The Best Job Creation Strategy? Government Non-Intervention
Last week, I attended a Legislative Action Seminar sponsored by the Missouri Chamber of Commerce here in Saint Louis. Sitting on a legislative leadership panel, Senate President Pro Tem Robert Mayer said that tax credit programs in Missouri are not his top priority, and that they should take a back seat to job creation.
This is a message that he has communicated frequently of late. From an article in the Missouri Watchdog:
New state Sen. President Pro Tem Robert Mayer, a Republican from Dexter, said discussion on tax credits “needs to happen.” But when pressed on how soon that discussion would take place in the upcoming session of the Missouri General Assembly, Mayer demurred.
“First, we need to get to work on job creation and see what we can do there,” Mayer said.
Government programs that are intended to induce job creation and economic activity have negative unintended consequences, such as crowding out private investment. This is a concept that Henry Hazlitt discusses in his classic work Economics in One Lesson, a book that I encourage policymakers in Missouri to read. Even though the book was first published more than 60 years ago, at present the lesson it teaches is no less relevant:
When providing employment becomes the end, need becomes a subordinate consideration. “Projects” have to be invented. Instead of thinking only where bridges must be built, the government spenders begin to ask themselves where bridges can be built. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? lt soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries. […] [The bridge] is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $1,000,000 the taxpayers will lose $1,000,000. They will have that much taken away from them which they would otherwise have spent on the things they needed most.
Therefore for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $1,000,000 taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, radio technicians, clothing workers, farmers.
Basic economic forces, not government programs, determine job creation. Only by getting out of the market can the government truly further its goals of job creation and productive economic activity.
In his comments, the senator sets up a false choice between job growth and tax credit reform. Job creation will occur when the overall cost of doing business in the state decreases, and this can be partially accomplished by reining in tax credits and widening the tax base. Once employers don’t have to subsidize other companies or prop up entire industries with their tax monies, they will be able to hire more people and grow their businesses.