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Governments cannot Create JoBs
Opportunity Costs of “Job Creation”
In a previous module, we discussed the opportunity costs associated with
carrying a huge public debt (i.e. where could the money be spent if it
did not have to go toward servicing the debt?). In much the same way,
we can talk of the opportunity costs inherent in spending public money
on various job creation schemes. This is noted by Professor Reuven Brenner
in Secrets
in High Places:
All that we want, and all Canadians want, is to
prosper. So the question is, are these jobs creating wealth or not? And
I would say the whole focus on job creation is wrong; governments can
always create jobs.
If you look at communist countries, they never had any unemployment. How
did they do it? Well, everybody had to go to work. If you didn’t
work, you were defined as a hooligan and you entered into the criminal
statistics or you were in jail and not counted at all. Governments can
also enlist people in the army and the unemployment rate will go down.
There are other ways in which the governments can create employment. If
they make a country very poor they might not, let’s say, import
snow-removal equipment, and then the people have to shovel or clean snow
with teaspoons. You will have plenty of employment but you will also have
a lot of poverty.
The issue is what types of jobs the country is creating – not just
whether someone is employed or not.
There is another problem with this whole issue of job creation by governments.
They are saying, “We are spending $8.3 billion on this program.”
Let’s say this money created some jobs, forgetting the quality of
the jobs. What is not evident, what is never taken into account, is how
many jobs were lost because of the $8.3 billion that must come either
from taxes or from increased borrowing. So the governments always point
out, “Look, we are employing 10,000 people on building this road.”
What is not visible is that maybe 10,000 jobs were lost in other parts
of the economy.
Need Entrepreneurs
Instead of governments gambling with our money on trying to pick winners
in their investments in private industry, their efforts may be better
placed in trying to create an environment that encourages entrepreneurship
and risk-taking in the economy (e.g. reasonable tax regime, a well educated
populace, stable currency, etc.). As venture capitalist David Blumberg
notes in this video clip from Canada’s
Brain Drain, it is entrepreneurs who create jobs, not governments.
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