The Myth of Government Job Creation

The Myth of Government Job Creation

by: Richard Bratten

Government doesn’t create jobs. Government cannot create jobs. Anybody who says that “I want to be elected to office so that I can create jobs for the people” needs a remedial course in economics.

Government is by definition a drag, a friction, an impediment to the creation of jobs, wealth, or value. Government can only attain resources by taking them from people upon threat of force or incarceration (see the IRS, et al.) The money that government spends in the name of job creation is the same money that private business and entrepreneurs no longer have to spend that they could have created jobs with.

Colorado government takes its money from private citizens (we’ll leave the idea of the federal government creating money out of thin air, i.e., the deficit spending “stimulus” approach, for another day). When the government takes money from people, the people lose their money. In order for government to “create” a job it must take money from the private sector first. While the government may revel in its new found power to “create” a job with the money it took away from the people, the private sector has now lost that same amount of money with which it would have created private sector jobs.

Who’s Better at Creating Jobs?

So the question becomes, who do you think is better at creating jobs, products, value and wealth – government or private enterprise? Before you choose, consider this:

Government has no sensitivity to cost, has no sensitivity to price, has no threat of going out of business by putting out a bad product, has no competition who can lose money every year and simply raise more taxes to make up for it, and has no capital market discipline placed upon it because there is no competition or true market prices that provide any signals of value. None of the discipline of multiple market forces apply to the government. Government can create a bad product and not worry about going out of business. It can overspend because it doesn’t care if it loses money – it can simply raise more taxes (by threat of force/jail) or, if you’re the federal government, it can simply print more money.

Look at this in a simple way through this table:


Must contain costs?
Government No No competition, doesn’t need profit, can raise taxes, never go out of business
Entrepreneur Yes If costs exceed income, go out of business
Must provide product for a low price?
Government No No competition, doesn’t need profit, can raise taxes, never go out of business
Entrepreneur Yes If product too expensive no one will buy it, go out of business
Must provide a good product?
Government No No competition, doesn’t need profit, can raise taxes, never go out of business
Entrepreneur Yes If product stinks, no one will buy it, go out of business
Sensitive to price competition? 
Government No No competition, doesn’t need profit, can raise taxes, never go out of business
Entrepreneur Yes Competitor sells product for lower cost, no one buys yours, go out of business
Sensitive to product improvement competition?
Government No No competition, doesn’t need profit, can raise taxes, never go out of business
Entrepreneur Yes Competitor sells better product, no one buys yours, go out of business

So back to the question: who do you think is better at creating jobs – government or private enterprise? The government which could care less whether it efficiently produces valuable products because it’s going to be in business forever regardless of results, or an entrepreneur whose ability to feed himself and his family is based upon successfully competing in the marketplace?

Government cannot “create” jobs because in order to provide a job it has to first destroy the private sector’s ability to create a job by robbing the private sector of some of its resources. That’s called opportunity cost. When the opportunity cost is greater than the cost of a given project, you would be a fool do the project. So it is with the false idea of government job creation.

Economics 101

The fundamental premise of economics is that for every action you must look at the consequences of taking the action vs. not taking the action. The classic example is the story of the broken window. A vandal throws a brick through a window of the baker’s shop. People gather around and agree this is a shame. But then they conclude that the silver lining is that this will provide work for a glazier (guy who fixes broken windows). He’ll make $300 for fixing that window. They walk away consoled by the job creation that has occurred. (You can expand this example to the ridiculous notion that the destruction brought about by war somehow “creates” jobs and lifts economies out of recessions.) What the people don’t see is that the baker was planning on spending $300 for a new suit that week. Now he’ll have to spend the $300 on the window instead. The result is that the tailor just lost out on the $300 sale he was planning on making to the baker. The tailor is very sad about this because he was going to use that money to buy bread from the baker as well as new cloth, needles and thread to expand his business…

You get the idea. Every action has consequences. Things WILL happen as a result of an action that can be seen, but there are also things that WON’T happen as a result that will go unseen and so most people won’t realize that the consequence exists even though it is just as real.

