When the government distributes lucre or loot, people spend it. If your interest is national income accounting, spending other peopleÂ’s money is great. Spending is a back-door way for government statisticians to measure what matters, which is the real output of goods and services. But the government has no money of its own to spend; only what it borrows or confiscates from us via taxation. Oops.
“Government job creation is an oxymoron,” said Bill Dunkelberg, chief economist at the National Federation of Independent Business. It is only by depriving the private sector of funds that government can hire or subsidize hiring.
That’s why “jobs created or saved” is such pure fiction. It ignores what’s unseen, as our old friend Frederic Bastiat explained so eloquently 160 years ago in an essay.
Econometric models synthesize all sorts of variables and spit out a GDP forecast. From there they derive the change in employment using something called OkunÂ’s Law, named after the late economist Arthur Okun, which describes the relationship between the two.
Fiction Lags Reality
Actual hiring seems to be lagging behind the modelÂ’s land of make-believe. For small businesses, which are the source of most job creation in the U.S., the governmentÂ’s increased and changing role in the economy isnÂ’t a confidence builder. Businessmen have no idea what health-care reform will mean for their cost structure or what whimsical tax policies the government might impose when it realizes those short-term deficits are running into long-term unfunded liabilities.
No wonder capital spending plans were at an all-time low in the third quarter, according to the NFIB monthly survey.
Only 30,383 jobs were created or saved by the American Recovery and Reinvestment Act, according to Recovery.gov, the governmentÂ’s once-transparent Web site that has become a complex blur of numbers, graphs and pie charts. These are only the jobs reported by federal contract recipients. The Obama administration will report the larger universe of ARRA-related jobs on Oct. 30.
An extrapolation of what would have happened without the fiscal stimulus isnÂ’t much consolation to the 9.8 percent of the workforce that is unemployed. Nor is RomerÂ’s prescription for the economy and labor market very comforting in light of the trillions of future tax dollars that have been spent, lent or promised by the federal government.
“If you take your foot off the gas, the car goes from 60 back down to a slow crawl,” Romer said in clarifying blog post.
Gentlemen, start your engines.