Thursday, October 25, 2012

Whose on the Flat-Earth

I just read what is probably the daftest refutation of an article I have ever read. Robert Samuelson claims that a New York Times gets it wrong when the New York Times claims that government creates jobs.  This is a perfect example of what I was writing about yesterday, the upside down Marxism where there are scientific economic laws that must never be tampered with.

The Times claims:
Government does create jobs, including “teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats. ...” There are 22 million federal, state and local workers, notes the Times.

Samuelson goes on to claim that:
Case closed, it asserts. And it’s true that, legally, government does expand employment. But economically, it doesn’t — and that’s what people usually mean when they say “government doesn’t create jobs.”
What the Times omits is the money to support all these government jobs. It must come from somewhere — generally, taxes or loans (bonds, bills). But if the people whose money is taken via taxation or borrowing had kept the money, they would have spent most or all of it on something — and that spending would have boosted employment.Job creation in the private sector is mostly a spontaneous and circular process. People buy things they need and want. Or businesses and private investors take risks by investing in new products, technologies and factories. All this spending, driven by self-interest and the profit motive, supports more jobs. In a smoothly functioning market economy, the process feeds on itself. By contrast, public-sector employment grows only when government claims some private-sector income to pay its workers. Government is not creating jobs. It’s substituting public-sector workers for private-sector workers.
This is the stupidest* thin I have read in a long time. In what possible way does the government taking money and spending it differ from an insurance company, bank, or other private business and then spending it? At worst, government job creation is no better than private job creation. Taken to its logical extension however, it is impossible to see how Samuelson's objection applies, after all, if government can't create jobs by participating in this completed loop, how can any other actor that takes money out of the system and puts it back in? Either the government is at least as good as other actors, or growth is impossible and it is all a closed loop that should exist in a static state.

However, this isn't the end of the problems with Samuelson's logic. Many jobs created by government spending are on behalf of people who are income constrained. Without government there would still be teachers, after all even as far back as Rome the wealthy were hiring tutors for their children. However, many people that are being taught today would not be being taught if it were up to market mechanisms (sure religious schools would partially fill the gap, but these never succeeded in creating universal private education before state intervention). These jobs would simply not exist if the market were not interfered with.

Perhaps the wealthy would be spending even more money if it wasn't taxed to pay for teachers for the poor, but it is impossible for me to see that we would have the same level of expenditure in the economy if the market were left to itself. I would also doubt that we would see the same level of growth or the same level of employment, not to even mention inequality. In short, looking at the education system alone, the government is simply not swapping teachers for goldsmiths; in addition to recycling the money in the same fashion the market does it provides goods for income constrained people leading to greater efficiencies and employment than could be provided through the market alone. Without this intervention income and market power would flow towards the top leaving a narrower sector to have its demands filled and thus lower overall transfers in society, leading to lower employment and growth as more money sits idle and less is spent on those that are income constrained and have more unmet demand.

This isn't even to get into other sectors that the market underinvests in like police, basic research, or fire fighters or sectors that are just more efficient if run by the state, like soldiers (absent government private armies continue to exist which can repel foreign invaders but it creates rather inefficient social dynamics). Without government spending to create jobs we would look like what most primitive economies look like, a market sector which only a narrow elite act within and a much larger subsistence sector (with some crossover into the market) which dominates most people's daily lives, think the poorer parts of Africa.

Now, it is of course true that at the margins during periods of high employment government spending can crowd out private investment, which seems to be what Samuelson is trying to get at in a very confused way,** but in reality this is the narrowly specific case, not the argument the NYT is advancing. This is the kind of stupidity that market fundamentalism gets you into, and it is just as bad as Marxism. Ideology leads people into saying things that are really stupid on the face of it, and not realizing this is so because they are so steeped in the logic of their cramped and narrow worldview.

* I generally don't like ad-hominems, but really this column is unbelievably absurd. If he hadn't packaged it as a refutation of a NYT op-ed (admittedly not a great one), and if I hadn't been writing about market fundamentalism yesterday, I probably wouldn't have bothered but this clear example of the kind of blind stupidity this kind of philosophy leads to forced me to comment. This is as daft a view as anything written by ardent communists, it makes the obviously absurd appear as obviously true to its adherents. I can't believe this guy got paid to write this drivel.

** In addition to having to assume 100% crowding out we would also have to assume strict Ricardian equivalence. To understate the case, these are not plausible assumptions.

[Update: I see someone else finds Robert Samuelson's hopeless confusion to be worth commenting on.]

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