Monday, November 02, 2009

Jobs Saved? What About the Jobs Destroyed?

Washington Post -- The White House on Friday embraced reports showing that the $159 billion in grants and loans made so far under the economic stimulus package has created or saved about 640,000 jobs, even as Republicans and government watchdogs questioned the reliability of the figures.

White House officials said the reports -- the first batch of filings by states, cities and other recipients of stimulus grants and loans -- buttressed their calculation that the full $787 billion package passed in February has saved or created 1 million jobs.

From Henry Hazlitt's "
Economics in One Lesson" (originally published in 1946), Chapter 4 "Public Works Mean Taxes:"

There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills. An enormous literature is based on this fallacy, and, as so often happens with doctrines of this sort, it has become part of an intricate network of fallacies that mutually support each other.

A certain amount of public spending is necessary to perform essential government functions. A certain amount of public works — of streets and roads and bridges and tunnels, of armories and navy yards, of buildings to house legislatures, police and fire departments—is necessary to supply essential public services. With such public works, necessary for their own sake, and defended on that ground alone, I am not here concerned. I am here concerned with public works considered as a means of “providing employment” or of adding wealth to the community that it would not otherwise have had.

A bridge is built. If it is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary to the taxpayers collectively than the things for which they would have individually spent their money had it had not been taxed away from them, there can be no objection. But a bridge built primarily “to provide employment” is a different kind of bridge.

The bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.

Thanks to Dennis Gartman, who featured a quote from this chapter of Economics in One Lesson in today's The Gartman Letter.


At 11/02/2009 9:04 AM, Anonymous Anonymous said...

There seems to be a shortage of aggregate demand--and persons more than eager to purchase government debt to finance government purchases.

If we were running at full employment, the competition for funds would be an issue. But, with firms operating at 65% of capacity and unemployment nearing 10%, how much do you expect from the private sector. We gave a tax cut in 2008, and people saved the money.

At 11/02/2009 9:43 AM, Blogger Bill said...

Anonymous: Temporary tax cuts, or rebates, create no changes in behavior among consumers because they are temporary and the consumer knows it. For lasting increase in consumer activity, you must have a permanent tax cut on which people can depend. It is all a matter of incentives.

At 11/02/2009 12:25 PM, Anonymous Benny Telling It Like It Is said...

The financial system had collapsed near the end of the Bush Administration, and employment was dropping like a stone in a sump.
Investors, of their own free will, had purchased trillions of dollars of mortgage-backed securities of dubious value (they had triple-A ratings from "reputable" credit-rating agencies, hired by the bond issuers). More trillions on commercial mortgage backed bonds (completely a free market, both in issuance and in the purchasing--no one is forced to gove out a commercial porpeorty mortgage or forced to buy a pool of such mortgages), also of dubious value, are still out there.
Hard to see a private sector fix to this.
Free markets are great, but sometms to go into self-reinofricng vacillations and collapse.
Bad government intervention worsens matters often.
But this time around, I see little option to heavy deficit spending (that deficit-spening should not have occured for most of the 2000-2007 period, but it did), and loose money.
Bernanke is doing the right thing; the Obama team is mostly right.
From what I read, these guys take the business of governing the nation seriously, and show up for work. Lawrence Summers is a deeply knowledgeable economist; Obama is well-advised.
The recession is ending; Dr. Perry's blog is making a compelling case. Hopefully, we can move to smaller federal outlays and less subsidies in the future.
Our huge parasitic military and gigantic panoply of federal rural subsidies are a great place to start whacking away. We can complete in the global economy, but it will take sacrifices.

At 11/02/2009 12:31 PM, Anonymous gettingrational said...

The White House likes to promote the jobs creation of stimulus but only about 200 billion dollars will be spent on "infrastructure". 128.5 billion is being spent on health-care.

The biggest part of the stimulus is not spending but individual tax cuts. There are schemes such as a 6.2% tax credit on earned income and decreased thresholds for child tax credit. This means millions of people will receive a tax refund even though they even though they had no federal income tax liability!The total cost to the REAL taxpayers will be 116.2billion for this part of the stimulus.

At 11/02/2009 12:50 PM, Blogger QT said...


Excellent point regarding fully refundable tax credits.

Have to admire the spin coming out of the White House "tax credits" to non-tax payers are "tax cuts" and we have this wonderful metric, jobs "saved or created" precisely does this number get concocted...or should one recallibrate that to "measured".

At 11/02/2009 1:44 PM, Blogger misterjosh said...

Earned Income

What a misnomer... Orwell would be proud.

At 11/02/2009 2:07 PM, Anonymous Anonymous said...

@getting ratinional,
You know that the earned income tax credit is aimed at working poor--those at the edge of poverty. If you didn't have it, you would have some real problems. You have to work to get it. I think you have it backwards: I think earned income tax credit subsidizes businesses who can pay less wages to their workers. It keeps low wage businesses in business.

