Broken Window Fallacy Alert

E. J. Dionne leaps to the defense of government:

So when conservatives say, as they regularly do, that “government doesn’t create jobs,” the riposte should be quick and emphatic: “Yes it has, and yes, it does!”

I don’t want to fall into the technocratic fallacy but is the word of a man who’s probably never taken an economics course in his life (and may not have taken a math course since junior high) sufficient evidence to believe this? The only way that the federal government can on net create jobs is by creating more money to pay for salaries of those workers. That may have economic repercussions of its own, at the very least deadweight loss.

That alternative is not available to the states. In the states, when left to their own resources, more higher-compensated government workers either means fewer total government workers or fewer private sector workers or both.

He really should read The Seen and the Unseen. He sees the teachers, firefighters, and police officers. He doesn’t see the millions of retail jobs lost due to higher sales taxes, the homes lost and urban blight induced by higher property taxes.

71 comments… add one
  • jan Link

    He really should read The Seen and the Unseen. He sees the teachers, firefighters, and police officers. He doesn’t see the millions of retail jobs lost due to higher sales taxes, the homes lost and urban blight induced by higher property taxes.

    Beautifully put statement, Dave.

    For instance, where I live the local sales tax was raised a half of a percent to pay for perennial school deficits. The merchants fought this measure, saying it would diminish their business. It, nevertheless passed.

    Now the city, in their attempts to put even more money into their local government coffers, are going to take away the 2-hour free parking, they promised the business community (in perpetuity). This is coupled with installing new parking meters where you have to move your car (not add more money to meter) once the time limit is up, or be ticketed. If you leave a spot early, the meter automatically resets itself, as well, so the next person parking there cannot take advantage of any time remaining.

    IMO, all these measures make shopping more difficult and expensive in this town, while the city fathers consider it way to maximize revenue funding their mismanaged schools and bloated city employees, some of which include Water Police, Hedge and Leaf Blower Police, and Rent Control Board. This place is indeed the social progressive’s Nirvana.

  • PD Shaw Link

    One thing that I think should be kept in mind, (though I can’t find a link offhand), is that public sector jobs have been declining as a percentage of the total workforce for decades across most, if not all, OECD countries.

    Some of the reasons are probably the same as why insurance companies employ fewer people — computers. But these countries have also downsized public sector jobs, through outsourcing to public and private corporations, direct transfer payments and regulation. These changes IMHO support the view that public sector jobs are inefficient, total compensation is too high, and the job management too inflexible. And it appears to be true across a lot of different countries, though the response is different. The U.S. doesn’t really have public corporations as significant employers, for example.

    I think government resembles the U.S. auto industry before the recession, both have been shedding jobs for decades, because of both productivity gains and poor management. I don’t expect government jobs to disappear, but unless there is fundamental restructuring (not simply subsidizing the same-old-same-old), the long term trend is probably fewer government jobs.

  • PD Shaw Link

    On second, my Detroit comparison is a little off. Detroit was shedding jobs in absolute terms, and while government has also been shedding jobs in certain areas like public administration, its not been shedding them in education. My contention is that government jobs have been decreasing as a percentage of the labor force over time.

  • This is something I have gone on about at length in the health care discussions, hopefully not to derail too much. Everyone looks at other countries and says, “Look they spend less.” But what is not included in national income accounting are the losses if people go untreated. If you have a person who is not treated for whatever reason that is a cost that society incurs…just not a monetary cost.

    And most of the morons in the discussion accuse economists of looking only at money.

    You know I was working at my son’s swim meet this weekend. Talking to one of the other father’s whose son is going to go to Berkley (he has Olympic trial times, so free ride) and he is thinking of studying economics. I pointed out to the father the math requirements, even for undergraduates. I also pointed out that once you learn this stuff it can be rather depressing. Sales and payroll taxes are inefficient and regressive. Even the income tax comes with a nasty side effect of discouraging savings. We could rationalize our tax codes by moving away from income and sales/payroll taxes to a consumption tax and/or something like Mankiw’s gasoline tax. But that even though these things are very reasonable we will never ever do them no matter how much sense they make.

  • Drew Link

    Thank you Steve V, and thank you, Jan.

    Ej Dionne is a moron, and he writes for, oh yeah, never mind. Fish and chips anyone? Kitty box?

  • Rich Horton Link

    How many years ago did PJ O’Rourke say the Democrats view government as Santa Claus? For Dionne government magically dispenses goodies for which there is never, ever, a cost.

    The more things change…

  • My contention is that government jobs have been decreasing as a percentage of the labor force over time.

    I know that is true nominally but I’m not so sure whether it’s actually true. I’m thinking of the federal government. Rather than quote a bunch of statistics let’s just take one example: the military.

    Do we have a small or larger military than we did twenty years ago? On the books it’s smaller. However, we also employ, very literally, hundreds of thousands of “consultants” who are doing jobs that used to be done by enlisted men (or even by officers and in some cases like logistics by general officers). Cooking, stocking shelves, driving trucks, guarding diplomats, patrolling sections of occupied territory. The list goes on.

    While that maintains the force strength at the level dictated by Congress. in actuality the force strength is higher than ever. Judging by my experiences in the non-military sections of the federal government there’s a similar situation. There are, probably, tens of thousands of contractors who do nothing but work on various contracts for the federal government. Do those count as employees or not?

    Imagine a physician, 100% of whose billing is paid through Medicare. Government employee or not?

  • For Dionne government magically dispenses goodies for which there is never, ever, a cost.

    There are only so many ways the federal government can pay for things. It can tax. It can borrow. It can literally print money. Or it can issue credit. That’s about it.

    Taxing takes money out of the private sector. Borrowing is a commitment for more spending in the future. If money is printed or credit issued without an increase in production, it decreases the value of the money or credit already held. TANSTAAFL.

  • There are only so many ways the federal government can pay for things. It can tax. It can borrow. It can literally print money. Or it can issue credit. That’s about it.

    Let me correct this,

    There are only so many ways the federal governent can pay for thins. It can tax. It can borrow. It can tax. Or it can tax. That is about it.

  • Oh and borrowing is basically a commitment to taxing in the future, assuming that spending is not going to be reduced in the future.

  • PD Shaw Link

    Dave, almost certainly the data I was looking at was civilian; otherwise the comparison with other OECD countries would have been quite skewed. For purposes of what Dionne and others are arguing, they want more public sector jobs, almost certainly they mean more government civilian jobs.

    This is not precisely what I was looking at, but its close:

    “From 1995 to 2005, the share of the labour force employed in the public sector (government and public corporations) declined in 9 of the 11 countries for which data are available, with the Netherlands and Spain being the two exceptions. Slight overall increases in public employment in Spain are due to increases in employment at the local government level and in Autonomous Communities.”

    As I recall, the trend is stronger if you take it back another ten years or so. And diminishing government employment is true across countries from Sweden (30% government employment) to the U.S. (14% ) or Austria (12%), not all of which could have fallen under the influence of the Republican Party. Why? Government workers have increased productivity? Government workers too expensive/inflexible? Government corruption or insanity? Healthcare costs squeeze? I think unless Dionne can provide an answer to the long-term trend, more government workers would be wasteful.

  • PD Shaw Link

    Oops, here is the link.

