Saturday, July 30, 2011

Government has been a job-creator (even if the GOP may not know it)

"No taxes on job-creators" (meaning owners of small and large businesses and anyone making over a certain amount of money, say a quarter-million a year) has been a mantra of some Republican participants in the debt/deficit debate. In view of that, the following may be of interest inasmuch as it shows that government, supposedly the root of all evil, has been a major job-creator.
Between 1990 and 2008, the number of employed workers in the United States grew from about 122 million to about 149 million. Of the roughly 27 million jobs created during that period, 98 percent were in the so-called nontradable sector of the economy, the sector that produces goods and services that must be consumed domestically. The largest employers in the U.S. nontradable sector were the government (with 22 million jobs in 2008) and the health-care industry (with 16 million jobs in 2008). Together, the two industries created ten million new jobs between 1990 and 2008, or just under 40 percent of total additions.
-- Michael Spence, "The Impact of Globalization on Income and Employment," Foreign Affairs, July/August 2011, p.30 (emphasis added).


hank_F_M said...


Granted there are some rather dumb oversimplifications in that argument but it really deserves a better critique.

A privates sector commercial job produces enough income to pay the employees salary, part of the overhead of the enterprise, and of course taxes. The taxes from several private sector workers pay the salary of a government worker and governmental overhead.

The government worker while, hopefully fulfilling a useful service is normally not engaged in activity that in itself adds to the National Income. Of course he/she does not pay enough taxes to pay his/her salary.

Private sector jobs produce income some of which is taxed which provides government jobs which provide services that enable the private sector to produce jobs . .ad infinitum .

Increasing private emploment increases the tax revenue that enables more governemtn services and jobs. If the cost of an increase of government jobs has the effect of breaking the circle at the private sector level sooner or later everything collapses. The country can only avoid this by borrowing for so long. Eventually principle and interest will reduce private and governmental employment.

I’m sure Ms Chick N Little and friends are overstating, and I haven’t done enough research to say in the short run, but long term the cycle needs to fixed.

The question should be “Is the Stimulus program and government spending generally consuming so much resources as to prevent a recovery?” Perhaps you can provide a better critique.

LFC said...

I don't deny at all that at a certain point government debt levels can become economically harmful. Govt. borrowing can eventually crowd out private sector borrowing, and govt. interest payment on treasury notes can eventually eat up too much of the budget (as you suggest). Deficits if large enough can have an impact on the currency's value and the trade balance. Etc. I'm not an economist, of course, but I would guess most economists think it would be good if deficits were reduced, and in my view the best way would be via 'revenues' (to use the word of the moment, meaning closing of various loopholes, higher tax rates on the wealthy etc.) plus targeted cuts in (growth of) spending in certain areas.

Having said that, there are things in your comment I either don't really understand or else just don't agree with. For instance: "The government normally not engaged in activity that in itself adds to the National Income." I'm sorry to be blunt, but I think that's simply wrong. A country's gross domestic product (GDP) is usually defined as the sum total of all goods and services produced in the economy. Spence, in the article I quote from in the post, defines GDP a bit differently as "the value added produced by all the industries in all the sectors of an economy." A govt worker doing his or her job properly is producing services (or in some cases perhaps goods) and hence adding to GDP (under either definition).

Incidentally -- I was going to write another post about this but I'll just stick it in here -- I've been listening to some of the Senate debate on the 'Reid plan' this aft and eve. A lot of it is standard talking points but some of it has been interesting. Sen. Menendez (D-NJ) must have a rather intellectual staffer writing his speeches, since he quoted inter alia Burke and Weber (the famous distinction in 'Politics as A Vocation' between an ethic of responsibility and an ethic of ultimate ends). First time I've a heard a Senator quote Weber in a floor speech.

LFC said...

Re your question at the end: I think this has it basically backwards. A main reason the recovery has been anemic is that the stimulus program wasn't big enough -- from the standpoint of recovery, there should have been more spending not less. Cutting even the rate of growth of spending while recovery is slow is probably not a great idea. But of course the political winds are blowing in the opposite direction. So while long-term deficits are a problem, the economic prescription if it were politically feasible would be (quoting Krugman, who just said this on one of the Sunday shows): spend now, cut later.