Monday, February 16, 2009

How Many Jobs Does Government Create? Zero.

Below is an excerpt from an essay written by 19th Century French economist, Frederic Bastiat entitled, "What Is Seen and What Is Not Seen." In this selection from Bastiat's works we will learn that government does not create jobs. As Republicans and Democrats alike often proclaim the comparative value of their competing bills in the language of which party's bill "creates" more jobs, with the help of Bastiat we shall see both parties turn from the truth. The money to create the job of a worker in one (favored) industry is extracted from the wallet of workers in other industries (unfavored by legislation), either now and/or in the future, via greater taxation. Only private capital, unfettered by government force and plunder, creates jobs.

from "What Is Seen and What Is Not Seen" by Frederic Bastiat

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.

The same thing, of course, is true of health and morals. Often, the sweeter the first fruit of a habit, the more bitter are its later fruits: for example, debauchery, sloth, prodigality. When a man is impressed by the effect that is seen and has not yet learned to discern the effects that are not seen, he indulges in deplorable habits, not only through natural inclination, but deliberately.

This explains man’s necessarily painful evolution. Ignorance surrounds him at his cradle; therefore, he regulates his acts according to their first consequences, the only ones that, in his infancy, he can see. It is only after a long time that he learns to take account of the others. Two very different masters teach him this lesson: experience and foresight. Experience teaches efficaciously but brutally. It instructs us in all the effects of an act by making us feel them, and we cannot fail to learn eventually, from having been burned ourselves, that fire burns. I should prefer, in so far as possible, to replace this rude teacher with one more gentle: foresight. For that reason I shall investigate the consequences of several economic phenomena, contrasting those that are seen with those that are not seen.

Public Works

Nothing is more natural than that a nation, after having assured itself that an enterprise will benefit the community, should have it executed by means of a general assessment. But I lose patience, I confess, when I hear this economic blunder advanced in support of such a project. "Besides, it will be a means of creating labour for the workmen."

The State opens a road, builds a palace, straightens a street, cuts a canal; and so gives work to certain workmen - this is what is seen: but it deprives certain other workmen of work, and this is what is not seen.

The road is begun. A thousand workmen come every morning, leave every evening, and take their wages - this is certain. If the road had not been decreed, if the supplies had not been voted, these good people would have had neither work nor salary there; this also is certain.

But is this all? Does not the operation, as a whole, contain something else? At the moment when M. Dupin pronounces the emphatic words, "The Assembly has adopted," do the millions descend miraculously on a moon-beam into the coffers of MM. Fould and Bineau? In order that the evolution may be complete, as it is said, must not the State organise the receipts as well as the expenditure? Must it not set its tax-gatherers and tax-payers to work, the former to gather, and the latter to pay? Study the question, now, in both its elements. While you state the destination given by the State to the millions voted, do not neglect to state also the destination which the taxpayer would have given, but cannot now give, to the same. Then you will understand that a public enterprise is a coin with two sides. Upon one is engraved a labourer at work, with this device, that which is seen; on the other is a labourer out of work, with the device, that which is not seen.

The sophism which this work is intended to refute, is the more dangerous when applied to public works, inasmuch as it serves to justify the most wanton enterprises and extravagance. When a railroad or a bridge are of real utility, it is sufficient to mention this utility. But if it does not exist, what do they do? Recourse is had to this mystification: "We must find work for the workmen."

Accordingly, orders are given that the drains in the Champ-de-Mars be made and unmade. The great Napoleon, it is said, thought he was doing a very philanthropic work by causing ditches to be made and then filled up. He said, therefore, "What signifies the result? All we want is to see wealth spread among the labouring classes."

But let us go to the root of the matter. We are deceived by money. To demand the cooperation of all the citizens in a common work, in the form of money, is in reality to demand a concurrence in kind; for every one procures, by his own labour, the sum to which he is taxed. Now, if all the citizens were to be called together, and made to execute, in conjunction, a work useful to all, this would be easily understood; their reward would be found in the results of the work itself.

But after having called them together, if you force them to make roads which no one will pass through, palaces which no one will inhabit, and this under the pretext of finding them work, it would be absurd, and they would have a right to argue, "With this labour we have nothing to do; we prefer working on our own account."

A proceeding which consists in making the citizens cooperate in giving money but not labour, does not, in any way, alter the general results. The only thing is, that the loss would react upon all parties. By the former, those whom the State employs, escape their part of the loss, by adding it to that which their fellow-citizens have already suffered.

There is an article in our constitution which says: - "Society favours and encourages the development of labour - by the establishment of public works, by the State, the departments, and the parishes, as a means of employing persons who are in want of work."

As a temporary measure, on any emergency, during a hard winter, this interference with the tax-payers may have its use. It acts in the same way as securities. It adds nothing either to labour or to wages, but it takes labour and wages from ordinary times to give them, at a loss it is true, to times of difficulty.

As a permanent, general, systematic measure, it is nothing else than a ruinous mystification, an impossibility, which shows a little excited labour which is seen, and bides a great deal of prevented labour which is not seen.