  • PD Shaw Link

    And as to Dionne’s conscription of Lincoln (and Clay and Hamilton) into the pantheon of big-spending liberals, Dionne should familiarize himself with the concept of public goods. These people saw a sound currency, roads and canals, and a strong military as goods that would improve American’s lives and needed government to provide or subsidize. They would not be arguing for the government to pay for contraception.

    And I’m not aware of anything Lincoln said about the commerce clause particularly, but highly doubt he would have agreed with FDR’s take on it. Lincoln after all said on many occassions that the federal government was without authority to interfere with the insitution of slavery in the states where it existed.

  • steve Link

    “Do we have a small or larger military than we did twenty years ago? On the books it’s smaller. However, we also employ, very literally, hundreds of thousands of “consultants” who are doing jobs that used to be done by enlisted men (or even by officers and in some cases like logistics by general officers). Cooking, stocking shelves, driving trucks, guarding diplomats, patrolling sections of occupied territory. The list goes on.”

    Then that should be reflected in increased spending somewhere. Discretionary spending, as a percentage of GDP, has stayed pretty steady. What is increasing is entitlements. Defense spending has increased, but enough to account for hundreds of thousands of consultants?

    “Oh and borrowing is basically a commitment to taxing in the future, assuming that spending is not going to be reduced in the future.”

    Debt at the end of WWII was over 100% of GDP. That was steadily decreased up until 1980, when we started to increase it. This was done mostly with growth, but also with some restraint in spending and balancing taxes with spending. Our history, up until 1980 (and for a short period in the 90s), shows that we can restrain spending enough to work down debt.

    “He really should read The Seen and the Unseen. He sees the teachers, firefighters, and police officers. He doesn’t see the millions of retail jobs lost due to higher sales taxes, the homes lost and urban blight induced by higher property taxes.”

    What is the correct number of teachers and police? If you travel the world, you get to see the lack of homes, the blight, the chaos that ensues from a lack of these people.

    Steve

  • Dave’s right to a degree about military contracting, though much of that is from the past decade and the wars in Iraq and Afghanistan. It’s going way and there will be big cuts in the contractor force in the next few years. Just as an example, I know one major command that will be downsizing by 60% by 2015 and about 90% of that reduction is coming from cutting contractors.

    I think whether EJ Dionne is right depends on context. Yes, government can create jobs – witness the WPA – but the problem is that those jobs come at a cost.

  • steve Link

    ” Yes, government can create jobs ”

    DARPANET. Antibiotics. Modern agriculture. GPS. Fracking. MRIs, CT scans. Most basic research, and lots of applied research is derived from govt funding or govt facilities.

    Steve

  • PD Shaw Link

    Yes, steve, but Dionne and the Administration aren’t arguing for that, they want teachers, firefighters and police officers. Dionne argues for the importance of the Transcontinenal Railroad, in order to advocate building breakdown lanes on rural highways.

  • Icepick Link

    DARPANET. Antibiotics. Modern agriculture. GPS. Fracking. MRIs, CT scans. Most basic research, and lots of applied research is derived from govt funding or govt facilities.

    yes, so for God’s sake and the country’s lets hire more administrators for the transgender studies department with a focus on marxist deconstructionism. it’s the best money we’ll ever spend!

  • DARPANET. Antibiotics. Modern agriculture. GPS. Fracking. MRIs, CT scans. Most basic research, and lots of applied research is derived from govt funding or govt facilities.

    Ahhh yes. But Dave’s point about the unseen costs went right above your head.

    See here is the problem.

    Government taxes…say $100. They dump it into “basic research” and get, for example, the DARPANET. That eventually leads to some spiffy stuff, including some new jobs.

    Costs: $100. Plus all the jobs and stuff we don’t have because the government took the $100 and it wasn’t invested/spent elsewhere. And we also have an additional cost due to deadweight lost.

    So, on the whole are we better off or worse off? To say categorically that we are better off is to suggest that you have special knowledge that the rest of us don’t have. It is an arrogant and presumptuous position.

    Try again steve.

  • michael reynolds Link

    And how exactly do you get DARPANET. Antibiotics. Modern agriculture. GPS. Fracking. MRIs, CT scans without teachers?

    What did we spend on the interstate system? And what did we get back? Whole new industries? Tens of millions of private sector jobs? Show me a private sector investment that’s yielded more.

    What do we get from government air traffic control systems? Air travel, overnight delivery? Do either of those employ people in the private sector? Do they increase productivity just a wee bit?

    The Hoover Dam? Bridges? Tunnels? Rural electrification? Ports and shipping channels? Flood control? There are huge industries that exist because government spending tax money made them possible. There are entire cities that exist because government and tax dollars made them possible. In point of fact, there are entire states that are only part of the US because we bought them with tax money.

    Yeah, it’s a shame we didn’t leave all that money in the private sector where they could have spent it selling us more cigarettes, gourmet dog food and riding lawnmowers. So much better than wasting it on the Louisiana purchase or the interstates or the CDC or GPS.

  • michael reynolds Link

    Costs: $100. Plus all the jobs and stuff we don’t have because the government took the $100 and it wasn’t invested/spent elsewhere. And we also have an additional cost due to deadweight lost.

    So, on the whole are we better off or worse off? To say categorically that we are better off is to suggest that you have special knowledge that the rest of us don’t have. It is an arrogant and presumptuous position.

    Actually, you’re making the same assumption that you have special knowledge. You’re assuming the money would be better spent by private industry. Except there are a number of things private industry cannot or will not do. For example, they will not make sure the food supply is safe. We know this because they lobby against food safety regulations and consider a bit of botulism just another p.r. issue, another cost of business. That makes sense from their narrow perspective and makes no sense from mine as a father who would like his children not to die from food poisoning. So I consider the tax money spent there to be money damned well spent.

    Business pursues profit. We need a separate agency — government — to focus on issues that do not have to do directly with profit. Monopolies are lovely for profits, bad for consumers, bad for innovation, so we have government bureaucracies that help to slow the development of monopolies. Again, money well spent.

    The car business absolutely refused on its own to go to seat belts and later air bags and safety cages. Government forced the issue, thousands of lives were saved, and now safety is a major selling point. Business was wrong — because they can’t see anything but the next quarterly report.

  • michael reynolds Link

    One other example. Microsoft at one point bailed out Apple. Why? To avoid being hit as a monopoly. Threat of government action forced the saving of Apple, and with how many jobs created? Maybe just a few jobs more than the cost of enforcing the anti-monopoly regulations?

  • PD Shaw Link

    micheal, your presenting an obviously false choice between Obama wanting “more teachers” and “no teachers.” Your claiming that if you don’t agree that there should be a certain number of government jobs, there wouldn’t have been a Hoover Dam 90 years ago, when there were far fewer teachers per capita.

  • michael reynolds Link

    PD:

    No, I’m not. I’m pointing out that talking about deadweight loss as the only important factor rather misses the obvious fact that government action — taxes, oh horrors! — has in fact created tens of millions, maybe hundreds of millions or jobs, not to mention the United States of America as we know it. You know, the country with roads and an educated population and safe medicines, all that frou-frou stuff.

  • michael reynolds Link

    The cost of the interstate system was (if you believe Wikipedia) 425 billion in 2006 dollars. It would be hard, and certainly beyond my ability, to begin to guess just how many trillions of dollars we’ve realized from that investment. UPS alone is worth better than 70 billion. Throw in FedEx, every motel chain, most of the malls, a major portion of the auto industry, the oil bidness, the trucking business. I kind of think we got our money back on that.