At 11/02/2009 2:19 PM, Anonymous gettingrational said...

Earned Income

What a misnomer... Orwell would be proud.

Another misnomer is tax credit because there is a credit for no tax paid resulting in a tax refund paid to the non taxpayer. Additionally this is listed as an individual tax cut but it is really a transfer from tax payers to non taxpayers.

At 11/02/2009 2:22 PM, Blogger QT said...


The earned income tax credit predates the Stimulus bill.

Another possible scenario is that an individual would get a better job or an addl. part-time job. I realize that at the present jobs are not thick upon the ground however, isn't getting on with your life preferable to staying in a subsidized rut in a low skill/poorly compensated job?

The reality is that only about 10% of workers who make min. wage represent a permanent underclass. Most of these workers are high school kids.

At 11/02/2009 3:01 PM, Blogger juandos said...

"For lasting increase in consumer activity, you must have a permanent tax cut on which people can depend"...

Yeah without a doubt...

Don't think its going to happen though: Health care plan hits rich with big tax increases

What's the point of trying to make money in today's political atmosphere if one is going to end up being punished for it?

"Earned Income

What a misnomer... Orwell would be proud

Heh! Very good!

From the Ft. Worth Star-Telegram dated Oct. 30 '09: Cost of stimulus jobs in Texas so far: $545,000 per job

At 11/02/2009 3:32 PM, Anonymous Anonymous said...

Yeah, sure, the low wage person without earned income tax credit would get a higher paying job. Ever ask why they wouldn't anyway. EIT isn't stopping that; jobs and skill levels aren't there.

Now, if you want to talk about job training, or if you want to talk about abolishing low paying employers who would move abroad...that seems to me is what you are proposing.

I just view earned income tax credit as a benefit to marginal employers, just as free medical care paid by me is a benefit to their employees as well.

At 11/02/2009 3:54 PM, Blogger QT said...

I guess I consider a career to be a personal decision. I have met a number of people who receive disability pensions and will lose them if their employment income is too high. After a while, they cannot hold a job for any length of time, even a part-time job. The loss of human potential and self-esteem are born by both the individual, and our society.

Working is about the best possible therapy that a person can have. Using your mind to solve problems, accomplishing a task, learning to work with others, social networking...these are all positives to the workplace.

Before you wave your wand and eliminate all low wage employers and employment, it is worth considering the effect. Wouldn't such a measure be hardest on the lowest skilled workers? Don't the wages reflect the value of the work performed?

Do you pay a high school student $30.00/hr. to rake your lawn?

At 11/02/2009 5:27 PM, Anonymous Anonymous said...

I am not an economist, so analyzing the figures on rather the stimulus has actually been successful would not be especially accurate coming from me. But recent coverage has me wondering how much I should be buying into the economic upturn of the US economy and job creation because of the stimulus package

At 11/02/2009 7:17 PM, Blogger W.E. Heasley, CLU, LUTCF said...

Henry Hazlitt and Milton Friedman were kind enough to write down their thoughts as they could not be around forever. Both Hazlitt and Friedman had the knack of making the complex a very understandable proposition.

Then we get Paul Krugman.

Fate is not a kind master.

At 11/02/2009 7:19 PM, Blogger Richard Rider, Chair, San Diego Tax Fighters said...

If we are serious about reducing unemployment, we stop extending unemployment benefits. We are PAYING people to stay unemployed! And who says govt programs don't work?

Moreover, many welfare/unemployment recipients work off the books, either for others or as self employed. More subsidies combined with higher taxes only encourage this behavior.

At 11/02/2009 7:30 PM, Anonymous LAD said...

This article doesn't tell the whole story.

First, each dollar spent by government costs the private sector approx. $2.54. So on a simple one-to-one ratio each government job costs 2.54 private sector jobs.

Second, since the increased taxes are paid out of profit, and since most private companies work on slim profit margins, it's likely that significantly more than 2.54 private sector jobs will be lost for each government job created because the decision to keep the doors open in the private sector is made at the margins.

At 11/02/2009 8:11 PM, Anonymous Anonymous said...

You shifted the topic from earned income tax credit to disability payments, where I agree with you. Disability payments should constantly be reviewed. We will need to increase the number of social security staff to do so, but I think that is a good expenditure.
But, earned income tax credit. This was started by Richard Nixon and Sen. Long. It subsidizes low wage employers who would otherwise have to offer higher wages or move abroad.
And, these people are the working poor. You don't get EIT as a teenager mowing lawn.

At 11/02/2009 10:17 PM, Blogger QT said...


You know your country better than I do. Well argued.

At 11/03/2009 6:28 PM, Anonymous Raymond Potter said...

640,000 jobs saved and 500,000 lost each month, how is that working out?
Real people are going to vote these socialists out of office, no matter how much voter fraud is attempted.


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