Sunday, February 15, 2009

Stimulus Bills, Playgrounds, and Sandboxes

by Jeffrey Robbins

The recent stimulus bill, The American Recovery and Reinvestment Act has garnered much attention from Republican supporters as evidence of the divide that stands between the Democratic and Republican parties. The final votes for the bill are pointed to as clear evidence. The 246 Yea's in the House consisted of zero Republican members. The whole of the Republican House membership joined seven Democrats in voting no. In the Senate, three lonely Republican Senators joined all Democrats and Independents in voting for the bill. The version which passed was a $787 Billion bill breaking down into the following two major categories: $275 billion in tax cuts, $512 billion in spending (Education, Health Care, Unemployment, Infrastructure, and Energy were the primary categories in spending). In a vacuum, it would appear the Republican supporters have a point. How does one argue ZERO Republican votes for this monster bill in House and a mere three in the Senate? A good place to start might be to look at the "alternatives" proposed by the Republicans which have gotten little attention.

The Senate GOP alternative stimulus bill was a $713 Billion plan put together by Florida Sen. Mel Martinez, who had been working with other GOP senators. The proposal included $430 billion in tax cuts, $114 billion for infrastructure projects, $138 billion for extending unemployment insurance, food stamps and other provisions to help those in need, and $31 billion to address the housing crisis. Now, $74 Billion (the difference between the two bills) is a lot of money to be sure, but I'm not certain we are talking wholesale philosophical differences here. It is also noted that the Republicans were clearly in favor of relying on more tax cuts. However, they certainly did select most of the same areas of the economy for spending, albeit in smaller amounts than the Democrats in some cases.

The House GOP, comparative models of fiscal restraint they've proven to be, came up with its own alternative stimulus bill as well, ringing in at a mere $478 Billion. Like the Senate GOP alternative bill, it was more reliant on tax cuts than the Stimulus bill that passed. Other primary components of the House GOP proposal were unemployment benefits, and a new home buyers tax credit. The House GOP alternative bill was even nearly 33% smaller than the Senate GOP proposal. Even so, at least one major category of spending, unemployment, shows up from the Republicans in the House. To ferret out the differences, let's instead look at just a few of the similarities.

1. Both parties sought to cut taxes.
2. Both parties neglected to cut spending.
3. Neither party addressed the right of the government to access your wallet in the first place and as such we are forced to conclude that both parties believe they have power over your wallet by force. They giveth and they taketh away. Right now they giveth, tomorrow they...
4. Both parties recommended increasing spending, merely squabbling over, sometime differences in where your money is spent, but again, not in whether they can or should in the first place.
5. Both parties believe in the welfare state, including unemployment benefits in all three bills.
6. Both parties believe in the redistribution of wealth. Remember, highlighting tax cuts to one group means you are subsidizing one group of citizens over another, even per both of the Republican "alternative" bills. This also shows up again in the Republican's bill with the new home buyer tax credit, redistributing wealth from renters to home owners.

Where were these seemingly conservative Republicans when the Emergency Economic Stabilization Act of 2008 which created the $700 Billion Troubled Asset Relief Program (TARP) was passed by the Senate 74-25 on October 1, 2008? The Yea's included not the much talked about 3 GOP Senators who voted for the Stimulus Bill, but 34 Republican Senators who voted yes versus 15 that voted No. In the House, the final vote came on October 3, 2008 and was 263-171. It included not the zero GOP voters that the recent Stimulus bill had, but rather 91 Yea's from GOP House members versus 108 Nea's from GOP House members.

What's going on right now is you have two groups of kids who play in a sandbox that resides on a much larger playground. Both groups of kids generally believe the playground (and the people that vote them into the sandbox) should be "managed" in generally the same way. One group of the kids every few years, inevitably, has their feelings hurt and fewer of their group of kids win spots in the sandbox on the playground. It's sad, but don't make the mistake of thinking the two groups of kids dislikes each other's toys.

To demonstrate, let's ignore all the other toys that the two groups of kids believe you should pay for in order that they might play with them to focus on just two: WELFARE and WAR. I know, weird toys, but trust me, it's a weird sandbox! It just so happens that one of the groups of kids sometimes fancies WELFARE a little bit more than the other group of kids. Of course this leads to little "fits" to be thrown over how much should be spent on WAR versus WELFARE. These "fits" are really for the consumption of those people outside the sandbox, on the playground. We'll call them "voters." Both groups of kids agree WAR and WELFARE should be paid for by one group of people on the playground to provide to another, different, group on the playground. Philosophically both groups of kids like WAR and WELFARE and don't question whether they can or should. But, they like them to different degrees. Or at least sometimes they do. Sometimes they like them the same. Heck, sometimes, they even flip flop and the group of kids that didn't like WAR as much as the other group of kids, before you know it, a few years later they like WAR more than the other group of kids. Anyway, in order for one group of kids to "win" spots back in the sandbox next time, those "voters" outside the sandbox on the playground (you) must believe the group of kids you like doesn't really like WELFARE, for example. And we've just seen this played out masterfully. Not bad for a bunch of kids.

To review in greater detail the lack of difference between the two parties over the past decades, please review our series of posts entitled "Are Republicans Conservative?" parts one through three. They were posted on January 5, 2008. Or copy and paste the following link to go to the first of the series.