  • Icepick Link

    Your claiming that if you don’t agree that there should be a certain number of government jobs, there wouldn’t have been a Hoover Dam 90 years ago, when there were far fewer teachers per capita.

    Teachers or “educators”?

  • Here in Chicago the choice isn’t between hiring more teachers or not. It’s between increasing the pay for the current teachers so that it’s more than double what the average Chicago resident earns and decreasing the number of teachers or reducing the total compensation the teachers are being paid and hiring more teachers.

  • Icepick Link

    Questions for the steve and Michael: Is there any government spending you are opposed to? Should there be any limits to government spending?

  • michael reynolds Link

    Ice:

    I’m opposed to a hell of a lot of government spending: agriculture subsidies, tax breaks for oil exploration, ethanol, unnecessary military equipment come immediately to mind. And it’s clear that we need to spend less on entitlements and defense.

    My point is not, what the hell, let’s print money and spend, spend! It’s that a purely balance sheet approach, or an ideological libertarian approach, miss the fact that government is necessary, that it performs services no other sector can handle, and that it very often but certainly not always contributes to our ability to maintain an economy and a civilization.

    My objection is to this oh-so-knowing and utterly absurd idea that every dollar spent by government would be better left in private hands. Sorry, but I don’t trust that Drew and his country club friends will just voluntarily care for sick people or defend the country or educate kids. I think we have to make Drew kick in, just like I kick in.

    That said, like every tax payer would I like to keep more? Sure. I have to work harder and smarter to pay taxes and I’d rather work less and less productively. That would be fun. (He says, gazing longingly at the almost-unused hammock.) I’m 57. Without the burden of taxes I could probably retire at 60 or 65. With taxes I’ll have to work until they slide me into the cremation oven.

    But from where I sit right now I see a city that is safer from earthquakes because of government, and ships that sail because the oceans are kept safe by government, and cars with drivers who found Tiburon because of government GPS, and planes flying by that won’t crash thanks to government regulation. Government does a lot that I need to have done.

  • Drew Link

    Michael

    The highway system was built just after the last dinosaur expired, and its current conditions are just about as dire as afflicted the last dinosaur.

    Care to modernize the argument?

  • Government does a lot that I need to have done.

    I, at least, am not denying that.

    Right now every city in the U. S. with population of 50,000 or more has nearby access to an interstate or an interstate running right through it. I’m skeptical that extending that to every town of 25,000 would have an appreciable effect on total U. S. productivity. I’m not questioning that building the interstates was $475 billion well spent. I’m questioning that spending another $475 billion or double that or triple that will be money equally well spent. Or even a complete waste of time, effort, and money.

    The second question I’m asking is whether paying the same people, already very well-compensated, significantly more from money that the states, counties, and cities do not have is justified. The question is not whether we should have teachers, firefighters, and police officers. The question is whether teachers, firefighters, and police officers should or even can be in the top 3% of income earners and, if so, how that can be accomplished.

  • steve Link

    “So, on the whole are we better off or worse off? To say categorically that we are better off is to suggest that you have special knowledge that the rest of us don’t have. It is an arrogant and presumptuous position.

    Try again steve.”

    You dont need special knowledge, just observational skills. Private industry does not do basic, long term research. In the US or elsewhere. I can safely state we do not get the internet w/o that govt research based upon historical experience.

    Try again Steve V.

    Also, I have seen what it looks like in countries w/o adequate numbers of teachers and police. Why should we want to live in such a country?

    Steve

  • Icepick Link

    The highway system was built just after the last dinosaur expired, and its current conditions are just about as dire as afflicted the last dinosaur.

    Care to modernize the argument?

    As for the highways, speak for your own mismangaed shithole. The highways in Central Forida are in pretty good shape, especially the ones under local authority.

    And Reynolds did mention something about GPS. I think that is a little more current than the dinosaurs. It’s at least a Bronze Age technology.

  • steve Link

    “The second question I’m asking is whether paying the same people, already very well-compensated, significantly more from money that the states, counties, and cities do not have is justified. The question is not whether we should have teachers, firefighters, and police officers. The question is whether teachers, firefighters, and police officers should or even can be in the top 3% of income earners and, if so, how that can be accomplished.”

    Here is where I will, mostly, agree with you. Adjusted for per capita income, our teachers are actually not especially well paid, but in our current economy I cannot see avoiding pulling back pay and benefits. As I have said many times here, public workers should be in defined contribution plans. That would decrease costs and make budget planning doable. Also less prone to govt official mismanagement.

    Steve

  • Icepick Link

    I see a city that is safer from earthquakes because of government….

    This is a misguided example. The city is safer from earthquakes because of a high level of social capital that has been willing to invest in safety. Government is merely the agency of how to manage PART of that social capital. China has far more government that we do, and how safe have their cities near fault lines been in recent years?

    Government by itself doesn’t mean anything, else the Soviet Union would have been the safest country ever.

  • Icepick Link

    Also, I have seen what it looks like in countries w/o adequate numbers of teachers and police. Why should we want to live in such a country?

    Why is the only adequate amount “more”?

    As for having them here, we would be just as well off in this neighborhood without spending any money on schools, for all the good they’ve done. And the police are totally fucking useless. So spare me the noise about how great we have it here because of our lovely teachers and brave policemen. Guys like little Chuckie Taylor come from my neighborhood, that’s what the teachers and police have accomplished here.

  • Icepick Link

    Adjusted for per capita income, our teachers are actually not especially well paid….

    Adjusted for outcome most of them are grossly overpaid.

  • This trickle-down notion of job creation is getting a bit ridiculous. I guess by that standard Issac Newton and the US founding fathers are responsible for “creating” millions of jobs. After all, I wouldn’t be reading blogs on my ipad without either of them. There’s a substantial difference between government funding the creation of ARPANET and government running the internet and regulating it with an FCC-like bureaucracy. The internet, for all its annoyances, is great and innovative because government doesn’t own it and maintains a limited regulatory regime.

    Additionally, you have to consider the alternatives. Yes, Michael, the highway system is great and we’ve got a huge trucking industry now which, coincidentally, turned rail into a second-fiddle in the US. How would things be different today if we had the Eisenhower US Rail system today instead? Passenger rail can’t stand on its own in this country and the highway system and various other incentives that promote road use are all a big part of that.

    Or there is the rural electrification plan begun under FDR. That was a great benefit to rural America, but by the same token it destroyed a nascent industry that was working on providing local power to farms via windmills, generators and other methods. How would things have been different if government hadn’t gotten involved, or if government invested in those local generation efforts instead of a centralized network? That entire system of government regulated monopolies prevented a lot of alternatives, like wind, from coming to market until further government incentives were added.

    And then there are the bad examples, like our wonderful fee-for-service medical system, which created thousands of jobs for medical billers, administrators, etc. The more complex the system gets the more jobs get created. Yay? And there’s our wonderful tax code which keeps thousands of accountants employed not to mention and entire tax preparation industry. Is that something we should be celebrating?

    Yes, government can create jobs and even entire new industries, but one should always consider the costs and long-run effects of government inserting itself into these areas.

    Now, back to what the President actually said:

    the private sector has been hiring at a solid pace over the last 27 months. But one of the biggest weaknesses has been state and local governments, which have laid off 450,000 Americans. These are teachers and cops and firefighters. Congress should pass a bill putting them back to work right now, giving help to the states so that those layoffs are not occurring.

