The Anti-Stimulus Program

Politicians often lack a foundation in basic economics, or we probably wouldn’t be facing the possibility of a financial collapse. The average individual has a better intuitive understanding of basic economics than many of our elected officials, or even famous economists. Humans, from the time they first began to trade, have understood supply and demand, pricing, and the use of scarce resources. Billions of people know how to balance spending against income. Our most famous economists, however, are so wrapped up in fallacy that they have forgotten the basics. And history. 

Nobel Prize winning economist Paul Krugman is leading the call for a new WPA-like program. The WPA (Works Progress Administration) was a depression era jobs program. In 1935, just when it appeared that the economy was turning around, President Roosevelt feared that it wouldn’t turn around fast enough. Even though his administration was spending tax money at an enormous rate on public works projects, he created the WPA to give jobs to even more people, lower the unemployment rate, and right the economy. This was a stimulus plan, featuring “shovel ready jobs.” 

Did it work? No. Even the government at the time counted WPA workers as unemployed. Since the private sector could not provide jobs for them, it’s obvious that the economy had not improved.

During the depression, the WPA faced several unanswerable questions that undoubtedly limited its effectiveness. A new WPA program would face similar questions in a more complex world. Nobody can know the right answers. 

1. What wage should be paid? The WPA had a limited budget. They could put more people to work by paying lower wages. But low wages puts downward pressure on wages in general. In the free market, that’s not a problem. Remember basic economics of supply and demand? Labor is a market good. If there are lots of workers available (lots of supply), wages will already be depressed. But government labor is not a free market. It is controlled by unions who spend billions of dollars to elect their bosses. An influx of cheap labor would be bad for unions. Union supported politicians are not likely to do anything to jeopardize union power. 

2. What kind of work should they do? Again, we see a conflict with the unions. They will object strenuously to the government hiring non-union workers to compete with them at their skilled jobs. The WPA jobs will have to be low skilled, or workers will have to be unionized. Republican politicians who are rarely the beneficiaries of contributions from unions are not likely to let union power expand through government spending.  

3. How do you evaluate worker performance? Private sector workers must create value for their employers. The primary purpose of WPA jobs will be to lower unemployment. The longer it takes to complete a particular project, the more employment is created. If creating employment is the goal, the least efficient projects will be the most successful. In the private sector, that’s called waste. In this case, it’s a waste of our tax money. 

4. Who should get the jobs? If the goal is to reduce suffering caused by unemployment, it makes sense to hire the neediest people. Those people may have the fewest work skills. Hiring the least capable workers leads to even more inefficiency. This is more waste of our tax dollars. 

5. The program is ripe for corruption. During the depression, more WPA money went to districts with politicians that supported Roosevelt. WPA workers were pressured to register and vote as democrats and campaign for democrats.  

Now the biggest questions. Who has the wisdom to administer it? How big should it be? How long should it last? The Obama administration told us that the stimulus package would keep unemployment below 8%. They were very wrong. But government has a long history of throwing more money at failed programs. A new WPA would be another example.

Private Sector Jobs - Our Only Salvation

“I will not be satisfied until everyone who wants a good job that offers some security has a good job that offers security”. President Obama said that, speaking recently at an energy-efficient lighting plant.

Whew. I feel better. And more secure. Who wouldn’t want a good job with security? After all, with job security you don’t have to work. You just have to show up. And Obama is setting the bar pretty low - you only have to want the job.  

It seems like a nice sentiment, but it is neither achievable nor desirable. 

There was a time when people had to work to make an effort to get and keep a job. They did that because they had needs and wants.  If you needed food or shelter you got a job that would allow you to pay for food and shelter.  Need a car? Get a job.  Want a better car? Get a better job. Whatever you needed or wanted, working was the way to get it. 

Government likes to give to those who have needs. During the Great Depression the government created jobs through the Work Projects Administration (WPA) and gave them to needy people. During its eight years, nearly eight million Americans received paychecks from the WPA. This was part of the “New Deal,” a huge expansion of the federal government that was intended to end the Depression. 

It failed. As Henry Hazlitt writes in his classic and highly recommended book, “Economics in One Easy Lesson”:

For every public job created by [a] 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. . . . 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 $10 million taken from the taxpayers.  

The Depression was prolonged by government-created jobs and excessive government spending. In 1939, Roosevelt’s Treasury Secretary Walter Morgenthau said, “We are spending more than we have ever spent before and it does not work. . .I say after eight years of this Administration we have just as much unemployment as when we started. . . And an enormous debt to boot!” 

As money wends its way through the economy it generally ends up in one of two sectors – government or private. In general, government does not produce. It does not create things and sell them for profit. It does not seek a profit on its employees. It does not save money to invest in a capital project that will generate a profit. Simply put, money that ends up in the government’s coffers does not grow. Only in the private sector does money create more money. Advocates for more government spending claim that each dollar spent by government grows the economy, a “multiplier effect.”  That may be true, but private sector spending has a much greater multiplier. Private spending, savings, and investment turned America into the wealthiest nation in history. Excessive government spending threatens to destroy that wealth. 

Obama will not be satisfied until everyone that wants a good secure job has one.  My fear is that he will keep trying.  The stimulus plan started by Bush and put on steroids by Obama has been an abysmal failure. Obama laughed when he pointed out that stimulus projects were not as “shovel ready” as he thought. His arbitrary and capricious administration has prolonged this recession. Now Obama wants to spend more and tax more. That might work in the short term, but only until the economy collapses further under the weight of an incomprehensively large national debt.  

Government’s role, particularly during this recession, should be to provide the conditions (not incentives) necessary for expansion of the private sector. Get out of the way and leave the wealth and spending to us.