The Job-Killing Effect of the ‘Do Something’ Mentality

The big news last week was a dismal national jobs report.
According to the U.S. Department of Labor, there was zero job
creation in August. But hang onto your hats. This week, the call will
go out for “bold” and “innovative” counter-offensives on the jobs
front at both the state and national levels.
The real question is whether either of the proposed
government-funded and government-led counter-offensives stands
any real chance of success.

With the state legislature meeting in a special session this
week, lawmakers from both parties are prepared to argue in favoring
of extending $360 million in proposed tax credits to support the
creation of a “Midwest China hub” or “Aerotropolis” at Lambert-St.
Louis International Airport. Based on previous comments, some of
them will admit to a large degree of skepticism about the possibility
that Lambert will evolve into a major cargo hub, but they will go on
to say it is still worth taking a shot at making it happen — given a
huge potential payoff in jobs and increased economic activity.

And on Thursday evening, President Barack Obama will no
doubt echo some of the same sentiments when he addresses a joint
session of Congress on the subject of job creation. We can’t afford to
stand around and “do nothing,” he or his supporters will suggest.
But there is nothing in the history of our state or nation that
suggests government intervention in the marketplace is an effective
tool for job creation. Indeed, when governments use taxpayers’
money in trying to pick economic winners and losers, they almost
invariably pick losers and compound failure.

Milton Friedman, the great economist, observed that people
have every incentive to economize and to get as much value as they
can for each dollar they spend when they are shopping for
themselves, but they are far more likely to be careless or wasteful
when they are spending someone else’s money for the benefit of
others. This is the case when you use an expense account to pay for
someone else’s lunch.

It is also the case when politicians or lawmakers pretend to have the
needed knowledge and expertise to channel a large sum of taxpayers’ money
to selected businesses or industries on the theory that these politically favored
and politically-dependent enterprises will do a bang-up job of
promoting the public good.

Politicians often argue that even one job created through tax credits or
subsidies is better than none. But this ignores the opportunity cost of
expending large amounts of taxpayers’ dollars for little economic benefit. If
the government takes a million dollars to create one job, that’s a million
dollars that could have gone to more efficient and productive ventures in the
private sector — creating stronger and better jobs for more people.

If Missouri lawmakers have some $360 million to spare and want to
put it to good use, they should return the money to all of the citizens of this
state through tax cuts or refunds. As Friedman pointed out, they will know
how to get the most bang for the buck.

The federal government should heed the same advice when it comes
to making a choice between expanded public works or reducing taxation,
leaving people free to choose how to spend a greater share of their own
income.

Andrew B. Wilson is a fellow at the Show-Me Institute, which promotes market
solutions for Missouri Public Policy.