The good news for unemployed people is that Barack Obama is about to do his best imitation of Bill “I Feel Your Pain” Clinton and start concentrating on giving them jobs. How? Well, that’s not so clear. They’re making it up as they go along. The bad news is that the mainstream economists who the administration listens to are just as confused as they are about how to “create jobs.”
The Obama administration said Wednesday that the president will make a speech shortly after Labor Day outlining what he’s planning to do about creating jobs. It would probably help if he would call someone at the Mises Institute for a few minutes to get an explanation about why government can only destroy jobs, not create them. Since that’s not going to happen, let’s take a look at the beliefs of the sort of neo-Keynesians who he will be listening to in formulating his plan.
Kenneth Rofoff, economics professor, Harvard University: Infrastructure spending, if it were well-spent, that’s great. I’m all for that. I’d borrow for that, assuming we’re not paying Boston Big Dig kind of prices for the infrastructure.
Fareed Zakaria, host: But even if you were, wouldn’t John Maynard Keynes say that if you could employ people to dig a ditch and then fill it up again, that’s fine, they’re being productively employed, they’d pay taxes, so maybe Boston’s Big Dig was just fine after all. [Emphasis mine]
This is one of the key roots of the problem with many mainstream economists. They believe the economy is about money. In reality, it’s about value produced. If they were stupid enough to believe what they were saying, all they would have to do is send everyone in the country a check for a million dollars. Print the money. We’d all be rich.
But that’s not the way things work. Creating money to pay for unproductive work just inflates prices, stealing from those who are still productive. Taxing people to pay for unproductive work takes investment and spending money out of the economy, reducing the ability of the market even further to create jobs. Creating useless work — whether through printing money or taxation — destroys jobs in the private sector. It’s obvious to anyone who’s not looking at wall pin-ups of John Maynard Kenyes with goo-goo eyes.
After no one challenges Zakaria’s bizarro assertion that Boston’s Big Dig was just swell even though it cost ridiculous amounts of money for the value produced, my favorite economist from the Twilight Zone jumps in to pull out another favorite myth of the Keynesians and their friends.
Paul Krugman, New York Times: Think about World War II, right? That was actually negative social product spending, and yet it brought us out.
I mean, probably because you want to put these things together, if we say, “Look, we could use some inflation.” Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what fhe basic logic says.
It’s very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish, you know, a great deal.
If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better –
Rogoff: And we need Orson Welles, is what you’re saying.
Krugman: No, there was a “Twilight Zone” episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time, we don’t need it, we need it in order to get some fiscal stimulus.
These people honestly believe that money spent — no matter why it’s spent or the effects of the spending — is the same as creating growth. They don’t understand that if the spending produces nothing of value, the amount of overall value in the economy is lowered and that the average standard of living must go down.
(If you’d like more details about why World War II didn’t end the Depression, as Krugman asserts, take a look at this explanation by Art Carden at the Mises website. For other “Great Myths of the Great Depression,” see this excellent article from the Mackinac Center for Public Policy.)
Jobs and wealth are created when people use their minds to figure out things they can do that other people want to exchange things of value for. When you create something of value and another person creates something of value — and you exchange those things of mutually beneficial terms — you both benefit. But if you and your trading partner both just dig ditches and fill them — and then exchange those ditches — you each have nothing to show for your efforts.
The only way someone can end up with something of value for having done something useless is if he is given value that has been taken away from someone else. That’s what the Keynesians advocate. They honestly don’t understand that digging ditches for each other doesn’t create wealth, even if we write people checks and tell them they’re good citizens.
The economy is about value, not about money. Money just represents the value of productive work. If you take away the productive work that people voluntarily do for one another, you’re left with nothing but bits of paper and numbers in computers.
Government “make work” programs don’t work. They never have. They never will. The state destroys wealth — and it’s time for it to get out of the way for productive people to live as they please.
Note: If you want to be entertained and educated about the debate between free market Austrian-school economists and state control advocates of the Keynesian camp, I highly recommend two rap videos. (No, I don’t normally like rap.) “Fear the Boom and Bust” came out early in 2010 and was a big hit, especially with free market types. The sequel this year, “Fight of the Century: Keynes vs. Hayek Round Two,” is just as good. I especially enjoy the short bit in the opening of the second one featuring the always-entertaining economist Mike Munger as a security guard. Take a look at them.