    It seems to me that essential services are local affairs and should remain local affairs. I’m not against aid to the states under limited circumstances, but the President here seems to be asking for the federal government to return state and local employment to the status quo ante. There’s no mention of what level of employment is necessary to maintain the essential services those jobs support – indeed that seems to be beside the point. Well, ok, what happens when the federal money runs out? Or maybe it won’t and this will become an enduring source of funding?

    IMO, if the feds give aid to the states to hire cops, firefighters and teachers then the aid should be based on the actual need to provide essential services and should come with strings attached to ensure the money is spent for that purpose and not to pad local wallets or paper over broken compensation systems.

  • michael reynolds Link

    Drew:

    The highway system was built just after the last dinosaur expired, and its current conditions are just about as dire as afflicted the last dinosaur.

    Care to modernize the argument?

    First: I already did. See GPS.
    Second: It’s irrelevant when it occurred, what matters is that it did, it does, and therefore it can again.

  • Show me a private sector investment that’s yielded more.

    The automobile? How about the personal computer?

    Actually, you’re making the same assumption that you have special knowledge.

    No, I’m not. Read it again, but carefully this time. I quite clearly say the issue of whether we are better off or not is not clear. Maybe we are, or maybe we aren’t.

    You dont need special knowledge, just observational skills. Private industry does not do basic, long term research. In the US or elsewhere. I can safely state we do not get the internet w/o that govt research based upon historical experience.

    Okay, one more time for the slow people in the room.

    I’m not saying we’d get it with private funding. Got that? I’m not saying we’d get it with private funding. Do I need to repeat is third time? I’m not saying that we’d even get basic research, although I also don’t think we’d get zero either. Undoubtedly we’d get less.

    What I’m saying is that it is not clear that the spending you are talking about is on net a positive thing in terms of the economy. Observational skills wont help you because much of what you’d need to know is not observable.

    Now, do you get it? I can try explaining it yet another way if necessary….or maybe you can actually engage the brain.

    One other example. Microsoft at one point bailed out Apple. Why? To avoid being hit as a monopoly. Threat of government action forced the saving of Apple, and with how many jobs created? Maybe just a few jobs more than the cost of enforcing the anti-monopoly regulations?

    Or maybe we need a rational anti-monopoly policy that goes after…oh I don’t know…real monopolies?

    Here is Dave’s basic point: does the government create jobs on net? On that one I think the answer is probably no. Why? Deadweight loss. You have to take that money out of the private sector for the government to spend that money. That will mean less demand on the private sector side, and less jobs there. The deadweight loss means you wont collect as much money as you lose in the private sector. Ergo, you’ll have less to spend and somewhere in there you end up with less economic activity than if you did not.

    This leaves you with, at most, an argument that what the government is spending that money on is much more needed on average than if it had been left in the private sector. If you are going to hang your hat on only basic research, give up. You have lost the argument. Because then we should get rid of all spending except for basic research. If you are going to hang your hat on things like public goods (e.g. roads) and externalities (e.g. air traffic controllers) fine, but again you have lost a major portion of the argument. If you cut spending except for public goods, externalities and basic research we end up with a government that is considerably smaller than what we have today. As Icepick noted, we don’t need “more administrators for the transgender studies department with a focus on marxist deconstructionism.”

    And all of this ignores the messy details also at issue with things like how many states have set up state employee pension plans that will bankrupt most of those said states (California and Illinois being two of them). Why? Because the political process does not always produce rational, let alone reasonable outcomes. Even if you have perfectly rational actors at every stage the outcomes can be very non-rational. And not for reasons that Michael as argued in the past, but because the various democratic processes are very bad at aggregating preferences.

    So yes, lets hand over more and more of our economic activity to a process that is decidedly non-rational. It has been such a winning strategy so far.

  • michael reynolds Link

    Dave:

    I’m questioning that spending another $475 billion or double that or triple that will be money equally well spent.

    The question is whether teachers, firefighters, and police officers should or even can be in the top 3% of income earners

    I actually agree with both of those. I don’t know that we need more highways or more teachers, or that teachers generally need better pay. Anyone who knew my long, sad history with teachers would know that I’m not a terribly big fan of the species as a whole. (Ditto on their part.) I’m arguing the larger issue of whether government expenditures can in all cases be treated as a simple balance sheet item, or seen as by definition either unnecessary or wasteful. In fact quite a number of government investments have proven quite profitable and indeed vital to the private economy.

    If this were 1876 Drew and Steve Verdon (assuming neither had business interests there) would be arguing that spending 7 million dollars of taxpayer money on a frozen wasteland called Alaska was a terrible deal, a violation of the rights of hardworking job creators, etc… We’d be hearing that the money would be better spent on railroads and steamships. There would be no way to account for the fact that the purchase kept Russia from our doorstep, and from Canada’s, and allowed us to project force into the northern Pacific, and no way to anticipate that oil would be found, or that the fisheries would be so profitable, or that we’d be hauling cruise ships full of tourists up and down the coast, or that we’d find gold, or that they’d actually build a state (of sorts) up there. We derived enormous benefit and profit from what smart guys called Seward’s Folly.

    My point is that judging every action of government by immediately evident profit and loss, applying business standards to government, is less clever than it seems.

  • michael reynolds Link

    Steve V:

    Yes, even I understand deadweight loss. I’m arguing that you’re hanging way too much on that notion. See above re: Alaska. Or use the Louisiana purchase. Or GPS satellites. Or government immunization programs. Or the highways, or any of the other numerous examples mentioned above.

    I don’t think anyone is hanging his hat solely on basic research, or solely on anything. Government is necessary. Government needs to be made as efficient as possible, but its purpose is to do those things which must be done and which a profit motive will not get done. And almost by definition, those things are impossible to judge in purely economic terms, particularly within a short time frame. Do you suppose Jefferson could have convinced you of the Louisiana purchase? Or would you have suggested we’d be better off letting hardworking farmers keep their money and plant more tobacco? How about 10 years later? Or 30 years? How about now?

    It’s just not as simple as a binary business=good, government=bad equation. Very often business=bad and government=good. But we don’t get better government if we start off by demonizing it and dismissing it and pretending that it is a parasite. It can be a parasite, but it remains vital and our job is to improve it.

  • Y’all might want to take a look at this CBO report. It makes a number of points that I’ve made around here from time to time, e.g. that spending more on research doesn’t necessarily result in more research getting done—it might actually result in less research being done over time. It at least calls a little question into steve’s observation about public vs. private spending on research. It makes a point I made in one of my first posts here, that pharmaceutical companies treat research as overhead, not productive activity. This article, which doesn’t contradict the CBO report, substantiates a something else I’ve said, that pharmaceutical companies spend more on promotion than they do on research (and in some cases consider promotion as research).

  • jan Link

    I think a pertinent question to ask is where is the ideal balance between government intervention and private sector entrepreneurial resourcefulness?

    A generalization: government usually has a higher price tag attached to it than what the private sector bids. Because they use other people’s money (the tax payers), projects are bid out and given to contractors/firms for reasons that oftentimes elude any consideration as to cost-effectiveness. Between the folds is often cronyism or pre-qualified ‘lists’ from which local governments can choose. Being involved with public school projects, my husband and I had a bird’s eye view of how school boards think and review all their financial options. Most were not prudent nor impressive. Just recently, the high school’s marching band faces disbandment because of funding shortages. When reviewing how monies were spent, it is simply a case of near-sighted expenditures.

