Thursday, November 11, 2010

Myths About "Job Creation"

Some of us like to say that the state can spend a large sum of money - say $ 810 million on a train - and "create" jobs. As statements go, this one is fairly meaningless. The only thing we can say for certain is that it has employed - directly or indirectly - however many people that amount of money has hired. Want 8100 jobs paying $ 100,000 in 2011? Give me that money. I'll find something for those folks to do - or not. To say that I created jobs is, in one sense of the word, a truism but a meaningless one.

In another sense of the word, it is almost certainly a false statement. It is false if you mean by "create" a net addition of 8100 jobs. That $ 810 million must come from somewhere. Had it remained where it was, it would save for the rare possibility of something like a Keynesian "liquidity trap") have been put to some use. That use also would have resulted in people being hired. I have not, therefore, added jobs to the economy in the numbers that I have claimed for I have also caused other jobs not to be created.

This is why statements about how many people would be hired (jobs "created") by some public works project are, if not entirely meaningless, not particularly helpful. The relevant question is whether the project creates additional value, i.e., gives people something they desire or increases the productivity of the economy, in an amount greater than some alternative use of the funds expended upon it.

Sharp readers will note that this statement implies that there are circumstances in which government might "create" jobs in the sense of causing there to be more jobs than there otherwise might be. This is true. Public education can create jobs although this does not mean that every dime spent on public education does so or that any additional spending on public education is justified. Highways may create jobs but, again, this doesn't mean that all highways are justified. Even consumer rail might create jobs but, given its cost and the demographics in most parts of the United States, that is unlikely.

The real test of any expenditute of public funds is whether it constitutes a better use of dollars than alternative uses - including private ones. In addition, that question must take into account the fact that state expenditures involve coercion. One does not have to be a Randian or regard private property rights as absolute to believe that regard for the intrinsic value of human beings and their autonomy creates a certain presumption against taking the fruits of their labor.

Of course, a presumption can be overcome but it is also true that, in the great run of cases, market mechanisms are ging be more efficient in directing funds to the most productive or desired use than centralized bureaucracies.

Not always, but mostly.

32 comments:

Anonymous said...

This is the same lame "muddy the waters" response you give for everything you don't like but don't have the evidence to actually argue against, whether it's the impact of stimulus funds or same-sex marriage/civil unions: "You can't prove beyond my (un)reasonable doubt that it will be good or won't be bad. And since you can't prove it, we error on the side of no."

Honestly, what are you trying to say with this post? That the Talgo jobs, the construction and planning jobs associated with the line, and any jobs generated via economic activity that develops around the line connecting Chicago to Milwaukee to Madison and (eventually) to Minneapolis/St. Paul, while real in the sense that they do or will exist, don't necessarily, positively, with absolute certainty, beyond any doubt outweigh what could be done with some other undefined, figment of your imagination use of those same dollars?

Anonymous said...

We're in a Keynesian liquidity trap. Your argument is invalid. Enjoy rationalizing the lost decade.

Pete Gruett said...

Your second paragraph is somewhat correct in that the $810 million dollars that's now going someplace else would have remained here and resulted in people being hired in Wisconsin. Instead, Scott 250,000-Jobs Walker has created jobs in New York or Illinois. The global economy is a closed system. The state's is not.

John Foust said...

Darn, where were you when we needed someone to remind campaigners (even conservative ones) that government doesn't create jobs?

I think you saved this post until after the election. Can't wait for your post explaining the demand for and the value of the wars abroad.

Anonymous said...

I see the brave anonymice did not leave their names. tsk tsk. If you guys think this is a good investment, hey, go for it WITH YOUR OWN MONEY and I will applaud your success when (or IF) it happens.

Esenberg did a creditable job of economic reasoning, esp. given the lack thereof among many of his juridical colleagues. But to add a bit of rigor, let us recall that Jimmy D made a deal for 2 trains for a total $47.5 million +/- for a project that will create 80 jobs. It is said that $50-$60K investment is needed to create a private sector job. Ergo, in round numbers, 800 jobs will be destroyed so that 80 can be created. Net loss, 720 jobs. Oh, did I mention that none of Jimmy's "investment" was for the LOCOMOTIVES that will pull the trains? Add another $3.5 to $4.6 Million.

As to this money going elsewhere, remember that ultimately taxpayers will bear the burden. We need a nation wide appreciation for the fact that we are broke, in large part because of these redistributionist schemes. We are killing the proverbial golden goose, and fighting over its last egg. STOP THE INSANITY!!

BTW, if Keynesianism actually worked we should be rolling in clover now, as in the last 10 years our federal budget has doubled, so has our national debt, and the FED has created trillion$. Any correlation there? So why does the economy suck right now?
Because we have not counterfeited our way to prosperity, as the Keynesians would have us believe? This is not an economic theory so much as a mental disorder.

But I have the antidote for those who will but partake of it: Take a Rothbard, a Hayek and a Mises, and call me in a few years.

