Why Government Jobs Programs Destroy Jobs; T. DiLorenzo

The reason why government jobs programs cannot create jobs is straightforward: Even though the programs may "create" jobs for some workers, the resources to pay for the pro grams must be extracted from the private sector. Taxing the private sector reduces its ability to create jobs, so, at best, government jobs programs can only alter the composition of employment, not the total volume. More gov ernment jobs are created, but at the expense of fewer private-sector jobs. This basic economic truth is nothing new. In 1848 French economist Frederic Bastiat wrote that he "loses patience completely" over claims that government spending programs can create jobs. Whenever the state opens a road, builds a palace, repairs streets, or digs a canal, wrote Bastiat, "it gives jobs to certain workers. That is what is seen. But it deprives certain Dr. DiLorenzo is Associate Professor of Economics at George Mason University and an Adjunct Fellow at the Center for the Study of American Business, Washington University, St. Louis, Missouri.

other laborers of employment. That is what is not seen." 1 Bastiat concluded that so-called government jobs programs were, therefore, "a ruinous hoax, an impossibility, a contradic tion." Indeed, there is much evidence that govern ment jobs programs not only do not create jobs; they actually eliminate them. For instance, in 1982 the Wharton Econometric Forecasting Associates estimated that a government jobs program proposed during that year would cause a net reduction of 20,000 jobs. In another study of the same program, Nobel Laureate econo mist Milton Friedman forecast that as many as 100,000 jobs would be lost by that particular government "job creation" program. This might seem illogical at first, but there are sound reasons why government jobs pro grams are bound to destroy jobs. One is that public works projects must comply with the Davis-Bacon Act, which stipulates that wages paid on Federal contract work must be the "prevailing wage" in the area, which is usually the union scale, as determined by the U.S. Department of Labor. The jobs that are "created," therefore, are relatively highly paid; the ones that are displaced elsewhere in the economy are usually lower paid. So if a union worker makes, say, $12 an hour in Davis-Bacon wages, he or she may be re placing two less-skilled workers who, because of their lower skills, might be able to make only $6 an hour. One job is created, two are eliminated.

Another reason why government jobs pro grams increase unemployment is that much of the money extracted from the taxpayers to pay for the programs isn't used for wages, but for ,'administration. " The federal government's own Office of Management and Budget (OMB) reported that during the 1970s only 2 per cent of all the money allocated for local public works programs went to persons previously un employed. Much of the money apparently went to "the lawyers, accountants, engineers, and consultants" brought in to plan the programs and to workers already employed.2 And many public works programs are capital intensive, requiring large expenditures on tools, ma chinery, and raw materials, not wages. Those expenditures may stimulate employment in the tool and machinery manufacturing industries and in the raw materials industries, but it still must come at the expense of fewer private sector jobs elsewhere.

Because of these expenses OMB found that the cost of "creating" jobs with public works programs has been as high as $198,059 per job annually. Thus, the tax money spent on each government job could have paid for as many as ten $20,000 a year private-sector jobs. A Substitution Effect Another stumbling block to governmental job creation is that many local governments typically substitute Federal subsidies for their own spending on public works. As Robert Vaughn, an adviser to former New York Gov ernor Hugh Carey explained, "federal jobs pro grams retard public works spending by state and local governments because they defer their own projects in the hope of getting federal aid. "3 An example of this substitution effect is the CETA program. East St. Louis, Illinois, once had two-thirds of its municipal work force on the CETA payroll; San Diego and Miami had 47 per cent; and 16 per cent of all munic ipal workers nationwide were on the CETA payroll in 1978.4 Despite the logic and evidence suggesting that government jobs programs are unable to create jobs, on net, they are still politically popular, as they were over 100 years ago in Bastiat's time. Their popularity stems from the fact that the jobs "created" are highly visible, whereas the jobs lost are difficult to identify as being caused by the programs.

