‘There is no more persistent and influential faith in the world today than faith in government spending.’ So wrote Henry Hazlitt in his classic little book ‘Economics in One Lesson.’
A high priest of the church of government spending, Rep. Jim Oberstar preaches that government spending can heal a sick economy and make a lame economy run. He prophesizes the $819 billion economic stimulus bill passed last week by the U.S. House will create 12,000 Minnesota jobs. I have to play the heretic.
Government doesn’t create jobs; government doesn’t create wealth. What the stimulus package will do is create inflation, the cruelest form of taxation on the oft-cited “working family” while it garners votes for myopic congressmen who trade the welfare of the unseen many for the benefit of the visible few.
Hazlitt’s economic lesson is simple: The art of economics consists in looking not merely at the immediate but also at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups. Hazlitt’s lesson applied to the federal stimulus package reveals the fundamental fallacies of job-creationists on both the left and the right.
Everything we get must in some way be paid for. Government can’t do anything for anyone until it acquires the funds to do so, and ultimately government acquires funds through taxation. Borrowed money plus interest must be paid out of taxes collected. When government simply prints paper money not backed by productivity, the result is inflation, which reduces people’s purchasing power and lowers the quality of life as viciously as any tax.
Cutting to the chase: Every dollar of government spending must be raised through a dollar of taxation.
“So, what?” argue the disciples of government spending. State Sen. Larry Pogemiller preached to a town meeting at the Brian Coyle Center in South Minneapolis, “It’s simplistic and naïve to say people can spend their money better than the government.” Pogemiller justified his faith in almighty government by arguing that an individual can’t build a freeway system, and “that’s why we have taxes” — a half-truth that confuses, not clarifies, the role of government in the economy.
A road is built. Were the road built to meet public demand, if it were more desired by taxpayers collectively than the things they would have purchased individually had their money not been taxed away, no one could object. But stimulus advocates aren’t proposing infrastructure projects based on a cost/benefit priority list. Their stated purpose is “creating jobs.” The criterion for project consideration is “shovel readiness,” not increased mobility.
Thus sayeth the congressman: The economic stimulus package will create jobs that otherwise would not come into existence. It will create employment for “unemployed” Minnesotans. Again, that is a half-truth that fails to look beyond immediate effects to secondary consequences.
Twelve thousand jobs may be immediately visible, as Oberstar says. But the wise policymaker looks beyond those who directly benefit from the stimulus package to those who indirectly suffer because of it. A particular group of highway construction workers will be given jobs — salaries paid from taxes on the productive labor of someone else. Every dollar paid to stimulus-blessed construction workers is taken from stimulus-damned taxpayers.
The stimulus package is $819 billion; taxpayers lose $819 billion. Taxpayers have $819 billion less to spend on things they need and want. But the negative effect of stimulus spending is far greater than simply reducing the purchasing power of taxpayers.
Visible construction jobs created on the “shovel-ready” criterion ultimately result in unseen jobs destroyed someplace else. We can see workers building a road. We can see pictures of Oberstar and Pogemiller making speeches on a new bridge. What we can’t see are the jobs that never had a chance to be because $819 billion was taken from the people who earned it and diverted elsewhere.
The stimulus package gives us more construction workers, but fewer waitresses, home remodelers, retail employees and jobs that entrepreneurs would have eagerly created and consumers would have willingly supported had government not diverted spending elsewhere. We can drive on a new road or cross a new bridge that would not exist without the stimulus package. We cannot, however, taste the food not produced by the restaurant that doesn’t open, make use of the new widget that is not invented, nor enjoy the room addition we cannot afford to build.
Visualizing the unseen damage of excessive government spending on nonetheless living, breathing people requires an imagination and intellectual honesty lacking in politically motivated policymakers. The hell of it is that Oberstar and the chosen few prosper on half-truths while the unseen many silently suffer the whole economic reality.
This commentary originally appeared in the St. Paul Pioneer Press, Friday, Feb. 5, 2009.