Ken Van Doren

ReasonableCitizen said...

To your comment: "Of course, a presumption can be overcome but it is also true that, in the great run of cases, market mechanisms are going be more efficient in directing funds to the most productive or desired use than centralized bureaucracies."

Hmmm. Government funds are often the catalyst for creating a demand for a product, electric lights, for example. It took government funds to light the way in Wabash, IN in 1880.
The first transcontinental railroad was funded by the US government with bonds and with land grants.
Sometimes the great "centralized bureaucracy" we call Congress starts the market.

Dad29 said...

The first transcontinental railroad was funded by the US government with bonds and with land grants

Yes, and if you read the history, you find that it was as corrupt a project as ANY ever done by Gummint.

So you like corruption? Follow Doyle to wherever in Hell he's going.

Anonymous said...

The Erie Canal; the transcontinental railroads; the land grant universities; the Interstate Highway system; almost all airports; the Internet. Roman roads and Roman aqueducts. Great civilizations invest in -- spend public resources on -- works of internal improvement. Certain projects are so vast, so expensive, and produce such broad-based, rather than narrow, benefits, over long periods of time, that they lend themselves better to public investment rather than private investment. Efficient means of transportation and communication improve productivity and contribute to rising living standards for all. But, they cost money. The nearsighted criticized the Erie Canal as "Clinton's Folly," "Clinton's Ditch." Without it, New York City would never have achieved its preeminence; and the development of New York State would have been long delayed.

There are eras and places where society lacks the vision and the public institutions to invest in long-term public works projects. Try looking for a good highway in Bangladesh, or Myanmar.

China is investing $300 billion in high-speed rail. No great risk of that happening in Bangladesh or Myanmar any time soon. Congress has decided that a high-speed rail network is a project with long-term economic benefits for the United States, and thanks to Dave Obey, among others, we have a chance for a slice of that here in Wisconsin. Or, we can be like Bangladesh and Myanmar.

That a market economy produces higher standards of living for the people than a command economy (like that of North Korea) is not a reason to eschew public investment in infrastructure. Without public investment in infrastructure, markets cannot flourish.

Jay Bullock said...

That $ 810 million must come from somewhere.
And at the moment that money is not, at least not necessarily, coming from my pockets or your pockets or from the profits of business that otherwise would be hiring.

That money is coming from bonds with near-historic low interest rates--not quite free money, but near enough free that the feds would be dumb not to use it to goose the economy, near enough free that even modestly below-average GDP growth could cover the interest and then some.

Now what I said in response to your post yesterday remains true: Wisconsinites send more money to Washington than we get back, by many billions. In theory, then, that money could be coming from us--it puts us closer to even than those great free-market bastions of Alaska, Mississippi, Alabama that get back way more than they pay in.

Anonymous said...

As Jay points out, the Government can borrow money at almost zero percent. And right now, given the dearth of private construction going on, the Government can hire construction contractors for a discount off what they'd charge in boom times. Why don't more conservatives draw the conclusion they would if they were spending their own money: now's a good time to build? Especially when it is also the Government that is forking out unemployment comp and other bennies to laid-off construction workers to sit at home and do nothing. We can pay these guys to be socially unproductive. And then we deal with the resulting social pathologies of unemployment. Or, we can shell out somewhat more, and hire them to build a high-speed train that is actually a benefit to society. And we'll get some of that money right back, by taxing it as income!

George Mitchell said...

"Great civilizations invest in -- spend public resources on -- works of internal improvement. Certain projects are so vast, so expensive, and produce such broad-based, rather than narrow, benefits, over long periods of time, that they lend themselves better to public investment rather than private investment."

On first reading this I thought it was meant to be sarcastic. My mistake.

I've ridden actual high-speed trains in Japan and France. There might be 2-3 corridors in the U.S. where such efforts would make sense. I am not sure how the NE Corridor project now in existence is working. That clearly is the best candidate.

The low-density areas west and northwest of Chicago, i.e., Wisconsin, et.al., clearly would not qualify.

The LA-SF corridor has some potential but NIMBY issues are killing that plan's potential.

Jay Bullock, the well-known fiscal and investment analyst, chooses to defend the project with arguments about interest rates and Wisconsin's need for more pork. Maybe if his blog got more comments he would have less spare time.

Anonymous said...

"The money is coming from bonds..."
Free money! Sweet.

A "bond" in created when the state borrows real money (i.e. the same as cash, as Yogi Berra says) from real people.

I think Rick's point is that if those people invested their real money (money which presumably they want to invest) in the private sector as opposed to the government bonds, the result would also be to create jobs. No way to say which alternative would create more jobs.

There are always tradeoffs. No free lunch, Jay. Really.

-Mike Fischer

ReasonableCitizen said...

