That title and picture should get Rocket Finance a more diverse audience than usual . . . Paris Hilton is a symbol of extravagance and excess, yet she creates demand for products, helps to populate nightclubs, employs designers and clothing manufacturers and keeps photographers, bloggers, and television smut peddlers busy. I am not a big fan of Ms. Hilton personally, but I always admire entrepreneurship and I am happy for the people she employs.
Even though Ms. Hilton has little personal substance, the jobs she creates are more substantial (economically speaking) than the employment promised in the Obama stimulus package.
Many have advanced the opinion that the $850 billion worth of spending in the new legislation will get our economy rolling again by creating an estimated 2.5 to 4 million new jobs. The problem is that these jobs are public sector, government jobs, not jobs that are demanded by the market place.
For instance, how will $355 million for STD prevention or $50 million for the National Endowment for the Arts translate into private sector jobs that earn a profit and incentivize employers to hire more people to work these jobs? The simple answer is, they won’t. Sure, it is possible that some people will be hired to work for this money in the short run, but what will happen when the money runs out? Will those workers still have jobs? Even infrastructure projects, while needed, will have the same problem. Unless more funding is mandated, those jobs will pass out of existence and we will be left with the debt.
The truth is, that this bill will cause an increasing number of people to get a paycheck from the coffers of the federal government – creating more dependency. What happens after all these new people are hired with the $850 billion this year and then the federal budget returns to “normal” levels next year.? Will all these folks lose their jobs? Or will government just get bigger?
Jerry Jordan says it much better than I in his essay entitled, Job Creation and Government Policy. He basically proves that with a few exceptions, government job creation is a myth. Even one of President Obama’s new economic advisors, Christina Romer, has made the case that a tax cut’s multiplier on the economy is three times the multiplier of government spending. Romer is a former Berkley professor who is probably staying very quiet about her work on taxes while in meetings with the current Obama administration. Doug, at Yes and Not Yes, writes, “Every dollar taken away from taxpayers is one dollar less they have to spend on other stuff. Thus, for every job that is created by funding from [government], a private job has been destroyed elsewhere.“
There are several reasons why government spending does not stimulate the economy quite as well as tax cuts:
When government takes a dollar from you and I in the form of taxes, it has to pay a whole bunch of people in order to pry that dollar from you, a whole bunch of people to make sure you gave it to them, a bunch of people to keep track of that dollar, a bunch of people to decide how to spend it and a bunch of people to actually spend it. Ironically, the last group of people believe that they are dealing with an unlimited amount of cash and see no need to be frugal with their portion of the federal budget. The government also employs another bunch of people to make sure that all those other bunches of people are treating your dollar right. This is one of the reasons that private charities provide a whole lot more help, a lot more efficiently, to the poor than the federal government every will. And the same is true for every other department in the mammoth bureaucracy.
The market adjusts when people change. Poorly run businesses or businesses offering a product that no one really wants, go out of business. But more businesses with new ideas and better products spring up to take their place. In government, they don’t change with the marketplace and there is no demand for most of the products created by government. Other than public safety and defense, there are not too many things that the government creates for which there is high demand. The federal government is kind of like the LP factory that when faced with competition from the audio tape industry, they raise their prices. Then when compact discs came along, they raised their prices again. That kind of thinking only works in government.
Employers hire an employee because that employee will make more money for the employer. Very few employers hire workers simply to support those workers. If they do, that business will not last long. Do you realize that the U.S. Postal Service just had it’s first round of layoffs – ever?! Internet, fax and email has been around for more than a decade, but the good old USPS is just now cutting costs? Don’t get me started on Amtrak . . .
The search for profit also motivates businesses to keep costs low. Government agencies never have to turn a profit. In fact, the more they overspend – the more they demand from the federal budget. There is actually a built-in incentive to spend more!
Because of the bureaucracy, it takes dozens of private sector jobs in order to employ one federal worker. Yet, as more taxes are collected to support those federal workers, the less the private sector can afford to hire new people. The more federal workers we have, the more the private sector employees are squeezed.
I could come up with more ways that government spending is bad for our economy, but the single most important reason is this: we don’t have the money. The $850 billion stimulus bill is actually debt, debt that will drive down the value of the dollar and debt that will have to be paid back by our children and grandchildren.
Even Paris Hilton would be ashamed to spend money this way.