    Just look at Scott Walker’s reforms, much maligned by the public sector unions. Because of these reforms, though, school districts got themselves out of deficits, were able to keep teachers employed, and reduced class sizes. Property taxes, in that state, actually saw a reduction, and there is some glimmer of a rainy day fund being established, rather than a growing state deficit. But, all we get is gloom, doom and anger from the public sector union brass, while over 50% of their members are opting out of having their dues automatically deducted from their paychecks. Do you think it is possible that the root disappointment may be due to public union bosses losing their power and paychecks, rather than fairness not be implemented by these reforms?

    When you bring in the funding of public services, just look at the recent San Jose, CA ballot measure, which put pensions on the table, winning by a 70/30 margin. Now, according to the democratic Mayor, they can re-open 4 new libraries as well as fire stations, that were placed on a rotating basis because of no funding. How are these public sector employees helping out the community when their pension plans are devastating the daily operations of these public services?

    Something is terribly wrong, when, wherever you go, the etiology of financial shortages seems to be traced back to the enormous defined pension plans orchestrated by the public sector unions?

  • PD Shaw Link

    @andy, “Well, ok, what happens when the federal money runs out? Or maybe it won’t and this will become an enduring source of funding?”

    That’s exactly what I’m getting at. My city, probably through connections to the administration, was offered funding to hire additional police and fire a couple of years ago. After much consternation, the city said thanks, but no thanks. It wasn’t idealogical; it was just that the city felt that this temporary federal assistance would cost more in the long run as federal aid ended, particularly in pensions and healthcare. A city in better shape would have taken the money without fear of consequence; a city in worse shape would have also, they’d have had no choice. If you want to change the situation at the local/state level, you have to address why “free money” like this is and perhaps should be rejected.

  • steve Link

    Steve V- Personal computer?

    “The IBM 610 was designed between 1948 and 1957 by John Lentz at the Watson Lab at Columbia University as the Personal Automatic Computer (PAC) and announced by IBM as the 610 Auto-Point in 1957. The IBM 610 is according to Columbia University, the first personal computer because it was the first programmable computer intended for use by one person (e.g. in an office) and controlled from a keyboard. Although it was faulted for its speed, the IBM 610 handled floating-point arithmetic naturally. With a price tag of $55,000, only 180 units were produced.[13]”

    I believe Columbia receives significant govt support, as do most of our universities and colleges.

    As to the rest, yes I get it, I just disagree. Mass vaccinations do not occur absent govt intrusion. Some of us blogging here would be dead from smallpox absent that kind of intervention (or polio). The large scale water projects and transportation systems did not occur absent govt intervention. The money govt invested in Borlaug’s work. I am convinced that the return on these has been immense. You think not, or that some even better outcome could have been achieved by keeping that in the private sector. A counterfactual neither of us can prove.

    What you, and Dave, do is assume that there is always a loss, deadweight loss, in any govt spending. If you start with that as your definition, then I guess you can never believe that there is value in govt spending. I differ and believe that there is a ROI value to govt spending just as there is with private spending.

    Dave- I have read tons on pharma and their research. They are incredibly dependent upon academia. Many people dont realize how much shuttling back and forth takes place between academia and the pharmaceuticals.

    Ice- “Why is the only adequate amount “more”?”

    Then why is less the default for other people? I dont really know the right amount.

    Steve

  • The strawmen are getting pretty thick in here. I’m not sure what the Louisiana purchase and vaccination have to do with federal dollars funding cops in podunk Louisiana and the rest of the country – maybe someone can explain it to me.

    It seems to me each case of government doing something or other can be defended on its own merits. In the case of the President’s proposal, I personally find the merits lacking. Pointing out that the US purchased Alaska, or that university research sometimes creates cool and useful stuff (while ignoring all the crap) is pretty much irrelevant to the questions concerning the wisdom of sending billions of dollars to the states ostensibly to hire a bunch of people they might not need. That’s assuming the money is actually spent as intended. And, it’s not exactly unheard of for states and localities to create “requirements” in order to garner additional federal dollars. Just sayin’.

    PD,

    A very good friend of mine works for a county government in the public health department as an emergency preparedness coordinator. After 9/11 a lot of state and local governments received federal funds to support this kind of effort. Many localities used the money to hire staff, but when the money went away, so did the staff and those localities ended up with nothing. It was probably a net waste for them. In contrast, the county my friend works for decided to fund his position out of the county budget and then they used the federal money to buy preparedness capabilities. So his county is one of the top in the nation for emergency response because of the wise decisions they made regarding the use of those federal funds. The next county over has jack shite as far as emergency preparedness goes.

    I look at this proposal through the lens of that experience. I think a lot of places will hire more staff for the sake of hiring more staff. Others will try to boost compensation of existing staff. A minority will use the money to position themselves to succeed in the long term – provided they’re permitted to do so since the goal of this proposal is hiring bodies and not providing more effective education, policing and firefighting.

  • michael reynolds Link

    Andy:

    The strawmen are getting pretty thick in here. I’m not sure what the Louisiana purchase and vaccination have to do with federal dollars funding cops in podunk Louisiana and the rest of the country – maybe someone can explain it to me.

    Happy to. I’m arguing against the facile notion that some law of nature dictates that private is better than public, that business is always more efficient, more rational, or more useful than government. To make that point I used examples across about 200 years of US history.

    I am also pointing to the shallowness of measuring everything by standards that are really only relevant to profit-seeking businesses. The government is not a business, it’s a government, and should be judged by whether what it proposes is good for the city, state or nation, and to some degree broader humanity.

    It seems to me each case of government doing something or other can be defended on its own merits.

    I agree. Which is why I disagree with relying on evidently false assumptions or on ideology, and why I’m arguing against same. Let’s absolutely judge each action of government on its merits.

  • I don’t think anyone is hanging his hat solely on basic research, or solely on anything. Government is necessary. Government needs to be made as efficient as possible, but its purpose is to do those things which must be done and which a profit motive will not get done

    Then yes, you are hanging your hat on things like externalties and public goods. That’s fine, like I said those things might very well be worthwhile but there is a vast amount of spending that is not on those things. Also, the point on jobs still holds. While using government for providing something like roads might be the best way to over come the free rider problem and provide a benefit greater than if the money/resources had been left in the public sector you are not going to have more jobs on net.

    And almost by definition, those things are impossible to judge in purely economic terms, particularly within a short time frame.

    That is the only way to judge them. You look at the benefit to society vs. the costs to society. Benefits are more than just jobs, but since that is what many people keep making inaccurate statements about it should not be allowed to go unchallenged.

    I believe Columbia receives significant govt support, as do most of our universities and colleges.

    So, because Columbia got government support the personal computer was the result of government spending even though you have no actual evidence of this. If this is the standard everything is due to government spending these days. And never mind that Watson Labs was actually founded on Columbia’s campus by IBM. This might very well be a case where private interests spent money on basic research.

    This is the best you got? Back to Google, I’d suggest.

    What you, and Dave, do is assume that there is always a loss, deadweight loss, in any govt spending.

    Yes, it is a relatively simple result based on a relatively simple supply and demand model.

    If you start with that as your definition, then I guess you can never believe that there is value in govt spending.

