Should the government create jobs?

In a recent podcast, discussing President-Elect Trump’s economic policy, Ben Shapiro said it wasn’t the government’s function to create jobs. It was mentioned a bit in passing, and I felt the comment deserved a little deeper look.

We often hear politicians say something along the lines of “in my administration we are going to create jobs” or “I’m the jobs President”. We also know that politicians are notorious liars.
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In most modern democracies, the vast majority of jobs are in the private sector; around 80% of employment is generated privately. Also, government employment, is financed almost exclusively by contributions from the private sector. Essentially, it’s  money that is taken from citizens and businesses that could be used to create jobs. Although it’s not directly a zero-sum game, because the government also buys things from the broader economy, sending that money back into the economy and arguably creating jobs. However, the impact of government employment is marginal on overall job creation.

Since the government doesn’t directly control businesses, it’s hard to argue that a President/Prime Minister can “create jobs”. That’s what businesses do.

It’s also important to distinguish between employment and self-employment. A business owner might not be employed, but that doesn’t mean he doesn’t have a job (he’s not “unemployed”). Businesses just by their mere existence create jobs, if at the very least for the owner of the business.

BUFFETT CREDIT

Warren Buffett doesn’t have a job, but he’s not exactly unemployed…

A certain amount of unemployment is natural and expected within a properly-functioning economy. One, because businesses are routinely turning over, as innovation and new systems replace obsolete practices. Secondly, there are always people looking for better wages and opportunities. And third, there are always new people entering the workforce, whether it’s because they are returning after taking a hiatus, or coming of age. This expected level of unemployment is called “structural” and it varies according to circumstances.

Left to our own devices, we as people will naturally try to find jobs; and if there are no jobs available, create one for ourselves. Consequently, an economy with no government intervention will naturally trend towards full employment.

However, an economy that is not regulated tends to be unstable; so while overall growth will be higher, performance will be erratic. This will make employment less stable, so even though overall more people will be employed, their jobs will be less secure. It’s common for unregulated economies to not only reach structural unemployment, but to go beyond that – and this excess creation of wealth contributes to the bigger “shock” recession that happens afterward.

So, in practice, governments don’t create jobs; they hold back job creation through regulation in order to maintain economic stability. This is a trade-off we as a society are willing to make, as a general rule, so we can have better planning for the future. It’s easier, for example, to take out a mortgage or a college loan if you can reasonably expect to be making a similar amount of money for the next several years.

Because, remember, having a job is one thing; getting paid as much as you were at the last job is another. Many people lose their jobs during the recession, and quite quickly find new employment – but at a lower income (whether that’s through a salary or reforming their business, or losing a business to take on a salary, or losing a salary and starting a business).

When a politician says they are going to “create jobs”; what they actually mean is that they are going to step aside and let businesses create jobs. A politician who actively starts meddling with the economy under the guise of “creating jobs” is not necessarily improving employment; after all, if there is demand for a person’s work, they will have a job. Creating artificial demand is precisely what leads to recession, because that’s how we build excess within the economy. Stopping someone from working so they become unemployed, and then offering them a job is not actually creating jobs.

The idea that a President can “create jobs” is just half of what is going on; during their administration, and thanks to their efforts, jobs can be created. But those jobs would have most likely existed anyway if the government hadn’t intervened previously in such a way that jobs were not allowed to be created.

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