429 Politicians always make a great fuss over the jobs they create, but understandably ignore the ones they have taxed out of existence. Jobs pro grams promise something for nothing, but in reality they rob from Peter to pay Paul. This is an inevitable consequence of governmental in tervention in the economy, for as James R. Schlesinger once wrote: The tool of politics . . . is to extract re sources from the general taxpayer with min imum offense and to distribute the proceeds among innumerable claimants in such a way as to maximize support at the polls. Politics, so far as mobilizing support is concerned, represents the art of calculated cheating-or more precisely how to cheat without really being caught.5 Thus, there is a moral as well as an economic dilemma posed by governmental jobs pro grams. The dilemma will not be resolved until it is widely recognized that it is illegitimate for government to grant special favors to one group of citizens at the expense of another. Those who defend government jobs programs on moral grounds (i.e., that they display compas sion toward the unemployed) must be asked the following questions: How is it moral to put one group of citizens out of work, for reasons they do not understand, in favor of another? How is it moral for politicians to deceive their constit uents by telling them that government is ,'creating" jobs, when they know in fact that it is not?

The best situation is one in which more jobs are available to all citizens at the expense of no one. And the evidence is overwhelming that free enterprise and economic growth are the only means of achieving this. The real job gen erator in the economy is not the public but the private sector. The performance of the U.S. economy from 1983 to 1987 is a textbook example. Dtlring that time the private sector created over 13 mil lion new jobs despite the absence of any new government jobs programs, making the United States the envy of the world as far as job cre ation is concerned. Moreover, contrary to claims by organized labor and other interven tionists that these new jobs are low paying, the U. S. Department of Labor recently reported 430 THE FREEMAN. NOVEMBER 1987 that nearly half of the new jobs are in the highest-paid category as classified by the Labor Department, and only 6 per cent are in the lowest paid. This performance is in stark con trast to our European trading partners. Despite a greater reliance on governmental jobs pro grams, there has been a net loss in jobs in Western Europe during the past 15 years.

The key to job creation is private-sector eco nomic growth. And it is no secret that govern mental policies conducive to economic growth are tax reduction, expenditure restraint, mone tary stability, and regulatory relief for Amer ican industry. The best way to create jobs is to have a healthy private sector. Government spending on jobs programs (and most every thing else) may provide some citizens with valuable benefits, but job creation is not one of iliem. D 1. Frederic Bastiat, Selected Essays on Political Economy, ed. George B. de Huszar (Irvington-on-Hudson, NY: Foundation for Economic Education, 1964), p. 16. 2. See James Bovard, "Busy Doing Nothing: The Story of Gov ernment Job Creation," Policy Review, Spring 1983, pp. 87-102. 3. "Broad Recovery Called Essential to Job Creation," New York Times, November 28, 1982. 4. Bovard, "Busy Doing Nothing," p. 95. 5. James R. Schlesinger, "Systems Analysis and the Political Process," Journal of Law and Economics, October 1968, p. 285.

The Politics of Unemployment by Hans F. Sennholz Why is unemployment so high in the United States? Why will unemployment con tinue to rise in the years to come? Why do politicians continually attempt to legislate "full-employment" even though such programs are doomed to failure? In The Politics of Unemployment, Dr. Hans F. Sennholz carefully examines the free market for labor-and the harmful consequences of government intervention. His devastating critique of the popular full-employment doctrines points at the causes of unemployment. Dr. Sennholz anticipates an even higher level of unemployment in the future. Professor Sennholz has been affiliated with The Foundation for Economic Educa tion in Irvington-on-Hudson, New York, and Grove City College in Grove City, Penn sylvania, for most of his professional career. Many of his essays and articles have been published in The Foundation's monthly journal, The Freeman.

The Politics of Unemployment is published by Libertarian Press and is available from The Foundation for Economic Education. FEE pays all postage on prepaid orders. Order from: The Foundation for Economic Education, Inc. Irvington-on-Hudson, New York 10533 356 pages, $19.95 hardcover 431 The Trade Deficit by Ken S. Ewert U nsound economic ideas, like cats, seem to have several lives. Errors which have been laid to rest in past decades and even centuries are often resurrected, and once dusted off and dressed in new apparel, they haunt humanity yet again. One such spurious idea is the national "bal ance of trade" notion which was articulated by the mercantilist writers of the sixteenth, seven teenth, and eighteenth centuries. Although soundly refuted by Adam Smith and following classical economists, the concept has re emerged and is today the focus of national at tention. The U.S. trade deficit, which has increased dramatically since 1983 and was a record $170 billion in 1986, is a leading concern of our na tion's politicians, labor leaders, businessmen, and media. We are solemnly warned that jobs are being lost as we are invaded with "cheap"