Flying is a problem today. One either gets groped or has one's undies peeked at; and I still hate taking my darn shoes off. I would use high speed rail to travel the 300+ miles to Chicago (or any other Midwest city) if it cost the same as gas and saved me three out of six hours of driving one way.
Just think, walking onto a train without being poked and peeked, sitting where I wanted, and moving about when I want. And to think that I don't have to get there two hours in advance of departure, well, it is just a blessing. It would be great to have three ways to get to Kansas City: fly, drive, and train ride.
I support more trains throughout the Midwest.

George Mitchell said...

"I would use high speed rail to travel the 300+ miles to Chicago (or any other Midwest city) if it cost the same as gas and saved me three out of six hours of driving one way."

U live in mpls, right? Or you are Peggy West's brother.

This sets a new standard for justifying a rail project, i.e., provide enough taxpayer subsidy so that the ticket equals the gasoline bill that otherwise would be paid. But that, of course, makes another point, which is it can't be done but for the subsidy.

It's all moot, anyway. Walker's in charge now.

AnotherTosaVoter said...

George, you're not under the impression that roads and highways are not subsidized beyond the collected user fees, are you?

Dad29 said...

Keynes, among other things, was childless.

He didn't give a flying rip about what his children, and their children, would pay in taxes to retire bonds.

Perspective matters.

Anonymous said...

You know what, Dad? Federal debt as a percentage of GDP was higher during World War II than it is now. Significantly. It financed the war, and it financed the GI Bill. And the children of the Greatest Generation, and their children, have done just fine, thank you, paying off that debt. With the jump-start that deficit spending gave the economy came full employment and the long postwar boom.

Anonymous said...

To AnotherTosaVoter's point: In 2007, user fees provided just 51% of the funding for highways in the United States. General public revenues and bonds provided the other 49%. If you think highways are self-supporting, you are ill informed.

George Mitchell said...

"George, you're not under the impression that roads and highways are not subsidized beyond the collected user fees, are you?"

No, I am not under that impression.

The issue is not whether there is a subsidy; the issue is relative utilization. People and businesses use highways; relatively speaking, very few use trains. Consider even the rather heavily used Hiawatha. What would be the comparative impact of shutting that down for a week vs. shutting down I-94 to Illinois?

Anonymous said...

The population of Massachusetts is 6.5 million people, roughly; Connecticut, 3.5 million; and Rhode Island, 1 million. They're near the New York metro area. The population of Wisconsin is 5.6 million; Minnesota, 5.2 million. And we're near greater Chicago. So, excuse me, but what's the demographic advantage the 11 million people in the Boston to New York corridor have over the 10.8 million in the Twin Cities to Chicago corridor, that they should get high speed rail, but we shouldn't? They're so much more densely populated?

George Mitchell said...

On the population density issue, my guess is that Anonymous is Peggy West.

The NE Corridor is widely understood to be Boston to NYC to DC.

Anon suggests that the Chicago - MPLS corridor has similar density. Well, no.

George Mitchell said...

Peggy,

Population density = population/area.

Population density of NE Corridor states (8) and DC is about 425/sq.mile.

Density of Illinois/Wis/MN is 120/sqmile.

Those numbers include downstate Illinois and outstate/update NY and PA. More precise numbers would show higher relative density in NE corridor.

Anonymous said...

With that greater density in the Northeast, then, Wisconsin should gladly step aside and let Gov. Cuomo have the $810 million to build high-speed rail from New York to Montreal (by way of Catskill, Albany, Lake Placid, Keesville, and Plattsburgh) and from New York to Toronto (by way of Utica, Syracuse, Canandaigua, and Buffalo).

But, the $810 million might go to Gov. Quinn, not to build high speed rail from Chicago to the Twin Cities, but to St. Louis, by way of Kankakee and Peoria.

Dad29 said...

Federal debt as a percentage of GDP was higher during World War II than it is now. Significantly. It financed the war, and it financed the GI Bill. And the children of the Greatest Generation, and their children, have done just fine, thank you

To effect that prosperity, all the US did was demolish Europe and Japan. Japan had already demolished China, of course, and Hitler had demolished Russia and swaths of Eastern Europe. Thus, US industry was the ONLY industry that remained to serve customers, which was every other country on Earth.

Oh...by the way...the HST/Ike gummints did not run deficits at ~20% of GDP, either.

George Mitchell said...

"With that greater density in the Northeast, then, Wisconsin should gladly step aside..."

No. The reason Wisconsin should step aside is that the project is completely non-justifiable from an economic standpoint. That the money might be wasted elsewhere is too bad, but it remains to be seen whether the whole "high-speed" rail endeavor is going to collapse. The numbers don't work in most other areas either. The elections will send people to DC who know that.

xoff said...

So, how will we measure Scott Walker's promise to create 250,000 jobs? The truth is, using Esenberg logic, is that Walker won't create any.

George Mitchell said...

Walker knows that neither he personally nor state government will "create" jobs. Xoff knows that, too.

Presumably the media will be more focused on monitoring progress in achieving Walker's goal than it was in evaluating whether Gov. Doyle "balanced" the budget.

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