Government Can Create Jobs ... Just Not Real Jobs

Job Creation 101

The government has a role to play in the economy, it can either encourage an economy to grow or persuade an economy to shrink. President Kennedy stated that tax cuts creates jobs and salaries that create more jobs and salaries. This result comes about when the government helps the economy by lowering the tax burden on industry and the individual. This was also the strategy employed by Ronald Reagan as he led the United States out of the most serious recession since the Great Depression. George W. Bush also lowered taxes, which created an economic boom for most of his time in office.

The government persuades the economy to shrink when it takes over the role of "job creator" from the American people. Franklin Roosevelt believed that it was the government's responsibility to create jobs and he was right in his belief that government can create jobs. In fact, anybody can create a job. To paraphrase the economist Milton Friedman jobs can be created simply by "handing somebody a shovel and paying him to dig a ditch and then finding somebody else to fill in the ditch." We have theoretically created two "new" jobs. What President Roosevelt did not realize was that government can not create jobs at the expense of the private sector. President Roosevelt increased taxes to support the massive government "recovery" programs he instituted. Roosevelt honestly believed that the government could run an economy better than the private sector. His attempts to end the depression were devastating and made things worse.

Lets take a look at the minimum wage, Roosevelt saw that Americans were suffering and they were suffering because they were not receiving enough income. The problem with using a minimum wage to repair this problem is that it leads to more unemployment. Imagine that you are a business owner during the depression and you have about seven employees. You make just enough to turn a profit and you pay your workers accordingly. Now Roosevelt institutes across the board tax increases in order to fund his programs and the minimum wage. You now have to fire some workers to maintain your level of profitability and still pay the new wages and taxes. Now the nation has a few more people added to the social program's books and now we need even more taxes to fund these programs. The higher taxes causes more businesses to fail and more people on the unemployment line.

Roosevelt also made the same mistake with prices. Wages were too low and prices were too low, so he sought to ARTIFICIALLY increase both. He saw that farmers were struggling and tried to manipulate the market price of produce by enforcing new regulations that limited the amount a farmer could plant and the price on the market.

So the point is .... "President-Elect" Obama is attempting to employ the same strategy to bring the United States out of a recession. He has proposed massive government infrastructure programs through the construction of new roads, public buildings, bridges etc. etc. etc.

But this is the same as "handing somebody a shovel" ... these new infrastructure plans will only create the jobs needed for the construction and no more, when a school is built ... it is built, end of story. Obama also fails to recognize that we do not live in the 1930s anymore. American citizens were more likely to be able to work as construction laborers then. After all, the hardest hit sectors of the economy included heavy manufacturing. The artificial jobs created by the government in the Great Depression could, at the very least, offer temporary employment to the out of work laborers. However, the unemployed today include many more white collar workers, such as accountants, bankers, and workers in the technology industries. The unemployed today are not nearly as prepared for heavy labor as they were in the 1930s and 1940s.

It is also important to note that FDR's plans did nothing to ease the Great Depression.

Why? ... because government can only create artificial jobs that do not lead to "more jobs and salaries that lead to more jobs and salaries."