In Henry Hazlitt's landmark book, Economics in One Lesson, first published in 1946, he tackles among many issues the use of public spending or "stimulus" to create jobs. He details the fact that government spending on the promise of creating prosperity is a myth, a ruse, a sleight of hand. The key to revealing this fact is to trace the unintended consequences that result from such interventions.
We see with our eyes workers who get jobs from "stimulative" government spending, but what is less apparent is the fact that every dollar spent by the government on such activity must first come from somewhere else. For every make-work job created, money is diverted from some other area of our economy via taxes or public debt.
Rather than the free-market determining where these funds go, government officials decide. In general, government does an extremely poor job of allocating capital (i.e. note the recent slew of green-energy debacles). As such, the overall economy loses productivity, and thereby general prosperity, as money is re-allocated to less efficient pursuits.
- Had the money been left alone and no intervention been enacted, it would have remained at work in the marketplace.
- Diverting funds from more productive to less productive activity actually causes a downturn to last longer.
- This is exactly what happened in the Great Depression of the 1930s as mountains of stimulus money were spent on make-work projects only to yield a prolonged weak economy.
The unintended consequence of destroying jobs in otherwise more fruitful sectors can be hard for most folks to perceive. By contrast, it is easy to see the public workers building a street car, a new bridge, or staffing the extra positions in public service agencies (i.e. police, firefighters, teachers, etc.). But, in the end, it is only these favored groups that benefit at everyone else's expense.
Note also the amazing coincidence that most proposed interventions we hear about today frequently bolster sectors that are staffed by union workers. Sadly, this is no coincidence. It is in fact nothing more than naked pandering by politicians. Between 1989 and 2009, unions gave more money to political candidates than any other interest group (no kidding...view chart). Unions use their influence to advocate for spending in the sectors they control. In the end, we all lose as general economic productivity is reduced and weakness in our economy is prolonged.
If you haven't read Henry Hazlitt's book, Economics in One Lesson, I highly recommend it. It is available as a free PDF at the link below. It is an easy read and an eye opener. Here is a brief excerpt from the book detailing the consequences of a make-work bridge building project:
"Therefore for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $1,000,000 taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, radio technicians, clothing workers, farmers."
For above excerpt see, Economics in One Lesson, Hazlitt, 1946, pp. 19. Click this link to view full PDF.
