Why politicians benefit from destroying jobs.
It is fascinating how durable are certain fallacies. While much of economics is counterintuitive the basics are not that difficult to understand. Yet some highly intelligent people continue to say to the same dumb things over and over again.
Just a few moments ago I was listening to some politician prattle on about how some government proposal would create “thousands of jobs”. Of course that simply isn’t true. Government programs don’t create jobs. Government programs can’t create jobs. At best they merely redistribute already existing jobs. In this sense creating jobs is like creating wealth. The government doesn’t create wealth. It can merely change the pattern of distribution.
When government confiscates wealth from one segment of the economy and gives it to another segment no new wealth is created. That is obvious. In fact the redistribution makes the economy poorer. It does so for several reasons.
First, when government redistributes wealth it consumes a good portion of that wealth on the process of redistribution. For each dollar the government confiscates at the beginning of the process it returns pennies at the end of the process.
Second, government has to tax those sectors of the economy that are actually productive. It is hard to confiscate wealth from those who don’t have it. To be profitable an industry must produce something which people want and are willing to pay for. That means it has to produce something which people value higher than the money they spend on the product. So people get less of the things they value.
But where do the redistributed funds go? They go to sectors of the economy that people value less. So government takes money from areas which people want more of and give it to sectors where people want less. It encourages the production of services or goods people want less while punishing the production of goods or services which people want more. The net result is that less valuable things are produced more and more valuable things are produced less. That makes everyone poorer. Government never actually redistributes wealth, it redistributes poverty. Government “redistribution” of wealth destroys wealth.
How wealth is redistributed is relatively open and apparent. And it is pretty easy to see how wealth is destroyed in the process. But how the same thing happens to jobs is hard to see.
The reason it is more difficult to notice is that government doesn’t actually go out and confiscate jobs. It doesn’t appear at the door of a successful company and orders employees out of the building, and then takes them to an unproductive plant where they are forced to work. If that happened it would be clear what is going on.
The way government redistributes jobs is actually the same way it redistributes income. Of course, politicians never admit they are redistributing jobs. They pretend they are “creating” jobs. How does this magic take place?
They find some project or endeavor that they decide ought to be showered with tax money. As the money goes rolling in we see “new” jobs. They are visible and obvious. In fact, the politicians go out of their way to show you these “new jobs”. It might be highway workers standing around a ditch looking serious and filling in the hole that they just dug, or it might be more “supervisors” in the education department, or additional surly desk clerks at the Department of Motor Vehicles. If the politicians are being smart they pour the money into so failed industry so that it appears they are “creating” private sector (another word for productive sector) jobs.
Let us say they pour money on some ethanol plant. You see new workers hired to produce a fuel that consumers don’t want and which is worse for the environment. But hey, that’s okay, it creates jobs! You can see them yourself.
How did they create jobs?
First, they took money out of the productive sector of the economy. That reduces demand in those areas and reduces employment there. But who notices? It’s not like the politician will call in the press to have his photo taken at the company that reduced employment due to higher taxes. The “new” jobs are visible while the jobs they destroy are not so obvious.
Sometimes the jobs destroyed are even less obvious. A company that might have expanded puts off the expansion. They might now lay off employees but they slow down their hiring. Often the jobs destroyed are jobs that were not yet created.
In the case of our ethanol plant notice what else the politicians did. By increasing the demand for corn for ethanol they drove up the price of corn for consumption by humans or as animal feed. The net result is more expensive food. While they created additional wealth for the billionaires who tend to own ethanol plants they harmed the working people who face higher food prices.
So what do you do when food prices go up? Do you stop eating? Not likely. Instead you cut down on other things. You might skip a vacation this year. But the politicians say it is worth it and your sacrifice is minimal. But when you didn’t take that vacation that means less demand in the tourism sector. It means lower profits there. It means less demand for employees there.
Maybe you stop eating out as much. As others do the same the demand for restaurants goes down. Some entrepreneurs who own restaurants lose their business. A lot of waiters, waitresses, dishwashers, counter-help, cleaners, etc., find they either lose their jobs or have their hours cut back.
All over the productive sectors of the economy the same thing is happening. Government “jobs” programs destroy productive jobs. And the results are interesting.
Since the bureaucrats consume much of the money they redistribute they create fewer jobs than they create. If they eat up only 25% of the total (and it is more) then for every $1 million worth of jobs they destroy they create $750,000 in other jobs. Often the jobs they create are better paying than the jobs they destroyed so even more are destroyed than created. It is possible that for every job they create two jobs have been destroyed.
Now if they actually increase unemployment and make the economy poorer then why do they bother?
First, the typical voter is clueless as to what is happening. They actually fall for the baloney that these programs create jobs. Even the politicians who know the smidgen of economics necessary to see through this fraud play the game because they benefit by the delusions of the public. In the end they worry more about being elected again than they do about some poor schmuck who loses his job because of their “jobs program”.
And these politicians know that in doling out the funds that “create jobs” they win favors from special interest groups and votes from the members of those groups. When jobs are actually created in the productive economy the politician can’t claim the credit. They can’t use those jobs as favors to be called in during the election. The jobs they appear to create actually give them power. By destroying jobs through this process the politician actually ends up better off politically.
That is one of the sad truths of politics. Far too often the politician gains the most by during his worst. The successful politician knows how to use the system to stay in office. And in the end the only job he really cares about is his own.