    You still don’t get it. Go back and re-read my posts. You do not understand them. Here is a hint, I don’t say there is no value, but that on net government spending does not create jobs.

  • Yes, it is a relatively simple result based on a relatively simple supply and demand model.

    And, importantly, that’s not controversial. Keynesians, neo-Keynesians, neo-Classical, Austrian, and monetarist economists all agree on it.

  • I can give dozens of examples of developments that are critical to today’s economy for which much of the financing, particularly in the early days, was from the government. I’ll give three as an appetizer: the Internet (based on the DARPANet), GPS (it began its life when government scientists were tracking Sputnik), and, basically, all modern computers (ICs and printed circuit boards weren’t invented with government money but they were developed with it—they were necessary for the space program).

    However, I think it’s a stretch to infer that because a couple of hundred thousand dollars spent developing the DARPANet turned out to to be a good investment that spending billions to (to use PD Shaw’s example) putting breakdown lanes on rural highways is equally good. It’s a case by case thing.

    My reading of history is that mass engineering projects, e.g. the space program, have provided a much better bang for the buck than subsidizing road travel in preference to rail travel or, worse, air travel over rail. They also provide a better bang for the buck than well-intentioned social programs like Head Start, which I supported for decades but which study after study has found to be, essentially, useless.

    That’s why I’ve spoken out here in favor of mass engineering projects. However, those projects today won’t provide tens of thousands of jobs to semi-skilled or unskilled workers. But they might provide the foundation for the economy of the future.

  • Icepick Link

    Although it was faulted for its speed, the IBM 610 handled floating-point arithmetic naturally. With a price tag of $55,000, only 180 units were produced.

    A personal computer that cost several times more than the average home? Just because the average person would be completely fucked if they bought one doesn’t make it personal.

  • I think that characterizing the 610 as a “personal computer” is being waggish. It had an operators console from which it could be programmed. My definition of personal computer would include things like size and affordability.

    The 610 was about the size of three ordinary washing machines placed side to side and probably heavier. The cost has already been mentioned.

  • Icepick Link

    I had always heard that the Altair 8800 was the first true personal computer, although microcomputer may have been the term instead.

  • I believe the Altair was the first general purpose production microcomputer system. I don’t believe the term “personal computer” came into use until IBM used it for their first successful general purpose microcomputer product.

  • And as I pointed out, it was at an IBM lab on the campus at Columbia. The idea that it would not have happened but for the grace of government spending is highly dubious, yet that was steve’s implication.

    And DARPANet wasn’t set up to be used as as it is today. It was initially envisioned as a way for the military to keep in contact across the U.S. in the event major portions were taken out by nuclear weapons/invasion. Much like the national highway system. And then there were all these other ancillary benefits that were not initially anticipated. And in the case of DARPANet it spiralled almost completely out of government control….hmmmm lesson to learn there (I’d even argue that the internet is not unlike the Wild West…and you even have spontaneous creation of order on the interwebs…how can that ever happen)? Note that the government is trying to play catch up and retake control. What will happen then?

    The elephant in the room none of the pro-government people seem to really want to address is that while there are very good examples of why government can improve social welfare (dealing with negative externalities like pollution, or even helping positive ones like vaccine programs, or public goods like a national highway system) doing that stuff and only that stuff would mean huge cut backs in current levels of government.

    For one thing….most health care does not fit into the public good definition nor the externality definition. Oh and look at Dave’s latest post…teachers are losing their jobs because they wont even look at renegotiating contracts that deal with pension and health care that are breaking state budgets…..sorry pro-gov guys, I just can’t trust you guys when it comes to this, “We need an efficient government….” And yes, I know we can always change definitions, but that does not make subsidizing the consumption of private goods good policy. And repeating over and over that doing more of what is causing problems will eventually lead to a solution is, as Dave has already pointed out, voodoo.

    Go back upstream a bit and look at my post about how government and the democratic process tend to be non-rational. Even if we elected super smart, super rational people we’d still have a democratic process that is non-rational. It is how democratic processes work. If it is a fundamental characteristic. You cannot get rid of it.

    Now I know some of you will say, “Oh gee Steve V. you want a dictatorship?!?! Hurrr durrr hurr….hurf blurf!!!” Of course not. Democracy is still the more preferred form of government, but that doesn’t mean we should let government grow and grow and grow. When government grows it does so at the expense of the private sector. And the private sector is where you get the jobs. The private sector also improves social welfare as well (for the most part).

    And let me tell you we let it grow. Especially in times of crisis like not to recently. We had Congress beings saying, “We must act NOW!!!! Do something!!!! Anything!!!!” (e.g. Barney Frank). Government expands rapidly both in size and scope. And when the crisis passes government shrinks, but not back to its pre-crisis levels (see Higgs, Crisis and Leviathan). Will we see government shrink back to its pre-financial crisis levels? No. Same thing with 9/11. We’ll have the fallout of the Patriot Act for years to come. And amusingly, the ones most happy with things like TSA crotch groping…the progressive liberals. Never mind that the next terrorist attack will likely come from a completely different direction…cause Goddammit we have TSA Kabuki at the airports and seeing little kids get their crotches groped makes us all feel safer.

    Its rather amusing. I make an argument that strikes at the very heart of the progressive liberal position: that the process you want to use to allocate more and more resources in society is fundamentally non-rational and the response is: DARPANet!!!!!!

    Seriously?

  • michael reynolds Link

    When government grows it does so at the expense of the private sector. And the private sector is where you get the jobs. The private sector also improves social welfare as well (for the most part).

    This is a statement of faith, not fact. Numerous examples upthread where this is not true. You dismiss DARPANET because “DARPANet wasn’t set up to be used as as it is today.” But that’s irrelevant. Alaska wasn’t meant to be a source of oil, but it is, and it’s ouroil because the government bought Alaska. GPS wasn’t meant to guide lost tourists around Boston but it does do that, and it does that because of government investment of taxpayer dollars. The interstates were not meant to give rise to motel chains and overnight delivery, but they did.

    If you’re going to dismiss every fortuitous but not-originally-foreseen benefit from the equation, you’ll have to do the same with business as well. And to be fair you’d have to throw the negatives in there as well. After all, what do you suppose the downstream effect has been of big business investments in tobacco and soft drinks, or their resistance to car safety? How much lost productivity and tax money has that cost us?

    Steve, it’s simply undeniable – at least rationally – that government has created jobs, and has very significantly empowered private industry, and continues to do so, and it does not always result in net fewer jobs. Your faith is just faith, it conflicts with reality.

  • This is a statement of faith, not fact. Numerous examples upthread where this is not true. You dismiss DARPANET because “DARPANet wasn’t set up to be used as as it is today.”

    No, I dismiss nothing, I’m trying to point out that you have a handful of examples. A biased sample. Government spending is vast and to pick a few examples that worked out to justify the other bloated wasteful spending is sophistry.

    Alaska wasn’t meant to be a source of oil, but it is, and it’s ouroil because the government bought Alaska.

    So your argument for government spending, to give the TL;DR version is: Luck.

    If you’re going to dismiss every fortuitous but not-originally-foreseen benefit from the equation, you’ll have to do the same with business as well.