In our case of job creation, the consequence that people see is the government job “creation” and the consequence that people do not see is the loss of the ability of the private sector to create a job. Since the private sector is better at creating a job because it must heed market forces or go out of business, the value of the unseen consequence – the opportunity cost – is greater than the value of the government “created” job. When the opportunity cost is greater than a project, the project is a NET LOSER. No one in their right mind would do a project that they know will create a permanent loss of value. Yet this is happening every day in the name of “job creation”.

So when I hear a candidate say, “Government needs to create jobs,” I know that candidate does not fundamentally understand economics or the government’s role in the economy.

Producers and Takers

Government is a taker and a re‐distributor through taxes and fees. To be sure, there are services that the government should provide as specifically prescribed by our constitution. Everything else is over‐reach that robs those people who are producers of their ability to create jobs, products, value and wealth. Government is also a drag on job creation through excess regulation that robs the private sector of money, time and resources that could have been more efficiently used by the private sector to create jobs, products, value and wealth instead of jumping through regulatory hoops.

The only thing that a candidate could honestly propose to help create jobs is to remove those barriers that rob the private sector of the ability to create its own jobs. Reducing the size, cost and burden of over‐reaching government will help. Reducing excess regulation and bureaucracy

will help. These are the things that will take money and resources out of the hands of inefficient government and put it back into the hands of the people who are the backbone of our state and our country. Over 85% of the jobs in Colorado are provided by small business. If Colorado government would quit robbing incredibly talented Coloradoans of their hard earned resources only to waste it on inefficient bloated government and instead allow our talented people to use it for themselves, our state would be a shining example of true job creation.

Empower the Producers, Limit the Takers

So the only way that politicians can help our economy or help our country to be more productive is by eliminating the drag on resources that government represents. Eliminate the friction, the impediments, the barriers to creativity that government presents. The first and foremost way of doing that is to reduce the size of our over‐reaching government which has expanded far beyond its constitutional directives. Once the bloated expense of government is reduced, then that would naturally lead to the ability to reduce excess taxation and fees which take real capital away from the private sector. Finally, government can reduce other impediments to job creation by reducing its over‐regulation. Companies are spending too much money, time and resources to comply with over‐burdensome regulations. This robs our private sector of those resources as surely as any direct tax, and the lost opportunity cost means less jobs, products, value and wealth for everyone.

Reduce the Problem by Reducing Government

People inherently understand that government somehow is the problem and that the government just can’t always be the answer, that you’re always robbing Peter to pay Paul. Everybody knows this in their gut, but when we hear a politician say “We’re going to spend $200 million on creating a green energy economy and it’s going to create all these jobs,” we need to think this through and we’ll see that the politician is dead wrong. That $200 million that the government is going to spend on green energy programs is $200 million that private industries no longer have. Opportunity cost. Think about it. How much of that $200 million green energy fund do you think is getting wasted by government bureaucracy, government contracting to special interest groups that drive up the cost, government quotas, government regulations, government this and government that, so that the $200 million is not being effectively used. It’s not creating jobs because it just destroyed $200 million of private investments. That $200 million would have otherwise been available for business owners throughout the state who watch their pennies and could generate unbelievable amounts of economic activity, could create real value, real products, and real jobs if that $200 million was left in the hands of the private sector to do what it does best, which is create value and return for money. That’s what businesses do.

So think about that the next time you hear a candidate say, “we need better government, we need to create jobs for people.” Think to yourself, “No, you don’t get it.” Government can’t possibly create jobs of any kind of comparative value like the private sector because of its immunity from market forces, it ability to raise revenue by force, and its nature of perpetual existence.

Candidates should be running on the concept that private enterprise creates and that government is an impediment. Government has certain things it has to do and yes, it has to collect money though taxes to do those functions. But creating jobs is not a constitutional government function. Government is a private job destroyer. A candidate who understands economics will realize that the best thing he can do to help Colorado towards a stronger economy is to remove the barriers to job creation that government creates through taxes and regulation, and that there would be room to do that in our budget if we were to eliminate the unconstitutional government bloat that exists in Colorado today.

Photo used under creative commons license. Photographer: Flazingo Photos. No modifications were made.