Home > Constitution, Keynesians, money supply, socialization > Obama’s Job Creation In the Abstract

Obama’s Job Creation In the Abstract


The latest iteration of President-Elect Obama’s stimulus plan calls for 3 million jobs to be created or saved, of which approximately 20% will go towards government positions. For an example of how this has worked out at the state level, see Bill McGurn’s recent editorial on my home state of New Jersey. As usual, no economist or even rational, thinking human being could give sanction to a plan like this in good faith. If giving out jobs to people in government is a good solution to the unemployment problem in bad times, then shouldn’t the government “create” these jobs in good times too? But there is an even more fundamental question than this. Why should government create jobs for the sake of employment in the first place?

It is this question that underpins almost all of the government intervention in our lives over the last hundred years or so. The government is acting as if it is a divine central planner, with the ability to provide ample housing, healthcare (soon universal), credit, flatten market cycles and provide every type of moral-hazard-inducing insurance possible. It is in many respects one big Ponzi scheme where money is taken from the productive and paid out to a wide variety of special interests. The people in response have acted as complacently as the SEC in the case of Mr. Madoff.

If the government can carry out all of these functions in addition to fixing unemployment by simply creating government jobs, then why even have private industry? After all, the government has already monopolized its control of the money supply, and partially nationalized commercial and investment banks and automobile manufacturers. Why let the evil private businesses with their risk-taking, competition and potential failure ever enter into the equation? No, let’s sacrifice the free market to save the economy. Let’s have the government determine how labor should be optimally allocated, determine how much food, clothing and shelter each person should receive and which industries should grow and contract. After all, historically this has worked out quite well in the Soviet Union, Nazi Germany, fascist Italy and even relatively more liberal post-war Japan.

Sarcasm aside, this is something on which F.A. Hayek proved quite prophetic. Granted, I am no expert on Hayek, but having read The Road to Serfdom, it is clear that the problem of economic calculation is the reason the government cannot provide full or optimal employment, or any of its other ridiculous services without leading to utter economic ruin and ultimately revolution. No bureaucrat can figure out how to optimally produce and allocate goods and services, not only because he lacks the specialized knowledge, but because he is not subject to the price-setting mechanism of the market, nor is he held responsible by profit or loss. The government does not need to produce the best good or service at the lowest price to survive. In our particular mixed economy, the government’s economic calculus in attempting to socialize losses, pick winners and losers and “stimulate” the economy sows the seeds of its own destruction because it counters the very forces that led us to prosperity.

Legally, all one has to do is look at the Constitution to see that there is 0 justification for the government to be in the majority of the businesses it is now in. We are supposed to have a government with limited powers, created to protect individual liberty. It is for this reason that the government’s primary positive power granted by the Constitution is the power to defend (though incidentally we do have private defense companies that help with this function). The document is mainly however one of explicitly negative powers (to constrain government), in which without the clauses regarding “promoting the general welfare,” of the citizens, “the power to regulate commerce” amongst the states and the complicit loose-interpretationist judges, there is no way that the politicians could ever twist the language to fit their whims.

One of the little-spoken-of negative provisions in Article I, Section 10 of the Constitution should be given more attention by our elected officials. It reads “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts. How much more attractive would those muni bonds be if we were actually paid in gold or silver, as the founders, who understood the problems associated with fiat money intended? Ultimately, the politicians in our current malaise could do right by their constituents by spending more time reading the Constitution, and less time listening to Keynesians. For it is paper money and government we have, and sound currency and liberty we lack.

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  1. MrCooperWandling
    January 6, 2009 at 1:53 am

    For some reason Andrew, the education of people has added to this problem. It would appear that for some reason in the minds of most people, they have learned that the government IS SUPPOSED to fix these economic problems…such as the banking systems, the suto failure, etc., etc. When the gov does nothing, then they really get angered. What I am curious to know, is how did the propaganda teach people that this was the case, and how come more education programs do not teach free-market economics? Anyways, another excellent topic Andrew.

  2. Brutus
    January 6, 2009 at 8:50 pm

    To MrCooperWandling,Robert Higgs’ book, Crisis and Leviathan, is a good place to look for answers to your question. He argues that crisis changes the dominate ideology of the public and that various crises in this country convinced most people that the State can and should solve these problems (although the State is the very cause of these crises).

  3. Andrew Mellon
    January 6, 2009 at 8:40 pm

    Cooper, thanks for your responses. Perhaps I will address those questions in a post. The long and short of it I think is that we have become addicted to government help because it has become ingrained really since the early 1900s. Once government started to grow, it could not be stopped. In terms of the education of the people, I think a lot of it has to do with the fact that liberals generally, and Keynesians specifically present messages that sound better, and have marketed better. Liberals also sought to go into academia, where conservatives chose to go into industry (obviously a generalization, but I think that practical experience shows us this). Anyways, keep fighting the good fight.

  4. MrCooperWandling
    January 6, 2009 at 10:15 pm

    I just wanted to thank both of you, Andrew and Brutus, for your helpful comments back to me. I will definitely look into the book. Andrew, yes, I agree before you even spoke, that it had to be the early 1900’s when this ideology really began to permeate the masses of society. I’ve been trying to tie a mass amount of information together to form some sort of thesis, but I keep trying to really pinpoint when and why this all started, and if there is some way to undo it all, or if all this is just a massive steamroller that can’t be realistically stopped, and we just must form some sort of mythical land like in Atlas Shrugged.

  5. Phil
    January 8, 2009 at 8:45 pm

    I would argue that the public has no concept of opportunity cost. The fact that a politician can build a bridge or dig a ditch and he can go to the site with all the happy workers and press standing by….But, what was given up, or what did it cost? A new fleet of autos or bicycles, or maybe a cool computer game being launched? People cannot see that and its not tangible. This anecdote was given decades ago by Henry Hazlitt by the way, Economics in One Lesson.http://jim.com/econ/chap01p1.htmlGreat blog, and keep preaching Truth!

  6. Anonymous
    January 9, 2009 at 9:08 am

    Thanks fot the post, couldn’t agree more. I’m writing from Sweden where every I think one in 8 is employed by the government, so I know what I’m talking about :)BUT, do you not contradict yourself when you say that ONLY metals should be legal tender, AND that the market should make the decisions, not the politicians. Companies should be allowed to acceot what ever they want as legal tender. If they only trust gold and silver, then so be it. If they trust someone printing money, then so be it. Why should the government interfere in that process?

  7. Andrew Mellon
    January 9, 2009 at 3:02 pm

    In regard to the post about the currency, this is a fair point. In a true free market, people would be allowed to coin their own money. However, I was merely mentioning that in our Constitution by law, sound money was mandated (largely because it was a way to keep the government in check). In addition, practicality and experience has shown that metal currencies would probably beat out all of the other ones. However, the point is well taken.

  1. March 15, 2010 at 1:12 pm

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