    Again, I’m not dismissing anything, what I am pointing out is that sure an unsophisticated look at these things might lead one to say, “Sure, more government spending.” But the problem is that looking at the biggest darling, DARPANet, you see that it wasn’t really the government, but what private firms did with the base idea. All the jobs as a result of the internet aren’t the result of a grand and brilliant government scheme, but the result of people wanting to make a buck. Yes, the government got the ball rolling, but they had absolutely no clue about how it could be used and if left to them they’d never use like it has been used. So at best your argument is, yes government spending…but we can have a huge reduction in what we spend but we’ll just have to focus it better…that efficiency argument you were making a few posts back. Oh and give me an unbiased sample for business and I’ll make the case for zero government regulation.

    Steve, it’s simply undeniable – at least rationally – that government has created jobs, and has very significantly empowered private industry, and continues to do so, and it does not always result in net fewer jobs. Your faith is just faith, it conflicts with reality.

    Ok, you don’t get it either. Here is my point on jobs vs. desirability of government programs. A government program can cost us jobs, on net, but still be desirable. Example: a vaccination program. Taking money for that and funding the program may very well cost us jobs. But the positive external benefit from reduced disease incidence may very well swamp the lost jobs. So a rational policy is: fund the vaccination program. So, in terms of “creating jobs” there is no argument for you there, there is an argument that the benefits aside from jobs are greater than the lost jobs so do it anyways. And we can’t look at just this example and say, “See government spending is everywhere and anywhere a good thing.” Sometimes it is, but I’d argue more often it is due to rent seeking when you get right down to it.

    And it is not faith, it relies on a widely accepted and non-controversial result from micro-economic theory. One backed up by a rigorous mathematical analysis and empirical evidence. Only the very fringe kooks dispute the issue of deadweight loss. Every government program comes with a deadweight loss. So no government program by itself can result in increased economic activity over an above what we’d otherwise get. Still, we might get greater benefits from some of these government programs so they are worth doing. I’m not saying, no government programs, I’m saying most of the are a waste. Even the good ones, like public schools, are seriously fucked up. So much so they are fucking up other stuff seriously too.

    See your problem is a lack of understanding. The benefits from a program like vaccinations isn’t just economic output. It is feeling better by not having a disease. If you have polio you are worse off than if you don’t. If vaccines reduces the incidence of polio or even eliminates it everyone is better off. It is a good thing. And that good thing, all by itself, is probably worth the decrease in jobs.

    Economics is just about money. It isn’t just about making stuff. It is about how to allocate resources so people feel as good as possible…how to maximize welfare of consumers…people. It involves trade offs and government comes with trade offs. And the progressive liberal attitude is one that does not have sufficient appreciation for the downsides, look at you, steve, and Dionne. You are operating under the false belief that government can create more than it costs us in terms of jobs. That simply isn’t true. Now that doesn’t mean we shouldn’t have any government at all, but that government should not be the default solution…which is what we are moving towards. We already use government to allocate a vast amount of private goods…and look it is totally unsustainable (health care).

    I’m not the one with views that are in conflict with reality…its you.

  • Economics is just about money.

    That should read,

    Economics is not just about money.

    Typing too fast….

  • Steve V. touches on something that I’ve posted on here before so I may as well chime in. Steve V. writes:

    Economics is [not] just about money. It isn’t just about making stuff. It is about how to allocate resources so people feel as good as possible…how to maximize welfare of consumers…people.

    When you get right down to it there are only two ways of allocating resources: by market and by fiat. That in general markets allocate resources to maximize welfare is a non-controversial finding of micro-economics. It’s something we shouldn’t be arguing over.

    It is why the Soviets failed, why the Chinese authorities ended up pegging their currency to ours, and why they’re now thrashing with their economy. Command (fiat) economies have fundamental problems. By their very nature they obscure the price signals that are needed to maximize welfare.

    It’s a big part of the problems we’re having with our healthcare system: our healthcare system operates under a command regime.

    Market systems have problems but they don’t have fundamental problems.

    There are reasonable discussions to be had over whether decisions are free or coerced, over the best strategies for managing the money supply, and where there are market failures. But we really shouldn’t be arguing over whether in general the preferred solutions should be market or command.

  • michael reynolds Link

    Steve V:

    Let me just start with this, which I think is the heart of the matter:

    So no government program by itself can result in increased economic activity over an above what we’d otherwise get.

    (My italics)

    By itself. In other words, if the government builds the interstates, that in itself cannot result in net jobs. Ditto GPS and DARPANET, etc… The jobs come from private industry exploiting that new resource.

    And it doesn’t seem to you that you’re describing symbiosis? Interdependence? You’re drawing an arbitrary circle around one part of a symbiosis and pretending that the interdependency is not crucial in both directions. You’re pretending the house doesn’t need the foundation.

    How much of a trucking industry exists sans intestates? How much of Apple and Google goes away without GPS? How much meat would you buy if you knew there was no inspection regime, no law governing public health issues? And how much less would the beef industry be worth? How often would you fly if you thought the airlines were making up their own safety regs, and how much less might that industry be worth?

    Business and government need each other. It’s not just the poor or the helpless who need government, it’s also the Drews of the world, because without government they would have smaller businesses and fewer jobs. No interstates, no secure sea lanes, no safe air travel, no defense against monopolies, no regulations that limit races to the bottom on safety. Those are not just things that make us feel better, those are examples of government making us richer and providing jobs.

    Which is why, when you look around the world, you see that those nations with democratic governments that carry out public works and regulate industry and provide a safety net are also — by amazing coincidence — also the wealthy and productive nations.

    If government is detrimental to business, if it does not add to the capacity of business to create jobs and wealth, then where is your example in the real world? Your theories run smack into reality. There is a 100% overlap between “rich” and “regulated,” and a very high degree of correlation between governments that help with research and with public works and public health etc… and nations that are rich and happy and stable.

    If I’m wrong, show me the place in the real world, that proves it. If the theory is correct, surely there will be several real world examples.

  • sam Link

    @Dave

    “Market systems have problems but they don’t have fundamental problems.”

    Perhaps they don’t, but you’ve argued that without some kind of redistribution a la Social Security, we’d all be a lot poorer than we are now. Apparently a market system alone would result in less wealth all around. And a lot more misery.

  • Icepick Link

    There is a 100% overlap between “rich” and “regulated,” and a very high degree of correlation between governments that help with research and with public works and public health etc… and nations that are rich and happy and stable.

    The Soviet Union was very regulated, and not at all rich. Cuba is exceedingly regulated, and not at all rich. Venezuala is adding more regulations by the day, and is getting poorer as a result. China is getting richer, but they’re still poor when it comes down to it, and a lot of their new wealth is the result of lessening regulatory burden. (That is not a new phenomenon for China. I remember reading a cyclopedia on Chinese history from either Oxford or Cambridge, and some emperors in the past presided over booms brought on by lessening restrictions on business. It’s been almost 25 years since I was reading that stuff, though, so I can’t remember which emperors.)

  • steve Link

    “And it is not faith, it relies on a widely accepted and non-controversial result from micro-economic theory. One backed up by a rigorous mathematical analysis and empirical evidence. Only the very fringe kooks dispute the issue of deadweight loss. Every government program comes with a deadweight loss. So no government program by itself can result in increased economic activity over an above what we’d otherwise get. Still, we might get greater benefits from some of these government programs so they are worth doing. I’m not saying, no government programs, I’m saying most of the are a waste. Even the good ones, like public schools, are seriously fucked up. So much so they are fucking up other stuff seriously too.”

