The Recession Spectator

The Job-Killing Effect of the ‘Do Something’ Mentality

Watch out for fiscal conservatives wanting to out-Obama Obama.

By 9.8.11

Send to Kindle

The big news last week was the dismal economy, with zero job creation in August. As surely as day follows the night, the president will use this evening's address to Congress to call for a "bold" and "innovative" counter-offensive on the jobs front. If I am wrong about that, I will do more than eat my words. To quote the late great Arthur Ashe, I will "eat my racquets."

Here in my home state of Missouri, our lawmakers have stolen a march on the president. On Tuesday they began a special session of the legislature to consider a big new job creation scheme of their own. As you may know, Missouri is supposed to be a highly conservative state -- populated, if you believe the state motto, by people of a skeptical mindset. Republicans have large majorities in both houses.

Nevertheless, a good number of legislators who describe themselves as fiscal conservatives have thrown their support behind proposed legislation that would provide $360 million in tax credits for the creation of a "Midwest China hub" or "Aerotropolis" at Lambert-St. Louis International Airport.

This would be the largest tax credit in Missouri history. No one denies that the tax credits are anything other than a subsidy. The tax credits themselves are readily transferable or saleable to other parties having nothing to do with the proposed cargo hub.

How realistic is it to suppose that a few hundred million dollars in tax credits for construction of refrigerated warehouses and other facilities will lead to the creation of an aerial Silk Road linking China, the second largest economy in the world, and the American Midwest? Can under-utilized Lambert-St. Louis hope to compete with the likes of O'Hare, DFW and other much larger and well-established airport?

Based on their previous comments, many supporters admit to having grave doubts about the whole idea, but they still say they are willing to take a shot at making it happen -- given claims of a huge potential payoff in jobs and increased economic activity.

In short, supporters have bought into the old "we've-got-to-do-something" argument. To reprise some of President Obama's words from the speeches he was making a year ago, a number of them have decided that they don't want to be seen to be "sipping Slurpees" and doing nothing while someone else is down in the mud spinning his wheels.

But there is nothing in the history of my state or our nation that suggests government intervention in the marketplace is an effective tool for job creation. To the contrary, when governments use taxpayers' money in trying to pick economic winners and losers, they almost invariably pick losers and compound failure. As Milton Friedman noted, free-spending politicians have a special aptitude for making the wrong choices.

When people buy groceries or go shopping for themselves, Friedman observed, they have every incentive to economize and get as much value as they can for every dollar they spend. But when they are spending someone else's money for the benefit of some third party, they are much more likely to be careless and wasteful. This is the case when you use an expense account to pay for someone else's lunch.

It is also the case when politicians or lawmakers channel a large sum of money to selected businesses or industries on the theory that these politically favored and politically dependent enterprises, shielded from the risk of losing their own money, will do a bang-up job of promoting the public good.

Politicians often argue that even one job created though tax credits or subsidies is better than none. But this ignores the opportunity cost of expending large amounts of taxpayers' money for little economic benefit. If the government takes a million dollars to create one job, that's a million dollars that could have gone to more efficient and productive use in the private sector -- in creating stronger and better jobs for more people.

If Missouri lawmakers have some $360 million to spare and want to put it to good use, they should return the money at once to all citizens in the state through tax cuts or refunds. As Friedman pointed out, they will have a better idea of how to get the most bang for the buck.

The federal government should heed the same advice when it comes to making a choice between expanded public works or reducing taxes and leaving people free to choose how to spend a greater share of their own income.

Like this Article

Print this Article

Print Article
About the Author
Andrew B. Wilson, a frequent contributor to The American Spectator and a former foreign correspondent, writes from St. Louis.