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Governments Should Make Sense, Not Jobs

Posted by on March 13, 2009

[This post was originally written for my employer’s blog, Show-Me Daily.]

There is a lot of talk at present about job creation. During the Great Depression, the federal government engaged in job creation. Currently, our General Assembly is discussing a bill to promote job creation. Some are frustrated that this bill is not being fast-tracked.

There is a mistaken view that governments can solve economic problems such as unemployment. History has shown that government solutions may create short-term fixes, but have long-run unintended consequences often worse than the problem they set out to solve. Our fine editor Eric Dixon recently mentioned to me, “There is a correlation between economic growth and job creation, so government officials tend to think that they can cause economic growth by creating jobs. But it doesn’t work that way.”

Voluntary economic exchange, often coupled with competition, produces wealth and leads to a greater number of people getting what they want, for less — and it brings rising employment. It is true that those who are employed have a lot going for them that the unemployed may lack. For one thing, they have a regular paycheck and are likely self-sufficient. When someone who owns a business decides that hiring a new person will add more value to her business or product than it costs to remunerate the new employee, the business wins, the employee wins, and the customers win.

Tax-incentivized job creation is a cruel parody of this win-win scenario. When the government steps in, there is reason to believe that the legislator who controls the direction of the subsidy knows less about what people need and want than do the people themselves, so incentives are misdirected. Tax dollars go to support things that people may not have wanted, or at least didn’t want at that marginal rate of exchange. When job creation is subsidized, employers and employees win (at least temporarily), and customers may win — but taxpayers lose.

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