    I actually agree with most of this. I have not meant to imply that a vaccination program by itself creates jobs. It adds sufficient value that it is worth it. It frees up monies that would otherwise have been spent on medical care, and it increases or saves human capital. That capital is what can lead to the creation of new jobs.

    “Economics is just about money. It isn’t just about making stuff. It is about how to allocate resources so people feel as good as possible…how to maximize welfare of consumers…people. It involves trade offs and government comes with trade offs. And the progressive liberal attitude is one that does not have sufficient appreciation for the downsides, look at you, steve, and Dionne. You are operating under the false belief that government can create more than it costs us in terms of jobs. That simply isn’t true. Now that doesn’t mean we shouldn’t have any government at all, but that government should not be the default solution…which is what we are moving towards. We already use government to allocate a vast amount of private goods…and look it is totally unsustainable (health care).”

    Imagine no public schools, no police and no fire departments. Travel the world or read history and you do not really have to imagine. Without critical government institutions, you have very little sustained economic activity. Indisputable. I would also agree that too much government destroy economic activity. So where is the goldilocks point? I would submit that in our democracy we have done a pretty good job figuring that out. (I should probably admit that I believe in the concept of positive liberty, but I guess it is obvious.) We have been willing enough, smart enough, or maybe a democracy works as its own kind of ideological market that we were willing to let govt spend on basic research, to spend on vaccination programs, to start a space program and to spend on modernizing agriculture.

    So what is our problem now? Thank you for the health care reference. Take away the health care issue, and government is sustainable. (Costs are rising just as fast in the private sector, so it is unsustainable there also.) Solve health care, and we are back at our revenues matching our spending. Our problem is not overly expansive government, it is health care costs spiraling out of control.

    As a bonus, put government employees in defined contribution plans and figure out a way to keep the banks from crashing our economy, and we are sustainable and competitive for a long time.

    Steve

  • Michael,

    You are still working off of a biased sample.

    Let me pick 10 examples of business doing great stuff and will you then conclude that there should be zero government regulation? Of course you wouldn’t. You’d be stupid too.

    Stop presuming the rest of us are stupid. Government, by itself does not create jobs. That was the premise that Dave selected. I think it has been shown that such a premise is true.

    Sometimes the government stumbles upon a good idea and does it anyways and very good things follow. But taking that argument as some sort of argument in favor or massive spending increases is just simply foolish. That is why I pointed out that many of the wonderful policies and programs you point too as “successes” were successes almost by accident. Lets build a national highway system for national defense purposes….oh wow, the worked out great! Look how it enhanced interstate commerce. Lets implement the DARPANet on a nationwide scale, could be useful for the military (the earliest domain names were .mil, btw). Oh, wow, look what it has done…revolutionize communications, brought about online commerce, made logistics easier, and created lots and lots of jobs. All by good luck. How many other programs was money spent on that went precisely nowhere or ended up with bridges to nowhere and other crap? I know lets build another international airport in Southern California…we have something like 4 already, but surely we could use a 5th and 6th…maybe a 7th. That is what Japan did, and now those international airports sit pretty much empty. And guys like Krugman tells us Japan didn’t spend enough….please.

    Which is why, when you look around the world, you see that those nations with democratic governments that carry out public works and regulate industry and provide a safety net are also — by amazing coincidence — also the wealthy and productive nations.

    I’d argue you have cause and effect backwards. Our government was very weak until around 1935ish or so. We became quite well off prior to that despite the weakness. And even many policies you see today really didn’t start gaining serious traction until maybe a decade or two later. Medicare itself took about another 30 years to materialize. I’d argue it was the accumulation of wealth and a strong stable market based economy that allowed us to pursue many of these policies….these policies are, in effect, luxury items. Which is why if you tried to implement them in developing countries it would probably be a spectacular mess. Even Paul Krugman, back when he was sane, made a somewhat similar argument (link). He was talking about wages and labor standards which falls in the policies and programs you are talking about.

    If government is detrimental to business, if it does not add to the capacity of business to create jobs and wealth, then where is your example in the real world? Your theories run smack into reality.

    See Dave and Icepick’s comments. Both are good on this point.

  • steve,

    Imagine no public schools, no police and no fire departments.

    No. No I wont, because I’m not arguing for that…well okay, maybe the police as they are becoming little better than highway robbers and thugs themselves, but not the rest.

    Hmmm, and on further thought we might not have public schools either, but if that comes about it will probably be due to government screwing that up so much that we simply wont be able to afford them. Wait…weren’t you telling me about creating jobs?

    Solve health care, and we are back at our revenues matching our spending. Our problem is not overly expansive government, it is health care costs spiraling out of control.

    Not hardly. We still have massive amounts of spending going on. Our current deficits are not due entirely to health care. And for the states pension plans are a big, big problem too.

    As a bonus, put government employees in defined contribution plans and figure out a way to keep the banks from crashing our economy, and we are sustainable and competitive for a long time.

    Like I said…government is non-rational. Good luck with the above. I have no hope of either of those things happening. Really, it is why I don’t vote anymore (pointless) and have cut way back on blogging (too depressing). I find it much more enjoyable to play World of Tanks. I get to blow stuff up and relieve stress and tune out all this depressing news, and I recently unlocked the Panther II…awesome tank.

  • Ok, I think there’s a pretty big distinction between the proximate and distal factors in “creating” a job. While it’s true that a lot of jobs would not exist without services provided by government, that doesn’t, it seems to me, suggest that government “created” those jobs.

    So while I agree that a lot of the things mentioned by steve and Michael are important (even buying Alaska), those are so far down the causality chain that I think it’s a pretty big stretch to say, for example, that jobs in Alaska were “created” by government. And Steve V’s point about serendipity is well said – GPS, ARPANET, the Space program, etc. were not intended to be “jobs” programs – they were intended to solve military problems (the first two) or were part of a political competition with the Soviets. The point is that the benefits of those program are not reliably replicable – government can’t sit down and intentionally invent something like the internet.

    So job creation is, in my view, actually hiring people and I think that it was EJ Dionnne was talking about and was the point of Dave’s post, ie. government creating jobs is government hiring workers. And as someone who gets his bread buttered by government funds, I think it’s true that society would be marginally more productive if me and my wife worked in the private sector. The reality, though, is that a military along with police, and other things are necessary and so we have to pay for those even though it’s a net economic loss.

  • steve Link

    “even though it’s a net economic loss.”

    But at some point, it is not. Or, maybe it is just a coincidence that countries w/o functional government, including police and teachers, have very poor economic output. Didnt the military have you travel?

    Steve

  • steve,

    Yeah, I’ve been in a lot of third-world shitholes – I know what that’s like.

    Let me put it this way. Government is like sleep. If I didn’t sleep I wouldn’t last very long and therefore I couldn’t get anything done. But sleep, by itself, isn’t a productive activity (I can’t make widget in my sleep for example) even though it enables me to be productive during my non-sleep hours by keeping me sane. Also, if I sleep 24 hours everyday my productivity drops to zero. On the other hand, if I didn’t need sleep I could be a lot more productive because I would have a lot more time to make widgets or do some other productive activity. Same concept with government.

  • I think net economic loss is a bit strong. I think we can have a net positive gain, economically speaking, from some government programs. Limiting the discussion to just jobs….no. Granted in some cases government might stumble across a jobs goldmine, but that is more by luck than by design. Nobody working on DARPANet sat there saying, this will be a huge source of jobs in the future. Same with GPS and many of the other examples.

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