneficial to the worker. Consumers choose which products they think are most valuable to them, and those producers that are better at serving the consumer will succeed and create more jobs.

We have an interventionist economy, not a capitalist economy as every believes. There are only 3 main economic systems; capitalism, interventionism, and socialism. Capitalism is defined by private ownership of the means of production or capital goods. Socialism is defined by government ownership of the means of production. Interventionism is the midway point between the above two; it is defined by governmental price and wage controls and also by hampering of production through the use of mandatory regulations. Hampering of production can be things like mandatory number of hours for a work week, overtime rules, taxation, affirmative action, unemployment mandates, forcing employers to adhere to certain safety codes, allowing unions to boss employers around, etc. Interventionism inevitably leads to socialism because one intervention leads to another one which leads to another one. As Mises wrote:

“Interventionism cannot be considered as an economic system destined to stay. It is a method for the transformation of capitalism into socialism by a series of successive steps.”

~Ludwig von Mises

In a pure capitalist system, unemployment is voluntary. There are more than enough jobs for every single person to be working as much as they would like to be working, and people would only stop working if they valued the leisure time more than the benefits of being paid for labor. This can be illustrated by the minimum wage. If I am forced to pay one worker 8 dollars an hour, I am unable to hire two workers at 4 dollars an hour. Those two workers may have less income as a result, but both of them are employed and money is more equally distributed and more people are allowed to work. It may be that these two people are less productive, maybe they are 17 year old teenage boys and just want to get their foot in the door so they can prove that they are capable of doing work. These poor children are kicked from the market and the ability to show their productivity to employers, and are unable to even enter the marketplace because of the minimum wage.

If we really want to create jobs, we need to cut government immediately. That money will then be given back to the people where it rightly belongs, and those people will begin investing again in their communities and local businesses which will immediately see an increase in consumer spending and, thus, expansion of business and more jobs created. Private banks would be willing to lend again, and businesses would soon come in and begin picking up the pieces. The entire reason this financial slump is occurring is because of constant “bubbles” where the Federal Reserve and the banks lend out tons and tons of debt, which does not make us richer. It is an illusion; people go and spend tons of money on useless things and malinvestment, and then they realize they can’t pay their debts back. The economy then seizes up. We must get rid of this debt based system.

These are the problems we face and the only way the government can “fix” it is to admit that it can’t possibly fix it and stopped messing with it in the first place.

More Ludwig von Mises quotes on this subject:

  • “Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other.”
  • “Mass unemployment is not proof of the failure of capitalism, but the proof of the failure of traditional union methods.”
  • “On a free labor market wage rates tend toward a height at which all employers ready to pay these rates can find all the men they need and all the workers ready to work for this rate can find jobs. There prevails a tendency toward full employment.”
  • “The result of the governments’ and the unions’ meddling with the height of wage rates cannot be anything else than an incessant increase in the number of unemployed.”
  • “It is not capitalism which is responsible for the evils of permanent mass unemployment, but the policy which paralyses its working.”
  • “There is but one remedy for lasting unemployment of great masses; the abandonment of the policy of raising wage rates by government decree or by the application or the threat of violence.”
  • “The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution.”
  • “Every step that leads away from private ownership of the means of production and the use of money is a step away from rational economic activity.”
  • “Government cannot make man richer, but it can make him poorer.”
  • “Every step which leads from capitalism toward planning is necessarily a step nearer to absolutism and dictatorship.”

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